<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1996.
REGISTRATION NO. 333-5055
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------------
EARTHLINK NETWORK, INC.
(Exact Name of Issuer as specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 4825 95-4582245
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
3100 NEW YORK DRIVE, PASADENA, CALIFORNIA 91107
(818) 296-2400
(Address and Telephone Number of Principal Executive Offices)
--------------------------
BARRY W. HALL, CHIEF FINANCIAL OFFICER
EARTHLINK NETWORK, INC.
3100 NEW YORK DRIVE
PASADENA, CALIFORNIA 91107
(818) 296-2400
(Name, address and telephone number of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
Scott M. Hobby, Esq. Alan K. Austin, Esq.
J. Stephen Hufford, Esq. Brian C. Erb, Esq.
W. Tinley Anderson, III, Esq. Thomas I. Savage, Esq.
Hunton & Williams Wilson, Sonsini, Goodrich & Rosati
NationsBank Plaza, Suite 4100 A Professional Corporation
600 Peachtree Street, NE 650 Page Mill Road
Atlanta, Georgia 30308 Palo Alto, California 94304
(404) 888-4000 (415) 493-9300
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EARTHLINK NETWORK, INC.
CROSS REFERENCE SHEET PURSUANT TO
ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NO. FORM S-1 CAPTION CAPTION OR LOCATION IN PROSPECTUS
- -------- ------------------------------ --------------------------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus..... Facing Page; Cross Reference Sheet;
Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus.... Inside Front Cover Page; Outside Back
Cover Page
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges............. Prospectus Summary; Risk Factors
4. Use of Proceeds............... Use of Proceeds
5. Determination of Offering
Price........................ Underwriting
6. Dilution...................... Dilution
7. Selling Security Holders...... Not Applicable
8. Plan of Distribution.......... Underwriting
9. Description of Securities to
be Registered................ Description of Capital Stock
10. Interest of Named Experts and
Counsel...................... Not Applicable
11. Information with Respect to
the Registrant............... Prospectus Summary; Risk Factors;
Dividend Policy; Capitalization;
Selected Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain
Transactions; Principal Stockholders;
Financial Statements
12. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities.................. Not Applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 27, 1996
3,600,000 SHARES
[LOGO]
COMMON STOCK
------------------
All of the 3,600,000 shares of Common Stock offered hereby are being
sold by EarthLink Network, Inc. ("EarthLink" or the "Company"). Prior to this
Offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$10.00 and $12.00 per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. The Common
Stock has been approved for quotation on the Nasdaq National Market under the
symbol "ELNK."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 5.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share......................... $ $ $
Total (3)......................... $ $ $
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $ .
(3) The Company has granted the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 540,000 additional shares of
Common Stock on the same terms as set forth above, solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public will be $ , the Underwriting Discounts and Commissions will be
$ and the Proceeds to Company will be $ . See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1996.
------------------------
UBS SECURITIES
PIPER JAFFRAY INC.
CRUTTENDEN ROTH
INCORPORATED
, 1996
<PAGE>
[GATEFOLD PAGES SHOWING VARIOUS SCREEN IMAGES FROM THE EARTHLINK NETWORK
WORLD WIDE WEB SITE, SCREENS FROM THE EARTHLINK REGISTRATION SOFTWARE AND
PICTURES OF PRODUCTS WITH WHICH THE EARTHLINK NETWORK TOTALACCESS SOFTWARE
PRODUCT IS BUNDLED AND OFFERED BY VARIOUS OF THE COMPANY'S AFFINITY MARKETING
PARTNERS]
2
<PAGE>
PROSPECTUS SUMMARY
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS.
THE COMPANY
EarthLink Network, Inc. ("EarthLink" or the "Company") is a leading branded
provider of reliable, easy-to-use Internet services. The Company facilitates and
enhances the quality and productivity of its customers' Internet experience by
providing capabilities which enable its customers to navigate and exploit the
resources of the Internet. EarthLink has grown from approximately 30,000
customers at the end of 1995 to approximately 100,000 customers at the end of
May 1996.
International Data Corporation ("IDC") estimates that the number of Internet
users was approximately 56 million at the end of 1995 and that this number will
reach approximately 200 million by the end of 1999. This growth, combined with
the emergence of the World Wide Web, the graphical, multimedia environment of
the Internet, has resulted in the development of the Internet as a new mass
communications medium. However, current limitations of Internet service
providers ("ISPs") and traditional on-line service providers, combined with the
volume and lack of organization of the information contained on the Internet,
have precluded non-technical users from fully enjoying expanding Internet
resources. The Company believes that the next phase of growth in the Internet
services market will require providers to address the needs of non-technical
users and to shift from providing network infrastructure and undifferentiated
access to providing value-added, distinct services which build customer
satisfaction and loyalty.
EarthLink's services and products are designed to address these needs by (i)
focusing on the customer's need for speed, reliability and support in gaining
access to the Internet; (ii) transforming the resources of the Internet into
information, education, communication, entertainment and a sense of community;
and (iii) leveraging the infrastructure and software development investments of
third parties in order to focus the Company's efforts on providing the customer
with a useful and enjoyable Internet experience. The Company provides its
services through its EarthLink Network TotalAccess software package, a tool that
enables Internet access via an open, non-proprietary architecture. In addition,
the Company provides a variety of Internet services tailored to enhance its
customers' Internet experience, including the EarthLink Web site, with more than
800 pages of content and information, an EarthLink on-line store and on-line
multi-player gaming.
EarthLink has taken a strategic approach to network development. To increase
its national presence while minimizing capital costs, the Company leases
nationwide points-of-presence ("POPs") from UUNET Technologies, Inc. ("UUNET"),
while maintaining the flexibility to establish Company-owned POPs in those
geographical areas in which there is a sufficient concentration of customers to
support such investment. This approach permits the Company to focus on meeting
customer needs rather than on managing network infrastructure.
The Company markets its services through multiple distribution channels,
including affinity marketing partnerships, customer referrals and promotional
programs. The Company has established strategic relationships with approximately
90 affinity marketing partners through which the Company has expanded the reach
of its marketing efforts. The Company works with these leading media and
consumer products companies to promote and distribute EarthLink's services. The
Company believes that these relationships provide a cost-effective means by
which the Company can enhance the EarthLink brand. For example, Macmillan
Publishing USA bundles EarthLink Network TotalAccess software with several
Internet-related book titles. Other affinity marketing partners include
Activision, CNN Interative, Columbia TriStar and Graphix Zone.
The Company was incorporated as a California corporation in May 1994 and
reincorporated as a Delaware corporation in June 1996. The terms "EarthLink" and
the "Company" as used herein refer to EarthLink Network, Inc., a California
corporation, and, where applicable, its Delaware successor. The Company's
principal executive offices are located at 3100 New York Drive, Pasadena,
California 91107. The Company's telephone number is (818) 296-2400, and its
World Wide Web address is http:// www.earthlink.net. Information contained on
the Company's World Wide Web site shall not be deemed to be a part of this
Prospectus.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered.......................... 3,600,000 shares
Common Stock Outstanding after this
Offering...................................... 15,570,465 shares (1)
Use of Proceeds............................... To finance enhancements to the Company's
network infrastructure, to fund new service
and product introductions, to finance
potential acquisitions, and for working
capital and other general corporate pur-
poses.
Nasdaq National Market Symbol................. ELNK
Risk Factors.................................. The Common Stock offered hereby involves a
high degree of risk. See "Risk Factors."
</TABLE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
INCEPTION THREE MONTHS ENDED
(MAY 26, 1994) YEAR ENDED ----------------------------------
THROUGH DECEMBER 31, MARCH 31, MARCH 29,
DEC. 31, 1994 1995 1995 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.............................. $ 111 $ 3,028 $ 183 $ 3,418
Loss from operations........................ (148) (6,018) (252) (4,788)
Net loss.................................... (148) (6,120) (271) (4,869)
Net loss per share (2)...................... $ (0.01) $ (0.47) $ (0.02) $ (0.35)
------- ------- ------- -------
------- ------- ------- -------
Weighted average shares
outstanding (2)............................ 11,716 13,159 12,594 13,717
</TABLE>
<TABLE>
<CAPTION>
MARCH 29, 1996
------------------------------
AS ADJUSTED
ACTUAL (3)
-------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)......................................................... $ (3,016) $ 33,190
Total assets...................................................................... 8,878 45,084
Total liabilities................................................................. 7,081 7,081
Accumulated deficit............................................................... (9,876) (9,876)
Stockholders' equity.............................................................. 1,797 38,003
</TABLE>
- -------------
(1) Based on shares of Common Stock outstanding as of May 31, 1996. This amount
excludes (i) 1,822,750 shares of Common Stock subject to options outstanding
under the Company's 1995 Stock Option Plan at a weighted average exercise
price of $3.51 per share, (ii) 1,871,218 shares of Common Stock subject to
outstanding warrants and non-plan stock options at a weighted average
exercise price of $1.79 per share, (iii) 677,250 and 125,000 shares of
Common Stock reserved for future grant of options under the Company's 1995
Stock Option Plan and Directors Stock Option Plan, respectively, and (iv)
920,003 shares of Common Stock reserved for future issuance pursuant to
warrants that the Company has made commitments to issue. See
"Capitalization," "Management -- 1995 Stock Option Plan," "Management --
Directors Stock Option Plan," "Description of Capital Stock" and Notes 7 and
11 of Notes to Financial Statements.
(2) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of weighted average shares outstanding used in
the net loss per share computation.
(3) Adjusted to reflect the sale of the 3,600,000 shares of Common Stock offered
hereby and receipt by the Company of the estimated net proceeds therefrom.
See "Use of Proceeds" and "Capitalization."
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED. SEE "UNDERWRITING." IN
JANUARY 1996, THE COMPANY CHANGED ITS FISCAL YEAR SUCH THAT IT ENDS ON THE LAST
FRIDAY OF DECEMBER OF EACH YEAR.
"EARTHLINK NETWORK-REGISTERED TRADEMARK-," "EARTHLINK NETWORK
TOTALACCESS-TM-" AND THE EARTHLINK LOGO ARE TRADEMARKS OF THE COMPANY. THIS
PROSPECTUS INCLUDES TRADEMARKS OF COMPANIES OTHER THAN THE COMPANY.
4
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS
PROSPECTUS. PROSPECTIVE INVESTORS IN THE SHARES OFFERED HEREBY SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES AND EXPECTATIONS OF FUTURE LOSSES
The Company was founded in May 1994 and began offering its services in July
1994. Accordingly, the Company has only a limited operating history upon which
an evaluation of its prospects can be made. Such prospects must be considered in
light of the substantial risks, expenses and difficulties encountered by new
entrants into the Internet services industry. The Company has experienced net
losses in each quarter since it commenced operations and had net losses of
approximately $6.3 million from inception through 1995 and of approximately $4.9
million for the three months ended March 29, 1996. As of March 29, 1996, the
Company had an accumulated deficit of approximately $9.9 million (exclusive of
$1.3 million of losses incurred while the Company was an S Corporation for tax
purposes, which, upon the Company's conversion to C Corporation status in June
1995, were charged to the Company's capital accounts). The Company expects that
it is likely to continue to incur net losses at least through the end of 1997 as
it continues to expend substantial resources to build its infrastructure,
develop new service and product offerings and build its sales and marketing and
administrative organizations. There can be no assurance that the Company will
achieve or sustain profitability or positive cash flow from its operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
COMPETITION
The Internet services market in which the Company operates is extremely
competitive, and the Company expects competition in this market to intensify in
the future. The Company's current and prospective competitors include many large
companies that have substantially greater market presence and financial,
technical, marketing and other resources than the Company. The Company competes
(or in the future is expected to compete) directly or indirectly with the
following categories of companies: (i) national and regional ISPs such as Bolt
Beranek & Newman, Inc. ("BBN"), IDT Corporation ("IDT"), MindSpring Enterprises,
Inc. ("MindSpring"), Netcom On-line Communication Services, Inc. ("NETCOM"),
PSINet, Inc. ("PSINet") and UUNET; (ii) established online services companies
such as America Online, Inc. ("America Online"), CompuServe Incorporated
("CompuServe") and Prodigy Services Company ("Prodigy"); (iii) computer software
and technology companies such as Microsoft Corporation ("Microsoft"); (iv)
national telecommunication companies such as AT&T Corp. ("AT&T"), MCI
Communications Corporation ("MCI") and Sprint Corporation ("Sprint"); (v)
regional Bell operating companies ("RBOCs"); (vi) cable operators such as
Comcast Corporation ("Comcast"), Tele-Communications, Inc. ("TCI") and Time
Warner, Inc. ("Time Warner"); and (vii) nonprofit or educational Internet
service providers.
Many established online services companies and telecommunication companies
have recently announced plans to introduce or expand their Internet services.
The Company expects that a significant number of major telecommunication, cable,
media, software and hardware companies, as well as all of the major online
services companies, will eventually compete fully in the Internet services
market, and that their entry into this market will result in substantially
greater competition for the Company. The ability of these competitors or others
to bundle services and products with Internet connectivity services could place
the Company at a significant competitive disadvantage. In addition, competitors
in the telecommunication industry may be able to provide customers with reduced
communication costs in connection with their Internet access services, reducing
the overall cost of Internet access and significantly increasing pricing
pressures on the Company. There can be no assurance that the Company will be
able to offset the effects of any necessary price reductions resulting from such
pricing pressures with an increase in the number of its customers, higher
revenue from enhanced services, cost reductions or otherwise.
5
<PAGE>
Competition in the Company's market is also expected to focus increasingly
on overseas markets where Internet services are just beginning to be introduced.
There can be no assurance that the Company will be able to increase its presence
in overseas markets. To the extent that the ability to provide Internet services
overseas becomes a competitive advantage in the Internet services industry, the
failure of the Company to penetrate overseas markets may result in the Company
being at a competitive disadvantage relative to other Internet access providers.
The Company believes that its ability to compete successfully in the
Internet services market depends on a number of factors, including market
presence; the adequacy of the Company's customer support services; the capacity,
reliability and security of its network infrastructure; the ease of access to
and navigation of the Internet provided by the Company's services; the pricing
policies of the Company, its competitors and its suppliers; the timing of
introductions of new services and products by the Company and its competitors;
the Company's ability to support existing and emerging industry standards; and
industry and general economic trends. There can be no assurance that the Company
will have the financial resources, technical expertise or marketing and support
capabilities to compete successfully. See "-- New and Uncertain Market;
Dependence on Continued Growth in Use of the Internet," "-- Dependence on
Network Infrastructure; Capacity; Risk of System Failure; Security Risks," "--
Dependence on Affinity Marketing and Distribution Relationships" and "Business
- -- Competition."
MANAGEMENT OF POTENTIAL GROWTH; NEW MANAGEMENT TEAM
The Company's recent growth has placed, and is expected to continue to
place, a significant strain on its managerial, operational and financial
resources. To manage any future growth, the Company must continue to implement
and improve its operational and financial systems and to expand, train and
manage its employee base. As of December 31, 1995 and May 31, 1996, the Company
had 196 and 376 full-time employees, respectively. In addition, nearly all
members of the Company's senior management have only recently joined the
Company. These individuals have not previously worked together and are in the
process of being integrated into a management team. The Company anticipates that
its recent growth will require it to recruit and hire a substantial number of
new technical, sales, marketing, financial and executive personnel. There can be
no assurance that the Company will be able to effectively manage the expansion
of its operations, or that the Company's infrastructure, facilities, systems,
procedures or controls will be adequate to support the Company's operations. The
inability of the Company to effectively manage its future growth could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Demand on the Company's network infrastructure, technical staff and
resources has grown rapidly with the Company's expanding customer base, and the
Company has in the past experienced difficulties satisfying the demand for its
Internet services. There can be no assurance that the Company's infrastructure,
technical staff and resources will be adequate to facilitate the Company's
growth. In addition, delays have occurred in establishing Internet accounts for
the Company's customers, and customers in the past have experienced significant
delays in contacting, and in receiving responses from, the Company's customer
and technical support personnel. There can be no assurance that the Company will
be able to establish accounts or provide customer support on a timely basis, or
that any delays will not result in a loss of customers. The Company believes
that its ability to provide timely access for customers and adequate customer
support will largely depend on its ability to attract, identify, train,
integrate and retain qualified personnel. Failure to provide adequate customer
support services will adversely affect the Company's ability to increase its
customer base and reduce its customer cancellation rate, and could therefore
have a material adverse effect on the Company's business, financial condition
and results of operations. See "-- Dependence on Network Infrastructure;
Capacity; Risk of System Failure; Security Risks," "-- Dependence on Key
Personnel," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview" and "Business -- Employees."
6
<PAGE>
DEPENDENCE ON UUNET
As of May 31, 1996, the Company maintained 19 Company-owned POPs and
provided Internet access through an additional 284 UUNET POPs. The Company
relies on UUNET to continue to allow the Company's customers to access the
Internet through UUNET's system of POPs. The Company's current agreement with
UUNET expires in December 1996 and is renewable for additional one-year terms
unless 60 days' prior written notice of termination is given by either party.
UUNET's inability or unwillingness to provide POP access to the Company's
customers, or the Company's inability to secure alternative POP arrangements,
could limit the Company's ability to provide Internet access to its customers,
and could, in turn, have a material adverse effect on the Company's business,
financial condition and results of operations.
UUNET recently announced that it has agreed to be acquired by MFS
Communications Company, Inc. ("MFS"), a supplier of local and long distance
telephone service. There can be no assurance that, following the expiration of
the Company's current agreement with UUNET, MFS or UUNET will continue to
provide the Company with POP access or that such access, if provided, will be
available to the Company on acceptable terms.
The Company's customers generally pay a fixed monthly fee for the Company's
Internet services. Under the Company's agreement with UUNET, the Company pays to
UUNET a fixed monthly fee per customer plus a variable amount based on customer
usage in excess of a threshold number of hours per month. The Company has
recently experienced increasing average per-customer usage of its Internet
services by customers accessing the Internet through UUNET. If this trend
continues and the average per-customer monthly usage exceeds the threshold
number of hours, the Company's operating margins will be adversely affected,
which could, in turn, have a material adverse effect on the Company's business,
financial condition and results of operations. See "-- Dependence on Network
Infrastructure; Capacity; Risk of System Failure; Security Risks," "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Results of Operations -- Cost of Revenues," "Business -- Services and Products"
and "-- Customers, POPs and Network Infrastructure."
FACTORS AFFECTING OPERATING RESULTS; POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's operating results have fluctuated significantly in the past
and will likely continue to fluctuate significantly in the future as a result of
a variety of factors, many of which are beyond the Company's control. These
factors include the rates of and costs associated with new customer acquisition,
customer retention, capital expenditures and other costs relating to the
expansion of operations, the timing of new service and product announcements,
changes in the pricing policies of the Company and its competitors, market
acceptance of new and enhanced versions of the Company's services and products,
changes in operating expenses, including telecommunication costs, changes in the
Company's strategy, personnel changes, the introduction of alternative
technologies, the effect of potential acquisitions, increased competition in the
Company's markets and other general economic factors. In addition, a relatively
large portion of the Company's expenses are fixed, and therefore the Company's
operating margins are particularly sensitive to fluctuations in revenues. Due to
these factors, in some future quarter the Company's operating results may fall
below the expectations of securities analysts and investors. In such event, the
market price of the Company's Common Stock would likely be materially and
adversely affected.
In May 1996, the Company entered into an agreement with National Media
Corporation ("NMC"), a producer of infomercials and commercials, pursuant to
which NMC will produce and broadcast 15-second and 60-second commercials for
EarthLink's services and products. Under this agreement, in addition to certain
fees payable to NMC, the Company has agreed to issue NMC warrants to purchase up
to 700,000 shares of Common Stock, depending on the number of customers
generated by this relationship. The exercise price of any warrants earned
through December 31, 1997 will be $4.88 per share, and thereafter the exercise
price will be the fair market value of the Common Stock on the date of grant.
Upon issuance of the warrants, the Company will be required to record in the
quarter in which such warrant is issued a non-cash charge against earnings in an
amount equal to the fair value of the warrant on the date of grant. The Company
anticipates
7
<PAGE>
that, based on its obligation to NMC to issue a fixed number of warrants upon
completion of production and approval of the commercials, it will issue 100,000
of these warrants to NMC in the third quarter of 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Potential Fluctuations in Quarterly Results."
DEPENDENCE ON NETWORK INFRASTRUCTURE; CAPACITY; RISK OF SYSTEM FAILURE; SECURITY
RISKS
The future success of the Company's business will depend on the capacity,
reliability and security of the Company's network infrastructure, including the
POP sites leased by the Company from UUNET. The Company will be required to
expand and adapt this network infrastructure as the number of customers and the
amount and type of information its customers communicate over the Internet
increases. Such expansion and adaptation may require substantial financial,
operational and management resources. There can be no assurance that the Company
will be able to expand or adapt its network infrastructure to meet any
additional demand or changing customer requirements on a timely basis or at a
commercially reasonable cost, if at all.
Capacity constraints have occurred, and may occur in the future, both at the
level of particular POPs (affecting only customers attempting to use that
particular POP) and in connection with system-wide services (such as email and
news services, which can affect all customers). From time to time, the Company
has experienced delayed delivery from suppliers of new telephone lines, modems,
terminal servers and other equipment. Any severe shortage of new telephone
lines, modems, terminal servers or other equipment could result in incoming
access lines becoming full during peak times, causing busy signals for customers
who are trying to connect to the Internet. Similar problems may occur if the
Company is unable to expand the capacity of its information servers quickly
enough to keep pace with demand from the Company's expanding customer base. If
the capacity of such servers is exceeded, customers will experience delays when
trying to use a particular service. Further, if the Company does not maintain
sufficient capacity in its network connections, customers will experience a
general slow-down of all services on the Internet. Any failure of the Company to
expand or enhance its network infrastructure on a timely basis, or to adapt it
to an expanding customer base, changing customer requirements or evolving
industry standards could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's operations are dependent on its ability to protect its
computer equipment against damage from fire, earthquake, power loss,
telecommunication failure and similar events. The occurrence of a natural
disaster or another unanticipated problem at the Company's headquarters, network
hub or at a number of the POPs through which customers connect to the Internet
could cause interruptions in the services provided by the Company. The Company's
computer equipment, including critical equipment dedicated to its Internet
services, is located in Los Angeles and Pasadena, California. The Company
intends to relocate its facilities located in Los Angeles to its headquarters in
Pasadena, California in the near future. The risks associated with such a move
include loss of data, loss of system integrity and the risk of system failure.
The occurrence of any of these events could have a material adverse effect on
the Company's ability to provide Internet services to its customers, and, in
turn, on the Company's business, financial condition and results of operations.
In addition, failure of the Company's telecommunication providers to provide the
data communications capacity required by the Company as a result of a natural
disaster, operational disruption or for any other reason could cause
interruptions in the services provided by the Company. See "Business --
Facilities."
The Company's infrastructure is vulnerable to computer viruses and other
similar disruptive problems caused by its customers, other Internet users or
other third parties. Computer viruses and other problems could lead to
interruptions, delays in or cessation of service to the Company's customers, as
well as corruption of the Company's or its customers' computer systems.
Inappropriate use of the Internet by third parties could also potentially
jeopardize the security of confidential information stored in the computer
systems of the Company or those of its customers, which may cause losses to the
Company or its customers, or deter certain persons from using the Company's
services. The Company expects that its customers may increasingly use the
Internet for commercial transactions in the future. Any network malfunction or
security breach could cause these transactions to be delayed, not completed or
completed with compromised security. Alleviating problems
8
<PAGE>
caused by computer viruses or other inappropriate uses or security breaches may
cause interruptions, delays or cessation in service to the Company's customers,
which could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that customers or
others will not assert claims of liability against the Company as a result of
any such failure.
The Company does not presently maintain redundant or backup Internet
services or backbone facilities or other redundant computing and
telecommunication facilities. Any accident, incident or system failure that
causes interruptions in the Company's operations could have a material adverse
effect on the Company's ability to provide Internet services to its customers,
and, in turn, on the Company's business, financial condition and results of
operations. See "-- Management of Potential Growth; New Management Team," and
"-- Dependence on UUNET."
FUTURE ADDITIONAL CAPITAL REQUIREMENTS
The Company believes that the net proceeds from this Offering, together with
other available cash, including any net cash flow from operations, will be
sufficient to meet the Company's operating expenses and capital requirements for
at least the next 12 months. The Company's capital requirements depend on
numerous factors, including the rate of market acceptance of the Company's
services, the Company's ability to maintain and expand its customer base, the
level of resources devoted to expanding the Company's marketing and sales
organization and the Company's research and development activities, the
availability of hardware and software provided by third-party vendors, the rate
of expansion of the Company's network infrastructure and other factors. The
timing and amount of such capital requirements cannot accurately be predicted.
If capital requirements vary materially from those currently planned, the
Company may require additional financing. The Company has no commitments for any
additional financing, and there can be no assurance that any such commitments
can be obtained on favorable terms, if at all. Any additional equity financing
may be dilutive to the Company's stockholders, and debt financing, if available,
may involve restrictive covenants with respect to dividends, raising future
capital and other financial and operational matters. If the Company is unable to
obtain additional financing as needed, the Company may be required to reduce the
scope of its operations or its anticipated expansion, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "-- Management of Potential Growth; New Management
Team," "-- Dependence or Network Infrastructure; Capacity; Risk of System
Failure; Security Risks," "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
DEPENDENCE ON TELECOMMUNICATION CARRIERS AND OTHER SUPPLIERS
The Company relies on local telephone companies and other companies to
provide data communications capacity via local telecommunication lines and
leased long distance lines. The Company is subject to potential disruptions in
these telecommunication services and may have no means of replacing these
services, on a timely basis or at all, in the event of such disruption.
In addition, the Company is dependent on certain third-party suppliers of
hardware components. Certain components used by the Company in providing its
network services are currently acquired from limited sources. The Company also
depends on third-party software vendors to provide the Company with much of its
Internet software, including the Netscape Navigator software ("Netscape
Navigator"), the World Wide Web client software that the Company licenses from
Netscape Communications Corporation ("Netscape"). Failure of the Company's
suppliers to provide components and products in the quantities, at the quality
levels or at the times required by the Company, or an inability by the Company
to develop alternative sources of supply if required, could result in delays in
and/or increased costs of expansion of the Company's network infrastructure.
The Company's suppliers and telecommunication carriers also sell or lease
services and products to the Company's competitors and may be, or in the future
may become, competitors of the Company. There can be
9
<PAGE>
no assurance that the Company's suppliers and telecommunication carriers will
not enter into exclusive arrangements with the Company's competitors or stop
selling or leasing their services or products to the Company. See "--
Competition," "Business -- Services and Products" and "-- Marketing."
DEPENDENCE ON AFFINITY MARKETING AND DISTRIBUTION RELATIONSHIPS
A substantial number of the Company's new customers have been acquired
through its relationships with its affinity marketing partners. The Company
believes that its affinity marketing relationships will continue to account for
a significant number of new customers. The Company relies on these marketing
partners to assist it with distributing the EarthLink Network TotalAccess
software, which enables users to register as customers and to access the
Company's Internet services. There can be no assurance that the Company's
current affinity marketing partners will continue to distribute the Company's
software or will be successful in developing new customers for the Company's
services. The Company's inability to develop alternative methods of distributing
EarthLink Network TotalAccess software in the future, if required, could result
in delays and increased costs in expanding its customer base, which could, in
turn, have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Marketing -- Affinity
Marketing Partners Program."
NEW AND UNCERTAIN MARKET; DEPENDENCE ON CONTINUED GROWTH IN USE OF THE INTERNET
EarthLink's future success is substantially dependent on continued growth in
the use of the Internet. Rapid growth in the use of and interest in the
Internet, and in particular the World Wide Web, is a recent phenomenon and there
can be no assurance that Internet usage will become widespread or that extensive
content will continue to be provided over the Internet. The Internet may not
prove to be viable for a number of reasons, including potentially inadequate
development of the necessary infrastructure, such as a reliable network
backbone, or timely development of performance improvements. To the extent that
the Internet continues to experience significant growth in the number of users
and level of use, there can be no assurance that the Internet infrastructure
will be able to support the demands placed on it by such potential growth. If
use of the Internet does not continue to grow, or if the Internet infrastructure
does not effectively support growth that may occur, the Company's business,
financial condition and results of operations would be materially and adversely
affected.
The sales and marketing and other costs to the Company of acquiring new
customers are substantial relative to the monthly fees derived from such
customers. Accordingly, the Company's ability to improve or sustain operating
margins depends in part on its ability to retain its existing customers, while
continuing to attract new customers. The novelty of the market for Internet
services may adversely affect the Company's ability to retain new customers. The
Company continues to invest significant resources in its infrastructure and
customer support capabilities. However, there can be no assurance that such
investment will improve customer retention. Because the Internet services market
is new and the variety of available services is not well understood by new and
potential customers, it is difficult, if not impossible, for the Company to
predict future customer retention rates. See "-- Management of Potential Growth;
New Management Team," "-- Dependence on Network Infrastructure; Capacity; Risk
of System Failure; Security Risks" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."
RAPID TECHNOLOGICAL CHANGE
The market for Internet services is characterized by rapidly changing
technology, evolving industry standards, changes in customer needs and frequent
new service and product introductions. The Company's future success will depend,
in part, on its ability to use leading technologies effectively, to continue to
develop its technical expertise, to enhance its existing services and to develop
new services that meet changing customer needs on a timely and cost-effective
basis. There can be no assurance that the Company will be successful in using
new technologies effectively, developing new services or enhancing existing
services on a timely basis, or that such new technologies or enhancements will
achieve market acceptance. Any failure on
10
<PAGE>
the part of the Company to use new technologies effectively, develop new
services or enhance existing services on a timely basis would have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the technical and managerial skills of
its key employees, including technical, sales, marketing, financial and
executive personnel, and on its ability to identify, hire and retain additional
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company will be able to retain existing personnel or to
identify or hire additional personnel. In addition, the Company is highly
dependent on the continued services of its senior management team, which
currently is composed of a small number of individuals, most of whom only
recently joined the Company. The inability to attract, hire or retain the
necessary technical, sales, marketing, financial and executive personnel, or the
loss of the services of any member of the Company's senior management team,
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "-- Management of Potential Growth; New
Management Team," "Business -- Employees" and "Management."
GOVERNMENT REGULATION
The Company provides Internet services, in part, through data transmissions
over public telephone lines. These transmissions are governed by regulatory
policies establishing charges and terms for wire line communications. The
Company is not currently subject to direct regulation by the Federal
Communications Commission (the "FCC") or any other governmental agency, other
than regulations applicable to businesses generally. However, in the future the
Company could become subject to regulation by the FCC or another regulatory
agency as a provider of basic telecommunication services. For example, a number
of long distance telephone carriers recently filed a petition with the FCC
seeking a declaration that Internet telephone service is a "telecommunications
service" subject to common carrier regulation. Such a declaration, if enacted,
would create substantial barriers to the Company's entry into the Internet
telephone market. See "Business -- Government Regulation."
POTENTIAL LIABILITY
The case law relating to the liability of ISPs and online services companies
for information carried on or disseminated through their networks has not yet
been definitively established. Several private lawsuits seeking to impose such
liability upon ISPs and online services companies are currently pending.
Although no such claims have been asserted against the Company to date, there
can be no assurance that such claims will not be asserted in the future, or if
asserted, will not be successful. The recently enacted Telecommunications Act of
1996 (the "Telecommunications Act") imposes fines on any entity that knowingly
(i) uses any interactive computer service or telecommunications device to send
obscene or indecent material to minors; (ii) makes obscene or indecent material
available to minors via an interactive computer service; or (iii) permits any
telecommunications facility under such entity's control to be used for the
purposes detailed above. The standard for determining whether an entity acted
knowingly has not yet been established. As the law in this area develops, the
potential imposition of liability upon the Company for information carried on
and disseminated through its network could require the Company to implement
measures to reduce its exposure to such liability. The implementation of such
measures could require the expenditure of substantial resources or the
discontinuation of certain service or product offerings. Any costs that are
incurred as a result of contesting any such asserted claims or the consequent
imposition of liability could have a material adverse effect on the Company's
business, financial condition and results of operations.
Due to the increasing use of the Internet, it is possible that additional
laws and regulations may be adopted with respect to the Internet covering issues
such as content, user privacy, pricing and copyright and intellectual property
infringement. Changes in the regulatory environment relating to the Internet
services
11
<PAGE>
industry, including regulatory changes that directly or indirectly affect
telecommunication costs or increase the likelihood or scope of competition,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
PROPRIETARY RIGHTS; INFRINGEMENT CLAIMS
The Company believes that its success is dependent in part on its technology
and its continuing right to use such technology. The Company relies on a
combination of copyright, trademark and trade secret laws and contractual
restrictions to establish and protect its technology. It is the Company's policy
to require employees and consultants and, when possible, suppliers to execute
confidentiality agreements upon the commencement of their relationships with the
Company. These agreements provide that confidential information developed or
made known during the course of the relationship with the Company must be kept
confidential and not disclosed to third parties except in specific instances.
There can be no assurance that the steps taken by the Company will be adequate
to prevent misappropriation of its technology and other proprietary property or
that the Company's competitors will not independently develop technologies that
are substantially equivalent or superior to the Company's technology.
The Company has obtained authorization, typically in the form of a license,
to distribute third-party software incorporated in the EarthLink Network
TotalAccess software product for Windows 3.1, Windows 95 and Macintosh
platforms. Most of these licenses have one-year terms and automatically renew
for additional one-year terms in the absence of notice from the other party.
Applications licensed by the Company include Netscape Navigator, the Eudora
Light-TM- email program from QUALCOMM Incorporated ("Qualcomm") and MacTCP
software from Apple Computer, Inc. ("Apple"). There can be no assurance that the
Company will be able to successfully obtain all necessary license renewals in
the future. The failure to obtain such renewals or other licenses in the future
could have a material adverse affect on the Company's business, financial
condition and results of operations.
There can be no assurance that third parties will not assert that the
Company's services and products infringe their proprietary rights. From time to
time, the Company has received communications from third parties asserting that
certain of the names for the Company's services and products allegedly infringe
the trademarks of such parties. To date, no such claims have had an adverse
effect on the Company's ability to market and sell its services or products.
However, there can be no assurance that third parties will not assert
infringement claims against the Company in the future with respect to current or
future services or products. Such claims could result in substantial costs and
diversion of resources even if ultimately decided in favor of the Company. Such
claims or judgments resulting from such claims could have a material adverse
effect on the Company's business, financial condition and results of operations.
In the event a claim is asserted alleging that the Company has infringed the
proprietary technology or information of a third party, the Company may be
required to seek licenses to continue to use such intellectual property. There
can be no assurance, however, that such licenses would be offered or obtained on
commercially reasonable terms, if at all, or that the terms of any offered
licenses will be acceptable to the Company. The failure to obtain the necessary
licenses or other rights could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Proprietary Rights."
INTEGRATION OF POTENTIAL ACQUISITIONS
As part of its business strategy, EarthLink may make acquisitions of, or
significant investments in, complementary companies, products or technologies,
although no such acquisitions or investments are currently pending. Any such
future transactions would be accompanied by the risks commonly encountered in
making acquisitions of companies, products and technologies. Such risks include,
among other things, the difficulty associated with assimilating the operations
and personnel of the acquired companies, the potential disruption of the
Company's ongoing business, the inability of management to maximize the
financial and strategic position of the Company through the successful
integration of acquired technology and rights, additional expenses associated
with the amortization of acquired intangible assets, the maintenance of uniform
12
<PAGE>
standards, controls, procedures and policies and the impairment of relationships
with employees and customers as a result of the integration of new management
personnel. There can be no assurance that the Company will be successful in
overcoming these risks or any other problems encountered in connection with any
such acquisitions. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Potential
Fluctuations in Quarterly Results."
CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATED ENTITIES
The Company's directors, executive officers and entities affiliated with
them will, in the aggregate, beneficially own approximately 53.9% of the
Company's outstanding shares of Common Stock following this Offering (52.2% if
the Underwriters' over-allotment option is exercised in full). These
stockholders, if acting together, would be able to significantly influence all
matters requiring approval by the stockholders of the Company, including the
election of directors and the approval of mergers or other business combination
transactions. See "Principal and Selling Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of the Company's Common Stock in the
public market following this Offering could adversely affect the market price of
the Common Stock. The number of shares of Common Stock available for sale in the
public market is limited by restrictions under the Securities Act of 1933, as
amended (the "Securities Act"), and lock-up agreements under which all
directors, officers and other stockholders of the Company have agreed not to
sell or otherwise dispose of any of their shares within the 180-day period
following this Offering without the prior written consent of UBS Securities LLC.
However, UBS Securities LLC may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to such lock-up
agreements. See "Shares Eligible for Future Sale" and "Underwriting."
EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
The Company's Certificate of Incorporation and Bylaws contain certain
provisions that may discourage proposals or bids to acquire the Company. These
provisions could limit the price that investors might be willing to pay for
shares of the Company's Common Stock. Certain of such provisions allow the
Company to issue Preferred Stock, the rights and preferences of which may be
specified by the Board of Directors at any time prior to issuance, without
further stockholder approval, which could have the effect of delaying, deferring
or preventing a change in control of the Company. The Company also will be
subject to Section 203 of the Delaware General Corporation Law which, under
certain circumstances, could delay, defer or prevent a business combination with
an "interested stockholder." See "Description of Capital Stock."
NO PUBLIC MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that a regular trading market will develop
and continue after this Offering or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price will be determined through negotiations between the Company and
the Representatives of the Underwriters and may not be indicative of the market
price of the Common Stock following this Offering. Among the factors to be
considered in such negotiations are prevailing market conditions, certain
financial information of the Company, market valuations of other companies that
the Company and the Representatives of the Underwriters believe to be comparable
to the Company, estimates of the business potential of the Company, the present
state of the Company's development and other factors deemed relevant. The stock
markets have experienced price and volume fluctuations that have particularly
affected the stocks of technology companies, resulting in changes in the market
prices of the stocks of many companies that may not have been directly related
to the operating performance of those companies. Such broad market fluctuations
may adversely affect the market price of the Common Stock following this
Offering. In addition, the market price of the Common Stock following this
Offering may be highly volatile. Factors such as variations in the Company's
financial
13
<PAGE>
results, comments by securities analysts, announcements of technological
innovations or new products by the Company or its competitors, changing
government regulations, developments concerning the Company's proprietary rights
or litigation may have a material adverse effect on the market price of the
Common Stock. See "Underwriting."
DILUTION
Assuming an initial public offering price of $11.00 per share (the mid-point
of the range set forth on the cover page of this Prospectus), investors
purchasing shares of Common Stock in this Offering will incur immediate and
substantial dilution in net tangible book value of the Common Stock of $8.48 per
share. To the extent that currently outstanding options and warrants to purchase
shares of Common Stock are exercised, there will be further dilution. See
"Dilution."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,600,000 shares of
Common Stock offered hereby are estimated to be approximately $36,200,000
($41,700,000 if the Underwriters' over-allotment option is exercised in full) at
an assumed initial public offering price of $11.00 per share, after deducting
estimated underwriting discounts and commissions and offering expenses payable
by the Company.
EarthLink expects to use the net proceeds of this Offering to finance
enhancements to the Company's network infrastructure (including leasehold
improvements and investments in network equipment), to fund new service and
product introductions, and for working capital and other general corporate
purposes. The Company also anticipates that it may use a portion of the net
proceeds to acquire complementary product lines, technology, equipment, other
companies or interests in other companies. While the Company from time to time
has engaged in preliminary discussions concerning possible acquisitions,
investments or joint ventures, it has no present understandings, commitments,
agreements or active negotiations with respect to any such transaction.
Pending such uses, the net proceeds of this Offering will be invested in
short-term, investment grade, interest-bearing securities. The Company believes
that the net proceeds from this Offering, together with other available cash,
including any net cash flow from operations, will be sufficient to meet the
Company's operating expenses and capital requirements for at least the next 12
months. See "Risk Factors -- Future Additional Capital Requirements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has not paid any dividends since its inception and does not
intend to pay any dividends in the foreseeable future. Future cash dividends, if
any, will be determined by the Board of Directors.
14
<PAGE>
CAPITALIZATION
The following table sets forth as of March 29, 1996 (i) the capitalization
of the Company (after giving effect to the Company's proposed reincorporation as
a Delaware corporation) and (ii) the capitalization of the Company as adjusted
to reflect the reincorporation and the sale of the 3,600,000 shares of Common
Stock being offered hereby at an assumed initial public offering price of $11.00
per share and the application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
MARCH 29, 1996
------------------------
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Capitalized lease obligations, net of current portion.................................. $ 1,709 $ 1,709
----------- -----------
Stockholders' equity...................................................................
Preferred Stock, $0.01 par value, 10,000,000 shares authorized; none issued and
outstanding, actual and as adjusted................................................. -- --
Common Stock, $0.01 par value, 50,000,000 shares authorized; 10,255,300 issued and
outstanding, actual; 13,855,300 shares issued and outstanding, as adjusted (1)...... 102 138
Additional paid-in capital............................................................. 5,412 41,582
Common Stock pending issuance (2)...................................................... 5,931 5,931
Warrants to purchase Common Stock...................................................... 228 228
Accumulated deficit.................................................................... (9,876) (9,876)
----------- -----------
Total stockholders' equity..................................................... 1,797 38,003
----------- -----------
Total capitalization........................................................... $ 3,506 $ 39,712
----------- -----------
----------- -----------
</TABLE>
- -------------
(1) As of May 31, 1996, there were 11,970,465 shares of Common Stock
outstanding, an amount which excludes (i) 1,822,750 shares of Common Stock
subject to options outstanding under the Company's 1995 Stock Option Plan at
a weighted average exercise price of $3.51 per share, (ii) 1,871,218 shares
of Common Stock subject to outstanding warrants and non-plan stock options
at a weighted average exercise price of $1.79 per share, (iii) 677,250 and
125,000 shares of Common Stock reserved for future grant of options under
the Company's 1995 Stock Option Plan and Directors Stock Option Plan,
respectively, and (iv) 920,003 shares of Common Stock reserved for future
issuance pursuant to warrants that the Company has made commitments to
issue. See "Capitalization," "Management -- 1995 Stock Option Plan,"
"Management -- Directors Stock Option Plan," "Description of Capital Stock"
and Notes 7 and 11 of Notes to Financial Statements.
(2) Represents shares of Common Stock pending issuance as of March 29, 1996 in
connection with the Company's private placement of 1,704,920 shares of
Common Stock for aggregate proceeds to the Company of approximately
$8,320,000, which was consummated in May 1996. Upon consummation of the
private placement, the net proceeds were recorded as Common Stock and
additional paid-in capital. See Note 11 of Notes to Financial Statements.
15
<PAGE>
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
March 29, 1996 was $1,797,000, or approximately $0.16 per share, including
Common Stock pending issuance as if such shares had been issued at March 29,
1996. Pro forma net tangible book value per share represents the amount of the
Company's total tangible assets less total liabilities, divided by the pro forma
number of shares of Common Stock outstanding. Net tangible book value dilution
per share represents the difference between the amount per share paid by
purchasers of shares of Common Stock in the Offering made hereby and the net
tangible book value per share of Common Stock immediately after completion of
this Offering. After giving effect to the sale by the Company of the 3,600,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $11.00 per share and after deducting estimated underwriting discounts
and commissions and offering expenses payable by the Company, the pro forma net
tangible book value of the Company as of March 29, 1996 would have been
$38,003,000, or approximately $2.52 per share, including Common Stock pending
issuance as if such shares had been issued at March 29, 1996. This represents an
immediate increase in the net tangible book value of $2.36 per share to existing
stockholders and an immediate dilution in net tangible book value of $8.48 per
share to new investors purchasing shares of Common Stock in this Offering.
The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
Initial public offering price per share........................... $11.00
<S> <C> <C>
Pro forma net tangible book per share value as of March 29,
1996............................................................. $ 0.16
Increase per share attributable to the Offering................... 2.36
---------
Pro forma net tangible book value after this Offering............. 2.52
---------
Dilution per share to new investors............................... $ 8.48
---------
---------
</TABLE>
The following table sets forth, on an as adjusted basis as of March 29,
1996, the difference between the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share paid
by the existing holders of Common Stock and by the new investors, before
deducting estimated underwriting discounts and commissions and offering expenses
payable by the Company, at an assumed initial public offering price of $11.00
per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------------- --------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 10,255,300 74.0% $ 6,775,000 14.6% $ 0.66
New investors........................ 3,600,000 26.0 39,600,000 85.4 11.00
------------- ----- -------------- ----- -----------
Total.............................. 13,855,300 100.0% $ 46,375,000 100.0%
------------- ----- -------------- -----
------------- ----- -------------- -----
</TABLE>
The foregoing table (i) assumes no exercise of the Underwriters'
over-allotment option, (ii) excludes 3,693,968 shares of Common Stock reserved
for issuance pursuant to stock options and warrants outstanding as of May 31,
1996, at a weighted average exercise price of $2.64 per share, 677,250 shares of
Common Stock reserved for future grant under the Company's 1995 Stock Option
Plan and 125,000 shares of Common Stock reserved for future grant under the
Company's Directors Stock Option Plan, and (iii) excludes 1,704,920 shares of
Common Stock pending issuance as of March 29, 1996, which were subsequently
issued for aggregate proceeds to the Company of approximately $8,320,000. See
Notes 7 and 11 of Notes to Financial Statements.
16
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto included elsewhere in
this Prospectus. The statement of operations data for the period from inception
(May 24, 1994) through December 31, 1994, and for the year ended December 31,
1995, and the balance sheet data as of December 31, 1994 and 1995, have been
derived from financial statements audited by Price Waterhouse LLP, independent
accountants. The selected financial data for the three months ended March 31,
1995 and March 29, 1996 have been derived from the Company's unaudited financial
statements. In the opinion of management, the unaudited financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results for the periods presented.
<TABLE>
<CAPTION>
INCEPTION
(MAY 26,
1994) THREE MONTHS ENDED
THROUGH YEAR ENDED ----------------------------
DECEMBER 31, DECEMBER MARCH 31, MARCH 29,
1994 31, 1995 1995 1996
------------ ----------- ------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Recurring revenues....................... $ 53 $ 2,422 $ 113 $ 2,628
Other revenues........................... 58 606 70 790
------------ ----------- ------------- -------------
Total revenues......................... 111 3,028 183 3,418
Operating costs and expenses:
Cost of recurring revenues............... 4 1,055 60 1,698
Cost of other revenues................... 12 349 6 569
Sales and marketing...................... 37 3,711 124 2,209
General and administrative............... 168 2,062 141 1,632
Operations and customer support.......... 38 1,869 104 2,098
------------ ----------- ------------- -------------
Total operating costs and expenses..... 259 9,046 435 8,206
------------ ----------- ------------- -------------
Loss from operations....................... (148) (6,018) (252) (4,788)
Interest expense........................... -- (136) (19) (100)
Interest income............................ -- 34 -- 19
------------ ----------- ------------- -------------
Net loss............................... $ (148) $ (6,120) $ (271) $ (4,869)
------------ ----------- ------------- -------------
------------ ----------- ------------- -------------
Net loss per share (1)..................... $ (0.01) $ (0.47) $ (0.02) $ (0.35)
------------ ----------- ------------- -------------
------------ ----------- ------------- -------------
Weighted average shares outstanding (1).... 11,716 13,159 12,594 13,717
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 29,
1994 1995 1996
------------ ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital deficit.......................... $ (62) $ (1,976) $ (3,016)
Total assets..................................... 186 4,874 8,878
Total liabilities................................ 89 4,584 7,081
Accumulated deficit.............................. (148) (5,007) (9,876)
Total stockholders' equity....................... 97 290 1,797
</TABLE>
- -------------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of weighted average shares outstanding used in
the net loss per share computation.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF
CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN
THIS PROSPECTUS.
OVERVIEW
EarthLink, founded in 1994, is a leading branded provider of reliable,
easy-to-use Internet services. The Company began offering its services in July
1994. Since inception, the growth in the Company's customer base along with an
expansion of service offerings has resulted in a significant period-to-period
increase in revenues and related expenses.
The Company's standard EarthLink Network service provides unlimited Internet
access for a one-time registration fee of $25.00 and a flat monthly fee of
$19.95, which is generally collected from a pre-authorized credit card account.
In addition to its standard service, the Company offers a number of premium,
add-on and other services which can increase the speed of, or add features to,
the capabilities of the standard service. Prices and billing methods for
premium, add-on and other services vary. See "Business -- EarthLink's Services
and Products."
The Company has only a limited operating history upon which an evaluation of
its prospects can be made. Such prospects must be considered in light of the
substantial risks, expenses and difficulties encountered by new entrants into
the Internet services industry. The Company has experienced net losses in each
quarter since it commenced operations and had net losses of approximately $6.3
million from inception through 1995 and of approximately $4.9 million for the
three months ended March 29, 1996. As of March 29, 1996, the Company had an
accumulated deficit of approximately $9.9 million (exclusive of $1.3 million of
losses incurred while the Company was an S Corporation for tax purposes, which,
upon the Company's conversion to C Corporation status in June 1995, were charged
to the Company's capital accounts). The Company expects that it is likely to
continue to incur net losses at least through the end of 1997 as it continues to
expend substantial resources to build its infrastructure, develop new service
and product offerings and build its sales and marketing and administrative
organizations. There can be no assurance that the Company will achieve or
sustain profitability or positive cash flow from its operations.
The Company's strategy is to rapidly expand its customer base and increase
market share. In addition, the Company intends to increase its investment in
sales and marketing. Also, the Company plans to add administrative
infrastructure, increase customer support capability and build network
operations capacity to meet customer demand. The sales and marketing and other
costs to the Company of acquiring new customers are substantial relative to the
monthly fees derived from such customers. Accordingly, the Company's ability to
improve or sustain operating margins depends in part on its ability to retain
its existing customers, while continuing to attract new customers.
The market for the Company's services and products has only recently begun
to develop, is rapidly evolving and is characterized by an increasing number of
market entrants who have introduced new services for access to the Internet. The
Company and its prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in the new and rapidly evolving
market for Internet services and products. To address these risks, the Company
must, among other things, continue to attract, retain and motivate qualified
persons, and continue to upgrade its technologies and services. There can be no
assurance that the Company will be successful in addressing such risks.
18
<PAGE>
RESULTS OF OPERATIONS
ACCOUNTING PERIODS. The Inception Period reflects activity from May 26,
1994 through December 31, 1994. As of January 1, 1996, the Company changed its
fiscal year from a calendar year end to a 52 or 53 week year ending on the last
Friday in December. Accordingly, each three-month period consists of 13 weeks
ending on the last Friday of that quarter.
REVENUES. Recurring revenues consist of monthly fees charged to customers
for Internet access and other ongoing services. Other revenues generally
represent one-time setup fees. Recurring revenues are recognized pro rata over
the period for which the services are performed. Other revenues are recognized
as earned.
For the Inception Period and the year ended December 31, 1995, recurring
revenues were approximately $53,000 and $2.4 million, respectively. Other
revenues for the same periods were approximately $58,000 and $606,000,
respectively. Recurring revenues were approximately $113,000 and $2.6 million
for the three months ended March 31, 1995 and March 29, 1996, respectively.
Other revenues were approximately $70,000 and $790,000 for the three months
ended March 31, 1995 and March 31, 1996, respectively. The increase in recurring
revenues in 1995 as compared to the Inception Period is primarily attributable
to the Company being operational for the full year in 1995 and an increase in
the number of customers during that period. Revenues for the three months ended
March 29, 1996 increased over revenues for the three months ended March 31, 1995
as a result of an increase in the number of customers. The increase in other
revenues for 1995 as compared to the Inception Period is primarily attributable
to an increase in the number of customers added in 1995 and one-time set-up fees
collected from customers. Other revenues for the three months ended March 29,
1996 increased over other revenues in the three months ended March 31, 1995 as a
result of an increase in the number of new customers during that period. From
time to time, the Company has waived, and may in the future waive, the one-time
set-up fee it charges new customers. To the extent the Company continues or
increases this practice, the Company expects to derive a lesser portion of its
future other revenues from one-time set-up fees.
COST OF REVENUES. Cost of revenues consists of cost of recurring revenues
and cost of other revenues. Cost of recurring revenues principally includes
telecommunication expenses and depreciation expense on equipment used in network
operations for ongoing customer services. Included in telecommunication cost are
fees paid to UUNET for local access to UUNET's system of POPs. Cost of other
revenues principally includes expenses related to the registration of new
customers. These costs include licensing fees for software, software duplication
costs and commissions paid to third parties for referring new customers to the
Company.
For the year ended December 31, 1995, cost of recurring revenues increased
to approximately 44% of recurring revenues, up from 8% of recurring revenues for
the Inception Period. This increase was due to increased hourly customer usage
and the Company's expansion of its POP sites. Cost of recurring revenues for the
three months ended March 29, 1996 increased to approximately 65% of recurring
revenues, up from 53% of recurring revenues for the three months ended March 31,
1995 due to increased hourly customer usage and the Company's expansion to
nationwide service through its relationship with UUNET. As the Company continues
to expand, the Company anticipates that it will build and use Company-owned POPs
in those geographical areas where there is a sufficient concentration of
customers to support the cost of such investment.
The Company's customers generally pay a fixed monthly fee for the Company's
Internet services. Under the Company's agreement with UUNET, the Company pays to
UUNET a fixed monthly fee per customer plus a variable amount based on customer
usage in excess of a threshold number of hours per month. The Company has
recently experienced increasing average per-customer usage of its Internet
services by customers accessing the Internet through UUNET. If this trend
continues and the average per-customer monthly usage exceeds the threshold
number of hours, the Company's operating margins will be adversely affected
which could, in turn, have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Dependence
on UUNET" and "Business -- Customers, POPs and Network Infrastructure."
19
<PAGE>
SALES AND MARKETING. Sales and marketing expenses consist primarily of
sales commissions, salaries, cost of promotional material, advertising, travel
and third party sales commissions. Sales and marketing expenses were
approximately $37,000, or 33% of revenues, and $3.7 million, or 123% of
revenues, for the Inception Period and the year ended December 31, 1995,
respectively. Sales and marketing expenses were approximately $124,000, or 68%
of revenues, and $2.2 million, or 65% of revenues, for the three months ended
March 31, 1995 and March 29, 1996, respectively. These period-to-period
increases have primarily resulted from increased emphasis on marketing the
Company's services, expanding sales and marketing efforts nationwide, increased
sales commissions and increased marketing headcount. The Company intends to
aggressively promote the EarthLink brand and as a result expects further
significant increases in sales and marketing expenses in future periods. The
Company does not capitalize costs associated with the acquisition of customers.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of costs associated with finance and accounting, human
resources, legal expenses and expenses related to certain executive officers.
General and administration expenses were approximately $168,000 and $2.1 million
for the Inception Period and the year ended December 31, 1995, respectively.
General and administration expenses were approximately $141,000 and $1.6
million, for the three months ended March 31, 1995 and March 29, 1996,
respectively. Since inception, general and administrative expenses have
increased as a result of increased employee headcount, rent and other general
and administrative expenses as the Company focused on building an administrative
infrastructure in anticipation of an increase in the number of customers and
employees. During the three months ended March 29, 1996, the Company hired a
number of senior management personnel and moved into a new headquarters
building, which resulted in a significant increase in general and administrative
expenses as compared to the same period in 1995. Management intends to implement
a new management information system and continue to expand staff in order to
support customer growth. As a result, the Company expects general and
administrative expenses to increase in future periods.
OPERATIONS AND CUSTOMER SUPPORT. Operations and customer support expenses
consist primarily of expenses associated with technical and billing support to
register and maintain customer accounts with the Company. Operations and
customer support expenses were approximately $38,000, or 34% of revenues, and
$1.9 million, or 62% of revenues, for the Inception Period and the year ended
December 31, 1995, respectively. Operations and customer support expenses were
approximately $104,000, or 57% of revenues, and $2.1 million, or 61% of
revenues, for the three months ended March 31, 1995 and March 29, 1996,
respectively. These expenses have increased significantly since the Company's
inception. This trend reflects the costs associated with building a customer
service organization to support anticipated customer growth as well as the
Company's current customers. The Company intends to continue to increase
expenditures for operations and customer support.
INCOME TAXES. No provision for federal or state income taxes has been
recorded as the Company incurred net operating losses through December 31, 1995.
At December 31, 1995, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $3.3 million, which begin to expire
in 2010, and for state income tax purposes of approximately $1.6 million, which
begin to expire in 2001. The Tax Reform Act of 1986 includes provisions which
limit the net operating loss carryforwards for use in a given year if
significant ownership changes have occurred. The Company expects that this
Offering will result in an ownership change limiting the Company's ability to
utilize net operating loss carryforwards to offset future income, if any. The
Company has provided a full valuation allowance on the deferred tax asset
because of the uncertainty regarding realizability. Prior to July 1995, the
Company was taxed as an S Corporation under the Internal Revenue Code. As such,
losses totaling approximately $2.8 million flowed directly to the stockholders
and are not included in the amount of net operating loss carryforwards.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's operating results have fluctuated significantly in the past
and will likely continue to fluctuate significantly in the future as a result of
a variety of factors, many of which are beyond the Company's control. These
factors include the rates of and costs associated with new customer acquisition,
customer retention, capital expenditures and other costs relating to the
expansion of operations, the timing of new service and product announcements,
changes in the pricing policies of the Company and its competitors,
20
<PAGE>
market acceptance of new and enhanced versions of the Company's services and
products, changes in operating expenses, including telecommunication costs,
changes in the Company's strategy, personnel changes, the introduction of
alternative technologies, the effect of potential acquisitions, increased
competition in the Company's markets and other general economic factors. In
addition, a relatively large portion of the Company's expenses are fixed, and
therefore the Company's operating margins are particularly sensitive to
fluctuations in revenues. Due to these factors, in some future quarter the
Company's operating results may fall below the expectations of securities
analysts and investors. In such event, the market price of the Company's Common
Stock would likely be materially and adversely affected.
In May 1996, the Company entered into an agreement with National Media
Corporation ("NMC"), a producer of infomercials and commercials, pursuant to
which NMC will produce and broadcast 15-second and 60-second commercials for
EarthLink's services and products. Under this agreement, in addition to certain
fees payable to NMC, the Company has agreed to issue NMC warrants to purchase up
to 700,000 shares of Common Stock, depending on the number of customers
generated by this relationship. The exercise price of any warrants earned
through December 31, 1997 will be $4.88 per share, and thereafter the exercise
price will be the fair market value of the Common Stock on the date of grant.
Upon issuance of any of the warrants, the Company will be required to record in
the quarter in which such warrant is issued a non-cash charge against earnings
in an amount equal to the fair value of the warrant on the date of grant. The
Company anticipates that, based on its obligation to NMC to issue a fixed number
of warrants upon completion of production and approval of the commercials, it
will issue 100,000 of these warrants to NMC in the third quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily through a combination of
cash flow from operations, private sales of equity securities and borrowings
from third parties. The Company's operating activities used net cash of
approximately $3.6 million and $2.8 million during 1995 and the three months
ended March 29, 1996, respectively. During 1995 and the three months ended March
29, 1996, net cash used in operations resulted primarily from net losses, offset
by increases in trade accounts payable.
Cash used by investing activities has consisted primarily of equipment
purchases for POP and network expansion. For the year ended December 31, 1995
and the three months ended March 29, 1996, capital expenditures amounted to
approximately $2.8 million and $4.2 million, respectively. Including the $4.2
million spent during the first three months of 1996, the Company anticipates
investing approximately $20.0 million during 1996 on network enhancements,
including leasehold improvements and investments in network equipment.
Cash from financing activities provided the Company with approximately $8.2
million and $6.7 million during 1995 and the three months ended March 29, 1996,
respectively. The Company's financing activities have consisted of the private
sale of Common Stock and capital lease transactions, primarily for equipment.
From inception through March 29, 1996, the Company raised $12.7 million and $2.7
million through the private sale of Common Stock and capital lease obligations,
respectively.
As of December 31, 1995 and March 29, 1996, the Company had cash and cash
equivalents of approximately $290,000 and $950,000, respectively, and negative
working capital of approximately $2.0 million and $3.0 million, respectively.
The Company also has $500,000 available under a bank line of credit agreement,
which is secured by a certificate of deposit of $500,000. The Company recently
issued $2,950,000 of its 10% Promissory Notes to 17 purchasers, including
certain directors, stockholders and certain persons and entities affiliated with
one of the Underwriters. In connection with this financing, and as additional
consideration for the investment of these purchasers, the Company also issued
warrants to purchase up to 196,670 shares of Common Stock at a per share
exercise price equal to the lesser of (i) $10.00 or (ii) the price at which a
share of Common Stock is first sold in a public or private sale after the
issuance of the warrants and prior to the issuance of stock subject to the
warrants. The 10% Promissory Notes are due on or before June 6, 1997 with
interest payable monthly until such date. The warrants are exercisable for five
years commencing on the date of issuance.
21
<PAGE>
EarthLink expects to use the net proceeds of this Offering to finance
enhancements to the Company's network infrastructure (including leasehold
improvements and investments in network equipment), to fund new service and
product introductions, and for working capital and other general corporate
purposes. The Company also anticipates that it may use a portion of the net
proceeds to acquire complementary product lines, technology, equipment, other
companies or interests in other companies. While the Company from time to time
has engaged in preliminary discussions concerning possible acquisitions,
investments or joint ventures, it has no present understandings, commitments,
agreements or active negotiations with respect to any such transaction. See "Use
of Proceeds."
Pending such uses, the net proceeds of this Offering will be invested in
short-term, investment grade, interest-bearing securities. The Company believes
that the net proceeds from this Offering, together with other available cash,
including any net cash flow from operations, will be sufficient to meet the
Company's operating expenses and capital requirements for at least the next 12
months. The Company's capital requirements depend on numerous factors, including
the rate of market acceptance of the Company's services, the Company's ability
to maintain and expand its customer base, the level of resources devoted to
expanding the Company's marketing and sales organization and the Company's
research and development activities, the availability of hardware and software
provided by third-party vendors, the rate of expansion of the Company's network
infrastructure and other factors. The timing and amount of such capital
requirements cannot accurately be predicted. If capital requirements vary
materially from those currently planned, the Company may require additional
financing. The Company has no commitments for any additional financing, and
there can be no assurance that any such commitments can be obtained on favorable
terms, if at all. Any additional equity financing may be dilutive to the
Company's stockholders, and debt financing, if available, may involve
restrictive covenants with respect to dividends, raising future capital and
other financial and operational matters. If the Company is unable to obtain
additional financing as needed, the Company may be required to reduce the scope
of its operations or its anticipated expansion, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
EarthLink's future success is substantially dependent on continued growth in
the use of the Internet. Rapid growth in the use of and interest in the
Internet, and in particular the World Wide Web, is a recent phenomenon and there
can be no assurance that Internet usage will become widespread or that extensive
content will continue to be provided over the Internet. The Internet may not
prove to be viable for a number of reasons, including potentially inadequate
development of the necessary infrastructure, such as a reliable network
backbone, or timely development of performance improvements. To the extent that
the Internet continues to experience significant growth in the number of users
and level of use, there can be no assurance that the Internet infrastructure
will continue to be able to support the demands placed on it by such potential
growth. If use of the Internet does not continue to grow, or if the Internet
infrastructure does not effectively support growth that may occur, the Company's
business, financial condition and results of operations would be materially and
adversely affected.
22
<PAGE>
BUSINESS
OVERVIEW
EarthLink, founded in 1994, is a leading branded provider of reliable,
easy-to-use Internet services. Since its founding, the Company has focused on
providing non-technical users with a satisfying Internet experience and has
concentrated on specific opportunities in the fragmented Internet services
market where it can add value. The Company provides its services through the
EarthLink Network TotalAccess-TM- software package, a tool that enables Internet
access via an open, non-proprietary architecture. In addition, the Company
promotes the EarthLink brand and seeks to expand its customer base through
strategic partnerships and affinity marketing agreements with leading content,
publishing, entertainment and gaming companies, including Activision, CNN
Interactive, Columbia TriStar, Graphix Zone and Macmillan Publishing USA.
EarthLink has taken a strategic approach to network development. To increase its
national presence while minimizing capital costs, the Company leases nationwide
POPs from UUNET, while maintaining the flexibility to establish Company-owned
POPs in those geographical areas in which there is sufficient concentration of
customers to support such investment. Customers can access the EarthLink service
through a network of 19 Company-owned and 284 UUNET POPs across the United
States and in Canada. EarthLink provides unlimited Internet access for a flat
monthly fee and offers a number of other services which can increase the speed
of, or add features to, the capabilities of its standard service. EarthLink has
grown from approximately 30,000 customers at the end of 1995 to approximately
100,000 customers at the end of May 1996.
INDUSTRY BACKGROUND
The Internet is a collection of computer networks linking millions of public
and private computers around the world. Historically, the Internet was used by
government agencies and academic institutions to exchange information, publish
research and transfer electronic mail. A number of factors, including the
proliferation of communication-enabled personal computers, the availability of
intuitive graphical user interface software and the wide accessibility of an
increasingly robust network infrastructure, have combined to allow non-technical
users to easily access the Internet and, in turn, have produced rapid growth in
the number of Internet users. IDC estimates that the number of Internet users
was approximately 56 million at the end of 1995 and that this number will reach
200 million by the end of 1999.
This growth, combined with the emergence of the World Wide Web, the
graphical, multimedia environment of the Internet, has resulted in the
development of the Internet as a new mass communications medium. The ease and
speed of publishing, distributing and communicating text and graphics over the
Internet has lead to a proliferation of Internet-based content, including online
magazines, news feeds, interactive games and a wealth of educational and
entertainment information, as well as to the development of online communities.
In addition, the reduced cost of executing transactions over the Internet
provides individuals and organizations with a new means to conduct business.
These factors have created a rapidly growing market for Internet services.
To date, users have gained access to the Internet primarily through two types of
service providers. The first of these, online service providers, are primarily
focused on the presentation of proprietary content to subscribers by means of
closed networks, although these providers typically offer limited access to the
Internet from their networks. This access often tends to be slow and expensive
for the customer. The second of these, ISPs, offer direct access to the Internet
at a lower price, but often provide an uneven quality of service to their
customers. New Internet users have experienced busy dial-up lines, dropped
connections, ineffective technical support and software that can be difficult to
install and configure. These limitations, together with the volume and lack of
organization of the information available on the Internet, have precluded
non-technical users from fully enjoying the expanding resources available on the
Internet. The Company believes that the next phase of growth in the Internet
services market will require providers to address the needs of non-technical
users and to shift from providing network infrastructure and undifferentiated
access to providing value-added, distinct services which build customer
satisfaction and loyalty.
23
<PAGE>
THE EARTHLINK SOLUTION
EarthLink was founded in 1994 to become a leading branded provider of
Internet services. The Company facilitates and enhances the quality and
productivity of its customers' Internet experience by providing capabilities
which enable its customers to navigate and exploit the resources of the
Internet. The Company has grown from approximately 30,000 customers at the end
of 1995 to approximately 100,000 customers at the end of May 1996, and believes
it is well-positioned to capitalize on the continued growth of the Internet.
EarthLink attributes its rapid growth to the following key elements:
FOCUS ON CUSTOMER NEEDS. EarthLink has designed its service in an effort to
minimize a number of difficulties that non-technical users encounter in gaining
access to the Internet. These include software that is difficult to install,
busy signals, poor network performance and insufficient customer support.
EarthLink continues to invest in building its service capabilities to address
these needs. For example, the Company has developed the EarthLink Network
TotalAccess software package with simple point and click functionality, thereby
reducing many of the start-up problems faced by customers signing up for
Internet service.
PROVIDE A USEFUL AND ENJOYABLE INTERNET EXPERIENCE. As the level and scope
of resources available on the Internet increase and the quality of content
improves, the Company believes users will increasingly desire services and
products that enhance the quality and productivity of their Internet experience.
The Company also believes that EarthLink Network provides the capability for
customers to transform the resources of the Internet into information,
education, communication, entertainment and a sense of community. To meet these
customer needs, EarthLink has developed resources to help customers navigate the
Internet, such as the EarthLink home page; BLINK, the Company's newsletter; and
"Getting the Most Out of EarthLink," a book by Sky Dayton, EarthLink's founder
and Chairman. In addition, because customers increasingly desire access to
enhanced services on the Internet, the Company has recently begun to offer
online retailing and is currently offering an online multi-player gaming
capability.
CAPITALIZE ON MARKET SEGMENTATION. The Company believes that as the
Internet services market has matured, providers of Internet services have begun
to focus their efforts on specific segments of this market. For example, several
companies, such as UUNET, provide Internet infrastructure while other companies,
such as Netscape, focus on providing Internet software tools. In contrast, the
Company is focusing on the customer's experience with the Internet, and
leveraging the infrastructure and software development investments of others.
This approach gives the Company flexibility and speed in expanding its service
coverage, relieves the Company from the task of network management, reduces its
operating costs and allows it to focus on meeting customer needs.
STRATEGY
The Company's objective is to establish EarthLink as the leading branded
provider of Internet services. To achieve this objective, the Company seeks to:
RAPIDLY EXPAND ITS CUSTOMER BASE. The Company believes that the Internet
services market is in its early stages of development and is significantly
underpenetrated. The Company's goal is to rapidly capture an increasing share of
this untapped market. Thus, EarthLink is aggressively investing in sales and
marketing, particularly strategic and affinity marketing relationships, and the
promotion of its brand name, and is enhancing its operational infrastructure.
The Company believes that by attracting and retaining a large and growing
customer base, it will be well-positioned to achieve cost efficiencies and
generate new opportunities in the future.
LEVERAGE AFFINITY MARKETING RELATIONSHIPS. EarthLink has aggressively
established strategic relationships with affinity marketing partners to expand
the reach of its marketing efforts. Through these relationships, EarthLink
partners with leading media and consumer products companies to promote and
distribute EarthLink's services to the partner's customer base. For example,
Macmillan Publishing USA bundles EarthLink Network TotalAccess with several
Internet-related book titles. These relationships are cost-effective and enhance
the EarthLink brand through its association with leading media and consumer
products companies.
24
<PAGE>
PROMOTE THE EARTHLINK BRAND. The Company believes the EarthLink name has
significant brand potential and that cultivating a distinct brand image will be
critical to differentiating its service and building a sense of community. The
Company intends to maximize its brand potential, first, by providing consistent,
high-quality services and, second, by conducting marketing activities that
reinforce the Company's image.
ESTABLISH EARTHLINK AS ITS CUSTOMERS' PRINCIPAL GATEWAY FOR WEB
BROWSING. The Company believes that as the volume of information available on
the Web proliferates, EarthLink's customers will increasingly desire a resource
to organize and manage the abundance of available information. EarthLink's
in-house staff actively seeks out content from across the Internet and
categorizes it into subject areas of interest organized on the EarthLink home
page under topics such as "What's Hot," "Hollywood," "News," "Finance" and
"Games." This approach to providing content promotes the Company's strategy of
serving as its customers' principal resource for utilizing and experiencing the
Internet.
LEVERAGE THIRD-PARTY NETWORK INFRASTRUCTURE. EarthLink has taken a
strategic approach to network development. To increase its national presence
while minimizing capital costs, the Company leases nationwide POPs from UUNET,
while maintaining the flexibility to establish Company-owned POPs in those
geographical areas in which there is sufficient concentration of customers to
support such investment. In addition, the Company's network infrastructure uses
non-proprietary standards and an open architecture. These approaches have
reduced the Company's capital expenditures and allowed EarthLink to quickly
establish national network coverage. More importantly, these approaches permit
the Company to focus on meeting customer needs rather than managing the network
itself.
ENHANCE AND DEVELOP SERVICE OFFERINGS FOR BUSINESS CUSTOMERS. The Company
believes that the opportunity to provide Internet services to business customers
is underdeveloped and has been penetrated only to a limited extent. Earthlink
has targeted this segment for future growth. The Company also believes that key
features of its consumer-oriented service, in particular its ease-of-use, have
strong appeal to business customers. Therefore, EarthLink has begun to emphasize
a variety of services designed to appeal to them. In addition, the Company is
investing additional resources in sales and marketing and customer service
efforts directed at this growing market segment.
EARTHLINK'S SERVICES AND PRODUCTS
EarthLink provides a variety of competitively-priced Internet services to
individual and business customers. The Company makes its services available
through its EarthLink Network TotalAccess software package, a tool that enables
access to the Internet via an open, non-proprietary architecture. This software
incorporates a telephone dialer and email functionality with several leading
third-party Internet access tools, including Netscape Navigator, thereby
providing a functional, easy-to-use Internet access solution for Windows 3.1,
Windows 95 and Macintosh platforms. EarthLink Network TotalAccess installation
software automatically installs these and other software applications on the
customer's computer. The simple point-and-click functionality of EarthLink
Network TotalAccess, combined with its easy-to-use registration module, permits
online credit card registration, allowing new EarthLink customers to quickly
access the Internet.
The Company is dependent on certain third-party suppliers of hardware
components. Certain components used by the Company in providing its network
services are currently acquired from limited sources. The Company depends on
third-party software vendors to provide the Company with much of its Internet
software, including Netscape Navigator, the World Wide Web client software that
the Company licenses from Netscape. Failure of the Company's suppliers to
provide components and products in the quantities, at the quality levels or at
the times required by the Company or an inability by the Company to develop
alternative sources of supply if required, could result in delays in and/or
increased costs of expansion of the Company's network infrastructure.
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<PAGE>
The Company's Internet services and products include the following:
STANDARD EARTHLINK NETWORK INTERNET SERVICES
EarthLink provides its customers with a core set of functionalities through
its standard Internet service, which provides unlimited access to the Internet
as well as the other features and services for a flat monthly fee of $19.95 plus
a one-time setup fee of $25.00. The following functionalities are included in
the standard EarthLink service:
INTERNET ACCESS. EarthLink provides customers with direct high-speed access
to the Internet and the Web in a manner that is reliable and easy to use.
EARTHLINK NETWORK WEB SITE. EarthLink has developed and maintains its own
Web site, containing more than 800 pages. EarthLink's in-house staff actively
seeks out content from across the Internet and categorizes it into subject areas
of interest organized on the EarthLink home page under topics such as "What's
Hot," "Hollywood," "News," "Finance" and "Games." The Company's home page
provides customers with a road map to the volumes of information on the
Internet. A customer can browse the page and click on topics of interest in
order to be linked to the desired information. In addition, through the embedded
functionality of Netscape Navigator, a customer can conduct customized searches
for other topics.
ELECTRONIC MAIL. Each customer is provided a mailbox, or address, from
which to send and receive electronic mail. Email functionality allows customers
to exchange an unlimited number of multimedia text, graphics and audio messages
with other EarthLink customers as well as with other Internet users.
PERSONAL WEB SITES. Each EarthLink customer is provided two megabytes of
disk space on the Company's Web server to create his or her own home page. This
enables each customer to participate in the Internet community by personally
adding content to the Internet and the Web.
PREMIUM EARTHLINK NETWORK SERVICES
In addition to its standard service, the Company offers a variety of premium
services, including the following:
BUSINESS WEB SITES. The Company provides space on its Web server for
commercial customers to publish their own home pages directly on EarthLink's
Internet backbone. Business Web Site monthly fees range from $30 to $175, plus
one-time setup fees of $225 to $1,495, depending on the size of the home page,
the traffic volume through the site and whether the site is a shared or unique
address. Each option is also available with an audio feature for an additional
charge. Volume surcharges apply.
ISDN CAPABILITY. EarthLink offers high-speed ISDN Internet access
communication lines for its Southern California business customers. ISDN
provides a faster, more efficient method for communicating digital data over
telephone lines. ISDN speeds are up to four times faster than conventional modem
speeds (up to 128 Kbps versus up to 28.8 Kbps). ISDN service charges range from
$45 to $575 per month depending on access speeds, connect time and other data
transfer metrics. One-time setup fees range from $50 to $750 depending on the
modem speed.
FRAME RELAY CAPABILITY. Frame relay enables direct, high-speed continuous
connection of an organization's internal local area network to the Internet
using dedicated circuits at speeds ranging from 56 Kbps to 1,544 Kbps. This
service enables businesses to connect an entire local area network or high-end
workstation to the Internet and provides the fastest data transfer rate
generally available. Frame relay is currently available only to the Company's
Southern California customers. Frame relay service fees range from $395 to $995
per month depending on access speeds, data throughput and other data transfer
metrics. One-time setup fees range from $495 to $1,245 depending on modem speed.
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<PAGE>
ADD-ON AND OTHER SERVICES
To augment its standard and premium services, the Company provides its
customers with the following add-on and other services:
ADDITIONAL MAILBOXES. The Company provides additional mailboxes for a per
mailbox setup fee of $9.95 and a monthly service fee of $4.95 for those
customers who require more than one mailbox for colleagues, employees or family
members.
DOMAIN NAME REGISTRATION. EarthLink provides unique domain names for those
customers who prefer an individualized address. Instead of
"[email protected]," the user Joe Smith may prefer the name "[email protected]."
Or a business user may find greater marketing presence by having a domain name
in the name of his business, such as "[email protected]." EarthLink charges $75 to
assist in establishing unique domain names for customers. Customers then pay an
annual renewal fee to an Internet domain registration agency.
800 SERVICE. EarthLink provides 800 number dial-up service for customers
who do not have access to a local POP. EarthLink charges customers $24.95 per
month for five hours of 800 number service plus a one-time setup fee of $25.00.
Additional hours are $4.95 per hour.
PRODUCT DEVELOPMENT AND SERVICE ENHANCEMENT
EarthLink places significant emphasis on developing advanced features for
its service offerings, expanding and refining its services and further
developing its core enabling technologies. To this end, EarthLink's development
staff undertakes a number of product development and service enhancement
activities, including reviewing new third-party software products for potential
incorporation into the Company's EarthLink Network TotalAccess software package.
As an element of its ongoing efforts to enhance its customers' Internet user
experience, EarthLink also constantly updates and expands the online services
provided through the EarthLink Web site. These activities include organizing
Internet and Web content and the development of online guides, help screens and
other user services. The EarthLink Web site is updated daily.
EarthLink also actively develops additional high-quality services for its
customers' benefit. For example, the Company recently opened the EarthLink
online store, which offers EarthLink branded merchandise that online shoppers
may purchase by placing an order through the EarthLink Network via an online
credit card transaction. The Company intends to further develop its systems for
offering electronic retail services by establishing an online mall through which
it can "lease space" to businesses to advertise their products on and conduct
business over the Web through the EarthLink Network.
Additionally, the Company has introduced and plans to continue to develop an
online, multi-player computer gaming service that will allow users across the
Internet to play multimedia games through the EarthLink Network.
MARKETING
The Company markets and sells its services through an organization
consisting of 81 employees. The Company believes its marketing programs,
particularly its affinity marketing partners program, provide it with a
competitive advantage. EarthLink's sales and marketing effort consists of the
following programs:
AFFINITY MARKETING PARTNERS PROGRAM. EarthLink's Sales and Marketing
Department administers the Company's affinity marketing program. This program
promotes the Company through the distribution of the EarthLink Network
TotalAccess software package by its affinity marketing partners. These partners
typically bundle EarthLink Network TotalAccess disks with their own goods or
services. In certain instances the affinity partner may itself sell goods and
services over the Internet. In such a case, the partner's own customers require
access to the Internet, which can be provided by the bundled EarthLink Network
TotalAccess software. Through the affinity marketing program, EarthLink achieves
product distribution efficiencies and reductions in its customer acquisition
costs which are not available through other marketing strategies.
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<PAGE>
EarthLink currently has approximately 90 affinity marketing relationships.
The following table identifies certain of EarthLink's affinity marketing
partners in a variety of industries.
<TABLE>
<S> <C>
PUBLISHING CATALOG/RETAIL
CMP Media, Inc./Windows MAGAZINE Creative Computers
Imagine Publications MacMall/PCMall
Macmillan Publishing USA Manheim Auctions
NEWS/ENTERTAINMENT/MULTIMEDIA Micro Warehouse, Inc.
Activision Spiegel
CNN Interactive OTHER
Columbia TriStar Best Data Products
Graphix Zone American Heart Association
Index Stock Photo National Telephone and
Personal Training Systems Communications
Seattle Film Works
</TABLE>
A substantial number of the Company's new customers have been acquired
through its relationships with its affinity marketing partners. The Company
believes that its affinity marketing relationships will continue to account for
a significant number of new customers. The Company relies on these marketing
partners to assist it with distributing the EarthLink Network TotalAccess
software, which enables users to register as customers and to access the
Company's Internet services. There can be no assurance that the Company's
current affinity marketing partners will continue to distribute the Company's
software or will be successful in developing new customers for the Company's
services. The Company's inability to develop alternative methods of distributing
EarthLink Network TotalAccess software in the future, if required, could result
in delays and increased costs in expanding its customer base, which could, in
turn, have a material adverse effect on the Company's business, financial
condition and results of operations.
CUSTOMER REFERRAL PROGRAM. The Company believes that one of its most
powerful marketing tools is its installed base of customers. In order to
encourage satisfied customers to refer other users, the Company provides an
incentive of one free month of standard EarthLink Internet service. The Company
estimates that in the first three months of 1996, approximately 13,000 new
customers were added through the referral program.
OTHER MARKETING ACTIVITIES. EarthLink exhibits at national trade shows such
as Comdex, MacWorld and OnLine Expo, as well as at numerous local and regional
trade shows. Additionally, the Company markets through trade publications and
bundles EarthLink Network TotalAccess with these publications, either as disks
which contain only the EarthLink Network TotalAccess software package or as
CD-ROMs which may include numerous other software applications. The Company has
also entered into an agreement with National Media Corporation ("NMC"), a
producer of infomercials and commercials, under which NMC will produce and
broadcast 15-second and 60-second commercials for EarthLink's services and
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Potential Fluctuations in Quarterly Results."
CUSTOMERS, POPS AND NETWORK INFRASTRUCTURE
The Company had approximately 100,000 customers at the end of May 1996.
EarthLink has taken a strategic approach to network development. To increase
its national presence while minimizing capital costs, the Company leases
nationwide POPs from UUNET, while maintaining the flexibility to establish
Company-owned POPs in those geographical areas in which there is a sufficient
concentration
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<PAGE>
of customers to support such investment. This approach permits the Company to
focus on meeting customer needs rather than on managing network infrastructure.
Substantially all of the Company's customers access the EarthLink network and
the Internet by dialing into local POPs. Of these, the Company owns 19 POP sites
in California and currently offers additional access through 284 UUNET POPs. The
Company's POP network, as of May 31, 1996, is set forth below.
[INSERT USA AND CANADIAN MAP IDENTIFYING LOCATION
OF COMPANY OWNED AND UUNET OWNED POP SITES]
For customers located in a geographic area not presently serviced by a local
POP, the EarthLink Network can be accessed by a toll-free number for which the
Company bills customers on an hourly usage basis. The Company's POP sites are
connected to the Internet primarily through its network hub in Los Angeles. The
Company's network hub is in turn connected directly to the Internet via two
leased high-speed fiber optic data lines.
The Company relies on UUNET to continue to allow the Company's customers to
access the Internet through UUNET's system of POPs. UUNET's inability or
unwillingness to provide POP access to the Company's customers could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company believes that alternative sources for POPs
exist. However, there can be no assurance that such sources will be available on
terms acceptable to the Company, if at all, or that such sources will be capable
of replacing UUNET on a timely basis. The Company's current agreement with UUNET
expires in December 1996 and is renewable for additional one-year terms unless
60 days' prior written notice of termination is given by either party. UUNET
recently announced that it has agreed to be acquired by MFS. There can be no
assurance that, following the expiration of the Company's current agreement with
UUNET, MFS or UUNET will continue to provide the Company with POP access or that
such access, if provided, will be available to the Company on acceptable terms.
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<PAGE>
The future success of the Company's business will depend on the capacity,
reliability and security of the Company's network infrastructure, including the
POP sites leased by the Company from UUNET. The Company will be required to
expand and adapt this network infrastructure as the number of customers and the
amount and type of information its customers communicate over the Internet
increases. Such expansion and adaptation may require substantial financial,
operational and management resources. There can be no assurance that the Company
will be able to expand or adapt its network infrastructure to meet any
additional demand or changing customer requirements on a timely basis or at a
commercially reasonable cost, if at all.
The Company does not presently maintain redundant or backup Internet
services or backbone facilities or other redundant computing and
telecommunication facilities. Any accident, incident or system failure that
causes interruptions in the Company's operations could have a material adverse
effect on the Company's ability to provide Internet services to its customers,
and, in turn, on the Company's business, financial condition and results of
operations.
CUSTOMER SUPPORT
The Company believes that high-quality customer support is critical to
retaining existing customers and attracting new ones. The Company currently
provides five avenues of customer support which are available seven days a week,
24 hours a day: (i) toll-free, live telephone assistance; (ii) email based
assistance; (iii) help sites and Internet guide files on the EarthLink Web site;
(iv) automated "fax back" and "fax on demand" assistance; and (v) printed
reference material. Additionally, the Company provides dedicated support for its
business customers. The Company also furnishes its newsletter, BLINK, to each of
its customers.
In order to continue to improve its support services and to deliver those
services in a more timely and cost-effective manner, the Company is currently
installing expanded computing facilities and new call management database
software at its headquarters in Pasadena, and is increasing its support staff on
an ongoing basis. The Company has expanded its support staff from 81 employees
as of December 31, 1995 to 157 employees as of May 31, 1996.
Demand on the Company's network infrastructure, technical staff and
resources has grown rapidly with the Company's expanding customer base, and the
Company has in the past experienced difficulties satisfying the demand for its
Internet services. There can be no assurance that the Company's infrastructure,
technical staff and resources will be adequate to facilitate the Company's
growth. In addition, delays have occurred in establishing Internet accounts for
the Company's customers and customers have in the past experienced significant
delays in contacting, and in receiving responses from, the Company's customer
and technical support personnel. There can be no assurance that the Company will
be able to provide its software, establish accounts or provide customer or
technical support to its customers on a timely basis or that any delays will not
result in the loss of customers. The Company believes that its ability to
provide timely access for customers and adequate customer support service will
largely depend upon the Company's ability to attract, identify, train, integrate
and retain qualified personnel. Failure to provide adequate customer support
services will adversely affect the Company's ability to increase its customer
base and to reduce its customer cancellation rate, and could therefore have a
material adverse effect on the Company's business, financial condition and
results of operations.
COMPETITION
The Internet services market in which the Company operates is extremely
competitive, and the Company expects competition in this market to intensify in
the future. The Company's current and prospective competitors include many large
companies that have substantially greater market presence and financial,
technical, marketing and other resources than the Company. The Company competes
(or in the future is expected to compete) directly or indirectly with the
following categories of companies: (i) national and regional ISPs, such as BBN,
IDT, MindSpring, NETCOM, PSINet, and UUNET; (ii) established online services
companies such as America Online, CompuServe and Prodigy; (iii) computer
software and technology
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<PAGE>
companies such as Microsoft; (iv) national telecommunication companies, such as
AT&T, MCI and Sprint; (v) RBOCs; (vi) cable operators, such as Comcast, TCI and
Time Warner; and (vii) nonprofit or educational Internet service providers.
Many established online services companies and telecommunication companies
have recently announced plans to introduce or expand their Internet services.
The Company expects that a significant number of major telecommunication, cable,
media, software and hardware companies, as well as all of the major online
services companies, will eventually compete fully in the Internet services
market, and that their entry into this market will result in substantially
greater competition for the Company. The ability of these competitors or others
to bundle services and products with Internet connectivity services could place
the Company at a significant competitive disadvantage. In addition, competitors
in the telecommunication industry may be able to provide customers with reduced
communication costs in connection with their Internet access services, reducing
the overall cost of Internet access and significantly increasing pricing
pressures on the Company. There can be no assurance that the Company will be
able to offset the effects of any necessary price reductions resulting from such
pricing pressures with an increase in the number of its customers, higher
revenue from enhanced services, cost reductions or otherwise.
Competition in the Company's markets is also expected to focus increasingly
on overseas markets, where Internet services are just beginning to be
introduced. There can be no assurance that the Company will be able to increase
its presence in overseas markets. To the extent the ability to provide Internet
services overseas becomes a competitive advantage in the Internet services
industry, the failure of the Company to penetrate overseas markets may result in
the Company being at a competitive disadvantage relative to other Internet
access providers.
The Company believes that its ability to compete successfully in the
Internet services market depends on a number of factors, including market
presence; the adequacy of the Company's customer support services; the capacity,
reliability and security of its network infrastructure; the ease of access to
and navigation of the Internet provided by the Company's services; the pricing
policies of the Company, its competitors and its suppliers; the timing of
introductions of new services and products by the Company and its competitors;
the Company's ability to support existing and emerging industry standards; and
industry and general economic trends. There can be no assurance that the Company
will have the financial resources, technical expertise or marketing and support
capabilities to compete successfully.
PROPRIETARY RIGHTS
GENERAL. The Company believes that its success is dependent in part on its
technology and its continuing right to use such technology. The Company relies
on a combination of copyright, trademark and trade secret laws and contractual
restrictions to establish and protect its technology. It is the Company's policy
to require employees and consultants and, when possible, suppliers to execute
confidentiality agreements upon the commencement of their relationships with the
Company. These agreements provide that confidential information developed or
made known during the course of a relationship with the Company must be kept
confidential and not disclosed to third parties except in specific instances.
Although the Company believes that it has taken adequate precautions to protect
its proprietary rights, there can be no assurance that the steps taken by the
Company will be sufficient to prevent misappropriation of its technology and
other proprietary property or that the Company's competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's technology.
Although the Company believes that it does not infringe upon the proprietary
rights of others, there can be no assurance that third parties will not assert
that EarthLink's services and products infringe their proprietary rights. From
time to time, the Company has received communications from third parties
asserting that certain of the names for the Company's services and products
allegedly infringe the trademarks of such parties. To date, no such claims have
had an adverse effect on the Company's ability to market and sell its services
or products. However, there can be no assurance that third parties will not
assert infringement claims
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<PAGE>
against the Company in the future with respect to current or future services or
products. Such claims could result in substantial costs and diversion of
resources even if ultimately decided in favor of the Company. Such claims or
judgments resulting from such claims could have a material adverse effect on the
Company's business, financial condition and results of operations. In the event
a claim is asserted alleging that the Company has infringed the proprietary
technology or information of a third party, the Company may be required to seek
licenses to continue to use such intellectual property. There can be no
assurance, however, that such licenses would be offered or obtained on
commercially reasonable terms, if at all, or that the terms of any offered
licenses will be acceptable to the Company. The failure to obtain the necessary
licenses or other rights could have a material adverse effect on the Company's
business, financial condition and results of operations.
LICENSES. EarthLink has obtained authorization, typically in the form of a
license, to distribute third-party software incorporated in the EarthLink
Network TotalAccess software product for Windows 3.1, Windows 95 and Macintosh
platforms. Applications licensed by the Company include Netscape Navigator (the
license for which expires on December 31, 1997 and is renewable for additional
one-year terms), the Eudora Light email program from Qualcomm (the license for
which expires on January 26, 1997 and is renewable for additional one-year
terms), and MacTCP software from Apple (the license for which automatically
renews itself each December 31 for additional one-year periods). The only
software in the EarthLink Network TotalAccess package that is developed by the
Company is the front-end program and the installation/ registration program. The
Company currently intends to maintain or negotiate renewals of existing software
licenses and authorizations. The Company may want or need to license other
applications in the future.
TRADEMARKS. "EarthLink Network-Registered Trademark-," "EarthLink Network
TotalAccess-TM-" and the EarthLink logo are trademarks of the Company. This
Prospectus includes trademarks of companies other than the Company.
GOVERNMENT REGULATION
The Company provides Internet services, in part, through data transmissions
over public telephone lines. These transmissions are governed by regulatory
policies establishing charges and terms for wire line communications. The
Company currently is not subject to direct regulation by the FCC or any other
governmental agency, other than regulations applicable to businesses generally.
However, in the future the Company could become subject to regulation by the FCC
or another regulatory agency as a provider of basic telecommunication services.
For example, a number of long distance telephone carriers recently filed a
petition with the FCC seeking a declaration that Internet telephone service is a
"telecommunications service" subject to common carrier regulation. Such a
declaration, if enacted, would create substantial barriers to the Company's
entry into the Internet telephone market.
The recently-enacted Telecommunications Act contains certain provisions that
lift, or establish procedures for lifting, restrictions on RBOCs and other
companies that may permit them to engage directly in the Internet access
business. The Telecommunications Act also makes it easier for national long
distance carriers such as AT&T to offer local telephone service. In addition,
the Act allows the RBOCs to provide electronic publishing of information and
databases. Competition from these companies could have an adverse effect on the
Company's business. Further, the Telecommunications Act imposes fines on any
entity that knowingly uses any interactive computer service to send obscene
material to minors or makes obscene material available to minors. The standard
for determining whether an entity acted knowingly has not yet been established.
Due to the increasing popularity and use of the Internet, it is possible
that additional laws and regulations may be adopted with respect to the
Internet, covering issues such as content, user privacy, pricing and copyright
infringement. Changes in the regulatory environment relating to the Internet
access industry, including regulatory changes that directly or indirectly affect
telecommunication costs or increase the likelihood or scope of competition from
regional telephone companies or others, could have an adverse effect on the
Company's business. See "Risk Factors -- Potential Liability" and "--
Competition."
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EMPLOYEES
As of May 31, 1996, the Company employed 376 people on a full-time basis,
which consists of 81 sales and marketing personnel, 16 Web Site and development
personnel, 62 MIS and information technologies personnel, 157 service and
support representatives and 60 administrative personnel. As of that date, the
Company also employed 29 people on a part-time basis, most of whom serve as
telephone service and support representatives. None of the Company's employees
are represented by a labor union and the Company is not a party to any
collective bargaining agreement.
The Company is highly dependent on the technical and managerial skills of
its key employees, including technical, sales, marketing, financial and
executive personnel, and on its ability to identify, hire and retain additional
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company will be able to retain existing personnel or to
identify or hire additional personnel. In addition, the Company is highly
dependent on the continued services of its senior management team, which
currently is composed of a small number of individuals, most of whom only
recently joined the Company. The inability to attract, hire or retain the
necessary technical, sales, marketing, financial and executive personnel, or the
loss of the services of any member of the Company's senior management team,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
FACILITIES
EarthLink's corporate headquarters are located in an 85,500-square foot
facility in Pasadena, California. The lease for this space expires June 30,
2001. The Company has an option to extend this lease for an additional five
years. In addition to the Company's corporate headquarters, the Company also
leases approximately 7,400 square feet of office space in Los Angeles that
presently houses the Company's central computer network.
The Company's operations are dependent on its ability to protect its
computer equipment against damage from fire, earthquake, power loss,
telecommunications failure and similar events. The occurrence of a natural
disaster or another unanticipated problem at the Company's headquarters, network
hub or at a number of the POPs through which customers connect to the Internet
could cause interruptions in the services provided by the Company. The Company's
computer equipment, including critical equipment dedicated to its Internet
services, is located in Los Angeles and Pasadena, California. The Company
intends to relocate its facilities located in Los Angeles to its headquarters in
Pasadena, California in the near future. The risks associated with such a move
include loss of data, loss of system integrity and the risk of system failure.
The occurrence of any of these events could have a material adverse effect on
the Company's ability to provide Internet services to its customers, and, in
turn, on the Company's business, financial condition and results of operations.
In addition, failure of the Company's telecommunication providers to provide the
data communications capacity required by the Company as a result of a natural
disaster, operational disruption or for any other reason could cause
interruptions in the services provided by the Company.
LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the Company's
executive officers and directors as of May 15, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Sky D. Dayton............................. 24 Founder and Chairman of the Board of Directors
Charles G. Betty.......................... 39 President, Chief Executive Officer and Director
Barry W. Hall............................. 48 Vice President, Finance and Administration and Chief Financial
Officer
Robert E. Johnson, Jr..................... 44 Vice President, Sales and Marketing
David R. Tommela.......................... 57 Vice President, Operations
Brinton O.C. Young........................ 44 Vice President, Strategic Planning
Sidney Azeez (1).......................... 63 Director
Robert M. Kavner (1)...................... 52 Director
Linwood A. Lacy, Jr. (2).................. 50 Director
Kevin M. O'Donnell (2).................... 45 Director
Reed E. Slatkin (1)(2).................... 47 Director
</TABLE>
- ------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
SKY D. DAYTON, the founder of the Company, has served as Chairman of the
Board of Directors since the Company's inception in May 1994 and served as its
Chief Executive Officer from May 1994 until May 1996. From 1992 to 1993, he
served as co-owner of a computer-based digital imaging firm, Dayton Walker
Design. From 1991 to 1992, he served as Director of Marketing for new products
at Executive Software, a VAX/VMS utility software maker. From 1990 to 1994, Mr.
Dayton operated Cafe Mocha, a coffee house in Los Angeles, which he co-founded,
and was a co-owner of Joe Cafe, a coffee house in Studio City, California. From
1988 to 1990, Mr. Dayton served as systems engineer and computer graphics
consultant at several entertainment industry advertising firms.
CHARLES G. BETTY has served as the President and as a director of the
Company since January 1996, and in May 1996, Mr. Betty was named the Company's
Chief Executive Officer. From February 1994 to January 1996, he was a strategic
planning consultant, advising Reply Corp., Perot Systems Corporation and
Microdyne, Inc., and was active in the formation of Physicians Data Corporation.
From September 1989 to February 1994, Mr. Betty served as President, Chief
Executive Officer and a director of Digital Communications Associates, Inc., a
publicly traded network connectivity provider. Mr. Betty holds a bachelor's
degree in chemical engineering from the Georgia Institute of Technology.
BARRY W. HALL has served as Vice President, Finance and Administration and
Chief Financial Officer of the Company since January 1996. From April 1994 to
December 1995, he was an independent management consultant. From March 1989 to
March 1994, Mr. Hall served as Chief Executive Officer and Chairman of
California Amplifier, Inc., a publicly traded manufacturer of microwave
amplifiers. Prior to joining California Amplifier, he served as Vice President
of Finance and Chief Financial Officer of Los Angeles Cellular Telephone
Company. Mr. Hall also worked for eight years as a certified public accountant
with Arthur Young & Company. He currently serves on the board of directors of
Luther Medical, Inc. Mr. Hall holds a bachelor's degree in mathematics and an
M.B.A. from San Diego State University.
ROBERT E. JOHNSON, JR. has served as Vice President, Sales and Marketing of
the Company since February 1995. From June 1992 through January 1995, he served
as Vice President of Sales for Competence Software. From 1982 to May 1992, he
was employed by Real World Software, Inc., and served as its Vice President of
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Sales from 1988 to May 1992. In December 1994, Mr. Johnson filed a voluntary
bankruptcy petition which was dismissed in January 1996 when Mr. Johnson and his
creditors agreed upon a currently operative repayment plan.
DAVID R. TOMMELA has served as Vice President, Operations of the Company
since December 1995. From 1973 to August 1995, he served in various capacities
for, and ultimately as the Chief Information Officer of, Southern California
Edison Company, an electric power utility.
BRINTON O.C. YOUNG has served as Vice President, Strategic Planning of the
Company since March 1996. From 1989 to 1996, Mr. Young was President of Young &
Associates, a consulting firm specializing in strategic planning for high growth
companies. Mr. Young holds a bachelor's degree in Physics from Yale University
and M.B.A. and J.D. degrees from Harvard University.
SIDNEY AZEEZ has been a director of the Company since June 1996. Mr. Azeez
founded Ultronic Systems Corp., which produced a stock and commodity quotation
system. He also founded American Cellular Network, Inc. and Universal Telecell,
Inc. ("Unitel"), cellular telephone companies, PCS, Inc., a wireless
communications company, and several banks in Colorado and New Jersey. Mr. Azeez
is a director of Unitel and Thermal Tech Development, Inc.
ROBERT M. KAVNER has been a director of the Company since June 1996. Since
August 1995, he has been Managing Director of Kavner Associates, a private
venture capital and consulting firm in the media and communications industry.
From 1994 through August 1995, he headed Creative Artist Agency's business
advisory group. From 1984 to 1994, Mr. Kavner held several senior management
positions at AT&T, including Senior Vice President and Chief Financial Officer,
Executive Vice President of the Communications Products Group, Chief Executive
Officer of the Multimedia Products and Services Group, President of the Computer
Division, Chairman of the UNIX Systems Laboratory, Chairman of AT&T Capital
Corporation, Chairman of AT&T Paradyne Corporation and Chairman of AT&T Venture
Capital Group. Mr. Kavner also served as a member of AT&T's Executive Committee.
Mr. Kavner serves as a director of Fleet Financial Group, Ascent Entertainment,
Inc. and Tandem Computers, Inc.
LINWOOD A. LACY, JR. has been a director of the Company since June 1996.
From 1989 to May 1996, he served as the Co-Chairman and Chief Executive Officer
of Ingram Micro, a microcomputer products distributor. From December 1993 to
June 1995, Mr. Lacy was also President of Ingram Industries. From June 1995
until April 1996, he was President and CEO of Ingram Industries, and
subsequently Vice Chairman and CEO of Ingram Industries. Mr. Lacy serves as a
director of Ingram Industries and Entex Corporation.
KEVIN M. O'DONNELL, a co-founder of the Company, has been a director of the
Company since its inception. Mr. O'Donnell is President of O'Donnell &
Associates, a venture capital firm specializing in emerging high technology
companies. In 1982, Mr. O'Donnell founded Government Technology Services, Inc.,
a reseller of computer equipment to the federal government, and from 1982 to
1990 served as its Chairman, Chief Executive Officer and President.
REED E. SLATKIN, a co-founder of the Company, has been a director of the
Company since its inception. Mr. Slatkin is a private investor and money manager
who has invested in public and private companies for the last 15 years. Mr.
Slatkin is a director of Havenwood Ventures, Inc.
BOARD OF DIRECTORS
Currently, all directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
The Board of Directors maintains an Audit Committee and a Compensation
Committee. The Audit Committee consists of Messrs Azeez, Kavner and Slatkin. The
Audit Committee is responsible for making recommendations to the Board regarding
the selection of independent auditors, reviews the results and scope of audits
and other services provided by the Company's independent auditors and reviews
and evaluates the Company's internal audit and control functions. The
Compensation Committee
35
<PAGE>
consists of Messrs, Lacy, O'Donnell and Slatkin. The Compensation Committee is
responsible for making recommendations to the Board concerning cash and
long-term incentive compensation for key employees of the Company. The
Compensation Committee also administers and makes recommendations under the
Company's 1995 Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No officer or employee of the Company currently serves, or has served during
the Company's last completed fiscal year, as a member of the Compensation
Committee. No member of the Compensation Committee has at any time been an
officer or employee of the Company. No interlocking relationship exists between
the Company's Board of Directors or Compensation Committee and the board of
directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
See "Certain Transactions" for a description of related party transactions
involving certain directors of the Company.
DIRECTOR COMPENSATION
Directors do not receive cash compensation for serving in that capacity, but
are reimbursed for the expenses they incur in attending meetings of the Board or
committees thereof. Non-employee directors are eligible to receive options to
purchase Common Stock awarded under the Company's Directors Stock Option Plan.
See "-- Directors Stock Option Plan."
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid during or with respect to 1995 to Sky D. Dayton, who served as the
Company's Chief Executive Officer during that year, and Robert E. Johnson, Jr.,
its Vice President, Sales and Marketing, the Company's only executive officers
who earned in excess of $100,000 of salary and bonus in 1995. Mr. Dayton's
current base salary is $165,000 and Mr. Johnson's is $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME SALARY BONUS OPTIONS (#) COMPENSATION
- ----------------------------------------------------- --------- --------- ------------------- -------------
<S> <C> <C> <C> <C>
Sky D. Dayton........................................ $ 97,726 $ 16,573 500,000(1) --
Robert E. Johnson, Jr................................ 87,578 21,646(2) 100,000(1) --
</TABLE>
- ------------
(1) These options vest in equal increments of 5% per quarter over the five-year
period beginning on the date of grant, June 19, 1995.
(2) Represents sales commissions.
36
<PAGE>
STOCK OPTION INFORMATION
The following table sets forth certain information regarding options granted
in 1995 to, and held at year end by, the executive officers named in the Summary
Compensation Table above. The Company does not have any stock appreciation
rights outstanding.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
NUMBER OF OPTIONS PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERMS (2)
OPTIONS IN FISCAL PRICE EXPIRATION ------------------------
NAME GRANTED (#) YEAR ($/SH) DATE 5% 10%
- ------------------------------ ----------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sky D. Dayton................. 500,000(1) 38.0% $ 0.91 6/18/05 $ 286,147 $ 725,153
Robert E. Johnson, Jr......... 100,000(1) 7.6 0.91 6/18/05 57,229 145,031
</TABLE>
- ------------
(1) These options vest in equal increments of 5% per quarter over the five-year
period beginning on the date of grant, June 19, 1995.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. These assumptions are not intended to forecast future
appreciation of the Company's stock price. The potential realizable value
computation does not take into account federal or state income tax
consequences of option exercises or sales of appreciated stock. This table
does not take into account any appreciation in the price of the Common Stock
to date.
The following table summarizes the value of options held at December 31,
1995 by the executive officers named in the Summary Compensation Table above. No
such options were exercised by Mr. Dayton or Mr. Johnson during 1995.
OUTSTANDING GRANTS & OPTION VALUES AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF
SHARES SHARES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS (1)
ON VALUE -------------------------- --------------------------
NAME EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- ------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sky D. Dayton..................... -- -- 50,000 450,000 $ 75,500 $ 679,500
Robert E. Johnson, Jr............. -- -- 10,000 90,000 15,100 135,900
</TABLE>
- ------------
(1) The value of "in-the-money" options represents the difference between the
exercise price of stock options and the fair market value for the Company's
Common Stock, as determined by the Company's Board of Directors, of $2.42
per share as of December 31, 1995.
37
<PAGE>
EMPLOYMENT AGREEMENT
In January 1996, the Company entered into a two-year employment agreement
with Mr. Charles G. Betty. Under this agreement, the Company agreed to employ
Mr. Betty as its President and Chief Operating Officer at a salary of $225,000
per year plus such other benefits as are made available to other senior
executives of the Company. In May 1996, Mr. Betty was named the Company's Chief
Executive Officer. Mr. Betty is also guaranteed a bonus of at least $37,500 for
1996 and may earn up to an additional $37,500 for 1996 if the Company reaches a
specified number of customers by year-end. The agreement provides that (i) if
Mr. Betty is terminated by the Company other than for "cause" or "total
disability," as defined in the agreement, (ii) if the Company elects not to
extend the term of the employment agreement at the end of the first two-year
term or any yearly extension or (iii) if Mr. Betty terminates his employment
because of a breach of the employment agreement by the Company, he is entitled
to severance compensation equal to 100% of his then-current annual salary. The
agreement contains provisions that restrict Mr. Betty's ability to compete with
the Company or solicit its employees or customers for a specified period
following the termination of his employment. In connection with entering into
the employment agreement, Mr. Betty purchased 50,000 shares of the Common Stock
at $2.42 per share, and also was granted options to purchase an additional
350,000 shares of Common Stock at an exercise price of $2.42 per share. These
options vest in equal increments of 5% per quarter over the five-year period
beginning on the date of grant, January 15, 1996. In the event of a "change in
control," as defined in the agreement, the termination of Mr. Betty by the
Company other than for cause or if Mr. Betty terminates his employment because
of a breach of the agreement by the Company, all unvested options held by Mr.
Betty will vest immediately.
1995 STOCK OPTION PLAN
The Company's Board of Directors has adopted the Company's 1995 Stock Option
Plan (the "Plan") and reserved thereunder 2,500,000 shares of Common Stock for
grants of incentive and non-qualified stock options to key employees of the
Company. As of the date of this Prospectus, there were options to purchase
1,822,750 shares of Common Stock outstanding under the Plan at exercise prices
ranging from $2.42 to $4.88 per share. In addition to options outstanding under
the Plan, the Company has issued non-plan options and warrants to purchase an
aggregate of 1,880,654 shares of Common Stock at exercise prices ranging from
$0.30 to $4.88 per share.
DIRECTORS STOCK OPTION PLAN
The Board of Directors has adopted the Company's Directors Stock Option Plan
(the "Directors Plan") and reserved 125,000 shares of Common Stock thereunder
for grants of non-qualified stock options to directors who do not also serve as
employees of the Company. Under the Directors Plan, grants of options to
purchase 20,000 and 5,000 shares of Common Stock are automatically made to each
non-management director at the time such person first becomes a member of the
Board of Directors and at the beginning of each fiscal year of the Company,
respectively. All of these options are exercisable at the fair market value of
the Common Stock on the date of grant.
Prior to the adoption by the Board of Directors of the Directors Plan, the
Company issued to each of Messrs. Kavner and Lacy warrants to purchase 100,000
shares of Common Stock at an exercise price of $2.42 per share, the then fair
market value, in consideration of Messrs. Kavner's and Lacy's agreement to serve
on the Board of Directors. These warrants vest in quarterly increments over a
five-year period.
38
<PAGE>
CERTAIN TRANSACTIONS
Kevin M. O'Donnell and Reed E. Slatkin are members of the Board of Directors
of the Company, and each owns more than five percent of the Company's
outstanding Common Stock. Messrs. O'Donnell and Slatkin have participated in the
Company's financing since inception, as described below.
In December 1994, Messrs. Slatkin and O'Donnell provided a $400,000 credit
line to the Company for which each of them received warrants to purchase 150,000
shares of Common Stock at an exercise price of $0.91 per share, the then fair
market value of the Common Stock. Indebtedness outstanding under this line bore
interest at 8.1% per annum. The maximum amount outstanding under this line was
$397,686, which was repaid in full in September 1995.
In August 1995 and January 1996, Mr. Slatkin agreed to act as lessee
together with the Company under equipment leases of $500,000 and $1.5 million,
respectively. As consideration for this agreement, the Company issued Mr.
Slatkin warrants to purchase 100,000 shares of Common Stock at an exercise price
of $0.91 per share and 200,000 shares of Common Stock at an exercise price of
$2.42 per share, the then fair market value as of August 1995 and January 1996,
respectively. The Company and Mr. O'Donnell subsequently agreed to indemnify Mr.
Slatkin against certain liability arising out of these leases. As consideration
for this agreement, Mr. Slatkin transferred one-half of these warrants to Mr.
O'Donnell.
In December 1995, Mr. Slatkin guaranteed a $250,000 letter of credit as
security for the Company's lease of its Pasadena facility. In return, he
received warrants to purchase 100,000 shares of Common Stock at an exercise
price of $2.42 per share, the then fair market value of the Common Stock. The
Company and Mr. O'Donnell subsequently agreed to indemnify Mr. Slatkin with
respect to certain liability arising out of the letter of credit. As
consideration for this agreement, Mr. Slatkin transferred to Mr. O'Donnell
one-half of these warrants.
In addition, the Company and Messrs. Dayton, O'Donnell and Slatkin are
parties to a Buy-Sell Agreement pursuant to which the Company has the first
right of refusal upon sale or transfer of shares of Common Stock by such
persons. The right will expire upon consummation of this Offering. See Note 7 to
Notes to Financial Statements.
From time to time since the Company's inception, the Company's officers,
directors and more than five percent stockholders (including certain of their
family members and affiliates) have purchased shares of the Company's Common
Stock at the weighted average per share purchase prices as follows: Gregory
Abbott, 677,250 shares, $2.04 per share; Charles G. Betty, 50,000 shares, $2.42
per share; Sky D. Dayton, 3,000,000 shares, $0.0003 per share; Sidney Azeez,
1,044,916 shares, $3.13 per share; Linwood A. Lacy, Jr., 49,620 shares, $2.42
per share; Robert M. Kavner, 41,350 shares, $2.42 per share; Robert London,
744,065 shares, $1.08 per share; Kevin M. O'Donnell, 1,884,305 shares, $0.42 per
share; Reed E. Slatkin, 1,884,315 shares, $0.42 per share; and Storie Partners,
831,197 shares, $3.13 per share.
In June 1996, the Company issued $2,950,000 of its 10% Promissory Notes to
17 purchasers, including certain of its directors and more than five percent
stockholders. In connection with this financing, and as additional consideration
for the investment of these purchasers, the Company also issued warrants to
purchase 196,670 shares of Common Stock at a per share exercise price equal to
the lesser of (i) $10.00 or (ii) the price at which a share of Common Stock is
first sold in a public or private sale after the issuance of the warrants and
prior to the issuance of stock subject to the warrants. The 10% Promissory Notes
are due on or before June 6, 1997 with interest payable monthly until such date.
The warrants are exerciseable for five years commencing on the date of issuance.
39
<PAGE>
The following directors and more than five percent stockholders participated
in this financing: Gregory Abbott, $200,000 note, 13,333 warrants; Sidney Azeez,
$200,000 note, 13,333 warrants; Robert M. Kavner, $100,000 note, 6,667 warrants;
Robert S. London, $200,000 note, 13,333 warrants; Kevin M. O'Donnell, $225,000
note, 15,000 warrants; Reed E. Slatkin, $225,000 note, 15,000 warrants; and
Storie Partners, L.P., $300,000 note, 20,000 warrants.
The Company believes that the foregoing transactions were on terms no less
favorable to the Company than could be obtained from unaffiliated parties. It is
the Company's current policy that all transactions by the Company with officers,
directors, more than five percent stockholders and their affiliates will be
entered into only if such transactions are approved by a majority of
disinterested independent directors and are on terms no less favorable to the
Company than could be obtained from unaffiliated parties.
40
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of May 31, 1996 by (i)
each person or entity who is known by the Company to own beneficially more than
five percent of the Common Stock, (ii) each of the Company's directors and
executive officers, and (iii) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY SHARES BENEFICIALLY OWNED
OWNED PRIOR TO ------------------------------------
AND AFTER THE BEFORE THE AFTER THE
NAME AND ADDRESS OF BENEFICIAL OWNERS (1) OFFERING OFFERING OFFERING
- ---------------------------------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Sky D. Dayton................................................... 3,100,000(2) 25.7% 19.8%
Kevin M. O'Donnell.............................................. 2,249,330(3) 18.2 14.1
Reed E. Slatkin................................................. 2,249,315(4) 18.2 14.1
Sidney Azeez.................................................... 1,058,249(5) 8.8 6.8
Charles G. Betty................................................ 89,098(6) * *
Linwood A. Lacy, Jr............................................. 59,620(7) * *
Robert M. Kavner................................................ 58,017(8) * *
Robert E. Johnson............................................... 20,000(9) * *
Brinton O.C. Young.............................................. 11,250 (10 * *
Barry W. Hall................................................... 12,500 (11 * *
David R. Tommela................................................ 8,750 (12 * *
Storie Partners................................................. 851,197 (13 7.1 5.5
One Bush Street
San Francisco, CA 94104
Robert S. London................................................ 757,398 (14 6.3 4.9
Cruttenden Roth Incorporated
809 Presidio Ave.
Santa Barbara, CA 93101
Gregory Abbott.................................................. 690,583 (14 5.8 4.4
1285 S. Ocean Blvd.
Palm Beach, FL 33480
All directors and executive officers as a group (11 persons).... 8,916,129 (15 69.0% 53.9%
<FN>
- ------------
* Represents beneficial ownership of less than 1% of the Common Stock.
</TABLE>
(1) Except as otherwise indicated by footnote, the named person has sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned. Except as otherwise indicated in the table, the named
person's address is that of the Company.
(2) Includes options to purchase 100,000 shares of Common Stock that are
exercisable within 60 days of May 31, 1996.
(3) Includes (i) 13,259 shares of Common Stock held by Mr. O'Donnell's son,
(ii) warrants to purchase 365,000 shares of Common Stock, and (iii) options
to purchase 25 shares of Common Stock held by Mr. O'Donnell's son, that are
exercisable within 60 days of May 31, 1996. Mr. O'Donnell disclaims
beneficial ownership of the shares of Common Stock held by his son and the
shares of Common Stock issuable upon exercise of options held by his son.
(4) Includes (i) warrants to purchase 365,000 shares of Common Stock that are
exercisable within 60 days of May 31, 1996 and (ii) 11,220 shares of Common
Stock held in trust for Mr. Slatkin's minor children.
(5) Includes (i) 632,403 shares of Common Stock held by Mr. Azeez's wife and
children and (ii) warrants to purchase 13,333 shares of Common Stock that
are exercisable within 60 days of May 31, 1996.
(6) Includes (i) options to purchase 35,000 shares of Common Stock that are
exercisable within 60 days of May 31, 1996 and (ii) 4,098 shares of Common
Stock held by Mr. Betty's father-in-law and mother-in-law of which Mr. Betty
disclaims beneficial ownership.
(7) Includes warrants to purchase 10,000 shares of Common Stock that are
exercisable within 60 days of May 31, 1996.
(8) Includes warrants to purchase 16,667 shares of Common Stock that are
exercisable within 60 days of May 31, 1996.
(9) Includes options to purchase 20,000 shares of Common Stock that are
exercisable within 60 days of May 31, 1996.
(10) Includes options to purchase 11,250 shares of Common Stock that are
exercisable within 60 days of May 31, 1996.
(11) Includes options to purchase 12,500 shares of Common Stock that are
exercisable within 60 days of May 31, 1996.
(12) Includes options to purchase 8,750 shares of Common Stock that are
exercisable within 60 days of May 31, 1996.
(13) Includes warrants to purchase 20,000 shares of Common Stock that are
exercisable within 60 days of May 31, 1996.
(14) Includes warrants to purchase 13,333 shares of Common Stock that are
exercisable within 60 days of May 31, 1996.
(15) Includes (i) options and warrants to purchase 957,525 shares of Common
Stock that are exercisable within 60 days of May 31, 1996 and (ii) 647,721
shares of Common Stock owned by family members or affiliates of certain
members of the group.
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of (i) 50 million
shares of Common Stock, $0.01 par value per share, and (ii) 10 million shares of
Preferred Stock, $0.01 par value per share. As of May 31, 1996, there were
11,970,465 shares of Common Stock outstanding. The following summary is
qualified in its entirety by reference to the Company's Certificate of
Incorporation, which is filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
COMMON STOCK
Under the Delaware General Corporation Law and the Company's Certificate of
Incorporation, holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders, including the election of
directors, and holders of such shares exclusively possess all voting power. The
Company's Certificate of Incorporation provides for cumulative voting rights in
the election of directors, meaning that in such elections (i) each stockholder
is entitled to cast such number of votes as is equal to the product of the
number of shares owned by such stockholder multiplied by the number of directors
standing for election and (ii) each stockholder may cast all of such votes for a
single director or may distribute them among any two or more candidates for
election as such stockholder chooses. The Common Stock carries no preemptive
rights and is not convertible, redeemable or assessable. The holders of Common
Stock are entitled to dividends in such amounts and at such times as may be
declared by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." Upon the liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after payment or provision for payment of all
debts and other liabilities subject to prior rights of holders of Preferred
Stock then outstanding, if any.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of 10
million shares of Preferred Stock, all of which will be available for future
issuance upon consummation of this Offering. Preferred Stock may be issued from
time to time in one or more series, and the Board of Directors, without further
approval of the stockholders, is authorized to fix the dividend rights and
terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, sinking funds and any other rights, preferences,
privileges and restrictions applicable to each such series of Preferred Stock.
The issuance of Preferred Stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, among other things,
adversely affect the voting power of the holders of Common Stock and, under
certain circumstances, make it more difficult for a third party to gain control
of the Company, discourage bids for the Company's Common Stock at a premium, or
otherwise adversely affect the market price of the Common Stock.
CERTAIN CHARTER AND BYLAW PROVISIONS
Following the consummation of this Offering, the Company will be subject to
the "business combination" statute of the Delaware General Corporation Law. This
statute prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns (or within three
years, did own) 15% or more of the corporation's voting stock. The effect of
this statute could, among other things, make it more difficult for a third party
to gain control of the Company, discourage bids for the Company's Common Stock
at a premium, or otherwise adversely affect the market price of the Common
Stock.
42
<PAGE>
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY; INDEMNIFICATION
The Company's Bylaws provide that, to the fullest extent permitted by
Delaware law, the Company may indemnify its directors and officers against any
damages arising from their actions as agents of the Company. The Bylaws further
provide that the Company may similarly indemnify its other employees and agents.
In addition, each director has entered into an indemnification agreement with
the Company pursuant to which the Company has agreed to indemnify such director
to the fullest extent permitted by Delaware law. At present, there is no pending
litigation or proceeding involving a director or officer of the Company in which
indemnification is required or permitted, and the Company is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
REGISTRATION RIGHTS
The holders of substantially all of the shares of Common Stock outstanding
prior to this Offering (including the Company's founder and Chairman of the
Board and its President and Chief Executive Officer) as well as certain holders
of warrants to purchase such stock, are parties to registration rights
agreements with the Company. These agreements provide incidental or "piggyback"
registration rights that allow such holders, under certain circumstances, to
include shares of Common Stock in registration statements initiated by the
Company or other stockholders. These agreements do not permit holders of
registration rights to include their shares of Common Stock in this Offering.
See "Shares Eligible for Future Sale."
TRANSFER AGENT AND REGISTRAR
The Company's Transfer Agent and Registrar is American Stock Transfer &
Trust Company.
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time. Sales
of substantial amounts of Common Stock of the Company in the public market after
various restrictions lapse could adversely affect the prevailing market price
and the ability of the Company to raise equity capital in the future.
Upon the completion of this Offering, the Company will have 15,570,465
shares of Common Stock outstanding. Of these shares, the 3,600,000 shares of
Common Stock sold in this Offering will be freely tradable without restriction
under the Securities Act, except that shares purchased by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act, may
generally be sold only in compliance with the limitations of Rule 144 described
below.
SALES OF RESTRICTED SHARES
The 11,970,465 shares of Common Stock held by existing stockholders prior to
this Offering were issued and sold by the Company in reliance on exemptions from
the registration requirements of the Securities Act and are deemed "Restricted
Shares" under Rule 144. These shares may be sold in the public market only if
registered, or pursuant to an exemption from registration such as Rules 144,
144(k) or 701 under the Securities Act. The Company's directors, officers and
holders of all of the shares of Common Stock outstanding prior to this Offering
have entered into lock-up agreements under which they have agreed not to offer,
sell or otherwise dispose of any shares of Common Stock, any options or warrants
to acquire shares of Common Stock or securities exchangeable for or convertible
into shares of Common Stock owned by them for a period of 180 days after the
date of this Prospectus, without the prior written consent of UBS Securities
LLC. The Company has entered into a similar agreement, except that the Company
may grant additional options under its 1995 Stock Option Plan or issue shares of
Common Stock under outstanding options and warrants. Upon expiration of the
lock-up agreements, 5,882,360 shares will become eligible for immediate public
resale subject to Rule 144. The remaining 6,088,105 shares held by existing
stockholders will become eligible for public resale following expiration of the
lock-up agreements at various times over a period of less than two years
following the completion of this Offering, subject in some cases to volume
limitations. The holders of substantially all of the shares of the shares of
Common Stock outstanding prior to this Offering (including the Company's founder
and Chairman and its President and Chief Executive Officer) as well as certain
holders of warrants to purchase such stock are parties to registration rights
agreements with the Company that provide incidental or "piggyback" registration
rights that allow such holders, under certain circumstances, to include shares
of Common Stock in registration statements initiated by the Company or other
stockholders. The number of shares sold in the public market could increase if
such rights are exercised. See "Description of Capital Stock -- Registration
Rights."
OPTIONS
As of May 31, 1996, 3,693,968 shares were subject to outstanding options and
warrants. Of these shares, 3,110,678 are subject to the lock-up agreements
described above. Approximately 90 days after the date of this Prospectus, the
Company intends to file a Registration Statement on Form S-8 covering shares
issuable under the Company's 1995 Stock Option Plan (including shares subject to
then outstanding options under such plans), thus permitting the resale of such
shares in the public market without restriction under the Securities Act after
expiration of the applicable lock-up agreements.
Following the expiration of the 90-day period following the date of this
Prospectus, 151,186 shares of Common Stock subject to outstanding vested options
and warrants will become eligible for sale without restriction in the public
market pursuant to Rules 144 and 701; however, 139,749 of such shares will be
subject to lock-up agreements for an additional 90 days. In general, under Rule
144 as currently in effect, a person (or persons whose shares are aggregated)
who has beneficially owned shares for at least two years (including the holding
period of any prior owner, except an affiliate) is entitled to sell in "broker's
transactions"
44
<PAGE>
or to market makers, within any three month period commencing 90 days after the
date of this Prospectus, a number of shares that does not exceed the greater of
(i) one percent of the number of shares of Common Stock then outstanding
(approximately 155,700 shares immediately after this Offering) or (ii) the
average weekly trading volume of the Common Stock during the four calendar weeks
preceding the required filing of a Form 144 with respect to such sale. Sales
under Rule 144 are generally subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
the Company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least three
years, is entitled to sell such shares without having to comply with the manner
of sale, public information, volume limitation or notice provisions of Rule 144.
Under Rule 701 of the Securities Act, persons who purchase shares upon exercise
of options granted prior to the effective date of this Offering are entitled to
sell such shares 90 days after the effective date of this Offering in reliance
on Rule 144 without having to comply with the holding period requirements of
Rule 144 and, in the case of persons who are not affiliates of the Company,
without having to comply with the public information, volume limitation or
notice provisions of Rule 144.
The Securities and Exchange Commission (the "Commission") has recently
proposed reducing the initial Rule 144 holding period to one year and the Rule
144(k) holding period to two years. There can be no assurance as to when or
whether such rule changes will be enacted. If enacted, such modifications will
have a material effect on the times when shares of the Company's Common Stock
become eligible for resale.
45
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom UBS Securities LLC,
Piper Jaffray Inc. and Cruttenden Roth Incorporated are acting as
representatives (the "Representatives"), have agreed to purchase from the
Company the following respective number of shares of Common Stock:
<TABLE>
<CAPTION>
UNDERWRITERS SHARES
- ------------------------------------------------------------------------------- -----------
<S> <C>
UBS Securities LLC.............................................................
Piper Jaffray Inc..............................................................
Cruttenden Roth Incorporated...................................................
-----------
Total...................................................................... 3,600,000
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel. The nature
of the Underwriters' obligations is such that they are committed to purchase all
shares of Common Stock offered hereby if any of such shares are purchased.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock directly to the public at the offering price
set forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession not in excess of $ per share. The Underwriters may
allow and such dealers may reallow a concession not in excess of $ per
share to certain other dealers. After the public offering of the shares of
Common Stock, the offering price and other selling terms may be changed by the
Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 540,000
additional shares of Common Stock to cover over-allotments, if any, at the
public offering price set forth on the cover page of this Prospectus, less the
underwriting discounts and commissions. To the extent that the Underwriters
exercise this option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof which the number of shares of
Common Stock to be purchased by it shown in the above table bears to the total
number of shares of Common Stock offered hereby. The Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
All officers, directors and stockholders of the Company have agreed that
they will not, without the prior written consent of UBS Securities LLC, offer,
sell or otherwise dispose of any shares of Common Stock, any options or warrants
to acquire shares of Common Stock or securities exchangeable for or convertible
into shares of Common Stock owned by them for a period of 180 days after the
date of this Prospectus. The Company has agreed that it will not, without the
prior written consent of UBS Securities LLC, offer, sell or otherwise dispose of
any shares of Common Stock for a period of 180 days after the date of this
Prospectus, except that the Company may grant additional options under its 1995
Stock Option Plan or issue shares of Common Stock upon the exercise of
outstanding stock options and warrants.
46
<PAGE>
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
In June 1996, certain entities and persons affiliated with Cruttenden Roth
Incorporated, one of the Underwriters, along with other third parties, agreed to
provide the Company with a short-term line of credit pursuant to which the
Company may borrow up to $2,950,000. In connection with this loan, such entities
and persons received a pro rata portion of the commitment fee of 1.5% of the
amount committed and warrants to purchase an aggregate of 83,333 shares of
Common Stock at a per share exercise price equal to the lesser of (i) $10.00 or
(ii) the price at which a share of Common Stock is first sold in a public or
private sale after the issuance of the warrants and prior to the issuance of
stock subject to the warrants.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined through negotiations
between the Company and the Representatives of the Underwriters and may not be
indicative of the market price of the Common Stock following this Offering.
Among the factors to be considered in such negotiations are prevailing market
conditions, certain financial information of the Company, market valuations of
other companies that the Company and the Representatives of the Underwriters
believe to be comparable to the Company, estimates of the business potential of
the Company, the present state of the Company's development and other factors
deemed relevant.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Hunton & Williams, Atlanta, Georgia.
Certain legal matters in connection with the Offering will be passed upon for
the Underwriters by Wilson, Sonsini, Goodrich & Rosati, Professional
Corporation, Palo Alto, California.
EXPERTS
The financial statements as of December 31, 1995 and 1994 and for the period
from inception through December 31, 1994 and the year ended December 31, 1995
included in this Prospectus and Registration Statement have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed a registration statement on Form S-1 (the
"Registration Statement") with the Commission under the Securities Act in
respect of the Common Stock offered hereby. This Prospectus omits certain
information contained in the Registration Statement as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto, and Financial Statements
and Notes thereto filed as a part thereof. Statements herein concerning the
contents of any contract or other document filed with the Commission as an
exhibit to the Registration Statement are not necessarily complete and are
qualified in all respects by such reference. Copies of the Registration
Statement, including all exhibits and schedules thereto, may be inspected
without charge at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such material
can be obtained from the Public Reference Section of the Commission upon payment
of certain fees prescribed by the Commission.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by its independent accountants
and quarterly reports for the first three quarters of each fiscal year
containing unaudited financial information.
47
<PAGE>
EARTHLINK NETWORK, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants......................................... F-2
Balance Sheet as of December 31, 1994 and 1995 and March 29, 1996......... F-3
Statement of Operations for the period from inception (May 26, 1994)
through December 31, 1994, and the year ended December 31, 1995 and the
three months ended March 31, 1995 and March 29, 1996..................... F-4
Statement of Stockholders' Equity for the period from inception (May 26,
1994) through December 31, 1994, the year ended December 31, 1995 and the
three months ended March 29, 1996........................................ F-5
Statement of Cash Flows for the period from inception (May 26, 1994)
through December 31, 1994, the year ended December 31, 1995 and the three
months ended March 31, 1995 and March 29, 1996........................... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of EarthLink Network, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' equity and of cash flows present fairly,
in all material respects, the financial position of EarthLink Network, Inc. at
December 31, 1994 and 1995, and the results of its operations and its cash flows
for the period from inception (May 26, 1994) through December 31, 1994 and the
year ended December 31, 1995 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Costa Mesa, California
May 31, 1996, except for Note 12,
as to which the date is June 27, 1996
F-2
<PAGE>
EARTHLINK NETWORK, INC.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
------------- ------------
MARCH 29,
1996
------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................................ -- $ 290 $ 950
Restricted short-term investment (Note 6)............................ -- 1,500 500
Accounts receivable.................................................. $ 27 218 281
Prepaid expenses and other assets (Note 4)........................... -- 245 625
----- ------------ ------------
Total current assets............................................. 27 2,253 2,356
Property and equipment, net (Notes 1 and 3)............................ 90 2,551 6,363
Intangibles, net (Notes 2, 5 and 7).................................... 69 70 159
----- ------------ ------------
Total assets..................................................... $ 186 $ 4,874 $ 8,878
----- ------------ ------------
----- ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable............................................... $ 18 $ 1,766 $ 1,640
Accrued payroll and related expenses................................. 4 193 436
Other accounts payable and accrued liabilities....................... -- 405 2,118
Lines of credit...................................................... -- 1,494 --
Current portion of capital lease obligations (Note 9)................ -- 159 763
Note payable to investor............................................. 67 -- --
Deferred revenues.................................................... -- 212 415
----- ------------ ------------
Total current liabilities........................................ 89 4,229 5,372
Capital lease obligations, net of current portion (Note 9)............. -- 355 1,709
----- ------------ ------------
Total liabilities................................................ 89 4,584 7,081
----- ------------ ------------
Commitments and contingencies (Note 9)
Stockholders' equity
Preferred Stock, $0.01 par value, 10,000,000 shares authorized, none
issued and outstanding..............................................
Common Stock, $0.01 par value, 50,000,000 shares authorized,
5,882,360, 10,114,330 and 10,255,300 issued and outstanding (Note
7).................................................................. 59 101 102
Additional paid-in capital........................................... 117 5,072 5,412
Common Stock pending issuance........................................ -- -- 5,931
Warrants to purchase common stock (Note 7)........................... 69 124 228
Accumulated deficit.................................................. (148) (5,007) (9,876)
----- ------------ ------------
Total stockholders' equity............................................. 97 290 1,797
----- ------------ ------------
$ 186 $ 4,874 $ 8,878
----- ------------ ------------
----- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
EARTHLINK NETWORK, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
(MAY 26, 1994) YEAR ENDED THREE MONTHS ENDED
THROUGH DECEMBER 31, ------------------------------
DEC. 31, 1994 1995 MARCH 31, 1995 MARCH 29, 1996
-------------- ------------- -------------- --------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Recurring revenues............................. $ 53 $ 2,422 $ 113 $ 2,628
Other revenues................................. 58 606 70 790
-------------- ------------- -------------- --------------
Total revenues............................... 111 3,028 183 3,418
Operating costs and expenses:
Cost of recurring revenues..................... 4 1,055 60 1,698
Cost of other revenues......................... 12 349 6 569
Sales and marketing............................ 37 3,711 124 2,209
General and administrative expenses............ 168 2,062 141 1,632
Operations and customer support................ 38 1,869 104 2,098
-------------- ------------- -------------- --------------
Total operating costs and expenses........... 259 9,046 435 8,206
-------------- ------------- -------------- --------------
Loss from operations............................. (148) (6,018) (252) (4,788)
Interest expense................................. -- (136) (19) (100)
Interest income.................................. -- 34 -- 19
-------------- ------------- -------------- --------------
Net loss................................... $ (148) $ (6,120) $ (271) $ (4,869)
-------------- ------------- -------------- --------------
-------------- ------------- -------------- --------------
Net loss per share (Note 1)...................... $ (0.01) $ (0.47) $ (0.02) $ (0.35)
-------------- ------------- -------------- --------------
-------------- ------------- -------------- --------------
Weighted average shares outstanding (Note 1)..... 11,716 13,159 12,594 13,717
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
EARTHLINK NETWORK, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON
COMMON STOCK ADDITIONAL STOCK
---------------------- PAID-IN PENDING ACCUMULATED
SHARES AMOUNT CAPITAL ISSUANCE WARRANTS DEFICIT
--------- ----------- ----------- ----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock......................... 5,882 $ 59 $ 117 $ -- $ -- $ --
Warrants issued in connection with line of credit
(Note 7)....................................... -- -- -- -- 69 --
Net loss......................................... -- -- -- -- -- (148)
--------- ----- ----------- ----------- ----- -------------
Balance at December 31, 1994..................... 5,882 59 117 -- 69 (148)
Issuance of Common Stock......................... 4,232 42 6,216 -- -- --
Reclassification of S Corporation accumulated
deficit (Note 8)............................... -- -- (1,261) -- -- 1,261
Warrants issued for lease guarantee (Note 7)..... -- -- -- -- 50 --
Warrants issued for non-competition agreement
(Notes 2 and 7)................................ -- -- -- -- 5 --
Net Loss......................................... -- -- -- -- -- (6,120)
--------- ----- ----------- ----------- ----- -------------
Balance at December 31, 1995..................... 10,114 101 5,072 -- 124 (5,007)
Issuance of Common Stock
(unaudited).................................... 141 1 340 -- -- --
Common Stock pending issuance.................... -- -- -- 5,931 -- --
Warrants issued in connection with equipment
leases......................................... -- -- -- -- 104 --
Net loss (unaudited)............................. -- -- -- -- -- (4,869)
--------- ----- ----------- ----------- ----- -------------
Balance at March 29, 1996
(unaudited).................................... 10,255 $ 102 $ 5,412 $ $5,931 $ 228 $ (9,876)
--------- ----- ----------- ----------- ----- -------------
--------- ----- ----------- ----------- ----- -------------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Issuance of Common Stock......................... $ 176
Warrants issued in connection with line of credit
(Note 7)....................................... 69
Net loss......................................... (148)
-------------
Balance at December 31, 1994..................... 97
Issuance of Common Stock......................... 6,258
Reclassification of S Corporation accumulated
deficit (Note 8)............................... --
Warrants issued for lease guarantee (Note 7)..... 50
Warrants issued for non-competition agreement
(Notes 2 and 7)................................ 5
Net Loss......................................... (6,120)
-------------
Balance at December 31, 1995..................... 290
Issuance of Common Stock
(unaudited).................................... 341
Common Stock pending issuance.................... 5,931
Warrants issued in connection with equipment
leases......................................... 104
Net loss (unaudited)............................. (4,869)
-------------
Balance at March 29, 1996
(unaudited).................................... $ 1,797
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EARTHLINK NETWORK, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION
(MAY 26, 1994) THREE MONTHS ENDED
THROUGH YEAR ENDED ------------------------
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 29,
1994 1995 1995 1996
--------------- ------------- ----------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................... $ (148) $ (6,120) $ (271) $ (4,869)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................ 7 305 16 450
Increase in accounts receivable.......................... (27) (191) (9) (63)
Increase (decrease) in prepaid expenses and other
assets.................................................. -- (141) 18 (380)
Increase in accounts payable and accrued liabilities..... 22 2,292 88 1,830
Increase in deferred revenue............................. -- 212 41 203
----- ------ ----- -----------
Net cash used in operating activities.................. (146) (3,643) (117) (2,829)
----- ------ ----- -----------
Cash flows from investing activities:
Purchases of property and equipment, net................... (97) (2,766) (176) (4,247)
(Purchase) liquidation of restricted short-term
investment................................................ -- (1,500) -- 1,000
----- ------ ----- -----------
Net cash used in investing activities.................. (97) (4,266) (176) (3,247)
----- ------ ----- -----------
Cash flows from financing activities:
Proceeds from (payment of) line of credit.................. -- 1,494 -- (1,494)
Increase (decrease) in note payable........................ 67 (67) 135 --
Proceeds from capital lease obligations.................... -- 556 -- 2,163
Principal payments under capital lease obligations......... -- (42) -- (205)
Proceeds from issuance of Common Stock..................... 176 6,258 158 341
Proceeds from Common Stock pending issuance................ -- -- -- 5,931
----- ------ ----- -----------
Net cash provided by financing activities.............. 243 8,199 293 6,736
----- ------ ----- -----------
Net increase in cash and cash equivalents.................... -- 290 -- 660
Cash and cash equivalents, beginning of year................. -- -- -- 290
----- ------ ----- -----------
Cash and cash equivalents, end of year....................... $ -- $ 290 $ -- $ 950
----- ------ ----- -----------
----- ------ ----- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
EarthLink Network, Inc. ("EarthLink" or the "Company") was organized on May
26, 1994 and is a leading branded provider of reliable, easy-to-use Internet
services.
The Company has experienced operating losses since its inception as a result
of efforts to build its network infrastructure and internal staffing, develop
its systems, and expand into new markets. The Company expects to continue to
focus on increasing its customer base and geographic coverage. Accordingly, the
Company expects its cost of revenues, selling, general, and administrative
expenses and capital expenditures will continue to increase significantly, all
of which will have a negative impact on short-term operating results. In
addition, the Company may change its pricing policies to respond to a changing
competitive environment. There can be no assurance that growth in the Company's
revenues or customer base will continue or that the Company will be able to
achieve or sustain profitability or cash flow.
FISCAL YEAR
Effective January 1, 1996 the Company changed its fiscal year from a
calendar year end to a 52, 53 week year ending on the last Friday of December.
Accordingly, the three months ended March 29, 1996 comprised 13 weeks.
REVENUES
Recurring revenues from monthly Internet service are recognized over the
period services are provided. Other revenues, consisting primarily of sign up
fees, are recognized as revenue when earned.
CASH AND CASH EQUIVALENTS
All highly liquid investments with an original maturity of three months or
less at the date of acquisition are classified as cash equivalents.
ACCOUNTS RECEIVABLE AND DEFERRED REVENUES
Commencing in 1995, the Company began to bill for Internet service generally
one month in advance. Accordingly, these non-cancelable advanced billings are
included in both accounts receivable and deferred revenue.
PROPERTY AND EQUIPMENT
Property and equipment are depreciated or amortized using the straight-line
method over the estimated useful life of the assets, which is generally three
years. Leasehold improvements are amortized using the straight line method over
the shorter of their estimated lives or the term of the lease.
EQUIPMENT UNDER CAPITAL LEASE
The Company leases certain of its data communications and other equipment
under capital lease agreements. The assets and liabilities under capital lease
are recorded at the lesser of the present value of aggregate future minimum
lease payments, including estimated bargain purchase options, or the fair value
of the assets under lease. Assets under capital lease are depreciated over their
estimated useful lives of three years, which are generally equal to the terms of
the leases.
F-7
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INTANGIBLES
Intangible assets consist primarily of deferred financing costs, prepaid
lease guarantee costs, goodwill, rights to client lists and a covenant not to
compete. The costs assigned to intangible assets are being amortized on a
straight-line basis over the estimated useful lives of the assets ranging from 2
to 3 years. The Company regularly reviews the recoverability of intangibles
based on estimated undiscounted future cash flows from operating activities
compared with the carrying values of the intangibles.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS
123), effective for years beginning after December 15, 1995. For purposes of
recording expense associated with stock-based compensation, the Company intends
to continue to apply the provisions of APB Opinion No. 25 and related
interpretations. The effect of adoption of SFAS 123 in the year ending December
31, 1996 is not expected to be material.
ADVERTISING AND CUSTOMER ACQUISITION COSTS
Advertising and customer acquisition costs are included in sales and
marketing. Such costs are expensed as incurred.
INCOME TAXES
Income taxes are accounted for under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Under this method, deferred
tax assets and liabilities are determined based on differences between the
financial reporting basis and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding. In addition, pursuant to Securities and Exchange Commission
Staff Accounting Bulletin No. 83, Common Stock and Common Stock equivalent
shares issued by the Company at prices below the public offering price during
the twelve month period prior to the proposed offering date (using the treasury
stock method and an assumed initial public offering price of $11.00 per share)
including Common Stock pending issuance have been included in the calculation as
if they were outstanding for all periods regardless of whether they are
dilutive. Common Stock equivalent shares issued by the Company more than twelve
months prior to the proposed offering date have been excluded from the net loss
per share calculation because the impact is anti-dilutive.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consists principally of cash investments and trade receivables.
The Company's cash investment policies limit investments to short-term, low risk
instruments. Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Company's customer
base.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-8
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL STATEMENTS
The interim financial data is unaudited. However, in the opinion of the
Company, the interim financial data includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results for
the interim periods.
2. PURCHASE OF CERTAIN ASSETS FROM BECKEMEYER DEVELOPMENT TECHNOLOGIES
In order to recruit the principal shareholder of Beckemeyer Development
Technologies ("BDT") to serve as the Company's Vice President of Engineering, on
November 7, 1995, the Company agreed to purchase all fixtures, equipment, and
the client list of BDT for cash of $64,000. In addition to the above, the
principal shareholder was issued warrants to purchase 20,678 shares of the
Company's Common Stock at $2.42 per share as consideration for a provision not
to compete for a two-year period. The value assigned to the warrants was $5,000
based upon an appraisal obtained by the Company. The warrants expire October 10,
2005. This purchase price was allocated to the assets acquired with the
remainder reflected as an intangible asset. At the time of purchase, BDT was not
material to the results of operations, financial position or customer base of
EarthLink.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Data communications equipment......................................................... $ 71 $ 2,167
Office and other equipment............................................................ 26 661
Leasehold improvements................................................................ -- 35
--- ---------
97 2,863
Less accumulated depreciation and amortization........................................ (7) (312)
--- ---------
$ 90 $ 2,551
--- ---------
--- ---------
</TABLE>
Property under capital lease, primarily data communications equipment
included above, aggregated $556,000 at December 31, 1995. Included in
accumulated depreciation and amortization are amounts related to property under
capital lease of $56,000 at December 31, 1995. Depreciation and amortization
expense charged to operations was $7,000 and $305,000 in 1994 and 1995,
respectively, which included nil and $56,000, respectively, pertaining to
property under capital lease.
F-9
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. OTHER ASSETS
Other assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
---------------
(IN THOUSANDS)
<S> <C>
Deposits............................................................................... $ 122
Prepaid expenses....................................................................... 123
-----
$ 245
-----
-----
</TABLE>
5. INTANGIBLE ASSETS
Intangible assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred financing costs.............................................................. $ 69 $ --
Lease guarantee....................................................................... -- 50
Rights to client lists................................................................ -- 10
Goodwill.............................................................................. -- 5
Covenant not to compete............................................................... -- 5
--- ---
$ 69 $ 70
--- ---
--- ---
</TABLE>
At December 31, 1995, deferred financing costs were fully amortized and
charged against operations as additional interest.
6. LINES OF CREDIT
The Company has three secured revolving credit agreements with its banks
under which the Company may borrow up to a maximum principal amount of
$1,000,000, $250,000 and $250,000, respectively. These revolving line of credit
agreements expire on October 31, 1996, June 14, 1996 and July 3, 1996
respectively. All lines of credit are secured by certificates of deposit.
Interest is payable monthly in arrears at 1.5% to 2% in excess of the annualized
percentage yield of the pledged certificates of deposits. The outstanding
principle balance under these lines of credit was $1,000,000, $248,000 and
$246,000 at December 31, 1995. The effective interest rates at December 31, 1995
were 6.48%, 7.62% and 7.65%, respectively.
7. STOCKHOLDERS' EQUITY
BUY-SELL AGREEMENT
The Company and certain stockholders entered into a Buy-Sell Agreement
pursuant to which the Company has the first right of refusal upon sale or
transfer of shares of Common Stock by these stockholders. The right will expire
by either written agreement of all parties, dissolution, bankruptcy, or
insolvency of the Company, registration of the Company's Common Stock under
Section 12(b) or 12(g) of the Securities Exchange Act of 1934, consummation of a
public offering, sale or merger, or at such time as only one stockholder
remains.
F-10
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTIONS
The Company grants non-qualified stock options to certain employees,
officers and directors as directed by the Company's Board of Directors. Options
generally vest ratably over a five year period. A summary of the activity
related to these options is as follows:
<TABLE>
<CAPTION>
OPTION PRICE
PER SHARE OUTSTANDING EXERCISABLE
-------------- ----------- -----------
<S> <C> <C> <C>
Options granted.............................................. $0.30-$2.42 850,000
Became exercisable........................................... $0.30-$2.42 85,000
Forfeited.................................................... $0.30 (120,417)
-------------- ----------- -----------
Balance at December 31, 1995................................. $0.30-$2.42 729,583 85,000
-------------- ----------- -----------
-------------- ----------- -----------
</TABLE>
In September 1995, the Company established the EarthLink Network 1995 Stock
Option Plan (the "1995 Plan"). The 1995 Plan provides for the grant of incentive
stock options to employees of the Company and non-qualified stock options to
employees, officers, directors and consultants of the Company. The 1995 Plan is
administered by a committee appointed by the Board which determines the terms of
the options granted, including the exercise price, the number of shares subject
to option, and the option vesting period. The exercise price of all options
granted under the plan must be at least 85% of the fair market value (for
nonstatutory stock options) or 100% of the fair market value (for incentive
stock options) on the date of grant. Options generally vest in equal quarterly
increments over a five year period. Options to purchase 75,000 shares granted to
an officer accelerate to a four year vesting in the event of an initial public
offering of the Company's Common Stock. A summary of the activity related to
these options is as follows:
<TABLE>
<CAPTION>
OPTION PRICE AVAILABLE
PER SHARE OUTSTANDING EXERCISABLE FOR GRANT
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Plan creation (1995)............................. 1,500,000
Options granted.................................. $ 2.42 465,000 (465,000)
Became exercisable............................... $ 2.42 2,000
----- ----------- ----- -----------
Balance at December 31, 1995..................... $ 2.42 465,000 2,000 1,035,000
----- ----------- ----- -----------
----- ----------- ----- -----------
</TABLE>
WARRANTS
The Company has issued to certain Board members, consultants, lease
providers and creditors warrants to purchase shares of the Company's Common
Stock.
On December 15, 1994, certain stockholders provided the Company a revolving
line of credit of $400,000 bearing interest at a rate of 8.1%. As of December
31, 1994 the outstanding balance was $67,000. Interest expense for the year
ended December 31, 1995 was $15,000. The Company issued warrants to the
stockholders to purchase 300,000 shares of Common Stock at $0.91 per share
valued at $69,000, based upon an appraisal obtained by the Company, as
additional consideration for this line of credit. These warrants expire June 19,
2000.
On September 1, 1995, certain stockholders guaranteed a $500,000 lease for
networking equipment. The Company issued warrants to purchase 100,000 shares of
Common Stock at $0.91 per share valued at $25,000, based upon an appraisal
obtained by the Company, as consideration for this guarantee. These warrants
expire August 31, 2000.
F-11
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On December 13, 1995, certain stockholders provided the Company with a
$250,000 Irrevocable Standby Letter of Credit as a performance guarantee for a
real estate lease. In conjunction with this transaction the Company issued
warrants valued at $25,000, based upon an appraisal obtained by the Company, to
purchase 100,000 shares at $2.42 per share. These warrants expire December 1,
2000.
A summary of the activity related to these grants is as follows:
<TABLE>
<CAPTION>
WARRANT PRICE
PER SHARE SHARES
-------------- ---------
<S> <C> <C>
Warrants granted........................................................... $0.91 300,000
Balance at December 31, 1994............................................... $0.91 300,000
Warrants granted........................................................... $0.91-$2.42 220,678
-------------- ---------
Balance at December 31, 1995............................................... $0.91-$2.42 520,678
-------------- ---------
-------------- ---------
</TABLE>
The value of these warrants have been reflected as additional financing or
lease costs and reflected accordingly as charges against operations.
8. INCOME TAXES
The stockholders, upon incorporating the Company, elected to treat the
Company as an S Corporation under the Internal Revenue Code. On June 19, 1995,
this election was revoked as certain ineligible entities (i.e partnerships,
corporations) became stockholders. Losses of $1,261,000 incurred from inception
through June 19, 1995 have been reclassified from accumulated deficit to Common
Stock as a result of the change to C Corporation status. The Company is now
subject to income taxes on income earned after June 19, 1995. At December 31,
1995, the Company had net operating loss carryforwards for federal income tax
purposes totaling approximately $3,328,000 which begin to expire in 2010.
Operating loss carryforwards for state income tax purposes totaling
approximately $1,664,000 begin to expire in 2001. The Tax Reform Act of 1986
includes provisions which may limit the net operating loss carryforwards
available for use in any given year if certain events occur, including
significant changes in ownership. If the Company is successful in completing its
proposed initial public offering, utilization of the Company's net operating
loss carryforwards to offset future income may be limited.
Deferred tax assets at December 31, 1995 include the following (in
thousands):
<TABLE>
<S> <C>
Net operating loss carryforwards.......................................... $ 1,304
Vacation accrual.......................................................... 27
---------
Gross deferred tax assets................................................. 1,331
Deferred tax asset valuation allowance.................................... (1,331)
---------
$ --
---------
---------
</TABLE>
The Company recorded a full valuation allowance for net deferred tax assets
as the Company believes it is more likely than not that the deferred tax asset
will not be realized.
9. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its facilities and certain equipment under non-cancelable
operating leases expiring in various years through 2000. Total rent expense for
the years ended December 31, 1994 and 1995 for all
F-12
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
operating leases amounted to $23,882 and $145,017, respectively. The Company
also leases equipment, primarily data communications equipment, under
non-cancelable capital leases. Generally, the Company's capital leases include
purchase options at the end of the lease term.
Minimum lease commitments under non-cancelable leases at December 31, 1995
are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
- ---------------------------------------------------------------------------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C>
1996.............................................................................. $ 214 $ 107
1997.............................................................................. 214 52
1998.............................................................................. 178 4
1999.............................................................................. 8 --
----- -----
Total minimum lease payments...................................................... 614 $ 163
-----
-----
Less amount representing interest................................................. (100)
-----
Present value of future lease payments............................................ 514
Less current portion.............................................................. (159)
-----
$ 355
-----
-----
</TABLE>
SIGNIFICANT AGREEMENTS
Access to the EarthLink Network outside of the Company's Southern California
regional base is currently leased from UUNET Technologies, Inc. ("UUNET").
EarthLink is in effect a reseller of UUNET's services, buying in bulk at a
discount, and providing access to EarthLink's customer base at EarthLink's
normal rates. Payment to UUNET is generally concurrent with EarthLink's receipt
of funds from customers. The Company's current agreement with UUNET, upon
expiration, automatically renews each subsequent period unless 60 days prior
written notice is given by either party. UUNET recently announced that it has
agreed to be acquired by MFS Communications, Inc. ("MFS"), a supplier of local
and long distance telephone service. There can be no assurance that following
the acquisition, MFS or UUNET will continue to provide the same service and at
affordable rates. Although leased telecommunications lines are available from
several alternative suppliers, there can be no assurance that the Company could
obtain substitute services from other providers at reasonable prices or in a
timely fashion.
EarthLink has licensed Netscape Navigator software ("Netscape Navigator"),
the World Wide Web client software, from Netscape Communications Corporation.
This license permits the Company to distribute Netscape Navigator as part of its
EarthLink Network TotalAccess software package. Management believes that
contract renewal, under conditions acceptable to EarthLink, is probable.
10. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
-----------------
(IN THOUSANDS)
<S> <C>
Cash paid for:
Interest............................................................................. $ 60
Income taxes......................................................................... $ 1
</TABLE>
F-13
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NON-CASH INVESTING AND FINANCING ACTIVITIES:
As discussed in Note 2, the Company obtained a covenant not to compete
agreement in exchange for warrants valued at $5,000.
As discussed in Note 7, certain stockholders guaranteed a $500,000 equipment
lease in exchange for warrants valued at $25,000 and provided the security
deposit for a real estate lease in exchange for warrants valued at $25,000
during the year ended December 31, 1995. The Company obtained a revolving line
of credit of $400,000 in exchange for warrants valued at $69,000 during 1994.
11. SUBSEQUENT EVENTS
REVOLVING LINE OF CREDIT
On May 31, 1996, the Company obtained a commitment from certain entities and
individuals, certain of whom are directors and stockholders of the Company, to
provide a short-term line of credit under which the Company may borrow a maximum
of $2,950,000 at an interest rate of 10%. The promissory notes evidencing this
commitment expire on June 6, 1997.
STOCK OPTIONS
In January 1996, stock options to purchase 550,000 shares of Common Stock at
$2.42 were granted. On March 4, 1996, options to purchase 5,000 shares of Common
Stock at $4.88 were granted of which 4,750 were subsequently forfeited. On May
7, 1996 the Company granted to employees under the 1995 Plan options to purchase
807,500 shares of Common Stock at $4.88 per share.
WARRANTS
On January 11, 1996, certain stockholders guaranteed a $1,500,000 lease for
networking equipment. The Company issued warrants to purchase 200,000 shares of
Common Stock at $2.42 per share valued at $60,000, based upon an appraisal
obtained by the Company, as consideration for this guarantee. These warrants
expire January 11, 2001.
On January 12, 1996, the Company issued warrants to purchase 200,000 shares
of Common Stock at $2.42 to Board members. The warrants vest quarterly over five
years and were valued at $76,000, based upon appraisal. Compensation will be
recognized quarterly over the vesting period.
On January 18, 1996, LINC Capital Partners, Inc. provided a $1,500,000 lease
line for equipment. The Company issued warrants to purchase 100,000 shares of
Common Stock at $2.42 per share valued at $40,000, based upon an appraisal
obtained by the Company. These warrants expire January 18, 2006.
On February 15, 1996, Boston Financial & Equity Corporation provided a
$700,000 lease line. The Company issued warrants to purchase 10,000 shares of
Common Stock at $4.88 per share valued at $3,500, based upon an appraisal
obtained by the Company. These warrants expire February 15, 2006.
In May 1996, the Company issued warrants to purchase 90,957 shares of Common
Stock at $4.88 per share for lease lines and services to the Company.
F-14
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of warrants granted subsequent to December 31, 1995 is as follows:
<TABLE>
<CAPTION>
WARRANT PRICE
PER SHARE SHARES
---------------- ---------
<S> <C> <C>
Warrants granted through March 29, 1996........................ $2.42 - $4.88 510,000
Warrants granted subsequent to March 29, 1996.................. $4.88 120,393
---------------- ---------
$2.42 - $4.88 630,393
---------------- ---------
---------------- ---------
</TABLE>
On May 6, 1996, the Company agreed to issue warrants to purchase 100,000
shares of Common Stock at an exercise price of $4.88 per share as consideration
for production of commercials. In addition the Company agreed to issue
additional warrants to purchase a maximum of 600,000 shares of Common Stock
based upon the number of customers obtained through the commercials. Through
December 31, 1997, the exercise price will be $4.88 per share, thereafter, the
exercise price will be set at the then fair market value of the Company's Common
Stock.
In connection with the commitment to provide the line of credit described
above, the Company agreed to issue to the lenders warrants to purchase an
aggregate of 196,670 shares of Common Stock at a per share exercise price equal
to the lesser of $10.00 or the price at which a share of Common Stock is first
sold in a public or private sale after the issuance of the warrants and prior to
the issuance of stock subject to the warrants.
On May 31, 1996, in connection with an amendment to the UUNET Agreement, the
Company agreed to issue warrants to purchase 20,000 shares of Common Stock at an
exercise price of $10.00 per share.
COMMON STOCK
The Company issued 90,970 shares of Common Stock at $2.42 and 50,000 shares
of Common Stock at $2.42 on January 18, 1996 and March 20, 1996, respectively.
On May 6, 1996, the Company issued 1,704,920 shares of common stock at $4.88 in
a private placement. As a result of these placements, EarthLink raised, in the
aggregate, $8,661,000 subsequent to December 31, 1995. In addition, on May 5,
1996, the Company issued 10,245 shares of Common Stock at $4.88 per share, to a
sub-contractor in lieu of cash for services provided to the Company.
F-15
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LEASES
Subsequent to December 31, 1995, the Company entered into several long-term
operating and capital lease agreements. Following is a schedule of future
minimum lease payments for agreements entered into subsequent to December 31,
1995:
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------- --------- -----------
(IN THOUSANDS)
<S> <C> <C>
1996............................................................................. $ 673 $ 492
1997............................................................................. 951 565
1998............................................................................. 943 592
1999............................................................................. 332 620
2000............................................................................. 230 650
Thereafter....................................................................... 63 332
--------- -----------
3,192 $ 3,251
-----------
-----------
Less amount representing interest................................................ (754)
---------
Present value of future lease payments........................................... $ 2,438
---------
---------
</TABLE>
New leases and related commitments are incremental to those disclosed in
Note 9.
12. REINCORPORATION
On June 27, 1996, the Company effected a reincorporation in Delaware. As a
result of the reincorporation the Company's authorized shares of Common Stock
was increased to 50,000,000 shares with a par value of $0.01 per share. In
addition the Company authorized 10,000,000 shares of preferred stock with a par
value of $0.01 per share. In March 1995 and January 1996 the Company executed
100-for-1 and 10-for-1 stock splits, respectively. The accompanying financial
statements have been retroactively adjusted to give effect to the
reincorporation and the stock splits.
F-16
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED HEREIN AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 5
Use of Proceeds................................ 14
Dividend Policy................................ 14
Capitalization................................. 15
Dilution....................................... 16
Selected Financial Data........................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 18
Business....................................... 23
Management..................................... 34
Certain Transactions........................... 39
Principal Stockholders......................... 41
Description of Capital Stock................... 42
Shares Eligible for Future Sale................ 44
Underwriting................................... 46
Legal Matters.................................. 47
Experts........................................ 47
Additional Information......................... 47
Financial Statements........................... F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3,600,000 Shares
[LOGO]
Common Stock
--------------
PROSPECTUS
, 1996
------------------------
UBS SECURITIES
PIPER JAFFRAY INC.
CRUTTENDEN ROTH
INCORPORATED
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses, other than underwriting discounts
and commissions, to be borne by the Company in connection with the issuance and
distribution of the Common Stock being registered:
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---------------------------------------------------------------------------- --------------
<S> <C>
Securities and Exchange Commission registration fee......................... $ 17,131.03
NASD filing fee............................................................. 5,468.00
Nasdaq National Market listing fee.......................................... *
Blue Sky fees and expenses.................................................. *
Printing and engraving expenses............................................. *
Legal fees and expenses..................................................... *
Accounting fees and expenses................................................ *
Transfer Agent and Registrar fee............................................ *
Miscellaneous............................................................... *
--------------
Total................................................................... $ *
--------------
--------------
</TABLE>
- ------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provide that directors of the
Company will not be personally liable for monetary damages to the Company or its
stockholders for breaches of their fiduciary duty of care or other duties as
directors to the extent provided by Delaware law. The Company's Bylaws and
Indemnification Agreements with each director provide that the Company will
indemnify (i) directors who succeed in the defense of any proceeding to which
the director was a party; or (ii) directors who are made a party to a proceeding
because of their service for or on behalf of the Company if the directors acted
in good faith in or not against the Company's best interest or if the directors
had no reasonable cause to believe their conduct was unlawful. Indemnification
is not available to directors who are adjudged liable to the Company, who
receive improper benefits, who make unlawful distributions, or who appropriate a
business opportunity of the Company. The Company's Board of Directors has the
discretion to apply these provisions to officers, employees and agents of the
Company.
In appropriate circumstances, the Company will advance or reimburse
reasonable expenses if authorized by the Board of Directors, legal counsel, or
the stockholders.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its inception in May 1994, the Registrant has issued and sold
unregistered securities in the transitions described below. All of the following
share and per share amounts have been restated to give effect to all of the
Company's stock splits.
Shares of Common Stock
1. On May 27, 1994, the Company issued 3,000,000 shares of Common Stock to
Mr. Dayton as founder's stock for an aggregate price of $1,000.
2. On June 10, 1994, the Company sold 1,000,000 shares of Common Stock to
each of Messrs. Slatkin and O'Donnell, directors of the Company, at a purchase
price of $0.05 per share.
II-1
<PAGE>
3. On October 17, 1994, the Company sold 441,180 shares of Common Stock to
each of Messrs. Slatkin and O'Donnell, directors of the Company, at a purchase
price of $0.09 per share.
4. On March 30, 1995, the Company sold 122,340 shares of Common Stock, to
each of Messrs. Slatkin and O'Donnell, directors of the Company, and 489,630
shares of Common Stock to Robert London, at a purchase price of $0.41 per share.
5. On June 19, 1995, the Company sold 1,654,170 shares of Common Stock to
20 investors, including Messrs. Slatkin, O'Donnell, directors of the Company,
and to Mr. Sidney Azeez, a director of the Company, at a purchase price of $0.91
per share.
6. On October 31, 1995, the Company sold 1,843,490 shares of Common Stock
to 19 investors, including Messrs. Slatkin and O'Donnell, directors of the
Company, and to Mr. Azeez, a director of the Company, at a purchase price of
$2.42 per share.
7. On January 18, 1996, the Company sold 90,970 shares of Common Stock to
Messrs. Linwood Lacy, Jr. and Robert Kavner, directors of the Company, at a
purchase price of $2.42 per share.
8. On March 20, 1996, the Company sold 50,000 shares of Common Stock to Mr.
Charles G. Betty, a director of the Company and the Company's President and
Chief Operating Officer, at a purchase price of $2.42 per share.
9. On May 6, 1996, the Company sold 10,245 shares of Common Stock to a
sub-contractor at a purchase price of $4.88 per share, which purchase price was
paid by performance of certain services.
10. On May 6, 1996, the Company sold 1,704,920 shares of Common Stock to 34
investors (primarily existing stockholders of the Company), including Messrs.
Azeez, Slatkin and O'Donnell, directors of the Company, at a purchase price of
$4.88 per share.
Warrants to Purchase Common Stock
11. Effective December 1, 1994, the Company granted Warrants to purchase
150,000 shares of Common Stock at an exercise price of $0.91 per share to each
of Messrs. Slatkin and O'Donnell in connection with their provision of a
$400,000 credit line to the Company.
12. On August 31, 1995, the Company granted Warrants to purchase 100,000
shares of Common Stock at an exercise price of $0.91 per share to Mr. Slatkin in
connection with his acting as lessee, with the Company, under a $500,000
equipment lease. Mr. Slatkin subsequently transferred one-half of these warrants
to Mr. O'Donnell as consideration for his agreement to indemnify Mr. Slatkin for
certain liability arising in connection with the lease.
13. On October 31, 1995, the Company granted Warrants to purchase 20,678
shares of Common Stock at an exercise price of $2.42 per share to David
Beckemeyer as partial consideration for the sale of certain of the assets of
Beckemeyer Consulting.
14. Effective January 11, 1996, the Company granted Warrants to purchase
200,000 shares of Common Stock at an exercise price of $2.42 per share to Mr.
Slatkin in connection with his acting as lessee, with the Company, under a
$1,500,000 equipment lease. Mr. Slatkin subsequently transferred one-half of
these warrants to Mr. O'Donnell as consideration for his agreement to indemnify
Mr. Slatkin for certain liability arising in connection with the lease.
15. On December 1, 1995, the Company granted Warrants to purchase 100,000
shares of Common Stock at an exercise price of $2.42 per share to Mr. Slatkin in
connection with their provision of a $250,000 line of credit as security for the
lease of the Company's Pasadena, California facility. Mr. Slatkin subsequently
transferred one-half of these warrants to Mr. O'Donnell in consideration for his
agreement to indemnify Mr. Slatkin for certain liability arising in connection
with the line of credit.
II-2
<PAGE>
16. On January 12, 1996, the Company granted warrants to purchase 100,000
shares of Common Stock at an exercise price of $2.42 per share to each of
Messrs. Lacy and Kavner as consideration for their agreeing to serve on the
Company's Board of Directors.
17. On January 18, 1996, the Company granted warrants to purchase 100,000
shares of Common Stock at an exercise price of $2.42 per share to LINC Capital
Partners, Inc. ("LINC") in connection with LINC's provision of a $2,000,000
equipment lease credit line.
18. On February 15, 1996, the Company granted warrants to purchase 10,000
shares of Common Stock at an exercise price of $4.88 per share to Boston
Financial & Equity Corporation ("BFE") in connection with BFE's provision of a
$700,000 equipment lease credit line.
19. On May 6, 1996, the Company agreed to issue warrants to purchase 100,000
shares of Common Stock at an exercise price of $4.88 per share in connection
with the production of commercials on behalf of the Company. In addition, the
Company agreed to issue additional warrants to purchase up to a maximum of
600,000 shares of Common Stock based upon the number of subscribers obtained
through the commercials. Through December 31, 1997, the exercise price will be
$4.88 per share; thereafter, the price will be set at the fair market value of
the Common Stock of the Company.
20. On May 10, 1996, the Company issued warrants to purchase 90,957 shares
of Common Stock at an exercise price of $4.88 per share for lease lines.
21. On May 31, 1996, in connection with the amendment of its agreement with
UUNET, the Company agreed to issue warrants to purchase 20,000 shares of Common
Stock at $10.00 per share.
22. On June 18, 1996, the Company issued warrants to purchase 196,670 shares
of Common Stock at an exercise price equal to the lesser of (i) $10.00 or (ii)
the price at which Common Stock is first sold in a public or private sale after
the issuance of the warrants and prior to the issuance of Common Stock subject
to such warrants. Messrs. Azeez, Kavner, O'Donnell and Slatkin were granted
13,333, 6,667, 15,000 and 15,000 of these warrants, respectively.
Options to Purchase Common Stock
23. On March 18, 1995, the Company granted non-plan Options to purchase
150,000 shares of Common Stock at an exercise price of $0.30 per share to Mr.
Phil Gale in consideration for Mr. Gale's development efforts and as payment for
the development by Mr. Gale of certain software for the Company. Upon
termination by Mr. Gale of his employment on March 8, 1996, 29,583 of these
shares had vested and the balance expired.
24. On June 19, 1995, the Company granted non-plan Options to purchase
500,000 shares of Common Stock at an exercise price of $0.91 to Mr. Dayton in
consideration for his continuing efforts to develop the Company and its
business.
25. On June 19, 1995, the Company granted non-plan Options to purchase
100,000 shares of Common Stock at an exercise price of $0.91 per share to Mr.
Robert E. Johnson, Jr. in consideration for his accepting employment with the
Company.
26. On December 1, 1995, the Company granted non-plan Options to purchase
100,000 shares of Common Stock at an exercise price of $2.42 to Mr. Leland C.
Thoburn in consideration for his accepting employment with the Company.
27. In addition to the options described, between October 1, 1995 and May 7,
1996, the Registrant granted options to purchase an aggregate of 1,822,750
shares of Common Stock to employees of the Registrant at exercise prices ranging
from $2.42 to $4.88 per share as incentives under the Registrant's Stock Option
Plan.
All issuances of securities described above were made in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act of
1933 or Rule 701 promulgated under the Securities Act of 1933. All of the
securities were acquired by the investors for investment and with no view toward
the resale or distribution thereof. In each instance, the investor was either an
employee of the Company or a sophisticated investor, the offers and sales were
made without any public solicitation and the stock certificates bear restrictive
legends. No underwriter was involved in the transactions and no commissions were
paid.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement*
3.1 -- Amended and Restated Certificate of Incorporation**
3.2 -- Bylaws**
4.1 -- See exhibits 3.1 and 3.2 for provisions of the Certificate of Incorporation and Bylaws
defining rights of holders of Common Stock
4.2 -- Specimen Stock Certificate*
4.3 -- Form of Warrant Agreement***
4.4 -- Form of Registration Rights Agreement*
4.5 -- Buy-Sell Agreement dated June 10, 1995 among the Registrant, Sky Dayton, Reed Slatkin and
Kevin O'Donnell
5.1 -- Opinion of Hunton & Williams*
9.1 -- Voting Trust Agreement dated June 10, 1995 among Sky Dayton, Reed Slatkin and Kevin O'Donnell
10.1 -- 1995 Stock Option Plan and forms of Stock Option Agreement and Stock Purchase Agreement***
10.2 -- Stock Option Plan for Directors***
10.3 -- Master Lease Agreement, dated February 8, 1996, between the Registrant and Boston Financial &
Equity Corporation***
10.4 -- Lease Line Agreement, dated January 30, 1996, between the Registrant and Boston Financial &
Equity Corporation***
10.5 -- Master Lease Agreement, dated September 1, 1995, between the Registrant and LINC Capital
Management***
10.6+ -- Netscape Communications Corporation Internet Service Provider Navigator Distribution
Agreement dated May 31, 1996, between the Registrant and Netscape Communications Corporation
10.7+ -- Network Services Agreement dated May 31, 1996, between the Registrant and UUNET Technologies,
Inc.
10.8 -- Software Distribution Agreement (MacTCP) dated October 2, 1995, between the Registrant and
Apple Computer, Inc.
10.9 -- Employment Agreement, dated January 15, 1996, between the Registrant and Mr. Charles G.
Betty***
10.10 -- Indemnification Agreement, dated August 31, 1995, among the Registrant and Kevin O'Donnell as
Indemnitors and Reed Slatkin as Indemnitee***
10.11 -- Indemnification and Participation Agreement, dated December 1, 1995, among the Registrant and
Kevin O'Donnell as Indemnitors and Reed Slatkin as Indemnitee***
10.12 -- Standard Industrial/Commercial Multi-Tenant Lease, dated December 1, 1995, between the
Registrant and Becton, Dickinson
10.13 -- Business Loan Agreement, dated June 15, 1995, and Promissory Note in the original principal
amount of $250,000 between the Registrant and California United Bank
10.14 -- Line of Credit Note in the original principal amount of $250,000, dated June 23, 1995 and
Security Agreement, dated June 23, 1995 between the Registrant and the Bank of California,
N.A.***
10.15 -- Line of Credit Note in the original principal amount of $1,000,000, dated November 2, 1995,
between the Registrant and the Bank of California, N.A.***
10.16 -- Production and Distribution Agreement, dated May 6, 1996, between the Registrant and National
Media Corporation***
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
<C> <C> <S>
10.17 -- Documents evidencing the Company's sale of $2,950,000 of its 10% Promissory Notes, dated June
18, 1996:
(a) Form of Subscription Agreement
(b) Form of Warrant
(c) Form of 10% Promissory Note
11.1 -- Statement re computation of per share earnings***
23.1 -- Consent of Price Waterhouse LLP, independent public accountants
23.2 -- Consent of Hunton & Williams (contained in its opinion in exhibit 5.1)*
27. -- Financial Data Schedule***
</TABLE>
- ------------
* To be filed by amendment.
** Supersedes exhibit filed previously.
*** Previously filed.
+ Confidential treatment requested.
(b) Financial Statement Schedules:
All of the financial statement schedules for which provision is made in the
applicable accounting regulations of the Commission are either not required
under the related instructions or are inapplicable and have therefore been
omitted, except for the Financial Data Schedule referenced above as Exhibit 27
and filed herewith; provided, however, that Exhibit 27 shall not be deemed filed
for purposes of Section 11 of the Securities Act, Section 18 of the Exchange Act
and Section 323 of the Trust Indenture Act, or otherwise be subject to the
liabilities of such sections, nor shall it be deemed a part of this Registration
Statement.
ITEM 17. UNDERTAKINGS
The Company hereby undertakes to provide the Underwriters at the closing
specified in the underwriting agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each Purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons to the Company,
the Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form of a
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Pasadena, State of California, on the 27th day
of June, 1996.
EARTHLINK NETWORK, INC.
by: /s/ SKY D. DAYTON
-----------------------------------
Sky D. Dayton
Chairman of the Board of Directors
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Sky D. Dayton, Charles G. Betty and Barry W. Hall the true and lawful
attorneys-in-fact and agents of the undersigned, with full power of substitution
and resubstitution, for and in the name, place and stead of the undersigned, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to the Registration Statement to which this Amendment pertains, to
sign any related registration statement filed pursuant to Rule 462(b) of the
Securities Act, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Commission, and hereby grants to
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully for
all intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Amendment has been
signed by the following persons in the capacities indicated on the 27th day of
June, 1996.
SIGNATURE TITLE
- ----------------------------------- -------------------------
/s/ Sky D. Dayton
- ----------------------------------- Chairman of the Board of
Sky D. Dayton Directors
President, Chief
/s/ Charles G. Betty Executive Officer and
- ----------------------------------- Director (Principal
Charles G. Betty Executive Officer)
/s/ Barry W. Hall Chief Financial Officer
- ----------------------------------- (Principal Financial and
Barry W. Hall Accounting Officer)
/s/ Sidney Azeez
- ----------------------------------- Director
Sidney Azeez
/s/ Robert M. Kavner
- ----------------------------------- Director
Robert M. Kavner
/s/ Linwood A. Lacy, Jr.
- ----------------------------------- Director
Linwood A. Lacy, Jr.
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------------- -------------------------
<C> <S>
/s/ Kevin M. O'Donnell
- ----------------------------------- Director
Kevin M. O'Donnell
/s/ Reed E. Slatkin
- ----------------------------------- Director
Reed E. Slatkin
</TABLE>
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
- -----------
<C> <S> <C>
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Certificate of Incorporation**
3.2 Bylaws**
4.1 See exhibits 3.1 and 3.2 for provisions of the Certificate of Incorporation and Bylaws defining
rights of holders of Common Stock
4.2 Specimen Stock Certificate*
4.3 Form of Warrant Agreement***
4.4 Form of Registration Rights Agreement*
4.5 Buy-Sell Agreement dated June 10, 1995 among the Registrant, Sky Dayton, Reed Slatkin and Kevin
O'Donnell
5.1 Opinion of Hunton & Williams*
9.1 Voting Trust Agreement dated June 10, 1995 among Sky Dayton, Reed Slatkin and Kevin O'Donnell
10.1 1995 Stock Option Plan and forms of Stock Option Agreement and Stock Purchase Agreement***
10.2 Stock Option Plan for Directors***
10.3 Master Lease Agreement, dated February 8, 1996, between the Registrant and Boston Financial &
Equity Corporation***
10.4 Lease Line Agreement, dated January 30, 1996, between the Registrant and Boston Financial &
Equity Corporation***
10.5 Master Lease Agreement, dated September 1, 1995, between the Registrant and LINC Capital
Management***
10.6+ Netscape Communications Corporation Internet Service Provider Navigator Distribution Agreement
dated May 31, 1996, between the Registrant and Netscape Communications Corporation
10.7+ Network Services Agreement dated May 31, 1996, between the Registrant and UUNET Technologies,
Inc.
10.8 Software Distribution Agreement (MacTCP) dated October 2, 1995, between the Registrant and
Apple Computer, Inc.
10.9 Employment Agreement, dated January 15, 1996, between the Registrant and Mr. Charles G.
Betty***
10.10 Indemnification Agreement, dated August 31, 1995, among the Registrant and Kevin O'Donnell as
Indemnitors and Reed Slatkin as Indemnitee***
10.11 Indemnification and Participation Agreement, dated December 1, 1995, among the Registrant and
Kevin O'Donnell as Indemnitors and Reed Slatkin as Indemnitee***
10.12 Standard Industrial/Commercial Multi-Tenant Lease, dated December 1, 1995, between the
Registrant and Becton, Dickinson
10.13 Business Loan Agreement, dated June 15, 1995, and Promissory Note in the original principal
amount of $250,000 between the Registrant and California United Bank
10.14 Line of Credit Note in the original principal amount of $250,000, dated June 23, 1995 and
Security Agreement, dated June 23, 1995 between the Registrant and the Bank of California,
N.A.***
10.15 Line of Credit Note in the original principal amount of $1,000,000, dated November 2, 1995,
between the Registrant and the Bank of California, N.A.***
10.16 Production and Distribution Agreement, dated May 6, 1996, between the Registrant and National
Media Corporation***
10.17 Documents evidencing the Company's sale of $2,950,000 of its 10% Promissory Notes, dated June
18, 1996:
(a) Form of Subscription Agreement
(b) Form of Warrant
(c) Form of 10% Promissory Note
11.1 Statement re computation of per share earnings***
23.1 Consent of Price Waterhouse LLP, independent public accountants
23.2 Consent of Hunton & Williams (contained in its opinion in exhibit 5.1)*
27. Financial Data Schedule***
</TABLE>
- ------------
* To be filed by amendment.
** Supersedes exhibit previously filed.
*** Previously filed.
+ Confidential treatment requested.
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EARTHLINK NETWORK, INC.
EARTHLINK NETWORK, INC. (the "Corporation") is a corporation duly
organized and existing under the General Corporation Law of the State of
Delaware. Its original Certificate of Incorporation was filed with the
Secretary of State of Delaware on May 28, 1996.
The Corporation hereby certifies that this Amended and Restated
Certificate of Incorporation was duly adopted by the Board of Directors of
the Corporation in accordance with the provisions of Section 241 of the
General Corporation Law of the State of Delaware, and that the Corporation
has not received any payment for any of its stock.
I.
The name of the Corporation is EarthLink Network, Inc. (hereinafter the
"Corporation").
II.
The Corporation shall have perpetual duration.
III.
The purposes for which the Corporation is formed are to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware and to possess and exercise
all of the powers and privileges granted by such law.
IV.
The total number of shares of capital stock which the Corporation is
authorized to issue is sixty million (60,000,000) divided into two classes as
follows:
(1) fifty million (50,000,000) shares of common stock, $.01 par
value per share ("Common Stock"); and
(2) ten million (10,000,000) shares of preferred stock, $.01 par
value per share ("Preferred Stock").
The holders of Common Stock shall be entitled to one vote for each share
on all matters required or permitted to be voted on by stockholders of the
Corporation.
<PAGE>
The Board of Directors is authorized, subject to limitations prescribed
by law and the provisions of this Certificate of Incorporation, to provide
for the issuance of shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of the
shares of each such series and the qualifications, limitations or
restrictions thereof.
The authority of the Board of Directors with respect to each series of
Preferred Stock shall include, but not be limited to, determination of the
following:
(1) The number of shares constituting that series and the distinctive
designation of that series; and
(2) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on
shares of that series. Dividends on outstanding shares of
Preferred Stock shall be paid or declared and set apart for payment
before any dividends shall be paid or declared and set apart for
payment on the common shares with respect to the same dividend
period; and
(3) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting
rights; and
(4) Whether that series shall have conversion privileges, and, if so, the
terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of
Directors shall determine; and
(5) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the
date or dates upon or after which they shall be redeemable, and the
amount per share payable in case of redemption, which amount may
vary under different conditions and at different redemption dates;
and
(6) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series and, if so, the terms and amount
of such sinking fund; and
(7) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of
payment of shares of that series; and
(8) Any other relative rights, preferences and limitations of that
series.
If upon any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, the assets available for distribution to holders of
shares of Preferred Stock of all series shall be insufficient to pay such
holders the full preferential amount to which they are
-2-
<PAGE>
entitled, then such assets shall be distributed ratably among the shares of
all series of Preferred Stock in accordance with the respective preferential
amounts (including unpaid cumulative dividends, if any) payable with respect
thereto.
V.
The Board of Directors of the Corporation is hereby expressly authorized
to make, amend, repeal or otherwise alter the By-Laws of the Corporation.
VI.
The directors of the Corporation shall not be required to be elected by
written ballots.
VII.
To the fullest extent permitted by the General Corporation Law of the
State of Delaware, as the same presently exists or may hereafter be amended,
no director of the Corporation shall be liable to the Corporation or any of
its stockholders for monetary damages for breach of fiduciary duty as a
director.
VIII.
(a) The business and affairs of the Corporation shall be managed by, or
under the direction of, a Board of Directors comprised as follows:
(1) The initial number of directors shall be such as may be
determined by the incorporator and thereafter the number of directors of
the Corporation shall be not less than five and not more than eleven,
the exact number within such minimum and maximum limits to be fixed and
determined from time to time by resolution of a majority of the Board of
Directors or by the affirmative vote of the holders of at least a
majority of all outstanding shares entitled to be voted in the election
of directors, voting together as a single class.
(2) A director shall hold office until the Annual Meeting of
Stockholders next following his election and until his successor shall
be elected and qualified, subject, however, to prior death, resignation,
retirement, disqualification or removal from office.
(3) Nominations for the election of directors may be made by the
Board of Directors or a committee appointed by the Board of Directors,
or by any stockholder of record entitled to vote generally in the
election of directors; provided, however, that any stockholder of record
entitled to vote generally in the election of directors may nominate one
or more persons for election as directors at a meeting only if written
notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by the United
States mail, postage prepaid, to the Secretary of the Corporation not
later than (i) with respect to any election to be held at the Annual
-3-
<PAGE>
Meeting of Stockholders, 90 days in advance of such meeting, and (ii)
with respect to any election for directors to be held at a Special
Meeting of Stockholders, the close of business on the seventh day
following the date on which notice of such meeting is first given to
stockholders. Each such notice shall set forth:
(A) the name and address of the stockholder of record who
intends to make the nomination and of the person or persons to be
nominated;
(B) a representation that the stockholder is a holder of
record of shares of the Corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting
to nominate the person or persons specified in the notice;
(C) a description of all arrangements or understandings
between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder;
(D) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy
statement filed pursuant to the then-current proxy rules of the
Securities and Exchange Commission if the nominees were to be
nominated by the Board of Directors; and
(E) the consent of each nominee to serve as a director of the
Corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of
any person not made in compliance with the foregoing procedure.
(4) Any vacancy on the Board of Directors that results from an
increase in the number of directors or from the prior death,
resignation, retirement, disqualification or removal from office of a
director shall be filled by a majority of the Board of Directors then in
office, though less than a quorum, or by the sole remaining director, or
by the shareholders of the Corporation if the Board of Directors has not
filled the vacancy. Any director elected to fill a vacancy resulting
from the prior death, resignation, retirement, disqualification or
removal from office of a director shall have the same remaining term as
that of his or her predecessor.
(5) At any meeting of stockholders with respect to which notice of
such purpose has been given, the entire Board of Directors or any
individual director may be removed, with or without cause, by the
affirmative vote of the holders of a majority of all outstanding shares
entitled to be voted at an election of directors, except that if less
than the entire Board of Directors is to be removed, no director may be
removed without cause if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the
entire Board of Directors.
-4-
<PAGE>
(6) Notwithstanding the foregoing, whenever the holders of any one
or more classes or series of Preferred Stock issued by the Corporation
shall have the right, voting separately by class or series, to elect
directors at an Annual or Special Meeting of Stockholders, the election,
term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of this Certificate of
Incorporation or the resolutions of the Board of Directors creating such
class or series, as the case may be, applicable thereto.
(b) Notwithstanding any other provisions of this Certificate of
Incorporation or the By-Laws of the Corporation (and notwithstanding the fact
that a lesser percentage for separate class vote for certain action may be
permitted by law, this Certificate of Incorporation or the By-Laws of the
Corporation), the affirmative vote of the holders of a majority of the votes
entitled to be cast by the holders of all the outstanding shares of capital
stock, voting together as a single class, shall be required to make, alter,
amend, change, add to or repeal any provision of this Certificate of
Incorporation or the By-Laws of the Corporation which is or which is proposed
to be inconsistent with this Article VIII.
(c) The invalidity or unenforceability of this Article VIII or any
portion hereof, or of any action taken pursuant to this Article VIII, shall
not affect the validity or enforceability of any other provision of this
Certificate of Incorporation, any action taken pursuant to such other
provision, or any action taken pursuant to this Article VIII.
IX.
Action required to be taken or which may be taken at any Annual Meeting
or Special Meeting of the Stockholders of the Corporation may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by
all the holders of outstanding stock entitled to vote on such action, and
shall be delivered to the Corporation by delivery to its registered office in
Delaware, to its principal place of business or to an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested.
X.
Special meetings of stockholders may be called at any time for any
purpose or purposes by the Chairman, a majority of the Board of Directors or
the holder or holders of not less than 10% of all the shares of stock
entitled to vote on the issue proposed to be considered at the meeting if
such holder or holders sign, date and deliver to the Corporation's secretary
one or more written demands for the meeting describing the purpose or
purposes for which it is to be held.
-5-
<PAGE>
XI.
The address of the Corporation's registered office in the State of
Delaware is to be located at Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801. The name of the Corporation's registered agent
at such address is Corporation Trust Company.
XII.
The name and mailing address of the incorporator is:
NAME MAILING ADDRESS
Joseph B. Alexander, Jr., Esq. Hunton & Williams
600 Peachtree Street, N.E.
Suite 4100
Atlanta, Georgia 30308
XIII.
The names and mailing address of each person who is to serve as a
director of the Corporation until the first Annual Meeting of Stockholders or
until his successor is elected and qualified is:
NAME MAILING ADDRESS
Sky D. Dayton EarthLink Network, Inc.
3100 New York Drive, Suite 201
Pasadena, CA 91107
Reed E. Slatkin EarthLink Network, Inc.
3100 New York Drive, Suite 201
Pasadena, CA 91107
Kevin M. O'Donnell EarthLink Network, Inc.
3100 New York Drive, Suite 201
Pasadena, CA 91107
Charles G. Betty EarthLink Network, Inc.
3100 New York Drive, Suite 201
Pasadena, CA 91107
-6-
<PAGE>
Sidney Azeez EarthLink Network, Inc.
3100 New York Drive, Suite 201
Pasadena, CA 91107
Linwood A. Lacy, Jr. EarthLink Network, Inc.
3100 New York Drive, Suite 201
Pasadena, CA 91107
Robert M. Kavner EarthLink Network, Inc.
3100 New York Drive, Suite 201
Pasadena, CA 91107
XIV.
At all elections of directors of the Corporation, each holder of stock
or of any class or classes or of a series or series thereof shall be entitled
to as many votes as shall equal the number of votes which he would be
entitled to cast for the election of directors with respect to his shares of
stock multiplied by the number of directors to be elected, and that he may
cast all of such votes for a single director or may distribute them among the
number to be voted for, or for any two or more of them, as he may see fit.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be executed by Charles G. Betty, its
President and Chief Operating Officer, and by Barry W. Hall, its Secretary,
this the 19th day of June, 1996.
EARTHLINK NETWORK, INC.
By: /s/ Charles G. Betty
-------------------------------------
Charles G. Betty
President and Chief Operating Officer
ATTEST:
/s/ Barry W. Hall
- -----------------------------
Secretary
-7-
<PAGE>
BY-LAWS
OF
EARTHLINK NETWORK, INC.
(A DELAWARE CORPORATION)
<PAGE>
INDEX
Page
----
ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II STOCKHOLDERS' MEETINGS. . . . . . . . . . . . . . . . . . . 1
2.1 Places of Meetings. . . . . . . . . . . . . . . . . . . . . 1
2.2 Annual Meetings . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Special Meetings. . . . . . . . . . . . . . . . . . . . . . 1
2.4 Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.5 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.6 List of Stockholders. . . . . . . . . . . . . . . . . . . . 2
2.7 Action Without Meeting. . . . . . . . . . . . . . . . . . . 2
ARTICLE III BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . 2
3.1 Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 Election of Directors . . . . . . . . . . . . . . . . . . . 2
3.3 Compensation. . . . . . . . . . . . . . . . . . . . . . . . 3
3.4 Meetings and Quorum . . . . . . . . . . . . . . . . . . . . 3
3.5 Committees. . . . . . . . . . . . . . . . . . . . . . . . . 4
3.6 Conference Telephone Meetings . . . . . . . . . . . . . . . 4
3.7 Action Without Meeting. . . . . . . . . . . . . . . . . . . 4
ARTICLE IV OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.1 Titles and Election . . . . . . . . . . . . . . . . . . . . 4
4.2 Duties. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Chairman of the Board of Directors . . . . . . . . . . 5
(b) Chief Executive Officer. . . . . . . . . . . . . . . . 5
(c) President. . . . . . . . . . . . . . . . . . . . . . . 5
(d) Vice Presidents. . . . . . . . . . . . . . . . . . . . 5
(e) Secretary. . . . . . . . . . . . . . . . . . . . . . . 5
(f) Treasurer. . . . . . . . . . . . . . . . . . . . . . . 6
(g) Assistant Secretaries and Treasurers . . . . . . . . . 6
4.3 Delegation of Authority . . . . . . . . . . . . . . . . . . 6
4.4 Compensation. . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE V RESIGNATIONS, VACANCIES AND REMOVALS. . . . . . . . . . . . 6
5.1 Resignations. . . . . . . . . . . . . . . . . . . . . . . . 6
5.2 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Directors. . . . . . . . . . . . . . . . . . . . . . . 7
(b) Officers . . . . . . . . . . . . . . . . . . . . . . . 7
5.3 Removals. . . . . . . . . . . . . . . . . . . . . . . . . . 7
(i)
<PAGE>
Page
----
(a) Directors. . . . . . . . . . . . . . . . . . . . . . . 7
(b) Officers . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VI CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . 7
6.1 Certificates of Stock . . . . . . . . . . . . . . . . . . . 7
6.2 Transfer of Stock . . . . . . . . . . . . . . . . . . . . . 7
6.3 Record Dates. . . . . . . . . . . . . . . . . . . . . . . . 8
6.4 Lost Certificates . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VII FISCAL YEAR, BANK DEPOSITS, CHECKS, ETC. . . . . . . . . . 8
7.1 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . 8
7.2 Bank Deposit, Checks, Etc. . . . . . . . . . . . . . . . . 8
ARTICLE VIII BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . 9
8.1 Place of Keeping Books. . . . . . . . . . . . . . . . . . . 9
8.2 Examination of Books. . . . . . . . . . . . . . . . . . . . 9
ARTICLE IX NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . 9
9.1 Requirements of Notice. . . . . . . . . . . . . . . . . . . 9
9.2 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE X SEAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE XI POWERS OF ATTORNEY. . . . . . . . . . . . . . . . . . . . . 10
ARTICLE XII INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES. . . . 10
12.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 10
12.2 Indemnification Granted . . . . . . . . . . . . . . . . . . 10
12.3 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE XIII AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 11
13.1 Amendment or Repeal . . . . . . . . . . . . . . . . . . . . 11
13.2 Stockholder Proposals . . . . . . . . . . . . . . . . . . . 11
(ii)
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EARTHLINK NETWORK, INC.
BY-LAWS
ARTICLE I
OFFICES
EarthLink Network, Inc. (the "Corporation") shall at all times
maintain a registered office in the State of Delaware and a registered agent
at that address but may have other offices located in or outside of the State
of Delaware as the Board of Directors may from time to time determine.
ARTICLE II
STOCKHOLDERS' MEETINGS
2.1 PLACES OF MEETINGS. All meetings of stockholders shall be held at
such place or places in or outside of the State of Delaware as the Board of
Directors may from time to time determine or as may be designated in the
notice of meeting or waiver of notice thereof, subject to any provisions of
the laws of the State of Delaware.
2.2 ANNUAL MEETINGS. The annual meeting of stockholders for the
election of directors and the transaction of such other business as may
properly come before the meeting shall be held on such date within five (5)
months after the end of each fiscal year of the Corporation and at such time
as may be designated from time to time by the Board of Directors. If the
annual meeting is not held as specified in the preceding sentence, it may be
held as soon thereafter as convenient and shall be called the annual meeting.
Written notice of the time and place of the annual meeting shall be given by
mail to each stockholder entitled to vote thereat at the address of such
stockholder as it appears on the records of the Corporation, not less than
ten (10) nor more than sixty (60) days prior to the scheduled date thereof,
unless such notice is waived as provided in Article IX of these By-Laws.
2.3 SPECIAL MEETINGS. Special meetings of stockholders may be called
at any time by the Chairman of the Board of Directors, a majority of the
Board of Directors or the holder or holders of not less than 10% of all the
shares of stock entitled to vote on the issue proposed to be considered at
the meeting. Written notice of the time, place and specific purposes of such
meeting shall be given by mail to each stockholder entitled to vote thereat
at the address of such stockholder as it appears on the records of the
Corporation, not less than ten (10) nor more than sixty (60) days prior to
the scheduled date thereof, unless such notice is waived as provided in
Article IX of these By-Laws.
<PAGE>
2.4 VOTING. At all meetings of stockholders, each stockholder entitled
to vote on the record date, as determined under Article VI, Section 6.3 of
these By-Laws or, if not so determined, as prescribed under the General
Corporation Law of the State of Delaware, shall be entitled to one vote for
each share of stock standing of record in the name of such stockholder,
subject to any restrictions or qualifications set forth in the Certificate of
Incorporation or any amendment thereto.
2.5 QUORUM. At any meeting of stockholders, a majority of the number
of shares of stock outstanding and entitled to vote thereat, present in
person or by proxy, shall constitute a quorum, but a smaller interest may
adjourn any meeting from time to time, and the meeting may be held as
adjourned without further notice, subject to such limitations as may be
imposed under the General Corporation Law of the State of Delaware. When a
quorum is present at any meeting, a majority of the number of shares of stock
entitled to vote present thereat shall decide any question brought before
such meeting unless the question is one upon which a different vote is
required by the General Corporation Law of the State of Delaware, the
Certificate of Incorporation or these By-Laws, in which case such express
provision shall govern.
2.6 LIST OF STOCKHOLDERS. At least ten (10) days before every meeting,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order and showing the address of and the number of shares
registered in the name of each stockholder, shall be prepared by the
Secretary or the transfer agent in charge of the stock ledger of the
Corporation. Such list shall be open for examination by any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. The stock ledger shall
represent conclusive evidence as to who are the stockholders entitled to
examine such list or the books of the Corporation or to vote in person or by
proxy at such meeting.
2.7 ACTION WITHOUT MEETING. Action required to be taken or which may
be taken at any annual meeting or special meeting of stockholders may be
taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by all the holders of outstanding stock entitled to vote on such
action, and shall be delivered in the manner specified by law or by the
Corporation's Certificate of Incorporation.
ARTICLE III
BOARD OF DIRECTORS
3.1 POWERS. The business and affairs of the Corporation shall be
carried on by or under the direction of the Board of Directors, which shall
have all the powers authorized by the
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General Corporation Law of the State of Delaware, subject to such limitations
as may be provided by the Certificate of Incorporation or these By-Laws.
3.2 ELECTION OF DIRECTORS. Directors shall be elected at each annual
meeting of stockholders as provided in the Certificate of Incorporation, each
director so elected to serve until the election and qualification of his or
her successor or until his or her earlier death, resignation, retirement,
disqualification or removal from office. Directors need not be stockholders,
nor need they be residents of the State of Delaware.
3.3 COMPENSATION. The Board of Directors, or a committee thereof, may
from time to time by resolution authorize the payment of fees or other
compensation to the directors for services as such to the Corporation,
including, but not limited to, fees for serving as members of the Board of
Directors or any committee thereof and for attendance at meetings of the
Board of Directors or any committee thereof, and may determine the amount of
such fees and compensation. Directors shall in any event be paid their
reasonable travel and other expenses for attendance at all meetings of the
Board or committees thereof. Nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor in amounts authorized or otherwise approved
from time to time by the Board of Directors or any committee thereof.
3.4 MEETINGS AND QUORUM. Meetings of the Board of Directors may be
held either in or outside of the State of Delaware. A quorum shall be
one-half (1/2) of the then authorized number of directors, but not less than
three directors.
The Board of Directors shall, at the close of each annual meeting of
stockholders and without further notice other than these By-Laws, if a quorum
of directors is then present or as soon thereafter as may be convenient, hold
a regular meeting for the election of officers and the transaction of any
other business. At such meeting they shall elect a President, a Secretary and
a Treasurer, and may elect any such other officers as they deem proper, none
of whom except the Chairman of the Board, if elected, need be members of the
Board of Directors.
The Board of Directors may from time to time provide for the holding of
regular meetings with or without notice and may fix the times and places at
which such meetings are to be held. Meetings other than regular meetings may
be called at any time by the President or the Chairman of the Board of
Directors and must be called by the President or the Secretary or an
Assistant Secretary upon the request of any director.
Notice of each meeting, other than a regular meeting (unless required by
the Board of Directors), shall be given to each director by mailing the same
to each director at his or her residence or business address at least five
days before the meeting or by delivering the same to him personally or by
telephone, telegraph or telecopier at least two days before the meeting
unless, in case of exigency, the Chairman of the Board of Directors, the
President or the Secretary shall prescribe a shorter notice to be given
personally, or notice may alternatively be given by telephone, telegraph,
telecopier, cable or wireless to all or any one or more of the
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directors at their respective residences or places of business. Notice by
mail shall be deemed to be given at the earlier of (a) receipt thereof, or
(b) five (5) days after it is deposited in the United States mail with
first-class postage affixed thereon. Notice to directors may also be given
by telecopier transmission to the director's telecopier transmission number
supplied for the purpose of telecopier transmissions and, upon actual
confirmation of such receipt by the director, such notice shall be deemed to
be given as of the date and time of telephonic confirmation of receipt.
Telephonic notice shall be deemed given at such a time as such notice is
actually provided to the director.
Notice of any meeting shall state the time and place of such meeting,
but need not state the purposes thereof unless otherwise required by the
General Corporation Law of the State of Delaware, the Certificate of
Incorporation, the By-Laws or by the order of the Board of Directors.
3.5 COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the entire Board of Directors, provide for committees of two or
more directors and shall elect the members thereof to serve at the pleasure
of the Board of Directors and may designate one of such members to act as
chairman thereof. The Board of Directors may at any time change the
membership of any committee, fill vacancies in it, designate alternate
members to replace any absent or disqualified members at any meeting of such
committee or dissolve it. During the intervals between the meetings of the
Board of Directors, the Executive Committee (if one shall have been
constituted) shall possess and may exercise any or all of the powers of the
Board of Directors in the management or direction of the business and affairs
of the Corporation and under the By-Laws to the extent authorized by
resolution adopted by a majority of the whole Board of Directors and subject
to such limitations as may be imposed by the General Corporation Law of the
State of Delaware.
Each committee may determine its rules of procedure and the notice to be
given of its meetings (although in the absence of any special notice
procedure, the notice provisions of Section 3.4 hereof shall govern), and it
may appoint such other committees and assistants as it shall from time to
time deem necessary. A majority of the members of the each committee shall
constitute a quorum.
3.6 CONFERENCE TELEPHONE MEETINGS. Any one or more members of the
Board of Directors or any committee thereof may participate in a meeting by
means of a conference telephone call or other similar communication equipment
by means of which all persons participating in the meeting can hear each
other, and such participation in a meeting shall constitute presence in
person at such meeting.
3.7 ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any meeting of the Board of Directors or any committee thereof may
be taken without a meeting if all members of the Board of Directors or such
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors
or such committee.
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ARTICLE IV
OFFICERS
4.1 TITLES AND ELECTION. The officers of the Corporation shall be the
President, one or more Vice Presidents, the Secretary and the Treasurer, all
of whom shall initially be elected as soon as convenient by the Board of
Directors and thereafter, in the absence of earlier resignations or removals,
shall be elected at the first meeting of the Board of Directors following
each annual meeting of stockholders. Each officer shall hold office at the
pleasure of the Board of Directors except as may otherwise be approved by the
Board of Directors, or until his or her earlier resignation, removal under
these By-Laws or other termination of his or her employment. Any person may
hold more than one office if the duties can be adequately performed by the
same person and to the extent permitted by the General Corporation Law of the
State of Delaware.
The Board of Directors, in its discretion, may also at any time elect or
appoint a Chairman of the Board of Directors, a Chief Executive Officer, one
or more Senior or Executive Vice Presidents, a Chief Operating Officer, a
Chief Financial Officer, a Treasurer and one or more Assistant Secretaries
and Assistant Treasurers and such other officers as it may deem advisable,
each of whom shall hold office at the pleasure of the Board of Directors,
except as may otherwise be approved by the Board of Directors, or until his
or her earlier death, resignation, retirement, removal or other termination
of employment, and shall have such authority and shall perform such duties as
may be prescribed or determined from time to time by the Board of Directors
or in case of officers other than the Chairman of the Board, if not
prescribed or determined by the Board of Directors, the President or the then
senior executive officer may prescribe or determine. The Board of Directors
may require any officer or other employee or agent to give bond for the
faithful performance of his or her duties in such form and with such sureties
as the Board may require.
4.2 DUTIES. Subject to such limitations and other conditions as the
Board of Directors may from time to time prescribe or determine, the
following officers shall have the following powers and duties:
(a) CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board
of Directors, if one is elected, shall be a director and, when present,
shall preside at all meetings of the stockholders and of the Board of
Directors.
(b) CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be
charged with general supervision of the management and policy of the
Corporation and shall have such other powers and perform such other
duties as the Board of Directors may prescribe from time to time. The
Chief Executive Officer shall (subject to the presence of the Chairman
of the Board of Directors, if one exists) preside at all meetings of the
stockholders and, if he is a director, of the Board of Directors.
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(c) PRESIDENT. The President shall exercise the powers and
authority and perform all of the duties commonly incident to his or her
office and shall perform such other duties as the Board of Directors
shall specify from time to time.
(d) VICE PRESIDENTS. The Vice President or Vice Presidents shall
perform such duties as may be assigned to them from time to time by the
Board of Directors or by the President if the Board of Directors does
not do so. In the absence or disability of the President, the Executive
Vice Presidents in order of seniority, or if none, the Senior Vice
Presidents in order of seniority, or if none, the Vice Presidents in
order of seniority, may, unless otherwise determined by the Board of
Directors, exercise the powers and perform the duties pertaining to the
office of President, except that if one or more Vice Presidents has been
elected or appointed, the person holding such office in order of
seniority shall exercise the powers and perform the duties of the office
of President.
(e) SECRETARY. The Secretary or in his or her absence an
Assistant Secretary shall keep the minutes of all meetings of
stockholders and of the Board of Directors and any committee thereof,
give and serve all notices, attend to such correspondence as may be
assigned to him or her, keep in safe custody the seal of the
Corporation, and affix such seal to all such instruments properly
executed as may require it, shall perform all of the duties commonly
incident to his or her office and shall have such other duties and
powers as may be prescribed or determined from time to time by the Board
of Directors or by the President if the Board of Directors does not do
so.
(f) TREASURER. The Treasurer or in his or her absence an
Assistant Treasurer, subject to the order of the Board of Directors,
shall have the care and custody of the monies, funds, securities,
valuable papers and documents of the Corporation (other than his or her
own bond, if any, which shall be in the custody of the President), and
shall have, under the supervision of the Board of Directors, all the
powers and duties commonly incident to his or her office. He or she
shall deposit all funds of the Corporation in such bank or banks, trust
company or trust companies, or with such firm or firms doing a banking
business as may be designated by the Board of Directors or by the
President if the Board of Directors does not do so. He or she may
endorse for deposit or collection all checks, notes and similar
instruments payable to the Corporation or to its order. He or she shall
keep accurate books of account of the Corporation's transactions, which
shall be the property of the Corporation, and together with all of the
property of the Corporation in his or her possession, shall be subject
at all times to the inspection and control of the Board of Directors.
The Treasurer shall be subject in every way to the order of the Board of
Directors, and shall render to the Board of Directors and/or the
President of the Corporation, whenever they may require it, an account
of all his or her transactions and of the financial condition of the
Corporation. In addition to the foregoing, the Treasurer shall have
such duties as may be prescribed or determined from time to time by the
Board of Directors or by the President if the Board of Directors does
not do so.
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(g) ASSISTANT SECRETARIES AND TREASURERS. Assistants to the
Secretaries and Treasurers may be appointed by the President or elected
by the Board of Directors and shall perform such duties and have such
powers as shall be delegated to them by the President or the Board of
Directors.
4.3 DELEGATION OF AUTHORITY. The Board of Directors may at any time
delegate the powers and duties of any officer for the time being to any other
officer, director or employee.
4.4 COMPENSATION. The compensation of the officers of the Corporation
shall be fixed by the Board of Directors or a committee thereof, and the fact
that any officer is a director shall not preclude such officer from receiving
compensation or from voting upon the resolution providing the same.
ARTICLE V
RESIGNATIONS, VACANCIES AND REMOVALS
5.1 RESIGNATIONS. Any director or officer may resign at any time by
giving written notice thereof to the Board of Directors, the Chairman of the
Board of Directors, the President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time be not
specified, upon receipt thereof; and unless otherwise specified therein or in
these By-Laws, the acceptance of any resignation shall not be necessary to
make it effective.
5.2 VACANCIES.
(a) DIRECTORS. Any vacancy in the Board of Directors caused by
reason of death, disqualification, incapacity, resignation, removal,
increase in the authorized number of directors or otherwise, shall be
filled in the manner provided in the Certificate of Incorporation.
(b) OFFICERS. The Board of Directors may at any time or from time
to time fill any vacancy among the officers of the Corporation.
5.3 REMOVALS.
(a) DIRECTORS. Except as may otherwise be provided by the General
Corporation Law of the State of Delaware or the Certificate of
Incorporation or any amendment thereto, any director or the entire Board
of Directors may be removed, with or without cause, by the affirmative
vote of the holders of a majority of all outstanding shares entitled to
be voted at an election of directors.
(b) OFFICERS. Subject to the provisions of any validly existing
agreement, the Board of Directors may at any meeting remove from office
any officer, with or without cause, and may appoint a successor.
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ARTICLE VI
CAPITAL STOCK
6.1 CERTIFICATES OF STOCK. Every stockholder shall be entitled to a
certificate or certificates for shares of the capital stock of the
Corporation in such form as may be prescribed or authorized by the Board of
Directors, duly numbered and setting forth the number and kind of shares
represented thereby. Such certificates shall be signed by the President or a
Vice President, unless some other person is thereunto specifically authorized
as provided in Article IV, Section 4.2 of these By-Laws, and by the Treasurer
or an Assistant Treasurer or by the Secretary or an Assistant Secretary. Any
or all of such signatures may be in facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on a certificate has ceased to be such
officer, transfer agent or registrar before the certificate has been issued,
such certificate may nevertheless be issued and delivered by the Corporation
with the same effect as if he were such officer, transfer agent or registrar
at the date of issue.
6.2 TRANSFER OF STOCK. Shares of the capital stock of the Corporation
shall be transferable only upon the books of the Corporation upon the
surrender of the certificate or certificates properly assigned and endorsed
for transfer. If the Corporation has a transfer agent or registrar acting on
its behalf, the signature of any officer or representative thereof may be in
facsimile.
The Board of Directors may appoint a transfer agent and one or more
co-transfer agents and a registrar and one or more co-registrars and may make
or authorize such agents to make all such rules and regulations deemed
expedient concerning the issue, transfer and registration of shares of stock.
6.3 RECORD DATES. For the purpose of determining stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend, or to express
consent to corporate action in writing without a meeting, or in order to make
a determination of stockholders for any other proper purposes, the
Corporation's stock transfer books shall not be closed, but a record date
shall be set by the Board of Directors and, upon that date, the Corporation
or its transfer agent shall take a record of the stockholders without
actually closing the stock transfer books. Such record date shall not be
more than sixty (60) days, nor less than ten (10) days, prior to the date on
which the particular action requiring such determination of stockholders is
to be taken.
If no such record date is fixed by the Board, the record date shall be
that prescribed by the General Corporation Law of the State of Delaware.
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A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may, in their
discretion, fix a new record date for the adjourned meeting.
6.4 LOST CERTIFICATES. In case of loss or mutilation or destruction of
a stock certificate, a duplicate certificate may be issued upon such terms as
may be determined or authorized by the Board of Directors or the Executive
Committee (if one has been appointed), or by the President if the Board of
Directors or the Executive Committee does not do so.
ARTICLE VII
FISCAL YEAR, BANK DEPOSITS, CHECKS, ETC.
7.1 FISCAL YEAR. The fiscal year of the Corporation shall be the
calendar year, unless otherwise fixed by resolution of the Board of Directors.
7.2 BANK DEPOSIT, CHECKS, ETC. The funds of the Corporation shall be
deposited in the name of the Corporation or of any division thereof in such
banks or trust companies in the United States or elsewhere as may be
designated from time to time by the Board of Directors or by such officer or
officers as the Board of Directors may authorize to make such designations.
All checks, drafts or other orders for the withdrawal of funds from any
bank account shall be signed by such person or persons as may be designated
from time to time by the Board of Directors. The signatures on checks,
drafts or other orders for the withdrawal of funds may be in facsimile if
authorized in the designation.
ARTICLE VIII
BOOKS AND RECORDS
8.1 PLACE OF KEEPING BOOKS. The books and records of the Corporation
may be kept within or outside of the State of Delaware.
8.2 EXAMINATION OF BOOKS. Except as may otherwise be provided by the
General Corporation Law of the State of Delaware, the Certificate of
Incorporation or these By-Laws, the Board of Directors shall have the power
to determine from time to time whether and to what extent and at what times
and places and under what conditions any of the accounts, records and books
of the Corporation are to be open to the inspection of any stockholder. No
stockholder shall have any right to inspect any account or book or document
of the Corporation except as prescribed by law or authorized by express
resolution of the stockholders or of the Board of Directors.
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ARTICLE IX
NOTICES
9.1 REQUIREMENTS OF NOTICE. Whenever notice is required to be given by
statute, the Certificate of Incorporation or these By-Laws, except as
otherwise provided in Section 3.4 hereof, it shall not mean personal notice
unless so specified, but such notice may be given in writing by depositing
the same in a post office, letter box or mail chute postage prepaid and
addressed to the person to whom such notice is directed at the address of
such person on the records of the Corporation, and such notice shall be
deemed given at the time when the same shall be thus mailed.
9.2 WAIVERS. Any stockholder, director or officer may, in writing or
by telegram or cable, at any time waive any notice or other formality
required by law, the Certificate of Incorporation or these By-Laws. Such
waiver of notice, whether given before or after any meeting or action, shall
be deemed equivalent to notice. Presence of a stockholder either in person
or by proxy at any meeting of stockholders and presence of any director at
any meeting of the Board of Directors shall constitute a waiver of such
notice as may be required by law, the Certificate of Incorporation or these
By-Laws, unless such presence is solely for the purpose of objecting to the
lack of notice and such objection is stated at the commencement of the
meeting.
ARTICLE X
SEAL
The corporate seal of the Corporation shall be in such form as the Board
of Directors shall determine from time to time and may consist of a facsimile
thereof or the word "SEAL" enclosed in parentheses or brackets. The
corporate seal of the Corporation shall not be necessary to validate or
authenticate any instrument duly executed by the Corporation or to render any
such instrument enforceable against the Corporation.
ARTICLE XI
POWERS OF ATTORNEY
The Board of Directors may authorize one or more of the officers of the
Corporation to execute powers of attorney delegating to named representatives
or agents power to represent or act on behalf of the Corporation, with or
without the power of substitution.
In the absence of any action by the Board of Directors, any officer of
the Corporation may execute, for and on behalf of the Corporation, waivers of
notice of meetings of stockholders and proxies, or may vote shares directly,
for such meetings of any company in which the Corporation may hold voting
securities.
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ARTICLE XII
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
12.1 INDEMNIFICATION. The Corporation shall have the power to indemnify
a director, officer or employee of the Corporation (including making
provision for advancement of expenses) to the full extent and under the
circumstances permitted by the General Corporation Law of the State of
Delaware in effect from time to time, including, without limitation, Section
145 thereof or any successor thereto, in accordance with the procedures,
conditions and limitations set forth therein.
12.2 MISCELLANEOUS. Subject to the limitations set forth in the General
Corporation Law of the State of Delaware, the Board of Directors may also on
behalf of the Corporation grant indemnification to any individual other than
a Person to such extent and in such matter as the Board of Directors in its
sole discretion may from time to time and at any time determine.
ARTICLE XIII
AMENDMENTS
13.1 AMENDMENT OR REPEAL. Except as provided otherwise by the laws of
the State of Delaware or the Certificate of Incorporation, these By-Laws may
be amended or repealed either:
(a) At any meeting of stockholders at which a quorum is present by
vote of a majority of the number of shares of stock entitled to vote
present in person or by proxy at such meeting as provided in Article II
of these By-Laws; provided that the notice of such meeting of
stockholders or waiver of notice thereof contains a statement of the
substance of the proposed amendment or repeal; or
(b) At any meeting of the Board of Directors by a majority vote of
the directors then in office.
13.2 STOCKHOLDER PROPOSALS. Any stockholder who intends to propose that
any provision of these By-Laws be amended by action of the stockholders shall
notify the Secretary of the Corporation in writing of the amendment or
amendments which such stockholder intends to propose not later than one
hundred eighty (180) days prior to a request by such stockholder to call a
special meeting for such purpose or, if such proposal is intended to be made
at an annual meeting of stockholders, not later than the latest date
permitted for submission of stockholder proposals by Rule 14a-8 under the
Securities Exchange Act of 1934. Such notice to the Secretary shall include
the text of the proposed amendment or amendments and a brief statement of the
reason or reasons why such stockholder intends to make such proposal.
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5.5.95
BUY-SELL AGREEMENT
EARTHLINK NETWORK, INC.
This Buy-Sell Agreement ("Agreement") is made effective June 10, 1994, at Los
Angeles, California, among Sky Dayton, Reed Slatkin, Kevin 0 'Donnell
("Shareholders") , and Earthlink Network, Inc. , a California corporation
("Corporation") with respect to all shares of the Corporations' capital stock
now or hereafter outstanding, for the purpose of protecting the Corporation and
the Shareholders, as well as providing continuity for the Corporation's business
in the event of the occurrence of certain events discussed in this Agreement.
The Shareholders together own all outstanding shares of the Corporation's stock
as follows:
Names of Shareholders Number of Shares Owned
Sky Dayton 3,000
Reed Slatkin 1,000
Kevin O'Donnell 1,000
1. LEGEND REQUIREMENT. On execution of this Agreement, each Shareholder shall
have placed on the certificates representing his/her shares the legend set forth
in PARAGRAPH 2 LEGEND ON SHARE CERTIFICATES of this Agreement. None of the
shares presently owned or subsequently acquired by the Shareholders shall be
sold, pledged, encumbered, transferred, or disposed of in any way, whether
voluntarily, involuntarily, or by operation of law, except under the terms of
this Agreement. Each Shareholder shall have the right to vote his/her shares
and receive the dividends paid on them until the shares are sold or transferred
as provided in this Agreement.
2. LEGEND ON SHARE CERTIFICATES. Each share certificate, whether presently
owned or subsequently issued, shall have conspicuously endorsed on its face the
following words:
"Sale, transfer, hypothecation, encumbrance, or disposition of the shares
represented by this certificate is restricted by the provisions of a Buy-
Sell Agreement among the Shareholders and the Corporation dated of June 10,
1994. All provisions of the Buy-Sale Agreement are incorporated by
reference in this certificate. A copy of this Agreement may be inspected
at the principal office of the Corporation."
A copy of this Agreement shall be delivered to the Secretary of the Corporation
and shall be shown to anyone inquiring about it.
3. RESTRICTIONS ON VOLUNTARY TRANSFERS. No Shareholder shall sell, transfer,
pledge, encumber, hypothecate or in any way dispose of any of his/her shares or
any right or interest in them without obtaining prior written consent of the
Corporation and of all other Shareholders, unless the Shareholder shall first
have given written notice ("Offer Notice") to the Corporation, in accordance
with PARAGRAPH 17.7 NOTICES of this Agreement, of
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his/her intention to do so. The notice shall be accompanied by an executed
counterpart of any document of transfer, which must include the name and address
of the proposed transferee and specify the number of shares to be transferred,
the price per share, and the terms of payment. Promptly on receipt of the
notice, the Secretary of the Corporation shall forward a copy of the notice and
the executed counterpart to each member of the Corporation's board of directors,
and within 20 days thereafter a meeting of the board of directors shall be duly
called, noticed and held to consider the proposed transfer. For 30 days
following notice to the Corporation, it shall have the option, but not the
obligation, to purchase all or any part of the shares at the price and on the
terms stated in the notice and any accompanying transfer documents. The
Corporation's right to exercise the option and to purchase the stock is subject
to the restrictions governing a corporation's right to purchase its own stock in
California Corporations Code sections 500-501 and to any other pertinent
governmental restrictions that are now, or may become, effective.
If the Corporation exercises its option within the 30 day period, the Secretary
of the Corporation shall give written notice of that fact to the offering
Shareholder. The Corporation shall pay the purchase price in the manner
provided per the terms of sale to the proposed transferee as set forth in the
transfer documents accompanying the notice.
If the option is not exercised by the Corporation on all shares set forth in the
notice of intention to transfer within the 50 day period, notice of the proposed
transfer in the same form as the notice given to the Corporation shall be given
immediately in accordance with PARAGRAPH 17.7 NOTICES to the remaining
Shareholders, who shall have the option, but not the obligation, to purchase any
shares not purchased by the Corporation at the price and on the same terms and
conditions specified in the notice and any accompanying transfer documents.
Within 15 days after giving the notice, any Shareholder desiring to acquire any
part or all of the shares offered shall deliver to the Secretary of the
Corporation a written election to purchase the shares or a specified number of
them. If the total number of shares specified in the elections exceeds the
number of available shares, each Shareholder shall have priority, up the number
of shares specified in his/her notice of election to purchase, to purchase the
available shares, in the same proportion that the number of the Corporation's
shares, that he/she holds, bears to the total number of the Corporation's shares
held by all Shareholders electing to purchase. The shares not purchased on such
a priority basis shall be allocated in one or more successive allocations to
those Shareholders electing to purchase more than the number of shares to which
they have a priority right, up to the number of shares specified in their
respective notices, in the proportion that the number of shares held by each of
them bears to the number of shares held by all of them.
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Within 10 days after the mailing of the notice to the Shareholders, the
Secretary of the Corporation shall notify each Shareholder of the number of
shares as to which his/her election was effective, and the Shareholder shall
meet the terms of the purchase with 10 days thereafter.
If the Corporation and the remaining Shareholders do not purchase all the shares
set forth in the notice of intention to transfer, all the shares may be
transferred to the proposed transferee on the terms specified in the notice, at
any time within 10 days after expiration of the Shareholders' option. The
transferee will hold the shares subject to the provisions of this Agreement. No
transfer of the shares shall be made after the end of the 10 day period, nor
shall any change in the terms of transfer be permitted without a new notice of
intention and compliance with the requirements of this paragraph.
Any transfer by any shareholder in violation of this paragraph shall be null and
void and of no effect.
4. PERMITTED TRANSFER TO TRUST. Despite any provision in this Agreement to the
contrary, any Shareholder may transfer shares subject to this Agreement (a) in
trust to a trustee who is also a Shareholder for the benefit of the Shareholder
transferor; and (b) on death of the Shareholder, to members of his/her immediate
family or to a trust for the benefit of such persons. Any permitted
transferee(s) shall hold the shares subject to all provisions of this Agreement,
as provided in PARAGRAPH 6 OBLIGATIONS OF TRANSFEREES.
5. PRIOR RIGHTS, ORIGINAL TRANSFEROR. Despite any provision of this Agreement
to the contrary, if any permitted transferee of any donor Shareholder desires to
transfer any or all of his/her shares received from that donor Shareholder to
anyone other than that donor Shareholder and/or the permitted transferee's
permitted transferees, or if any such shares would be transferred, awarded, or
confirmed to any such person (whether voluntarily, involuntarily, or by
operation of law) were it not for the provisions of this paragraph, then that
donor Shareholder shall have the exclusive right to purchase any or all of the
shares that would be transferred but for this paragraph, during a period of 30
days after the Corporation receives notice specifying the name and address of
the proposed transferee, the shares proposed to be transferred, awarded, or
confirmed, any price for which the shares are to be transferred, awarded, or
confirmed or the permitted transferee's desire to transfer the shares or of any
event or occurrence that would cause the shares to be transferred, awarded, or
confirmed. If the donor Shareholder does not timely exercise this right, then
the notice shall be considered to be the Offer Notice, and the Corporation and
the Shareholders (including the donor Shareholder) shall have the right to
purchase the shares that would be transferred but for this paragraph as
otherwise provided in PARAGRAPH 3 RESTRICTIONS ON VOLUNTARY TRANSFERS of this
Agreement.
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6. OBLIGATIONS OF TRANSFEREES. Unless this agreement expressly provides
otherwise, each transferee or any subsequent transfer of shares in the
Corporation, or any interest in such shares, shall hold the shares or interest
in the shares subject to all provisions of this Agreement and shall make no
further transfers except as provided in this Agreement. Transfer of the shares
shall not be entered on the books of the Corporation until an amended copy of
this Agreement has been executed by the prospective transferee. Failure or
refusal to sign such an amended copy of this agreement shall not relieve any
transferee from any obligations under this Agreement.
7. OPTIONAL PURCHASE ON OTHER EVENTS. In the event any Shareholder is
adjudicated a bankrupt (voluntarily or involuntarily), or makes an assignment
for the benefit of creditors or files a petition seeking to force the
involuntary winding up and dissolution of the Corporation under Corporations
Code section 1800 or if substantially all property of the Shareholder is levied
on and sold in a judicial proceeding, the Corporation and the other Shareholders
shall have the option for 90 days following notice of any such event(s) to
purchase all or any part, of the shares owned by the Shareholder. Any
Shareholder who has information that would reasonably cause the Shareholder to
believe that his/her shares would be transferred involuntarily or by operation
of law shall give written notice to the Corporation and the other Shareholders
in accordance with PARAGRAPH 17.7 NOTICES, and shall offer or shall be deemed to
have offered to sell his/her shares at the price and on the terms provided in
this agreement. The option shall be exercisable first by the Corporation and
thereafter by the remaining Shareholders in the manner provided by PARAGRAPH 8
PURCHASE ON DEATH. In the event this option is not exercised as to all the
shares owned by the Shareholder, the Shareholder or the Shareholder's successor
in interest will hold the shares subject to this Agreement.
8. OPTIONAL PURCHASE ON DEATH BY CORPORATION OR SHAREHOLDERS. The Corporation
shall have the option for a period beginning with the death of any Shareholder
and ending 90 days after the qualification of his or her executor or
administrator, to purchase all or any part of the shares owned by the decedent,
at the price and on the terms provided in this Agreement. The option shall be
exercised by giving notice to the decedent's estate or other successor in
interest in accordance with PARAGRAPH 17.7 NOTICES. If the option is not
exercised within that 90 day period as to all shares owned by the decedent, the
surviving Shareholders shall have the option, for 30 days commencing with the
end of that 90 day period to purchase all or any part of the shares owned by the
decedent, at the price and on the terms provided in this Agreement. The option
shall be exercised by giving notice, in accordance with PARAGRAPH 17.7 NOTICES,
to the executor or administrator, stating the number of shares to which it is
exercised. If notices of exercise from the surviving Shareholders specify in
the aggregate more shares than are available for purchase by the Shareholders,
each Shareholder
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shall have priority, up to the number of shares specified in his/her notice, to
purchase the available shares in the same proportion that the number of
corporation's shares he/she holds bears to the number of Corporation's shares
held by all Shareholders electing to purchase. The shares not purchased on such
a priority basis shall be allocated in one or more successive allocations to
those Shareholders electing to purchase more than the number of shares to which
they have a priority right, up to the number of shares specified in their
respective notices, in the proportion that the number of shares held by each of
them bears to the number of shares held by all of them. In the event this
option is not exercised as to all the shares owned by the decedent, the
decedent's estate will hold those shares subject to the provisions of this
Agreement.
9. OPTIONAL PURCHASE ON TERMINATION OF EMPLOYMENT. In the event any employee
Shareholder is no longer employed by the Corporation because of voluntary
termination or termination by the Corporation for cause, the Corporation and the
remaining Shareholders shall have the option for 90 days following notice of any
such event(s) to purchase all or any part of the shares owned by the
Shareholder. Notice shall be given to the Corporation and the other
Shareholders in accordance with PARAGRAPH 17.7 NOTICES. The option shall be
exercisable first by the Corporation and thereafter by the remaining
Shareholders, at the price and on the terms provided in this Agreement, and in
the manner provided by PARAGRAPH 8 PURCHASE ON DEATH. In the event this option
is not exercised as to all the shares owned by the Shareholder, the Shareholder
or his or her successor in interest will hold the shares subject to the
provisions of this Agreement.
10. VALUATION-AGREED PRICE WITH ARBITRATION. The purchase price to be paid for
each share subject to this Agreement shall be equal to the agreed value of the
Corporation divided by the number of shares outstanding as of the date the price
is to be determined. The initial agreed value of the Corporation is $250,000.
Every six months hereafter, the parties to this Agreement shall review the
Corporation's financial condition as of the end of the preceding fiscal year and
shall decide by mutual agreement the Corporation's fair market value, which, if
agreed on, shall be the Corporation's value until a different value is agreed on
or otherwise established under this Agreement. If the parties agree, they shall
provide evidence of it by placing their written and executed agreement in the
Corporation's minute book.
If no valuation has been agreed on within 1 year before the date of the event
requiring an agreement on value, the value of a selling Shareholder's interest
shall be agreed on by the selling Shareholder or his or her successor in
interest and the remaining Shareholders. If they do not agree on a value within
30 days after the date of the event requiring the determination, the value of
the selling Shareholder's interest shall be determined by arbitration as
follows: The remaining Shareholders and the selling Shareholder or his or her
successor in interest shall
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<PAGE>
each name an arbitrator. If the two arbitrators cannot agree on a value, they
shall appoint a third, and the decision of a majority of the three arbitrators
shall be binding on all parties. Arbitration shall be in accordance with the
rules of the American Arbitration Association that are in effect at the time of
arbitration.
11. PAYMENT AND TRANSFER OF SHARES. On the occurrence of any event that leads
to the purchase of shares under this Agreement, the consideration to be paid for
the shares shall be paid to the transferring Shareholder or to his or her
estate, as the case may be. If the event that leads to the purchase is the
death of the Shareholder, the Corporation or the surviving Shareholders shall
file the necessary proofs of death and collect the proceeds of any outstanding
insurance policies on the life of the deceased Shareholder as covered by this
Agreement. The decedent's personal representative shall apply for and obtain
any necessary court approval or confirmation of the sale of the decedent's
shares under this Agreement. In all events, consideration for the shares shall
be delivered as soon as practicable to the person entitled to it, and the
Secretary shall cause the certificates representing the purchased shares to be
properly endorsed and, on compliance with PARAGRAPH 13 ADMINISTRATIVE APPROVALS,
shall issue new certificate(s) in the name of the purchaser or purchasers. If
the purchase follows the death of any Shareholder, the price to be paid for
the shares of the deceased Shareholder shall not be less than the amount of
life insurance in force on his or her life under the terms of this Agreement.
If the purchase price exceeds the amount of insurance process, the purchaser
or purchasers shall pay the purchase price in cash up to the full amount of
the insurance proceeds and shall pay the balance of the purchase price under
a promissory note. If the insurance proceeds exceed the purchase price, the
excess shall be paid to the insured of the policy.
12. NOTES AND SECURITY. The deferred portion of the purchase price for any
shares purchased under this Agreement shall be represented by a promissory note
executed by all the purchasing Shareholder, providing for joint and several
liability. Each maker agrees to pay his/her prorata portion of each
installment of principal and interest as it falls due. The note shall provide
for payment of principal in equal monthly installments with interest on the
unpaid balance at the rate of 7 percent per year, with full privilege of
prepayment of all or any part of the principal at any time without penalty or
bonus. Any prepaid suns shall be applied against the installments thereafter
falling due in inverse order of their maturity, or against all the remaining
installments equally, at the option of the payers. The note shall provide that,
if a default occurs, at the election of the holder the entire sum of principal
and interest will immediately be due and payable and that the makers shall pay
reasonable attorney fees to the holder if suit is commenced because of default.
The note shall be secured by a pledge of all the shares being purchased in the
transaction to which the note relates and of all other shares
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<PAGE>
owned by the purchasing Shareholders. The pledge agreement shall contain such
other terms and provisions as may be customary and reasonable. As long as no
default occurs in payments on the note, the purchasers shall be entitled to vote
the shares; however, dividends shall be paid to the holder of the note as a
prepayment of principal. The purchasers shall expressly waive demand, notice of
default, and notice of sale, and they shall consent to public or private sale of
the shares in a default, in mass or in lots at the option of the pledgeholder,
and the seller shall have the right to purchase at the sale.
13. ADMINISTRATIVE APPROVALS. The Corporation agrees to apply for, and use its
best efforts to obtain, all governmental and administrative approvals required
in connection with the purchase and sale of shares under this Agreement. The
Shareholders agree to cooperate in obtaining the approvals and to execute any
and all documents that they may be required to execute in connection with the
approvals. The Corporation shall pay all costs and filing fees in connection
with obtaining the approvals.
14. UNNEEDED INSURANCE POLICIES. On the death of any Shareholder, each
surviving Shareholder shall have the option for 60 days to purchase the life
insurance policy on the Shareholder's life owned by the decedent. Each
Shareholder shall also have the right to purchase the policies on his or her
life within 60 days after the sale or transfer of all of his or her shares or
after termination of this Agreement. This option shall be exercised by
delivering written notice of exercise to the decedent's personal representative
or to the owner of the policy and paying the purchase price in cash. The
purchase price shall be equal to the cash surrender value of the policy, reduced
by any unpaid loans made against the policy. If the option is not exercised
within that period, the policy owner may surrender the policy for its cash value
or dispose of it in any other way he or she sees fit. The parties agree to
execute such releases and assignments as may be necessary to effectuate the
provisions of this paragraph.
15. TERMINATION OF AGREEMENT. This Agreement shall terminate on:
1. The written agreement of all parties;
2. The dissolution, bankruptcy, or insolvency of the Corporation;
3. Registration of the Corporation under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934;
4. Consummation of a public offering of the Corporation's stock;
5. The sale or merger of the Corporation in a transaction in which all or
substantially all of the assets are sold or more than 50% control is
transferred.
6. At such time as only one Shareholder remains.
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16. SHAREHOLDER WILLS. Each Shareholder agrees to include his or her will a
direction and authorization to his or her executor to comply with the provisions
of this Agreement and to sell his or her shares in accordance with this
Agreement. However, the failure of any Shareholder to do so shall not affect
the validity or enforceability of this Agreement.
17. MISCELLANEOUS MATTERS.
17.1. AGREEMENT TO PERFORM NECESSARY ACTS. Each party to this Agreement
agrees to perform any further acts and execute and deliver any documents that
may be reasonably necessary to carry out the provisions of this Agreement.
17.2. AMENDMENTS. The provisions of this Agreement may be waived,
altered, amended, modified, or repealed, in whole or in part, only on the
written consent of all parties to this Agreement.
17.3. VALIDITY OF AGREEMENT. It is intended that each paragraph of this
Agreement shall be viewed as separated and divisible, and in the event that any
paragraph shall be held to be invalid, the remaining paragraphs shall continue
to be in full force and effect.
17.4. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on and
enforceable by and against the parties to it their respective heirs, legal
representatives, successors, and assigns.
17.5. SEVERABLE PROVISIONS. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to be judicially
unenforceable, in whole or in part, the remaining provisions shall nevertheless
be binding and enforceable.
17.6. ATTORNEY'S FEES. Should any litigation be commenced between the
parties to this Agreement or the parties to this Agreement and the estate of any
deceased Shareholder concerning any provision of this Agreement or the rights
and obligations of any party or the estate of any party in relation thereto, the
party prevailing in such litigation shall be entitled, in addition to such other
relief as may be granted, to a reasonable sum as and for his/her attorney's fees
in that litigation which shall be determined by the court in that litigation or
in a separate action brought for that purpose.
17.7. NOTICES. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given or within 72 hours after mailing, if mailed to the party to whom
notice is to be given, by first-class mail, registered or certified, postage
prepaid, and properly addressed to the party at the address set forth on the
signature page of this Agreement, or any other address that a party may
designate by written notice to the others.
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17.8. GOVERNING LAW. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of California.
17.9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17.10 ARBITRATION. The parties agree that any controversy or claim
arising out of or relating to this Agreement, or breach of any of its provisions
is to be settled by arbitration in accordance with the rules of the American
Arbitration Association in accordance with the rules of the American Arbitration
Association, and judgment upon any award rendered by the Arbitrators may be
entered in any Court having competent jurisdiction. All hearing of the
Arbitrators are to be held in Angeles, California.
l8. EMPLOYEE SHAREHOLDER'S COMPETITION. In consideration for the mutual
promises herein, each Shareholder that is also an full-time employee of the
corporation agrees that he/she will not, during his/her employment or at any
time within the five (5) year period immediately following the sale of all or
any part of his/her shares, directly or indirectly engage in, or have any
interest in any person, firm, corporation, or business (whether as an employee,
officer, director, agent, security holder, creditor, consultant, or officer,
director, agent, security holder, creditor, consultant, or otherwise) that
engages in, any activity in the continental United States, which activity is the
same as, similar to, or competitive with any activity now engaged in by the
Corporation or any successor shall engage in this activity in the continental
United States. The parties expressly agree that, because of the nation-wide
scope of the Corporation's business, it is reasonable to extend this covenant to
encompass the continental United States.
19. TRADE SECRETS. In consideration for the mutual promises herein, each
Shareholder of the Corporation agrees that he/she will not divulge, communicate,
use to the detriment of the Corporation or for the benefit of any other person
or persons, or misuse in any way any confidential information or trade secrets
of the Corporation, including personnel information, secret processes, knowhow,
customer lists, recipes, formulas, or other technical data. Shareholder
acknowledges and agrees that any information or data acquired on these matters
or items will have been received in confidence as a fiduciary of the
Corporation.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first shown above.
EARTHLINK NETWORK, INC.
By:
/s/ Sky Dayton
- --------------------------------
Sky Dayton
Its President
SHAREHOLDERS:
/s/ Sky Dayton /s/ Reed Slatkin
- -------------------------------- --------------------------------
Sky Dayton Reed Slatkin
/s/ Kevin O'Donnell
- --------------------------------
Kevin O'Donnell
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<PAGE>
BUY-SELL AGREEMENT
VOTING TRUST AGREEMENT
EARTHLINK NETWORK, INC.
SPOUSAL CONSENT
The undersigned are the spouses of the shareholders. Each of them acknowledges
that he/she has read the Stock Buy-Sell Agreement, of June 10, 1994, by and
between Earthlink Network, Inc., a California corporation (the "Corporation");
and Sky Dayton, Reed Slatkin, and Kevin O'Donnell (the "Shareholders"). Each of
them acknowledges that he/she has read the Voting Trust Agreement executed
between the Shareholders. Each agrees that each clearly understands the
provisions of these two documents. Each of the undersigned is aware that, by
the provisions of these aforesaid documents, he/she and his/her spouse have
agreed to sell or transfer all of their interest in the Corporation, including
any community property interest, in accordance with the terms and provisions of
these Agreements. Each of the undersigned hereby expressly approves of and
agrees to be bound by the provisions of this Agreement in its entirety,
including but not limited to, those provisions relating to the sales and
transfers of the interest in the Corporation. If any of the undersigned
predeceases his/her spouse when his/her spouse owns an interest in the
Corporation, he/she hereby agrees not to devise or bequeath whatever community
property interest he/she may have in the Corporation in contravention of these
agreements.
Date: 14 June 1995 /s/ Mary Ann O'Donnell
----------------------- --------------------------------
Signature
Mary Ann O'Donnell
Date:
----------------------- --------------------------------
Signature
Mary Jo Slatkin
Date:
----------------------- --------------------------------
Signature
Arwen Dayton
<PAGE>
BUY-SELL AGREEMENT
VOTING TRUST AGREEMENT
EARTHLINK NETWORK, INC.
SPOUSAL CONSENT
The undersigned are the spouses of the shareholders. Each of them acknowledges
that he/she has read the Stock Buy-Sell Agreement, of June 10, 1994, by and
between Earthlink Network, Inc., a California corporation (the "Corporation");
and Sky Dayton, Reed Slatkin, and Kevin O'Donnell (the "Shareholders"). Each of
them acknowledges that he/she has read the Voting Trust Agreement executed
between the Shareholders. Each agrees that each has clearly understands the
provisions of these two documents. Each of the undersigned is aware that, by
the provisions of these aforesaid documents, he/she and his/her spouse have
agreed to sell or transfer all of their interest in the Corporation, including
any community property interest, in accordance with the terms and provisions of
these Agreements. Each of the undersigned hereby expressly approves of and
agrees to be bound by the provisions of this Agreement in its entirety,
including but not limited to, those provisions relating to the sales and
transfers of the interest in the Corporation. If any of the undersigned
predeceases his/her spouse when his/her spouse owns an interest in the
Corporation, he/she hereby agrees not to devise or bequeath whatever community
property interest he/she may have in the Corporation in contravention of these
Agreements.
Date:
----------------------- --------------------------------
Signature
Mary Ann O'Donnell
Date: /s/ Mary Jo Slatkin
------------------------ --------------------------------
Signature
Mary Jo Slatkin
Date:
------------------------- --------------------------------
Signature
Arwen Dayton
<PAGE>
BUY-SELL AGREEMENT
VOTING TRUST AGREEMENT
EARTHLINK NETWORK, INC.
SPOUSAL CONSENT
The undersigned are the spouses of the shareholders. Each of them acknowledges
that he/she has read the Stock Buy-Sell Agreement, of June 10, 1994, by and
between Earthlink Network, Inc., a California corporation (the "Corporation");
and Sky Dayton, Reed Slatkin, and Kevin O'Donnell (the "Shareholders"). Each of
them acknowledges that he/she has read the Voting Trust Agreement executed
between the Shareholders. Each agrees that each has clearly understands the
provisions of these two documents. Each of the undersigned is aware that, by
the provisions of these aforesaid documents, he/she and his/her spouse have
agreed to sell or transfer all of their interest in the Corporation, including
any community property interest, in accordance with the terms and provisions of
these Agreements. Each of the undersigned hereby expressly approves of and
agrees to be bound by the provisions of this Agreement in its entirety,
including but not limited to, those provisions relating to the sales and
transfers of the interest in the Corporation. If any of the undersigned
predeceases his/her spouse when his/her spouse owns an interest in the
Corporation, he/she hereby agrees not to devise or bequeath whatever community
property interest he/she may have in the Corporation in contravention of these
Agreements.
Date:
----------------------- --------------------------------
Signature
Mary Ann O'Donnell
Date:
----------------------- --------------------------------
Signature
Mary Jo Slatkin
Date: 24 MARCH 1996 /s/ Arwen Dayton
----------------------- --------------------------------
Signature
Arwen Dayton
<PAGE>
5. 5. 95
VOTING TRUST AGREEMENT
THIS AGREEMENT is entered into and effective June 10, 1995 between and
among the following persons all of whom are shareholders (the "shareholders") of
Earthlink Network, Inc., a California corporation (the "corporation"):
Sky Dayton
Reed Slatkin
Kevin O'Donnell
and the following persons or entities being sometimes referred to as "trustees":
Reed Slatkin
Kevin O'Donnell
1. EXCHANGE OF SHARES FOR VOTING TRUST CERTIFICATES. Simultaneously with the
execution of this Agreement, the shareholders shall deliver to the trustees
properly endorsed certificates for all shares currently and subsequently owned
by such shareholders in the corporation. The trustees shall hold the shares
transferred to them in trust, subject to the terms of this Agreement. The
shareholders shall have no right to withdraw their shares prior to termination
of this Agreement as hereinafter provided.
The trustees shall cause the said shares to be transferred to them on the
Corporation's books and records. The trustees shall thereupon issue and deliver
to each of the shareholders voting trust certificates, in the form shown in
EXHIBIT A to this Agreement, for the number of shares so transferred, subject to
satisfying any applicable qualification requirements under the California
Corporate Securities Law.
2. TRUSTEES' POWERS, DUTIES AND COMPENSATION. The number of trustees under
this Agreement shall be one (2). Action taken unanimously by them constitutes
action by the trustees under this Agreement, The trustees may also serve the
corporation as officers or directors, or in any other capacity, and may be
certificate holders under this Agreement. The trustees shall have all the
rights, privileges and powers of a shareholder of the corporation, subject to
the limitations set forth below:
2.1 VOTING RIGHTS. During the existence of this trust, the trustees shall
have the sole and exclusive right to vote the shares transferred to them.
They may exercise such right in person or by proxy at all shareholder
meetings and in all proceedings in which the vote or consent of
shareholders is or may be required by the articles of incorporation or
bylaws of the corporation, or as a matter of law.
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With respect to the election of the corporation's directors' the trustees
shall exercise such voting rights as they determine in the sound exercise
of their discretion.
As to all other matters of any character whatsoever on which a shareholder
vote or approval is required by the articles or bylaws or as a matter of
law, or which is submitted to the shareholders for approval, the trustees
shall vote the shares only in accordance with the prior written
instructions, consent or vote on each such matter by holders of voting
trust certificates representing not less than two thirds of the beneficial
interests under this trust.
2.2 NOTICES, DIVIDENDS AND DISTRIBUTIONS. The trustees shall forward to
each voting trust certificate holder copies of all notices, reports,
statements and other communications received from the corporation. The
trustees shall distribute, promptly upon receipt, all dividends and other
payments or distributions received from the corporation, to the certificate
holders in proportion to their respective interests. If any dividends
consist of additional shares having voting rights, the trustees shall hold
these shares in trust subject to the terms of this Agreement, and shall
issue new voting trust certificates representing the additional shares to
the certificate holders in proportion to their beneficial interests,
subject to qualification if required under the California Corporate
Securities Law.
2.3 NO RIGHT TO SELL SHARES. The trustees shall have no authority to
sell, pledge, hypothecate, encumber or otherwise dispose of the shares
transferred to them under this Agreement, or received from the corporation
by way of stock split or stock dividend.
2.4 COMPENSATION OF TRUSTEES. The trustees shall receive no compensation
for their services under this Agreement except reimbursement for expenses
reasonably and necessarily incurred in performing their duties hereunder.
However, this paragraph shall not affect the right of any trustee to
compensation from the corporation for services performed on its behalf in
some other capacity (as officer, director, employee or otherwise).
2.5 LIABILITY OF TRUSTEES. The trustees, and each of them, shall not be
liable for any error or judgment or mistake of fact or law, or for any
action or omission under this Agreement, except for each trustee's own
wilful misconduct or gross negligence. No trustee shall be liable for
actions or omissions of any other trustee or trustees, or for actions or
omissions of any employee or agent of any other trustee or trustees. The
trustees may consult with legal counsel, and any action or omission
undertaken by them in good faith in accordance with the opinion of legal
counsel shall be binding and conclusive on the parties to this Agreement.
2
<PAGE>
2.6 REPLACEMENT OF TRUSTEES. Any trustee may be removed from office by
the vote of holders of voting trust certificates representing at least two
thirds of the beneficial interests. In case of a trustee's death,
resignation or inability to act, the remaining trustees shall appoint a
successor. If there are no incumbent trustees, the holders of voting trust
certificates representing at least two thirds of the beneficial interests
shall elect successor trustees.
3. TERMINATION. This Agreement shall terminate on:
1. The written agreement of all parties;
2. The dissolution, bankruptcy, or insolvency of the
Corporation;
3. Registration of the Corporation under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934;
4, Consummation of a public offering of the Corporation's stock;
5. The sale or merger of the Corporation in a transaction in which all or
substantially all of the assets are sold or more than 50% control is
transferred.
6. At such time as only one Shareholder remains.
Otherwise, unless extended as provided below, this Agreement shall terminate
automatically ten (10) years after its effective date, or earlier by written
instructions, consent or vote of holders of voting trust certificates
representing two-thirds of the beneficial interests.
As soon as practicable after termination, the trustees shall deliver to the
certificate holders of record share certificates representing the number of
shares owned by each holder, properly endorsed for transfer, and certificate
holders shall surrender to the trustees their voting trust certificates properly
endorsed. Any expenses incurred in connection with the said transfers shall be
paid or reimbursed to the trustees by the shareholders. If any voting trust
certificate holder fails or refuses to surrender his/her certificate, or cannot
be located, the trustees may deliver the share certificates due that holder to
the Secretary of the corporation, for the benefit of said person or persons, and
upon so doing shall be fully discharged with respect to those share
certificates.
4. EXTENSION. The term of this Agreement as stated in the preceding paragraph
may be extended for an additional term of up to ten (10) years by written
agreement of one or more of the certificate holders entered into within two (2)
years before the expiration of the original term, if the trustees consent in
3
<PAGE>
writing to such extension. Successive extensions of this Agreement may be
effected in the same manner. Any certificate holder who does not agree to the
extension shall have the right to return of his/her share certificate at the
expiration of the current term, in accordance with the procedures described in
the preceding paragraph.
5. FILING, INSPECTION RIGHTS. A duplicate of this Agreement and of any
extension Agreement as provided in the preceding paragraph shall be filed with
the Secretary of the corporation and shall be open for inspection of the same
conditions as the corporation's record of shareholders.
6. MISCELLANEOUS MATTERS.
6.1 AGREEMENT TO PERFORM NECESSARY ACTS. Each party to this Agreement
agrees to perform any further acts and execute and deliver any documents that
may be reasonably necessary to carry out the provisions of this Agreement.
6.2 AMENDMENTS. The provisions of this Agreement may be waived, altered,
amended, modified, or repealed, in whole or in part, only on the written consent
of all parties to this Agreement.
6.3 VALIDITY OF AGREEMENT. It is intended that each paragraph of this
Agreement shall be viewed as separated and divisible, and in the event that any
paragraph shall be held to be invalid, the remaining paragraphs shall continue
to be in full force and effect.
6.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding on and
enforceable by and against the parties to it their respective heirs, legal
representatives, successors, and assigns.
6.5 VALIDITY OF AGREEMENT. All provisions of this Agreement are separate
and divisible, and if any part is held invalid, the remaining provisions shall
continue in full force and effect.
6.6 ATTORNEY'S FEES. Should any litigation be commenced between the
parties to this Agreement or the parties to this Agreement and the estate of any
deceased Shareholder concerning any provision of this Agreement or the rights
and obligations of any party or the estate of any party in relation thereto, the
party prevailing in such litigation shall be entitled, in addition to such other
relief as may be granted, to a reasonable sum as and for his/her attorney's fees
in that litigation which shall be determined by the court in that litigation or
in a separate action brought for that purpose.
6.7 NOTICES. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given or
4
<PAGE>
within 72 hours after mailing, if mailed to the party to whom notice is to be
given, by first class mail, registered or certified, postage prepaid, and
properly addressed to the party at the address set forth on the signature page
of this Agreement, or any other address that a party may designate by written
notice to the others.
6.8 GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
6.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.10 ARBITRATION. The parties agree that any controversy or claim arising
out of or relating to this Agreement, or breach of any of its provisions is to
be settled by arbitration in accordance with the rules of the American
Arbitration Association in accordance with the rules of the American Arbitration
Association, and judgment upon any award rendered by the Arbitrators may be
entered in any Court having competent jurisdiction. All hearing of the
Arbitrators are to be held in Los Angeles, California.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
hereinabove set forth.
SHAREHOLDERS INITIAL NUMBER OF
SHARES TRANSFERRED
/s/ Reed Slatkin 156,352
- -------------------------- --------------------------
Reed Slatkin
/s/ Kevin O'Donnell 156,352
- -------------------------- --------------------------
Kevin O'Donnell
/s/ Sky Dayton 300,000
- -------------------------- --------------------------
Sky Dayton
TRUSTEES
/s/ Reed Slatkin
--------------------------
Reed Slatkin
/s/ Kevin O'Donnell
--------------------------
Kevin O'Donnell
5
<PAGE>
EXHIBIT "A"
VOTING TRUST CERTIFICATE
EARTHLINK NETWORK, INC.
Certificate Number
---------
This certifies that the undersigned have received share certificates
representing shares of the common stock of Earthlink Network, Inc., a
California corporation, designated above. This further certifies that the
undersigned hold such share certificates as trustees subject to the terms and
conditions of a Voting Trust Agreement dated June 10, 1994, between and among
various shareholders of said corporation and the undersigned as trustees, a copy
of which is on file with the Secretary of said corporation.
During the term of said Voting Trust Agreement, and subject to its terms and
conditions, the holder of this certificate shall be entitled to all dividends
and distributions and all other benefits attributable to the share certificates
transferred.
The transferability of this Voting Trust Certificate is subject to a Buy-Sell
Agreement executed between the shareholders on even date. A new Certificate
shall be issued to any transferee only when this Certificate, properly endorsed
by the holder designated above, is surrendered to the undersigned trustees.
Upon termination of the said Voting Trust Agreement, and subject to its terms
and conditions, the undersigned trustees will deliver to the holder of this
Certificate share certificates representing the number of shares designated
above, on surrender to the trustees of this Certificate, properly endorsed by
the holder, together with payment of a sum sufficient to cover any expenses
relating to transfer and delivery of said share certificates.
Dated Effective June 10, 1994.
TRUSTEES
/s/ Reed Slatkin
--------------------------
Reed Slatkin
/s/ Kevin O'Donnell
--------------------------
Kevin O'Donnell
<PAGE>
NETSCAPE COMMUNICATIONS CORPORATION
AMENDED AND RESTATED INTERNET SERVICE PROVIDER
NAVIGATOR DISTRIBUTION AGREEMENT
COVER SHEET
<TABLE>
<S> <C>
EarthLink Network, Inc.
- ---------------------------------------------------
Full legal name of Network Service Provider ("NSP") NSP is incorporated in the state/country of California
3100 New York Drive If NSP is not a corporation, please specify form of
- --------------------------------------------------- organization
Address of Principal Place of Business ---------------------------------------
Pasadena California 91107
- --------------------------------------------------
City State Zip Nondisclosure Agreement Signed /X/ Yes / / No
Telephone (818) 296-2400 Fax (818) 296-4161 If yes, date April 15, 1996
---------------------------------------- ---------------------------------------
Name and Description of Internet Access and/or
Internet Access service ("NSP's Products"): EarthLink Network Total Access
---------------------------------------------------------
Check Applicable: / / Netscape Navigator LAN /X/ Netscape Dial-Up Kit /X/ Netscape Navigator Gold
IMPORTANT NOTICE: THIS NETSCAPE COMMUNICATIONS CORPORATION INTERNET SERVICE PROVIDER NAVIGATOR
DISTRIBUTION AGREEMENT GIVES YOU THE RIGHT TO MAKE AND DISTRIBUTE COPIES OF THE NAVIGATOR SOFTWARE
CHECKED ABOVE AT THE PRICING SET FORTH IN ATTACHMENT C HERETO. THE NAVIGATOR SOFTWARE MUST BE OFFERED TO
END USERS AS A PACKAGED PRODUCT WITH NSP'S PRODUCT AND MAY NOT BE OFFERED AS A STAND-ALONE PRODUCT. THE
NAVIGATOR SOFTWARE IS ONLY TO BE OFFERED TO END USERS IN THE TERRITORY NOTED BELOW. YOU MUST PROVIDE
QUARTERLY POINT OF SALE REPORTS TO NETSCAPE. CAREFULLY REVIEW THE REST OF THIS AGREEMENT FOR OTHER
IMPORTANT TERMS. FAILURE TO COMPLY WITH THIS AGREEMENT MAY RESULT IN TERMINATION.
TERRITORY (Countries): The United States, Canada and Mexico
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
EARTHLINK NETWORK, INC. NETSCAPE COMMUNICATIONS CORPORATION
<S> <C>
By: /s/ Charles G. Betty By: /s/ Conway Rulon-Miller
---------------------------------------------- ----------------------------------------
Name: Garry Betty Name: Conway (Todd) Rulon-Miller
-------------------------------------------- --------------------------------------
Title: Its President Title: VP, Sales
------------------------------------------ -------------------------------------
Date: 5/29/96 Date of Acceptance: 5/31/96
------------------------------------------ ------------------------
NSP Technical Contact NETSCAPE AUTHORIZED AGENT
Primary: Michael Mushet Company Name:
--------------------------------------- -------------------------------
Phone: 818 296-2429 By:
----------------------------------------- -----------------------------------------
Fax: 818 296-4161 e-mail: M2@ earthlink.net Name: ---------------------------------------
------------ --------------------
Alternate: Steve Nelson Title:
-------------------------------------- ---------------------------------------
Phone 818-296-2486
Fax: 818 296-4161 e-mail: snelson @ earthlink.net Date:
------------- ------------------------ ---------------------------------------
</TABLE>
- 1 -
* CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED IN REVIEWED BY
CONNECTION WITH A REQUEST TO THE SECURITIES AND EXCHANGE NETSCAPE LEGAL
COMMISSION FOR CONFIDENTIAL TREATMENT OF SUCH PORTIONS. Initial DRM
---
<PAGE>
NETSCAPE COMMUNICATIONS CORPORATION
AMENDED AND RESTATED INTERNET SERVICE PROVIDER
NAVIGATOR DISTRIBUTION AGREEMENT
This Amended and Restated Internet Service Provider Navigator Distribution
Agreement ("Agreement") is entered into by and between Netscape
Communications Corporation, a Delaware corporation ("Netscape"), with
principal offices at 501 East Middlefield Road, Mountain View, CA 94043,
U.S.A. and the NSP listed and identified on the cover sheet to this Agreement
("Cover Sheet") as of the date of acceptance by Netscape ("Effective Date").
WHEREAS, NSP markets and provides Internet Access services and/or Internet
Access services.
WHEREAS, NSP and Netscape are parties to that Internet Service Provider
Navigator Distribution Agreement dated May 25, 1995 and the Amendment thereto
dated the same date (as amended, such Internet Service Provider Navigator
Distribution Agreement shall be referred to herein as the "Original
Agreement");
WHEREAS, the parties to this Agreement wish to amend and restate the terms of
the Original Agreement with this Agreement so that the terms of the agreement
remaining between the parties shall be those set forth in this Agreement; and
WHEREAS, NSP desires to obtain rights to use and distribute Netscape's
Navigator selected on the Cover Sheet in accordance with the terms and
conditions of this Agreement.
NOW, THEREFORE, the parties agree to the following terms and conditions:
SECTION 1. DEFINITIONS
For purposes of this Agreement, the following terms shall have the following
meanings:
1.1 "Active User" means a Registered User for which Internet Access
through NSP's Product has not been terminated.
1.2 "Attachment(s)" means the attachments to this Agreement which are
attached hereto and incorporated herein:
1.2.1 Attachment A (End User License Agreement) which set forth
Netscape's terms and conditions of licensing applicable to an
end user customer.
1.2.2 Attachment B (Quarterly Point of Sale Report) which sets
forth the form and information NSP must provide to Netscape
each quarter.
1.2.3 Attachment C (Navigator Pricing and Customization) which
sets forth Netscape's pricing for the current release (as
of Effective Date) of the Navigator selected on the Cover
Sheet by NSP, as amended by Netscape from time to time, and
Netscape's customization obligations.
1.3 "Derivative Work(s)" means a revision, modification, translation,
abridgment, condensation or expansion of the Navigator or
Documentation or any form in which the Navigator or Documentation
may be recast, transferred, or adopted, which, if prepared without
the consent of Netscape, would be copyright infringement.
1.4 "Distributor" means any third party appointed pursuant to this
Agreement by NSP or any Distributor properly appointed hereunder to
distribute the Navigator to End Users in accordance with the terms hereof.
1.5 "Documentation" means Netscape's standard user manuals, reference manuals
and installation guides, or portions thereof, which are distributed as of
the Effective Date generally by Netscape to its other licensees of the
Navigator either in hard copy or electronic copy, as may be updated by
Netscape form time to time and provided to NSP hereunder.
- 2 -
<PAGE>
1.6 "End User" means any third party licensed by NSP or a Distributor
pursuant to this Agreement to use, but not to further distribute, the
Navigator except that if such third party is a corporation or other
entity, then "End User" means each individual within such corporation or
entity licensed by NSP or a Distributor pursuant to this Agreement to
use, but not to further distribute, the Navigator.
1.7 "Internet Access" means connecting, through any medium now known or
hereafter developed or discovered, to the Internet in order to permit
data flow between the Internet and the connected end user.
1.8 "Major and Minor Updates" mean updates, if any, to the Navigator. Major
Updates involve additions of substantial functionality while Minor
Updates do not. Major Updates are designated by a change in the number
to the left of the decimal point of the number appearing after the
product name while Minor Updates are designated by a change in any
number to the right of the decimal point. Netscape is the sole
determiner of the availability and designation of an Update as a Major
or Minor Update. Major Updates exclude software releases which are
reasonably designated by Netscape as new products. Where used herein
"Updates" shall mean Major Updates and Minor Updates interchangeably.
1.9 "NAA" means the applicable Netscape authorized distributor or value
added reseller who has entered into a Netscape Authorized Agent
Agreement with Netscape to act as a Netscape Authorized Agent in
connection with this Agreement solely for administrative purposes on
behalf of Netscape, all in accordance with the terms of the Netscape
Authorized Agent Agreement and this Agreement. All references in this
Agreement to "Netscape/NAA" shall mean the NAA if this Agreement is
entered into among Netscape, NSP and an NAA.
1.10 "Navigator" means the Netscape Dial-Up Kit, Netscape Navigator LAN
and/or Netscape Navigator Gold as selected on the Cover Sheet.
1.11 "Netscape Dial-Up Kit" means, to the extent selected on the Cover Sheet,
the executable current version (but not the source code version) of the
client software Netscape markets under the name "Netscape Dial-Up Kit",
and any Updates that Netscape may provide to NSP hereunder from time to
time.
1.12 "Netscape Navigator Gold" means, to the extent selected on the Cover
Sheet, the executable version (but not the source code version) of the
client category of software Netscape markets under the name "Netscape
Navigator Gold", and any Updates that Netscape may provide to Licensee
hereunder from time to time.
1.13 "Netscape Navigator LAN" means, to the extent selected on the Cover
Sheet, the executable version (but not the source code version) of the
web client software Netscape markets under the name "Netscape Navigator
LAN", and any Updates that Netscape may provide to NSP hereunder from
time to time.
1.14 "NSP's Product" means NSP's Internet Access and/or Intranet Access
services, as described on the Cover Sheet, with which the Navigator is
required to be bundled and distributed.
1.15 "Program Errors" means one or more reproducible deviations in the
Navigator from the applicable functional specifications set forth in the
Documentation.
1.16 "Registered User" means (a) an End User that is provided Netscape
Navigator Gold upon the date the Navigator is distributed to each End
User or (b) an End User that is provided Netscape Navigator LAN or
Netscape Dial-Up Kit upon the date such End User logs on to Licensee's
Product using a user ID and password obtained from Licensee.
1.17 "Territory" shall mean that geographic area set forth on the Cover Sheet.
SECTION 2. GRANT OF LICENSES AND RIGHTS
2.1 Licenses
2.1.1 License. Subject to the terms and conditions of this
Agreement, Netscape hereby grants to NSP and NSP hereby accepts,
a nonexclusive and nontransferable right and license to (i) use
in the Territory the Navigator for NSP's internal business
purposes, (ii) reproduce, without change
- 3 -
<PAGE>
(except as required pursuant to Section 2.1.6), the Navigator (in
executable form only) on any media (provided that NSP shall not
electronically distribute any version of the Navigator containing
128-bit encryption), (iii) distribute in the Territory by
sublicense such Navigator copies to End Users, directly or
indirectly through Distributors, solely for use in
conjunction with NSP's Product and (iv) directly distribute from
NSP's FTP (file transfer protocol) site to Active Users located
in the Territory any Minor Updates provided to NSP by Netscape
pursuant to Section 6.3; provided, that such FTP site shall not
permit any person or entity, other than Active Users, to download
or otherwise access any Update.
2.1.2 Distributors. Subject to the terms and conditions of this
Agreement, NSP may sublicense to Distributors and such
Distributors may sublicense to other Distributors the right and
license to reproduce, without change, the Navigator (in
executable form only) on any tangible media solely as an
incorporated part of NSP's Product and to distribute in the
Territory by sublicense such Navigator copies to End Users,
directly or indirectly through other Distributors, solely for use
in conjunction with NSP's Product.
2.1.3 License Restrictions. NSP agrees not to copy (except as
expressly permitted herein), modify, translate, decompile,
reverse engineer, disassemble, or otherwise determine or attempt
to determine source code from the executable code of the
Navigator or to create any Derivative Works based upon the
Navigator or Documentation, and agrees not to permit or authorize
anyone else, including, without limitation, any Distributor, to
do so. NSP and each Distributor are expressly prohibited from
any marketing and/or distribution of the Navigator(a) unless each
copy of the Navigator is bundled with NSP's Product and (b)
outside of the Territory. NSP shall not be entitled to grant to
any Distributor and no Distributor shall be entitled to grant to
any other Distributor the right or license to electronically
distribute the Navigator, including, without limitation, any
Update.
2.1.4 Documentation License. Subject to the terms and conditions of
this Agreement, Netscape hereby grants and NSP hereby accepts a
nonexclusive and nontransferable right and license to use and
reproduce, without change (except as provided in Section 2.1.6),
the Documentation, and to distribute in the Territory by
sublicense the Documentation to End Users, directly or
indirectly through Distributors, solely in conjunction with the
Navigator. Subject to the terms and conditions contained in this
Agreement, NSP may sublicense to Distributors and such
Distributors may sublicense to other Distributors the right and
license to use and reproduce, without change, the Documentation
and to distribute in the Territory by sublicense the
Documentation to End Users, directly or indirectly through other
Distributors, solely in conjunction with the Navigator.
2.1.5 Licenses Dependent on Bundling and Accounting. The licenses
granted in this Section 2.1 are conditional upon (i) NSP bundling
each copy of the Navigator with NSP's Product and NSP and each
Distributor marketing and distributing each copy of the Navigator
only as so bundled with NSP's Product and only in the Territory
and (ii) NSP establishing and maintaining controls and procedures
sufficient to timely and accurately determine the number of
Registered Users. If (a) NSP fails to so bundle the Navigator,
(b) NSP or any Distributor markets or distributes the Navigator
without NSP'S Product bundled therewith or outside of the
Territory or (c) NSP fails to account for all Registered Users in
accordance with this Section 2.1.5, the licenses granted
hereunder shall be immediately revocable by Netscape in addition
to any other remedies Netscape may have.
2.1.6 Configuration Guide. In the event that the Netscape Dial-Up Kit
is selected on the Cover Sheet, Netscape hereby grants to NSP,
and NSP hereby accepts, a nonexclusive and nontransferable right
and license, in the Territory, to (a) use (with no right to
sublicense) the configuration guide provided by Netscape to NSP
(the "Configuration Guide") to preconfigure the dial-up
parameters and Netscape preferences specified therein solely for
NSP's Product and for no other network service and (b) modify the
"Getting Started" portion of the Documentation for the Netscape
Dial-Up Kit solely to the extent necessary to reflect the
preconfigured parameters and dial-up preferences made by NSP to
the Netscape Dial-Up Kit in accordance with this Section 2.1.6.
Prior to distribution of any Netscape Dial-Up Kit to a Distributor
or End User, NSP shall use the Configuration Guide to
preconfigure the dial-up parameters and Netscape preferences of
each such
- 4 -
<PAGE>
Netscape Dial-Up Kit to: (i) provide Internet Access and/or
Intranet Access to End Users solely through NSP's Product and
(ii) prevent access to any private network not operated by NSP.
NSP is granted no right to license to (x) distribute or
sublicense the Configuration Guide to any third party, including,
without limitation, Distributors, (y) sublicense to any
Distributor the right or license to modify or change all or any
portion of the Navigator or Documentation, and (z) except as
provided in this Section 2.1.6, modify or change all or any
portion of the Navigator or Documentation.
2.1.7 Stack and Dialer. Prior to distribution of any Netscape
Navigator LAN to a Distributor or End User, NSP shall bundle, in
accordance with this Section 2.1.7, each copy of the Netscape
Navigator LAN with NSP's or a third party's stack and dialer.
NSP agrees to bundle each copy of the Netscape Navigator LAN with
such stack and dialer so that such copy of the Netscape Navigator
LAN: (i) provides Internet Access and/or Intranet Access to End
Users solely through NSP's Product and (ii) prevents access to
any public network, other than the Internet, and to any private
network not operated by NSP.
2.1.8 Promotion of Navigators. NSP agrees to treat all Navigators at
least as favorable as it treats any other products distributed by
NSP that are competitive with any Navigator. Specifically, NSP
agrees that it will not market or promote any Navigator or any
other product in a manner that states or could reasonably be
interpreted to imply that the Navigator is inferior or secondary
to the other product. For example, NSP will not market or
promote any other product as "preferred," "premier," "primary" or
the like as compared to any Navigator.
2.1.9 Netscape Now Program. The licenses granted in this Section 2.1
are conditional on (a) NSP's ongoing participation in the
Netscape Now Program, including without limitation, NSP's
compliance with the Netscape Now Program published guidelines as
currently in effect and as may be revised by Netscape and
provided to NSP from time to time during the term of this
Agreement and (b) NSP's placement of a "Netscape Now" button in
conformance with the Netscape Now Program Guidelines on a URL
maintained by NSP in connection with NSP's Product and designated
by NSP as the URL containing information regarding Updates. NSP
acknowledges that it has received and had an opportunity to
review the current Netscape Now Program published guidelines.
2.2 Export. NSP shall comply fully with all then current applicable laws,
rules and regulations relating to the export of technical data, including,
but not limited to any regulations of the United States Office of Export
Administration and other applicable governmental agencies and NSP
acknowledges that by virtue of certain security technology embedded in the
Navigator, that export of such software may not be legal. NSP shall
conspicuously mark all packaging containing Navigators identified by
Netscape as not for export with a "Not for Export" notice. Netscape agrees
to cooperate in providing information requested by NSP as necessary to
obtain any required licenses and approvals. When distributing the
Navigator and Documentation in countries where an enforceable copyright law
covering the same does not exist, NSP shall obtain a written agreement
signed by the End User prohibiting the End User from making unauthorized
copies of the same.
2.3 Compliance With Laws
2.3.1 At its own expenses, NSP shall make, obtain, and maintain in force
at all times during the term of this Agreement, all applicable
filings, registrations, reports, licenses, permits and
authorizations (collectively "Authorizations") in the Territory
in order for NSP to perform its obligations under this Agreement,
Netscape/NAA shall provide NSP with such assistance as NSP may
reasonably request in making or obtaining any such
Authorizations. In the event that the issuance of any
Authorization is conditioned upon an amendment or modification to
this Agreement which is unacceptable to Netscape, Netscape shall
have the right to terminate this Agreement without liability or
further obligation whatsoever to NSP.
2.3.2 NSP shall comply with all laws, regulations and other legal
requirements that apply to this Agreement, including tax and
foreign exchange legislation; advise Netscape/NAA of any
legislation, rule, regulation or other law (including but not
limited to any customs, tax, trade,
- 5 -
<PAGE>
intellectual property or tariff law) which is in effect or which
may come into effect in the Territory after the Effective Date of
this Agreement and which affects the importation of the Navigator
into, or the use and the protection of the Navigator and the
intellectual property right within, the Territory, or which has a
material effect on any provision of this Agreement. NSP will
provide Netscape/NAA with the assurances and official documents
that Netscape/NAA periodically may request to verify NSP's
compliance with this subsection.
2.3.3 NSP shall not, together with its employees and agents, in
conformity with the United States Foreign Corrupt Practices Act
and with Netscape's established corporate policies regarding
foreign business practices, directly or indirectly make and offer
payment, promise to pay, or authorize payment, or offer a gift,
promise to give, or authorize the giving of anything of value for
the purpose of influencing an act or decision of an official of
any government within the Territory or of the United States
Government (including a decision not to act) or inducing such a
person to use his influence to affect any such governmental act
or decision in order to assist Netscape in obtaining, retaining
or directing any such business.
2.4 This Party Licenses. If all or any part of the Navigators delivered to NSP
has been licensed to Netscape by a third party software supplier then,
notwithstanding anything to the contrary contained in this Agreement, NSP
is granted a sublicense to the third party software subject to the same
terms and conditions as those contained in the agreement between Netscape
and such third party software supplier. In addition, Netscape reserves the
right to substitute any third party software in the Navigators so long as
the new third party software does not materially affect the functionality
of the Navigator. Netscape represents that current releases of the
Navigators contain no third party software which would require NSP to agree
to any terms and conditions in addition to those set forth in this
Agreement.
2.5 European Union. In the event that any provisions of this Agreement
prohibits any activity of License or any Distributor in violation of
Article 6 of the Council Directive of 14 may 1991 on the legal protection
of computer programs, and implementing legislation thereunder (the
"Directive"), then, such activity shall be permitted solely to the extent,
if any, that such activity is (i) subject to the jurisdiction of a Member
State of the European Union and (ii) expressly permitted by the Directive.
SECTION 3. MARKETING AND DISTRIBUTION
3.1 Nonexclusivity. NSP understands that Netscape may enter into arrangements
similar to this Agreement with third parties.
3.2 Terms relating to Distribution.
3.2.1 Distribution to Government Agencies. NSP agrees to comply with
all applicable laws, rules and regulations to preclude the
acquisition of unlimited rights to technical data, software and
documentation provided with the Navigator to a governmental
agency, and ensure the inclusion of the appropriate "Restricted
Rights" or "Limited Rights" notices required by the U.S.
Government agencies or other applicable agencies.
3.2.2 Distributor Agreements. Prior to the distribution of any
Navigator to a Distributor, NSP or a then-current Distributor
shall enter into an enforceable written agreement with such
Distributor ("Distributor Agreement") that (i) is sufficient to
ensure that such Distributor is required to comply with the
relevant terms of this Agreement and (ii) expressly names
Netscape as an intended third party beneficiary with the right to
rely on and directly enforce the terms thereof. Without limiting
the generality of the foregoing, each Distributor Agreement shall
include terms no less restrictive than those contained in Section
2.1(iii),2.1.3,2.1.8,2.2,2.3,3.2.1,3.2.3,3.3,7.8 and 9.1 of this
Agreement.
3.2.3 End User License Agreements. Neither NSP nor any Distributor
shall sublicense or otherwise distribute any copy of the
Navigator or Documentation to End users except pursuant to a
written sublicense agreement ("End User License Agreement") that
(i) contains terms and conditions not inconsistent with and no
less restrictive than the terms and conditions set forth in
Netscape's then-current standard end user license agreement for
the Navigator and Documentation (with NSP or
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such Distributor as the "Licensor" thereunder) and (ii) provides,
in 12 point, bold, upper-case type, at the top of each such
agreement and prior to any other text (other than introductory text
regarding acceptance of the agreement), a legend in substantially
the following form:
THE NAVIGATOR AND DOCUMENTATION ARE PROVIDED FOR USE ONLY
(I) WITH THE INTERNET ACCESS OR INTRANET ACCESS SERVICE
INITIALLY OFFERED BY (NSP/DISTRIBUTOR) IN CONJUNCTION WITH
THE DISTRIBUTION OF THE NAVIGATOR AND DOCUMENTATION AND
(II) IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT. NO
RIGHT OR LICENSE IS GRANTED TO USE THE NAVIGATOR OR
DOCUMENTATION WITH ANY OTHER INTERNET ACCESS OR INTRANET
ACCESS SERVICE.
A copy of Netscape's current standard end user license
agreement for the Navigator is attached hereto as Attachment A.
Upon delivery by Netscape to NSP of any revised end user license
agreement, NSP and each Distributor shall, as soon as reasonably
practicable, but in any event within ninety (90) days after receipt
thereof from Netscape, use only such End User License Agreements
that have been revised to conform to the terms of this Agreement and
such revised end user license agreement provided by Netscape to
NSP; provided, in the event that the revised end user license
agreement is provided by Netscape to NSP to comply with or conform
to a law, regulation or policy or other third party requirement, NSP
and each Distributor will use only such revised End User License
Agreement within thirty (30) days after receipt by NSP of Netscape's
revised end user license agreement.
3.3 Enforcement of Ancillary Agreements. NSP shall use commercially
reasonable efforts to enforce each Distributor Agreement and End User
License Agreement and NSP shall require each Distributor to use
commercially reasonable efforts to enforce each Distributor Agreement and
each End User License Agreement to which such Distributor is a party, in
each case, with at least the same degree of diligence used in enforcing
similar agreements governing others, which in any event shall be
sufficient to adequately enforce such agreements. NSP shall, and shall
require each Distributor to, use commercially reasonable efforts to protect
Netscape's copyright rights, and NSP shall notify Netscape, and shall
require each Distributor to notify NSP, of any breach of a material
obligation under a Distributor Agreement or an End User License Agreement
affecting the Navigator or Documentation. In addition, NSP will
cooperate, and will require each Distributor to cooperate, with Netscape
in any legal action to prevent or stop unauthorized use, reproduction or
distribution of the Navigator or Documentation.
3.4 Third Party Requirements. In the event that Netscape is required by a
third party software supplier to cease and to cause its licensees to
cease reproduction and distribution of a particular revision of the
Navigator, NSP agrees to comply, and agrees to cause its Distributors
to comply, therewith as soon as commercially practicable provided
Netscape/NAA provides NSP with thirty (30) days prior written notice
and further provided Netscape replaces such affected Navigator with a
functionally equivalent Navigator as soon as commercially practicable.
SECTION 4. FEES AND PAYMENT
4.1 License Fees. NSP shall pay to Netscape/NAA, within thirty (30) days of
the date of Netscape's/NAA's invoice, the applicable per copy license fee
set forth in Attachment C for each license granted by NSP to Registered
Users in connection with the distribution of all or any portion of the
Navigator. Netscape/NAA will invoice NSP on a quarterly basis for
accrued but unpaid license fees based on NSP's Quarterly Point of Sale
Reports submitted in accordance with Section 4.3 below. Per copy license
fees will accrue in the applicable corresponding quantity upon: (a) the
initial date of NSP's internal use of a Navigator or any Update and (b) the
date that an End User first becomes a Registered User.
4.2 Payment and Taxes. All payments shall be made in United States dollars
at Netscape's/NAA's address as indicated in this Agreement or at
such other address as Netscape/NAA may from time to time indicate by
proper notice hereunder or by wire transfer to a bank and account number
designated by Netscape/NAA. All fees are exclusive of all taxes, duties
or levies, however designated or computed. NSP shall be responsible for
and pay all taxes based upon the transfer, use or distribution of the
Navigator, or the
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program storage media, or upon payments due under this Agreement
including, but not limited to, sales, use, or value-added taxes, duties,
withholding taxes and other assessments now or hereafter imposed on or
in connection with this Agreement or with any sublicense granted
hereunder, exclusive of taxes based upon Netscape's (or NAA's) net
income. In lieu thereof, NSP shall provide to Netscape/NAA a tax or
other levy exemption certificate acceptable to the taxing or other
levying authority. If NSP is required by law to make any deduction or to
withhold from any sum payable to Netscape by NSP hereunder, NSP shall
effect such deduction or withholding, remit such amounts to the
appropriate taxing authorities and promptly furnish Netscape with tax
receipts evidencing the payments of such amounts. Any past due amount
shall bear interest at the rate of one percent (1%) per month or the
maximum rate allowed by applicable law, whichever is less, until paid in
full.
4.3 Quarterly Point of Sale Reports. NSP shall maintain accurate
records of Registered Users, including the information (broken down by
month) required in the Quarterly Point of Sale Report attached hereto as
Attachment B, and any further information as Netscape/NAA may from time
to time reasonably request. Irrespective of the Effective Date, NSP
shall submit Quarterly Point of Sale Reports electronically in ASCII tab
or comma delimited fields format to Netscape/NAA on March 10, June 10,
September 10 and December 10 of each year for the quarters December
through February, March through May, June through August, and September
through November, respectively.
4.4 Audit of Records. NSP shall maintain, and shall require its Distributors
to maintain, accurate records containing the information (broken down by
month) required in the Quarterly Point of Sale Report attached hereto as
Attachment B, all data reasonably required for verification of NSP's and
each Distributor's compliance with the terms of this Agreement, amounts
to be paid, the quantity of Navigators and/or Updates distributed by NSP
and each Distributor and the number of Registered Users. Netscape and
NAA each shall have the right, during normal business hours upon at
least five (5) business days prior notice, to direct its auditors to
audit and analyze the relevant records of NSP and its Distributors to
verify compliance with the provisions of this Agreement. The audit shall
be conducted at Netscape's (or NAA's) expense unless there is inadequate
record keeping or the results of such audit establish that
inaccuracies in the Quarterly Point of Sale Reports have resulted in
underpayment to Netscape/NAA of more than five percent (5%) of the
amount actually due in any quarter, in which case NSP shall pay any
additional license fees resulting from the audit and bear the expenses
of the audit.
SECTION 5. DELIVERABLES
5.1 Deliverables. Netscape/NAA shall provide NSP with one (1) gold master of
the release of the Navigator as of the Effective Date in the platforms
described on Attachment C and the applicable Documentation as of the
Effective Date. If NSP has selected the Netscape Dial-Up Kit on the
Cover Sheet, NSP will also receive the Configuration Guide. All
deliveries under this Agreement shall be F.C.A. Netscape, Fremont,
California, U.S.A. or F.C.A. NAA origin, as applicable. "F.C.A." means
Free Carrier Alongside and shall have the definition set forth in
INCOTERMS 1990.
SECTION 6. SUPPORT
6.1 Front Line Support. NSP, and not Netscape/NAA, will provide front-line
technical support to Active Users. NSP shall employ at least two (2)
fully trained full time support personnel and provide support five days
a week during local business hours. Such support includes call receipt,
entitlement verification, call screening, installation assistance,
problem identification and diagnosis, product defect determination,
efforts to create a repeatable demonstration of the Program Error and,
if applicable, the replacement of any defective media. NSP agrees that
any documentation or packaging distributed by NSP shall clearly and
conspicuously state that End Users shall call NSP for technical support
for the Navigator and shall not reference Netscape/NAA in any manner
with respect to support. Netscape/NAA will have no obligation to furnish
any assistance, information or documentation with respect to the
Navigator to any End User. If Netscape/NAA customer support
representatives are being contacted by a significant number of End
Users, then, upon Netscape's/NAA's request, NSP and Netscape (or NAA)
will cooperate to minimize such contact and, if NSP is not able to
minimize such contact to a level which is acceptable to Netscape in its
reasonable determination, NSP hereby agrees to pay Netscape or NAA the
then-current charges for such support.
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6.2 Other Support. In consideration of the License Fee set forth in
Attachment C, Netscape will provide NSP, during the term of this
Agreement, with Netscape's technical support services, as further
described in Attachment D.
6.3 Updates. For the term of this Agreement, Netscape/NAA will provide to
NSP Updates commercially released by Netscape in consideration of the
License Fee set forth in Attachment C. Within three (3) months after the
date that Netscape shall commercially release any Update, NSP shall
distribute to End Users only that version of the Navigator represented
by such Update.
SECTION 7. TRADEMARKS AND TRADE NAMES
NSP shall use, and is hereby granted a non-transferable, non-exclusive
and restricted license, during the term of this Agreement, to use in the
Territory the trademark "Netscape Navigator Included" in any
advertising, marketing, technical, packaging or other materials related
to the Navigator which are distributed by NSP in connection with this
Agreement in accordance with Netscape's then current trademark usage
guidelines to be provided and updated by Netscape from time to time (the
"Guidelines"). NSP shall be entitled to sublicense to Distributors the
right to use in the Territory, and shall require each Distributor to use
in the Territory, "Netscape Navigator Included" in any advertising,
marketing, technical, packaging or other materials related to the
Navigator which are distributed by such Distributor hereunder in
accordance with the Guidelines. Other than the use of "Netscape
Navigator Included," neither NSP nor any Distributor shall use
"Netscape" or "Netscape Navigator" or "Personal Edition" in any
advertising, marketing collateral and/or packaging relating to NSP's
Product. Neither NSP nor any Distributor need use Netscape's trademarks
and trade names in any country in which their connotation is offensive.
NSP will consult with Netscape as to the foreign translation of Netscape
trademarks and trade names so that Netscape can help ensure uniformity
with their use by Netscape or third parties. NSP and each Distributor
shall clearly indicate Netscape's ownership of such trademarks or trade
names. All such usage shall inure to Netscape's benefit. NSP agrees not
to register and agrees not to permit any Distributor to register any
Netscape trademarks or trade names without Netscape's express prior
written consent. Upon Netscape's/NAA's request from time to time NSP
agrees to provide Netscape/NAA with copies of goods bearing Netscape's
trademarks and trade names so that Netscape can verify that the quality
of NSP's and each Distributor's use of such trademarks is comparable to
that of Netscape's use thereof. NSP shall suspend and shall require each
Distributor to suspend use of Netscape trademarks and trade names if
such quality is reasonably deemed inferior by Netscape until NSP and any
such Distributor has taken such steps as Netscape may reasonably require
to solve the quality deficiencies.
SECTION 8. PROPRIETARY RIGHTS
8.1 Proprietary Rights. Title to and ownership of all copies of the
Navigator and Documentation whether in machine-readable or printed form,
and including, without limitation, Derivative Works, compilations, or
collective works thereof and all related technical know-how and all
rights therein (including without limitation rights in patents,
copyrights, and trade secrets applicable thereto), are and shall remain
the exclusive property of Netscape and/or its suppliers. NSP shall not
take any action to jeopardize, limit or interfere in any manner with
Netscape's ownership of and rights with respect to the Navigator and
Documentation. NSP shall have only those rights in or to the Navigator
and Documentation granted to it pursuant to this Agreement.
8.2 Proprietary Notices
8.2.1 No Alteration of Notices. NSP and its employees and agents shall
not, and NSP shall not allow any Distributor to, remove or alter
any trademark, trade name, copyright, or other proprietary notices,
legends, symbols, or labels appearing on or in copies of the
Navigator and Documentation delivered to NSP by Netscape/NAA and
NSP shall use and shall require each Distributor to use the same
notices, legends, symbols, or labels in and on copies of the
Navigator and Documentation made pursuant to this Agreement as are
contained in and on the master copy.
8.2.2 Notice. Each portion of the Navigator and Documentation reproduced
by NSP or any Distributor shall include the intellectual property
notice or notices appearing in or on the corresponding portion of
such materials as delivered by Netscape/NAA hereunder. NSP shall
ensure that all
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copies of the Navigator made by NSP or any Distributor pursuant to
this Agreement conspicuously display a notice substantially in the
following form:
Copyright -C- 1994 Netscape Communications Corporation. All
Rights Reserved.
If NSP is unsure of the appropriate year(s), it shall consult
Netscape/NAA to obtain the correct designation. Such notice shall be
on labels on all media containing the Navigator. If the copyright
symbol "-C-" cannot technically be reproduced, NSP or any Distributor
shall use the word "Copyright" followed by the notation "(c)" in its
place.
SECTION 9. CONFIDENTIAL INFORMATION AND DISCLOSURE
9.1 Confidential Information. The parties agree that all disclosures of the
confidential and/or proprietary information relating to this Agreement
shall be governed by the Nondisclosure Agreement identified on the Cover
Sheet. If there is no Nondisclosure Agreement identified on the Cover
Sheet, then for purposes of this Agreement "Confidential Information" shall
mean Netscape information of a confidential and/or proprietary nature
including, without limitation, computer programs, code, algorithms, names
and expertise of employees, and consultants, know-how, formulas, processes,
ideas, inventions (whether patentable or not), schematics and other
technical, business, financial and product development plans, forecasts,
strategies, and information of like nature. NSP agrees to take all
reasonable precautions, but in no event less than due and reasonable care,
to prevent any unauthorized disclosure or use of Confidential Information
including, without limitations disclosing Confidential only to its
employees (a) with a need to know to further permitted uses of such
information hereunder and (b) who are parties appropriate agreements
sufficient to comply with this Section 9, and (c) who are informed of the
nondisclosure/ non-use obligations imposed by this Section 9. The
foregoing restrictions on disclosure and use shall survive for three (3)
years following any termination of this Agreement, but shall not apply
information which through no fault of NSP becomes publicly available.
9.2 Confidentiality of Agreement. Unless required by law, and except to assert
its rights hereunder or for disclosures to its own employees or
distributors on a "need to know" basis, NSP agrees not to disclose the
terms of this Agreement or matters relating hereto without the prior
written consent of Netscape, which consent shall not be unreasonably
withheld.
SECTION 10. WARRANTIES
10.1 Limited Warranty. Subject to the limitations set forth in this Agreement,
Netscape warrants only to NSP that the Navigator when promptly adapted,
installed, and used will substantially conform to the functional
specifications set forth in the Documentation in effect when the Navigator
is shipped to NSP. Netscape's warranty and obligation shall extend for a
period of ninety (90) days ("Warranty Period") from the date that Netscape
first delivers the Navigator to NSP. All warranty claims not made in
writing or not received by Netscape/NAA within the Warranty Period shall be
deemed waived. Netscape's warranty and obligation is solely for the
benefit of NSP, who has no authority to extend this warranty to any other
person or entity. NETSCAPE MAKES NO WARRANTY THAT ALL ERRORS OR FAILURES
WILL BE CORRECTED.
10.2 EXCLUSIVE WARRANTY. THE EXPRESS WARRANTY SET FORTH IN SECTION 10.1
CONSTITUTES THE ONLY WARRANTY MADE BY NETSCAPE. NETSCAPE MAKES NO OTHER
REPRESENTATION, WARRANTY OR CONDITION, OF ANY KIND WHETHER EXPRESS OR
IMPLIED (EITHER IN FACT OR BY OPERATION OF LAW) WITH RESPECT TO THE
NAVIGATOR OR DOCUMENTATION. NETSCAPE EXPRESSLY DISCLAIMS ALL WARRANTIES OR
CONDITIONS OF MERCHANTABILITY, NONINFRINGEMENT OR FITNESS FOR A PARTICULAR
PURPOSE. NETSCAPE DOES NOT WARRANT THAT THE NAVIGATOR OR DOCUMENTATION IS
ERROR-FREE OR THAT OPERATION OF THE NAVIGATOR WILL BE SECURE OR
UNINTERRUPTED AND HEREBY DISCLAIMS ANY AND ALL LIABILITY ON ACCOUNT
THEREOF, THE ABOVE LIMITATION SHALL APPLY TO THE EXTENT ALLOWED BY
APPLICABLE LAW.
10.3 Defects Not Covered by Warranties. Netscape shall have no obligations
under the warranty provisions set forth in Section 10.1 if any
nonconformance is caused by: (a) the incorporation, attachment or otherwise
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engagement of any attachment, feature, program, or device, other than by
Netscape, to the Navigator, or any part thereof; or (b) accident;
transportation; neglect or misuse; alteration, modification or enhancement
of the Navigator other than by Netscape; failure to provide a suitable
installation environment; use of supplies or materials not meeting
specifications; use of the Navigator for other than the specific purpose
for which the Navigator is designed; use of the Navigator on any systems
other than the specified hardware platform for such Navigator; or NSP's use
of defective media or defective duplication of the Navigator; or NSP's
failure to incorporate any Update previously released by Netscape which
remedies such nonconformance.
10.4 Exclusive Remedy. If NSP finds what it believes to be errors in or a
failure of the Navigator that prevents that Navigator from substantially
conforming to the functional specifications set forth in the Documentation,
and provides Netscape/NAA with a written report thereof during the Warranty
Period, Netscape/NAA will use reasonable efforts to correct promptly, at no
charge to NSP, any such errors or failures. This is NSP's sole and
exclusive remedy, and Netscape's sole obligation, for breach of any express
or implied warranties hereunder.
SECTION 11. INDEMNIFICATION
11.1 Netscape shall defend any action brought against NSP to the extent it is
based on a claim that reproduction or distribution by NSP of the Navigator
furnished hereunder within the scope of a license granted hereunder
directly infringes any valid United States patent as of the Effective
Date, United States copyright, United States trademark or trade secret in
the United States. Netscape will pay resulting costs, damages and legal
fees finally awarded against NSP in such action which are attributable to
such claim provided that NSP (a) promptly (within twenty (20) days)
notifies Netscape in writing of any such claim and Netscape has sole
control of the defense and all related settlement negotiations, and (b)
cooperates with Netscape, at Netscape's expense, in defending or settling
such claim.
11.2 Should a Navigator become, or be likely to become in Netscape's opinion,
the subject of infringement of such copyright, patent, trademark or trade
secret, Netscape/NAA may procure for NSP (i) the right to continue using
same or (ii) replace or modify it to make it non-infringing. In the event
that Netscape shall determine that neither (i) nor (ii) above is
commercially reasonable, Netscape may terminate this Agreement upon thirty
(30) days prior written notice and refund to NSP the balance of any Prepaid
License Fees received by Netscape and not required to be applied against
payments due under this Agreement, if any. Netscape shall have no
liability for any claim based upon: (a) use of other than an unaltered
version of the then current version of the Navigator or the version of the
Navigator in commercial release immediately prior to the last Update of the
Navigator, unless the infringing portion is also in the current, unaltered
release; (b) use, operation or combination of the Navigator with non-
Netscape programs, data, equipment or documentation if such infringement
would have been avoided but for such use, operation or combination; (c)
NSP's or its agent's activities after Netscape/NAA has notified NSP that
Netscape believes such activities may result in such infringement; (d)
compliance with NSP design, specifications or instructions; (e) any
modification or marking of the Navigator not specifically authorized in
writing by Netscape; (f) NSP's use of any trademarks other than the
Netscape trademarks pursuant to Section 7; or (g) third party software.
The foregoing states the entire liability of Netscape/NAA and the exclusive
remedy of NSP with respect to infringement of any intellectual property
rights whether under theory of warranty, indemnity or otherwise.
11.3 General Indemnification by NSP. NSP agrees to indemnify, hold harmless
and, at Netscape's request, defend Netscape/NAA and their suppliers from
and against any and all claims, liabilities, losses, damages, expenses and
costs (including attorney's fees and costs) arising out of, in connection
with or relating to (i) NSP's failure to include in each Distributor
Agreement or End User License Agreement the contractual terms required to
be included therein pursuant to Section 3.2.2 or 3.2.3 or (ii) except to
the extent that Netscape is responsible for a claim under Section 1.11 and
11.2, NSP's or Distributors' use, distribution or reproduction of the
Navigator, Documentation and/or NSP's Product, including, without
limitation, any claims, liabilities, losses, damages, expenses and costs
arising out of, in connection with or relating to defective reproduction of
or the use of defective media in the reproduction of Navigators, breach of
warranty or support obligations or infringement or misappropriation of
Netscape's intellectual property rights.
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SECTION 12. LIMITATION OF LIABILITY
IN NO EVENT SHALL NETSCAPE OR ITS SUPPLIERS (INCLUDING NAA) BE LIABLE FOR
ANY LOSS OF PROFITS, LOSS OF BUSINESS, LOSS OF USE OR DATA, INTERRUPTION OF
BUSINESS, OR FOR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF
ANY KIND, EVEN IF NETSCAPE/NAA HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED
REMEDY, EXCEPT TO THE EXTENT PROVIDED IN SECTION 11, NEITHER NETSCAPE NOR
ITS SUPPLIERS (INCLUDING NAA) SHALL BE LIABLE FOR ANY CLAIM AGAINST NSP BY
ANY END USER OR THIRD PARTY. IN NO EVENT WILL NETSCAPE OR ITS SUPPLIER
(INCLUDING NAA) BE LIABLE FOR (a) ANY REPRESENTATION OR WARRANTY MADE TO
ANY END USER OR OTHER THIRD PARTY BY NSP, ANY DISTRIBUTOR OR ANY OF THEIR
RESPECTIVE AGENTS; (b) FAILURE OF THE NAVIGATOR TO PERFORM EXCEPT AS, AND
TO THE EXTENT, OTHERWISE EXPRESSLY PROVIDED HEREIN; (c) FAILURE OF THE
NAVIGATOR TO PROVIDE SECURITY; (d) ANY USE OF THE NAVIGATOR OR THE
DOCUMENTATION; OR (e) THE RESULTS OR INFORMATION OBTAINED OR DECISIONS MADE
BY END USERS OF THE NAVIGATOR OR THE DOCUMENTATION. THE REMEDIES PROVIDED
IN THIS AGREEMENT ARE NSP'S SOLE AND EXCLUSIVE WARRANTIES. NOTWITHSTANDING
ANYTHING IN THIS AGREEMENT TO THE CONTRARY, NETSCAPE'S (INCLUDING NAA'S)
ENTIRE LIABILITY TO NSP FOR DAMAGES CONCERNING PERFORMANCE OR
NONPERFORMANCE BY NETSCAPE (INCLUDING NAA) OR IN ANY WAY RELATED TO THE
SUBJECT MATTER OF THIS AGREEMENT, AND REGARDLESS OF WHETHER THE CLAIM FOR
SUCH DAMAGES IS BASED IN CONTRACT OR IN TORT, SHALL NOT EXCEED THE AMOUNT
RECEIVED BY NETSCAPE (INCLUDING NAA) FROM NSP DURING TWELVE (12) MONTHS
PRIOR TO SUCH CLAIM. SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR
LIMITATION OF INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE LIMITATION
OR EXCLUSION MAY NOT APPLY TO NSP.
SECTION 13. TERM OF AGREEMENT
Unless sooner terminated under the provisions of Section 14, or otherwise
rightfully terminated; (a) this Agreement shall remain in effect until
December 31, 1997; and (b) thereafter, it shall automatically renew for
successive one (1) year terms. After the initial term of this Agreement,
either party may terminate this Agreement for convenience upon at least one
hundred twenty (120) days prior written notice.
SECTION 14. DEFAULT AND TERMINATION
14.1 Termination for Default. If either party defaults in any of its
obligations under this Agreement, the non-defaulting party, at its option
shall have the right to terminate this Agreement by written notice unless
within thirty (30) calendar days after written notice of such default, the
defaulting party remedies the default, or, in the case of a default which
cannot with due diligence be cured within a period of thirty (30) calendar
days, the defaulting party institutes within the thirty (30) calendar days
steps necessary to remedy the default and thereafter diligently prosecutes
the same to completion. This Agreement may be terminated immediately by
Netscape or NAA in the event of any breach of Sections 2.1 or 9 hereof.
14.2 Bankruptcy. Either party shall have the right to terminate this Agreement
if the other party ceases to do business in the normal course, becomes or
is declared insolvent or bankrupt, is the subject of any proceeding
relating to its liquidation or insolvency which is not dismissed within
ninety (90) calendar days, or makes an assignment for the benefit of its
creditors.
14.3 Effect on Rights
14.3.1 Termination of this Agreement by either party shall not act as a
waiver of any breach of this Agreement and shall not act as a
release of either party from any liability for breach of such
party's obligations under this Agreement.
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14.3.2 Except as specified in Sections 14.4 and 14.5 below, upon
termination or expiration of this Agreement, all licenses for the
Navigator and Documentation granted under this Agreement shall
terminate; provided, however, that for a period of one hundred
eighty (180) days from termination of this Agreement following
notice of termination by Netscape pursuant to Section 13, NSP
shall be entitled to distribute, pursuant to the terms of this
Agreement, any copies of the Navigator reproduced on tangible
media by NSP or its Distributors as of the date Netscape provided
notice of termination to NSP.
14.3.3 Except where otherwise specified, the rights and remedies granted
to a party under this Agreement are cumulative and in addition
to, and not in lieu of, any other rights or remedies which the
party may possess at law or in equity, including without
limitation rights or remedies under applicable patent, copyright,
trade secrets, or proprietary rights laws, rules or regulations.
14.4 Return or Destruction of Navigator. Within thirty (30) calendar days
after termination of this Agreement, NSP shall either deliver to
Netscape/NAA or destroy all copies of the Navigator and Documentation
(except as provided in Section 14.5) and any other materials provided by
Netscape/NAA to NSP hereunder in its possession or under its control, and
shall furnish to Netscape/NAA an affidavit signed by an officer of NSP
certifying that, to the best of its knowledge, such delivery or
destruction has been fully effected. For purposes of this Section 14.4,
copies of the Navigator, Documentation and other materials in the
possession or under the control of a Distributor shall be deemed to be
under the control of NSP. Notwithstanding the foregoing, in the event
that this Agreement is terminated for any reason other than by Netscape
pursuant to Section 14.1 and provided NSP fulfills its obligations
specified in this Agreement with respect to such items, NSP may continue
to use and retain copies of the Navigator and Documentation to the
extent, but only to the extent, necessary to support Navigators
rightfully distributed to End Users by NSP, directly or indirectly
through Distributors, prior to termination of this Agreement.
14.5 Continuing Obligations
14.5.1 Payment of Accrued Fees. Within thirty (30) calendar days of
termination of this Agreement, NSP shall pay to Netscape/NAA all
sums then due and owing. Any other such sums shall subsequently
be promptly paid as they become due and owing.
14.5.2 Continuance of Sublicenses. Notwithstanding the termination of
this Agreement, all Registered User sublicenses which have been
properly granted by NSP or any Distributor pursuant to this
Agreement prior to its termination shall survive.
14.5.3 Other Continuing Obligations. Any termination of this Agreement
will be without prejudice to any other rights or remedies of the
parties under this Agreement or at law or in equity and will not
affect any accrued rights or liabilities of either party at the
date of termination, and the following sections of this Agreement
shall survive any expiration or termination of this Agreement:
Sections 2.1.3, 3.3, 4, 8, 9, 10.2, 10.3, 10.4, 11, 12, 14 and
15.
SECTION 15. GENERAL PROVISIONS
15.1 Notices. Any notice, request, demand, or other communication required or
permitted hereunder shall be in writing and shall be deemed to be
properly given upon the earlier of (a) actual receipt by the addressee or
(b) five (5) business days after deposit in the mail, postage prepaid,
when mailed by registered or certified airmail, return receipt requested,
or two (2) business days after being sent via private industry courier to
the respective parties at the addresses set forth in the Cover Sheet or
to such other person or address as the parties may from time to time
designate in a writing delivered pursuant to this Section 15.1. Notices
to Netscape shall be to the attention of: Legal Department.
15.2 Waiver and Amendment. The waiver by either party of a breach of or a
default under any provision of this Agreement, shall not be construed as
a waiver of any subsequent breach of the same or any other provision of
the Agreement, nor shall any delay or omission on the part of either
party to exercise or avail itself of any right or remedy that it has or
may have hereunder operate as a waiver of any right or remedy. No
amendment or modification of any provision of this Agreement shall be
effective unless in writing and signed by a duly authorized signatory of
Netscape and NSP.
- 13 -
<PAGE>
15.3 Assignment. This Agreement and the licenses granted hereunder are to a
specific legal entity or legal person, not including corporate
subsidiaries or affiliates of NSP, and are not assignable by NSP (except
to a Delaware corporation into which NSP is merged for the purpose of
reincorporating NSP in the state of Delaware), nor are the obligations
imposed on NSP delegable. Any attempt to sublicense (except as expressly
permitted herein) assign or transfer any of the rights, duties or
obligations under this Agreement in derogation hereof shall be null and
void.
15.4 Governing Law. This Agreement is entered into in the State of
California, U.S.A., and shall be governed by and construed in accordance
with the laws of the State of California, U.S.A., without reference to
its conflicts of law provisions. Any dispute regarding this Agreement
shall be subject to the exclusive jurisdiction of the California state
courts in and for Santa Clara County, California, U.S.A. (or, if there is
exclusive federal jurisdiction, the United States District Court for the
Northern District of California), and the parties agree to submit to the
personal and exclusive jurisdiction and venue of these courts. This
Agreement will not be governed by the United Nations Convention of
Contracts for the International Sale of Goods, the application of which
is hereby expressly excluded.
15.5 Relationship of the Parties. No agency, partnership, joint venture, or
employment is created as a result of this Agreement and neither NSP nor
its agents have any authority of any kind to bind Netscape or NAA in any
respect whatsoever. Notwithstanding NAA's designation, however, NSP
acknowledges that NAA is not authorized to bind Netscape or waive any
conditions of this Agreement without Netscape's express written consent.
15.6 Captions and Section Heading. The captions and section and paragraph
headings used in this Agreement are inserted for convenience only and
shall not affect the meaning or interpretation of this Agreement.
15.7 Severability. If the application of any provision or provisions of this
Agreement to any particular facts of circumstances shall be held to be
invalid or unenforceable by any court of competent jurisdiction, then (a)
the validity and enforceability of such provision or provisions as
applied to any other particular facts or circumstances and the validity
of other provisions of this Agreement shall not in any way be affected or
impaired thereby and (b) such provision or provisions shall be reformed
without further action by the parties hereto to and only to the extent
necessary to make such provision or provisions valid and enforceable when
applied to such particular facts and circumstances.
15.8 Force Majeure. Either party shall be excused from any delay or failure
in performance hereunder, except the payment of monies by NSP to
Netscape/NAA, caused by reason of any occurrence or contingency beyond
its reasonable control, including but not limited to, acts of God,
earthquake, labor disputes and strikes, riots, war, novelty of product
manufacture or other unanticipated product development problems, and
governmental requirements. The obligations and rights of the party so
excused shall be extended on a day-to-day basis for the period of time
equal to that of the underlying cause of the delay.
15.9 Entire Agreement. This Agreement, including the Attachments hereto and
any Nondisclosure Agreement referenced on the Cover Sheet, constitutes
the entire agreement between the parties concerning the subject matter
hereof and supersedes all proposals or prior agreements whether oral or
written, and all communications between the parties relating to the
subject matter of this Agreement and all past courses of dealing or
industry custom. The terms and conditions of this Agreement shall
prevail, notwithstanding any variance with any purchase order or other
written instrument submitted by NSP, whether formally rejected by
Netscape/NAA.
15.10 English. This Agreement is in the English language only, which language
shall be controlling in all respects, and all versions hereof in any
other language shall not be binding on the parties hereto. All
communications and notices to be made or given pursuant to this Agreement
shall be in the English language.
15.11 France. If the Territory includes France, NSP acknowledges that under
French law as of the Effective Date, the importation, distribution and/or
use in France of certain Netscape products may not be permitted, and NSP
is not relying upon any such importation, distribution or use in entering
into this Agreement or in fulfillment of its obligations herein.
-14-
<PAGE>
15.12 Customer Reference. NSP agrees that Netscape shall have the right to use
NSP's name as a customer reference provided that any Netscape press
release concerning NSP other than as a customer reference shall be
reviewed by NSP prior to its release.
AUTHORIZED SIGNATURES In order to bind the parties to this Agreement, their
duly authorized representatives have executed the Cover Sheet to this Agreement.
SHIP TO ADDRESS FOR DELIVERABLES: BILL TO ADDRESS
___________________________________ ___________________________________
___________________________________ ___________________________________
___________________________________ ___________________________________
Attention:_________________________ Attention:_________________________
Telephone:_________________________ Telephone:_________________________
Fax:_______________________________
Netscape or NAA Sales Rep: Gail Kulick
---------------
Telephone No.: 415.937.4478
---------------
-15-
<PAGE>
ATTACHMENT A
BY CLICKING ON THE "ACCEPT BUTTON, USING THE INTERNET OR CORPORATE ("INTRANET")
ACCESS OFFERED BY LICENSOR, OR OPENING THE PACKAGE, YOU ARE CONSENTING TO BE
BOUND BY THIS AGREEMENT. IF YOU DO NOT AGREE TO ALL OF THE TERMS OF THIS
AGREEMENT, CLICK THE "DO NOT ACCEPT" BUTTON AND THE INSTALLATION PROCESS WILL
NOT CONTINUE. DO NOT USE THE INTERNET OR INTRANET ACCESS OFFERED BY LICENSOR,
OR RETURN THE PRODUCT TO THE PLACE OF PURCHASE FOR A FULL REFUND.
THE SOFTWARE AND DOCUMENTATION ARE PROVIDED FOR USE ONLY (I) WITH THE INTERNET
ACCESS OR INTRANET ACCESS SERVICE INITIALLY OFFERED BY LICENSOR IN CONJUNCTION
WITH THE DISTRIBUTION OF THE SOFTWARE AND DOCUMENTATION AND (II) IN ACCORDANCE
WITH THE TERMS OF THIS AGREEMENT. NO RIGHT OR LICENSE IS GRANTED TO USE THE
SOFTWARE OR DOCUMENTATION WITH ANY OTHER INTERNET OR INTRANET ACCESS.
END USER LICENSE AGREEMENT
REDISTRIBUTION NOT PERMITTED
GRANT. _______________________("Licensor") hereby grants to you a non-exclusive
license to use its accompanying software product ("Software") and accompanying
documentation ("Documentation") on the following terms:
You may:
* use the Software only with the Internet service initially offered by
Licensor in conjunction with the distribution of the Software and
Documentation ("Licensor's Internet Services") which it is bundled;
* use the Software on my single computer;
* use the Software on a second computer so long as the first and second
computers are not used simultaneously; or
* copy the Software for archival purposes, provided any copy must
contain all of the original Software's proprietary notices.
You may not:
* use the Software or Documentation in conjunction with any Internet
access or other network service, other than Licensor's Internet
Services;
* permit other individuals to use the Software except under the terms
listed above; modify translate, reverse engineer, decompile,
disassemble (except to the extent applicable laws specifically
prohibit such restriction), or create derivative works based on the
Software or Documentation;
* copy the Software or Documentation (except for back-up purposes);
* rent, lease, transfer or otherwise transfer rights to the Software
or Documentation; or
* remove any proprietary notices or labels on the Software or
Documentation.
SOFTWARE. If you receive your first copy of the Software electronically, and a
second copy on media, the second copy may be used for archival purposes only.
This license does not grant you any right to any enhancement or update.
TITLE. Title, ownership rights, and intellectual property rights in and to the
Software and Documentation shall remain in Licensor and/or its suppliers. The
Software is protected by the copyright laws of the United States and
International copyright treaties. Title, ownership rights, and intellectual
property rights in and to the content accessed through the Software is the
property of the applicable content owner and may be protected by applicable
copyright or other law. This License gives you no rights to such content.
LIMITED WARRANTY. Licensor warrants that for a period of ninety (90) days from
the date of acquisition, the Software, if operated as directed, will
substantially achieve the functionality described in the Documentation.
Licensor does not Warrant, however, that your use of the Software will be
uninterrupted or that the operation of the Software will be error-free or secure
and hereby disclaims any and all liability on account thereof. In addition, the
security mechanism implemented by the Software has inherent limitations, and you
must determine that the Software sufficiently meets your requirements. Licensor
also warrants that the media containing the Software, if provided by
Licensor, is free from defects in material and workmanship and will so remain
for ninety (90) days from the date you acquired the Software. Licensor's sole
liability for any breach of this warranty shall be, in Licensor's sole
discretion: (i) to replace your defective media; or (ii) to advise you how to
achieve substantially the
-16-
<PAGE>
same functionality with the Software as described in the Documentation
through a procedure different from that set forth in the Documentation; or
(iii) if the above remedies are impracticable, to refund the license fee you
paid for the Software. Repaired, corrected, or replaced Software and
Documentation shall be covered by this limited warranty for the period
remaining under the warranty that covered the original Software, or if
longer, for thirty (30) days after the date (a) of shipment to you of the
repaired or replaced Software, or (b) Licensor advised you how to operate the
Software so as to achieve the functionality described in the Documentation.
Only if you inform Licensor of your problem with the Software during the
applicable warranty period and provide evidence of the date you acquired the
Software will Licensor be obligated to honor this warranty. Licensor will use
reasonable commercial efforts to repair, replace, advise or refund pursuant
to the foregoing warranty within 30 days of being so notified.
THIS IS A LIMITED WARRANTY AND IT IS THE ONLY WARRANTY OR CONDITION MADE BY
LICENSOR. LICENSOR MAKES NO OTHER EXPRESS WARRANTY OR CONDITION AND THERE IS
NO WARRANTY OR CONDITION OF NONINFRINGEMENT OF THIRD PARTIES' RIGHTS. THE
DURATION OF IMPLIED WARRANTIES OR CONDITIONS, INCLUDING WITHOUT LIMITATION,
WARRANTIES OR CONDITIONS OF MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR
PURPOSE, IS LIMITED TO THE ABOVE LIMITED WARRANTY PERIOD; SOME STATES DO NOT
ALLOW LIMITATIONS ON HOW LONG AN IMPLIED WARRANTY LASTS, SO LIMITATIONS MAY
NOT APPLY TO YOU. NO DEALER, AGENT, OR EMPLOYEE OF LICENSOR IS AUTHORIZED TO
MAKE ANY MODIFICATIONS, EXTENSIONS, OR ADDITIONS TO THIS WARRANTY. NO
WARRANTY IS MADE BY OR ON BEHALF OF ANY SUPPLIER OF LICENSOR. If any
modifications are made to the Software by you during the warranty period; if
the media is subjected to accident, abuse, or improper use; or if you violate
the terms of this Agreement, then this warranty shall immediately be
terminated. This warranty shall not apply if the Software is used on or in
conjunction with hardware or Software other than the unmodified version of
hardware and Software with which the Software was designed to be used as
described in the Documentation.
THIS WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS, AND YOU MAY HAVE OTHER LEGAL
RIGHTS THAT VARY FROM STATE TO STATE OR BY JURISDICTION.
LIMITATION OF LIABILITY. UNDER NO CIRCUMSTANCES AND UNDER NO LEGAL THEORY,
TORT, CONTRACT, OR OTHERWISE, SHALL LICENSOR OR ITS SUPPLIERS OR RESELLERS BE
LIABLE TO YOU OR ANY OTHER PERSON FOR ANY INDIRECT, SPECIAL, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES OF ANY CHARACTER INCLUDING, WITHOUT LIMITATION, DAMAGES
FOR LOSS OF GOODWILL, WORK STOPPAGE, COMPUTER FAILURE OR MALFUNCTION, OR ANY
AND ALL OTHER COMMERCIAL DAMAGES OR LOSSES, OR FOR ANY DAMAGES IN EXCESS OF
LICENSOR'S LIST PRICE FOR A LICENSE TO THE SOFTWARE AND DOCUMENTATION, EVEN
IF LICENSOR SHALL HAVE BEEN INFORMED OF THE POSSIBILITY OF SUCH DAMAGES, OR
FOR ANY CLAIM BY ANY OTHER PARTY. THIS LIMITATION OF LIABILITY SHALL NOT
APPLY TO LIABILITY FOR DEATH OR PERSONAL INJURY TO THE EXTENT APPLICABLE LAW
PROHIBITS SUCH LIMITATION. FURTHERMORE, SOME STATES DO NOT ALLOW THE
EXCLUSION OR LIMITATION OF INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THIS
LIMITATION AND EXCLUSION MAY NOT APPLY TO YOU.
TERMINATION. This license will terminate automatically if you fail to comply
with the limitations described above. On termination, you must destroy all
copies of the Software and Documentation.
EXPORT CONTROLS. None of the Software or underlying information or technology
may be downloaded or otherwise exported or reexported (i) into (or to a
national or resident of) Cuba, Iraq, Libya, North Korea, Yugoslavia, Iran,
Syria or any other country to which the U.S. has embargoed goods; or (ii) to
anyone on the U.S. treasury Department's list of Specially Designated
Nationals or the U.S. Commerce Department's Table of Denial Orders. By
downloading or using the Software, you are agreeing to the foregoing and you
are representing and warranting that you are not located in, under the
control of, or a national or resident of any such country or on any such list.
In addition, if the licensed Software is identified as a not-for-export
product (for example, on the box, media or in the installation process), then
the following applies: EXCEPT FOR EXPORT TO CANADA FOR USE IN CANADA BY
CANADIAN CITIZENS, THE SOFTWARE AND ANY UNDERLYING TECHNOLOGY MAY NOT BE
EXPORTED OUTSIDE THE UNITED STATES OR TO ANY FOREIGN ENTITY OR "FOREIGN
PERSON" AS DEFINED BY U.S. GOVERNMENT REGULATIONS, INCLUDING WITHOUT
LIMITATION, ANYONE WHO IS NOT A CITIZEN, NATIONAL OR LAWFUL PERMANENT
RESIDENT OF THE UNITED STATES. BY DOWNLOADING OR USING THE SOFTWARE, YOU ARE
AGREEING TO THE FOREGOING AND YOU ARE WARRANTING THAT YOU ARE NOT A "FOREIGN
PERSON" OR UNDER THE CONTROL OF A FOREIGN PERSON.
-17-
<PAGE>
MISCELLANEOUS. This Agreement represents the complete agreement concerning
this license between the parties and supersedes all prior agreements and
representations between them. It may be amended only by a writing executed by
both parties. THE ACCEPTANCE OF ANY PURCHASE ORDER PLACED BY YOU IS EXPRESSLY
MADE CONDITIONAL ON YOUR ASSENT TO THE TERMS SET FORTH HEREIN, AND NOT THOSE
CONTAINED IN YOUR PURCHASE ORDER. If any provision of this Agreement is held
to be unenforceable for any reason, such provision shall be reformed only to
the extent necessary to make it enforceable. This Agreement shall be governed
by and construed under California law as such law applies to agreements
between California residents entered into and to be performed within
California, except as governed by Federal law. The application of the United
Nations Convention of Contracts for the International Sale of Goods is
expressly excluded.
Third Party Beneficiary. Licensor and you each agree that Netscape
Communications Corporation shall, as an intended third party beneficiary of
this Agreement, have the right to rely upon and directly enforce the terms
set forth herein.
U.S. GOVERNMENT RESTRICTED RIGHTS: Use, duplication or disclosure by the
Government is subject to restrictions set forth in subparagraphs (a) through
(d) of the Commercial Computer-Restricted Rights clause at FAR 52.227-19 when
applicable, or in subparagraph (c)(1)(ii) of the Rights in Technical Data and
Computer Software clause at DFARS 252.227-7013, or at 252.211-7015, and in
similar clauses in the NASA FAR Supplement. Contractor/manufacturer is
Netscape Communications Corporation, 501 East Middlefield Road, Mountain
View, CA 94043.
-18-
<PAGE>
ATTACHMENT B
QUARTERLY POINT OF SALE REPORT
Network Service Provider Name and address: EarthLink Network, Inc.
3100 New York Drive, Suite 201
Pasadena, California 91107
POS Report Contact Name: _______________________________
POS Report Contact Phone: _______________________________
POS Report Contact e:mail _______________________________
Report for (check one):
_____December through February (due March 10)
_____March through May (due June 10)
_____June through August (due September 10)
_____September through November (due December 10)
<TABLE>
<CAPTION>
Number of
Navigators
Number of Initially used
New Registered internally by
Month/Year Navigator Product Price/Unit Users/Month NSP/Month
---------- ----------------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
[First Month] _________________ ___________ ______________ ______________
[Second Month] _________________ ___________ ______________ ______________
[Third Month] _________________ ___________ ______________ ______________
</TABLE>
NEW REGISTERED USERS DURING THREE MONTH PERIOD OF THIS REPORT
-------------------------------------------------------------
Name Address Navigator Product
---- ------- -----------------
-19-
<PAGE>
ATTACHMENT C
NAVIGATOR PRICING AND CUSTOMIZATION
1. PRICING
License Fee Per Copy
--------------------
Netscape Navigator Dial-Up Kit $*******
(Windows 95/NT and Macintosh
platforms)
Netscape Navigator Gold
(Windows 95/NT and Macintosh $*******
platforms)
2. CUSTOMIZATION. In consideration of a fee of $2,000 due and payable on the
Effective Date, Netscape will provide to NSP (i) a beta version of the
Enterprise Kit within thirty (30) days of receipt of the fee and (ii) upon
its general commercial release, the commercially released version of the
Enterprise Kit, both of which are to be used by NSP or a Distributor approved
in advance by Netscape, whose approval will not be unreasonably withheld, for
customization of the Netscape Dial Up Kit to be distributed by NSP or a
Distributor, as applicable. NSP and its Distributors will be responsible for
all necessary customization of the Netscape Dial Up Kit.
* THE TEXT NOTED BY ASTERISKS HAS BEEN REDACTED IN CONNECTION
WITH A REQUEST TO THE SECURITIES AND EXCHANGE COMMISSION FOR
CONFIDENTIAL TREATMENT OF SUCH TEXT.
-20-
<PAGE>
ATTACHMENT D
TECHNICAL SUPPORT
TECHNICAL SUPPORT. In consideration of the License Fee set forth in
Attachment C, Netscape will provide NSP, during the period for which support
fees have been paid to Netscape, with Netscape's back-end technical support
services, as further described herein.
BACK-END SUPPORT. Netscape will provide back-end support to NSP for
Program Errors not resolved by NSP pursuant to NSP's support policies and in
accordance with the provisions below. This support includes efforts to
identify defective source code and to provide corrections, workarounds and/or
patches to correct Program Errors. Netscape will provide NSP with a telephone
number and an e-mail address which NSP may use to report Program Errors
during Netscape's local California business hours (5am - 5pm Pacific Standard
Time). For priority 1 or 2 failures, NSP agrees to notify Netscape via both
telephone and e-mail. NSP will identify one (1) member of its customer
support staff and an alternate to act as the primary technical liaisons
responsible for all communications with Netscape's technical support
representatives. Such liaisons will have sufficient technical expertise,
training and/or experience for NSP to perform its obligations hereunder.
Within one (1) week after the Effective Date, NSP will designate its
liaison(s). Notification will be in writing and/or e-mail to Netscape. NSP
may substitute contacts at any time by providing to Netscape one (1) week's
prior written and/or electronic notice thereof.
Netscape will make reasonable efforts to correct significant Program
Errors that NSP identifies, classifies and reports to Netscape and that
Netscape substantiates. Netscape may reclassify Program Errors if it
reasonably believes that NSP's classification is incorrect, NSP will provide
sufficient information to enable Netscape to duplicate the Program Error
before Netscape's response obligations will commence. Netscape will not be
required to correct any Program Error caused by (a) NSP's incorporation or
attachment of a feature, program, or device, other than by Netscape, to the
Navigator, or any part thereof: (b) accident, transportation, neglect,
misuse, alteration, modification, or enhancement of the Navigator other than
by Netscape; (c) the failure to provide a suitable installation environment;
(d) use of the Navigator for other than the specific purpose for which
the Navigator are designed; (e) use of the Navigator on any systems other
than the specified hardware platform for such Navigator; (f) NSP's use of
defective media (other than defective media provided by Netscape to NSP) or
defective duplication of the Navigator; or (g) NSP's failure to incorporate
any Minor Update previously released by Netscape which corrects such Program
Error.
Provided Program Error reports are received by Netscape during
Netscape's local California business hours (5am - 5pm Pacific Standard Time),
Netscape will use its best commercial efforts to communicate with NSP about
the Program Error via telephone or e-mail within the following targeted
response times:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Priority Failure Description Response Time
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Fatal (no useful work can be done) 10 working hours
- -------------------------------------------------------------------------------------------------
2. Severe Impact (functionally disable): errors 1 working day
which result in a lack of application functionality
or cause intermittent system failure
- -------------------------------------------------------------------------------------------------
3. Degraded Operations: errors causing malfunction 3 working days
of non-critical functions
- -------------------------------------------------------------------------------------------------
4. Minimal Impact: attributes and/or options to Future release, on business
utility programs do not operate as stated justifiable basis
- -------------------------------------------------------------------------------------------------
5. Enhancement Request When applicable
- -------------------------------------------------------------------------------------------------
</TABLE>
Netscape will use reasonable commercial efforts to resolve each
significant Program Error by providing either a reasonable workaround, an
object code patch, or a specific action plan for how Netscape will address
the problem and an estimate of how long it will take to rectify the defect.
Netscape reserves the right to charge NSP additional fees at its then-standard
rates for services performed in connection with reported Program Errors which
are later determined to have been due to hardware or software not supplied by
Netscape. Notwithstanding the foregoing, Netscape has no obligation to
perform services in connection with (i) Program Errors resulting from
hardware or software not supplied by Netscape; or (ii) which occur in the
Netscape Product release which is not the then-current release or the
commercial release existing immediately before the most recent Update.
-21-
<PAGE>
NETWORK SERVICES AGREEMENT
This Agreement is made in the city of Fairfax, Virginia, this 31st day of
May, 1996, between UUNET Technologies, Inc., whose address is 3060 Williams
Drive, Fairfax, Virginia 22031, and EarthLink Network, Inc., whose address
is 3100 New York Drive, Pasadena, CA 91107.
The parties hereto agree and bind themselves as follows:
1. SERVICES: UUNET will sell, and EarthLink will purchase, telecommunications
services for the interconnection of EarthLink's end users with the
Internet. Earthlink is responsible for all end-user customer support,
billing, and collections. UUNET's relationship under this agreement is
solely with EarthLink.
2. PRICING: Prices are as stated in Attachment A.
3. EQUITY TRANSACTION. UUNET and EarthLink agree that UUNET shall
purchase EarthLink warrants. The price shall be $.50 per warrant for
warrants to purchase 20,000 shares of EarthLink Common Stock at $10.00 per
share for five years from the warrant issuance. UUNET and EarthLink agree
to use best efforts to complete this transaction within 30 days of the
signature date of this agreement.
4. TERMS AND CONDITIONS: EarthLink agrees to comply with the AlterNet
Terms and Conditions contained in Schedule B. It further agrees to require
its end users to comply with terms and conditions in substance identical
to those in Sections One, Two, and Three. EarthLink shall defend,
indemnify, and hold harmless UUNET against any claims resulting from
EarthLink's use of UUNET's services, or that of its customers.
5. RELATIONSHIP: The relationship of UUNET and EarthLink shall be that of
independent third parties.
* CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED IN CONNECTION
WITH A REQUEST TO THE SECURITIES AND EXCHANGE COMMISSION FOR
CONFIDENTIAL TREATMENT OF SUCH PORTIONS.
<PAGE>
6. EFFECTIVITY AND TERM: This agreement supersedes the current
UUNET/EarthLink agreement, dated 7/12/95. The term of this new agreement
is one year from 1/1/96, which term shall be automatically renewed for
additional one year terms, providing that neither party has noticed the
other party with a written notice of intent not to renew for the
forthcoming term. Such notice of intent shall be not less than 60 days in
advance of the end of the current term.
7. TECHNICAL AGREEMENT: EarthLink agrees to comply with the technical
Agreement for Network Interoperability, attached as Schedule C. UUNET and
EarthLink will work diligently to set up monitoring between Network
Operations centers so as to provide EarthLink with real-time information
on UUNET's network status. EarthLink and UUNET will provide operations and
marketing management personnel for a monthly conference call or meeting to
discuss current needs, issues, and forecasts.
8. EARTHLINK TERMINATION FOR CAUSE. ***************************************
************************************************************************
************************************************************************
************************************************************************
************************************************************************
************************************************************************
************************************************************************
************************************************************************
************************************************************************
9. UUNET Termination for Cause. UUNET may terminate this agreement for
cause without penalty in the event that EarthLink shall materially breach
any term of this agreement. Prior to such termination, UUNET shall first
give EarthLink written notice of its intent to terminate which shall
clearly describe problem(s) constituting cause. EarthLink will have 30
days from receipt of notice to correct the problem. If the problem is not
corrected within such period, UUNET may terminate under this paragraph
with 30 additional days written notice. However, if
* THE TEXT NOTED BY ASTERISKS HAS BEEN REDACTED IN CONNECTION
WITH A REQUEST TO THE SECURITIES AND EXCHANGE COMMISSION FOR
CONFIDENTIAL TREATMENT OF SUCH TEXT.
<PAGE>
EarthLink shall violate the acceptable use policy in Section 2 of the
attached Terms and Conditions, or permit such violation, and does not
immediately act to remedy such violation when it becomes aware of it,
UUNET may terminate this agreement without penalty with 10 days written
notice. If any amounts due and owing by EarthLink remain unpaid 60 days
after date of invoice, then UUNET may terminate this agreement immediately
without penalty.
10. No Publicity. The prices and terms of this agreement shall be held
confidential by both parties, as shall the parties' respective
performance under this agreement and the quality of network performance.
Neither party shall publicize the existence of this agreement without
consent of the other, and in the event of such agreement, all press
release materials shall be reviewed and approved by the other party. In
particular, EarthLink shall use best efforts to maintain the
confidentiality of the terms in Schedule A. In the event that any
disclosure of terms or performance is required for legal or regulatory
reasons, EarthLink shall use best efforts to minimize this disclosure and
to notify UUNET in advance of such required disclosure.
11. Limitation of Liability. Notwithstanding anything else to the contrary
stated or implied herein, neither party shall have any liability
whatsoever for any incidental, consequential or special damages suffered
by the other or by any assignee or other transferee of the other, even if
informed in advance of the possibility of such damages, except in
connection with the indemnification provisions of Section 4.
12. Governing Law. This agreement and the rights of the parties hereunder
shall be governed by and interpreted in accordance with the laws of the
State of California.
13. Entire Agreement. The parties hereto acknowledge that they have read this
entire agreement and that this agreement and the exhibits attached hereto
constitute the entire understanding and contract between the parties and
supersedes any and all prior or contemporaneous oral or
<PAGE>
written communications with respect the subject matter hereof. This
agreement shall not be modified, amended or in any way altered except by
an instrument in writing signed by the parties.
14. Binding Effect
Except as herein otherwise specifically provided, this agreement shall
be binding upon and inure to the benefit of the parties and their legal
representatives, heirs, administrators, executors, successors and
assigns.
15. Plural/Gender
Whenever from the context it appears appropriate, each term stated in
either the singular or the plural shall include the singular and the
plural, and pronouns stated in the masculine, the feminine or the neuter
gender shall include the masculine, feminine and neuter. The term "person"
means any individual, corporation, partnership, trust or other entity.
16. Severability
If any provision of this agreement, or the application of such provision
to any person or circumstance, shall be held invalid, the remainder of
this agreement, or the application of such provision to persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
17. Counterparts
This agreement may be executed in several counterparts, each of which
shall be deemed an original, but all of which, when taken together, shall
constitute one and the same instrument. It shall not be necessary for all
parties to execute the same counterpart hereof.
18. Waiver
No failure on the part of either party to exercise, and no delay in
exercising, any right or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right or remedy
hereunder preclude any other or further exercise thereof or the exercise
of any other right or remedy granted hereby or by law.
<PAGE>
19. Notice
Unless other provided, any notice to be given hereunder shall be
effective five days after deposit in the U.S. mail. Such notice shall
be sent by first class mail, postage prepaid and marked for delivery
by certified or registered mail, return receipt requested, address to
the parties listed below at their respective places of business, or
at such other addresses of which notice has been given to the
addressing party:
If to EarthLink Network, Inc.:
EarthLink Network, Inc.
3100 New York Drive
Pasadena, CA 91107
Attention: President
With a copy to:
Legal Officer
EarthLink Network, Inc.
3100 New York Drive
Pasadena, CA 91107
If to UUNET Technologies, Inc.:
UUNET Technologies, Inc.
3060 Williams Drive
Fairfax, VA 22031
Attention: VP Business Development
With a copy to:
UUNET Technologies, Inc.
3060 Williams Drive
Fairfax, VA 22031
Attention: General Counsel
20. Force Majeure
No party shall be liable by reason of any failure to delay in the
performance of its obligations due to strikes, riots, fires or
explosions, acts of God, war, governmental action or any other
cause which is beyond the reasonable control of such parties.
<PAGE>
21. Facsimile Transmission
Parties to this Agreement are authorized to execute the Agreement,
and transmit a signed copy of same via TeleFax to the other parties,
who hereby agree to accept and rely upon such documents as if they
bore original signatures. The parties sending such TeleFaxes hereby
acknowledge and agree to provide to the other parties, within
seventy-two (72) hours of transmission, the Agreement bearing an
original signature.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of
the date first above recited.
EARTHLINK NETWORK, INC.
/s/ Charles G. Betty
- ----------------------------------------
Authorized Signature and Title
5/31/96
- ----------------------------------------
Date
UUNET TECHNOLOGIES, INC.
/s/ David F. Foster VP, Business Development
- ----------------------------------------
Authorized Signature and Title
5/31/96
- ----------------------------------------
Date
<PAGE>
SCHEDULE A - PRICING
1 - Pricing for Dial-Up Services
1a) "National Users" are defined as all EarthLink and users making use of
the UUNET network, except for "Southern California Users". Southern
California Users are defined as those EarthLink users whose primary
connection is to EarthLink's own network in Southern California or elsewhere
whose use of UUNET is incidental or takes place in a travel situation. ELN
shall designate Southern California Users in accordance with the above
definition.
1b) For National Users, EarthLink will pay a ******** which shall initially
be *****************. When *********************** for *****************
only, the charge will be pro-rated according to the number of **************
*************. The payment is due for all National User ********* whether or
not *******************************************************************.
1c) The above pricing is based on an ****************************************
******************************************************************************
*********************************************
******************************************************************************
******************************************************************************
******************************************************************************
******************************************************************************
******************************************************************************
******************************************************************************
******************************************************************************
******************************************************************************
******************************************************************************
******************************************************************************
******************************************************************************
******************************************************************************
******************************************************************************
******************************************************************************
******************************************************************************
******************************************************************************
******************************************************************************
******************************************************************************
******************************************************************************
* THE TEXT NOTED BY ASTERISKS HAS BEEN REDACTED IN CONNECTION
WITH A REQUEST TO THE SECURITIES AND EXCHANGE COMMISSION FOR
CONFIDENTIAL TREATMENT OF SUCH TEXT.
<PAGE>
******************************************************************************
****************************************************
1c-3) For Southern California Users, UUNET shall charge EarthLink a **********
*****************************************************
1c-4) All ISDN usage will be surcharged at the rate of $******. This surcharge
applies to both National Users and Southern California users. Only a single "B"
channel will be supported.
1d) The pricing above is valid only for ***************************************
*******************************************************. There is a **********
surcharge for 800-number service. For Canadian usage for any EarthLink
customers, the price is *********************. If the percentage of Canadian
usage as compared to the total usage on the network is **********************
*****************************************************************************.
These Canadian prices are valid for ******* from the signature date of this
agreement. Prior to the end of this period, this pricing may be renegotiated in
good faith between the parties.
1e) On a monthly basis, EarthLink shall provide UUNET with *****************:
1e-1) The effective number of ***********************************************
*****************************************************************************
*****************************************************************************
****************************************************************************.
1e-2) The number of ********************************************************
*************************************.
1e-3) Summary information concerning the **************************, including
specifically the number of *****************************************. As with
all dealings under this Agreement, ****************** provided by ELN to UUNET
will remain confidential between the parties and will be used for the purpose of
verification of compliance with this agreement only.
* THE TEXT NOTED BY ASTERISKS HAS BEEN REDACTED IN CONNECTION
WITH A REQUEST TO THE SECURITIES AND EXCHANGE COMMISSION FOR
CONFIDENTIAL TREATMENT OF SUCH TEXT.
<PAGE>
EarthLink Agrees to make this ************************************************
***********************************. At UUNET's request, EarthLink shall make
available full ************ information, including the dates on which ********
*****************************. UUNET shall have the right of reasonable audit
to ensure the accuracy of the above.
ELN shall keep and maintain full, true and accurate records containing all data
reasonably required for verification of ELN's compliance with the terms of this
Agreement. UUNET shall have the compliance with the terms of this Agreement.
UUNET shall have the right, during normal business hours upon at least Fifteen
(15) business days prior notice, to direct its independent auditors, who shall
execute an appropriate non-disclosure agreement mutually agreeable to both
parties, to audit and analyze the relevant records of ELN to verify compliance
with the provisions of this Agreement. The audit shall be conducted at UUNET's
expense unless the results of such audit establish that inaccuracies in the
monthly reports have resulted in underpayment of fees to UUNET by more than Five
percent (5%) of the amount actually due in any month, in which case ELN shall
bear the expenses of the audit.
1g) EarthLink agrees not to *************************************************
*****************************************************************************
*****************************************************************************
************************ would constitute breach of this agreement.
If for any month the revenues to UUNET for **********************************
*****************************************************************************
*****************************************************************************
*****************************************************************************
*****************************************************************************
****.
2 - ***************************
EarthLink will have the option to *******************************************
*****************************************************************************
*****************************************************************************
*****************************************************************************
*********.
* THE TEXT NOTED BY ASTERISKS HAS BEEN REDACTED IN CONNECTION
WITH A REQUEST TO THE SECURITIES AND EXCHANGE COMMISSION FOR
CONFIDENTIAL TREATMENT OF SUCH TEXT.
<PAGE>
*****************************************************************************
*******.
* THE TEXT NOTED BY ASTERISKS HAS BEEN REDACTED IN CONNECTION
WITH A REQUEST TO THE SECURITIES AND EXCHANGE COMMISSION FOR
CONFIDENTIAL TREATMENT OF SUCH TEXT.
<PAGE>
SCHEDULE B
ALTERNET TERMS AND CONDITIONS
(1) UUNET exercises no control whatsoever over the content of the information
passing through AlterNet. UUNET MAKES NO WARRANTIES OF ANY KIND, WHETHER
EXPRESSED OR IMPLIED, FOR THE SERVICE IT IS PROVIDING. UUNET also disclaims
any warranty of merchantability or fitness for a particular purpose.
UUNET will not be responsible for any damage you suffer. This includes
loss of data resulting from delays, nondeliveries, misdeliveries, or
service interruptions caused by its own negligence or your errors or
omissions. Use of any information obtained via AlterNet is at your own
risk. UUNET specifically denies any responsibility for the accuracy or
quality of information obtained through its services.
(2) AlterNet may only be used for lawful purposes. Transmission of any
material in violation of any US or state regulation is prohibited. This
includes, but is not limited to: copyrighted material, material which is
threatening or obscene, or material protected by trade secret. You agree
to indemnify and hold harmless UUNET from any claims resulting from your
use of the service which damages UUNET or another party.
(3) Any access to other networks connected to AlterNet must comply with the
rules appropriate for that other network. Use of AlterNet itself may
be for any lawful purpose. Use of AlterNet for lawful commercial purposes
is both permitted and encouraged. Resale to other individuals and
organizations is permitted, but they may not further resell the services.
(4) Payment is due 30 days after date of invoice. Accounts are in default
if payment is not received within 30 days after date of invoice. If your
payment is returned to us unpaid you are immediately in default and subject
to a returned check charge of $25 from us. Accounts unpaid 60 days after
date of invoice may have their service interrupted. Such interruption does
not relieve you from the obligation to pay the monthly charge. ONLY A
WRITTEN REQUEST TO TERMINATE YOUR SERVICE RELIEVES YOU OF YOUR OBLIGATION
TO PAY THE MONTHLY ACCOUNT CHARGE. Accounts in default are subject to an
interest charge of 1.5% per month on the outstanding balance. If your
state law does not allow an interest rate of 1.5% per month, the maximum
allowable rate for your state will be charged. If you default, you agree
to pay UUNET its reasonable expenses, including attorney and collection
agency fees, incurred in enforcing its rights under these Terms and
Conditions.
(5) In the event of early cancellation of a one, two, or three-year Term
Commitment, the customer will be required to pay 75% of AlterNet's standard
monthly charge for each month remaining in the Term Commitment.
(6) These Terms and Conditions supersede all previous representations,
understandings or agreements and shall prevail notwithstanding any
variance with terms and conditions of any order submitted. Use of AlterNet
constitutes acceptance of these Terms and Conditions.
<PAGE>
SCHEDULE C--TECHNICAL AGREEMENT
1. EarthLink agrees that it shall operate its own Radius server, which will
perform user validation functions, and will maintain this server in a
secure environment. EarthLink also will maintain this server with
reasonably current versions of the Radius protocols.
2. EarthLink agrees to use software and procedural safeguards to insure that
only accurate routing information, for networks to be used by EarthLink's
customers, is transmitted from EarthLink's Radius server into UUNET's
network, and to use best efforts to immediately remedy any problems leading
to transmission of incorrect routing information.
3. EarthLink agrees to assign each end customer a unique identification number
for billing purposes, and to reasonably cooperate with UUNET in
establishing the structure of this identification number.
4. EarthLink and UUNET each agree to cooperate with the other in identifying
and resolving any security infringements which involve EarthLink's
customers and UUNET network.
5. It is recognized and agreed that the billing data supplied on an interim
basis (more frequently than monthly) is an estimate and may not be relied
upon for 100% accuracy.
<PAGE>
[LOGO]
BURSTABLE T-3-Signature Mark- SERVICE OPTIONS
SERVICE AGREEMENT
(Please check your desired sustained usage rate)
<TABLE>
<CAPTION>
SERVICE TYPE MONTHLY RATE* START-UP COST
- ------------ ------------ -------------
<S> <C> <C>
BURSTABLE T-3 SERVICE(1) $6,000
/ / 0 Mbps - 6 Mbps sustained usage $11,000
/ / 6.01 Mbps - 7.5 Mbps sustained usage $13,000
/ / 7.51 Mbps - 9 Mbps sustained usage $15,000
/ / 9.01 Mbps - 10.5 Mbps sustained usage $17,000
/ / 10.51 Mbps - 12 Mbps sustained usage $20,000
/ / 12.01 Mbps - 13.5 Mbps sustained usage $23,000
/ / 13.51 Mbps - 15 Mbps sustained usage $26,000
/ / 15.01 Mbps - 16.5 Mbps sustained usage $29,000
/ / 16.51 Mbps - 18 Mbps sustained usage $34,000
/ / 18.01 Mbps - 19.5 Mbps sustained usage $39,000
/ / 19.51 Mbps - 21 Mbps sustained usage $44,000
/ / 21.01 Mbps - 45 Mbps sustained usage $49,500
</TABLE>
(1) With Burstable T-3 service, the customer receives full DS-3 access to UUNET
and can burst to the full 45 Mbps at any time. Monthly billing is based on
sustained usage. Sustained usage is measured by samples taken every five
minutes. The level under which 95% of the samples fall is the sustained
usage.
* PRICES ABOVE DO NOT INCLUDE TELCO INSTALLATION FEES, MONTHLY LINE CHARGES, OR
EQUIPMENT COSTS.
Discounted monthly rates with long-term service commitments(2):
/ / 1-year commitment (5% discount) / / 2-year commitment (10% discount) / / 3-
year commitment (15% discount)
(2) At the conclusion of the term, pricing will revert to the standard rates in
effect. Any customer wishing to cancel service before the completion of
the term will be required to pay 75% of the monthly charges for the months
remaining on the contract.
- -------------------------------------- ----------------------------------------
PAYMENT (CHOOSE ONLY ONE): If you choose to pay by credit card,
please fill in the following
information:
/ / Check (please return with this form) VISA / / MasterCard / /
/ / Credit Card (please see box) Name as it appears on card:
/ / Purchase Order Number:_____________ _______________________________________
(please return the PO with this form) Card Number______________
Expiration Date ____________
Does your company require a Purchase
Order for payment? (please circle one) I authorize UUNET to charge my
Yes No MasterCard/VISA account for those
charges for UUNET service that I may
accrue from month to month. This
authorization is valid until revoked in
writing.
Authorized Signature___________________
Date______________
- -------------------------------------- ----------------------------------------
Company Name ________________________ Phone ________________________
Address ________________________ Fax ________________________
________________________ Contact Name _________________
PLEASE READ THE TERMS AND CONDITIONS ON THE BACK OF THIS FORM AND SIGN HERE TO
INDICATE YOUR ACCEPTANCE.
Signature: X_________________________ Date ________________________
UUNET Technologies, Inc. +1 800 488 6383 (voice)
3060 Williams Drive +1 703 206 5600 (voice)
Fairfax, Virginia 22031-4648 USA +1 703 206 5601 (fax)
[email protected] http://www.uu.net
<PAGE>
UUNET SERVICES PROVIDED
- Full, unrestricted access to UUNET's - Full maintenance of all UUNET-owned
network. equipment.
- Routing and other network management, - A UUCP/TCP newsfeed connection from
support, and monitoring as necessary UUNET if desired.
to provide the IP access.
UUNET TERMS AND CONDITIONS
(1) UUNET exercises no control whatsoever over the content of the information
passing through its network. UUNET MAKES NO WARRANTIES OF ANY KIND,
WHETHER EXPRESSED OR IMPLIED, FOR THE SERVICE IT IS PROVIDING. UUNET also
disclaims any warranty of merchantability or fitness for a particular
purpose. UUNET will not be responsible for any damage you suffer. This
includes loss of data resulting from delays, nondeliveries, misdeliveries,
or service interruptions caused by its own negligence or your errors or
omissions. Use of any information obtained via UUNET's network is at your
own risk. UUNET specifically denies any responsibility for the accuracy or
quality of information obtained through its services.
(2) UUNET's network may only be used for lawful purposes. Transmission of any
material in violation of any US or state regulation is prohibited. This
includes, but is not limited to: copyrighted material, material legally
judged to be threatening or obscene, or material protected by trade secret.
You agree to indemnify and hold harmless UUNET from any claims resulting
from your use of the service or the use of the service by any of your
customers or others throughout your chain of distribution, including end
users, which damages another party.
(3) Any access to other networks connected to UUNET's network must comply with
the rules appropriate for that other network. Use of UUNET's network
itself may be for any lawful purpose. Use of UUNET's network for lawful
commercial purposes is both permitted and encouraged.
(4) Payment is due 30 days after date of invoice. Accounts are in default if
payment is not received within 30 days after date of invoice. If your
payment is returned to us unpaid you are immediately in default and subject
to a returned check charge of $25 from us. Accounts unpaid 60 days after
date of invoice may have their service interrupted. Such interruption does
not relieve you from the obligation to pay the monthly charge. ONLY A
WRITTEN REQUEST TO TERMINATE YOUR SERVICE RELIEVES YOU OF YOUR OBLIGATION
TO PAY THE MONTHLY ACCOUNT CHARGE. Accounts in default are subject to an
interest charge of 1.5% per month on the outstanding balance. If your
state law does not allow an interest rate of 1.5% per month, the maximum
allowable rate for your state will be charged. If you default, you agree
to pay UUNET its reasonable expenses, including attorney and collection
agency fees, incurred in enforcing its rights under these Terms and
Conditions.
(5) Billing for UUNET service will normally commence when the connection from
the UUNET hub is completed to your site and IP packets can be passed.
However, in certain circumstances billing may occur when a UUNET hub and a
functioning telephone circuit are prepared to route IP packets to your
site. Service is invoiced monthly in advance and may be cancelled in
writing with 60 days notice with no penalty. In the event of early
cancellation of a one-, two-, or three-year Term Commitment, the customer
will be required to pay 75% of UUNET's standard monthly charge for each
month remaining in the Term Commitment. UUNET reserves the right to change
the rates by notifying you 60 days in advance of the effective date of the
change.
(6) These Terms and Conditions supersede all previous representations,
understandings or agreements and shall prevail notwithstanding any variance
with terms and conditions of any order submitted. Use of UUNET's network
constitutes acceptance of these Terms and Conditions.
PLEASE SIGN ON THE FRONT OF THIS PAGE TO INDICATE YOUR UNDERSTANDING AND
ACCEPTANCE OF THESE TERMS AND CONDITIONS.
<PAGE>
(RETURN TWO SIGNED ORIGINALS)
ORIGINAL
SOFTWARE DISTRIBUTION AGREEMENT
MacTCP
[APPLE LOGO] APPLE COMPUTER, INC.
Software Licensing Department
2420 Ridgepoint Drive MS - 198SWL
Austin, TX 78754
Licensee Earthlink Network, Inc.
-----------------------------------------------------------------------
Individual to Contact Sky Dayton
----------------------------------------------------------
Street Address 3171 Los Feliz Boulevard Suite 203
-----------------------------------------------------------------
City Los Angeles State CA Zip Code S 90039 Country USA
-------------- ------ ----------- -----------------
Telephone Number: (213) 644 9500 x 110
--------------------------------------------------------------
AppleLink Address:
--------------------------------------------------------------
Internet Address(es)*: Sky @ Earthlink.Net
---------------------------------------------------------
---------------------------------------------------------
*An Internet Address is required to obtain product updates under this Agreement.
Apple Computer, Inc. ("Apple") and Licensee agree that the following terms and
conditions shall govern Licensee's use and distribution of the Apple Software.
1 . DEFINITIONS
1.1 "Apple Software" means the object code form of the Apple Software program
identified in Exhibit B as the "Apple Software" and any subsequent
version(s) of the Apple Software that Apple notifies Licensee will be
covered by this Agreement.
1.2 "Distributor" means an individual or entity that is licensed by Licensee or
another Distributor to distribute Licensee Programs to End-Users or other
Distributors.
1.3 "End-User" means an individual or entity that licenses Licensee Programs
for his or its own personal or business purposes, and not for license to
others.
1.4 "Licensee" means the licensee listed above.
1.5 "Licensee Programs" means Licensee's own computer programs listed and
described in Exhibit C.
1.6 "...as incorporated in Licensee Programs..." means that (i) Licensee
Programs depend upon Apple Software for certain elements of their operation
and functionality; (ii) Licensee Programs access Apple Software
functionality by means of programing libraries and programming interfaces,
separately available from Apple; (iii) Licensee Programs incorporate Apple
Software by reference by compilation with, and linking to these
<PAGE>
EFBO91093
programming libraries and programming interfaces; and (iv) Apple Software
is not distributed independently of Licensee Programs which depend on Apple
Software. Licensee Programs may be distributed independently of Apple
Software.
1.7 "Volume Licensing Program" means a software licensing program that
authorizes use of the Apple Software only as incorporated in Licensee
Programs on multiple computers - either a specific number of computers, or
for a number of computers within a specific number range, where that number
does not exceed 2000 computers.
1.8 "Limited Site Licensing Program" means a software licensing program that
authorizes use of the Apple Software only as incorporated in Licensee
Programs on multiple computers - either a specific number of computers, or
for a number of computers within a specific number range, where that number
is greater than 2000 computers, but does not exceed 5000 computers.
1.9 "Site Licensing Program" means a software licensing program that authorizes
use of the Apple Software as incorporated in Licensee Programs on multiple
computers - either a specific number of computers, or for a number of
computers within a specific number range, where that number is greater than
2000 computers and may be any greater number.
1.10 "Unlimited Site Licensing Program" means a software licensing program that
authorizes use of the Apple Software as incorporated in Licensee Programs
on an unlimited number of computers.
2. LICENSE.
2.1 Apple hereby grants to Licensee a nonexclusive, nontransferable, worldwide
license to (i) copy and/or have copied for it the Apple Software for the sole
purpose of incorporating the Apple Software into Licensee Programs; and (ii)
distribute, to End Users and Distributors, the Apple Software in object code
form solely as incorporated in Licensee Programs which are designed to operate
on or with Apple-labeled or Apple-manufactured CPUs only and solely in
compliance with the conditions described in Exhibit B. This license grant is
expressly conditioned upon Licensee and/or Distributor's compliance with the
following requirements:
(a) All distributions to End-Users must be subject to an End-User Software
License Agreement no less restrictive or materially less protective of Apple's
rights in the Apple Software than the Software License attached hereto as
Exhibit D. For each jurisdiction in which Licensee Programs are distributed, it
is Licensee's responsibility to use an End-User Software License Agreement which
is enforceable under and complies with the laws of the jurisdiction.
(b) All Distributors must be subject to binding written agreements that include
provisions consistent with and the material substance of Paragraphs 2, 3, 7, 8,
9 and 12 of this Agreement, and such agreements must be materially no less
protective of Apple's rights in the Apple Software than are the terms and
conditions of this Agreement.
(c) Licensee may distribute the Apple Software solely as incorporated in
Licensee Programs as part of a Volume Licensing Program associated with Licensee
Programs. In such cases, Licensee will include a restriction in its Volume
Licensing Program Agreement with the End-User that the Apple Software shall be
used by the End-User solely for operation in conjunction with Licensee Programs.
Licensee agrees to refer End-User queries regarding use of the Apple Software
with any other software to Apple, for execution of an Apple Tiered Volume
License Agreement between Apple and the End-User.
2
<PAGE>
EFBO91093
(d) Subject to the additional fees described in option D of Exhibit A as the
"Limited Site License Option", Licensee may distribute the Apple Software solely
as incorporated in Licensee Programs as part of a Limited Site Licensing Program
associated with Licensee Programs. In such cases, Licensee will include a
restriction in its Limited Site Licensing Program Agreement with the End-User
that the Apple Software shall be used by the End-User solely for operation in
conjunction with Licensee Programs. Licensee agrees to refer End-User queries
regarding use of the Apple Software with any other software to Apple, for
execution of an Apple Master Software Site License Agreement between Apple and
the End-User.
(e) Subject to the additional fees described in option E of Exhibit A as the
"Site License Option", Licensee may distribute the Apple Software solely as
incorporated in Licensee Programs as part of a Site Licensing Program associated
with Licensee Programs. In such cases, Licensee will include a restriction in
its Site Licensing Program Agreement with the End-User that the Apple Software
shall be used by the End-User solely for operation in conjunction with the
Licensee Programs. Licensee agrees to refer End-User queries regarding use of
the Apple Software with any other software to Apple for execution of an Apple
Master Software Site License Agreement between Apple and the End-User.
(f) Licensee may not distribute the Apple Software as part of any Unlimited
Site Licensing Program.
(g) Licensee is not authorized to distribute the Apple Software Programming
Libraries under this Agreement.
2.2 Licensee acknowledges that the Apple Software is proprietary to Apple and
that Apple retains all right, title, and interest in and to the Apple Software,
including without limitation all copyrights and other proprietary rights.
2.3 Licensee agrees not to reverse engineer, reverse compile, or otherwise
disassemble the Apple Software, except as permitted by applicable legislation.
Licensee may not use, reproduce, sublicense, distribute or dispose of the Apple
Software, in whole or in part, other than as permitted under this Agreement.
2.4 If Apple requests in writing, Licensee shall provide Apple with an archive
copy of Licensee Programs in object code form for the sole purpose of monitoring
Licensee's compliance with the terms of this Agreement.
2.5 Apple will notify Licensee of the availability of updates or extensions to
the Apple Software ("Updates"). Upon such notification, Licensee will take all
necessary steps to obtain Updates, including but not limited to downloading them
from a server as instructed by Apple. Licensee shall incorporate any Update in
Licensee Programs, and shall cease distribution of earlier versions of the Apple
Software to the extent that they have been updated, at the first available
opportunity within Licensee's product cycle, but no later than one hundred
eighty (180) days after Apple has notified Licensee of the availability of such
Update. Licensee shall make all Updates available to Licensee's End-Users upon
the request of the End-Users or Apple.
2.6 Apple hereby grants to Licensee a nonexclusive, nontransferable, worldwide
license to (i) copy and/or have copied for it and to modify the documentation
included in the Apple Software for the sole purpose of incorporating such
documentation into Licensee's documentation in support of the Apple Software as
incorporated in Licensee Programs; and (ii) distribute such modified
documentation to End Users and Distributors. This license in conditioned on the
following copyright notice appearing in Licensee's documentation:
"Portions of this manual are copyrighted by Apple Computer, Inc."
3
<PAGE>
EFBO91093
3. EFFECTIVE DATE; TERMS.
3.1 The Effective Date of this Agreement will be the date of Apple's execution.
The initial term will be until December thirtieth (30th) of the current year and
the Agreement will automatically renew for subsequent one year periods unless
one of the following events occurs: (i) Licensee fails to pay the applicable
renewal fee before the expiration of the current term; (ii) Apple terminates
this Agreement at any time pursuant to Section 13; (iii) Apple provides notice
to Licensee of its intent to terminate for any reason, with or without cause, at
least twelve (12) months prior to the effective date of termination; or (iv)
Licensee provides notice to Apple of its election to terminate this Agreement
for any reason, with or without cause.
3.2 In the event of any termination, Licensee must immediately discontinue all
use and distribution of the Apple Software. However, Licensee is entitled to
retain one (1) copy of the Apple Software, and is not restricted from providing
continued technical support of Licensee's End-Users, including continued
support regarding the use of Apple Software in conjunction with Licensee's
Programs.
4. CONSIDERATION.
4.1 In consideration of, and as a condition of the rights granted to Licensee
by Apple, Licensee agrees to pay Apple the annual license fee and royalty
payments based on the options selected by Licensee in Exhibit A. If a royalty
option is specified on Exhibit A, a royalty obligation shall be effective upon
the date Licensee begins the sale, license and/or distribution of Licensee
Programs and shall extend as long as Licensee sells, licenses and/or distributes
Licensee Programs.
4.2 If an annual license fee is specified on Exhibit A, the license fee for the
initial term shall be prorated based upon the number of months remaining in the
current year and is due and payable in United States currency upon Licensee's
execution of this Agreement. The renewal fee for each subsequent term is due on
the thirty first (31st) of December of the current year. As a courtesy, Apple
intends to send renewal notices sixty (60) days prior to the expiration date of
each term, but all renewal fees are due and payable on or before December 31 of
each year, whether or not Apple provides such notice. The annual license fee for
any of the options will not increase more than ten percent (10%) per annum for
the first three (3) years of this Agreement.
4.3 If royalty payments are specified on Exhibit A, royalties shall be payable
on an annual calendar basis, within 45 days of the end of the calendar year
(December 31), with respect to the number of end-user licenses granted by
Licensee to End-Users under Licensee's Site Licensing Programs. Royalty
payments shall be determined in accordance with the schedule specified in
Exhibit A. All payments to Apple shall be made in U.S. currency, with checks
drawn on a U.S. bank. Foreign funds will be calculated at the exchange rate at
which the Licensee's foreign currency transactions are translated in U.S.
dollars at month end reporting. At the time when royalty payments are due,
Licensee will deliver to Apple a report setting forth the following information:
(i) Title of Licensee Program; (ii) number of licenses granted to Licensee's
End-Users under Licensee's Site Licensing Programs for the immediately preceding
year and in aggregate from inception of this license agreement; and (iii) a
calculation of the royalties due and payable to Apple for the immediately
preceding year and in aggregate from inception of this license agreement. Any
overdue amounts shall bear interest at the rate of one and one-half (1.5%)
percent per month or the maximum rate permitted under applicable law, whichever
is less.
4.4 Apple shall have the right at its expense and on reasonable notice, to have
an accredited auditing representative audit the records of Licensee to verify
the information to be provided in the reports. If, as a result of such audit, a
dollar error of over 5% for any quarter or year is found in favor of Apple,
Licensee will reimburse Apple for the cost of such audit within thirty days of
such
4
<PAGE>
EFBO91093
finding. In the event Licensee's royalty reports or payments include any
inconsistencies or mistakes, Licensee will rectify such statements and will make
any payments required by such rectification to Apple within thirty (30) days.
Any overdue amounts shall bear interest at the rate of one and one-half (1.5%)
percent per month or the maximum rate permitted under applicable law, whichever
is less. Failure to pay royalties and/or audit expenses when due as provided in
this Section 4 will be grounds for termination of the Agreement under Section 3.
4.5 Licensee shall deliver the royalty payments and royalty reports to:
Royalty Accounting - Austin Finance
Apple Computer, Inc.
2420 Ridgepoint Dr. MS 198 GL
Austin, TX 78754
4.6 Licensee's royalty accounting contact, address and phone number is:
Contact Name: Sky Dayton
Address: 3171 Los Feliz Boulevard, Suite 203
Phone Number: (213) 644 9500 x 110
5. REPORTS.
5.1 If Licensee chooses option (B), (D) or (E) as specified in Exhibit A,
Licensee must provide to Apple reports in the form set forth on Exhibit E, as it
may be modified from time to time by Apple by notice to Licensee. These
reports shall be considered confidential information and used for Apple internal
revenue reporting purposes only.
5.2 If Licensee chooses option (D) or option (E) as specified in Exhibit A,
Licensee must provide to Apple reports in the form set forth on Exhibit F, as it
may be modified from time to time by Apple by notice to Licensee. These reports
shall be considered confidential information and used for Apple internal revenue
reporting purposes only.
5.3 If Licensee chooses option (E) as specified in Exhibit A, Licensee must
provide royalty reports to Apple as specified in Paragraph 4.3 above.
6. DELIVERY OF MacTCP.
One copy of the Apple Software shall be delivered by Apple to Licensee upon the
execution of this Agreement by both parties and receipt of Licensee's check for
the license fee for the initial term.
7. DISCLAIMER OF WARRANTY.
Apple licenses the Apple Software to Licensee on an "AS IS" basis. APPLE MAKES
NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, REGARDING
THE APPLE SOFTWARE OR ITS USE AND OPERATION ALONE OR IN COMBINATION WITH
LICENSEE PROGRAMS. Neither Licensee, its employees, agents, or Distributors have
any right to make any other representation, warranty or promise with respect to
the Apple Software.
8. LIMITATION OF LIABILITY.
In no event shall Apple be liable for special, incidental or consequential
damages arising from the use, sale or distribution of Apple Software by Licensee
or any third party, whether under theory of
5
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EFBO91093
contract, tort (including negligence), product liability or otherwise. In no
event shall Apple's liability under this Agreement exceed the amount of $500.
9. LABELING.
9.1 As a condition of Apple's license grant in Paragraph 2, Licensee shall not
remove any copyright notices or proprietary legends contained within the Apple
Software. Further, Licensee shall include a copyright notice in Licensee
Programs reflecting the copyright ownership of Licensee and Apple as follows:
Copyright -C- 19__ [Licensee Name] and its licensors.
All rights reserved.
9.2 To the extent permitted by applicable law, Licensee shall also include in a
conspicuous place in the manual and in bold letters, a warranty disclaimer as
follows:
"[Licensee Name]'s LICENSOR(S) MAKES NO WARRANTIES, EXPRESS
OR IMPLIED, INCLUDING WITHOUT LIMITATION THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, REGARDING THE SOFTWARE. [Licensee Name]'s
LICENSOR(S) DOES NOT WARRANT, GUARANTEE OR MAKE ANY
REPRESENTATIONS REGARDING THE USE OR THE RESULTS OF THE USE
OF THE SOFTWARE IN TERMS OF ITS CORRECTNESS, ACCURACY,
RELIABILITY, CURRENTNESS OR OTHERWISE. THE ENTIRE RISK AS TO
THE RESULTS AND PERFORMANCE OF THE SOFTWARE IS ASSUMED BY
YOU. THE EXCLUSION OF IMPLIED WARRANTIES IS NOT PERMITTED
BY SOME JURISDICTIONS. THE ABOVE EXCLUSION MAY NOT APPLY TO
YOU."
Licensee shall also include the following disclaimer of liability language in
the same place:
"IN NO EVENT WILL [Licensee Name]'s LICENSOR(S), AND THEIR
DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS (COLLECTIVELY
[Licensee Name]'s LICENSOR) BE LIABLE TO YOU FOR ANY
CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES (INCLUDING
DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS
INTERRUPTION, LOSS OF BUSINESS INFORMATION, AND THE LIKE)
ARISING OUT OF THE USE OR INABILITY TO USE THE SOFTWARE EVEN
IF [Licensee Name]'s LICENSOR HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. BECAUSE SOME JURISDICTIONS DO
NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR
CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE LIMITATIONS
MAY NOT APPLY TO YOU. [Licensee Name]'s Licensor's liability
to you for actual damages from any cause whatsoever, and
regardless of the form of the action (whether in contract,
tort (including negligence), product liability or
otherwise), will be limited to $50."
9.3 During the term of this Agreement, Apple may revise the notice or
disclaimer language required by Paragraph 9.2 above. Licensee shall incorporate
such revisions within ninety (90) days of written notice from Apple.
9.4 Licensee may not use any Apple trademarks, service marks, trade names, or
logos in any advertising, brochures, or promotional materials except to denote
compatibility with Apple products in the form set forth in Apple's Third Party
Trademark Guidelines.
6
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EFBO91093
9.5 Licensee shall not refer to the product name "TCP/IP Connection for
Macintosh" in packaging or other advertising collateral materials for the
Licensee Programs.
10. INDEMNIFICATION BY APPLE.
Apple shall indemnify, defend and hold Licensee harmless from and against any
claim that the Apple Software infringes any United States patent or copyright of
any third party. Licensee shall promptly notify Apple of any such claim. In no
event shall Apple's liability to Licensee for damages, losses, liabilities,
costs and expenses (including reasonable fees of attorneys and other
professionals) under this Paragraph 10 exceed the total amount paid by Licensee
to Apple for the license granted hereunder. Notwithstanding the foregoing, Apple
will have no liability under this Paragraph 10 for any claim or suit of
copyright, trade secret or patent infringement where such claim or suit is based
upon the combination, operation, or use of the Apple Software with Licensee
Programs, if such infringement would have been avoided but for such combination,
operation or use.
11. INDEMNIFICATION BY LICENSEE.
Except as provided in Paragraph 10, Licensee shall indemnify, defend at Apple's
request, and hold Apple harmless from any and all claims, damages, losses,
liabilities, costs and expenses (including reasonable fees of attorneys and
other professionals) arising out of or in connection with Licensee's
distribution of the Apple Software in combination with Licensee Programs or the
use of Licensee Programs in combination with Apple Software. Licensee shall
promptly notify Apple of any such claim.
12. EXPORT.
Licensee certifies that it will not distribute the Apple Software in
contravention of any laws or regulations relating to export control, including
but not limited to the United States Export Administration Act and associated
regulations.
13. TERMINATION FOR CAUSE.
If any breach of this Agreement by Licensee continues for more than thirty (30)
days after receipt of written notice of such breach by Apple, Apple may
terminate this Agreement by written notice to Licensee, whereupon this license
and all rights granted to Licensee herein shall immediately cease. Waiver by
Apple of any breach by Licensee shall not be deemed to be a waiver of any other
or subsequent breach. The rights of Apple under this clause are in addition to
any other rights and remedies provided by law or under this Agreement.
14. RELATIONSHIP OF THE PARTIES.
Nothing stated in this Agreement will be construed as creating the relationships
of joint venturers, partners, employer and employee, franchisor and franchisee,
master and servant, or principal and agent.
15. ASSIGNMENT.
This Agreement may not be assigned by Licensee without the prior written consent
of Apple.
7
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EFBO91093
16. NOTICES.
Any notice required under this Agreement shall be deemed given: (i) when
delivered personally; (ii) by telex or facsimile; (iii) five (5) days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid, (iv) by Internet to the address set forth on the first page of
this Agreement for notice to Licensee; or (v) by AppleLink, to the address of
SW.LICENSE. for any notice to Apple and to the address set forth on the first
page of this Agreement for any notice to Licensee. All communications will be
sent to the address noted on the first page of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of
the State of California as applied to agreements entered into and to be
performed entirely within California between California residents. Any
litigation or other dispute resolution between the parties relating to this
Agreement shall take place in the Northern District of California. The parties
consent to the personal jurisdiction of, and venue in, the state and federal
courts within that District.
19. COMPLETE UNDERSTANDING.
This Agreement including all Exhibits attached constitutes the entire Agreement
between the parties concerning the use and distribution of Apple Software. Any
waiver or amendment of any provision of this Agreement shall be effective only
if in writing and signed by authorized representatives of both parties.
LICENSEE: EARTHLINK NETWORK, INC. APPLE COMPUTER, INC.
------------------------
Signature: By: /s/ Sky Dayton Signature: /s/ Rhonda Middleton
---------------------------- ----------------------------
Printed Name and Title: Sky Dayton, Title: Administrator
Its President
--------------
Date Signed: September 26, 1995 Date Signed (the "Effective Date"):
------------------------- October 2, 1995
----------------------------
8
<PAGE>
(RETURN TWO SIGNED ORIGINALS)
EXHIBIT A: LICENSE FEES
SELECT EACH OF THE OPTIONS YOU WANT BY MARKING THE APPROPRIATE OPTION(S) WITH AN
"X" IN THE SPACE INDICATED. RECORD THE ASSOCIATED FEES IN THE RIGHT HAND COLUMN,
AND THEN TOTAL THE FEES FOR ALL SELECTED OPTIONS.
1. REQUIRED: CHOOSE ONLY ONE OF (A) OR (B)
OPTION DESCRIPTION FEE SELECT AMOUNT
- --------------------------------------------------------------------------------
(A) Basic MacTCP software
NO requirement for reporting of
shipped units $5,000 per year X 5,000.00
----- --------
(B) Basic MacTCP software
Requirement for reporting of
shipped units $5,000 per year
----- --------
2. OPTIONAL: CHOOSE (C)
OPTION DESCRIPTION FEE SELECT AMOUNT
- --------------------------------------------------------------------------------
(C) MacSNMP Extension for MacTCP
software $2,500 per year
----- --------
3. Optional: CHOOSE ONLY ONE OF (D) OR (E)
OPTION DESCRIPTION FEE SELECT AMOUNT
- --------------------------------------------------------------------------------
(D) Limited Site License Program
Option Prerequisite choice of
Option B, above $5,000 per year
----- --------
(E) Site License Program Option
Prerequisite choice of Option B,
above $500 per year
plus ----- --------
per-unit
royalties
Option (E) per unit royalties are determined according to the following
schedule, based on the CUMULATIVE ANNUAL number of end-user licenses for Apple
Software granted by Licensee to End-Users under Licensee Site License Programs.
End-user licenses granted on a single-user basis, or under the terms of a
Licensee Volume License Program do NOT count towards the Option (E) royalty
tier.
If number of licenses granted is
more than but not greater than the per-unit royalty is
--------------------------------------------------------------------
1 2,000 $0.00
2,001 5,000 $1.00
5,001 25,000 $0.75
25,001 100,000 $0.60
100,001 and above $0.50
4. TOTAL AMOUNTS FOR OPTIONS SELECTED TOTAL FEES PAID 5,000.00
--------
<PAGE>
EFBO91093
EXHIBIT B: APPLE SOFTWARE
"Apple Software" referenced in Subparagraph 1.1 of the Agreement means Version
2.0.6 of Apple's Software Program known as MacTCP consisting of the following:
BASIC MacTCP FILES:
MacTCP 2.0.6 (REQUIRED)
MacTCP Token Ring Extension 2.0.2 (REQUIRED)
MacTCP Ping 2.0.2 (OPTIONAL)
If Licensee desires to distribute the MacTCP 2.0.6 software, then Licensee must
also distribute the MacTCP Token Ring Extension 2.0.2 with Licensee Programs.
MacTCP Ping 2.0.2 is not required, but may be distributed with Licensee
Programs.
MacSNMP EXTENSION FOR MacTCP SOFTWARE FILES:
SNMP Macintosh Agent (REQUIRED)
SNMP MacTCP Agent (REQUIRED)
SNMP Manager (REQUIRED)
SNMP TCP/IP Transport (REQUIRED)
Library Manager Resources (REQUIRED)
Shared Library Manager (REQUIRED)
SNMP Preferences (OPTIONAL)
MacSNMP Client 1.0.2 (OPTIONAL)
If Licensee chooses option (C) in Exhibit A "MacSNMP Extension for MacTCP"
software files, then Licensee must distribute the SNMP Macintosh Agent, SNMP
MacTCP Agent, SNMP Manager, SNMP TCP/IP Transport files, Library Manager
Resources, and Shared Library Manager with Licensee Programs. SNMP Preferences
and MacSNMP Client 1.0.2 are not required, but may be distributed with Licensee
Programs.
MacTCP 2.0.2 DOCUMENTATION DISK
2
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EFBO91093
EXHIBIT C: LICENSEE PROGRAMS
SECTION BELOW MUST BE COMPLETED BY LICENSEE
"Licensee Programs" referenced in Subparagraph 1.5 of the Agreement means all of
the following:
1. Licensee Program (Title): EARTHLINK TOTALACCESS
--------------------------------------------------
2. Description of Licensee Program:
INTERNET CONNECTIVITY SOFTWARE
1 Licensee Program (Title):
------------------------------------------------
2. Description of Licensee Program:
1. Licensee Program (Title):
-------------------------------------------------
2. Description of Licensee Program:
3
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EXHIBIT D: SOFTWARE LICENSE
PLEASE READ THIS LICENSE CAREFULLY BEFORE USING THE SOFTWARE. BY USING THE
SOFTWARE, YOU ARE AGREEING TO BE BOUND BY THE TERMS OF THIS LICENSE. IF YOU DO
NOT AGREE TO THE TERMS OF THIS LICENSE, PROMPTLY RETURN THE UNUSED SOFTWARE TO
THE PLACE WHERE YOU OBTAINED IT AND YOUR MONEY WILL BE REFUNDED.
1. LICENSE. The application, demonstration, system and other software
accompanying this License, whether on disk, in read only memory, or on any other
media (the "Software") the related documentation and fonts are licensed to you
by [Licensee Name]. You own the disk on which the Software and fonts are
recorded but [Licensee Name] and/or [Licensee Name]'s Licensors retain title to
the Software, related documentation and fonts. This License allows you to use
the Software and fonts on a single Apple computer and make one copy of the
Software and fonts in machine-readable form for backup purposes only. You must
reproduce on such copy the [Licensee Name] copyright notice and any other
proprietary legends that were on the original copy of the Software and fonts.
You may also transfer all your license rights in the Software and fonts, the
backup copy of the Software and fonts, the related documentation and a copy of
this License to another party, provided the party reads and agrees to accept the
terms and conditions of this License.
2. RESTRICTIONS. The Software contains copyrighted material, trade secrets and
other proprietary material. In order to protect them, and except as permitted by
applicable legislation, you may not decompile, reverse engineer, disassemble or
otherwise reduce the Software to a human-perceivable form. You may not modify,
network, rent, lease, loan, distribute or create derivative works based upon the
Software in whole or in part. You may not electronically transmit the Software
from one computer to another or over a network.
3. TERMINATION. This License is effective until terminated. You may terminate
this License at any time by destroying the Software, related documentation and
fonts and all copies thereof. This License will terminate immediately without
notice from [Licensee Name] if you fail to comply with any provision of this
License. Upon termination you must destroy the Software, related documentation
and fonts and all copies thereof.
4. EXPORT LAW ASSURANCES. You agree and certify that neither the Software nor
any other technical data received from [Licensee Name], nor the direct product
thereof, will be exported outside the United States except as authorized and as
permitted by the laws and regulations of the United States. If the Software has
been rightfully obtained by you outside of the United States, you agree that you
will not re-export the Software nor any other technical data received from
[Licensee Name], nor the direct product thereof, except as permitted by the laws
and regulations of the United States and the laws and regulations of the
jurisdiction in which you obtained the Software.
5. GOVERNMENT END USERS. If you are acquiring the Software and fonts on behalf
of any unit or agency of the United States Government, the following provisions
apply. The Government agrees:
(i) if the Software and fonts are supplied to the Department of Defense
(DoD), the Software and fonts are classified as "Commercial Computer Software"
and the Government is acquiring only "restricted rights" in the Software, its
documentation and fonts as that term is defined in Clause 252.227-7013(c)(1) of
the DFARS; and
(ii) if the Software and fonts are supplied to any unit or agency of the
United States Government other than DoD, the Government's rights in the
Software, its documentation and fonts will be as defined in Clause
52.227-19(c)(2) of the FAR or, in the case of NASA, in Clause 18-52.227-86(d)
of the NASA Supplement to the FAR.
6. LIMITED WARRANTY ON MEDIA. [Licensee Name] warrants the diskettes and/or
compact disc on which the Software and fonts are recorded to be free from
defects in materials and workmanship under normal use for a period of ninety
(90) days from the date of purchase as evidenced by a copy of the receipt.
[Licensee Name]'s entire liability and your exclusive remedy will be replacement
of the diskettes and/or compact disc not meeting [Licensee Name]'s limited
warranty and which is returned to [Licensee Name] or an [Licensee Name]
authorized representative with a copy of the receipt. [Licensee Name] will have
no responsibility to replace a disk/disc damaged by accident, abuse or
misapplication. ANY IMPLIED WARRANTIES ON THE DISKETTES AND/OR COMPACT DISC,
INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, ARE LIMITED IN DURATION TO NINETY (90) DAYS FROM THE DATE OF DELIVERY.
THIS WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS, AND YOU MAY ALSO HAVE OTHER
RIGHTS WHICH VARY BY JURISDICTION.
4
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EFBO91093
7. DISCLAIMER OF WARRANTY ON APPLE SOFTWARE. You expressly acknowledge and
agree that use of the Software and fonts is at your sole risk. The Software,
related documentation and fonts are provided "AS IS" and without warranty of any
kind and [Licensee Name] and [Licensee Name]'s Licensor(s) (for the purposes of
provisions 7 and 8, [Licensee Name] and [Licensee Name]'s Licensor(s) shall be
collectively referred to as "[Licensee Name]") EXPRESSLY DISCLAIM ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
[LICENSEE NAME] DOES NOT WARRANT THAT THE FUNCTIONS CONTAINED IN THE SOFTWARE
WILL MEET YOUR REQUIREMENTS, OR THAT THE OPERATION OF THE SOFTWARE WILL BE
UNINTERRUPTED OR ERROR-FREE, OR THAT DEFECTS IN THE SOFTWARE AND THE FONTS
WILL BE CORRECTED. FURTHERMORE, [LICENSEE NAME] DOES NOT WARRANT OR MAKE ANY
REPRESENTATIONS REGARDING THE USE OR THE RESULTS OF THE USE OF THE SOFTWARE
AND FONTS OR RELATED DOCUMENTATION IN TERMS OF THEIR CORRECTNESS, ACCURACY,
RELIABILITY, OR OTHERWISE. NO ORAL OR WRITTEN INFORMATION OR ADVICE GIVEN BY
[LICENSEE NAME] OR AN [LICENSEE NAME] AUTHORIZED REPRESENTATIVE SHALL CREATE A
WARRANTY OR IN ANY WAY INCREASE THE SCOPE OF THIS WARRANTY. SHOULD THE
SOFTWARE PROVE DEFECTIVE, YOU (AND NOT [LICENSEE NAME] OR AN [LICENSEE NAME]
AUTHORIZED REPRESENTATIVE) ASSUME THE ENTIRE COST OF ALL NECESSARY SERVICING,
REPAIR OR CORRECTION. SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OF
IMPLIED WARRANTIES, SO THE ABOVE EXCLUSION MAY NOT APPLY TO YOU.
8. LIMITATION OF LIABILITY. UNDER NO CIRCUMSTANCES INCLUDING NEGLIGENCE, SHALL
[LICENSEE NAME] BE LIABLE FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES
THAT RESULT FROM THE USE OR INABILITY TO USE THE SOFTWARE OR RELATED
DOCUMENTATION, EVEN IF [LICENSEE NAME] OR AN [LICENSEE NAME] AUTHORIZED
REPRESENTATIVE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SOME
JURISDICTIONS DO NOT ALLOW THE LIMITATION OR EXCLUSION OF LIABILITY FOR
INCIDENTAL OR CONSEQUENTIAL DAMAGES SO THE ABOVE LIMITATION OR EXCLUSION MAY NOT
APPLY TO YOU.
In no event shall [Licensee Name]'s total liability to you for all damages,
losses, and causes of action (whether in contract, tort (including negligence)
or otherwise) exceed the amount paid by you for the Software and fonts.
9. CONTROLLING LAW AND SEVERABILITY. This License shall be governed by and
construed in accordance with the laws of the United States and the State of
California, as applied to agreements entered into and to be performed entirely
within California between California residents. If for any reason a court of
competent jurisdiction finds any provision of this License, or portion thereof,
to be unenforceable, that provision of the License shall be enforced to the
maximum extent permissible so as to effect the intent of the parties, and the
remainder of this License shall continue in full force and effect.
10. COMPLETE AGREEMENT. This License constitutes the entire agreement between
the parties with respect to the use of the Software, the related documentation
and fonts, and supersedes all prior or contemporaneous understandings or
agreements, written or oral, regarding such subject matter. No amendment to or
modification of this License will be binding unless in writing and signed by a
authorized representative of [Licensee Name].
5
<PAGE>
EFBO91093
EXHIBIT E: LICENSEE UNITS REPORTS
Licensee will provide a report of shipped unit figures of Licensee Programs
for the previous twelve (12) month period at the time of execution of this
Agreement and subsequently on the thirty first Agreement (31st) of December
of each renewal term of this Agreement in the following form:
REPORT OF SHIPPED UNITS- MacTCP
FOR THE PERIOD JANUARY 1, 199X - DECEMBER 31, 199X
COMPANY NAME:
-----------------------------------------
PRODUCT NAME:
-----------------------------------------
UNITS SHIPPED:
-----------------------------------------
The reports should be sent to the following address:
Apple Computer, Inc.
Attention: MacTCP Product Manager
M/S 303-2E
3 Infinite Loop
Cupertino, CA 95014
6
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EFBO91093
EXHIBIT F: LICENSEE (LIMITED) SITE LICENSE REPORTS
Licensee will provide a report of (Limited) Site Licenses of Licensee Programs
on the thirty first (3lst) of December of each renewal term of this Agreement in
the following form:
REPORT OF (LIMITED) SITE LICENSE UNITS SHIPPED - MacTCP
FOR THE PERIOD JANUARY 1, 199X - DECEMBER 31, 199X
COMPANY NAME: [LICENSEE NAME]
--------------------------------------------
PRODUCT NAME: [LICENSEE PROGRAM NAME]
------------------------------------
REPEAT FOR EACH (LIMITED) SITE LICENSE EXECUTED OR RENEWED WITH END-USER DURING
THE REPORTING PERIOD:
COMPANY NAME: [END-USER NAME]
---------------------------------------------
COMPANY ADDRESS: [END-USER POSTAL MAILING ADDRESS]
------------------------
CONTACT NAME: [END-USER CONTACT PERSON NAME]
------------------------------
NUMBER AUTHORIZED USERS: [MAXIMUM AUTHORIZED USERS]
-----------------------
The reports should be sent to the following address:
Apple Computer, Inc.
Attention: MacTCP Product Manager
M/S: 303-2E
3 Infinite Loop
Cupertino, CA 95014
7
<PAGE>
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE-GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
December 1, 1995, is made by and between BECTON, DICKINSON AND COMPANY, a New
Jersey corporation ("Lessor") and EARTHLINK NETWORK, INC., a California
corporation ("Lessee"), (collectively the "PARTIES," or individually a "PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 3100 New York Drive, located in the City
of Pasadena, County of Los Angeles, State of California, with zip code 91107, as
outlined on Exhibit A attached hereto ("PREMISES"). The Building is that
certain building containing the Premises and generally described as (describe
briefly the nature of the Building): two-story, 159,000 square foot light
industrial building. The Premises constitute approximately 85,491 square feet,
plus approximately 7,421 square feet of mezzanine space. Until July 1, 1996,
the Premises shall consist of only the second floor of the Building, containing
approximately 45,217 square feet of space.
In addition to Lessee's rights to use and occupy the Premises as hereinafter
specified, Lessee shall have non-exclusive rights to the Common Areas (as
defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any
rights to the roof, exterior walls or utility raceways of the Building or any
other buildings in the Industrial Center. The Premises, the Building, the
Common Area, the land upon which they are located, are herein collectively
referred to as the "INDUSTRIAL CENTER." (Also see Paragraph 2.)
1.2(b) PARKING: 280 unreserved vehicle parking spaces ("UNRESERVED PARKING
SPACES"); and 0 reserved vehicle parking spaces ("RESERVED PARKING SPACES").
(Also see Paragraph 2.6.)
1.3 TERM: 5 years and 6 months ("ORIGINAL TERM") commencing January 1,
1996 ("COMMENCEMENT DATE") and ending June 30, 2001 ("EXPIRATION DATE"). (Also
see Paragraph 3.)
1.4 EARLY POSSESSION: December 1, 1995 ("EARLY POSSESSION DATE"). (Also
see Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $36,000.00 per month ("BASE RENT"), payable on the first
(1st) day of each month commencing January 1, 1996 (also see Paragraph 4.),
increasing to $46,000.00 per month commencing July 1, 1996.
[X] If this box checked, this Lease provides for the Base Rent to be adjusted
per Addendum 49, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $36,000 as Base Rent for the
period January 1, 1996.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: Sixty
percent (60%) (LESSEE'S SHARE") as determined by [X] prorata square footage of
the Premises as compared to the total square footage of the Building or [ ]
other criteria as described in Addendum .
-----
1.7 SECURITY DEPOSIT: $50,000.00 ("SECURITY DEPOSIT"). (Also see
Paragraph 5.)
1.8 PERMITTED USE: General office use, including computer data center
("PERMITTED USE") (Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see
Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[X] CB Commercial represents Lessor exclusively ("LESSOR'S
------------------------- BROKER");
[X] Ramsey-Shilling Commercial represents Lessee exclusively ("LESSEE'S
-------------------------- BROKER"); or
[ ] represents both Lessor and Lessee ("DUAL -
-------------------------- AGENCY"). (Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) for brokerage services
rendered by said Broker(s) in connection with this transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by N/A ("GUARANTOR"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 59, and Exhibits A through B, all of which
constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 CONDITION. Lessor shall deliver the Premise to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement
Date, Lessor shall, except a otherwise provided in this Lease, promptly after
receipt of written notice from Lessee setting forth with specificity the nature
and extent of such non-compliance, rectify same at Lessor's expense. If Lessee
does not give Lessor written notice of a non-compliance with this warranty
within 180 days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE.
Lessor warrants that any improvements (other than those constructed by Lessee or
at Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with al applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the Commence-
ment Date and setting forth with specificity the nature and extent of such non-
compliance, take such action, at Lessor's expense, as may be reasonable or
appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Broker(s) to satisfy itself with respect to the
condition of the Premises (including by not limited to the electrical and fire
sprinkler systems, security, environmental aspects, seismic and earthquake
requirements, and compliance with the Americans with Disabilities Act and
applicable zoning, municipal, county, state and federal laws, ordinances and
regulations and any covenants or restrictions of record (collectively,
"APPLICABLE LAWS") and the present and future suitability of the Premises for
Lessee's intended use; (b) that Lessee has made such investigation as it deems
necessary with reference to such matters, is satisfied with reference thereto,
and assumes all responsibility therefore as the same relate to Lessee's
occupancy of the Premises and/or the terms of this Lease; and (c) that neither
Lessor, nor any of Lessor's agents, has made any oral or written representations
or warranties with respect to said matters other than as set forth in this
Lease.
INITIALS: /s/ SD
-------
/s/ GC
-------
MULTI-TENANT - GROSS
- -C- American Industrial Real Estate Association 1993
<PAGE>
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking than said number. Said
parking spaces shall be used for parking by vehicles no larger than full-size
passenger automobiles, vans or pick-up trucks, herein called "PERMITTED SIZE
VEHICLES." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitee to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor reserves the right to designate the parking spaces to
be used by Lessee.
2.7 COMMON AREAS-DEFINITION. The term "COMMON AREAS" is defined as
all areas and facilities outside the Premises and within the exterior boundary
line of the Industrial Center and interior utility raceways within the Premises
that are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitee, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee,
for the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitee, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges
reserved by Lessor under the terms hereof or under the terms of any rules and
regulations or restrictions governing the use of the Industrial Center.
Under no circumstances shall the right herein granted to use the Common Areas
be deemed to include the right to store any property, temporarily or
permanently, in the Common Areas. Any such storage shall be permitted only by
the prior written consent of Lessor or Lessor's designated agent, which
consent may be revoked at any time. In the event that any unauthorized
storage shall occur then Lessor shall have the right, without notice, in
addition to such other rights and remedies that it may have, to remove the
property and charge the cost to Lessee, which cost shall be immediately
payable upon demand by Lessor.
2.9 COMMON AREAS-RULES AND REGULATIONS. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time,
to establish, modify, amend and enforce reasonable Rules and Regulations with
respect thereto in accordance with paragraph 40. Lessee agrees to abide by
and conform to all such Rules and Regulations, and to cause its employees,
suppliers, shippers, customers, contractors and invitee to so abide and
conform. Lessor shall not be responsible to Lessee for the non-compliance
with said rules and regulations by other lessees of the Industrial Center.
2.10 COMMON AREAS-CHANGES. Lessor shall have the right, in
Lessor's sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Industrial Center as
Lessor may, in the exercise of sound business judgment, deem to be appropriate.
3. TERM
3.1 TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however, (including but not limited to the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affected nor advance the Expiration Date of the Original
Term. Lessee shall not interfere with Lessor's work pursuant to Paragraph 52.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, not
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provide further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed the terms hereof, but minus
any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor
during the term hereof, in addition to the Base Rent, Lessee's Share (as
specified in Paragraph 1.6(b)) of all Common Area Operating Expenses, as
hereinafter defined, during each calendar year of the term of this Lease, in
accordance with the following provisions: in excess of such expenses for the
Base Year 1996
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes
of this Lease, as all commercially reasonable costs incurred by Lessor relating
to the ownership and operation of the Industrial Center, including, but not
limited to, the following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management shall not exceed
5% of gross revenues plu reasonable expenses and security services and the
costs of any environmental inspections, excluding inspections for matters
pre-existing as of the Commencement Date.
(iv) Reserves set aside for maintenance and repair of
Common Areas, which reserves shall be commercially reasonable and the amount
of which shall be discussed with Lessee.
(v) Any increase above the Base Real Property Taxes (as
defined in Paragraph 10.2(b)) for the Building and the Common Areas.
(vi) Any "Insurance Cost Increase" (as defined in Paragraph
8.1).
(vii) The cost of insurance carried by Lessor with respect
to the Common Areas.
(viii) Any deductible portion of an insured loss
concerning or the Common Areas
(ix) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building in
the Industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to such other building. However,
any Common Area Operating Expense and Real Property Taxes that are not
specifically attributable to the Buildng or to any other building or to the
operation, repair and maintenance thereof, shall be equitable allocated by
Lessor to all buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services
set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation
upon Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonable detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time of Lessee's Share of
annual Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver
to Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessor shall be credited the amount of such over-
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payment against Lessee's Share of Common Area Operating Expenses next
becoming due. If Lessee's payments under this Paragraph 4.2(d) during said
preceding year were less than Lessee's Share as indicated on said statement,
Lessee shall pay to Lessor the amount of the deficiency within ten (10) days
after delivery by Lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's
execution hereof the Security Deposit set forth in Paragraph 1.7 as security
for Lessee's faithful performance of Lessee's obligations under this Lease.
If Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor
may use, apply or retain all or any portion of said Security Deposit for the
payment of any amount due Lessor or to reimburse or compensate Lessor for any
Liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all
or any portion of said Security Deposit, Lessee shall within ten (10) days
after written request therefore deposit monies with Lessor sufficient to
restore said Security Deposit to the full amount required by this Lease.
Lessor shall not be required to keep all or any part of the Security Deposit
separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's interest herein), that portion of the Security Deposit not
used or applied by Lessor. Any deductions shall be reasonably itemized in
writing by Lessor. Unless otherwise expressly agreed in writing by Lessor,
no part of the Security Deposit shall be considered to be held in trust, to
bear interest or other increment for its use, or to be prepayment for any
monies to be paid by Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the Permitted
Use set forth in Paragraph 1.8, or any other legal use which is reasonably
comparable thereto, and for no other purpose. Lessee shall not use or permit
the use of the Premises in a manner that is unlawful, ceases waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants,
and by prospective assignees and subtenants of Lessee, its assignees and
subtenants, for modification of said Permitted Use, so long as the same will
not impair the structural integrity of the improvements on the Premises or in
the Building or the mechanical or electrical systems therein, does not
conflict with uses by other lessees, is not significantly more burdensome to
the Premises or the Building and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days such request give a
written notification of same, which notice shall include an explanation of
Lessor's objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or
effect, either by itself or in combination with other materials expected to
be on the Premises, is either: (i) potentially injurous to the public health,
safety or welfare, the environment, or the Premises; (ii) regulated or monitored
by any governmental authority; or (iii) a basis for potential liability of
Lessor to any governmental agency or third party under any applicable statute or
common law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises
which constitutes a REPORTABLE USE (as hereinafter defined) of Hazardous
Substances without the express prior written consent of Lessor and compliance
in a timely manner (at Lessee's sole cost and expense) with all Applicable
Requirements (as defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i)
the installation or use of any above or below ground storage tank, (ii) the
generation possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with,
any governmental authority, and (iii) the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Laws
require that a notice be given to persons entering or occupying the Premises
or neighboring properties. Notwithstanding the foregoing, Lessee may,
without Lessor's prior consent, but upon notice to Lessor and in compliance
with all Applicable Requirements, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of the
Permitted Use, so long as such is not a Reportable Use and does not expose
the Premises or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In
addition, Lessor may (but without any obligation to do so) condition its
consent to any Reportable Use of any Hazardous Substance by Lessee upon
Lessee's giving Lessor such additional assurances as Lessor, in its
reasonable discretion, deems necessary to protect itself, the public, the
Premises and the environment against damage, contamination or injury and/or
liability therefor, including but not limited to the installation (and, at
Lessor's option, removal on or before Lease expiration or earlier
termination) of reasonably necessary protective modifications to the Premises
(such as concrete encasements) and/or the deposit of an additional Security
Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously
consented to by Lessor, Lessee shall immediately give Lessor written notice
thereof, together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding
given to, or received from, any governmental authority or private party
concerning the presence, spill, release, discharge of, or exposure to, such
Hazardous Substance including but not limited to all such documents as may be
involved in any Reportable Use involving the Premises. Lessee shall not
cause or permit any Hazardous Substance to be spilled or released in, on,
under or about the Premises (including, without limitation, through the
plumbing or sanitary sewer system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and
the Premises, harmless from and against any and all damages, liabilities,
judgments, costs, claims liens, expenses, penalties, loss of permits and
attorneys' and consultants' fees arising out of or involving any Hazardous
Substance brought onto the Premises by or for Lessee or by anyone under
Lessee's control. Lessee's obligations under this Paragraph 6.2(c) shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the
cost of investigation (including consultants' and attorneys' fees and
testing), removal, remediation, restoration and/or abatement thereof, or of
any contamination therein involved, and shall survive the expiration or
earlier termination of this Lease. No termination, cancellation or release
agreement entered into by Lessor and Lessee shall release Lessee from its
obligations under this Lease with respect to Hazardous Substances, unless
specifically so agreed by Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with
all "APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all
laws, rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises
excluding those matters for which Lessor is responsible under Paragraph 7.2
including but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil
and groundwater conditions, and (iii) the use, generation, manufacture,
production, installation, maintenance, removal, transportation, storage,
spill, or release of any Hazardous Substance), now in effect or which may
hereafter come into effect. Lessee shall, within ten (10) days after receipt
of Lessor's written request not more than twice in any 12-month period
provide Lessor with copies of all documents and information, including but
not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) or any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or
involving failure by Lessee or the Premises to comply with any Applicable
Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises ("LENDERS") shall
have the right to enter the Premises at any time in the case of an emergency,
and otherwise at reasonable times, for the purpose of inspecting the
condition of the Premises and for verifying compliance by Lessee with this
Lease and all Applicable Requirements (as defined in Paragraph 6.3), and
Lessor shall be entitled to employ experts and/or consultants in connection
therewith to advise Lessor with respect to Lessee's activities, including but
not limited to Lessee's installation, operation, use, monitoring, maintenance,
or removal of any Hazardous Substance on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease by Lessee or a violation of
Applicable Requirements or a contamination, caused or materially contributed
to by Lessee, is found to exist or to be imminent, or unless the inspection is
requested or ordered by a governmental authority as the result of any such
existing or imminent violation or contamination. In such case, Lessee shall
upon request reimburse Lessor or Lessor's Lender, as the case may be, for the
costs and expenses of such inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee
shall, at Lessee's sole cost and expense and at all times, keep the Premises
and every part thereof in good order, condition and repair (whether or not
such portion of the Premises requiring repair, or the means of repairing the
same, are reasonably or readily accessible to Lessee, and whether or not the
need for such repairs occurs as a result of Lessee's use, any prior use, the
elements or the age of such portion of the Premises), including, without
limiting the generality of the foregoing, all equipment or facilities
specifically serving the Premises, such as plumbing, heating, air
conditioning, ventilating, electrical, lighting facilities, boilers, fired or
unfired pressure vessels, fire hose connections if within the Premises,
fixtures, interior walls, interior surfaces of exterior walls, ceilings,
floors, windows, doors, plate glass, and skylights, but excluding any items
which are the responsibility of Lessor pursuant to Paragraph 7.2 below.
Lessee, in keeping the Premises in good order, condition and repair, shall
exercise and perform god maintenance practices. Lessee's obligations shall
include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order,
condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance
for and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation
system for the Premises. However, Lessor reserves the right, upon notice to
Lessee, to procure and maintain the contract for the heating, air
conditioning and ventilating systems, and if Lessor so elects, Lessee shall
reimburse Lessor, upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case
no notice shall be required), perform such obligations on Lessee's behalf,
and put the Premises in good order, condition and repair, in accordance with
Paragraph 13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 ( Condemnation), Lessor, subject to
reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition
and repair the foundations, exterior walls, structural condition of interior
bearing walls, exterior roof, fire sprinkler and/or standpipe and hose (if
located in the Common Areas) or other automatic fire extinguishing system
including fire alarm and/or smoke detection
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systems and equipment, fire hydrants, parking lots, walkways, parkways,
driveways, landscaping, fences, signs and utility systems serving the Common
Areas and all parts thereof, as well as providing the services for which
there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor
shall not be obligated to paint the exterior or interior surfaces of
exterior walls nor shall Lessor be obligated to maintain, repair or replace
windows, doors or plate glass of the Premises. Except for emergency repairs
by Lessee to the exterior roof to prevent leaking (notification of which
shall be made to Lessor within 24 hours), Lessee expressly waives the
benefit of any statute now or hereafter in effect which would otherwise
afford Lessee the right to make repairs at Lessor's expense or to terminate
this Lease because of Lessor's failure to keep the Building, Industrial
Center or Common Areas in good order, condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS"
is used in this Lease to refer to all air lines, power panels, electrical
distribution, security, lighting fixtures, heating, ventilating and air
conditioning equipment, plumbing, and fencing in, on or about the Premises
(excluding communications equipment, surveillance and computer systems, fire
suppression systems, flooring, equipment racks, satellite dishes and
production equipment). The term "TRADE FIXTURES" shall mean Lessee's
machinery and equipment which can be removed without doing material damage to
the Premises. The term "ALTERATIONS" shall mean any modification of the
improvements on the Premises which are provided by Lessor under the terms of
this Lease, other than Utility Installations or Trade Fixtures. "LESSEE-OWNED
ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor
pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be made any
Alterations or Utility Installations in, on, under or about the Premises
without Lessor's prior written consent. Lessee may, however, make
non-structural Alterations and Utility Installations to the interior of the
Premises (excluding the roof) without Lessor's consent but upon notice to
Lessor, so long as they are not visible from the outside of the Premises, do
not involve puncturing, relocating or removing the roof or any existing walls,
or changing or interfering with the fire sprinkler or fire detection systems
and the cumulative cost thereof during the term of this Lease as extended does
not exceed $2,500.00.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given
by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities; (ii) the furnishing
of copies of such permits together with a copy of the plans and
specifications for the Alteration or Utility Installation to Lessor prior to
commencement of the work thereon; and (iii) the compliance by Lessee with all
conditions of said permits in a prompt and expeditious manner and (iv) the
use of contractors mutually reasonably approved by Lessor and Lessee, and
hired by Lessor (but at Lessee's sole cost and expense). Any Alterations or
Utility Installations by Lessee during the term of this Lease shall be done
in a good and workmanlike manner, with good and sufficient materials, and be
in compliance with all Applicable Requirements. Lessee shall promptly upon
completion thereof furnish Lessor with as-built plans and specifications
therefor. Lessor may, (but without obligation to do so) condition its consent
to any requested Alteration or Utility Installation that costs $2,500.00 or
more upon Lessee's providing Lessor with a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such Alteration
or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by
any mechanic's or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in, on, or about the Premises, and Lessor
shall have the right to post notices of non-responsibility in or on the
Premises as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense, defend and protect itself, Lessor and the Premises against the same
and shall pay and satisfy any such adverse judgment that may be rendered
thereon before the enforcement thereof against the Lessor or the Premises. If
Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to one and one-half times the
amount of such contested lien claim or demand, indemnifying Lessor against
liability for the same, as required by law for the holding of the Premises
free from the effect of such lien or claim. In addition, Lessor may require
Lessee to pay Lessor's attorneys' fees and costs in participating in such
action if Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided in
this Paragraph 7.4, all Alterations and Utility Installations made to the
Premises by Lessee shall be the property of and owned by Lessee, but
considered a part of the Premises. Lessor may, at any time and at its option,
elect in writing to Lessee to be the owner of all or any specified part of
the Lessee-Owned Alterations and Utility Installations. Unless otherwise
instructed per Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and
Utility Installations shall, at the expiration or earlier termination of this
Lease, become the property of Lessor and remain upon the Premises and be
surrendered with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease,
notwithstanding that their installation may have been consented to by Lessor.
Lessor may require the removal at any time of all or any part of any
Alterations or Utility Installations made without the required consent of
Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date,
clean and free of debris and in good operating order, condition and state of
repair, ordinary wear and tear excepted. Ordinary wear and tear shall not
include any damage or deterioration that would have been prevented by good
maintenance practice or by Lessee performing all of its obligations under
this Lease. Except as otherwise agreed or specified herein, the Premises, as
surrendered, shall include the Alterations and Utility Installations. The
obligation of Lessee shall include the repair of any damage occasioned by the
installation, maintenance or removal of Lessee's Trade Fixtures, furnishings,
equipment, and Lessee-Owned Alterations and Utility Installations, as well as
the removal of any storage tank installed by or for Lessee, and the removal,
replacement, or remediation of any soil, material or ground water
contaminated by Lessee, all as may then be required by Applicable
Requirements and/or good practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation
to repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) As used herein, the term "INSURANCE COST INCREASE" is defined
as any increase in the actual cost of the insurance applicable to the
Building (which shall not exceed commercially reasonable costs for similar
buildings in the geographic area) and required to be carried by Lessor
pursuant to Paragraphs 8.2(b), 8.3(a) and 8.3(b), ("REQUIRED INSURANCE"),
over and above the Base Premium, as hereinafter defined, calculated on an
annual basis. "Insurance Cost Increase" shall include, but not be limited to,
requirements of the holder of a mortgage or deed of trust covering the
Premises, increased valuation of the Premises, and/or a general premium rate
increase. The term "Insurance Cost Increase" shall not, however, include any
premium increases resulting from the nature of the occupancy of any other
lessee of the Building. If the parties insert a dollar amount in Paragraph
1.9, such amount shall be considered the "BASE PREMIUM." If a dollar amount
has not been inserted in Paragraph 1.9 and if the Building has been
previously occupied during the twelve (12) month period immediately preceding
the Commencement Date, the "Base Premium" shall be the annual premium
applicable to such twelve (12) month period. If the Building was not fully
occupied during such twelve (12) month period, the "Base Premium" shall be
the lowest annual premium reasonably obtainable for the Required Insurance as
of the Commencement Date, assuming the most nominal use possible of the
Building. In no event, however, shall Lessee be responsible for any portion
of the premium cost attributable to liability insurance coverage in excess of
$1,000,000 procured under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor pursuant
to Paragraph 4.2. Premiums for policy periods commencing prior to, or
extending beyond, the term of this Lease shall be prorated to coincide with
the corresponding Commencement Date or Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of
insurance protecting Lessee, Lessor and any Lender(s) whose names have been
provided to Lessee in writing (as additional insureds) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on on occurrence
basis providing single limit coverage in an amount not less than $1,000,000
per occurrence with an "Additional Insured-Managers or Lessors of Premises"
endorsement and contain the "Amendment of the Pollution Exclusion"
endorsement for damage caused by heat, smoke or fumes from a hostile fire.
The policy shall not contain any intra-insured exclusions as between insured
persons or organizations, but shall include coverage for liability assumed
under this Lease as an "INSURED CONTRACT" for the performance of Lessee's
indemnity obligations under this Lease. The limits of said insurance required
by this Lease or as carried by Lessee shall not, however, limit the liability
of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be
carried by Lessee shall be primary to and not contributory with any similar
insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be
named as an additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to any Lender(s), insuring against
loss or damage to the Premises. Such insurance shall be for full replacement
cost, as the same shall exist from time to time, or the amount required by
any Lender(s), but in no event more than the commercially reasonable and
available insurable value thereof if, by reason of the unique nature or age
of the improvements involved, such latter amount is less than full
replacement cost. Lessee-Owned Alterations and Utility Installations, Trade
Fixtures and Lessee's personal property shall be insured by Lessee pursuant
to Paragraph 8.4. If the coverage is available and commercially appropriate,
Lessor's policy or policies shall insure against all risks of direct physical
loss or damage (except the perils of flood and/or earthquake unless required
by a Lender or included in the Base Premium), including coverage for any
additional costs resulting from debris, removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Building
required to be demolished or removed by reason of the enforcement of any
building, zoning, safety or land use laws as the result of a covered loss,
but not including plate glass insurance. Said policy or policies shall also
contain an agreed valuation provision in lieu of any co-insurance clause,
waiver of subrogation, and inflation guard protection causing an increase in
the annual property insurance coverage amount by a factor of not less than
the adjusted U.S. Department of Labor Consumer Price Index for All Urban
Consumers for the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and any Lender(s), insuring the loss of the full
rental and other charges payable by all lessees of the Building to Lessor for
one year (including all Real Property Taxes, insurance costs, all Common Area
Operating Expenses and any scheduled rental increases). Said insurance may
provide that in the event the Lease is terminated by reason of an insured
loss, the period of indemnity for such coverage shall be extended beyond the
date of the completion of repairs or replacement of the Premises, to provide
for one full year's loss of rental revenues from the date of any such loss.
Said insurance shall contain an agreed valuation provision in lieu of any
co-insurance clause, and the amount of coverage shall be adjusted annually to
reflect the projected rental income, Real Property Taxes, insurance premium
costs and other expenses, if any, otherwise payable, for the next 12-month
period. Common Area Operating Expenses shall include any deductible amount in
the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas
or other buildings in the Industrial Center if said increase is caused by
Lessee's acts, omissions, use or occupancy of the Premises.
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(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party, Lessor
shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations
and Utility Installations in, on, or about the Premises similar in coverage
to that carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such
insurance shall be full replacement cost coverage with a deductible not to
exceed $1,000 per occurrence. The proceeds from any such insurance shall be
used by Lessee for the replacement of personal property and the restoration
of Trade Fixtures and Lessee-Owned Alterations and Utility Installations.
Upon request from Lessor, Lessee shall provide Lessor with written evidence
that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, or such other rating as may be required by a
Lender, as set forth in the most current issue of "Best's Insurance Guide."
Lessee shall not do or permit to be done anything which shall invalidate the
insurance policies referred to in this Paragraph 8. Lessee shall cause to be
delivered to Lessor, within seven (7) days after the earlier of the Early
Possession Date or the Commencement Date, certified copies of, or
certificates evidencing the existence and amounts of, the insurance required
under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or subject
to modification except after thirty (30) days' prior written notice to
Lessor. Lessee shall at least thirty (30) days prior to the expiration of
such policies, furnish Lessor with evidence of renewals or "insurance
binders" evidencing renewal thereof, or Lessor may order such insurance and
charge the cost thereof to Lessee, which amount shall be payable by Lessee to
Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence omissions and intentional
misconduct and/or breach of express warranties, Lessee shall indemnify, protect,
defend and hold harmless the Premises, Lessor and its agents, Lessor's master or
ground lessor, partners and Lenders, from and against any and all claims, loss
of rents and/or damages, costs, liens, judgments, penalties, loss of permits,
attorneys' and consultants' fees, expenses and/or liabilities arising out of,
involving, or in connection with, the occupancy of the Premises by Lessee, the
conduct of Lessee's business, any act, omission or neglect of Lessee, its
agents, contractors, employees or invitees, and out of any Default or Breach by
Lessee in the performance in a timely manner of any obligation on Lessee's part
to be performed under this Lease. The foregoing shall include but not be limited
to the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment. In case any action or proceeding be
brought against Lessor by reason of any of the foregoing matters, Lessee upon
notice from Lessor shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor and lessor shall cooperate with Lessee in such
defense. Lessor need not have first paid any such claim in order to be so
indemnified. Lessor shall notify Lessee of any such claims, communicate
regularly with Lessee regarding the status of the claims, and cooperate with
Lessee in the defense of the claims.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Excepting injury or damage
caused by or resulting from Lessor's negligent acts or omissions, and
intentional misconduct, Lessor shall not be liable for injury or damage to the
person or goods, wares, merchandise or other property of Lessee, Lessee's
employees, contractors, invitees, customers, or any other person in or about
the Premises, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether said injury or damage results from conditions arising upon the Premises
or upon other portions of the Building of which the Premises are a part, from
other sources or places, and regardless of whether the cause of such damage or
injury or the means of repairing the same is accessible or not. Lessor shall not
be liable for any damages arising from any act or neglect of any other lessee of
Lessor nor from the failure by Lessor to enforce the provisions of any other
lease in the Industrial Center. Notwithstanding Lessor's negligence or breach
of the Lease, Lessor shall under no circumstances by liable for injury to
Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is fifty percent (50%) or more of the
then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and
Utility Installations and Trade Fixtures) immediately prior to such damage or
destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations and Trade
Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible
amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE--INSURED LOSS. If Premises Partial Damage that
is an Insured Loss occurs, than Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. In the event, however, that there is a shortage of
insurance proceeds and such shortage is due to the fact that, by reason of the
unique nature of the improvements in the Premises, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, with ten (10) days
following receipt of written notice of such shortage and request thereof. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, Lessor shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within such ten (10) day period,
and if Lessor does not so elect to restore and repair, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or destruction.
Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE--UNINSURED LOSS. If Premises Partial Damage that is not
an Insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this
Lease shall continue in full force and effect), Lessor may at Lessor's option
either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this lease as of the date sixty (60) days following the date of
such notice. In the event Lessor elects to give such notice of Lessor's
intention to terminate this Lease, Lessee shall have the right within ten
(10) days after the receipt of such notice to give written notice to Lessor
of Lessee's commitment to pay for the repair of such damage totally at
Lessee's expense and without reimbursement from Lessor. Lessee shall provide
Lessor with the required funds or satisfactory assurance thereof within
thirty (30) days following such commitment from Lessee. in such event this
Lease shall continue in full force and effect, and Lessor shall proceed to
make such repairs as soon as reasonable possible after the required funds are
available. If Lessee does not give such notice and provide the funds or
assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) in the event of (i) Premises Partial Damage (insured or uninsured) or
premises total destruction or (ii) Hazardous Substance Condition for which
Lessee is not legally responsible, the Base Rent, Common Area Operation
Expenses and other charges, if any, payable by Lessee hereunder for the
period during which such damage or condition, its repair, remediation or
restoration continues, shall be abated in proportion to the degree to which
Lessee's use of the Premises is impaired, but not in excess of proceeds from
insurance required to be carried under Paragraph 8.3(b). Except for abatement
of Base Rent, Common Area Operating Expenses and other charges, if any, as
aforesaid, all other obligations of Lessee hereunder shall be performed by
Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
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(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph including Lessor's election to repair
under Paragraph 9 including Lessor's election to repair under Paragraph 9.3
(i) and shall not commence, in a substantial and meaningful way, the repair
or restoration of the Premises within ninety (90) days after such obligation
shall accrue, Lessee may, at any time prior to the commencement of such
repair or restoration, give written notice to Lessor and to any Lenders of
which Lessee has actual notice of Lessee's election to terminate this Lease
on a date not less than sixty (60) days following the giving of such notice.
If Lease gives such notice to Lessor and such Lenders and such repair or
restoration is not commenced within thirty (30) days after receipt of such
notice, this Lease shall terminate as of the date specified in said notice.
If Lessor or a Lender commences the repair or restoration of the Premises
within thirty (30) days after the receipt of such notice, this Lease shall
continue in full force and effect. "COMMENCE" as used in this Paragraph 9.6
shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises,
whichever occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lessee as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not gives such notice and provide the required funds
or assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, Lessor shall return to Lessee any advance payment made by
Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is
not then required to be, used by Lessor under the terms of this Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2(a), applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any increase in such amounts over the Base
Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITIONS.
(a) As used herein, the term "REAL PROPERTY TAXES" shall include any
form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond or
bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Industrial Center or any portion thereof, Lessor's right to rent or other
income therefrom, and/or Lessor's business of leasing the Premises. The term
"REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring, or
changes in Applicable Law taking effect, during the term of this Lease,
including but not limited to a change in the ownership of the Industrial Center
or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties.
(b) As used herein, the term "BASE REAL PROPERTY TAXES" shall be the
amount of Real Property Taxes, which are assessed against the Premises, Building
or Common Areas in the calendar year during which the Lease is executed. In
calculating Real Property Taxes for any calendar year, the Real Property Taxes
for any real estate tax year shall be included in the calculation of Real
Property Taxes for such calendar year based upon the number of days which such
calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center.
When possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishing, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d). Lessor shall provide separately metered
electrical utilities for the Premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of thirty-
five cent (35%) or more of the voting control of Lessee shall constitute a
change in control for this purpose, not including an initial public offering
or a transfer between or among existing shareholders.
(c) The involvement of Lessee or it assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said New Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "NET
WORTH OF LESSEE" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at its
highest and best use and in good condition) or one hundred ten percent (110%) of
the price previously in effect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior to the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, nor (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto
without notifying Lessee or anyone else liable under this Lease or the
sublease and without obtaining their consent, and such action shall not
relieve such persons from liability under this Lease or the sublease.
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(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors
or anyone else responsible for the performance of the Lessee's obligations
under this Lease, including any sublessee, without first exhausting Lessor's
remedies against any other person or entity responsible therefor to Lessor,
or any security held by Lessor.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $2,000 as reasonable consideration for Lessor's
considering and processing the request for consent. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may
be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for
the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed
or performed by Lessee during the term of said assignment or sublease, other
than such obligations as are contrary to or inconsistent with provisions of
an assignment or sublease to which Lessor has specifically consented in
writing.
(g) [deleted]
(h) Lessor, as a condition to giving its consent to any assignment
or subletting, may require that the amount and adjustment schedule of the
rent payable under this Lease be adjusted to what is then the market value
and/or adjustment schedule for property similar to the Premises as then
constituted, as determined by Lessor.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a
portion of the Premises heretofore or hereafter made by Lessee, and Lessor
may collect such rent and income and apply same toward Lessee's obligations
under this Lease; provided, however, that until a Breach (as defined in
Paragraph 13.1) shall occur in the performance of Lessee's obligations under
this Lease, Lessee may, except as otherwise provided in this Lease, receive,
collect and enjoy the rents accruing under such sublease. Lessor shall not,
by reason of the foregoing provision or any other assignment of such sublease
to Lessor, nor by reason of the collection of the rents from a sublessee, be
deemed liable to the sublessee for any failure of Lessee to perform and
comply with any of Lessee's obligations to such sublessee under such
Sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and
shall pay such rents and other charges to Lessor without any obligation or
right to inquire as to whether such Breach exists and notwithstanding any
notice from or claim from Lessee to the contrary. Lessee shall have no right
or claim against such sublessee, or, until the Breach has been cured, against
Lessor, for any such rents and other charges so paid by said sublessee to
Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option to the expiration of
such sublease; provided, however, Lessor shall not be liable for any prepaid
rents or security deposit paid by such sublessee to such sublessor or for
any other prior defaults or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior
written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in
said notice as rent due and payable to cure said default. A "DEFAULT" by
Lessee is defined as a failure by Lessee to observe, comply with or perform
any of the terms, covenants, conditions or rules applicable to Lessee under
this Lease. A "BREACH" by Lessee is defined as the occurrence of any one or
more of the following Defaults, and, where a grace period for cure after
notice is specified herein, the failure by Lessee to cure such Default prior
to the expiration of the applicable grace period, and shall entitle Lessor to
pursue the remedies set forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor
with reasonable evidence of insurance or surety bond required under this
Lease, or the failure of Lessee to fulfill any obligation under this Lease
which endangers or threatens life or property, where such failure continues
for a period of three (3) days following written notice thereof by or on
behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination
of this Lease per Paragraph 30, (vi) the guaranty of the performance of
Lessee's obligations under this Lease if required under Paragraphs 1.11 and
37, (vii) the execution of any document requested under Paragraph 42
(easements), or (viii) any other documentation or information which Lessor
may reasonably require of Lessee under the terms of this lease, where any such
failure continues for a period of ten (10) days following written notice by
or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof
that are to be observed, complied with or performed by Lessee, other than
those described in Subparagraphs 13.1(a), (b) or (c), above, where such
Default continues for a period of thirty (30) days after written notice
thereof by or on behalf of Lessor to Lessee; provided, however, that if the
nature of Lessee's Default is such that more than thirty (30) days are
reasonably required for its cure, then it shall not be deemed to be a Breach
of this Lease by Lessee if Lessee commences such cure within said thirty (30)
day period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following event: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or
any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all
of Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where possession is not restored to Lessee within sixty (60) days; or
(iv) the attachment, execution or other judicial seizure of substantially all
of Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where such seizure is not discharged within sixty (60) days; provided,
however, in the event that any provision of this Subparagraph 13.1(e) is
contrary to any applicable law, such provision shall be of no force or
effect, and shall not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bonus, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its own option, may require all future payments to be made under
this Lease by Lessee to be made only by cashier's check. In the event of a
Breach of this Lease by Lessee (as defined in Paragraph 13.1), with or
without further notice or demand, and without limiting Lessor in the exercise
of any right or remedy which Lessor may have by reason of such Breach, Lessor
may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor.
In such event Lessor shall be entitled to recover from Lessee: (i) the worth
at the time of the award of the unpaid rent which had been earned at the time
of termination; (ii) the worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the time
of award exceeds the amount of such rental loss that the Lessee proves could
have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time
of award exceeds the amount of such rental loss that the Lessee proves could
be reasonably avoided; and (iv) any other amount necessary to compensate
Lessor for all the detriment proximately caused by the Lessee's failure to
perform it obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom, including but not limited to the
cost of recovering possession of the Premises, expenses of reletting,
including necessary renovation and alteration of the Premises, reasonable
attorneys' fees and that portion of any leasing commission paid by Lessor in
connection with this Lease applicable to the unexpired term of this Lease.
The worth at the time of award of the amount referred to in provision (iii)
of the immediately preceding sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco or
the Federal Reserve Bank District in which the Premises are located at the
time of award plus one percent (1%). Efforts by Lessor to mitigate damages
caused by Lessee's Default or Breach of this Lease shall not waive Lessor's
right to recover damages under this Paragraph 13.2. If termination of this
Lease is obtained through the provisional remedy of unlawful detainer, Lessor
shall have the right to recover in such pro-
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ceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for
such rent and/or damages. If a notice and grace period required under
Subparagraph 13.1(b), (c) or (d) was not previously given, a notice to pay
rent or quit, or to perform or quit, as the case may be, given to Lessee
under any statute authorizing the forfeiture of leases for unlawful detainer
shall also constitute the applicable notice for grace period purposes
required by Subparagraph 13.1(b), (c) or (d). In such case, the applicable
grace period under the unlawful detainer statute shall run concurrently after
the one such statutory notice, and the failure of Lessee to cure the Default
within the greater of the two (2) such grace periods shall constitute both an
unlawful detainer and a Breach of this Lease entitling Lessor to the remedies
provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's
Breach and recover the rent as it becomes due, provided Lessee has the right
to sublet or assign, subject only to reasonably limitations. Lessor and
Lessee agree that the limitations on assignment and subletting in this Lease
are reasonable. Acts of maintenance or preservation, efforts to relet the
Premises, or the appointment of a receiver to protect the Lessor's interest
under this Lease, shall not constitute a termination of the Lessee's right to
possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters
occurring or accruing during the term hereof or by reason of Lessee's
occupancy of the Premises.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering
the Premises. Accordingly if any installment of rent or other sum due from
Lessee shall not be received by Lessor or Lessor's designee within ten (10)
days after such amount shall be due, then, without any requirement for notice
to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%)
of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purpose of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt
by Lessor, and by and Lender(s) whose name and address shall have been
furnished to Lessee in writing for such purpose, of written notice specifying
wherein such obligation of Lessor has not been performed; provided, however,
that if the nature of Lessor's obligation is such that more than thirty (30)
days after such notice are reasonably required for its performance, then
Lessor shall not be in breach of this Lease if performance is commenced
within such thirty (30) day period and thereafter diligently pursued to
completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes title or possession, whichever first occurs. If more than ten percent
(10%) of the floor area of the Premises, or more than twenty-five percent
(25%) of the portion of the Common Areas designated for Lessee's parking, is
taken by condemnation, Lessee may, at Lessee's option, to be exercised in
writing within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession) terminate this
Lease as of the date the condemning authority takes such possession. If Lessee
does not terminate this Lease in accordance with the foregoing, this Lease
shall remain in full force and effect as to the portion of the Premises
remaining, except that the Base Rent shall be reduced in the same proportion
as the rentable floor area of the Premises taken bears to the total rentable
floor area of the Premises. No reduction of Base Rent shall occur if the
condemnation does not apply to any portion of the Premises. Any award for the
taking of all or any part of the Premises under the power of eminent domain
or any payment made under threat of the exercise of such power shall be the
property of Lessor, whether such award shall be made as compensation for
diminution of value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any
compensation, separately awarded to Lessee for Lessee's relocation expenses
and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal
and other expenses incurred by Lessor in the condemnation matter, repair any
damage to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKERS' FEES.
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 ADDITIONAL TERMS. Unless Lessor and Broker(s) have otherwise agreed
in writing, Lessor agrees that: (a) if Lessee exercises Option (as defined in
Paragraph 39.1) granted under this Lease or any Option subsequently granted,
or (b) if Lessee acquires any rights to the Premises or other premises in
which Lessor has an interest, or (c) if Lessee remains in possession of the
Premises with the consent of Lessor after the expiration of the term of this
Lease after having failed to exercise an Option, or (d) if said Brokers are
the procuring cause of any other lease or sale entered into between the
Parties pertaining to the Premises and/or any adjacent property in which
Lessor has an interest, or (e) if Base Rent is increased, whether by
agreement or operation of an escalation clause herein, then as to any of said
transactions, Lessor shall pay said Broker(s) a fee in accordance with the
schedule of said Broker(s) in effect at the time of the execution of this
Lease.
15.3 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation
of law, shall be deemed to have assumed Lessor's obligation under this
Paragraph 15. Each Broker shall be an intended third party beneficiary of the
provisions of Paragraph 1.10 and of this Paragraph 15 to the extent of its
interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm,
broker or finder other than as named in Paragraph 1.10(a) in connection with
the negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such
unnamed broker, finder or other similar party by reason of any dealings or
actions of the indemnifying Party, including any costs, expenses, and/or
attorneys' fees reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall within
ten (10) days after written notice from the other Party (the "REQUESTING
PARTY") execute, acknowledge and deliver to the Requesting Party a statement
in writing in a form similar to the then most current "TENANCY STATEMENT"
form published by the American Industrial Real Estate Association, plus such
additional information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor decides to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such
financial statements shall be received by Lessor and such lender or purchaser
in confidence and shall be used only for the purpose herein set forth.
17. LESSORS'S LIABILITY. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises. In
the event of a transfer of Lessor's title or interest in the Premises or in
this Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor at the time of such
transfer or assignment. Except as provided in Paragraph 15.3, upon such
transfer or assignment and delivery of the Security Deposit. as aforesaid,
the prior Lessor shall be relieved of all liability with respect to the
obligations and/or covenants under this Lease thereafter to be performed by
the Lessor. Subject to the foregoing, the obligations and/or covenants in
this Lease to be performed by the Lessor shall be binding only upon the
Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10)
days following the date on which it was due, shall bear interest from the
date due at the prime rate charged by the largest state chartered bank in the
state in which the Premises are located plus four percent (4%) per annum, but
not exceeding the maximum rate allowed by law, in addition to the potential
late charge provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this
Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Lease and as to the nature, quality and character of the Premises.
Brokers have no responsibility with respect thereto or with respect to any
default or breach hereof by either Party. Each Broker shall be an intended
third party beneficiary of the provisions of this Paragraph 22.
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23. NOTICES
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If
sent by regular mail, the notice shall be deemed given seventy-two (72) hours
after the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such act shall not e deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent
or similar act by Lessee, or be construed as the basis of an estoppel to enforce
the provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any Default or Breach by
Lessee of any provision hereof. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. [DELETED]
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5 If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not; (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination, attornment and/or non-disturbance agreement as is provided for
herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fees award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders, or lessees and making such
alternations, repairs, improvements or additions to the Premises or to the
Building, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or Building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred eighty (180) days of the
term hereof place on or about the Premises and "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to
Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises
or the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign
on the Premises by or for Lessee shall be subject to the provisions of Paragraph
7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to
an act by or for the other Party, such consent shall not be unreasonably
withheld or delayed. Lessor's actual reasonable costs and expenses
(including but not limited to architects', attorneys', engineers' and other
consultants' fees) incurred in the consideration of, or response to, a
request by Lessee for any Lessor consent pertaining to this Lease or the
Premises, including but not limited to consents to an assignment a subletting
or the presence or use of a Hazardous Substance, shall be paid by Lessee to
Lessor upon receipt of an invoice and supporting documentation therefor. In
addition to the deposit described in Paragraph 12.2(e), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee
deposit with Lessor an amount of money (in addition to the Security Deposit
held under Paragraph 5) reasonably calculated by Lessor to represent the cost
Lessor will incur in considering and responding to Lessee's request. Any
unused portion of said deposit shall be refunded to Lessee without interest.
Lessor's consent to any act, assignment of this Lease or subletting of the
Premises by Lessee shall not constitute an acknowledgment that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
INITIALS: /s/ SD
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38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS
39.1 DEFINITION. As used in this Lease, the word "OPTION" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property
of Lessor; (b) the right of first refusal to lease the Premises or the right
of first offer to lease the Premises or the right of first refusal to lease
other property of Lessor or the right of first offer to lease other property
of Lessor; (c) the right to purchase the Premises, or the right of first
refusal to purchase the Premises, or the right of first offer to purchase the
Premises, or the right to purchase other property of Lessor, or the right of
first refusal to purchase other property of Lessor or the right of first
offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of separate Defaults under Paragraph 13.1 during the twelve
(12) month period immediately preceding the exercise of the Option, whether or
not the Defaults are cured.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a)
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invites.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property form the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way,
utility raceways, and dedications that Lessor deems necessary, and to cause
the recordation of parcel maps and restrictions, so long as such easements,
rights of way, utility raceways, dedications, maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee agrees
to sign any documents reasonably requested by Lessor to effectuate any such
easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed and offer to lease. This lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
INITIALS: /s/ SD
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LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED
TO EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF
ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR THEIR
CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH
IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE
SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM
THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this lease at the place and on the dates
specified above their respective signatures.
Executed at: Franklin Lakes, New Jersey Executed at: Los Angeles, California
-------------------------- --------------------------
on:____________________________________ On: November 29, 1995
-----------------------------------
By LESSOR: By LESSEE:
BECTON, DICKINSON AND COMPANY, EARTHLINK NETWORK, INC.,
- --------------------------------------- -------------------------------------
a New Jersey Corporation a California Corporation
- --------------------------------------- -------------------------------------
By: /s/ G. Cheatham By: /s/ Sky Dayton
---------------------------------- ---------------------------------
Name Printed: Geoff Cheatham Name Printed: Sky Dayton
---------------------------------- -----------------------
Title: Vice President Treasurer Title: Its President
-------------------------------- ------------------------------
By: ___________________________________ By: _________________________________
Name Printed:__________________________ Printed:_____________________________
Title:_________________________________ Title:_______________________________
Address: 1 Becton Drive Address: 3171 Los Felize Blvd., Ste. 203
------------------------------ -------------------------------
Franklin Lakes, NJ 07417-1880 Los Angeles, CA 90039
- --------------------------------------- ----------------------------------------
Telephone:(201) 847-7169 Telephone:(213) 644-9500
----------------------- ------------------------
Facsimile:(201) 847-7011 Facsimile:(213) 644-9510
----------------------- ------------------------
BROKER: BROKER:
Executed at:__________________________ Executed at:____________________________
on:___________________________________ on: ____________________________________
By: __________________________________ By: ____________________________________
Name Printed: ________________________ Name Printed: __________________________
Title: _______________________________ Title: _________________________________
Address: _____________________________ Address: _______________________________
______________________________________ ________________________________________
Telephone:( )_______________________ Telephone:( )_________________________
Facsimile:( )_______________________ Facsimile:( )_________________________
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 So.
Figueroa St., M-1, Los Angeles, CA 90071. (213) 687-8777.
INITIALS: /s/ SD
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<PAGE>
RENT ADJUSTMENT(S)
ADDENDUM TO
STANDARD LEASE
DATED December 1, 1995
----------------------------------------------------
BY AND BETWEEN (LESSOR) BECTON, DICKINSON AND COMPANY
------------------------------------
(LESSEE) EARTHLINK NETWORK, INC.
------------------------------------
PROPERTY ADDRESS: 3100 New York Drive, Pasadena, California
-----------------------------------------
Paragraph 49
----
A. RENT ADJUSTMENTS:
The monthly rent for each month of the adjustment period(s) specified
below shall be increased using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
Initials: Initials: /s/ SD
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/s/ GC
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RENT ADJUSTMENT(S)
PAGE 1 OF 2
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industria. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIA REAL ESTATE ASSOCIATION, 345 South.
Figueroa Street., Suite M-1, Los Angeles, CA 90071. (213) 687-8777. Fax No.
(213) 687-8616.
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<PAGE>
/X/ III. FIXED RENTAL ADJUSTMENT(S) (FRA)
The monthly rent payable under paragraph 1.5 ("Base Rent") of the attached Lease
shall be increased to the following amounts on the dates set forth below:
On (Fill in FRA Adjustment Date(s)): The New Base Rental shall be:
July 1, 1997 $ 48,185.00
------------------------------------ -----------------------------
July 1, 1998 $ 50,474.00
------------------------------------ -----------------------------
July 1, 1999 $ 52,871.00
------------------------------------ -----------------------------
July 1, 2000 $ 55,383.00
------------------------------------ -----------------------------
Initials: Initials: /s/ SD
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/s/ GC
------------- ---------------
RENT ADJUSTMENT(S)
PAGE 2 OF 2
NOTICE: These forms are often modified to meet changing requirements of law
and industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association, 345 South
Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777. Fax No.
(213) 687-8616.
- -C- 1991 American Industrial Real Estate Association
<PAGE>
OPTION(S) TO EXTEND
ADDENDUM TO
STANDARD LEASE
DATED December 1, 1995
------------------------------------------------------
BY AND BETWEEN (LESSOR) BECTON, DICKINSON AND COMPANY
-------------------------------------
(LESSEE) EARTHLINK NETWORK, INC.
-------------------------------------
PROPERTY ADDRESS: 3100 New York Drive, Pasadena, California
-------------------------------------
Paragraph 50
----
A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this
Lease for 1 additional 60 month period(s) commencing when the prior term
--- ----
expires upon each and all of the following terms and conditions:
(ii) Lessee gives to Lessor, and Lessor actually receives on a date which is
prior to the date that the option period would commence (if exercised) by at
least 9 and not more than 12 months, a written notice of the exercise of the
--- ----
option(s) to extend this Lease for said additional term(s), time being of
essence. If said notification of the exercise of said option(s) is (are) not so
given and received, the option(s) shall automatically expire; said options(s)
may (if more than one) only be exercised consecutively;
(ii) The provisions of paragraph 39, including the provision relating to
default of Lessee set forth in paragraph 39.4 of this Lease are conditions of
this Option;
(iii) All of the terms and conditions of this Lease except where specifically
modified by this option shall apply;
(iv) The monthly rent for each month of the option period shall be calculated
as follows, using the methods(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
/X/ II. MARKET RENTAL VALUE ADJUSTMENT(s)(MRV)
(a) On (Fill in MRV Adjustment Date(s): July 1, 2001
-----------------------------
- --------------------------------------------------------------------------------
the monthly rent payable under paragraph 1.5 ("Base Rent") of the attached Lease
shall be adjusted to the "Market Rental Value" of the property as follows:
1) Nine (9) months prior to the Market Rental Value (MRV) Adjustment
Date(s) described above, Lessor and Lessee shall meet to establish an agreed
upon new MRV for the specified term. If agreement cannot be reached, then:
Initials: Initials: /s/ SD
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/s/ GC
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OPTION(S) TO EXTEND
PAGE 1 OF 2
NOTICE: These forms are often modified to meet changing requirements of law
and needs. Always write or call to make sure you are utilizing the most
current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 South Figueroa
Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777. Fax No. (213)
687-8616.
- -C- 1991 American Industrial Real Estate Association
<PAGE>
i) Lessor and Lessee shall immediately appoint a mutually acceptable
appraiser or broker to establish the new MRV within the next 30 days. Any
associated costs will be split equally between the parties, or
ii) Both Lessor and Lessee shall each immediately select and pay the
appraiser or broker of their choice to establish a MRV within the next 30 days.
If, for any reason, either one of the appraisals is not completed within the
next 30 days, as stipulated, then the appraisal that is completed at that time
shall automatically become the new MRV. If both appraisals are competed and the
two appraiser/brokers cannot agree on a reasonable average MRV then they shall
immediately select a third mutually acceptable appraiser/broker to establish a
third MRV within the next 30 days. the average of the two appraisals closest in
value shall then become the new MRV. The costs of the third appraisal will be
split equally between the parties.
2) In any event, the new MRV shall not be less than the rent payable
for the month immediately preceding the date for rent adjustment.
3) Notwithstanding the new MRV, the Base Rent for the first 12
months of the extended term shall not exceed $.75 per square feet.
(b) Upon the establishment of each New Market Rental Value as described in
paragraph A11:
1) the monthly rental sum so calculated for each term as specified
in paragraph A11(a) will become the new "Base Rent" for the purpose of
calculating any further Cost of Living Adjustments as specified in paragraph
A1(a) above and
2) the first month of each Market Rental Value term as specified in
paragraph A11(a) shall become the new "Base Month" for the purpose of
calculating any further Cost of Living Adjustments as specified in paragraph
A11(b).
Initials: Initials: /s/ SD
------------- ---------------
/s/ GC
------------- ---------------
OPTION(S) TO EXTEND
PAGE 2 OF 2
NOTICE: These forms are often modified to meet changing requirements of law
and industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association, 345 South
Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777. Fax No.
(213) 687-8616.
- -C- 1991 American Industrial Real Estate Association
<PAGE>
ADDENDUM TO
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--GROSS
BY AND BETWEEN BECTON, DICKINSON AND COMPANY ("LESSOR")
AND EARTHLINK NETWORK, INC. ("LESSEE")
51. LETTER OF CREDIT. Prior to the Commencement Date, Lessee shall deliver
to Lessor an Irrevocable Letter of Credit in the amount of $250,000 for the
benefit of Lessor issued by a solvent California bank reasonably approved by
Lessor as additional security for Lessee's faithful performance of Lessee's
obligations under this Lease. The Letter of Credit shall permit Lessor to
draw down all or part of such sum if Lessor certifies that Lessee is in
default of this Lease, as defined in Paragraph 13.1 hereof, after applicable
notices have been given and cure periods have expired, if any. Any funds
drawn by Lessor shall be applied to amounts owing from Lessee to Lessor under
this Lease. Failure by Lessee to deliver and maintain the Letter of Credit
shall be a material breach of this Lease. In the event Lessee has not been in
default of its monetary obligations under this Lease or in breach of its
non-monetary obligations under this Lease, as defined in Paragraph 13.1, at
any time during the initial two (2) years of the term, Lessee may thereafter
reduce the amount of the Letter of Credit to $150,000.
52. AIR CONDITIONING/TENANT IMPROVEMENTS. Lessor shall, at Lessor's sole
cost and expense, repair the air conditioning system affecting the second
floor of the Premises. The repairs shall consist of installing new
roof-mounted chillers connected to existing equipment and ducting. In
addition, Lessor shall, at Lessor's sole cost and expense, install a pad and
electrical and plumbing connections for a second chiller which may be
installed by Lessee, at Lessee's sole discretion and at Lessee's sole cost
and expense, at a later date, to cool the ground floor of the Premises. (In
the event Lessee does not install the second chiller to cool the ground floor
of the Premises on or before December 31, 1998, Lessee shall immediately
reimburse to Lessor the cost of Lessor's installation of the pad and
electrical and plumbing connection for the same.) Lessor shall, at Lessor's
sole cost and expense, recarpet the second floor of the Premises, repaint the
entire interior of the Premises, and refinish the exterior to the main
entrance to the Building ("Tenant Improvements"). The Tenant Improvements
work, materials and contractors shall be mutually reasonably approved by
Lessor and Lessee. Lessor's out-of-pocket costs and expenses on the Tenant
Improvements work shall not exceed $150,000; Lessee shall pay all costs and
expenses for the Tenant Improvements in excess of such sum. Lessor shall
commence Lessor's work as soon as reasonably possible. Lessor shall use its
best efforts to achieve completion of such work by the Commencement Date. If
such work is not completed by that date, this Lease shall remain valid, the
term and payment of rent shall commence as agreed, and Lessor shall complete
the work as soon thereafter as is reasonably possible; provided, however,
that the payment of rent shall not commence until the air conditioning system
affecting the second floor of the Premises and the separate metering of the
electrical utilities are substantially complete. Lessor shall not be liable
to Lessee for damages for such delay in any respect whatsoever.
Initials: /s/ SD
---------
/s/ GC
---------
ADDENDUM-1
<PAGE>
53. MEZZANINE SPACE. The mezzanine space is included in the Premises,
constitutes of approximately 7,421 square feet, and is not included in the
calculation of the square footage of the Premises at approximately 85,491
square feet. The mezzanine space is being provided to Lessee without the
space being used to calculate Base Rent. In the event Lessee exercises its
option to extend the Lease under Paragraph 50 hereof, the mezzanine space
shall not be considered in calculating the Market Rental Value.
54. TERMINATION OPTION. Lessee shall have the option to terminate this
Lease as of December 31, 1998, or December 31, 1999. The termination option
may be exercised by Lessee deliverying to Lessor written notice no later than
180 days before the early termination date. In the event Lessee terminates
the Lease as of December 31, 1998, Lessee shall pay Lessor the sum of
$300,000 on such date. In the event Lessee terminates the Lease as of
December 31, 1999, Lessee shall pay Lessor the sum of $150,000 on such date.
Such sums are intended to compensate Lessor for the damages Lessor is
reasonably expected to suffer as a result of the early termination of the
Lease.
55. EXISTING TENANT. Lessee acknowledges that Subsurface Exploration is an
existing tenant in a small portion of the ground floor of the Premises and
that Lessor has the right to terminate such tenancy upon 45 days' prior
written notice. On or before May 15, 1996, Lessor shall give Subsurface
Exploration a lease termination notice to be effective as of the end of June,
1996, and thereafter Lessor shall use reasonable efforts to cause Subsurface
Exploration to vacate such space. If such vacation is not completed by July
1, 1996, this Lease shall remain valid, the term and payment of rent shall
commence as agreed, and Lessor shall, if requested by Lessee, seek to vacate
Subsurface Exploration's occupation of the space as soon thereafter as is
reasonably possible. Lessor shall not be liable to Lessee for damages for
such delay in any respect whatsoever. In the event Lessee decides to sublease
the same space to Subsurface Exploration, Lessor consents to Subsurface
Exploration as a sublessee.
56. ENVIRONMENTAL INDEMNITY. Lessor shall indemnify and hold harmless
Lessee, its officers, directors, employees, servants, agents and the Premises
from and against any claims, liabilities, damages (not including incidental
and consequential damages), costs and expenses, arising directly out of or
involving any Hazardous Substances currently located on the Premises, if
any, that originated on the Premises during Lessor's ownership of the
Building. Lessor's obligations under this Paragraph 56 shall survive the
expiration or earlier termination of this Lease. No termination, cancellation
or release agreement entered into by Lessor and Lessee shall release Lessor
from its obligations under this Lease with respect to Hazardous Substances,
unless specifically so agreed by Lessee in writing at the time of such
agreement.
57. ENVIRONMENTAL REVIEW. Lessee's execution of this Lease shall be deemed
a waiver and/or satisfaction of any contingency for Lessee's benefit relating
to Lessee's review of any environmental reports regarding the Premises.
58. EMERGENCY ALTERATIONS/REPAIRS. Notwithstanding anything in Paragraph
7.3 to the contrary, Lessee may make Alterations to the Premises without
Lessor's prior consent in the event of a material emergency affecting life,
property and/or the business operations of Lessee; provided, however, that
Lessee shall notify Lessor of such emergency and the Alterations made within
24 hours of the event.
Initials: /s/ SD
---------
/s/ GC
---------
ADDENDUM-2
<PAGE>
59. BROKERS' COMMISSION. Lessor shall pay the Brokers a 5% commission
(2.5% each) based on the total lease consideration. The initial commission
payment based on the 3-year, non-cancellable lease term shall be paid 50%
upon receipt by Lessor of the fully executed Lease along with the first
month's rent and the security deposit, and the remaining 50% upon occupancy
of the Premises.
Initials: /s/ SD
---------
/s/ GC
---------
ADDENDUM-3
<PAGE>
STANDARD MULTI-TENANT LEASE
FLOOR PLAN
(DIAGRAM)
EXHIBIT A
Initials: /s/ SD
---------
- -C- 1984 American Industrial Real Estate Association /s/ GC
---------
<PAGE>
RULES AND REGULATIONS FOR
STANDARD MULTI-TENANT LEASE
Dated: December 1, 1995
By and Between: BECTON, DICKINSON AND COMPANY (Lessor) and EARTHLINK NETWORK,
INC. (Lessee)
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common
Areas, including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in
good faith judges to be a threat to the safety, reputation, or property of
the Office Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or
interfere with other lessees or persons having business within the Office
Building Project. Lessor shall include this paragraph in the General Rules
applicable to all new tenants.
4. Lessee shall not keep animals or birds within the Office Building
Project, and shall not bring bicycles, motorcycles or other vehicles into
areas not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall provide Lessor with two sets of master keys.
7. Lessee shall be responsible for the inappropriate use of any toilet
rooms, plumbing or other utilities. No foreign substances of any kind are to
be inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of
the premises or Office Building Project.
9. Lessee shall not suffer or permit any thing in or around the Premises
or Building that causes excessive vibration or floor loading in any part of
the Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or
out of the building subject to such reasonable limitations, techniques and
timing, as may be designated by Lessor. Lessee shall be responsible for any
damage to the Office Building Project arising from any such activity.
11. Lessee shall not employ any service or contractor for services or
work to be performed in the Building, except as reasonably approved by Lessor.
12. [deleted]
13. Lessee shall return all keys at the termination of its tenancy and
shall be responsible for the cost of replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used by
Lessee.
15. No Lessee, employee or invitee shall go upon the roof of the Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted
cigars or cigarettes in areas reasonably designated by Lessor or by
applicable governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning other
than as provided by the Lessor.
18. [deleted]
19. The Premises shall not be used for lodging.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency.
21. Lessor reserves the right to waive any one of these rules or
regulations, and/or as to any particular Lessee, and any such waiver shall
not constitute a waiver of any other rule or regulation or any subsequent
application thereof to such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep
its Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
As used herein, the term "Office Building Project" means the Industrial
Center.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer
than full size, passenger automobiles herein called "Permitted Size Vehicles."
Vehicles other than Permitted Size Vehicles are herein referred to as
"Oversized Vehicles."
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
or invitees to be loaded, unloaded, or parked in areas other than those
designated by Lessor for such activities.
3. Parking stickers or identification devices shall be the property of
Lessor and be returned to Lessor by the holder thereof upon termination of
the holder's parking privileges. Lessee will pay such replacement charge as
is reasonably established by Lessor for the loss of such devices.
4. [deleted]
5. Lessor reserves the right to reasonably allocate them between compact
and standard size spaces, as long as the same complies with applicable laws,
ordinances and regulations.
6. Users of the parking area will obey all posted signs and park only in
the areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles, injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
8. [deleted]
9. The maintenance, washing, waxing or cleaning of vehicles in the
parking structure or Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees,
agents and invitees comply with the applicable parking rules, regulations,
laws and agreements.
11. Lessor reserves the right to modify these rules and/or adopt such
other reasonable and non-discriminatory rules and regulations as it may deem
necessary for the proper operation of the parking area.
12. Such parking use as is herein provided is intended merely as a
license only and no bailment is intended or shall be created hereby.
Initials: /s/ SD
---------
- -C- 1984 American Industrial Real Estate Association /s/ GC
---------
EXHIBIT B
PAGE 1 OF 1 PAGES
<PAGE>
CALIFORNIA UNITED BANK N.A.
BUSINESS LOAN AGREEMENT
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$250,000.00 06-15-1995 07-03-1996 24 JLW
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: EARTHLINK NETWORK, INC. LENDER: CALIFORNIA UNITED BANK, N.A.
3171 LOS FELIZ BLVD., SUITE 203 ENCINO
LOS ANGELES, CA 90039 16030 VENTURA BLVD.
ENCINO, CA 91436
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
THIS BUSINESS LOAN AGREEMENT BETWEEN EARTHLINK NETWORK, INC. ("BORROWER") AND
CALIFORNIA UNITED BANK, N.A. ("LENDER") IS MADE AND EXECUTED ON THE FOLLOWING
TERMS AND CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS FROM
LENDER OR HAS APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER
FINANCIAL ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY
EXHIBIT OR SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL
ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS
FROM LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS
THE "LOAN" AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS AND AGREES
THAT: (A) IN GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING
UPON BORROWER'S REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN
THIS AGREEMENT; (B) THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY
LENDER AT ALL TIMES SHALL BE SUBJECT TO LENDER'S SOLE JUDGMENT AND
DISCRETION; AND (C) ALL SUCH LOANS SHALL BE AND SHALL REMAIN SUBJECT TO THE
FOLLOWING TERMS AND CONDITIONS OF THIS AGREEMENT.
TERM. This Agreement shall be effective as of JUNE 15, 1995, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as
this Business Loan Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this Business
Loan Agreement from time to time.
BORROWER. The word "Borrower" means Earthlink Network, Inc.. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates
of Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan,
whether real or personal property, whether granted directly or
indirectly, whether granted now or in the future, and whether granted in
the form of a security interest, mortgage, deed of trust, assignment,
pledge, chattel mortgage, chattel trust, factor's lien, equipment trust,
conditional sale, trust receipt, lien, charge, lien or title retention
contract, lease or consignment intended as a security device, or any
other security or lien interest whatsoever, whether created by law,
contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each
and all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all
Borrowers granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them; whether
now or hereafter existing, voluntary or involuntary, due or not due,
absolute or contingent, liquidated or unliquidated; whether Borrower may
be liable individually or jointly with others; whether Borrower may be
obligated as a guarantor, surety, or otherwise; whether recovery upon
such Indebtedness may be or hereafter may become barred by any statue of
limitations; and whether such Indebtedness may be or hereafter may become
otherwise unenforceable.
LENDER. The word "Lender" means California United Bank, N.A., its
successors and assigns.
LOAN. The word "Loan" or "Loans" means and includes without limitation
any and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations
in favor of Lender, as well as any substitute, replacement or refinancing
note or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" means: (a) liens and
security interests securing Indebtedness owed by Borrower to Lender; (b)
liens for taxes, assessments, or similar charges either not yet due or
being contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet delinquent;
(d) purchase money liens or purchase money security interests upon or in any
property acquired or held by Borrower in the ordinary course of business
to secure indebtedness outstanding on the date of this Agreement or
permitted to be incurred under the paragraph of this Agreement titled
"Indebtedness and Liens"; (e) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the
Lender in writing; and (f) those liens and security interests which in
the aggregate constitute an immaterial and insignificant monetary amount
with respect to the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages,
deeds of trust, and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection with the
Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended
as a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions
set forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral, (c)
Financing Statements perfecting Lender's Security Interests; (d) evidence
of insurance as required below; and (e) any other documents required
under this Agreement or by Lender of its counsel.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and
the Related Documents, and such other authorizations and other documents
and instruments as Lender or its counsel, in their sole discretion, may
require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all
fees, charges, and other expenses which are then due and payable as
specified in this Agreement or any Related Document.
REPRESENTATION AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
<PAGE>
06-15-1995 BUSINESS LOAN AGREEMENT PAGE 2
LOAN NO (CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender,
as of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any
Loan, and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of California
and is validly existing and in good standing in all states in which
Borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is presently
engaged or presently proposes to engage. Borrower also is duly qualified
as a foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under
(a) any provision of its articles of incorporation or organization, or
bylaws, or any agreement or other instrument binding upon Borrower or
(b) any law, governmental regulation, court decree, or order applicable to
Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material
contingent obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and
has not executed any security documents or financing statements relating
to such properties. All of Borrower's properties are titled in Borrower's
legal name, and Borrower has not used, or filed a financing statement
under, any other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used in
this Agreement, shall have the same meanings as set forth in the "CERCLA,"
"SARA," the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801,
et seq., the Resource Conservation and Recovery Act, 49 U.S.C.
Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the
California Health and Safety Code, Section 25100, et seq., or other
applicable state or Federal laws, rules, or regulations adopted pursuant to
any of the foregoing. Except as disclosed to and acknowledged by Lender in
writing, Borrower represents and warrants that: (a) During the period of
Borrower's ownership of the properties, there has been no use, generation,
manufacture, storage, treatment, disposal, release or threatened release of
any hazardous waste or substance by any person on, under, about or from any
of the properties. (b) Borrower has no knowledge of, or reason to believe
that there has been (i) any use, generation, manufacture, storage,
treatment, disposal, release, or threatened release of any hazardous waste
or substance on, under, about or from the properties by any prior owners or
occupants of any of the properties, or (ii) any actual or threatened
litigation or claims of any kind by any person relating to such matters.
(c) Neither Borrower nor any tenant, contractor, agent or other authorized
user of any of the properties shall use, generate, manufacture, store,
treat, dispose of, or release any hazardous waste or substance on, under,
about or from any of the properties; and any such activity shall be
conducted in compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation those laws,
regulations and ordinances described above. Borrower authorizes Lender and
its agents to enter upon the properties to make such inspections and tests
as Lender may deem appropriate to determine compliance of the properties
with this section of the Agreement. Any inspections or tests made by
Lender shall be at Borrower's expense and for Lender's purposes only and
shall not be construed to create any responsibility or liability on the
part of Lender to Borrower or to any other person. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous substances.
Borrower hereby (a) releases and waives any future claims against
Lender for indemnity or contribution in the event Borrower becomes liable
for cleanup or other costs under any such laws, and (b) agrees to indemnify
and hold harmless Lender against any and all claims, losses, liabilities,
damages, penalties, and expenses which Lender may directly or indirectly
sustain or suffer resulting from a breach of this section of the Agreement
or as a consequence of any use, generation, manufacture, storage, disposal,
release or threatened release occurring prior to Borrower's ownership or
interest in the properties, whether or not the same was or should have been
known to Borrower. The provisions of this section of the Agreement,
including the obligation to indemnify, shall survive the payment of the
Indebtedness and the termination or expiration of this Agreement and shall
not be affected by Lender's acquisition of any interest in any of the
properties, whether by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred with
respect to any such plan, (ii) Borrower has not withdrawn from any such
plan or initiated steps to do so, and (iii) no steps have been taken to
terminate any such plan.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 3171 Los Feliz Blvd., Suite 203, Los Angeles,
CA 90039. Unless Borrower has designated otherwise in writing this
location is also the office or offices where Borrower keeps its records
concerning the Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon the
above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force and
effect until such time as Borrower's Indebtedness shall be paid in full, or
until this Agreement shall be terminated in the manner provided above,
whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower's financial condition and business
operations as Lender may request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon
request of Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender. Each Insurance policy
also shall include an endorsement providing that coverage in favor of
Lender will not be impaired in any way by any act, omission or default of
Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
<PAGE>
06-15-1995 BUSINESS LOAN AGREEMENT Page 3
LOAN NO (CONTINUED)
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- --------------------------------------------------------------------------------
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long
as (a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens, and claims against Borrower's properties,
income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act and
with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and records.
If Borrower now or at any time hereafter maintains any records (including
without limitation computer generated records and computer software
programs for the generation of such records) in the possession of a third
party, Borrower, upon request of Lender, shall notify such party to permit
Lender free access to such records at all reasonable times and to provide
Lender with copies of any records it may request, all at Borrower's
expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide
Lender at least annually and at the time of each disbursement of Loan
proceeds with a certificate executed by Borrower's chief financial officer,
or other officer or person acceptable to Lender, certifying that the
representations and warranties set forth in this Agreement are true and
correct as of the date of the certificate and further certifying that, as
of the date of the certificate, no Event of Default exists under this
Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on its part
or on the part of any third party, on property owned and/or occupied by
Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there is damage
to the environment and/or any other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including
any request or policy not having the force of law) shall impose, modify or
make applicable any taxes (except U.S. federal, state or local income or
franchise taxes imposed on Lender), reserve requirements, capital adequacy
requirements or other obligations which would (a) increase the cost to Lender
for extending or maintaining the credit facilities to which this Agreement
relates, (b) reduce the amounts payable to Lender under this Agreement or the
Related Documents, or (c) reduce the rate of return on Lender's capital as a
consequence of Lender's obligations with respect to the credit facilities to
which this Agreement relates, then Borrower agrees to pay Lender such additional
amounts as will compensate Lender therefor, within five (5) days after Lender's
written demand for such payment, which demand shall be accompanied by an
explanation of such imposition or charge and a calculation in reasonable detail
of the additional amounts payable by Borrower, which explanation and
calculations shall be conclusive in the absence of manifest error.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in,
or encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c) pay
any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower may
pay cash dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under federal and
state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of stock of
Borrower, or (d) purchase or retire any of Borrower's outstanding shares or
alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money
or assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances to disburse Loan proceeds if: (a)
Borrower or any Guarantor is in default under the terms of this Agreement or any
of the Related Documents or any other agreement that Borrower or any Guarantor
has with Lender; (b) Borrower or any Guarantor becomes insolvent, files a
petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (c)
there occurs a material adverse change in Borrower's financial condition, in the
financial condition of any Guarantor, or in the value of any Collateral
securing any Loan; (d) any Guarantor seeks, claims or otherwise attempts to
limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan
with Lender; or (e) Lender in good faith deems itself insecure, even though no
Event of Default shall have occurred.
FINANCIAL REPORTING REQUIREMENTS. Borrower agrees to provide to Lender all of
the following information, in form and detail satisfactory to Lender:
(a) annual Certified Public Accountant prepared financial statements;
(b) copies of annual Federal tax returns due within 30 days of filing.
All financial statements of Borrower to be delivered by Borrower to Lender will
be complete and correct and present fairly the financial condition of Borrower
as of the date thereof; will disclose all liabilities of Borrower that are
required to be reflected or reserved against under generally accepted accounting
principles, whether liquidated or unliquidated, fixed or contingent; and will
have been prepared in accordance with generally accepted accounting principles
consistently applied. All tax returns submitted to Lender by Borrower will be
true and correct to the best of the knowledge of Borrower. Borrower hereby
agrees that each time a financial statement or tax return in submitted by it to
Lender, Borrower shall be deemed to have represented and warranted to Lender
that such statement or tax return complies with all of the requirements set
forth above.
<PAGE>
06-15-1995 BUSINESS LOAN AGREEMENT Page 4
LOAN NO (CONTINUED)
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- --------------------------------------------------------------------------------
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at
any time and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on
or of any of Borrower's deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor dies
or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the Indebtedness.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five (25%) or more
of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity,
or otherwise. Except as may be prohibited by applicable law, all of Lender's
rights and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED
BY LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER
AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF
LOS ANGELES COUNTY, THE STATE OF CALIFORNIA SUBJECT TO THE PROVISIONS ON
ARBITRATION, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
ARBITRATION. LENDER AND BORROWER AGREE THAT ALL DISPUTES, CLAIMS AND
CONTROVERSIES BETWEEN THEM, WHETHER INDIVIDUAL, JOINT, OR CLASS IN NATURE,
ARISING FROM THIS AGREEMENT OR OTHERWISE, INCLUDING WITHOUT LIMITATION
CONTRACT AND TORT DISPUTES, SHALL BE ARBITRATED PURSUANT TO THE RULES OF
THE AMERICAN ARBITRATION ASSOCIATION, UPON REQUEST OF EITHER PARTY. No act
to take or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any Collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated, provided however that no arbitrator
shall have the right or the power to enjoin or restrain any act of any
party. Lender and Borrower agree that in the event of an action for
judicial foreclosure pursuant to California Code of Civil Procedure Section
726, or any similar provision in any other state, the commencement of such
an action will not constitute a waiver of the right to arbitrate and the
court shall refer to arbitration as much of such action, including
counterclaims, as lawfully may be referred to arbitration. Judgment
upon any award rendered by any arbitrator may be entered in any court
having jurisdiction. Nothing in this Agreement shall preclude any party
from seeking equitable relief from a court of competent jurisdiction. The
statute of limitations, estoppel, waiver, laches, or similar doctrines
which would otherwise be applicable in an action brought by a party shall
be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of an action for
these purposes. The federal Arbitration Act shall apply to the
construction, interpretation, and enforcement of this arbitration
provision.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any other
matter relating to the Loan, and Borrower hereby waives any rights to
privacy it may have with respect to such matters. Borrower additionally
waives any and all notices of sale of participation interests, as well as
all notices of any repurchase of such participation interests. Borrower
also agrees that the purchasers of any such participation interests will be
considered as the absolute owners of such interests in the Loans and will
have all the rights granted under the participation agreement or agreements
governing the sale of such participation interests. Borrower further
waives all rights of offset or counterclaim that it may have now or later
against Lender or against any purchaser of such a participation interest and
unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loans irrespective of the failure or
insolvency of any holder of any interest in the Loans. Borrower further
agrees that the purchaser of any such participation interests may enforce
its interests irrespective of any personal claims or defenses that Borrower
may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimilie, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Borrower, notice to any Borrower will constitute notice to all Borrowers.
For notice purposes, Borrower agrees to keep Lender informed at all times
of Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be
<PAGE>
06-15-1995 BUSINESS LOAN AGREEMENT PAGE 5
LOAN NO (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
so modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by Lender, nor
any course of dealing between Lender and Borrower, or between Lender and
any Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF JUNE
15, 1996.
BORROWER:
EARTHLINK NETWORK, INC.
BY: /s/ Sky Dayton
-----------------------------------
SKY DAYTON, PRESIDENT
LENDER:
CALIFORNIA UNITED BANK, N.A.
BY: /s/ Jane L. Weblemoe
----------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LOGO CALIFORNIA UNITED BANK N.A.]
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$250,000.00 06-15-1995 07-03-1996 5267 24 100594 JLW
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
<TABLE>
<CAPTION>
<S> <C>
BORROWER: EARTHLINK NETWORK, INC. LENDER: CALIFORNIA UNITED BANK, N.A.
3171 LOS FELIZ BLVD., SUITE 203 ENCINO
LOS ANGELES, CA 90039 16030 VENTURA BLVD.
ENCINO, CA 91436
- --------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT: $250,000.00 INITIAL RATE: 7.650% DATE OF NOTE: JUNE 15, 1995
</TABLE>
PROMISE TO PAY. EARTHLINK NETWORK, INC. ("BORROWER") PROMISES TO PAY TO
CALIFORNIA UNITED BANK, N.A. ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE
UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF TWO HUNDRED FIFTY THOUSAND &
00/100 DOLLARS ($250,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH
INTEREST ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST
SHALL BE CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH
ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN ONE
PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON JULY 3,
1996. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID
INTEREST BEGINNING JULY 15, 1995, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE
ON THE SAME DAY OF EACH MONTH AFTER THAT. Interest on this Note is computed on
a 365/360 simple interest basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding principal
balance, multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to any unpaid
collection costs and any late charges, then to any unpaid interest, and any
remaining amount to principal. The receipt of any wire transfer of funds, check
or other item of payment by the bank shall be immediately applied to
conditionally reduce Borrower's obligations, but shall not be considered a
payment on account unless such wire transfer is of immediately available federal
funds and is made to the appropriate deposit account of Bank or unless and until
such check or other item of payment is honored when presented for payment.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the California United
Bank, N.A.'s rate of interest paid on its Time Certificate(s) of Deposit held as
collateral for this Note as announced from time to time, (the "Index"). The
Index is not necessarily the lowest rate charged by Lender on its loans and is
set by Lender in its sole discretion. If the Index becomes unavailable during
the term of this loan, Lender may designate a substitute index after notifying
Borrower. Lender will tell Borrower the current Index rate upon Borrower's
request. Borrower understands that Lender may make loans based on other rates
as well. The interest rate change will not occur more often than each time
Time Certificate of Deposit held as collateral for this loan matures.
THE INDEX CURRENTLY IS 6.650% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO
THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 2.000 PERCENTAGE
POINTS OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 7.650% PER ANNUM.
NOTICE: Under no circumstances will the interest rate on this Note be more
than the maximum rate allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even
upon full prepayment of this Note, Borrower understands that Lender is entitled
to a MINIMUM INTEREST CHARGE OF $250.00. Other than Borrower's obligation to
pay any minimum interest charge, Borrower may pay without penalty all or a
portion of the amount owed earlier than it is due. Early payments will not,
unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation
to continue to make payments of accrued unpaid interest. Rather, they will
reduce the principal balance due.
LATE CHARGE. Without limiting Lender's other rights and remedies, in the event
any installment of principal or interest is not paid in full on or before the
date due (including without limitation on the final installment of principal
payable on maturity of this Note), Borrower agrees that it would be
impracticable or extremely difficult to fix the actual damages resulting
therefrom to Lender, and therefore the Borrower agrees immediately to pay to
Lender an amount equal to 5% of the installment (or portion thereof) not paid,
as liquidated damages, to compensate Lender for the internal administrative
expenses in administering the default.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Borrower defaults under any loan, extension of
credit, security agreement, purchase or sales agreement, or any other
agreement, in favor of any other creditor or person that may materially affect
any of Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor
tries to take any of Borrower's property on or in which Lender has a lien or
security interest. This includes a garnishment of any of Borrower's accounts
with Lender. (g) Any of the events described in this default section occurs
with respect to any guarantor of this Note. (h) A material adverse change
occurs in Borrower's financial condition, or Lender believes the prospect of
payment of performance of the Indebtedness is impaired. (i) Lender in good
faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, do one or both of the following: (a) increase the variable interest rate
on this Note to 7.000 percentage points over the index, and (b) add any unpaid
accrued interest to principal and such sum will bear interest therefrom until
paid at the rate provided in this Note (including any increased rate). Lender
may hire or pay someone else to help collect this Note if Borrower does not pay.
Borrower also will pay Lender that amount. This includes, subject to any limits
under applicable law Lender's attorneys' fees and Lender's legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other
sums provided by law. THIS NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON
LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF LOS ANGELES
COUNTY, THE STATE OF CALIFORNIA. SUBJECT TO THE PROVISIONS ON ARBITRATION, THIS
NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF CALIFORNIA.
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts.
<PAGE>
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note may be requested only by Borrower or by an authorized person.
Lender may, but need not, require that all oral requests be confirmed in
writing. All communications, instructions, or directions by telephone, or
otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized to request advances under the line
of credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: SKY DAYTON, PRESIDENT.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any
guarantor is in default under the terms of this Note or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (b) Borrower or any guarantor
ceases doing business or is insolvent; (c) any guarantor seeks, claims, or
otherwise attempts to limit, modify or revoke such guarantor's guarantee of
this Note or any other loan with Lender; (d) Borrower has applied funds
provided pursuant to this Note for purposes other than those authorized by
Lender; or (e) Lender in good faith deems itself insecure under this Note or
any other agreement between Lender and Borrower.
ARBITRATION. LENDER AND BORROWER AGREE THAT ALL DISPUTES, CLAIMS AND
CONTROVERSIES BETWEEN THEM, WHETHER INDIVIDUAL, JOINT, OR CLASS IN NATURE,
ARISING FROM THIS NOTE OR OTHERWISE, INCLUDING WITHOUT LIMITATION CONTRACT
AND TORT DISPUTES, SHALL BE ARBITRATED, PURSUANT TO THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION, UPON REQUEST OF EITHER PARTY. No act to take or
dispose of any collateral securing this Note shall constitute a waiver of
this arbitration agreement or be prohibited by this arbitration agreement.
This includes, without limitation, obtaining injunctive relief or temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver;
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any rights concerning any collateral securing this Note,
including any claim to rescind, reform, or otherwise modify any agreement
relating to the collateral
<PAGE>
06-15-1995 PROMISSORY NOTE PAGE 2
LOAN NO (CONTINUED)
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securing this Note, shall also be arbitrated, provided however that no
arbitrator shall have the right or the power to enjoin or restrain any act
of any party. Lender and Borrower agree that in the event of an action for
judicial foreclosure pursuant to California Code of Civil Procedure Section
726, or any similar provision in any other state, the commencement of such
an action will not constitute a waiver of the right to arbitrate and the
court shall refer to arbitration as much of such action, including
counterclaims, as lawfully may be referred to arbitration. Judgment upon
any award rendered by any arbitarator may be entered in any court having
jurisdiction. Nothing in this Note shall preclude any party from seeking
equitable relief from a court of competent jurisdiction. The statute of
limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable
in any arbitration proceeding, and the commencement of an arbitration
proceeding shall be deemed the commencement of an action for these
purposes. The Federal Arbitration Act shall apply to the construction,
interpretation, and enforcement of the arbitration provision.
ADDITIONAL MATTERS. Lender reserves the right to sell, assign, transfer,
negotiate or grant participations in all or any part of, or any interest
in, Lender's rights and benefits hereunder. In connection therewith, Lender
may disclose all documents and information which Lender now or hereafter
may have relating to Borrower.
COLLATERAL. This note is secured by a Time Certificate of Deposit as
evidenced by that certain Assignment of Deposit Account dated June 15, 1995
executed by Grantor in favor of Lender.
LOAN AGREEMENT. Reference is hereby made to that certain Business Loan
Agreement dated June 15, 1995, for additional terms and conditions.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of
specific default provisions or rights of Lender shall not preclude Lender's
right to declare payment of this Note on its demand. Lender may delay or
forgo enforcing any of its rights or remedies under this Note without
losing them. Borrower and any other person who signs, guarantees or
endorses this Note, to the extent allowed by law, waive any applicable
statute of limitations, presentment, demand for payment, protest and notice
of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note,
whether as maker, guarantor, accommodation maker or endorser, shall be
released from liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any
party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other
action deemed necessary by Lender without the consent of or notice to
anyone. All such parties agree that Lender may modify this loan without the
consent of or notice to anyone other than the party with whom the
modification is made.
INTEGRATION: AMENDMENT. This Note and the other written documents and
instruments between Borrower and Lender set forth in full the terms of
agreement between the parties and are intended as the full, complete and
exclusive agreement governing the relationship between the parties. This
Note supersedes all prior discussions, promises, representations,
warranties, agreements and understandings between the parties. This Note
may not be modified or amended, nor may any rights hereunder be waived,
except in a writing signed by the party against whom enforcement of the
modification, amendment or waiver is sought. No course of dealing between
the parties, no usage of trade, and no parol or extrinsic evidence of any
nature shall be used or be relevant to supplement, explain or modify any
term or provision of this Note or any supplement or amendment hereto.
There are no oral agreements or understandings between Borrower and Lender
regarding any extension of the maturity of this Note or making any
modifications to this Note, or regarding any other matter.
MUTUAL WAIVER OF RIGHT TO JURY TRIAL. Lender and Borrower each hereby
waive the right to trial by jury in any action or proceeding based upon,
arising out of, or in any way relating: (i) this Note; or (ii) any other
present or future instrument or agreement between Lender and Borrower; or
(iii) any conduct, acts or omissions of Lender or Borrower or any of their
directors, officers, employees, agents, attorneys or any other persons
affiliated with Lender or Borrower; in each of the foregoing cases, whether
sounding in contract or tort or otherwise.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED
COPY OF THE NOTE.
BORROWER:
EARTHLINK NETWORK, INC.
BY: /s/ Sky Dayton
-----------------------------
Sky Dayton, President
LENDER:
CALIFORNIA UNITED BANK, N.A.
BY: /s/ Jane L. Weblemoe
-----------------------------
AUTHORIZED OFFICER
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<PAGE>
SUBSCRIPTION AGREEMENT
1. SUBSCRIPTION. I, the undersigned ("SUBSCRIBER"), hereby apply to
purchase one or more promissory notes evidencing unsecured indebtedness of
Earthlink Network, Inc., a California corporation (the "COMPANY") in the amount
set forth below and to purchase the number of warrants to purchase the common
stock of the Company set forth below (collectively the "SECURITIES"), all in
accordance with the terms and conditions of the form of the Note and Warrant
respectively attached hereto as Exhibits "A" and "B". This subscription may be
rejected, in which case the Subscriber's subscription payment, with any net
interest earned thereon, shall be returned thereafter as soon as practicable.
2. REPRESENTATIONS BY SUBSCRIBER. The Subscriber hereby represents and
warrants that he or she:
(a) (i) has a pre-existing personal or business relationship with
Company or (ii) by reason of his or her business or financial experience, or by
reason of the business or financial experience of his or her financial advisor
who is unaffiliated with and who is not compensated, directly or indirectly, by
the Company or any affiliate or selling agent of the Company, is capable of
evaluating the risks and merits of this investment and of protecting his or her
own interests in connection with this investment;
(b) has not seen, received, been presented with, or been solicited by
any leaflet, public promotional meeting, newspaper or magazine article or
advertisement, radio or television advertisement, or any other form of
advertising or general solicitation with respect to the sale of the Securities;
(c) is acquiring the Securities for investment purposes for his or
her own account only and not with a view to or for sale in connection with any
distribution of all or any part thereof. No other person will have any direct
or indirect beneficial interest in or right to the Securities;
(d) is financially able to bear the economic risk of an investment in
the Securities, including the total loss thereof;
(e) is either:
A If a natural person, check one or more of A(i) through A(iii) -
(i) ___ a director or executive officer of the Company; or
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(ii) ___ a natural person whose individual net worth, or
joint net worth with his or her spouse, at the date hereof
exceeds $1,000,000; or
(iii) ___ a natural person who had an individual income in
excess of $200,000 in each of the two most recent years or joint
income with that person's spouse in excess of $300,000 in each of
those years and has a reasonable expectation of reaching the same
income level in the current year; or
B If other than a natural person, check one of B(i) through B(ix) -
(i) ___ a bank; or
(ii) ___ a savings and loan association; or
(iii) ___ a registered broker or dealer under Section 15 of
the Securities Exchange Act of 1934 (may be a
natural person); or
(iv) ___ an insurance company; or
(v) ___ a registered investment company; or
(vi) ___ a licensed Small Business Investment Company; or
(vii) ___ a private business development company; or
(viii) ___ an individual retirement account under which the
participant falls within at least one of categories
A(i) through A(iii) of this Section 2(e); or
(ix) ___ an entity in which all of the equity owners are
persons or entities that fall under at least one of
the categories A(i) through A(iii) or B(i) through
B(x) of this Section 2(e); or
(x) ___ other (if other, please answer C below)
C The Subscriber has total assets in excess of $5,000,000 and is
(check one) -
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(i) ___ an employee benefit plan; or
(ii) ___ a tax exempt organization under 501(c)(3) of the
Internal Revenue Code; or
(iii) ___ a trust not formed for the purpose of making this
investment and whose purchase is directed by a
"sophisticated person" as described in
Rule 506(b)(2)(ii) promulgated under the Securities
Act of 1933.
(f) has reviewed and understood that legends in substantially the
following form will be placed on any certificate(s) or other document(s)
evidencing the Securities:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") NOR IS SUCH REGISTRATION CONTEMPLATED. SUCH
SECURITIES MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
AT ANY TIME WHATSOEVER UNLESS REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE, EXCEPT
UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER OR THE
SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO
IT AND TO ITS COUNSEL TO THE EFFECT THAT ANY SUCH TRANSFER WILL NOT BE IN
VIOLATION OF THE ACT, OR APPLICABLE STATE SECURITIES LAWS OR ANY RULE OR
REGULATION PROMULGATED THEREUNDER."
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
(g) is aware that (i) no federal or state agency has made any finding
or determination as to the fairness for public investment in, nor any
recommendation nor endorsement of, the Securities; and (ii) the Securities have
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<PAGE>
not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), or qualified under the blue sky laws of any State, in
reliance, in part, on his or her representations, warranties, and agreements
herein, and (iii) a "restricted security" under the Securities Act in that they
will be acquired from the Company in a transaction not involving a public
offering, and that the Securities may be resold without registration under the
Securities Act only in certain limited circumstances and that otherwise the
Securities must be held indefinitely;
(h) is aware that the Company is under no obligation to register or
qualify the Securities under the Securities Act or under any state securities
law, or to assist him or her in complying with any exemption from registration
and qualification;
(i) will not make any disposition of all or any part of the
Securities which will result in the violation by him or her or by the Company of
the Securities Act, or any other applicable securities laws;
(j) understands that the Securities are a speculative investment
which involves a substantial degree of risk of loss by him or her of his or her
entire investment in the Company, and understands the risk factors related to
the purchase of the Securities. He or she has adequate means for providing for
his or her current needs and possible personal contingencies. He or she has no
need for liquidity of this investment;
(k) is an experienced investor in unregistered and restricted
securities;
(l) understands that there are substantial restrictions on the
transferability of the Securities, that there is no public market for the
Securities and none is expected to develop, and that, accordingly, it may not be
possible for him or her to liquidate his or her investment in the Company;
(m) has received and reviewed the entire S-1 Registration Statement
filed June 3, 1996 including all exhibits and addenda thereto, and prepared in
connection with Company's proposed initial public offering of 3,600,000 shares
of its common stock, and any other information he or she considers necessary or
appropriate for deciding whether to purchase the Securities. He or she has had
an opportunity to ask questions and receive answers from the Company and
Cruttenden regarding the terms and conditions of purchase of the Securities and
regarding the business, financial affairs, and other aspects of the Company and
has further had the opportunity to obtain all information (to the extent the
Company possesses or can acquire such information
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<PAGE>
without unreasonable effort or expense) which he or she deems necessary to
evaluate the investment and to verify the accuracy of information otherwise
provided to him or her;
(n) neither Company, Cruttenden Roth, Inc. ("CRUTTENDEN"), any agent
or employee of Company or Cruttenden, nor any other person has at any time
expressly or implicitly represented, guaranteed, or warranted to him or her that
he or she may freely transfer the Securities, that a percentage of profit and/or
amount or type of consideration will be realized as a result of an investment in
the Securities, that past performance or experience on the part of the Company,
Cruttenden or any other person in any way indicates the predictable results of
the ownership of the Securities, or of the overall Company business, that any
proceeds from the investment represented by the Securities are likely to be made
to the investors by any specific date or will be made at all, or that any
specific tax benefits will accrue as a result of acquiring the Securities;
(o) has been advised to consult with his or her own attorney
regarding all legal matters concerning an investment in the Company and the tax
consequences of acquiring the Securities, and has done so, to the extent he or
she considers necessary;
(p) understands that the tax consequences to him or her of acquiring
the Securities will depend on his or her particular circumstances, and neither
Company, Cruttenden nor their respective shareholders, agents, officers,
directors, employees, affiliates, or consultants will be responsible or liable
for the tax consequences to him or her of acquiring the Securities. He or she
will look solely to, and rely upon, his or her own advisers with respect to the
tax consequences of this investment; and
(q) acknowledges that he or she understands the meaning and legal
consequences of the representations and warranties contained in this paragraph
2, and hereby agrees to indemnify and hold harmless the Company and its
officers, directors and agents from and against any and all loss, damage or
liability due to or arising out of a breach of any representation or warranty of
Subscriber contained herein, including but not limited to any liability arising
out of or in connection with any purchase, resale or distribution of the
Securities purchased by Subscriber in violation of the within investment
representations of Subscriber.
3. PAYMENT AND CONDITIONS. In payment for the purchase price of the
Securities, the Subscriber has delivered herewith a check payable to Pacific
National Bank in an amount equal to 100% of the amount of the Note set forth
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<PAGE>
below. The Subscriber understands that this Subscription Agreement will not be
accepted unless, simultaneously with the acceptance of this Subscription
Agreement, Company is accepting subscriptions from other subscribers for that
number of Securities which, when added to the number of Securities subscribed
for herein, will equal at least $1,000,000. Until this Subscription Agreement
is accepted or rejected, the cash funds received by said bank may be invested in
bank money market accounts and, if such is the case, then at such time as this
Subscription Agreement is accepted or rejected or the offering of Securities is
withdrawn, any and all interest earned on said funds shall be returned to the
Subscriber.
4. IRREVOCABLE BY SUBSCRIBER. The subscription made by Subscriber herein
may not be revoked by Subscriber. The Company may accept this subscription by
executing a counterpart hereof, but in any event the Company's issuance of the
Securities shall constitute acceptance of this subscription.
5. SPECIAL POWER OF ATTORNEY. The Subscriber hereby irrevocably makes,
constitutes, and appoints Cruttenden with full power of substitution, his or her
true and lawful attorneys, for the Subscriber and in his or her name, place, and
stead for his or her use and benefit to execute and acknowledge and, to the
extent necessary, to file and record any and all instruments that may be
necessary or convenient for the purchase or delivery of the Securities.
The foregoing grant of authority:
(a) is a Special Power of Attorney coupled with an interest, is
irrevocable, and shall survive the Subscriber's death or incapacity;
(b) may be exercised by Cruttenden for each subscriber by the signature of
any officer of Cruttenden or by listing all of the subscribers executing
any instrument with the signature of one of the officers of Cruttenden as
attorney-in-fact for all of them; and
(c) shall survive the delivery of an assignment by a subscriber of the
whole or a portion of his or her interest.
This Special Power of Attorney is not to be used to deprive the Subscriber
of any of his or her rights as a purchaser of the Securities. It is intended
only to provide a simplified system for execution of documents.
6. APPLICABLE LAW. This Subscription Agreement is governed by and
construed in accordance with the laws of California and, to the extent that it
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<PAGE>
involves any United States statute, in accordance with the laws of the United
States.
IN WITNESS WHEREOF, the undersigned has executed this Subscription Agreement
this _____ day of ___________, 1996.
Amount of Senior Subordinated Note:
Note Certificate Number:
Number of Warrants Acquired:
Warrant Certificate Number:
Dated: June __, 1996 _______________________
(Subscriber's signature)
_______________________
(Typed or printed name)
ACCEPTED:
EARTHLINK NETWORK, INC.,
a California corporation
By:_________________
Barry Hall, its Chief Financial Officer
<PAGE>
No. of Stock Units: ________ Warrant No. ____
WARRANT
to Purchase Common Stock of
EARTHLINK NETWORK, INC.
THIS IS TO CERTIFY THAT ______________________________________ , or
registered assigns, is entitled to purchase from Earthlink Network, Inc., a
California Corporation, (hereinbelow called the "COMPANY"), at any time on and
after the Closing Date (as defined below), but not later than 5:00 p.m., Los
Angeles time, on the date that is five (5) years after the Closing Date (the
"EXPIRATION DATE"), _________ Stock Units, in whole or in part, at a purchase
price per Stock Unit of the lesser of (a) $10.00 or (b) the Reset Price if and
only if the First Sale occurs on or prior to the issuance of the Warrant Stock
(as such terms are hereinafter defined) (in either case (a) or (b) adjusted as
provided below), all on the terms and conditions hereinbelow provided.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") NOR IS SUCH REGISTRATION CONTEMPLATED. SUCH SECURITIES MAY
NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME
WHATSOEVER UNLESS REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS
OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE, EXCEPT UPON DELIVERY TO THE
COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION
IS NOT REQUIRED FOR SUCH TRANSFER OR THE SUBMISSION TO THE COMPANY OF SUCH OTHER
EVIDENCE AS MAY BE SATISFACTORY TO IT AND TO ITS COUNSEL TO THE EFFECT THAT ANY
SUCH TRANSFER WILL NOT BE IN VIOLATION OF THE ACT, OR APPLICABLE STATE
SECURITIES LAWS OR ANY RULE OR REGULATION PROMULGATED THEREUNDER.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
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<PAGE>
Section 1. CERTAIN DEFINITIONS. As used in this Warrant, unless the
context otherwise requires:
"ADDITIONAL SHARES OF NONPREFERRED STOCK" shall mean all shares of
Nonpreferred Stock issued by the Company after the Closing Date, other than the
Warrant Stock.
"AFFILIATE" means a Person (1) that directly or indirectly controls, or is
controlled by, or is under common control with, the Company, (2) that
beneficially owns ten percent (10%) or more of the Voting Stock of the Company,
or (3) as to whom ten percent (10%) or more of the Voting Stock (or in the case
of a Person which is not a corporation, ten percent (10%) or more of the equity
interest) is owned by the Company. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"APPRAISED VALUE" shall mean the fair market value of all outstanding
shares of Common Stock (on a fully diluted basis including any fractional shares
and assuming the exercise in full of all then-outstanding Warrants and all other
options, warrants or other rights to purchase shares of Common Stock that are
then currently exercisable at exercise prices less than the Current Market
Price), as determined by a written appraisal prepared by an appraiser acceptable
to the Company and the holders of Warrants evidencing a majority in number of
the total number of Stock Units at the time purchasable upon the exercise of all
then outstanding Warrants. "Fair market value" is defined for this purpose as
the price in a single transaction determined on a going-concern basis that would
be agreed upon by the most likely hypothetical buyer for a 100% controlling
interest in the equity capital of the Company (on a fully diluted basis
including any fractional shares and assuming the exercise in full of all then
outstanding Warrants and all other options, warrants or other rights to purchase
shares of Common Stock that are then currently exercisable at exercise prices
less than the Current Market Price), with consideration given to the effect of a
noncompete covenant signed by the seller and employment agreements signed by key
management personnel of the Company (and of its subsidiaries), each extending
for a period of time considered sufficient by all parties to effect the transfer
of goodwill from the seller to the buyer and disregarding any discounts for
nonmarketability of Common Stock of the Company. In the event that the Company
and said holders cannot, in good faith, agree upon an appraiser, then the
Company, on the one hand, and said holders, on the other hand, shall each select
an appraiser, the two appraisers so selected shall select a third appraiser who
shall be directed to prepare such a written appraisal (the "APPRAISAL") and the
term Appraised Value shall mean the appraised value set forth in the Appraisal
prepared in accordance with this
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definition. Except as otherwise set forth herein, the entire cost of the
appraisal process shall be borne by the Company, but the cost thereof shall be
deemed an account payable of the Company and shall be considered in the
determination of the Appraised Value.
"BOARD OF DIRECTORS" shall mean either the board of directors of the
Company or any duly authorized committee of that board.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or a day on
which banks in the State of California or New York are required or permitted to
close.
"CERTIFICATE OF INCORPORATION" shall mean the certificate or articles of
incorporation of the Company, as in effect on the Closing Date and as at any
time amended or otherwise modified.
"CLOSING DATE" shall mean June 7, 1996.
"COMMISSION" shall mean the Securities and Exchange Commission and any
other similar or successor agency of the federal government administering the
Securities Act and the Exchange Act.
"COMMON STOCK" shall mean the Company's authorized Common Stock, no par
value, irrespective of class unless otherwise specified, as constituted on the
date of original issuance of this Warrant, and any stock into which such Common
Stock may thereafter be changed, and shall also include stock of the Company of
any other class, which is not preferred as to dividends or assets over any other
class of stock of the Company issued to the holders of shares of Common Stock
upon any reclassification thereof.
"COMPANY" shall mean Earthlink Network, Inc., a California corporation.
"CONVERTIBLE SECURITIES" shall mean evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable for
Additional Shares of Nonpreferred Stock, either immediately or upon the arrival
of a specified date or the happening of a specified event.
"CURRENT MARKET PRICE" per share of Common Stock for the purposes of any
provision of this Warrant at the date herein specified, shall be deemed to be
the price determined pursuant to the first applicable of the following methods:
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(i) If the Common Stock is traded on a national securities exchange or is
traded in the over-the-counter market, the Current Market Price per share of
Common Stock shall be deemed to be the average of the daily market prices for 20
consecutive Business Days commencing 20 Business Days before such date. The
market price for each such Business Day shall be, if the Common Stock is traded
on a national securities exchange or in the over-the-counter market, its closing
bid quotation on the next preceding Business Day on the principal market for the
Common Stock.
(ii) If the Current Market Price per share of Common Stock cannot be
ascertained by the method set forth in paragraph (i) immediately above, the
Current Market Price per share of Common Stock shall be deemed to be the price
equal to the quotient determined by dividing the Appraised Value by the number
of outstanding shares of Common Stock (on a fully diluted basis including any
fractional shares and assuming the exercise in full of all then-outstanding
Warrants and all other options, warrants or other rights to purchase shares of
Common Stock that are then currently exercisable at exercise prices equal to or
less than the Current Market Price).
"CURRENT WARRANT PRICE" per share of Common Stock, for the purpose of any
provision of this Warrant at the date herein specified, shall mean the amount
equal to the quotient resulting from dividing the Exercise Price in effect on
such date by the number of shares (including any fractional share) of Common
Stock comprising a Stock Unit on such date.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended,
and any similar or successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at any applicable
time.
"EXERCISE PRICE" shall mean the purchase price per Stock Unit as set forth
on the first page of this Warrant on the Closing Date and thereafter shall mean
such dollar amount as shall result from the adjustments specified in Section 4.
"FIRST SALE" shall mean the first public or private sale by the Company
(including any sale to any insider of the Company) of any of its Common Stock at
any time after the date of this Warrant other than pursuant to the exercise of
any Warrant.
"HOLDER" shall mean, initially, __________________ and thereafter any
Person that is or Persons that are the registered holder(s) of the Warrants or
Warrant Stock as registered on the books of the Company.
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"NONPREFERRED STOCK" shall mean the Common Stock and shall also include
stock of the Company of any other Class which is not preferred as to dividends
or assets over any other class of stock of the Company and which is not subject
to redemption.
"PERSON" shall include an individual, a corporation, an association, a
partnership, a trust or estate, a government, foreign or domestic, and any
agency or political subdivision thereof, or any other entity.
"REGISTER", "REGISTERED" and "REGISTRATION" shall refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement.
"REGISTRABLE SECURITIES" shall mean the Common Stock held from time to time
by the Holders pursuant to their exercise of the Warrants, provided, however,
that Registrable Securities shall not include any shares of Common Stock which
have been previously Registered and sold to the public or which have been sold
in a private transaction in which the transferor's rights under this Agreement
were not transferred.
"REGISTRATION EXPENSES" means all expenses incurred in effecting any
Registration pursuant to this Agreement, including, without limitation, all
registration, qualification, and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, fees under Blue Sky laws, and
expenses of any regular or special audits incident to or required by any such
Registration, and fees and disbursements of one counsel for the selling Holders,
but shall not include Selling Expenses, fees and disbursements of additional
counsel for the Holders and the compensation of regular employees of the
Company, which shall be paid in any event by the Company.
"RESET PRICE" means the per share price for the Common Stock at the First
Sale.
"RESTRICTED CERTIFICATE" shall mean a certificate for Common Stock or a
Warrant bearing the restrictive legend set forth in Section 10.1.
"RESTRICTED SECURITIES" shall mean Restricted Stock and Restricted
Warrants.
"RESTRICTED STOCK" shall mean Common Stock evidenced by a Restricted
Certificate.
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"RESTRICTED WARRANT" shall mean a Warrant evidenced by a Restricted
Certificate.
"RULE 144" shall mean Rule 144 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the Commission.
"RULE 145" shall mean Rule 145 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the Commission.
"S-1 REGISTRATION STATEMENT" shall mean that certain S-1 Registration
Statement of the Company filed June 3, 1996.
"SECURITIES" shall mean the Warrants, and the certificates and other
instruments from time to time evidencing the same.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and any
similar or successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at any applicable
time.
"SELLER" shall mean a holder of Restricted Securities of the Company for
which the Company shall be required to file a registration statement or which
shall be registered under the Securities Act at the request of such holder
pursuant to any of the provisions of Section 10. Neither the Company nor any of
its Affiliates shall be deemed a "Seller" for any purposes of this Agreement.
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and fees and
disbursements of counsel for any Holder (other than fees and disbursements of
counsel included in Registration Expenses).
"STOCK UNIT" shall constitute one share of Common Stock, as such Common
Stock was constituted on the Closing Date and thereafter shall constitute such
number of shares (including any fractional shares) of Common Stock as shall
result from the adjustments specified in Section 4.
"VOTING STOCK" shall mean any equity security entitling the holder of such
security to vote at meetings of shareholders except an equity security which
entitles the holder of such security to vote only upon the occurrence of some
contingency, unless that contingency shall have occurred and be continuing.
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"WARRANTS" shall mean the Warrants issued pursuant to the issuance of the
series of warrants of which this warrant is one, evidencing rights to purchase
up to an aggregate of 200,000 Stock Units, and all Warrants issued upon
transfer, division or combination of, or in substitution for, any thereof. All
Warrants shall at all times be identical as to terms and conditions and date,
except as to the number of Stock Units for which they may be exercised.
"WARRANT STOCK" shall mean the shares of Common Stock purchasable by the
holder of a Warrant upon the exercise of such Warrant.
Section 2. EXERCISE OF WARRANT; REPURCHASE RIGHTS. The holder of this
Warrant may, at any time on and after Closing Date, but not later than the
Expiration Date, exercise this warrant in whole at any time or in part from time
to time for the number of Stock Units which such holder is then entitled to
purchase hereunder. The Holder may exercise this Warrant, in whole or in part,
by either of the following methods:
(a) The Holder may deliver to the Company at its office maintained
pursuant to Section 15 for such purpose (i) a written notice of such Holder's
election to exercise this warrant, which notice shall specify the number of
Stock Units to be purchased, (ii) this Warrant and (iii) a sum equal to the
aggregate Exercise Price therefor in immediately available funds; or
(b) The Holder may also exercise this Warrant, in whole or in part, in a
"cashless" or "net-issue" exercise by delivering to the Company at its office
maintained pursuant to Section 15 for such purpose (i) a written notice of such
Holder's election to exercise this Warrant, which notice shall specify the
number of Stock Units to be delivered to such Holder and the number of Stock
Units with respect to which this Warrant is being surrendered in payment of the
aggregate Exercise Price for the Stock Units to be delivered to the Holder, and
(ii) this Warrant. For purposes of this subparagraph (b), each Stock Unit as to
which this Warrant is surrendered shall be attributed a value equal to the
product of (x) the Current Market Price per share of Common Stock minus the
Current Warrant Price per share of Common Stock, multiplied by (y) the number of
shares of Common Stock then comprising a Stock Unit.
Any notice required under this Section 2 may be in the form of Subscription
attached as Exhibit A hereto. Upon delivery thereof, the Company shall as
promptly as practicable and in any event within ten Business Days thereafter,
cause to be executed and delivered to such holder a certificate or certificates
representing the aggregate number of fully-paid and nonassessable shares of
Common Stock issuable upon such exercise.
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The stock certificate or certificates for Warrant Stock so delivered shall
be in such denominations as may be specified in said notice and shall be
registered in the name of such holder or, subject to Section 10, such other name
or names as shall be designated in said notice. Such certificate or
certificates shall be deemed to have been issued and such holder or any other
Person so designated to be named therein shall be deemed to have become a holder
of record of such shares with all rights pursuant thereto, including to the
extent permitted by law the right to vote such shares or to consent or to
receive notice as a stockholder, as of the time said notice is delivered to the
Company as aforesaid. If this Warrant shall have been exercised only in part,
the Company shall, at the time of delivery of said certificate or certificates,
deliver to such holder a new Warrant dated the date it is issued, evidencing the
rights of such holder to purchase the remaining Stock Units called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant, or, at the request of such holder, appropriate notation may be made on
this Warrant and the Warrant shall be returned to such holder.
The Company shall pay all expenses, taxes (other than income or similar
taxes imposed on any Holder) and other charges payable in connection with the
preparation, issue and delivery of stock certificates under this Section 2.
All shares of Common Stock issuable upon the exercise of this Warrant shall
be validly issued, fully paid and nonassessable, and free from all liens and
other encumbrances thereon.
Except as may otherwise be required by law, the Company shall not close its
books against the transfer of this Warrant or of any share of Warrant Stock in
any manner which interferes with the timely exercise of this Warrant. The
Company shall from time to time take all such action as may be necessary to
assure that the par value per share of the unissued Common Stock acquirable upon
exercise of this Warrant is at all times equal to or less than the Exercise
Price then in effect.
If the Company would be required to issue fractional shares of stock upon
any exercise of this Warrant, then it shall issue certificates for one (1) share
of stock in respect to such fraction.
Section 3. TRANSFER, DIVISION AND COMBINATION. Subject to Section 10,
this Warrant and all rights hereunder are transferable, in whole or in part, on
the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the office of the Company maintained for such purpose pursuant
to Section 15, together with a written assignment in the form attached as
Exhibit B hereto duly executed by the holder hereof or its agent or attorney and
payment of
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funds sufficient to pay any stock transfer taxes payable upon the making of such
transfer. Upon such surrender and payment the Company shall, subject to Section
10, execute and deliver a new Warrant or Warrants in the name of the assignee or
assignees and in the denominations specified in such instrument of assignment,
and this Warrant shall promptly be canceled. If and when this warrant is
assigned in blank (in case the restrictions on transferability in Section 10
shall have been terminated), the Company may (but shall not be obliged to) treat
the bearer hereof as the absolute owner of this Warrant for all purposes and the
Company shall not be affected by any notice to the contrary. This Warrant, if
properly assigned in compliance with this Section 3 and Section 10, may be
exercised by an assignee for the purchase of shares of Common Stock without
having a new Warrant issued.
This Warrant may, subject to Section 10, be divided or combined with other
Warrants upon presentation at the aforesaid office of the Company, together with
a written notice specifying the names and denominations in which new Warrants
are to be issued, signed by the holder hereof or its agent or attorney. Subject
to compliance with the preceding paragraph and with Section 10, as to any
transfer which may be involved in such division or combination, the Company
shall execute and deliver a new Warrant or Warrants in exchange for the Warrant
or Warrants to be divided or combined in accordance with such notice.
The Company shall pay all expenses, taxes and other charges incurred by the
Company in the performance of its obligations in connection with the
preparation, issue and delivery of Warrants under this Section 3.
The Company agrees to maintain at its aforesaid office books for the
registration and transfer of the Warrants; provided, however, that the Company
shall have the right to appoint a reputable, licensed financial institution to
act as warrant agent hereunder upon notice to the Holders.
Section 4. ADJUSTMENT OF STOCK UNIT OR EXERCISE PRICE. The number of
shares of Common Stock comprising a Stock Unit, and the Exercise Price per Stock
Unit, shall be subject to adjustment from time to time as set forth in this
Section 4 and in Section 5. The Company shall not take any action with respect
to its Nonpreferred Stock of any class requiring an adjustment pursuant to any
of the following Subsections 4.1, 4.2, or 4.7 without at the same time taking
like action with respect to its Nonpreferred Stock of each other class; and the
Company shall not create any class of Nonpreferred Stock which carries any
rights to dividends or assets differing in any respect from the rights of the
Common Stock on the Closing Date.
4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS.
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In case at any time or from time to time the Company shall:
(a) take a record of the holders of its Nonpreferred Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Nonpreferred Stock, or
(b) subdivide its outstanding shares of Nonpreferred Stock into a
larger number of shares of Nonpreferred Stock, or
(c) combine its outstanding shares of Nonpreferred Stock into a
smaller number of shares of Nonpreferred Stock, then the number of shares of
Common Stock comprising a Stock Unit immediately after the happening of any such
event shall be adjusted so as to consist of the number of shares of Common Stock
which a record holder of the number of shares of Common Stock comprising a Stock
Unit immediately prior to the happening of such event would own or be entitled
to receive after the happening of such event; PROVIDED, HOWEVER, that no such
event may take place with respect to any shares of Nonpreferred Stock unless it
shall also take place for all shares of Nonpreferred Stock.
4.2. CERTAIN OTHER DIVIDENDS AND DISTRIBUTIONS. In case at any time or
from time to time the Company shall take a record of the holders of any of its
Nonpreferred Stock for the purpose of entitling them to receive any dividend or
other distribution of:
(a) cash (other than a cash distribution made as a dividend and
payable out of earnings or earned surplus legally available for the payment of
dividends under the laws of the jurisdiction of incorporation of the Company, to
the extent, but only to the extent, that the aggregate of all such dividends
paid or declared after the Closing Date, does not exceed the consolidated net
income of the Company earned subsequent to the Closing Date determined in
accordance with generally accepted accounting principles, consistently applied),
or
(b) any evidence of its indebtedness (other than Convertible
Securities), any shares of its stock (other than Additional Shares of
Nonpreferred Stock) or any other securities or property of any nature whatsoever
(other than cash and other than Convertible Securities or Additional Shares of
Nonpreferred Stock), or
(c) any warrants or other rights to subscribe for or purchase any
evidences of its indebtedness (other than Convertible Securities), any shares of
its stock (other than Additional Shares of Nonpreferred Stock) or any other
securities or property of any nature whatsoever (other than cash and other than
Convertible Securities or Additional Shares of Nonpreferred Stock), then the
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number of shares of Common Stock thereafter comprising a Stock Unit shall be
adjusted to that number determined by multiplying the number of shares of Common
Stock comprising a Stock Unit immediately prior to such adjustment by a fraction
(i) the numerator of which shall be the Current Market Price per share of Common
Stock at the date of taking such record, and (ii) the denominator of which shall
be such Current Market Price per share minus the portion applicable to one share
of Nonpreferred Stock of any such cash so distributable and of the fair value of
any and all such evidences of indebtedness, shares of stock, other securities or
property, or warrants or other subscription or purchase rights, so
distributable. Such fair value shall be determined in good faith by the Board
of Directors of the Company, PROVIDED that if such determination is objected to
by the holders of Warrants evidencing a majority in number of the total number
of Stock Units at the time purchasable upon the exercise of all then outstanding
Warrants, such determination shall be made by an independent appraiser chosen in
the manner specified in the definition of Appraised Value. The fees and
expenses of any appraisers shall be paid in equal shares by the Company (as to
one-half) and the objecting Warrant holders (as to one-half). A
reclassification of the Nonpreferred Stock into shares of Nonpreferred Stock and
shares of any other class of stock shall be deemed a distribution by the Company
to the holders of its Nonpreferred Stock of such shares of such other class of
stock within the meaning of this Subsection 4.2 and, if the outstanding shares
of Nonpreferred Stock shall be changed into a larger or smaller number of shares
of Nonpreferred Stock as a part of such reclassification, shall be deemed a
subdivision or combination, as the case may be, of the outstanding shares of
Nonpreferred Stock within the meaning of Subsection 4.1 or 4.2 of this Section
4.
4.3. ISSUANCE OF ADDITIONAL SHARES OF NONPREFERRED STOCK. In case at any
time or from time to time the Company shall (except as hereinafter provided)
issue, whether in connection with the merger of a corporation into the Company
or otherwise, any Additional Shares of Nonpreferred Stock for a consideration
per share less than the greater of the Current Warrant Price or the Current
Market Price per share of Common Stock, then the number of shares of Common
Stock thereafter comprising a Stock Unit shall be adjusted to be that number
determined by multiplying the number of shares of Common Stock comprising a
Stock Unit immediately prior to such adjustment by a fraction (x) the numerator
of which shall be the number of shares of Nonpreferred Stock, plus the number of
such Additional Shares of Nonpreferred Stock so issued, and (y) the denominator
of which shall be the number of shares of Nonpreferred Stock, plus the number of
shares of Nonpreferred Stock which the aggregate consideration for the total
number of such Additional Shares of Nonpreferred Stock would purchase at the
greater of the Current Warrant Price or the Current Market Price per share of
Common Stock. For purposes of this Subsection 4.3, the date as of which the
Current Warrant Price and the Current Market Price per share of Common Stock
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shall be computed shall be the earlier of (i) the date on which the Company
shall enter into a firm contract for the issuance of such Additional Shares of
Nonpreferred Stock, or (ii) the date of actual issuance of such Additional
Shares of Nonpreferred Stock. The provisions of this Subsection 4.3 shall not
apply to any issuance of Additional Shares of Nonpreferred Stock for which an
adjustment is provided under Subsection 4.1 of this Section 4. No adjustment of
the number of shares of Common Stock comprising a Stock Unit shall be made under
this Subsection 4.3 upon the issuance of any Additional Shares of Nonpreferred
Stock which are issued pursuant to the exercise of any options, warrants or
other subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any Convertible Securities, if any such
adjustment shall previously have been made upon the issuance of such options,
warrants or other rights or upon the issuance of such Convertible Securities (or
upon the issuance of any option, warrant or other right therefor) pursuant to
Subsection 4.4 or 4.5 of this Section 4.
4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS. In case at any time or
from time to time the Company shall take a record of the holders of its
Nonpreferred Stock for the purpose of entitling them to receive a distribution
of, or shall otherwise issue, any warrants, options or other rights to subscribe
for or purchase any Additional Shares of Nonpreferred Stock or any Convertible
Securities and the consideration per share for which additional shares of
Nonpreferred Stock may at any time thereafter be issuable pursuant to such
warrants, options or other rights or pursuant to the terms of such Convertible
Securities shall be less than the greater of the Current Warrant Price or the
Current Market Price per share of Common Stock, then the number of shares of
Common Stock thereafter comprising a Stock Unit shall be adjusted as provided in
Subsection 4.3 of this Section 4 on the basis that (i) the maximum number of
Additional Shares of Nonpreferred Stock issuable pursuant to all such warrants,
options or other rights or necessary to effect the conversion or exchange of all
such Convertible Securities shall be deemed to have been issued as of the date
specified in the last sentence of this Subsection 4.4, (ii) the aggregate
consideration for such maximum number of Additional Shares of Nonpreferred Stock
shall be deemed to be the minimum consideration received and receivable by the
Company for the issuance of such Additional Shares of Nonpreferred Stock
pursuant to such warrants, options or other rights or pursuant to the terms of
such Convertible Securities and (iii) the consideration per share received by
the Company for such Additional Shares of Nonpreferred Stock shall be that
number determined by dividing (a) the aggregate consideration for such maximum
number of Additional Shares of Nonpreferred Stock (determined as set forth in
clause (ii) of this sentence) by (b) the maximum number of Additional Shares of
Nonpreferred Stock issuable pursuant to all such warrants, options or other
rights or necessary to effect the conversion or exchange of all such Convertible
Securities (determined
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as set forth in clause (i) of this sentence). For purposes of this Subsection
4.4, the computation date for subclause (i) above and as of which the Current
Warrant Price and the Current Market Price per share of Common Stock shall be
computed shall be the earliest of (x) the date on which the Company shall take a
record of the holders of its Nonpreferred Stock for the purpose of entitling
them to receive any such warrants, options or other rights, (y) the date on
which the Company shall enter into a firm contract for the issuance of such
warrants, options or other rights, and (z) the date of actual issuance of such
warrants, options or other rights.
4.5. ISSUANCE OF CONVERTIBLE SECURITIES. In case at any time or from time
to time the Company shall take a record of the holders of its Nonpreferred Stock
for the purpose of entitling them to receive a distribution of, or shall
otherwise issue, any Convertible Securities and the consideration per share for
which Additional Shares of Nonpreferred Stock may at any time thereafter be
issuable pursuant to the terms of such Convertible Securities shall be less than
the greater of the Current Warrant Price or Current Market Price per share of
Common Stock, then the number of shares of Common Stock thereafter comprising a
Stock Unit shall be adjusted as provided in Subsection 4.3 of this Section 4 on
the basis that (i) the maximum number of Additional Shares of Nonpreferred Stock
necessary to effect the conversion or exchange of all such Convertible
Securities shall be deemed to have been issued as of the computation date
specified in the following sentence of this Subsection 4.5, (ii) the aggregate
consideration for such maximum number of Additional Shares of Nonpreferred Stock
shall be deemed to be the minimum consideration received and receivable by the
Company for the issuance of such Additional Shares of Nonpreferred Stock
pursuant to the terms of such Convertible Securities and (iii) the consideration
per share received by the Company for such Additional Shares of Nonpreferred
Stock shall be that number determined by dividing (a) the aggregate
consideration for such maximum number of Additional Shares of Nonpreferred Stock
(determined as set forth in clause (ii) of this sentence) by (b) the maximum
number of Additional Shares of Nonpreferred Stock necessary to effect the
conversion or exchange of all such Convertible Securities (determined
as set forth in clause (i) of this sentence). For purposes of this Subsection
4.5, the computation date for clause (i) above and as of which the Current
Warrant Price and the Current Market Price per share of Common Stock shall be
computed shall be the earliest of (x) the date on which the Company shall take a
record of the holders of its Nonpreferred Stock for the purpose of entitling
them to receive any such Convertible Securities, (y) the date on which the
Company shall enter into a firm contract for the issuance of such Convertible
Securities, and (z) the date of actual issuance of such Convertible Securities.
No adjustment of the number of shares of Common Stock comprising a Stock Unit
shall be made under this Subsection 4.5 upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any warrants or other
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subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights
pursuant to Subsection 4.4 of this Section 4. The adjustments made in this
Section 4 shall remain in effect regardless of whether any Convertible
Securities are converted or any warrants, options or other rights to purchase
Additional Shares of Nonpreferred Stock or Convertible Securities are ever
exercised.
4.6. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS. The following provisions
shall be applicable to the making of adjustments of the number of shares of
Common Stock comprising a Stock Unit hereinbefore provided for in this Section
4:
(a) TREASURY STOCK. The sale or other disposition of any issued
shares of Nonpreferred Stock owned or held by or for the account of the Company
shall be deemed an issuance thereof for purposes of this Section 4.
(b) COMPUTATION OF CONSIDERATION. To the extent that any Additional
Shares of Nonpreferred Stock or any Convertible Securities or any warrants,
options or other rights to subscribe for or purchase any Additional Shares of
Nonpreferred Stock or any Convertible Securities shall be issued for a cash
consideration, the consideration received by the Company therefor shall be
deemed to be the amount of cash received by the Company therefor, or, if such
Additional Shares of Nonpreferred Stock or Convertible Securities are offered by
the Company for subscription, the subscription price, or, if such Additional
Shares of Nonpreferred Stock or Convertible Securities are sold to underwriters
or dealers for public offering without a subscription offering, the initial
public offering price, in any such case excluding any amounts paid or receivable
for accrued interest or accrued dividends and without deduction of any
compensation, discounts or expenses paid or incurred by the Company for and in
the underwriting of, or otherwise in connection with, the issue thereof. To the
extent that such issuance shall be for a consideration other than solely for
cash, then, except as herein otherwise expressly provided, the amount of such
consideration shall be deemed to be the fair value of such consideration at the
time of such issuance as determined in good faith by the Board of Directors of
the Company. If such determination is objected to by the holders of Warrants
evidencing a majority in number of the total number of Stock Units at the time
purchasable upon the exercise of all then outstanding Warrants, such
determination shall be made by an independent appraiser chosen in the manner
specified in the definition of Appraised Value. The fees and expenses of any
appraisers shall be shared equally by such objecting holders (as to one-half)
and the Company (as to one-half). The consideration for any Additional Shares
of Nonpreferred Stock issuable pursuant to any warrants, options or other rights
to subscribe for or purchase the same shall be the consideration received or
receivable by the Company for issuing such
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warrants, options or other rights, plus the additional consideration payable to
the Company upon the exercise of such warrants, options or other rights. The
consideration for any Additional Shares of Nonpreferred Stock issuable pursuant
to the terms of any Convertible Securities shall be the consideration received
or receivable by the Company for issuing any warrants, options or other rights
to subscribe for or purchase such Convertible Securities, plus the consideration
paid or payable to the Company in respect of the subscription for or purchase of
such Convertible Securities, plus the additional consideration, if any, payable
to the Company upon the exercise of the right of conversion or exchange in such
Convertible Securities. In case of the issuance at any time of any Additional
Shares of Nonpreferred Stock or Convertible Securities in payment or
satisfaction of any dividend upon any class of stock other than Nonpreferred
Stock, the Company shall be deemed to have received for such Additional Shares
of Nonpreferred Stock or Convertible Securities a consideration equal to the
amount of such dividend so paid or satisfied.
(c) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by the
preceding Subsections of this Section 4 shall be made whenever and as often as
any specified event requiring an adjustment shall occur, except that no
adjustment shall be made except pursuant to Subsection 4.1 of this Section 4 if
it would decrease the number of shares of Common Stock comprising a Stock Unit
immediately prior to such adjustment. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on the
date of its occurrence.
(d) FRACTIONAL INTERESTS. In computing adjustments under this
Section 4, fractional interests in Nonpreferred Stock shall be taken into
account to the nearest one-thousandth of a share.
(e) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a record
of the holders of its Nonpreferred Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution thereof to shareholders, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
4.7. MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS. In case the Company
shall merge or consolidate into another corporation, or shall sell, transfer or
otherwise dispose of all or substantially all of its property, assets or
business to another corporation and pursuant to the terms of such merger,
consolidation or disposition of assets, shares of common stock of the successor
or acquiring
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corporation are to be received by or distributed to the holders of Nonpreferred
Stock of the Company, then each holder of a Warrant shall have the right
thereafter to receive, upon exercise of such Warrant, Stock Units each
comprising the number of shares of common stock of the successor or acquiring
corporation receivable upon or as a result of such merger, consolidation or
disposition of assets by a holder of the number of shares of Nonpreferred Stock
comprising a Stock Unit immediately prior to such event. If, pursuant to the
terms of such merger, consolidation or disposition of assets, any cash, shares
of stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) are to be received by or
distributed to the holders of Nonpreferred Stock of the Company, there shall be
either, at the Holder's option, (i) a reduction of the Exercise Price equal to
the amount applicable to the number of shares of Common Stock then comprising a
Stock Unit of any such cash and of the fair value of any and all such shares of
stock or of other securities or property to be received by or distributed to the
holders of Nonpreferred Stock of the Company, or (ii) such Holder shall have the
right to receive, upon exercise of its Warrant, such cash, shares of stock or
other securities or property of any nature as a holder of the number of shares
of Nonpreferred Stock underlying a Stock Unit would have been entitled to
receive upon the occurrence of such event. Such fair value shall be determined
in good faith by the Board of Directors of the Company, PROVIDED that if such
determination is objected to by the holders of Warrants evidencing a majority in
number of the total number of Stock Units at the time purchasable upon the
exercise of all then outstanding Warrants, such determination shall be made by
an independent appraiser selected in the manner specified in the definition of
Appraised Value. The fees and expenses of any appraisers shall be paid by the
Company. In case of any such merger, consolidation or disposition of assets,
the successor acquiring corporation shall expressly assume the due and punctual
observance and performance of each and every covenant and condition of this
Warrant to be performed and observed by the Company and all of the obligations
and liabilities hereunder, subject to such modification as shall be necessary to
provide for adjustments of Stock Units which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 4. For the purposes
of this Section 4 "COMMON STOCK OF THE SUCCESSOR OR ACQUIRING CORPORATION" shall
include stock of such corporation of any class, that is not preferred as to
dividends or assets over any other class of stock of such corporation and that
is not subject to redemption, and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event, and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Subsection 4.7 shall similarly apply to successive mergers, consolidations
or dispositions of assets.
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4.8. OTHER ACTION AFFECTING NONPREFERRED STOCK. In case at any time or
from time to time the Company shall take any action affecting its Nonpreferred
Stock, other than (i) an action described in any of the foregoing Subsections
4.1 to 4.7, inclusive, of this Section 4, or (ii) the issuance of stock and
options therefor issued under the Company's current employee stock incentive
plan, or (iii) the issuance of stock pursuant to the exercise of any and all
warrants which, as of the date hereof, are outstanding and listed in the S-1
Registration Statement, then, unless in the opinion of the Board of Directors of
the Company such action shall not have a materially adverse effect upon the
rights of the holders of the Warrants, the number of shares of Common Stock or
other stock comprising a Stock Unit, or the purchase price thereof, shall be
adjusted in such manner and at such time as the Board of Directors of the
Company may in good faith determine to be equitable in the circumstances.
Section 5. NOTICE TO WARRANT HOLDERS.
5.1. NOTICE OF ADJUSTMENT OF STOCK UNIT OR EXERCISE PRICE. Whenever the
number of shares of Common Stock comprising a Stock Unit, or the price at which
a Stock Unit may be purchased upon exercise of the warrants, shall be adjusted
pursuant to Section 4, the Company shall forthwith obtain a certificate signed
by its chief financial officer, setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment was calculated
(including a statement of the fair value, as determined by the Board of
Directors of the Company or by appraisal (if applicable), of any evidences of
indebtedness, shares of stock, other securities or property or warrants or other
subscription or purchase rights referred to in Section 4.2, Section 4.6(b) or
Section 4.7) and specifying the number of shares of Common Stock comprising a
Stock Unit and, if such adjustment was made pursuant to Section 4.7 or Section
4.8, describing the number and kind of any other shares of stock comprising a
Stock Unit and any change in the purchase price or prices thereof, after giving
effect to such adjustment or change. The Company shall promptly, and in any
case within three Business Days after the making of such adjustment, cause a
signed copy of such certificate to be delivered to each holder of a Warrant in
accordance with Section 16. The Company shall keep at its office or agency,
maintained for the purpose pursuant to Section 15, copies of all such
certificates and cause the same to be available for inspection at said office
during normal business hours by any holder of a Warrant or any prospective
purchaser of a warrant designated by a holder thereof.
5.2. NOTICE OF CERTAIN CORPORATE ACTION. In case the Company shall propose
(a) to pay any dividend payable in stock of any class to the holders of its
Nonpreferred Stock or to make any other distribution to the holders of its
Nonpreferred Stock (other than a cash dividend), or (b) to offer to the holders
of
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<PAGE>
its Nonpreferred Stock rights to subscribe for or to purchase any Additional
Shares of Nonpreferred Stock or shares of stock of any class or any other
securities, rights or options, or (c) to effect any reclassification of its
Nonpreferred Stock (other than a reclassification involving only the
subdivision, or combination, of outstanding shares of Nonpreferred Stock), or
(d) to effect any capital reorganization, or (e) to effect any consolidation,
merger or sale, organic change, transfer or other disposition of all or
substantially all of its property, assets or business, or (f) to effect the
liquidation, dissolution or winding up of the Company, then, in each such case,
the Company shall deliver to each holder of a Warrant, in accordance with
Section 16, a notice of such proposed action, which shall specify the date on
which a record is to be taken for the purposes of such stock dividend,
distribution or rights, or the date on which such reclassification,
reorganization, consolidation, merger, sale, organic change, transfer,
disposition, liquidation, dissolution, or winding up is to take place and the
date of participation therein by the holders of Nonpreferred Stock, if any such
date is to be fixed, and shall also set forth such facts with respect thereto as
shall be reasonably necessary to indicate the effect of such action on the
Nonpreferred Stock and the number and kind of any other shares of stock which
shall comprise a Stock Unit, and the purchase price or prices thereof', after
giving effect to any adjustment which shall be required as a result of such
action. Such notice shall be so delivered thirty (30) days prior to (i) the
record date for determining holders of the Nonpreferred Stock for purposes of
any action covered by clause (a) or (b) above, and (ii) in the case of any other
such action, the date of the taking of such proposed action or the date of
participation therein by the holders of Nonpreferred Stock, whichever shall be
the earlier.
Section 6. RESERVATION AND AUTHORIZATION OF NONPREFERRED STOCK;
REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY. The Company shall
at all times reserve and keep available for issue upon the exercise of Warrants
such number of its authorized but unissued shares of Common Stock as shall be
sufficient to permit the exercise in full of all outstanding Warrants. The
Company shall not amend its Certificate of Incorporation in any respect relating
to the Common Stock other than to increase or decrease the number of shares of
authorized capital stock (subject to the provisions of the preceding sentence)
or to decrease the par value of any shares of Nonpreferred Stock. All shares of
Common Stock which shall be so issuable, when issued upon exercise of any
Warrant or upon such conversion, as the case may be, shall be duly and validly
issued and fully-paid and nonassessable.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price per share of Common Stock below the then par value, if
any, of the shares of Common Stock issuable upon exercise of the Warrants, the
Company shall take any corporate action which may, in the opinion of its
counsel,
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<PAGE>
be necessary in order that the Company may validly and legally issue fully-paid
and nonassessable shares of Common Stock at such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in the number
of shares of Common Stock comprising a Stock Unit or in the Current Warrant
Price per share of Common Stock, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.
If any shares of Common Stock required to be reserved for issue upon
exercise of warrants require registration with any governmental authority under
any federal or state law (otherwise than as provided in Section 10) before such
shares may be so issued, the Company shall in good faith and as expeditiously as
possible and at its expense endeavor to cause such shares to be duly registered.
Section 7. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS. In the
case of all dividends or other distributions by the Company to the holders of
its Nonpreferred Stock with respect to which any provision of Section 4 refers
to the taking of a record of such holders, the Company shall in each such case
take such a record and shall take such record as of the close of business on a
Business Day. The Company shall not at any time, except upon dissolution,
liquidation or winding up or as otherwise may be required by law, close its
stock transfer books or Warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
Section 8. TAXES. The Company shall pay all taxes (other than federal,
state, local or foreign income taxes) which may be payable in connection with
the execution and delivery of this Warrant or the issuance and sale of the
Restricted Securities hereunder or in connection with any modification of the
Restricted Securities and shall save the Holder harmless without limitation as
to time against any and all liabilities with respect to or resulting from any
delay in paying, or omission to pay, such taxes. The obligations of the Company
under this Section 8 shall survive any redemption, repurchase or acquisition of
Restricted Securities by the Company.
Section 9. [Intentionally Deleted]
Section 10. RESTRICTIONS ON TRANSFERABILITY. The Restricted Securities
shall not be transferable except upon the conditions specified in this Section
10; PROVIDED that, notwithstanding any other provisions of this Section 10, the
Holder (and each other Person mentioned below in this clause) shall have the
right to transfer any Restricted Securities to any Affiliate, in each case free
of the
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restrictions imposed by this Section 10 other than the requirement as to the
legending of the certificates for such Restricted Securities specified in
Section 10.1. Each transferee shall be subject to the same transfer
restrictions imposed on the Holder by this Agreement.
10.1. RESTRICTIVE LEGEND. Unless and until otherwise permitted by this
Section 10, each certificate for Warrants issued under this Agreement, each
certificate for any Warrants issued to any transferee of any such certificate,
each certificate for any Warrant Stock issued upon exercise of any Warrant and
each certificate for any Warrant Stock issued to any transferee of any such
certificate, shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") NOR IS SUCH REGISTRATION CONTEMPLATED. SUCH SECURITIES MAY
NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME
WHATSOEVER UNLESS REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS
OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE, EXCEPT UPON DELIVERY TO THE
COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION
IS NOT REQUIRED FOR SUCH TRANSFER OR THE SUBMISSION TO THE COMPANY OF SUCH OTHER
EVIDENCE AS MAY BE SATISFACTORY TO IT AND TO ITS COUNSEL TO THE EFFECT THAT ANY
SUCH TRANSFER WILL NOT BE IN VIOLATION OF THE ACT, OR APPLICABLE STATE
SECURITIES LAWS OR ANY RULE OR REGULATION PROMULGATED THEREUNDER."
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
10.2 NOTICE OF PROPOSED TRANSFERS; "PIGGYBACK" REGISTRATION.
(a) If at any time, or from time to time, the Company shall determine to
Register any of its securities either for its own account or for the account of
any holder of its securities (including a Holder) (other than pursuant to
Section 10.05 hereof), other than the S-1 Registration Statement, a Registration
relating solely to employee benefit plans, or a Registration relating solely to
a Rule
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145 transaction or a Registration on any Registration form that does not permit
secondary sales, the Company will:
(1) promptly give to each Holder written notice thereof;
(2) include in such Registration (and any related qualification
under Blue Sky Laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests made within 20 days after receipt of such written notice from the
Company, by any Holder or Holders, except as set forth in Section 10.02(b)
hereof. Any such written request may specify all or a part of a Holder's
Registrable Securities.
(b) If the Registration of which the Company gives notice is for a
Registered public offering involving an underwriting, the Company shall so
advise the Holders as part of the written notice given pursuant to Section
10.02(a) hereof. In such event, the right of a Holder to Registration pursuant
to this Section 10.02 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. All Holders proposing to
distribute their Registrable Securities through such underwriting shall
(together with the Company and the other holders of securities of the Company
with registration rights to participate therein distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 10.02, if the
underwriter advises the Company in writing that marketing factors require a
limitation on the number of shares to be underwritten, the underwriter may limit
the amount of Registrable Securities to be included in the Registration and
underwriting, and the number of shares to be included in such underwriting or
Registration shall be allocated as set forth in Section 10.11 hereof.
10.03 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any Registration, qualification or compliance pursuant to
Sections 10.02 and 10.04 hereof, shall be borne by the Company. All Selling
Expenses relating to the Registrable Securities so Registered shall be borne by
the Holders of such Registrable Securities pro rata on the basis of the number
of shares of Registrable Securities so Registered on their behalf.
10.04 REGISTRATION ON FORM S-3. After its initial public offering, the
Company shall use its best efforts to quality for registration on Form S-3 or
any comparable or successor form or forms. After the Company has qualified for
the use of Form S-3, in addition to the rights contained in the foregoing
provisions of
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this Article 10, the Holders of Registrable Securities shall have the right to
request registrations on Form S-3 (such requests shall be in writing and shall
state the number of shares of Registrable Securities to be disposed of and the
intended methods of disposition of such shares by such Holder or Holders),
provided, however, that the amount reasonably anticipated to be raised in the
offering in question is at least Five Million Dollars ($5,000,000) and that the
Company shall not be obligated to effect any such Registration if (1) the
Company shall have delivered to such Holder an opinion of counsel to the
Company, addressed to such Holder and reasonably satisfactory in form and
substance to such Holder to the effect that such Registrable Securities proposed
to be included may lawfully be so disposed of without Registration or (2) within
a period of 180 days after the effective date of any previous such Registration.
If the Company shall receive a written request pursuant to this Section 10.04
for Registration, then the Company shall promptly notify all other Holders of
such request and shall use its best efforts to cause all Registrable Securities
that Holders have requested within 20 days after receipt of the Company's notice
to be registered under the Securities Act. Any registration statement filed
pursuant to this Section 10.04 may, subject to the provisions of Section 10.11
hereof, include other securities of the Company with respect to which
Registration rights have been granted.
10.05 REGISTRATION PROCEDURES. In the case of each Registration effected
by the Company pursuant to this Article 10, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company will:
(a) Keep such registration effective for a period of 180 days or until
the Holder or Holders have completed the distribution described in the
registration statement relating thereto, whichever first occurs; provided,
however, that (i) such 180-day period shall be extended for a period of time
equal to the period the Holder refrains from selling any securities included in
such Registration at the request of an underwriter of Common Stock (or other
securities) of the Company; and (ii) in the case of any registration of
Registrable Securities on Form S-3 which are intended to be offered on a
continuous or delayed basis, such 180-day period shall be extended, if
necessary, to keep the registration statement effective until all such
Registrable Securities are sold, provided that Rule 145, or any successor rule
under the Securities Act, permits an offering on a continuous or delayed basis,
and provided further that applicable rules under the Securities Act governing
the obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment that (i) includes any prospectus required by Section
10(a)(3) of the Securities Act or (2) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be included
in
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(1) and (2) above to be contained in periodic reports filed pursuant to Section
13 or 15(d) of the Exchange Act in the registration statement;
(b) Prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement;
(c) Furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as a Holder
from time to time may reasonably request;
(d) Register or qualify the securities covered by such registration
statement under the Blue Sky Laws of such jurisdictions as shall be reasonably
appropriate for the distribution of the securities covered thereby;
(e) [Intentionally Deleted]
(f) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make such statements therein not misleading or
incomplete in the light of the circumstances then existing;
(g) Cause all such Registrable Securities registered pursuant hereunder
to be listed on each securities exchange on which similar securities issued by
the Company are then listed;
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such registration statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration;
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<PAGE>
(i) Otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security holders,
as soon as reasonably practicable, an earnings statement covering the period of
at least twelve months, but not more than eighteen months, beginning with the
first month after the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act; and
(j) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 10.03 hereof, the Company will
enter into an underwriting agreement in form reasonably necessary to effect the
offer and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and provided further than if the underwriter
so requests the underwriting agreement will contain customary contribution
provisions.
10.06 FURNISH INFORMATION. The Holder or Holders of Registrable
Securities included in any Registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
reasonably required in connection with any Registration, qualification or
compliance referred to in this Article 10.
10.07 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, legal counsel, and accountants and each Person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which Registration, qualification, or compliance has been
effected pursuant to this Article 10; and each underwriter, if any, and each
Person who controls within the meaning of Section 15 of the Securities Act any
underwriter, against all expenses, claims, losses, damages, and liabilities (or
actions, proceedings, or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other document (including any
related registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such Registration, qualification, or compliance, and will
reimburse each such Holder, each of its officers, directors, partners, legal
counsel, and accountants and each person
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controlling such Holder, each such underwriter, and each Person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending or settling any such claim, loss,
damage, liability, or action, provided that the Company will not be liable in
any such case to the extent that any such claim, loss, damage, liability, or
expense arises out of or is based on any untrue statement or omission based upon
written information furnished to the Company by such Holder or underwriter and
stated to be specifically for use therein. It is agreed that the indemnity
agreement contained in this Section 10.07(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent has not
been unreasonably withheld).
(b) Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such Registration, qualification, or
compliance is being effected, indemnify the Company, each of its directors,
officers, partners, legal counsel, and accountants and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
Person who controls the Company of such underwriter within the meaning of
Section 15 of the Securities Act, each other such Holder, and each of their
officers, directors, and partners, and each person controlling such Holder
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular, or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company and such Holders, directors, officers, partners, legal counsel, and
accountants, persons, underwriters, or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability, or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder and
stated to be specifically for use therein provided, however, that the
obligations of such Holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld); and provided that in
no event shall any indemnity under this Section 10.07(b) exceed the gross
proceeds from the offering received by such Holder.
(c) Each party entitled to indemnification under this Section 10.07 (the
"Indemnified Party") shall give notice to the party required to provide
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indemnity (the "Indemnifying Party") promptly after such Indemnified Party has
actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Article 10, to the extent such
failure is not prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 10.07 is held by
a court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party hereunder as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) The obligations of the parties under this Section 10.07 shall
survive the completion of the offering of Registrable Securities under the
registration statement and otherwise.
10.08 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date of this Agreement, the Company shall not, without the prior written
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consent of a majority in interest of the Holders, enter into any agreement with
any holder or prospective holder of any securities of the Company giving such
holder or prospective holder any registration rights the terms of which are more
favorable than the registration rights granted to the Holders hereunder. This
Section 10.08 shall not apply to the existing registration rights disclosed in
the S-1 Registration Statement.
10.09 RULE 144 REPORTING. With a view to making available to the Holders
the benefits of certain rules and regulations of the Commission that may permit
the sale of the Restricted Securities to the public without registration, the
Company agrees, so long as any Holder owns Registrable Securities:
(a) Make and keep public information regarding the Company available as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times from and after 90 days following the effective date of the first
Registration under the Securities Act filed by the Company for a public offering
of its securities;
(b) File with the Commission in a timely manner all reports and other
documents required of the company under the Securities Act and the Exchange Act
at any time after it has become subject to such reporting requirements;
(c) Furnish to the Holder forthwith upon written request a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144 (at any time from and after 90 days following the effective date of the
first registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing a Holder to
sell any such securities without registration.
10.10 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights of any
Holder under this Agreement including, without limitation, the registration
rights under Article 10 may be transferred or assigned by a Holder only to a
transferee or assignee of not less than 1,000 shares of Registrable Securities
(as presently constituted and subject to subsequent adjustments for stock
splits, stock dividends, reverse stock splits, and the like), provided that the
Company is given written notice at the time of or within a reasonable time after
said transfer or assignment, stating the name and address of the transferee or
assignee and
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identifying the securities with respect to which such registration rights are
being transferred or assigned.
10.11 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance in
which all of the Registrable Securities and other shares of Common Stock of the
Company (including shares of Common Stock issued or issuable upon conversion of
shares of any currently unissued series of Preferred Stock of the Company) with
Registration rights (the "Other Shares") requested to be included in a
Registration on behalf of the Holders or other selling stockholders cannot be so
included as a result of limitations on the aggregate number of shares of
Registrable Securities and Other Shares that may be so included, the number of
shares of Registrable Securities and Other Shares that may be so included shall
be allocated among the Holders and other selling stockholders requesting
inclusion of shares pro rata based upon total number of shares requested to be
so included. In the event a Holder or other selling stockholder subsequently
withdraws or reduces a request for inclusion in such Registration, the number of
shares which may be so included shall be re-allocated in the same manner. The
Company may not limit the number of Registrable Securities to be included in a
Registration pursuant to this Agreement or with respect to Registrations under
Section 10.05 hereof, in order to include in such Registration securities
registered for the Company's own account; provided, however, that the provisions
of this sentence shall not apply to any circumstance which would render the
Company in default of its registration obligations which are in existence as of
the date hereof and which are disclosed in the S-1 Registration Statement or
require it to amend or modify such existing obligations.
10.12 SUSPENSION OF REGISTRATION RIGHTS. No Holder may request
Registration pursuant to Section 10.04 at any time that all Registrable
Securities held by such Holder may immediately be sold under Rule 144 during any
90-day period.
Section 11. LIMITATION OF LIABILITY. No provision hereof, in the absence
of affirmative action by the Holder hereof to purchase shares of Common Stock,
and no mere enumeration herein of the rights or privileges of the Holder hereof,
shall give rise to any liability of such Holder for the purchase price of the
Warrant Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
Section 12. LOSS OR DESTRUCTION OF WARRANT CERTIFICATES. Upon receipt of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Company
(the original
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<PAGE>
Warrant holder's or any other institutional Warrant holder's indemnity being
satisfactory indemnity in the event of loss, theft or destruction of any Warrant
owned by such institutional holder), or, in the case of any such mutilation,
upon surrender and cancellation of such Warrant, the Company shall make and
deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new
Warrant of like tenor and representing the right to purchase the same aggregate
number of shares of Common Stock.
Section 13. FURNISH INFORMATION. The Company agrees that it shall deliver
to the holder of record hereof promptly after their becoming available copies of
all financial statements, reports and proxy statements which the Company shall
have sent to its stockholders generally.
Section 14. AMENDMENTS. The terms of this Warrant and all other Warrants
may be amended, and the observance of any term therein may be waived, but only
with the written consent of the holders of Warrants evidencing a majority in
number of the total number of Stock Units at the time purchasable upon the
exercise of all then outstanding Warrants, PROVIDED that no such action may
change the number of shares of stock comprising a Stock Unit or the Exercise
Price, without the written consent of the holders of Warrants evidencing 100% in
number of the total number of Stock Units at the time purchasable upon the
exercise of all then outstanding Warrants. For the purposes of determining
whether the holders of outstanding Warrants entitled to purchase a requisite
number of Stock Units at any time have taken any action authorized by this
Warrant, any Warrants owned by the Company or any Affiliate of the Company
(other than an institutional investor which may be deemed an Affiliate solely by
reason of the ownership of Warrants) shall be deemed not to be outstanding.
Section 15. OFFICE OF THE COMPANY. So long as any of the Warrants remains
outstanding, the Company shall maintain an office in Los Angeles, California
where the Warrants may be presented for exercise, transfer, division or
combination as in this Warrant provided. Such office shall be at 3100 New York
Drive, Pasadena, California 91107, unless and until the Company shall designate
and maintain some other office for such purposes and deliver written notice
thereof to the holders of all outstanding Warrants.
Section 16. NOTICES GENERALLY.
16.1. All communications (including all required or permitted notices)
pursuant to the provisions hereof shall be in writing and shall be sent to the
address of such holder as it appears in the stock or warrant ledger of the
Company.
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16.2. Any notice shall be deemed to have been duly delivered (a) when
delivered by hand, if personally delivered, (b) if sent by mail to a party whose
address is in the same country as the sender, two Business Days after being
deposited in the mail, postage prepaid, (c) if sent by facsimile transmission on
a Business Day, when receipt is acknowledged or, if sent on a day that is not a
Business Day, on the next Business Day following the day on which receipt is
acknowledged and (d) if sent by recognized international courier, freight
prepaid, with a copy sent by telecopier, to a party whose address is not in the
same country as the sender, three Business Days after the later of (i) being
telecopied and (ii) delivery to such courier.
Section 17. GOVERNING LAW. This Warrant shall be governed by and
construed in accordance with the laws of the State of California.
Section 18. CONSIDERATION. The Warrants have been issued in
consideration of the sum of Three Hundred Dollars ($300.00).
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its name
by its President or a Vice President and its corporate seal to be impressed
hereon and attested by its Secretary or an Assistant Secretary.
Dated: June __, 1996
EARTHLINK NETWORK, INC.,
a California corporation
By: ______________________________
Name: Barry Hall
Title: Chief Financial Officer
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<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
(to be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for and purchases Stock Units of Earthlink Network, Inc., a California
corporation, purchasable with this Warrant, and herewith makes payment therefor
(by check in the amount of $__________), or hereby tenders Stock Units as
payment therefor, all at the price and on the terms and conditions specified in
this Warrant and requests that certificates for the shares of Common Stock
hereby purchased (and any securities or other property issuable upon such
exercise) be issued in the name of and delivered to
______________________________ whose address is ______________________________
and, if such Stock Units shall not include all of the Stock Units issuable as
provided in this Warrant that a new Warrant of like tenor and date for the
balance of the Stock Units issuable thereunder be delivered to the undersigned.
Dated: _______________________________
(Signature of Registered Owner)
_______________________________
(Street Address)
_______________________________
(City) (State) (zip Code)
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EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of Stock Units
set forth below:
No of Stock
Name and Address of Assignee Units
---------------------------- -----
and does hereby irrevocably constitute and appoint
______________________________ Attorney-in-Fact to make sure transfer on the
books of Earthlink Network, Inc., a California corporation, maintained for the
purpose, with full power of substitution in the premises.
Dated: _______________________________
Signature
_______________________________
Witness
NOTICE: The signature to the assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatever.
The signature to this assignment must be guaranteed by a bank or trust
company having an office or correspondent in Los Angeles, California,
or by a firm having membership on the New York Stock Exchange.
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<PAGE>
NOTE NO. _________
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") NOR IS SUCH REGISTRATION
CONTEMPLATED. THIS NOTE MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED AT ANY TIME WHATSOEVER UNLESS REGISTERED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE, EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER
OR THE SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY
TO IT AND TO ITS COUNSEL TO THE EFFECT THAT ANY SUCH TRANSFER WILL NOT BE IN
VIOLATION OF THE ACT, OR APPLICABLE STATE SECURITIES LAWS OR ANY RULE OR
REGULATION PROMULGATED THEREUNDER.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
EARTHLINK NETWORK, INC.
10% PROMISSORY NOTE
$___________ Los Angeles, California
June 7, 1996
FOR VALUE RECEIVED, the undersigned, EARTHLINK NETWORK, INC., a California
corporation (the "COMPANY") hereby promises to pay to the order of
_______________________________________________________ ("PAYEE") at
_______________________________________________________ or at such other place
as the holder of this Note may from time to time designate by written notice to
the Company, in lawful money of the United States of America, the principal sum
of ____________________ Dollars ($_________) on or before June 6, 1997. The
Company further promises to pay interest (computed on the basis of a 360-day
year for the actual number of days outstanding) in like money at said office or
other designated place on the unpaid principal amount hereof outstanding from
1.
<PAGE>
time to time from the date hereof until said principal amount shall have been
paid in full at the rate of 10% per annum. Interest shall be payable monthly in
advance commencing July 1, 1996 (which first payment shall additionally include
accrued interest from the date hereof to and including such date) and continuing
until payment in full of the unpaid principal amount hereof. All past due
principal and, to the extent permitted by applicable law, past due interest
shall bear interest at the rate of 14% per annum. If any payment on this Note
becomes due and payable on a Saturday, Sunday or other day on which commercial
banks in New York are authorized by law to close, the maturity thereof shall be
extended to the next succeeding business day.
1. PREPAYMENT. This Note may be prepaid at any time or from time to time
in whole or in part without premium or penalty. Any such prepayment shall be
accompanied by interest on the principal amount so prepaid to the date of
prepayment.
2. EVENTS OF DEFAULT. Upon the occurrence of an Event of Default (as
hereinafter defined) then, and in any such event, (a) if such Event of Default
constitutes an event specified in clause (a) or (b) of paragraph (5) of the
definition of Event of Default set forth hereinafter, this Note and the entire
indebtedness evidenced hereby shall immediately become due and payable and (b)
if such Event of Default is any other Event of Default, the holder hereof may,
at its option, during the continuance of any such Event of Default, by notice of
default to the Company declare this Note and the entire indebtedness evidenced
hereby to be immediately due and payable, whereupon the same shall become
immediately due and payable. Except as expressly provided above in this Section
2, presentment, demand, protest, and all other notices of any kind are hereby
expressly waived. As used herein, the term "Event of Default" shall mean any of
the following events:
(1) Failure by the Company to pay the principal of this Note, or any
portion thereof, at maturity, upon acceleration of maturity or when any
prepayment is due; or
(2) Failure by the Company to pay any installment of interest, or any
other amount due under this Note, when due, and the continuance of such
failure for a period of five (5) Business Days; or
(3) An event of default occurs under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured
or evidenced any indebtedness for money borrowed by the Company or any
corporation of which more than 50% of the outstanding
2.
<PAGE>
shares of voting stock is owned by Company (a "SUBSIDIARY") (or the payment
of which is guaranteed by the Company or a Subsidiary), whether such
indebtedness now exists or shall be created hereafter, if (a) either such
event of default results from the failure to pay any such indebtedness at
maturity or if the effect of such event of default is to cause or permit
the acceleration of such indebtedness prior to its stated maturity, such
indebtedness has been accelerated and such acceleration has not been
rescinded or annulled within ten days following the effective date thereof
and (b) the principal amount of such indebtedness, together with the
principal amount of any other indebtedness in default for failure to pay
principal at maturity or which has been accelerated, aggregates $50,000 or
more; or
(4) A final judgment or order for the payment of money in excess of
$50,000 shall be rendered against the Company or any Subsidiary and such
judgment or order shall continue unsatisfied or unstayed, whether pending
appeal or by appropriate legal action, and in effect for a period of 60
consecutive days; or
(5) (a) The Company or any Subsidiary shall commence any case,
proceeding or other action (i) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or
its debts or (ii) seeking appointment of a receiver, trustee, custodian or
other similar official for it or for all or a substantial part of its
assets, or it shall make a general assignment for the benefit of its
creditors; or (b) there shall be commenced against the Company or any
Subsidiary any case, proceeding or other action of a nature referred to in
clause (a) above which (i) results in the entry of an order for relief or
any such adjudication or appointment or (ii) remains undismissed,
undischarged or unbonded for a period of 60 days; or (c) there shall be
commenced against the Company or any Subsidiary any case, proceeding or
other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its
assets which results in the entry of an order for such relief which shall
not have been vacated, discharged, or stayed or bonded pending appeal
within 60 days from the entry thereof; or (d) the Company or any Subsidiary
shall admit in writing its inability to pay its debts generally as they
become due; or
3.
<PAGE>
(6) The Company commits any default under any promissory note which
is part of the series of notes of which this Note is one; or
(7) The Company commits any default under that certain Warrant dated
June 7, 1996 in favor of Payee (the "WARRANT").
3. EXPENSES OF COLLECTION. The Company shall pay to the holder of this
Note all expenses, including reasonable attorneys' fees, incurred by such holder
in enforcing this Note.
4. WARRANTIES AND REPRESENTATIONS. The Company warrants and represents
that it is a corporation duly organized, validly existing and in good standing
under the laws of the State of California, and has all requisite power and
authority to execute and deliver this Note and the Warrant and to perform its
obligations hereunder and thereunder. The execution, delivery and performance
of this Note and the Warrant and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized and approved by the
Board of Directors of the Company and have been duly authorized, executed and
delivered by, and each is the valid and binding obligation of, the Company,
enforceable in accordance with its terms, except as may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws or by
legal or equitable principles relating to or limiting creditors' rights
generally.
5. MISCELLANEOUS.
(a) All payments on this Note, at the option of the holder hereof,
shall be applied first to the payment of accrued and unpaid interest and,
after all such interest has been paid, any remainder shall be applied to
reduction of the principal balance.
(b) The Company and any endorsers hereof severally waive diligence,
presentment, protest and demand (except as otherwise required herein), and
expressly agree that this Note, or any payment hereunder, may be extended
from time to time, and hereby consent to the acceptance of security or the
release of any security for this Note, all without in any way affecting the
liability of the Company and any endorser hereof. Any extension of time
for the payment of this Note or any installment hereof made by agreement by
the holder with any person now or hereafter liable for the payment of this
Note shall not affect the original liability under this Note of the Company
or its successors, unless the Company or its successor is a party to such
agreement.
4.
<PAGE>
(c) This Note shall be governed by, and construed in accordance with,
the laws of the State of California.
(d) The headings used in the Sections of this Note are for
convenience of reference only and shall not affect in any way the meaning
or interpretation of this Note.
(e) The unenforceability or invalidity of any provision or provisions
of this Note as to any persons or circumstances shall not render that
provision or those provisions unenforceable or invalid as to any other
persons or circumstances, and all provisions hereof, in all other respects,
shall remain valid and enforceable.
(f) Notwithstanding any provisions contained herein to the contrary,
the Company's liability for the payment of interest shall not exceed the
limits imposed by any applicable usury law. If any provision of this Note
requires interest payments in excess of the highest rate permitted by law,
such provision shall be deemed to require only the highest such payment
permitted by law. Any amounts theretofore received by the holder hereof in
excess of the maximum amount so permitted shall be applied by the holder
hereof in reduction of the outstanding principal balance, or if this Note
shall theretofore have been paid in full, the amount of such excess shall
be returned promptly by such holder to the Company.
(g) This Note is delivered with the intention that Company and Agent
will negotiate in good faith in order to enter into a new note or notes and
other agreements which, in the aggregate, will supersede this Note, and
that it is intended that such negotiations will be concluded, and
agreements and note(s) executed and delivered, no later than September 9,
1996.
EARTHLINK NETWORK, INC.,
a California corporation
By: _____________________
Name: Barry Hall
Title: Chief Financial Officer
5.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated May 31, 1996, except
for Note 12, as to which the date is June 27, 1996, relating to the financial
statements of EarthLink Network, Inc., which appears in such Prospectus.
We also consent to the application of such report to the Financial Statement
Schedule for the period from inception through December 31, 1994 and the year
ended December 31, 1995 listed under Item 16(b) of this Registration Statement
when such schedule is read in conjunction with the financial statements
referred to in our report. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Costa Mesa, California
June 27, 1996
