<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 8, 1996.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
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 95-4481766
(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 Singer, Esq.
J. Stephen Hufford, Esq. Morgan, Lewis & Bockius LLP
W. Tinley Anderson, III, Esq. 2000 One Logan Square
Hunton & Williams Philadelphia, Pennsylvania 19103
NationsBank Plaza, Suite 4100 (215) 963-5000
600 Peachtree Street, NE
Atlanta, Georgia 30308
(404) 888-4000
</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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF OFFERING REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1) FEE
<S> <C> <C>
Common Stock, $.01 par value................................. $34,500,000 $10,454.55(2)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
(2) Pursuant to Rule 429(b), the securities registered hereby include 4,140,000
shares originally registered pursuant to a Registration Statement on Form
S-1 (Registration No. 333-5055). A filing fee of $17,131.03 was previously
paid in connection with such registration.
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>
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 NOVEMBER 8, 1996
SHARES
EARTHLINK NETWORK-REGISTERED TRADEMARK-
COMMON STOCK
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY EARTHLINK
NETWORK, INC. (THE "COMPANY"). PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC
MARKET FOR THE COMPANY'S COMMON STOCK. IT IS CURRENTLY ESTIMATED THAT THE
INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND $ PER SHARE. FOR FACTORS
CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE, SEE "UNDERWRITING."
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 UNDERWRITER, SEE
"UNDERWRITING."
(2) BEFORE DEDUCTING EXPENSES OF THE OFFERING PAYABLE BY THE COMPANY, ESTIMATED
AT $ .
(3) THE COMPANY HAS GRANTED THE UNDERWRITER AN OPTION, EXERCISABLE FOR 30 DAYS
FROM THE DATE OF THIS PROSPECTUS, TO PURCHASE UP TO ADDITIONAL SHARES
OF COMMON STOCK SOLELY TO COVER OVER-ALLOTMENTS, IF ANY. IF THE OPTION IS
EXERCISED IN FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND
COMMISSIONS AND PROCEEDS TO COMPANY WILL BE $ , $ AND $ ,
RESPECTIVELY. SEE "UNDERWRITING."
------------------------
THE SHARES OF COMMON STOCK ARE OFFERED BY THE UNDERWRITER, SUBJECT TO
PRIOR SALE, WHEN, AS AND IF DELIVERED TO AND ACCEPTED BY IT AND SUBJECT TO ITS
RIGHT TO REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF
THE SHARES WILL BE MADE IN NEW YORK, NEW YORK ON OR ABOUT , 1996.
INVEMED ASSOCIATES, INC.
THE DATE OF THIS PROSPECTUS IS , 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]
THE EARTHLINK INTERNET USER EXPERIENCE
EarthLink focuses on providing reliable access, useful information, assistance
and services to its customers to encourage their introduction to the Internet
and help them have a satisfying user experience.
GAINING ACCESS TO THE INTERNET THROUGH EARTHLINK NETWORK
The EarthLink Network-R- TotalAccess-TM- software package enables quick and easy
Internet access. A customer simply inserts the EarthLink Network-R-
TotalAccess-TM- disk into the computer and follows the step-by-step instructions
to register on-line for a new EarthLink account and gain access to the resources
of the Internet.
EarthLink Network-R- TotalAccess-TM- guides customers through a simple account
registration procedure. EarthLink provides a toll-free customer support number,
staffed 24 hours a day.
Once on the Internet, the customer can access a variety of EarthLink services,
such as the EarthLink Store, The Daily Blink-TM- on-line newsletter and The
Arena-TM-, EarthLinks' multi-player Internet game area.
[INSIDE BACK COVER PAGE]
EarthLink Network-R- has established relationships with a number of affinity
marketing partners through which the Company has expanded the reach of its
marketing efforts.
Trademarks are property of their respective owners. EarthLink Network-R-
TotalAccess-TM- is a trademark of EarthLink Network, Inc. Netscape Navigator-TM-
is a trademark of Netscape Communications Corporation. T@P Online is a trademark
of MarketSource Corporation. LAUNCH-TM- is a trademark of 2Way Media, Inc.
Activision-R- and Zork are registered trademarks. Spycraft-TM-: The Great Game
and Zork Nemesis are trademarks of Actvision, Inc. CNN-TM-, CNN Interactive-TM-,
CNN Learning-TM-, and each of their logos are trademarks of Cable News Network,
Inc. Smart Ventures-TM- is a trademark for American Institute for Financial
Research, Inc. DealerNet-TM- is a trademark of the Reynolds & Reynolds Company.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL EVENTS AND 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.
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS GIVES EFFECT TO
THE AUTOMATIC CONVERSION, UPON CONSUMMATION OF THIS OFFERING, OF ALL OUTSTANDING
SHARES OF THE COMPANY'S SERIES A CONVERTIBLE PREFERRED STOCK INTO 2,727,273
SHARES OF COMMON STOCK AND ALSO ASSUMES THE UNDERWRITER'S OVER-ALLOTMENT OPTION
IS NOT EXERCISED. SEE "DESCRIPTION OF CAPITAL STOCK" AND "UNDERWRITING." THE
FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
EarthLink Network, Inc. ("EarthLink" or the "Company") is an Internet
service provider ("ISP") that was formed to help users derive meaningful
benefits from the extensive resources of the Internet. The Company focuses on
providing reliable access, useful information, assistance and services to its
customers to encourage their introduction to the Internet and to help them have
a satisfying user experience.
International Data Corporation 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. However, the Company believes that
many users have not been able to enjoy the benefits of the Internet.
Particularly for non-technical users, access to the Internet is often difficult.
In addition, for some users the volume and lack of organization of the
information on the Internet makes accessing useful information and entertainment
an intimidating task.
EarthLink's principal strategy is to rapidly expand its customer base and
retain those customers who use its services principally by addressing these
problems. The Company provides its services through its EarthLink Network
TotalAccess software, which is designed to simplify access to the Internet
through an online registration feature and a "point and click" graphical user
interface. This software permits users to browse the Internet through use of
Netscape Communications Corporation's ("Netscape") Navigator ("Netscape
Navigator") or Microsoft Corporation's ("Microsoft") Internet Explorer
("Microsoft Explorer") (one or the other of which is included in each copy of
TotalAccess), or any other third-party browser that a customer may wish to use.
The Company also provides useful information to users through its extensive
World Wide Web site. On this site, users can find technical assistance
information, an on-line newsletter, links to numerous popular categories of
information and entertainment and many other items and services designed to
enhance users' satisfaction with their Internet experience. In addition, the
Company provides a monthly printed newsletter, as well as 24 hour customer and
technical support.
The Company markets its services through print advertisements, an affinity
marketing program, a customer referral program and other marketing activities.
Its affinity marketing program includes relationships with, among others,
prominent print publication, software and hardware companies. For example,
Macmillan Publishing USA bundles EarthLink Network TotalAccess software with
several Internet-related book titles. Customer referrals have also been an
important source of new customers, and the Company provides economic incentives
to its customers to encourage these referrals. The Company believes that these
programs are a cost-effective means of acquiring new customers.
The Company believes that its long-term success largely depends on
maintaining customer satisfaction with its services. Therefore, the Company will
continue to devote substantial resources to enhancing its service offerings,
expanding its technical support staff and expanding its World Wide Web site.
EarthLink also seeks to enhance its revenues by offering business services,
including business Web sites, high-speed ISDN communications capability in
Southern California and frame relay connectivity. In addition, the Company
offers consumer services such as multiplayer Internet games and the EarthLink
online store.
The Company has achieved a nationwide presence, without incurring
significant capital costs, by leasing access to dial-up points-of-presence
("POPs") from UUNET Technologies, Inc. ("UUNET") on a non-exclusive basis. The
Company also operates its own POPs in California. In addition, EarthLink has
agreed to lease POP access from PSINet, Inc. ("PSINet") on a non-exclusive
basis, and the Company plans to expand its own POPs in Northern California
within the next year. The Company will consider establishing its own POPs in
other areas if there is sufficient concentration of customers to support the
required capital investment.
The Company was incorporated as a California corporation in May 1994 and
reincorporated as a Delaware corporation in June 1996. The Company's principal
executive offices are located at 3100 New York Drive, Pasadena, California
91107, and its telephone number is (818) 296-2400.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered.......................... shares
Common Stock Outstanding after this
Offering..................................... shares (1)
Use of Proceeds............................... To finance sales and marketing activities,
leasehold improvements and investments in
network equipment, information systems and
office equipment, new service introductions
and for working capital and other general
corporate purposes, including the repayment
of indebtedness and possibly acquisitions.
Nasdaq National Market Symbol................. ELNK
Risk Factors.................................. The Common Stock offered hereby involves a
high degree of risk. See "Risk Factors."
</TABLE>
- ---------------
(1) Based on shares of Common Stock outstanding as of October 31, 1996, and
2,727,273 additional shares of Common Stock that will be outstanding upon
consummation of this Offering pursuant to the automatic conversion of all of
the Company's outstanding shares of Series A Convertible Preferred Stock.
This amount excludes (i) 2,011,500 shares of Common Stock subject to options
outstanding under the Company's 1995 Stock Option Plan having a weighted
average exercise price of $3.70 per share, (ii) 2,662,888 shares of Common
Stock subject to outstanding warrants and non-plan stock options having a
weighted average exercise price of $2.91 per share, (iii) 488,500 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, (iv) up to approximately 765,000 shares of Common Stock into
which $5,000,000 of outstanding indebtedness is convertible and (v) 720,000
shares of Common Stock underlying warrants and options that the Company has
committed to issue if certain future events occur. See "Capitalization,"
"Management -- 1995 Stock Option Plan and Other Option and Warrant
Issuances," "Management -- Directors Stock Option Plan and Other Director
Option Issuances," "Description of Capital Stock" and Notes 7 and 12 of
Notes to Financial Statements.
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
INCEPTION SIX MONTHS ENDED
(MAY 26, 1994) YEAR ENDED ----------------------
THROUGH DECEMBER 31, JUNE 30, JUNE 30,
DEC. 31, 1994 1995 1995 1996
-------------- ------------ --------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............................................... $ 111 $ 3,028 $ 618 $ 10,146
Loss from operations......................................... (148) (6,018) (1,072) (11,463)
Net loss..................................................... (148) (6,120) (1,113) (11,704)
Net loss per share (1)....................................... $ (0.01) $ (0.45) $ (0.08) $ (0.80)
Weighted average shares
outstanding (1)............................................. 12,109 13,606 13,284 14,645
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------------------
ACTUAL PRO FORMA (2) AS ADJUSTED (3)
---------- -------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................................. $ (9,178) $ 9,835 $
Total assets.......................................................... 14,560 19,560
Capital lease obligations, net of current portion..................... 4,527 4,527
Total liabilities..................................................... 16,976 21,976
Accumulated deficit................................................... (16,711) (16,711)
Stockholders' equity (deficit)........................................ (2,416) 11,597
</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.
(2) Adjusted to give effect to the issuance of 2,727,273 shares of the Company's
Series A Convertible Preferred Stock and the conversion of such stock into
an equivalent number of shares of Common Stock and the issuance of a $5
million convertible promissory note, as if such events occurred on June 30,
1996.
(3) Adjusted to reflect the sale of the shares of Common Stock offered
hereby and receipt by the Company of the estimated net proceeds therefrom.
See "Use of Proceeds" and "Capitalization."
"EARTHLINK NETWORK-REGISTERED TRADEMARK-," "EARTHLINK NETWORK
TOTALACCESS-TM-," "BLINK-TM-," "THE ARENA-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. ACTUAL EVENTS AND 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. INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. 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 had net losses of
approximately $6.3 million from inception through 1995 and of approximately
$11.7 million for the six months ended June 30, 1996. As of June 30, 1996, the
Company had an accumulated deficit of approximately $16.7 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 as it continues to expend
substantial resources on sales, marketing and administration, build its network
systems, develop new service offerings and improve its management information
systems. 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 and UUNET; (ii) established online services such as America Online,
CompuServe, Prodigy and the Microsoft Network; (iii) computer software and
technology companies such as Microsoft; (iv) national telecommunications
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.
The entry of new participants from these categories and the potential entry
of competitors from other categories (such as computer hardware manufacturers)
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 telecommunications industry may be
able to provide customers with reduced communications costs in connection with
their Internet access services, reducing the overall cost of Internet access and
significantly increasing pricing pressures on the Company. Among other
competitors who have recently introduced or enhanced their Internet offerings,
AT&T has recently expanded its Internet services offerings. The Company believes
that AT&T's expansion has substantially increased pricing pressure in the
industry. In addition, certain of the Company's online competitors, including
America Online, the Microsoft Network and Prodigy, have recently announced
unlimited access to the Internet and their proprietary content at flat rates
that are equal to the Company's monthly flat rate, and do not require a set-up
fee. Certain of the RBOCs have also announced competitive flat-rate pricing for
unlimited access (without a set-up fee for at least some period of time). As a
result, competition for active users of Internet services should intensify.
There can be no assurance that the
5
<PAGE>
Company will be able to offset the adverse effect on revenues of any necessary
price reductions resulting from competitive pricing pressures by increasing the
number of its customers, by generating higher revenue from enhanced services, by
reducing costs or otherwise.
Competition is also expected to focus increasingly on overseas markets, in
which Internet services are just beginning to be introduced. The Company is not
presently seeking to penetrate 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.
There can be no assurance that the Company will have the financial
resources, technical expertise or marketing and support capabilities to compete
successfully. See "-- Dependence on Third-Party Network Providers," "-- New and
Uncertain Market; Dependence on Continued Growth in Use of the Internet;
Uncertainty of Customer Retention," "-- Dependence on Network Infrastructure;
Capacity; Risk of System Failure; Security Risks," "-- Dependence on Affinity
Marketing and Distribution Relationships," "Business -- Competition" and "--
Government Regulation."
RISKS ASSOCIATED WITH MANAGEMENT OF POTENTIAL GROWTH
The Company's growth has placed, and is expected to continue to place, a
significant strain on its managerial, operational, financial and information
systems resources. To accommodate its current size and manage growth, the
Company must continue to implement and improve its operational, financial and
information systems, and expand, train and manage its employee base.
Additionally, expansion of the Company's information and network systems is
required to accommodate its growth. There can be no assurance that the Company
will be able to effectively manage the expansion of its operations, or that the
Company's 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 would have a material adverse effect on the Company.
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 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 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 or technical 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 and technical support will largely depend on its ability to attract,
identify, train, integrate and retain qualified personnel. Failure to provide
adequate customer and technical support services will adversely affect the
Company's ability to increase its customer base, and could therefore have a
material adverse effect on the Company. 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."
DEPENDENCE ON THIRD-PARTY NETWORK PROVIDERS
As of October 31, 1996, the Company maintained 20 Company-owned POPs and
provided Internet access through an additional 336 UUNET POPs to which it has
acccess on a non-exclusive basis. The Company is dependent on UUNET, a
third-party provider of Internet network infrastructure, to continue to provide
the Company's customers with access to the Internet through UUNET's systems of
POPs. The Company recently executed an agreement with PSINet to access PSINet's
nationwide system of POPs on a non-exclusive basis. The Company believes that
its customers will have Internet access through PSINet POPs by the end of 1996.
The Company's agreement with UUNET has a term expiring in March 1999 (subject to
6
<PAGE>
earlier cancellation after March 1998 upon one year's prior notice, but provided
that if this notice is given, EarthLink is required to begin to reduce its usage
of UUNET's POPs in accordance with a schedule set forth in the agreement). If
the agreement expires at the end of its term, it is automatically renewed for
consecutive one-year terms unless prior notice of termination is given. The
PSINet agreement has a term expiring in July 1998 after which it is
automatically renewed for consecutive one-year terms unless prior notice of
termination is given.
Both UUNET and PSINet provide POP access to ISPs other than the Company and
to entities offering online services. UUNET provides such access to, among
others, Microsoft for the Microsoft Network, a competitor of the Company. The
Microsoft Network has recently announced unlimited access to the Internet at a
flat rate, which could substantially increase utilization of UUNET POPs by
subscribers to the Microsoft Network. Microsoft is a stockholder of UUNET's
parent corporation, MFS Communications Company, Inc. ("MFS"), and therefore
could be granted preferred access to UUNET's system of POPs. Accordingly, if
customer usage of the Microsoft Network materially increases, the Company's
access to UUNET's system of POPs may be limited and the Company's customers may
experience increased difficulties in gaining access to the Internet. As usage of
UUNET's and PSINet's POPs by other ISPs' and online service providers' customers
increases, system performance experienced by EarthLink's customers may degrade
and POP access may become limited. UUNET and PSINet also independently compete
with the Company.
UUNET was recently acquired by MFS, a supplier of local and long distance
telephone service. In August 1996, MFS and WorldCom, Inc. ("WorldCom") announced
that MFS and WorldCom had executed a definitive agreement for the merger of MFS
into WorldCom. The parties also announced that they expect to consumate this
merger during the first quarter of 1997. There can be no assurance that,
following the expiration of the Company's current agreement with UUNET, the
Company will continue to have access to UUNET's POPs 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 current agreement with UUNET, the Company
pays UUNET a monthly fee equal to the greater of a specified minimum or an
amount that varies based primarily on peak customer usage. The Company also pays
UUNET an additional fee to the extent that hours of usage exceed a formula set
forth in the agreement. The Company has recently experienced increasing per
customer usage of its services. If the number of hours used by EarthLink
customers accessing the Internet through UUNET increases beyond the amount
provided for in the agreement, the fees paid by the Company to UUNET would
increase, which would adversely affect the Company's operating margins.
As noted above, under the Company's current agreement with UUNET, the
Company pays UUNET a monthly fee equal to the greater of a specified minimum or
an amount that varies based primarily on peak customer usage. The specified
minimum amount increases over the term of the agreement. The Company's operating
margins could be adversely affected if the Company is unable to increase its
customer base so as to avoid paying the increasing minimum amount. 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 --
EarthLink's Services" and "-- Customers, POPs and Network Infrastructure."
The inability or unwillingness of one or both of UUNET and PSINet to provide
POP access to the Company's customers, or the Company's inability to secure
alternative POP arrangements if necessary, 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. See "-- Dependence on Network Infrastructure;
Capacity; Risk of System Failure; Security Risks."
FACTORS AFFECTING OPERATING RESULTS; POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's operating results may 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
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associated with, new customer acquisition, customer retention, capital
expenditures and other costs relating to the expansion of operations, including
upgrading the Company's systems and infrastructure, the timing and market
acceptance of new and upgraded service introductions, changes in the pricing
policies of the Company and its competitors, changes in operating expenses
(including telecommunications costs), 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 significant portion of the Company's expenses are fixed; 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 agreed to produce and broadcast 15-second and 60-second commercials
for EarthLink's services. Under this agreement, in addition to certain fees
payable to NMC, the Company agreed to issue warrants to NMC to purchase up to
100,000 shares of Common Stock having an exercise price of $4.88 per share, upon
the completion by NMC, subject to the Company's approval, of the 15-second and
60-second commercials, and to issue warrants to NMC to purchase one share of
Common Stock for each customer generated by this relationship, up to 600,000
shares of Common Stock. The exercise price of such additional 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 such 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 issuance. 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 to which the Company has access through UUNET and PSINet. The Company
will be required to expand and improve this infrastructure as the number of
customers and the amount and type of information its customers communicate over
the Internet increases, and the means by which customers connect to the Internet
evolve. Such expansion and improvement may require substantial financial,
operational and managerial resources. There can be no assurance that the Company
will be able to expand or improve 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,
servers and other equipment used by the Company in providing its services. Any
severe shortage of new telephone lines, modems, 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
various network, email, Web and other 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 of these events could cause customers
to terminate use of the Company's services. Accordingly, 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. See "-- Dependence on Third-Party Network Providers" and "Business --
Customers, POPs and Network Infrastructure."
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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 and
network hub or at POPs through which customers connect to the Internet could
cause interruptions in the services provided by the Company. For example, in
October 1996, the Company experienced a power outage at its network hub in Los
Angeles, which caused a several hour system wide disruption of the Company's
Internet services. Services were restored when the Company installed a backup
power source, on which it is still relying. The Company's computer equipment,
including critical equipment dedicated to its Internet services, is located in
Los Angeles and Pasadena, California. The Company will relocate its data center
from Los Angeles to a facility adjacent to its Pasadena headquarters in the near
future. The risks associated with such a move include network and services down
time, 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. In addition, failure of the Company's telecommunications
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.
The Company's network infrastructure, including the POP sites to which the
Company has access through UUNET and PSINet, 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 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. 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
telecommunications 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. See "-- Risks Associated with Management of
Potential Growth," and "-- Dependence on Third-Party Network Providers."
FUTURE ADDITIONAL CAPITAL REQUIREMENTS
The Company believes that the net proceeds from this Offering, together with
other available cash, will be sufficient to meet the Company's operating
expenses and capital requirements for at least the next 12 months. However, 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 rate of expansion of the Company's network
infrastructure, the level of resources required to expand the Company's
marketing and sales organization, information systems and research and
development activities, the availability of hardware and software provided by
third-party vendors 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 sooner than anticipated. 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
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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, as well as the market price of the
Common Stock. See "-- Risks Associated with Management of Potential Growth," "--
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 TELECOMMUNICATIONS CARRIERS AND OTHER SUPPLIERS
The Company relies on local telephone companies and other companies to
provide data communications capacity via local telecommunications lines and
leased long distance lines. The Company is subject to potential disruptions in
these telecommunications 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 Netscape Navigator and Microsoft Explorer, the
World Wide Web browser software that the Company licenses from Netscape and
Microsoft, respectively. 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 adversely affect the Company's ability to
effectively support the growth of its customer base in a timely manner and
increase its costs of expansion. Moreover, because Netscape Navigator and
Microsoft Explorer are the two most widely used Web browsers, the failure of
Netscape or Microsoft to continue to provide World Wide Web browser software to
the Company could have a material adverse effect on the Company.
The Company's suppliers and telecommunications carriers also sell or lease
services and products to the Company's competitors, and some of these carriers
are, and in the future others may become, competitors of the Company. There can
be no assurance that the Company's suppliers and telecommunications carriers
will not enter into exclusive arrangements with the Company's competitors or
otherwise stop selling or leasing their services or products to the Company. See
"-- Competition," "Business -- Supplier Relationships" and
"-- Marketing."
DEPENDENCE ON AFFINITY MARKETING AND DISTRIBUTION RELATIONSHIPS
A significant number of the Company's customers have been generated through
its relationships with its affinity marketing partners. The Company relies on
these marketing relationships 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 maintain its affinity marketing
relationships or establish new affinity marketing relationships could result in
delays and increased costs in expanding its customer base, which could, in turn,
have a material adverse effect on the Company. See "Business -- Marketing --
Affinity Marketing Partners Program."
NEW AND UNCERTAIN MARKET; DEPENDENCE ON CONTINUED GROWTH IN USE OF THE INTERNET;
UNCERTAINTY OF CUSTOMER RETENTION
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 more widespread, that
extensive Internet content will continue to be developed or that extensive
Internet content will continue to be accessible at no or nominal cost. The
Internet may not prove to be viable for a number of reasons, including
potentially inadequate development of the necessary infrastructure or of
performance improvements. If use of the Internet
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does not continue to grow, the Company would be materially and adversely
affected. Conversely, 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. See "-- Risks Associated with Management
of Potential Growth."
The sales, marketing and other costs to the Company of acquiring new
customers are substantial relative to the monthly fee derived from such
customers. Accordingly, the Company believes that its long-term success largely
depends on its ability to retain its existing customers, while continuing to
attract new customers. The Company continues to invest significant resources in
its infrastructure and customer and technical 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.
Moreover, intense competition from competitors, some of whom offer many free
hours of services for new customers, have most likely caused, and may continue
to cause, some of the Company's customers to switch to a competitor's service.
In addition, a certain number of new Internet users experience the Internet only
as a novelty and do not become consistent users of Internet services. These
factors adversely affect the Company's customer retention rates. See "-- Risks
Associated with Management of Potential Growth," "-- Dependence on Network
Infrastructure; Capacity; Risk of System Failure; Security Risks," "--
Competition" 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 and obtain market acceptance. There are currently under development a
number of alternative methods for users to connect to the Internet, including
cable modems and satellite and other wireless telecommunications technologies.
Any failure on the part of the Company to use new technologies effectively, to
develop its technical expertise and new services or to enhance existing services
on a timely basis, either internally or through arrangements with third parties,
could have a material adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the technical and managerial skills of
its key employees, including technical, sales, marketing, information systems,
financial and executive personnel, and on its ability to identify, hire and
retain additional personnel. To accomodate its current size and manage its
anticipated growth, the Company must maintain and expand its employee base.
Competition for key personnel, particularly persons having technical expertise,
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. The need
for such personnel is particularly important given the strains on the Company's
existing infrastructure and the need to anticipate the demands of future growth.
As of December 31, 1995 and September 30, 1996, the Company had 196 and 480
full-time employees, respectively. In particular, 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, information systems, 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. See
"-- Risks Associated with Management of Potential Growth," "Business --
Employees" and "Management."
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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 telecommunications 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 FCC has requested comments on this petition, but has not
set a deadline for issuing a final decision.
The recently enacted Telecommunications Act of 1996 (the "Telecommunications
Act") contains certain provisions that lift, or establish procedures for
lifting, certain restrictions relating to the RBOCs' ability 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 and allows RBOCs to provide electronic publishing of information and
databases. Competition from these companies could have a material adverse effect
on the Company. 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 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
although a federal district court panel recently issued a preliminary injunction
preventing enforcement of this part of the Telecommunications Act. 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 offerings. Any costs that
are incurred as a result of such expenditure, contesting any such asserted
claims or the imposition of liability could have a material adverse effect on
the Company.
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
protection and infringement. Changes in the regulatory environment relating to
the Internet services 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.
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, consultants and, when possible, suppliers to execute
confidentiality agreements upon the commencement of their relationships with the
Company. There can be no assurance that the steps taken by the Company will be
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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 of termination from the
other party, but are generally terminable earlier upon the occurence of certain
events (and, with respect to Microsoft, is terminable by Microsoft or the
Company at will). Applications licensed by the Company include Netscape
Navigator, Microsoft Explorer and MacTCP software from Apple Computer, Inc.
("Apple"). There can be no assurance that the Company will be able to maintain
its existing licenses or successfully obtain necessary license renewals in the
future. The failure to maintain or renew its licenses in the future could have a
material adverse effect on the Company.
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 alleging that
certain of the names or marks for the Company's services 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. However, there can be no
assurance that those claims will not have an adverse effect in the future or
that other parties will not assert infringement claims against the Company in
the future with respect to current or future services. Such claims could result
in substantial costs and diversion of resources, even if ultimately decided in
favor of the Company, and could have a material adverse effect on the Company,
particularly if judgments on such claims are adverse to the Company. 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.
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, services 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, services 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 network facilities, technology, rights and other assets,
additional expenses associated with the amortization of acquired intangible
assets, the inability to maintain uniform 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 % of the
outstanding shares of Common Stock following this Offering ( % if the
Underwriter's 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 Stockholders."
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of the 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 the holders
of shares of Common Stock, shares of Series A Convertible Preferred
Stock and warrants, options and convertible securities to purchase shares
of Common Stock (including all of the Company's officers and directors) have
agreed not to sell or otherwise dispose of any of their shares of Common Stock,
any options or warrants to acquire shares of Common Stock or securities
exchangeable or convertible into shares of Common Stock for a period of one year
after the date of this Prospectus without the prior written consent of the
Underwriter. However, the Underwriter 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. Further, the holders of substantially all of the shares
of Common Stock outstanding prior to this Offering as well as holders of certain
warrants and convertible debt are parties to registration rights agreements. The
exercise of these registration rights and subsequent sale of a substantial
number of shares of the Common Stock in the public market could adversely affect
the market price of the Common Stock. See "Description of Capital Stock --
Registration Rights," "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 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, and 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." Following the first meeting of its stockholders
subsequent to this Offering, and provided that there are 800 or more beneficial
owners of the Common Stock, the Company anticipates that it will seek
stockholder approval to divide its Board into three classes, each serving a
staggered three-year term. 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 Underwriter 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 an estimate of the business potential of the Company, the
present state of the Company's development, an assessment of the Company's
management, prevailing market conditions, the demand for similar securities of
comparable companies 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 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."
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IMMEDIATE AND SUBSTANTIAL DILUTION
Assuming an initial public offering price of $ per share, 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 $ per
share. To the extent that currently outstanding options, warrants and
convertible debt are exercised or converted, there will be further dilution. See
"Dilution."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $ ($ if the
Underwriter's over-allotment option is exercised in full) at an assumed initial
public offering price of $ per share, after deducting estimated underwriting
discounts and commissions and offering expenses payable by the Company.
EarthLink expects to use the net proceeds of this Offering to finance sales
and marketing activities, leasehold improvements, investments in network
equipment, information systems and office equipment. In addition, the Company
expects to use the net proceeds for new service introductions and for working
capital and other general corporate purposes. The Company intends to use a
portion of the net proceeds of this Offering to repay approximately $2.95
million of short-term indebtedness (which bears interest at 10% per annum and
matures in June 1997). The Company also intends to repay $5 million of
outstanding convertible debt to UUNET (which bears interest at a floating rate
of prime plus 2% per annum (10.25% for November 1996) and matures in October
1997), unless UUNET decides to convert such debt to Common Stock prior to
repayment. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Certain
Transactions."
The amounts actually expended for each purpose will be determined at the
discretion of the Company's management. The Company's future capital
requirements and the allocation of the net proceeds of this Offering will depend
on many factors, including the rate of market acceptance of the Company's
services, the Company's ability to expand and maintain its customer base, the
rate of expansion of the Company's network infrastructure, the level of
resources required to expand the Company's marketing and sales organization,
information systems and research and development activities, the availability of
hardware and software provided by third-party vendors and other factors. The
Company also anticipates that it may use a portion of the net proceeds to
acquire complementary product and service 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
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. The payment of future
cash dividends, if any, will be at the sole discretion of the Board of
Directors.
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CAPITALIZATION
The following table sets forth as of June 30, 1996 (i) the capitalization of
the Company, (ii) the pro forma capitalization of the Company giving effect to
the issuance by the Company of 2,727,273 shares of the Series A Convertible
Preferred Stock and (iii) the capitalization of the Company as adjusted to
reflect the automatic conversion upon consummation of this Offering of each
share of Series A Convertible Preferred Stock into one share of Common Stock,
the sale of the shares of Common Stock being offered hereby at an assumed
initial public offering price of $ per share and the application of the
estimated net proceeds therefrom.
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------
AS
ACTUAL PRO FORMA ADJUSTED
----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Capitalized lease obligations, net of current portion........................ $ 4,527 $ 4,527 $ 4,527
Convertible debt............................................................. -- 5,000 --
----------- --------- ---------
Total debt........................................................... 4,527 9,527 4,527
Stockholders' equity.........................................................
Series A Convertible Preferred Stock, $0.01 par value, 10,000,000 shares
authorized; none issued and outstanding, actual; 2,727,273 shares issued
and outstanding, pro forma; none issued and outstanding, as adjusted
(1)....................................................................... -- 27
Common Stock, $0.01 par value, 50,000,000 shares authorized; issued and
outstanding, actual and pro forma; shares issued and outstanding, as
adjusted (2).............................................................. 120 120
Additional paid-in capital................................................... 13,764 27,750
Warrants to purchase Common Stock............................................ 411 411 411
Accumulated deficit.......................................................... (16,711) (16,711) (16,711)
----------- --------- ---------
Total stockholders' equity (deficit)................................. (2,416) 11,597
----------- --------- ---------
Total capitalization................................................. $ 2,111 $ 21,124
----------- --------- ---------
----------- --------- ---------
</TABLE>
- ---------------
(1) The Company issued 2,727,273 shares of Series A Convertible Preferred Stock
subsequent to June 30, 1996.
(2) This amount excludes the following securities outstanding or reserved for
future grant as of October 31, 1996: (i) 2,011,500 shares of Common Stock
subject to options outstanding under the Company's 1995 Stock Option Plan
having a weighted average exercise price of $3.70 per share, (ii) 2,662,888
shares of Common Stock subject to outstanding warrants and non-plan stock
options having a weighted average exercise price of $2.91 per share, (iii)
488,500 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, (iv) up to approximately 765,000 shares of Common
Stock into which $5,000,000 of outstanding indebtedness is convertible and
(v) 720,000 shares of Common Stock underlying warrants and options that the
Company has committed to issue if certain future events occur. See
"Capitalization," "Management -- 1995 Stock Option Plan and Other Option and
Warrant Issuances," "Management -- Directors Stock Option Plan and Other
Director Option Issuances," "Description of Capital Stock" and Notes 7 and
12 of Notes to Financial Statements.
16
<PAGE>
DILUTION
The pro forma net tangible book value of the Common Stock as of June 30,
1996 was negative $2,892,000, or approximately negative $0.20 per share. 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 (assuming the issuance, on June 30, 1996, of
the Company's Series A Convertible Preferred Stock and the conversion of such
stock into shares of Common Stock). After giving effect to the sale by the
Company of the shares of Common Stock offered hereby at an assumed initial
public offering price of $ 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 June 30,
1996 would have been $ , or approximately $ per share. This represents
an immediate increase in the net tangible book value of $ per share to
existing stockholders and an immediate dilution of $ per share to new
investors purchasing shares of Common Stock in this Offering. 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.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share........................... $
Pro forma net tangible book per share value as of June 30,
1996........................................................... $ (0.20)
Increase per share attributable to the Offering.................
---------
Pro forma net tangible book value after this Offering.............
---------
Dilution per share to new investors............................... $
---------
---------
</TABLE>
The following table sets forth, on an as adjusted basis as of June 30, 1996,
the difference between the number of shares of Common Stock purchased from the
Company (assuming the issuance, on June 30, 1996, of the Company's Series A
Convertible Preferred Stock and the conversion of such stock into shares of
Common Stock), 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 $ per
share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------------- --------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 14,697,738 % $ 30,144,713 % $
New investors........................
------------- ----- -------------- ----- -----------
Total.............................. 100.0% $ 100.0%
------------- ----- -------------- -----
------------- ----- -------------- -----
</TABLE>
The foregoing table excludes all outstanding options, warrants and
convertible debt. See Notes 7 and 12 of Notes to Financial Statements. The
exercise or conversion of outstanding options, warrants and convertible debt
having an exercise or conversion price less than the initial public offering
price would increase the dilutive effect to new investors illustrated by the
foregoing tables.
17
<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 26, 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 six months ended June 30, 1995
and June 30, 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) SIX MONTHS ENDED JUNE
THROUGH YEAR ENDED 30,
DECEMBER 31, DECEMBER 31, ----------------------
1994 1995 1995 1996
-------------- ------------ --------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Recurring revenues.................................... $ 53 $ 2,422 $ 426 $ 7,642
Other revenues........................................ 58 606 192 2,504
-------------- ------------ --------- -----------
Total revenues...................................... 111 3,028 618 10,146
Operating costs and expenses:
Cost of recurring revenues............................ 4 1,055 257 5,563
Cost of other revenues................................ 12 349 30 1,327
Sales and marketing................................... 37 3,711 510 5,472
General and administrative............................ 168 2,062 509 4,055
Operations and customer support....................... 38 1,869 384 5,192
-------------- ------------ --------- -----------
Total operating costs and expenses.................. 259 9,046 1,690 21,609
-------------- ------------ --------- -----------
Loss from operations.................................... (148) (6,018) (1,072) (11,463)
Interest expense........................................ -- (136) (42) (261)
Interest income......................................... -- 34 1 20
-------------- ------------ --------- -----------
Net loss............................................ $ (148) $ (6,120) $ (1,113) $ (11,704)
-------------- ------------ --------- -----------
-------------- ------------ --------- -----------
Net loss per share (1).................................. $ (0.01) $ (0.45) $ (0.08) $ (0.80)
-------------- ------------ --------- -----------
-------------- ------------ --------- -----------
Weighted average shares outstanding (1)................. 12,109 13,606 13,284 14,645
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------- ----------------------
1994 1995 1995 1996
-------------- ------------ --------- -----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................... $ (62) $ (1,976) $ 315 $ (9,178)
Total assets............................................ 186 4,874 1,528 14,560
Capital lease obligations, net of current portion....... -- 355 6 4,527
Total liabilities....................................... 89 4,584 625 16,976
Accumulated deficit..................................... (148) (5,007) -- (16,711)
Total stockholders' equity (deficit).................... 97 290 903 (2,416)
</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.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
EarthLink is an ISP that was formed to help users derive meaningful benefits
from the extensive resources of the Internet. 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 significant
increases in revenues and related expenses. As a result, period-to period
comparisons of the Company's results of operations may not be as meaningful as
these comparisons would be for mature companies.
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."
The Company has experienced net losses since it commenced operations and had
net losses of approximately $6.3 million from inception through 1995 and of
approximately $11.7 million for the six months ended June 30, 1996. As of June
30, 1996, the Company had an accumulated deficit of approximately $16.7 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 will continue to incur net losses as it
continues to expend substantial resources on sales, marketing and
administration, build its infrastructure, develop new service offerings and
improve its management information systems. There can be no assurance that the
Company will achieve or sustain profitability or positive cash flow from its
operations.
The Company's principal strategy is to rapidly expand and retain its
customer base. To realize this strategy, the Company intends to increase its
investment in sales and marketing. Also, the Company plans to add administrative
infrastructure, increase customer and technical support capability and build
network infrastructure to meet customer demand. The sales and marketing and
other costs to the Company of acquiring new customers are substantial relative
to the monthly fee derived from such customers. Accordingly, the Company's
long-term success depends largely upon its ability to retain its existing
customers, while continuing to attract new customers.
The market for the Company's services 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 infrastructure, including its information systems,
technologies and services. There can be no assurance that the Company will be
successful in addressing such risks. See "Risk Factors."
RESULTS OF OPERATIONS
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 over the period
for which the services are performed.
For the period from inception, May 26, 1994, through December 31, 1994 (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 $426,000 and $7.6 million for the six
months ended June 30, 1995 and June 30, 1996, respectively. Other revenues were
approximately $192,000 and $2.5 million for the six
19
<PAGE>
months ended June 30, 1995 and June 30, 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 six
months ended June 30, 1996 increased over revenues for the six months ended June
30, 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 six months
ended June 30, 1996 increased over other revenues in the six months ended June
30, 1995 as a result of an increase in the number of new customers during that
period and one-time set-up fees collected from customers. From time to time, the
Company waives the one-time set-up fee it charges new customers.
COST OF REVENUES. Cost of revenues consists of cost of recurring revenues
and cost of other revenues. Cost of recurring revenues principally includes
telecommunications expenses and depreciation expense on equipment used in
network operations for ongoing customer services. Included in telecommunications
cost are fees paid to UUNET for local access to its nationwide 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
six months ended June 30, 1996 increased to approximately 73% of recurring
revenues, up from 60% of recurring revenues for the six months ended June 30,
1995 due to increased hourly customer usage and the Company's expansion to
nationwide service through its relationship with UUNET. During these periods,
the Company paid 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's agreement with UUNET was amended as of October 1996 such that the key
variable component is peak usage rather than hourly usage. As the Company
continues to expand, the Company anticipates that it may build and use
additional 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 current agreement with UUNET, the Company
pays UUNET a monthly fee equal to the greater of a specified minimum or an
amount that varies based primarily on peak customer usage. The Company also pays
UUNET an additional fee to the extent that hours of usage exceed a formula set
forth in the agreement. The Company has recently experienced increasing per
customer usage of its services. If the number of hours used by EarthLink
customers accessing the Internet through UUNET increases beyond the amount
provided for in the agreement, the fees paid to UUNET would increase, which
would adversely affect the Company's operating margins.
As noted above, under the Company's current agreement with UUNET, the
Company pays UUNET a monthly fee equal to the greater of a specified minimum or
an amount that varies based primarily on peak customer usage. The specified
minimum amount increases over the term of the agreement. The Company's operating
margins could be adversely affected if the Company is unable to increase its
customer base so as to avoid paying the increasing minimum amount. See "Business
- -- EarthLink's Services" and "-- Customers, POPs and Network Infrastructure."
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 $510,000, or 83%
of revenues, and $5.5 million, or 54% of revenues, for the six months ended June
30, 1995 and June 30, 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
20
<PAGE>
sales commissions and increased marketing personnel. The Company intends to
aggressively promote EarthLink's services 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 the finance and accounting and human
resources departments, legal expenses, rent and expenses, principally
compensation, related to certain executive officers. General and administrative
expenses were approximately $168,000 and $2.1 million for the Inception Period
and the year ended December 31, 1995, respectively. General and administrative
expenses were approximately $509,000 and $4.1 million, for the six months ended
June 30, 1995 and June 30, 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 to accommodate anticipated
increases in the number of customers and employees. During the six months ended
June 30, 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 new management information systems and continue
to expand staff in order to support anticipated customer and operational 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 support and customer
service to register and maintain customer accounts. 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 $384,000, or 62% of revenues, and $5.2 million, or 51% of
revenues, for the six months ended June 30, 1995 and June 30, 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 the Company's customer base and anticipated
customer growth. 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 $1.7 million, which
begin to expire in 2001. The Tax Reform Act of 1986 includes provisions that
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 a
result, losses totaling approximately $2.8 million flowed directly to the
stockholders during the period and are not included in the amount of net
operating loss carryforwards.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's operating results may 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, including upgrading the Company's
systems and infrastructure, the timing and market acceptance of new and upgraded
service introductions, changes in the pricing policies of the Company and its
competitors, changes in operating expenses (including telecommunications costs),
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 significant portion of the Company's
expenses are fixed; therefore, the Company's operating margins are particularly
sensitive to fluctuations in revenues.
21
<PAGE>
In May 1996, the Company entered into an agreement with NMC, a producer of
infomercials and commercials, pursuant to which NMC agreed to produce and
broadcast 15-second and 60-second commercials for EarthLink's services. Under
this agreement, for customers who, in response to these commercials, subscribe
to and pay for the Company's services for 60 days from the date of registration,
the Company is obligated to pay NMC, at NMC's one-time election made prior to
the first airing of any such commercials, either a $45.00 per customer fee or
fees equal to 7% of all revenues received from such customers for five years
from their registration. In addition, the Company agreed to issue warrants to
NMC to purchase up to 100,000 shares of Common Stock, having an exercise price
of $4.88 per share, upon the completion by NMC, subject to the Company's
approval, of the 15-second and 60-second commercials, and to issue warrants to
NMC to purchase one share of Common Stock for each customer generated by this
relationship, up to 600,000 shares of Common Stock. The exercise price of such
additional 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 such 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 issuance.
LIQUIDITY AND CAPITAL RESOURCES
The Company has not generated net cash from operations since its inception.
The Company has funded its operations primarily through private sales of equity
securities, borrowings from third parties and capital leases of equipment. The
Company's operating activities used net cash of approximately $3.6 million and
$7.1 million during 1995 and the six months ended June 30, 1996, respectively.
During 1995 and the six months ended June 30, 1996, net cash used in operations
resulted primarily from net losses, partially 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 six months ended June 30, 1996, capital expenditures amounted to
approximately $2.8 million and $9.6 million, respectively. Including the $9.6
million spent during the first six 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 $16.6 million during 1995 and the six months ended June 30, 1996,
respectively. The Company's financing activities have consisted of the private
sale of debt and equity securities and capital lease transactions, primarily for
equipment. From inception through June 30, 1996, the Company raised $15.1
million through the private sale of debt and equity securities and $7.6 million
relating to capital lease obligations, respectively.
As of December 31, 1995 and June 30, 1996, the Company had cash and cash
equivalents of approximately $290,000 and $1.2 million, respectively, and
negative working capital of approximately $2.0 million and $9.0 million,
respectively. During the second quarter of 1996, the Company received short-term
debt financing (issued in the form of 10% Promissory Notes that mature in June
1997) of $2,950,000 from a limited number of investors, including certain
directors and existing stockholders. As additional consideration for this
investment, EarthLink issued warrants to purchase 196,670 shares of Common Stock
having an exercise price of $5.50 per share. Also during the third quarter of
1996, the Company sold 2,727,723 shares of Series A Convertible Preferred Stock
to a limited number of investors, including certain directors, existing
stockholders, the Underwriter and certain of its affiliates and associates for
$15 million in the aggregate, or $5.50 per share. In connection with this
financing, the Company issued to certain of the investors warrants to purchase
up to 200,000 shares of Common Stock at an exercise price of $5.50 per share.
Each share of Series A Convertible Preferred Stock will automatically convert
into one share of Common Stock upon the consummation of this Offering. See
"Certain Transactions."
In connection with an amendment of its strategic network services
relationship with UUNET, in October 1996, the Company issued a $5 million,
one-year promissory note to UUNET. This note bears
22
<PAGE>
interest at prime plus 2% per annum and is convertible into up to approximately
765,000 shares of Common Stock at a conversion price of between $6.60 and $8.00
per share, depending upon the number of shares of Common Stock, if any,
purchased in this Offering by certain investors referred to in the preceding
paragraph and the public offering price of the Common Stock in this Offering.
See "Certain Transactions."
EarthLink expects to use the net proceeds of this Offering to finance sales
and marketing activities, leasehold improvements, investments in network
equipment, information systems, office equipment and new service introductions,
and for working capital and other general corporate purposes. The Company
intends to use a portion of the net proceeds of this Offering to repay
approximately $2.95 million of short-term indebtedness. The Company also intends
to use a portion of the net proceeds of this Offering to repay its outstanding
convertible debt to UUNET, unless UUNET decides to convert such debt to Common
Stock prior to repayment. The Company also anticipates that it may use a portion
of the net proceeds to acquire complementary products and service 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 "Certain Transactions."
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
will be sufficient to meet the Company's operating expenses and capital
requirements for at least the next 12 months. However, 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 rate of expansion of the Company's network infrastructure,
the level of resources required to expand the Company's marketing and sales
organization, information systems and research and development activities, the
availability of hardware and software provided by third-party vendors 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 sooner than anticipated. 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.
23
<PAGE>
BUSINESS
OVERVIEW
EarthLink is an ISP that was formed to help users derive meaningful benefits
from the extensive resources of the Internet. The Company focuses on providing
access, information, assistance and services to its customers to encourage their
introduction to the Internet and to help them have a satisfying user experience.
The Company provides its services through its EarthLink Network TotalAccess
software package, which is designed to simplify access to the Internet through
an online registration feature and a "point and click" graphical user interface.
This software permits users to browse the Internet through use of Netscape
Navigator or Microsoft Explorer (one or the other of which is included in each
copy of TotalAccess), or any other third-party browser that a customer may wish
to use. The Company also provides useful information to its users through its
extensive World Wide Web site. On this site, a user can find technical
assistance information, an on-line newsletter, links to numerous popular
categories of information and entertainment and many other items and services
designed to enhance users' satisfaction with their Internet experience. In
addition, the Company provides a monthly printed newsletter to its customers, a
booklet entitled "Getting the Most Out of EarthLink" and 24 hour customer and
technical support.
The Company markets its services through print advertisements, an affinity
marketing program, a customer referral program and other marketing activities.
Its affinity marketing programs include relationships with, among others,
prominent print publication, software and hardware companies. Customer referrals
have also been an important source of new customers, and the Company provides
economic incentives to its customers, to encourage referrals.
EarthLink also offers business services, including business Web sites,
high-speed ISDN communications capability in Southern California and frame relay
connectivity. In addition, the Company offers consumer services such as
multiplayer Internet games and the EarthLink online store.
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 email. 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 users to easily access the
Internet and, in turn, have produced rapid growth in the number of Internet
users. International Data Corporation 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.
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, graphics, audio and video over the Internet has led to a
proliferation of Internet-based services, including chat, 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.
STRATEGY
The principal components of EarthLink's growth strategy are as follows:
RAPIDLY EXPAND ITS CUSTOMER BASE. EarthLink believes that a key to success
in the competitive ISP market is to expand its customer base as rapidly as
possible to establish a significant revenue base, thereby enhancing its ability
to enter into favorable arrangements with affinity marketing partners and
providers of content, network access and software enhancements. The Company
plans to devote significant effort and financial
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resources on sales and marketing. The Company plans to continue print
advertising in major computer magazines, expand its radio advertising program,
seek to expand its affinity marketing program, maintain a presence at national,
regional and local trade shows and continue to offer economic incentives to
customers who refer new customers.
RETAIN THE COMPANY'S EXISTING CUSTOMERS. The sales, marketing and other
costs to the Company of acquiring new customers are substantial relative to the
monthly fee derived from such customers. Accordingly, the Company believes that
its long-term success largely depends on maintaining customer satisfaction with
its services. Therefore, EarthLink plans to devote significant resources to
enhancing its network operations capability, its World Wide Web site and its
service offerings. In addition, the Company will continue to expand its
technical support staff and enhance the staff's effectiveness by providing
software tools that can assist it in identifying and solving customer problems.
DEVELOP ADDITIONAL SERVICE OFFERINGS. EarthLink recognizes that the
introduction of additional service offerings can serve not only to expand and
maintain its customer base, but also, in certain instances, to enhance revenues.
Accordingly, the Company has introduced a variety of services for business
consumers, including business Web sites, high-speed ISDN communications
capability (presently offered in Southern California only) and frame relay
connections, each of which involve a monthly service charge plus set-up fees.
The Company also plans to expand its service offerings for consumers, including
personalized start pages, chat and multiplayer Internet games.
FOCUS ON CUSTOMER NEEDS. EarthLink seeks to help its customers derive
meaningful benefits from the extensive resources of the Internet. In order to
maintain its focus on customer needs, the Company has leveraged the
infrastructure and software development efforts of others by leasing POP
capacity from UUNET (and, in the future, PSINet) and licensing software from
software developers. The Company believes that this approach gives it
flexibility to rapidly expand its service coverage without the need for
substantial capital expenditures. The Company will continue to pursue this
strategy so that, in addition to its sales and marketing efforts, it can devote
its principal resources to improving its customers' experience with the
Internet.
EARTHLINK'S SERVICES
EarthLink provides a variety of competitively-priced Internet services to
consumer and business customers. The Company makes these services available
through its EarthLink Network TotalAccess software package. This software
incorporates a telephone dialer and email functionality with several leading
third-party Internet access tools, including either Netscape Navigator or
Microsoft Explorer, 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 prices quoted below are subject to change.
STANDARD EARTHLINK NETWORK INTERNET SERVICES. EarthLink provides its
customers with a core set of features 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 and a one-time setup fee of $25.
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 designed to be reliable and easy
to use.
EARTHLINK NETWORK WEB SITE. EarthLink has developed and maintains its own
Web site containing EarthLink content and links to third-party content.
EarthLink's in-house staff actively seeks out interesting content from across
the Internet and categorizes it into subject areas of interest organized on the
EarthLink Web site under topics such as "What's Hot," "Hollywood," "News,"
"Finance" and "Games." The Company's Web site provides a road map to volumes of
information and services available on the Internet. A user can
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browse the site and click on topics of interest in order to link to desired
information. In addition, through search engines and the embedded functionality
of Netscape Navigator or Microsoft Explorer, a user can conduct customized
searches for other topics.
EMAIL. Each customer is provided a mailbox, or address, from which to send
and receive email. Email functionality allows customers to exchange an unlimited
number of multimedia text, graphics, audio and video messages with other
EarthLink customers as well as with non-EarthLink 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 Web home page.
This enables each customer to participate in the Internet community by
personally adding content to the World Wide Web.
PUBLICATIONS. EarthLink publishes BLINK-TM-, a monthly newsletter, which it
mails to each of its customers. Through this publication, the Company provides
its customers with useful information, such as tips on how to search for certain
categories of information on the Internet and information regarding new
EarthLink service offerings, new Internet sites and other items of interest.
This publication is also available as an online feature, updated daily, on the
EarthLink home page. Additionally, the Company's founder, Sky Dayton, has
authored and published a booklet entitled "Getting the Most Out of EarthLink,"
which the Company provides its new customers subscribing through dial-up sales
and provides to all other customers upon request.
CHAT. Chat enables customers to "talk" with one another in typed text in
real time, one-on-one or in groups known as chat rooms.
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 Web pages. Monthly fees for business
Web sites range from $89 to $439, plus one-time setup fees of $179 to $479,
depending on the size of 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. Additional charges, based on the volume of users accessing a site, may
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 33.6 Kbps). ISDN service charges range from
$45 to $249 per month depending on access speeds, connect time and other data
transfer metrics. One-time setup fees range from $50 to $495. The Company
anticipates offering ISDN service on a nationwide basis in the near future.
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 service fees range from $495 to $995 per month
depending on access speeds, data throughput and other data transfer metrics.
One-time setup fees range from $745 to $1,245.
MULTIPLAYER INTERNET GAMES. The Company recently introduced The Arena, a
multi-player Internet games service that allows EarthLink and non-EarthLink
users to play multimedia games through the EarthLink Network for an hourly fee.
The Company creates an incentive for non-EarthLink users to subscribe to
EarthLink by charging them a slightly higher fee to participate in The Arena.
SUPPLEMENTAL SERVICES. To augment its standard and premium services, the
Company provides its customers with the following supplemental 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.
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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.
TECHNICAL DEVELOPMENT AND SERVICE ENHANCEMENT
EarthLink places significant emphasis on expanding and refining its services
to enhance its customers' Internet experience. EarthLink's technical staff is
engaged in a variety of technical development and service enhancement
activities, including improvement of the functionality of the Company's
EarthLink Network TotalAccess software and reviewing new third-party software
products for potential incorporation into TotalAccess. EarthLink also regularly
updates and expands the online services provided through the EarthLink Web site.
These activities include organizing Web content and the development of online
guides, help screens and other user services.
The Company anticipates the near-term release of the following services:
PERSONALIZED START PAGE. When customers "sign on" to EarthLink, they
generally begin their Internet session at the EarthLink home page and proceed
from there to the other sites and services of their choice. A "personalized
start page," which the Company plans to introduce in late 1996, will allow
customers to customize the page that first appears when they log on to the
EarthLink Network. For example, a customer may include short-cuts to favorite
Web sites, find advertisements targeted to the customer's interests
automatically displayed, change the "look and feel" of the start page and
otherwise tailor the start page to accomodate his or her personal preferences.
PREMIUM SERVICE OFFERINGS. The Company is engaged in ongoing efforts to
provide its customers with access to premium services, such as the Wall Street
Journal online newspaper and the ESPN sports service. The Company intends to
bundle these third-party premium services in packages and offer them to its
customers at discounted rates. These services will be billed directly to the
user's EarthLink account rather than separately by the provider of the premium
services, and will not require EarthLink customers to establish separate user
names and passwords to access the premium services.
ONLINE COMMERCE. 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 and sell their products and services.
MARKETING
As of September 30, 1996, the Company marketed and sold its services through
its sales and marketing department comprised of 82 employees. EarthLink's sales
and marketing efforts consist of the following programs:
ADVERTISING. The Company advertises its services in print media and on
radio. Included in the advertisement is a toll-free 800 number to contact the
Company's internal sales staff. When a potential customer calls the Company's
sales staff, the customer is assigned a user name and password. Subsequently,
the new customer is sent a copy of EarthLink Network TotalAccess, which the
customer uses to log on to the Company's system.
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AFFINITY MARKETING PROGRAM. EarthLink's affinity marketing 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.
Marketing partners include MacMillan Publishing USA, Activision, Inc., Micro
Warehouse Incorporated, Adobe Systems, Inc., United Airlines, Inc., Iomega
Corp., CompUSA, Inc. and Best Buy Co., Inc.
A significant number of EarthLink's customers have been generated through
its relationships with its affinity marketing partners, and the Company believes
that its affinity marketing relationships will continue to account for a
significant number of new customers. There can be no assurance, however, that
the Company's current affinity marketing partners will continue to distribute
the Company's software or will continue to generate new customers for the
Company's services. The Company's inability to maintain its affinity marketing
relationships or establish new affinity marketing relationships could result in
delays and increased costs in expanding its customer base, which could, in turn,
have a material adverse effect on the Company.
CUSTOMER REFERRAL PROGRAM. The Company believes that one of its most
important marketing tools is its existing customers. In order to encourage
customers to refer other users, the Company currently provides an incentive of
$19.95 credited to their account (equivalent to the standard monthly access fee)
per referred customer.
OTHER MARKETING ACTIVITIES. EarthLink maintains a presence at national
trade shows such as Comdex, MacWorld and OnLine Expo, as well as local and
regional trade shows. Additionally, the Company markets through computer,
Internet and related publications, and bundles EarthLink Network TotalAccess
with a few of these publications, either as disks that contain only the
EarthLink Network TotalAccess software package or as CD-ROMs that may include
numerous other software applications. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Potential Fluctuations in
Quarterly Results" for additional information concerning a marketing agreement
with NMC.
CUSTOMERS, POPS AND NETWORK INFRASTRUCTURE
As of the end of September 1996, the Company had approximately 186,000
customers.
The Company presently provides its customers with Internet access primarily
through UUNET's nationwide system of POPs. Substantially all of the Company's
customers access the EarthLink Network and the Internet by dialing into local
POPs. Of these, the Company owns 20 POP sites in California and currently offers
additional access through 336 UUNET POPs, to which it has access on a
non-exclusive basis. The Company's POP network, as of October 31, 1996, is set
forth below.
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[MAP]
Not reflected on this map are the approximately 350 POPs maintained by
PSINet, through which the Company has agreed to lease POP capacity on a
non-exclusive basis, which the Company anticipates becoming accessible to its
customers during the fourth quarter of 1996. The Company is dependent on UUNET
(and in the future may also be dependent on PSINet) to continue to provide the
Company's customers with access to the Internet through its system of POPs. The
inability or unwillingness of either or both of these third-party network
providers to permit POP access to EarthLink's customers, or the Company's
inability to secure alternative POP arrangements, could have a material adverse
effect on the Company. See "Risk Factors -- Dependence on Third-Party Network
Providers" and "Risk Factors -- Dependence on Network Infrastructure; Capacity;
Risk of System Failure; Security Risks."
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 leased
high-speed fiber optic data lines. The Company intends to relocate its network
hub from Los Angeles to Pasadena. See "-- Facilities" and "Risk Factors --
Dependence on Network Infrastructure; Capacity; Risk of System Failure; Security
Risks."
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.
CUSTOMER AND TECHNICAL SUPPORT
The Company believes that reliable customer and technical support is
critical to retaining existing and attracting new customers. The Company
currently provides the following types of customer and technical support: (i)
toll-free, live telephone assistance available seven days a week, 24 hours a
day; (ii) email-based
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assistance available seven days a week, 24 hours a day; (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.
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
expanding its call center facilities and installing new call management database
software. The Company also intends to purchase new call center hardware and
software. The Company has expanded its support staff from 81 employees as of
December 31, 1995 to 211 employees as of September 30, 1996.
The Company's growth has placed, and is expected to continue to place, a
significant strain on its managerial, operational, financial and information
system resources. 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 experienced difficulties satisfying the demand for its
Internet services. There can be no assurance that the Company's infrastructure,
information systems, technical staff and resources will be adequate to
facilitate the Company's growth. See "Risk Factors -- Risks Associated with
Management of Potential Growth."
SUPPLIER RELATIONSHIPS
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 Netscape Navigator and Microsoft Explorer, the World Wide
Web browser software that the Company licenses from Netscape and Microsoft,
respectively. 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 adversely affect the Company's ability to effectively
support the growth of its customer base in a timely manner and result in delays
in and increase its costs of expansion. Moreover, because Netscape Navigator and
Microsoft Explorer are the two most widely used Web browsers, the failure of
Netscape or Microsoft to continue to provide World Wide Web browser software to
the Company could have a material adverse effect on the Company.
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 such
as America Online, CompuServe, Prodigy and the Microsoft Network; (iii) computer
software and technology companies such as Microsoft; (iv) national
telecommunications 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.
The entry of new participants from these categories and the potential entry
of competitors from other categories (such as computer hardware manufacturers)
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 telecommunications industry may be
able to provide customers with reduced communications costs in connection with
their Internet access services, reducing the overall cost of Internet access and
significantly increasing pricing pressures on the Company. Moreover, certain of
the Company's online competitors, including America Online, the Microsoft
Network and Prodigy, have recently announced unlimited access to the Internet
and their proprietary content at flat rates that are equal to the Company's flat
rate, and do not
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require a set-up fee. Certain of the RBOCs have also announced competitive
flat-rate pricing for unlimited access (without a set-up fee) for at least some
period of time. As a result, competition for active users of Internet services
should intensify. There can be no assurance that the Company will be able to
offset the adverse effect on revenues of any necessary price reductions
resulting from competitive pricing pressures by increasing the number of its
customers, by generating higher revenue from enhanced services, by reducing
costs or otherwise. See "Risk Factors -- Competition."
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 and technical 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 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. 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.
There can be no assurance that third parties will not assert that
EarthLink's services infringe their proprietary rights. From time to time, the
Company has received communications from third parties alleging that certain of
the names or marks for the Company's services infringe the trademarks of such
third parties. To date, no such claims have had an adverse effect on the
Company's ability to market and sell its services. However, there can be no
assurance that those claims will not have an adverse effect in the future or
that other parties will not assert infringement claims against the Company in
the future with respect to current or future services. Such claims could result
in substantial costs and diversion of resources even if ultimately decided in
favor of the Company and could have a material adverse effect on the Company,
particularly if judgments on such claims are adverse to the Company. In the
event a claim is asserted alleging that the Company has infringed the
intellectual property 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.
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
initial term of the license for which expires in December 1997 and thereafter
automatically renews for additional one-year terms unless either party
terminates the license on 120 days notice), Microsoft Explorer (the initial term
of the license for which expires in August 1998 and thereafter automatically
renews for additional one-year terms, although either party may terminate the
license at any time on 30 days notice), and MacTCP software from Apple (the
current term of the license for which expires on December 31, 1996 thereafter
and automatically renews for additional one-year terms unless either party
terminates the license on twelve-month notice). 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
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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. The failure to renew existing software licenses and authorizations
or license other applications could have a material adverse effect on the
Company.
TRADEMARKS. "EarthLink Network-Registered Trademark-," "EarthLink Network
TotalAccess-TM-," "bLink-TM-," "The Arena-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 telecommunications 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 FCC has requested comments on this
petition, but has not set a deadline for issuing a final decision.
The recently enacted Telecommunications Act contains certain provisions that
lift, or establish procedures for lifting, certain restrictions relating to the
RBOCs' ability 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
Telecommunications 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. The Telecommunications Act also
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, although a federal district court panel recently issued a
preliminary injunction preventing enforcement of this part of the
Telecommunications Act. This decision may be appealed. See "Risk Factors --
Potential Liability."
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 protection and infringement. Changes in the regulatory environment
relating to the Internet access industry, including regulatory changes that
directly or indirectly affect telecommunications costs or increase the
likelihood or scope of competition from regional telephone companies or others,
could have an adverse effect on the Company. See "Risk Factors -- Competition."
EMPLOYEES
As of September 30, 1996, the Company employed 480 people on a full-time
basis, including 82 sales and marketing personnel, 30 Web site and content
development personnel, 83 MIS and information technologies personnel, 211
customer and technical support representatives and 74 administrative personnel.
As of that date, the Company also employed 34 people on a part-time basis, most
of whom serve as telephone customer and technical 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.
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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 at the then prevailing market rate. In addition to the Company's corporate
headquarters, the Company also leases approximately 7,200 square feet of office
space in Los Angeles that presently houses the Company's data center. EarthLink
has signed a lease for an additional 55,000 square feet in a facility located
adjacent to its corporate headquarters in which it plans to house its data
center. The Company expects to occupy this new space commencing February 1997
for an initial ten-year term.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the Company's
executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Sky D. Dayton............................. 25 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........................ 45 Vice President, Strategic Planning
Sidney Azeez (1).......................... 64 Director
Robert M. Kavner (1)...................... 53 Director
Linwood A. Lacy, Jr. (2).................. 51 Director
Kevin M. O'Donnell (2).................... 46 Director
John W. Sidgmore.......................... 45 Director
Reed E. Slatkin (1)(2).................... 47 Director
Paul McNulty.............................. 34 Director Nominee (3)
</TABLE>
- ------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) The Company anticipates that Mr. McNulty will be elected to the Board of
Directors by the Series A Convertible Preferred Stockholders on November
15, 1996.
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 co-owned 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.
CHARLES G. BETTY has served as the President and as a director of the
Company since January 1996, and in May 1996, was named the Company's Chief
Executive Officer. From February 1994 to January 1996, Mr. Betty was a strategic
planning consultant, advising Reply Corp., Perot Systems Corporation and
Microdyne, Inc. 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.
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 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, Inc., 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
Products, Inc.
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, Inc., a provider of
interactive training software. From 1982 to May 1992, he was employed by Real
World
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Software, Inc., a provider of accounting software, and served as its Vice
President of National Sales from 1990 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 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 1990 to 1996, Mr. Young was President of Young &
Associates, a consulting firm specializing in strategic planning for high growth
companies.
SIDNEY AZEEZ has been a director of the Company since June 1996. During the
past five years, Mr. Azeez has been a private investor. 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
September 1996, he has served as President and Chief Executive Officer of On
Command Corporation, a provider of on demand video for the hospitality industry.
From 1994 through August 1995, he was director of business advisory services for
Creative Artist Agency. 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.
Since October 1996, he has served as President and Chief Executive Officer of
Micro Warehouse Incorporated. From 1989 to May 1996, he served as the
Co-Chairman and Chief Executive Officer of Ingram Micro, Inc., a microcomputer
products distributor and a then wholly-owned subsidiary of Ingram Industries
Inc. From December 1993 to June 1995, Mr. Lacy was also President of Ingram
Industries Inc. From June 1995 until April 1996, he was President and CEO of
Ingram Industries Inc., and from April 1996 to May 1996 served as its Vice
Chairman. Mr. Lacy serves as a director of Ingram Industries Inc., Entex
Information Services, Inc. and Micro Warehouse Incorporated.
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.
JOHN W. SIDGMORE has served as a director of the Company since October 1996.
He has served as President and Chief Operating Officer of MFS Communications
Company, Inc. ("MFS") since August 1996 and as a director of MFS since October
1996. Mr. Sidgmore served as President, Chief Executive Officer and a director
of UUNET from June 1994 through August 1996 and has served as Chief Executive
Officer and a director of UUNET since August 1996. In 1989, he became President
and Chief Executive Officer of Intelicom Solutions Corporation (currently CSC
Intelicom), a telecommunications software company. In 1991, this company was
sold to Computer Sciences Corporation, and he remained President and Chief
Executive Officer until June 1994. From 1975 to 1989, Mr. Sidgmore was employed
by GEIS, where he was Vice President and General Manager of GEIS North America
from 1985 to 1989. Mr. Sidgmore is a director of Saville Systems PLC, a provider
of billing software for the telecommunications industry.
35
<PAGE>
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.
PAUL MCNULTY is anticipated by the Company to be elected as a Director of
the Company by the holders of the Series A Convertible Preferred Stock on
November 15, 1996. Mr. McNulty has been a Managing Director of Soros Fund
Management ("SFM"), a New York-based investment firm, since January 1996 and was
a Securities Analyst at SFM from January 1993 until January 1996. Prior thereto,
Mr. McNulty was employed as an Associate at MVP Ventures, a venture capital firm
in Boston, Massachusetts.
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.
Following the first meeting of its stockholders subsequent to this Offering, and
provided that there are 800 or more beneficial owners of the Common Stock, the
Company anticipates that it will seek stockholder approval to divide its Board
into three classes, each serving a staggered three-year term. 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
consists of Messrs. Lacy, O'Donnell and Slatkin. The Compensation Committee is
responsible for setting cash and long-term incentive compensation for executive
officers and other key employees of the Company. The Compensation Committee also
administers the Company's 1995 Stock Option Plan.
The holders of the Company's outstanding Series A Convertible Preferred
Stock have the right to elect one director. It is anticipated that Mr. McNulty
will be elected by the holders of the Series A Convertible Preferred Stock at a
meeting to be held on November 15, 1996. All outstanding shares of the Series A
Convertible Preferred Stock will automatically be converted into Common Stock
upon consummation of this Offering. In addition, pursuant to the Note Purchase
Agreement with UUNET, the Company agreed to fill a vacancy on the Board of
Directors with a designee of UUNET. Mr. Sidgmore has been designated by UUNET
pursuant to this provision.
TECHNOLOGY ADVISORY COUNCIL
The Company has established a Technology Advisory Council, the purpose of
which is to help the Company predict and overcome long-range technology barriers
and to help the Company attract talented engineers and technology executives.
The Council is chaired by Mr. Dayton, and it is intended that the Council meet
at least quarterly. Except for Mr. Dayton, the members receive warrants to
purchase 15,000 shares of Common Stock which vest in equal quarterly increments
over two years and have an exercise price equal to the fair market value of a
share of Common Stock on the date of grant. Presently, the Council consists of
the following three members in addition to Mr. Dayton:
DAVID FARBER is an Alfred Fitler Moore Professor of Telecommunications
Systems holding appointments in the Computer and Information Science and
Electrical Engineering Departments at the University of Pennsylvania and is the
Director of the Center for Communications and Information Science and Policy.
Mr. Farber is a member of the boards of trustees of the Internet Society and the
Electronic Fronteir Foundation.
DR. PHILIP M. NECHES is recently retired as Group Technical Officer,
Multimedia Products Group of Lucent Technologies, Inc. He has served as Senior
Vice President and Chief Scientist of NCR Corp. and was Group Technical Officer
for NCR Corp. after its acquisition by AT&T in 1991. Dr. Neches co-founded
Teradata Corporation, a company engaged in commercial parallel computing and
large-scale relational database management systems, and served as its Vice
President and Chief Scientist.
36
<PAGE>
DR. ARNO PENZIAS, a 1978 Nobel Prize recipient, is Chief Scientist at Lucent
Technologies, Inc. Previously he was head of research at Bell Laboratories.
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 for the year ended December 31, 1995, certain
information regarding compensation paid 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. Messrs. Dayton and Johnson were the
Company's only executive officers who earned in excess of $100,000 of salary and
bonus in 1995.
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 --
Robert E. Johnson, Jr................................ 87,578 21,646(1) 100,000 --
</TABLE>
- ------------
(1) Represents sales commissions.
The current annual salaries of the Company's executive officers for 1996 are
as follows: Charles G. Betty, $225,000; Sky D. Dayton, $165,000; David R.
Tommela, $128,000; Barry W. Hall, $125,000; Robert E. Johnson, Jr., $100,000;
and Brinton O.C. Young, $90,000. For a description of the Company's employment
agreement with Mr. Betty, see "-- Employment Agreement." All of the foregoing
executive officers are eligible to receive a cash performance bonus for 1996. In
the case of all executive officers other than Mr. Johnson, the bonus will be
based on the growth in the Company's customer base and such other factors as the
Compensation Committee may deem relevant. Mr. Johnson is expected to receive
cash bonuses in the form of sales commissions for 1996 in excess of $100,000.
STOCK OPTION INFORMATION
The following table sets forth certain information regarding options granted
in 1995 to the executive officers named in the Summary Compensation Table above.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
NUMBER OF OPTIONS PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERMS (2)
OPTIONS IN FISCAL PRICE EXPIRATION ------------------------
NAME GRANTED (#) YEAR ($/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 based upon the fair market value on the date of grant
as determined by the Board of Directors. 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.
37
<PAGE>
The following table sets forth certain information regarding options granted
during the nine months ended September 30, 1996 to the executive officers named
in the Executive Compensation section above.
OPTION GRANTS DURING NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION
OPTIONS EMPLOYEES EXERCISE FOR OPTION TERMS (2)
GRANTED IN FISCAL PRICE EXPIRATION ----------------------------
NAME (#)(1) YEAR ($/SH) DATE 5% 10%
- -------------------------------- ----------- ----------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sky D. Dayton................... -- -- -- -- -- --
Robert E. Johnson, Jr........... -- -- -- -- -- --
Charles G. Betty................ 350,000 20.6% $ 2.42 1/15/06
150,000 8.8% 5.50 9/24/06
Barry W. Hall................... 100,000 5.9% 2.42 1/08/06
50,000 2.9% 4.88 5/07/06
David R. Tommela................ 25,000 1.5% 4.88 5/07/06
Brinton O.C. Young.............. 225,000 13.3% 4.88 5/07/06
</TABLE>
- ------------
(1) These options vest in equal increments of 5% per quarter over the five-year
period beginning on the respective dates of grant.
(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, based on an assumed initial public offering price of
$ per share. 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.
The following table sets forth certain information regarding stock 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.
OPTION VALUES AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS (1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <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.
38
<PAGE>
The following table sets forth certain information regarding stock options
held at September 30, 1996 by the executive officers named in the Executive
Compensation section above. None of these options has been exercised.
OPTION VALUES AS OF SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS (1)
-------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sky D. Dayton........................................... 125,000 375,000
Robert E. Johnson, Jr................................... 25,000 75,000
Charles G. Betty........................................ 35,000 465,000
Barry W. Hall........................................... 12,500 137,500
David R. Tommela........................................ 12,500 87,500
Brinton O.C. Young...................................... 11,250 213,750
</TABLE>
- ------------
(1) The value of "in-the-money" options represents the difference between the
exercise price of stock options and the assumed initial public offering
price of $ (the mid-point of the range set forth on the cover page of
this Prospectus).
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 a $24,000 a year travel allowance for Mr. Betty and his family and
such other benefits as are generally 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 has 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. 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. In addition, in September 1996, Mr. Betty was granted options to purchase
an additional 150,000 shares of Common Stock at an exercise price of $5.50 per
share. All of Mr. Betty's options vest in equal quarterly increments of 5%
during the five-year period beginning on the respective dates of grant, January
15, 1996 and September 24, 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 AND OTHER OPTION AND WARRANT ISSUANCES
The EarthLink Network 1995 Stock Option Plan (the "1995 Plan") provides for
the grant of incentive stock options to employees of the Company within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and
non-qualified stock options to employees, officers, directors and consultants of
the Company. The 1995 Plan is administered by the Compensation Committee of the
Board of Directors, 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 non-qualified stock options) or 100%
of the fair market value (for incentive stock options) as of the date of grant.
As of September 30, 1996, options to purchase 2,011,500 shares of
39
<PAGE>
Common Stock were outstanding under the 1995 Plan. In addition, as of that date
the Company had issued non-plan options and warrants to purchase an aggregate of
2,662,888 shares of Common Stock at exercise prices ranging from $0.30 to $10.00
per share.
DIRECTORS STOCK OPTION PLAN AND OTHER DIRECTOR OPTION ISSUANCES
Under the Company's Directors Stock Option Plan (the "Directors Plan"),
options to purchase 125,000 shares of Common Stock may be granted 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. As of September 30, 1996, there were no
options to purchase shares of Common Stock outstanding under the Directors Plan.
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 amount then
determined by the Board of Directors to constitute fair market value, in
consideration of Messrs. Kavner's and Lacy's agreement to serve on the Board of
Directors. These warrants vest over a five-year period from January 12, 1996,
the date of grant.
40
<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 amount then
determined by the Board of Directors to constitute the 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 amount then determined by the Board of Directors to
constitute the 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 amount then determined by the Board of Directors
to constitute the 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 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, L.P., 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 having an exercise price of $5.50 per
share. 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.
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.
41
<PAGE>
In September 1996, the Company sold 2,727,273 shares of its Series A
Convertible Preferred Stock to certain purchasers, including, among others,
certain directors, stockholders, the Underwriter and certain of its associates
for approximately $15,000,000 in the aggregate. In connection with this
transaction, Quantum Industrial Partners LDC and persons and entities associated
with or employed by Soros Fund Management ("SFM") received warrants to purchase
up to 200,000 shares of Common Stock at an exercise price of $5.50 per share.
Each share of Series A Convertible Preferred Stock will automatically convert
into one share of Common Stock upon the consummation of this Offering.
The following directors and more than five percent stockholders (including
certain of their family members and affiliates) participated in this financing:
Quantum Industrial Partners LDC (1,866,127 shares of Common Stock and 190,600
shares of Common Stock underlying warrants, which includes 429,090 shares of
Common Stock and warrants to purchase 47,200 shares of Common Stock held by
George Soros, who may be deemed to have sole and ultimate control over SFM, in
which Quantum Industrial Partners LDC has vested investment discretion with
respect to its portfolio investments, and 90,910 shares of Common Stock and
10,000 shares of Common Stock underlying warrants held by trusts established for
the benefit of certain children of Mr. Soros); Reed E. Slatkin (78,547 shares);
Gregory Abbott (30,000 shares); Sidney Azeez (30,000 shares); Linwood A. Lacy,
Jr. (20,000 shares); Robert S. London (20,000 shares); Brinton O.C. Young
(20,000 shares); Kevin M. O'Donnell (20,000 shares); and Charles G. Betty
(10,000 shares).
John W. Sidgmore, a member of the Company's Board of Directors, also serves
as a director and Chief Executive Officer of UUNET and as President and Chief
Operating Officer and as a director of UUNET's corporate parent, MFS. UUNET is
the Company's primary provider of POP capacity. In connection with the Company's
and UUNET's execution of a new network services agreement in May 1996, the
Company agreed to issue warrants to UUNET to purchase 20,000 shares of Common
Stock having an exercise price of $10.00 per share.
In connection with an amendment to the Company's network services agreement
with UUNET, the Company issued a $5 million, one-year promissory note to UUNET
and filled a vacancy on the Board of Directors with a designate of UUNET, John
W. Sidgmore. The Company also granted UUNET registration rights identical to
those presently held by most of the Company's existing stockholders. For the
year ended December 31, 1995 and the six-month period ended June 30, 1996,
EarthLink paid UUNET approximately $52,000 and approximately $1.3 million for
network services.
Linwood A. Lacy, Jr., a member of the Company's Board of Directors, also
serves as President and Chief Executive Officer of Micro Warehouse Incorporated
("Micro Warehouse"), one of the Company's affinity marketing partners. For the
nine-month period ended September 30, 1996, the Company paid Micro Warehouse
approximately $177,000 in bounties for new Company customers generated by Micro
Warehouse.
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 such directors believe are
no less favorable to the Company than could be obtained from unaffiliated
parties.
42
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of October 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. This table gives effect to the automatic conversion, upon consummation of
this Offering, of all of the Company's outstanding Series A Convertible
Preferred Stock and includes options, warrants and other convertible securities
that are exercisable or convertible within 60 days of October 31, 1996.
<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................................................... 3,150,000(2) 20.1% %
Kevin M. O'Donnell.............................................. 2,269,355(3) 14.3
Reed E. Slatkin................................................. 2,327,862(4) 14.6
Sidney Azeez.................................................... 1,088,249(5) 7.0
Charles G. Betty................................................ 124,098(6) *
Linwood A. Lacy, Jr............................................. 69,620 *
Robert M. Kavner................................................ 48,017(7) *
Robert E. Johnson, Jr........................................... 30,000(8) *
John W. Sidgmore................................................ -- (9) *
Brinton O.C. Young.............................................. 42,500 (10 *
Barry W. Hall................................................... 20,000 (11 *
David R. Tommela................................................ 17,500 (12 *
Quantum Industrial Partners LDC................................. 1,346,127 (13 8.6
c/o Curacao Corporation Company N.V.
Kaya Flamboyan 9
Willemstad, Curacao
Netherlands Antilles
UUNET Technologies, Inc......................................... 785,000 (14 5.0
3060 Williams Drive
Fairfax, Virginia 22031
Storie Partners, L.P............................................ 1,013,015 6.5
One Bush Street
San Francisco, CA 94104
Robert S. London................................................ 777,398 (15 5.0
Cruttenden Roth Incorporated
809 Presidio Ave.
Santa Barbara, CA 93101
Gregory Abbott.................................................. 720,583 (16 4.6
1200 Kessler Drive
Aspen, Colorado 81611
All directors and executive officers as a group (12 persons).... 9,187,201 (17 55.4% %
<FN>
- ------------
</TABLE>
* Represents beneficial ownership of less than 1% of the Common Stock.
(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 150,000 shares of Common Stock.
(3) Includes (i) 15,077 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 50 shares of Common Stock held by Mr. O'Donnell's son. 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 and (ii)
14,856 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 family and
(ii) warrants to purchase 13,333 shares of Common Stock.
(6) Includes (i) options to purchase 60,000 shares of Common Stock 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 6,667 shares of Common Stock.
(8) Includes options to purchase 30,000 shares of Common Stock.
(9) Excludes 20,000 shares of Common Stock issuable upon the exercise of
warrants and up to 765,000 shares of Common Stock issuable upon the
conversion of outstanding indebtedness held by UUNET, of which Mr. Sidgmore
serves as Chief Executive Officer and a director. Mr. Sidgmore disclaims
beneficial ownership of such securities.
(10) Includes options to purchase 22,500 shares of Common Stock.
(11) Includes options to purchase 20,000 shares of Common Stock.
(12) Includes options to purchase 17,500 shares of Common Stock.
(13) Includes warrants to purchase 133,400 shares of Common Stock. Quantum
Industrial Partners LDC ("Quantum Industrial") vested investment discretion
with respect to its portfolio investments, including the Common Stock, in
SFM, a sole proprietorship of Mr. George Soros, over which Mr. Soros may be
deemed to have sole and ultimate control. Mr. Soros may be deemed to be the
beneficial owner of the Common Stock held by
43
<PAGE>
Quantum Industrial. The shares shown exclude 429,090 shares of Common Stock
and warrants to purchase 47,200 shares of Common Stock held directly by Mr.
Soros and 90,910 shares of Common Stock and warrants to purchase 10,000
shares of Common Stock held by trusts established for the benefit of certain
children of Mr. Soros. The shares shown also exclude 85,455 shares of Common
Stock and warrants to purchase 9,400 shares of Common Stock held by certain
managing directors and other employees of SFM, of which Mr. Soros disclaims
beneficial ownership.
(14) Includes 20,000 shares of Common Stock issuable upon the exercise of
warrants and up to 765,000 shares of Common Stock issuable upon the
conversion of outstanding indebtedness.
(15) Includes warrants to purchase 13,333 shares of Common Stock.
(16) Includes warrants to purchase 13,333 shares of Common Stock.
(17) Includes (i) options and warrants to purchase 1,050,000 shares of Common
Stock and (ii) 666,434 shares of Common Stock owned by family members or
affiliates of certain members of the group and (iii) options and warrants
held by family members or affiliates of certain members of the group to
purchase 50 shares of Common Stock. Excludes 20,000 shares of Common Stock
issuable upon the exercise of warrants and up to 765,000 shares of Common
Stock issuable upon the conversion of outstanding indebtedness held by
UUNET, of which Mr. Sidgmore serves as Chief Executive Officer and a
director. Mr. Sidgmore disclaims beneficial ownership of such securities.
44
<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, of which there is one authorized
series, Series A Convertible Preferred Stock, consisting of 2,727,273 authorized
shares. As of September 30, 1996, there were 12,045,465 shares of Common Stock
outstanding and 2,727,273 shares of Series A Convertible Preferred Stock. Each
share of Series A Convertible Preferred Stock will automatically convert into
one share of Common Stock upon consummation of this Offering. 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. 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. Following the first meeting
of its stockholders subsequent to this Offering, and provided that there are 800
or more beneficial owners of the Common Stock, the Company anticipates that it
will seek stockholder approval to eliminate cumulative voting. 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. All shares of Common Stock outstanding
immediately following this Offering will be fully paid and non-assessable.
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 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,
such as the approval of a majority of certain members of the Board of Directors.
The term "business combination" includes mergers and stock and asset sales. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years,
45
<PAGE>
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 Common Stock at a premium
or otherwise adversely affect the market price of the Common Stock.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY; INDEMNIFICATION
The Company has included in its Certificate of Incorporation provisions that
limit the personal liability of its officers and directors for monetary damages
for breach of their fiduciary duty of directors, except for liability that
cannot be eliminated under the Delaware General Corporation Law. The Certificate
of Incorporation provides that, to the fullest extent provided by the Delaware
General Corporation Law, directors of the Company will not be personally liable
for monetary damages for breach of their fiduciary duty as directors. The
Delaware General Corporation Law does not permit a provision in a corporation's
certificate of incorporation that would eliminate such liability (i) for any
breach of their duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) for any unlawful payment of a dividend or
unlawful stock repurchase or redemption, as provided in Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit.
While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of a corporation only if he or she is a director of such corporation and
is acting in his or her capacity as director, and do not apply to the officers
of the corporation who are not directors.
The Company's Bylaws provide that, to the fullest extent permitted by the
Delaware General Corporation Law, the Company may indemnify its directors,
officers and employees. The Bylaws further provide that the Company may
similarly indemnify its other employees and agents. In addition, the Company
anticipates that each director will enter into an indemnification agreement with
the Company pursuant to which the Company will indemnify such director to the
fullest extent permitted by the Delaware General Corporation 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 and all of
the shares of Series A Convertible Preferred 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
and convertible debt 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 also permit demand registrations on Form S-3
registration statements at such time when the Company is eligible to register
its capital stock on such form. 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.
46
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock.
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 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, shares of Common Stock will
be outstanding. Of these shares, the 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.
The 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 those provided
by Rules 144 or 701 under the Securities Act. The holders of shares of
Common Stock, shares of Series A Convertible Preferred Stock and warrants,
options and convertible securities to purchase shares of Common Stock
(including all of the Company's directors and officers) 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 one year after the date of this
Prospectus, without the prior written consent of the Underwriter. 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, warrants and convertible securities.
Upon expiration of the lock-up agreements, shares will become
eligible for immediate public resale subject to Rule 144. The remaining
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 and all of the shares of Series A Convertible
Preferred 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 and convertible debt 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. Such registration rights agreements also permit
demand registrations on Form S-3 registration statements at such time as the
Company is eligible to register securities on such form. The number of shares
sold in the public market could increase if such rights are exercised. See
"Description of Capital Stock -- Registration Rights."
As of September 30, 1996, 4,674,371 shares were subject to outstanding
options and warrants. Of these shares, 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, 2,891,083 shares of Common Stock subject to outstanding options will
become eligible for sale, to the extent they are vested, without restriction in
the public market pursuant to Rule 701; however, all of such shares will be
subject to lock-up agreements for an additional 275 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 within any three month period commencing 90 days after the date
of this Prospectus,
47
<PAGE>
a number of shares that does not exceed the greater of (i) one percent of the
number of shares of Common Stock then outstanding 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.
The Securities and Exchange Commission (the "Commission") has recently
proposed reducing the initial Rule 144 holding period to one year. There can be
no assurance as to if or when 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.
48
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1996 (the "Underwriting Agreement"), the
Underwriter has agreed to purchase from the Company shares of Common Stock
at the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus.
The Underwriting Agreement provides that the obligations of the Underwriter
are subject to certain conditions precedent and that the Underwriter will be
obligated to purchase all of the shares of Common Stock offered hereby if any
are purchased.
The Company has granted the Underwriter an option, expiring at the close of
business on the 30th day after the date of this Prospectus, to purchase up to
additional shares of Common Stock at the initial public offering price
less the underwriting discounts and commissions as set forth on the cover page
of this Prospectus. Such option may be exercised only to cover over-allotments
in the sale of the shares of Common Stock.
The Company has been advised by the Underwriter that the Underwriter
proposes to offer the Common Stock to the public initially at the offering price
set forth on the cover page of this Prospectus. The Underwriter may allot to
certain dealers a concession of $ per share, and the Underwriter and such
dealers may re-allow a concession of $ per share on sales to certain other
dealers. After the initial public offering, the public offering price and
concessions to dealers may be changed by the Underwriter.
The Company, the holders of shares of Common Stock, shares of
Series A Convertible Preferred Stock and warrants, options and convertible
securities to purchase shares of Common Stock (including all of the
Company's officers and directors) have entered into lock-up agreements under
which they have agreed, subject to limited exceptions, not to offer, issue, 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 one year after the
date of this Prospectus, without the prior written consent of the Underwriter.
See "Shares Eligible for Future Sale."
The Company has agreed to indemnify the Underwriter against certain
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments which the Underwriter may be required to make with
respect thereto.
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 Underwriter 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 an estimate of the business potential of the
Company, the present state of the Company's development, an assessment of the
Company's management, prevailing market conditions, the demand for similar
securities of comparable companies and other factors deemed relevant.
As of October 31, 1996, the Underwriter and certain officers and employees
of the Underwriter held 113,635 shares of Series A Convertible Preferred Stock.
In addition, two minority shareholders and directors of the Underwriter's
corporate parent own an aggregate of 13,636 shares of Series A Convertible
Preferred Stock. Such stock was purchased in September 1996 for $5.50 per share.
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 Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.
49
<PAGE>
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 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. 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 Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of that site is http://www.sec.gov.
50
<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 June 30, 1996
(unaudited).............................................................. 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
six months ended June 30, 1995 and June 30, 1996 (unaudited)............. F-4
Statement of Stockholders' Equity (Deficit) for the period from inception
(May 26, 1994) through December 31, 1994, the year ended December 31,
1995 and the six months ended June 30, 1996 (unaudited).................. 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 six
months ended June 30, 1995 and June 30, 1996 (unaudited)................. 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 Notes 11 and 12,
as to which the dates are June 27, 1996
and November 4, 1996, respectively
F-2
<PAGE>
EARTHLINK NETWORK, INC.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
JUNE 30,
1996
-----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents..................................................... -- $ 290 $ 1,200
Restricted short-term investment (Note 6)..................................... -- 1,500 454
Accounts receivable, net of allowance of $126,000 at June 30, 1996............ $ 27 218 590
Prepaid expenses and other assets (Note 4).................................... -- 245 1,027
--------- --------- -----------
Total current assets...................................................... 27 2,253 3,271
Property and equipment, net (Notes 1 and 3)..................................... 90 2,551 10,961
Intangibles, net (Notes 2, 5 and 7)............................................. 69 70 328
--------- --------- -----------
Total assets.............................................................. $ 186 $ 4,874 $ 14,560
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable........................................................ $ 18 $ 1,766 $ 3,656
Accrued payroll and related expenses.......................................... 4 193 1,156
Other accounts payable and accrued liabilities................................ -- 405 1,826
Lines of credit............................................................... -- 1,494 --
Current portion of capital lease obligations (Note 9)......................... -- 159 2,406
Note payable to investor...................................................... 67 -- 2,950
Deferred revenues............................................................. -- 212 455
--------- --------- -----------
Total current liabilities................................................. 89 4,229 12,449
Capital lease obligations, net of current portion (Note 9)...................... -- 355 4,527
--------- --------- -----------
Total liabilities......................................................... 89 4,584 16,976
--------- --------- -----------
Commitments and contingencies (Note 9)
Stockholders' equity (deficit)
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 11,970,465 issued and outstanding (Note 7).................... 59 101 120
Additional paid-in capital.................................................... 117 5,072 13,764
Warrants to purchase common stock (Note 7).................................... 69 124 411
Accumulated deficit........................................................... (148) (5,007) (16,711)
--------- --------- -----------
Total stockholders' equity (deficit)............................................ 97 290 (2,416)
--------- --------- -----------
$ 186 $ 4,874 $ 14,560
--------- --------- -----------
--------- --------- -----------
</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 SIX MONTHS ENDED
THROUGH DECEMBER 31, ----------------------------
DEC. 31, 1994 1995 JUNE 30, 1995 JUNE 30, 1996
-------------- ------------ ------------- -------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Recurring revenues................................. $ 53 $ 2,422 $ 426 $ 7,642
Other revenues..................................... 58 606 192 2,504
-------------- ------------ ------------- -------------
Total revenues................................... 111 3,028 618 10,146
Operating costs and expenses:
Cost of recurring revenues......................... 4 1,055 257 5,563
Cost of other revenues............................. 12 349 30 1,327
Sales and marketing................................ 37 3,711 510 5,472
General and administrative expenses................ 168 2,062 509 4,055
Operations and customer support.................... 38 1,869 384 5,192
-------------- ------------ ------------- -------------
Total operating costs and expenses............... 259 9,046 1,690 21,609
-------------- ------------ ------------- -------------
Loss from operations................................. (148) (6,018) (1,072) (11,463)
Interest expense..................................... -- (136) (42) (261)
Interest income...................................... -- 34 1 20
-------------- ------------ ------------- -------------
Net loss....................................... $ (148) $ (6,120) $ (1,113) $ (11,704)
-------------- ------------ ------------- -------------
-------------- ------------ ------------- -------------
Net loss per share (Note 1).......................... $ (0.01) $ (0.45) $ (0.08) $ (0.80)
-------------- ------------ ------------- -------------
-------------- ------------ ------------- -------------
Weighted average shares outstanding (Note 1)......... 12,109 13,606 13,284 14,645
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
EARTHLINK NETWORK, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL WARRANTS DEFICIT
--------- ----------- ----------- ----------- ------------
(IN THOUSANDS)
<S> <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)............................................. 1,856 19 8,692 -- --
Warrants issued in connection with equipment leases and
other financings (unaudited)............................ -- -- -- 287 --
Net loss (unaudited)...................................... -- -- -- -- (11,704)
--------- ----- ----------- ----- ------------
Balance at June 30, 1996
(unaudited)............................................. 11,970 $ 120 $ 13,764 $ 411 $ (16,711)
--------- ----- ----------- ----- ------------
--------- ----- ----------- ----- ------------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
---------------
<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)............................................. 8,711
Warrants issued in connection with equipment leases and
other financings (unaudited)............................ 287
Net loss (unaudited)...................................... (11,704)
-------
Balance at June 30, 1996
(unaudited)............................................. $ (2,416)
-------
-------
</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) SIX MONTHS ENDED
THROUGH YEAR ENDED ------------------------
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1995 1996
--------------- ------------- ----------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................... $ (148) $ (6,120) $ (1,113) $ (11,704)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................ 7 305 86 1,209
Increase in accounts receivable.......................... (27) (191) (15) (372)
Increase in prepaid expenses and other assets............ -- (141) -- (782)
Increase in accounts payable and accrued liabilities..... 22 2,292 145 4,274
Increase in deferred revenue............................. -- 212 62 243
----- ------ ----------- -----------
Net cash used in operating activities.................. (146) (3,643) (835) (7,132)
----- ------ ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment, net................... (97) (2,766) (521) (9,589)
(Purchase) liquidation of restricted short-term
investment................................................ -- (1,500) -- 1,046
----- ------ ----------- -----------
Net cash used in investing activities.................. (97) (4,266) (521) (8,543)
----- ------ ----------- -----------
Cash flows from financing activities:
Proceeds from (payment of) line of credit.................. -- 1,494 -- (1,494)
Increase (decrease) in note payable........................ 67 (67) 320 2,950
Proceeds from capital lease obligations.................... -- 556 10 7,046
Principal payments under capital lease obligations......... -- (42) (1) (628)
Proceeds from issuance of Common Stock..................... 176 6,258 1,800 8,711
Proceeds from Common Stock pending issuance................ -- -- 119 --
----- ------ ----------- -----------
Net cash provided by financing activities.............. 243 8,199 2,248 16,585
----- ------ ----------- -----------
Net increase in cash and cash equivalents.................... -- 290 -- 910
Cash and cash equivalents, beginning of year................. -- -- -- 290
----- ------ ----------- -----------
Cash and cash equivalents, end of period..................... $ -- $ 290 $ 892 $ 1,200
----- ------ ----------- -----------
----- ------ ----------- -----------
</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 an Internet service provider that was formed to help users
derive meaningful benefits from the extensive resources of the Internet.
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 to expend substantial resources on
sales, marketing and administration, building its network systems, developing
new service offerings and improving its management information systems.
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 positive cash flow. The failure of
the Company to achieve or sustain profitability or positive cash flow may
require the Company to reduce the scope of its operations or its anticipated
expansion, which could adversely affect the Company's business and results of
operations.
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 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 amortized over the
lesser of their estimated useful lives of three years or the term of the lease.
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, which range
from two to three years. The Company regularly reviews the recoverability of
intangible assets 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 $8.00 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 20,661 shares of the
Company's Common Stock at $2.42 per share as consideration for an agreement 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
principal 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 granted non-qualified stock options to certain employees,
officers and directors. Options generally vest in equal quarterly increments
over a five-year period. A summary of the activity related to these options is
as follows:
<TABLE>
<CAPTION>
OPTION PRICE
PER SHARE OUTSTANDING
-------------- -----------
<S> <C> <C>
Options granted.......................................................... $0.30-$2.42 850,000
85,000
Forfeited................................................................ $0.30 (120,417)
-------------- -----------
Balance at December 31, 1995............................................. $0.30-$2.42 729,583
-------------- -----------
-------------- -----------
</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. 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, creditors and others 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.
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.
F-11
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the activity related to the grant of warrants 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 and
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
due to the uncertainty of future taxable income.
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 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.
F-12
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 Internet for customers outside of the Company's California
regional base is provided through points of presence ("POP") capacity 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. UUNET
announced it would 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 POP capacity is 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>
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 a standby letter
of credit as a performance guarantee 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.
F-13
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. 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
were 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 effected a
100-for-1 and a 10-for-1 stock splits, respectively. The accompanying financial
statements have been retroactively adjusted to give effect to the
reincorporation and the stock splits.
12. SUBSEQUENT EVENTS
REVOLVING LINES OF CREDIT
The Company repaid its three secured lines of credit amounting to
$1,000,000, $248,000 and $246,000 on April 6, 1996, March 15, 1996 and June 6,
1996 respectively. The lines of credit expired subsequently.
In June 1996, the Company issued to 17 investors, promissory notes
aggregating $2,950,000. Certain of the investors are directors and stockholders
of the Company. The 10% promissory notes expire on June 6, 1997.
CONVERTIBLE DEBT
In October, 1996, the Company issued a $5 million, one year promissory note
at prime plus 2% to UUNET. The note is convertible into approximately 765,000
shares at a conversion price between $6.60 per share and $8.00 per share
depending upon the number of shares of Common Stock purchased in the proposed
initial offering by certain investors in Series A Convertible Preferred Stock.
SIGNIFICANT AGREEMENTS
As of October 1996, the Company's agreement with UUNet was amended. Under
the amended agreement, the Company pays UUNET a monthly fee equal to the greater
of a specified minimum or an amount that varies based primarily on peak customer
usage. The Company also pays UUNET an additional fee to the extent that hours of
usage exceed a formula set forth in the agreement. This agreement has a term
that expires in March 1999 (subject to earlier cancellation after March 1998
with one year's prior notice, but provided that if this notice is given, the
Company is required to begin to reduce its usage of UUNET's POPs in accordance
with a schedule set forth in the agreement). If the agreement expires at the end
of its term, it is automatically renewed for consecutive one-year terms unless
prior notice of termination is given. UUNET was recently acquired by MFS.
On July 22, 1996 the Company entered into an agreement with PSINet, Inc.
("PSINet") pursuant to which the Company intends to lease POP access from
PSINet, becoming in effect a reseller of PSINet services in a similar fashion to
the Company's UUNET arrangement, as amended.
STOCK OPTIONS
In January 1996, stock options to purchase 550,000 shares of Common Stock at
$2.42 per share were granted to employees under the 1995 Plan. On March 4, 1996,
options to purchase 5,000 shares of Common Stock at $4.88 per share were granted
to employees under the 1995 Plan 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 of which 16,250 were
subsequently forfeited. On September 24,
F-14
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1996 the Company granted to employees under the 1995 Plan options to purchase
205,000 shares of Common Stock at $5.50 per share. On Septemer 24, 1996, the
Company granted non-qualified stock options to an officer of the Company to
purchase 150,000 shares of Common Stock at $5.50 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. The value of the warrants has been reflected as
additional consideration. 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. The value of the warrants has been reflected as additional compensation
which 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. The value of the warrants has been reflected as
additional consideration. These warrants expire January 18, 2006.
On February 15, 1996, Boston Financial & Equity Corporation provided a
$700,000 lease line for equipment. The Company issued warrants to purchase
10,000 shares of Common Stock at $4.88 per share. The value of the warrants has
been reflected as additional consideration. These warrants expire February 15,
2006.
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 upon completion,
subject to the Company's approval, of 15-second and 60-second commercials for
the Company's services. 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 Common Stock. The value of the
warrants will be reflected as consideration upon issuance.
On May 10, 1996, the Company issued warrants to purchase 90,957 shares of
Common Stock at $4.88 per share to various lessors in return for lease lines and
other services to the Company. The value of the warrants has been reflected as
additional consideration. The warrants expire on May 10, 2006.
On May 31, 1996, in connection with the amendment and restatement of 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.
In connection with the issuance of the promissory notes aggregating
$2,950,000, the Company issued to the lenders warrants to purchase an aggregate
of 196,670 shares of Common Stock at a per share exercise price of $5.50 per
share, as adjusted. The value of the warrants has been reflected as additional
consideration.
In connection with the execution of the PSINet agreement, the Company issued
warrants to purchase 700,000 shares of Common Stock at an exercise price of
$10.00 per share.
In connection with the private placement of Series A Convertible Preferred
Stock, described below, the Company granted to certain purchasers of the Series
A Convertible Preferred Stock warrants to purchase 200,000 shares of common
stock at $5.50 per share.
F-15
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On September 24, 1996 the Company issued warrants to purchase 15,000 shares
of the Company's common stock at $5.50 per share to each of three members of the
Company's Technology Advisory Council. The warrants vest quarterly over two
years. The value of the warrants will be recognized as compensation ratably over
the vesting period.
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 June 30, 1996..................... $2.42 - $10.00 817,627
Warrants granted subsequent to June 30, 1996............... $5.50 - $10.00 445,000
----------------- -----------
$2.42 - $10.00 1,262,627
----------------- -----------
----------------- -----------
</TABLE>
COMMON STOCK
The Company issued 90,970 shares of Common Stock at $2.42 per share and
50,000 shares of Common Stock at $2.42 per share 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 per share in a private placement. As a result of these
placements, EarthLink raised, in the aggregate, $8,661,000 subsequent to
December 31, 1995.
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. In September 1996, the Company issued 75,000 shares of Common Stock as
consideration for the termination of a consulting agreement.
PREFERRED STOCK
On September 10, 1996, the Company issued 2,727,273 of its Series A
Convertible Preferred Stock to investors including among others, certain
directors, stockholders, the Underwriter associated with the proposed initial
public offering and certain of its associates for $15,000,000. The Series A
Convertible Preferred Stock shares are convertible into an equal number of
shares of the Company's Common Stock at the option of the holder through March
10, 1997 and are automatically converted upon consummation of an underwritten
public offering of the Company's common stock in which the offering price is not
less than $8.00 per share, adjusted for stock splits or recapitalizations, and
the proceeds are at least $20,000,000.
Holders of Series A Convertible Preferred Stock are entitled to voting
rights and participation in dividends equivalent to the number of common shares
issuable if converted. The Series A Convertible Preferred Stockholders have the
exclusive right to elect one director and participate in the election of other
directors along with holders of Common Stock. The holders of the Company's
Series A Convertible Preferred Stock have a liquidation preference equal to
their initial investment. Any assets remaining after the preferred liquidation
preference plus unpaid dividends will be distributed to the holders of Common
Stock.
F-16
<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 in effect as of September 30, 1996:
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
--------------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C>
1996........................................................................... $ 2,797 $ 859
1997........................................................................... 3,530 713
1998........................................................................... 3,465 698
1999........................................................................... 1,528 647
2000........................................................................... 309 649
Thereafter..................................................................... 78 332
---------- -----------
11,707 $ 3,898
-----------
-----------
Less amount representing interest.............................................. (1,954)
----------
Present value of future lease payments......................................... $ 9,753
----------
----------
</TABLE>
New leases and related commitments are incremental to those disclosed in
Note 9.
F-17
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
No dealer, saleperson or other person has been authorized to give any
information or make any representation other than those contained in this
Prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company or the Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby in any jurisdiction to any person to
whom it is unlawful to make such offer or solicitation in such jurisdiction.
Neither the delivery of this Prospectus nor any offer or sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company or that information contained herein is
correct as of any time subsequent to its date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 15
Dividend Policy........................................................... 15
Capitalization............................................................ 16
Dilution.................................................................. 17
Selected Financial Data................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 19
Business.................................................................. 24
Management................................................................ 34
Certain Transactions...................................................... 41
Principal Stockholders.................................................... 43
Description of Capital Stock.............................................. 45
Shares Eligible for Future Sale........................................... 47
Underwriting.............................................................. 49
Legal Matters............................................................. 49
Experts................................................................... 50
Additional Information.................................................... 50
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.
EARTHLINK NETWORK-REGISTERED TRADEMARK-
SHARES
COMMON STOCK
----------------
PROSPECTUS
-------------------
INVEMED ASSOCIATES, INC.
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<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......................... $ 0(1)
NASD filing fee............................................................. 3,950
Nasdaq National Market listing fee.......................................... *
Blue Sky fees and expenses.................................................. 15,000
Printing and engraving expenses............................................. *
Legal fees and expenses..................................................... *
Accounting fees and expenses................................................ *
Transfer Agent and Registrar fee............................................ *
Miscellaneous............................................................... *
--------------
Total................................................................... $ *
--------------
--------------
</TABLE>
- ------------
(1) Pursuant to Rule 429(b), the securities registered hereby include 4,140,000
shares originally registered pursuant to a Registration Statement on Form
S-1 (Registration No. 333-5055). A filing fee of $17,131.03 was previously
paid in connection with such registration.
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporation Law of the State of Delaware,
as amended, the Company has the power to indemnify directors and officers under
certain prescribed circumstances and subject to certain limitations against
certain costs and expenses, including attorneys' fees actually and reasonably
incurred in connection with any action, suit or proceeding, whether civil,
criminal, administrative or investigative, to which any of them is a party by
reason of his or her being a director or officer of the Company if it is
determined that he acted in accordance with the applicable standard of conduct
set forth in such statutory provision.
Article XII of the Company's By-laws generally permits indemnification of
directors and officers to the fullest extent authorized by the General
Corporation Law of the State of Delaware.
The Company intends to purchase directors' and officers' liability
insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its inception in May 1994, the Company 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. See Note 12 to Notes to Financial Statements.
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.
11. On September 8, 1996, the Company issued 75,000 shares of Common Stock
to a consultant in consideration of the cancellation of the consulting agreement
between the consultant and the Company.
Shares of Series A Convertible Preferred Stock
12. On September 10, 1996, the Company issued 2,727,273 shares of Series A
Convertible Preferred Stock to certain investors, including Messrs. Azeez,
Betty, Slatkin, O'Donnell and Lacy, directors of the Company, at a purchase
price of $5.50 per share which shares will be automatically converted into
shares of Common Stock upon consummation of this offering. In connection with
this transaction, certain of these investors were also granted warrants to
purchase 200,000 shares of Common Stock having an exercise price of $5.50 per
share.
Warrants to Purchase Common Stock
13. In December 1994 the Company agreed to grant, and on June 18, 1995, 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.
14. 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.
15. On October 31, 1995, the Company granted Warrants to purchase 20,661
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.
16. 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
II-2
<PAGE>
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.
17. 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.
18. 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.
19. 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.
20. 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.
21. On May 6, 1996, the Company agreed to issue warrants to purchase up to
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.
22. 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.
23. On May 10, 1996, the Company entered into consulting agreements with two
consultants. In connection with these agreements, the Company agreed that it
will issue warrants to purchase an aggregate of 20,000 shares of Common Stock at
a per share exercise price of $4.88 per share upon completion of the consulting
services.
24. 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.
25. On June 6, 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.
26. On July 22, 1996, the Company issued warrants to purchase 200,000 shares
of Common Stock at an exercise price of $10.00 per share in connection with the
execution of its agreement with PSINet.
27. In September 1996, the Company issued Warrants to purchase 15,000 shares
of Common Stock at an exercise price of $5.50 per share to each of three members
of the Company's Technology Advisory Council.
Convertible Debt Obligation
28. On October 31, 1996, UUNET Technology, Inc. purchased from the Company,
a $5 million convertible promissory note, convertible into a maximum of 765,000
shares of Common Stock.
II-3
<PAGE>
Options to Purchase Common Stock
29. 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.
30. 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.
31. 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.
32. 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.
33. In addition to the options described, between September 30, 1995 and
September 24, 1996, the Registrant granted options to purchase an aggregate of
2,032,500 shares of Common Stock to employees of the Registrant at exercise
prices ranging from $2.42 to $5.50 per share as incentives under the
Registrant's 1995 Stock Option Plan. Of these, options for 21,000 shares of
Common Stock have been forfeited due to the termination of the employment of
various grantees.
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 Section 3(b) of the Securities Act of 1933 and Rule 701 thereunder. The
Company believes that 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.
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**
3.3 -- Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock
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 -- Registration Rights Agreement, Amendment No. 1 to Registration Rights Agreement and
Amendment No. 2 to 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*
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------
<C> <C> <S>
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+**
(a) Amendment No. 1 to Netscape Communications Corporation Internet Service Provider
Agreement
(b) Amendment No. 2 to Netscape Communications Corporation Internet Service Provider
Agreement+
10.7 -- Network Services Agreement dated May 31, 1996, between the Registrant and UUNET
Technologies, Inc.+**
(a) Addendum No. 1 to Network Services Agreement+
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***
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------
<C> <C> <S>
10.18 -- Amended and Restated Stock Purchase Agreement Relating to 2,727,273 shares of Series A
Convertible Preferred Stock between the Company and the Investors named therein, dated
September 10, 1996.*
10.19 -- Internet Wizard Sign-Up Agreement between the Company and Microsoft Corporation, dated
August 16, 1996.+
10.20 -- Network Access Agreement between the Company and PSINet, Inc., dated July 22, 1996 and
Amendment No. 1 to Network Access Agreement.+
10.21 -- Office Lease by and between The Mutual Life Insurance Company of New York, as Landlord, and
the Company, as Tenant, dated September 20, 1996.
10.22 -- Standard Office Lease -- Gross, by and between Glen Feliz Properties, as Landlord, and the
Company, as Tenant, dated July 2, 1996.
10.23 -- Amended and Restated Note Purchase Agreement between the Company and UUNET Technologies,
Inc. dated October 31, 1996 and Convertible 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)*
23.3 -- Consent of Paul McNulty
27. -- Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment.
** Incorporated by reference to the Exhibit designated by the same exhibit
number and filed as an exhibit to the Company's Registration Statement on
Form S-1 (Registration No. 333-5055) filed with the Commission on June 3,
1996.
*** Incorporated by reference to the exhibit designated by the same exhibit
number and filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-5055) filed with
the Commission on June 27, 1996.
+ 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 Underwriter at the closing
specified in the underwriting agreement, certificates in such denominations and
registered in such names as required by the Underwriter to permit prompt
delivery to each Purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, 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
II-6
<PAGE>
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-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pasadena, State of
California, on the 7th day of November, 1996.
EARTHLINK NETWORK, INC.
by: /S/ SKY D. DAYTON
-----------------------------------
Sky D. Dayton
Chairman of the Board of Directors
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints Charles G. Betty and Sky D. Dayton, and each of them, with full power
of substitution and resubstitution and full power to act without the other, as
his true and lawful attorney-in-fact and agent to act in his name, place and
stead and to execute in the name and on behalf of each person, individually and
in each capacity stated below, and to file, any and all amenments to this
Registation Statement, including any and all post-effective amendments and any
registration statement relating to the same offering as this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing, ratifying and confirming all that said attorneys-in-fact and agents or
any of them or their substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated below on the 7th day of November, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------- --------------------------------------
<C> <S>
/S/ SKY D. DAYTON
- -------------------------------------- Chairman of the Board of Directors
Sky D. Dayton
/S/ CHARLES G. BETTY President, Chief Executive Officer and
- -------------------------------------- Director (Principal Executive
Charles G. Betty 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.
/S/ KEVIN M. O'DONNELL
- -------------------------------------- Director
Kevin M. O'Donnell
/S/ JOHN W. SIDGMORE
- -------------------------------------- Director
John W. Sidgmore
/S/ REED E. SLATKIN
- -------------------------------------- Director
Reed E. Slatkin
</TABLE>
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- --------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Certificate of Incorporation**
3.2 Bylaws**
3.3 Certificate of Designation Preferences and Rights of Series A Convertible Preferred Stock
4.1 See exhibits 3.1, 3.2 and 3.3 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 Registration Rights Agreement, Amendment No. 1 to Registration Rights Agreement and Amendment
No. 2 to Registration Rights Agreements*
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+**
(a) Amendment No. 1 to Netscape Communications Corporation Internet Service Provider Agreement
(b) Amendment No. 2 to Netscape Communications Corporation Internet Service Provider
Agreement+
10.7 Network Services Agreement dated May 31, 1996, between the Registrant and UUNET Technologies,
Inc.+**
(a) Addendum No. 1 to Network Services Agreement+
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***
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS PAGE
- --------- ---------
<C> <S> <C>
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***
10.18 Amended and Restated Stock Purchase Agreement Relating to 2,727,273 shares of Series A
Convertible Preferred Stock between the Company and the Investors named therein, dated
September 10, 1996.*
10.19 Internet Wizard Sign-Up Agreement between the Company and Microsoft Corporation, dated August
16, 1996.+
10.20 Network Access Agreement between the Company and PSINet, Inc., dated July 22, 1996 and
Amendment No. 1 to Network Access Agreement.+
10.21 Office Lease by and between The Mutual Life Insurance Company of New York, as Landlord, and
the Company, as Tenant, dated September 20, 1996.
10.22 Standard Office Lease -- Gross, by and between Glen Feliz Properties, as Landlord, and the
Company, as Tenant, dated July 2, 1996.
10.23 Amended and Restated Note Purchase Agreement between the Company and UUNET Technologies, Inc.
dated October 31, 1996 and Convertible 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)*
23.3 Consent of Paul McNulty
27. Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment.
** Incorporated by reference to the Exhibit designated by the same exhibit
number and filed as an exhibit to the Company's Registration Statement on
Form S-1 (Registration No. 333-5055) filed with the Commission on June 3,
1996.
*** Incorporated by reference to the exhibit designated by the same exhibit
number and filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-5055) filed with
the Commission on June 27, 1996.
+ Confidential treatment requested.
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 11:30 AM 09/10/1996
960261609 - 2621684
EARTHLINK NETWORK, INC.
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF
SERIES A CONVERTIBLE PREFERRED STOCK
-----------------------------------------
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
------------------------------------------
EarthLink Network, Inc. (the "Corporation"), certifies that pursuant
to the authority contained in Article IV of its Amended and Restated
Certificate of Incorporation, and in accordance with the provisions of Section
151 of the General Corporation Law of the State of Delaware, its Board of
Directors has adopted the following resolution creating a series of the
Preferred Stock, $.01 par value, designated as Series A Preferred Stock:
RESOLVED, that a series of the class of Preferred Stock, $.01 par
value, of the Corporation be hereby created, and that the designation and amount
thereof and the voting powers, preferences, and relative, participating,
optional and other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof are as follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated "Series A Convertible Preferred Stock" (herein referred to as "Series
A Preferred Stock"), having a stated value per share equal to $.01, and the
number of shares constituting such series shall be 2,727,273.
2. DIVIDEND PROVISIONS: DEFINITIONS.
(a) CASH DIVIDENDS. In case the Corporation at any time or from time
to time shall declare, order, pay or make a cash dividend on the Nonpreferred
Stock (as defined below) of the Corporation, the Board of Directors shall, at
the same time or times declare, order, pay and make a cash dividend on each
share of Series A Preferred Stock in an amount equal to the product of the
amount of such dividend declared, ordered, paid or made on each share of
Nonpreferred Stock, multiplied by the number of shares of Common Stock into
which the share of Series A Preferred Stock is convertible on the record date
for such action. So long as any shares of Series A Preferred Stock are
outstanding, the Corporation shall not declare, order, pay or make a cash
dividend on any shares of Nonpreferred Stock unless it likewise declares,
orders, pays or makes such a cash dividend on all shares of Nonpreferred Stock.
(b) OTHER DISTRIBUTIONS. In case the Corporation at any time or from
time to time shall declare, order, pay or make a dividend or other distribution
(including, without limitation, any distribution of other or additional stock or
other securities or property or rights or
<PAGE>
warrants to subscribe for securities of the Corporation or any of its
subsidiaries by way of dividend or spin-off, reclassification,
recapitalization or similar corporate rearrangement) on its Nonpreferred
Stock, other than a dividend payable in cash or shares of the Corporation's
Nonpreferred Stock, then the Board of Directors shall, at the same time or
times, declare, order pay and make a dividend or other distribution on each
share of Series A Preferred Stock which is equivalent to such dividend or
other distribution declared, ordered, paid or made on each share of
Nonpreferred Stock, multiplied by the number of shares of Common Stock into
which a share of Series A Preferred Stock is convertible on the record date
for such action. So long as any shares of Series A Preferred Stock are
outstanding, the Corporation shall not declare, order, pay or make any such
dividend or other distribution unless it likewise declares, orders, pays or
makes such dividend or other distribution unless it likewise declares,
orders, pays or makes such dividend or other distribution on all shares of
Nonpreferred Stock.
(c) LIMITATION ON DISTRIBUTIONS. No deposit, payment, dividend or
distribution of any kind shall be made with respect to the Nonpreferred Stock
unless all accumulations of dividends payable on the Series A Preferred Stock
shall have been paid. So long as any Series A Preferred Stock shall remain
outstanding, no dividend or other distribution (except in Junior Shares)
shall be paid or made on the Nonpreferred Stock of the Corporation (except in
accordance with subsections (a) and (b) of this Section 2) or on other Junior
Shares of the Corporation and no share of Nonpreferred Stock or other Junior
Shares shall be purchased or otherwise acquired by the Corporation or any
subsidiary of the Corporation.
Subject to the above limitations, dividends may be paid on the
Nonpreferred Stock out of any funds legally available for such purpose when and
as declared by the Board of Directors, provided that dividends are also paid on
the Series A Preferred Stock in accordance with subsections (a) and (b) of this
Section 2.
(d) CERTAIN DEFINITIONS.
As used in this Section 2 and elsewhere in this Certificate of
Designation, Preferences and Rights of Series A Preferred Stock, unless the
context otherwise requires:
(i) The term "Common Stock" shall mean the Corporation's
authorized Common Stock, $.01 par value, as constituted on September 10, 1996,
and any stock into which such Common Stock may thereafter be changed, and shall
also include stock of the Corporation of any other class, which is not preferred
as to dividends or assets over any other class of stock of the Corporation,
issued to the holders of shares of Common Stock upon any reclassification
thereof.
(ii) The term "Nonpreferred Stock" shall mean the Common
Stock and shall also include stock of the Corporation of any other class that
has no preference as to dividends or distributions of assets over any other
class of stock of the Corporation and that is not subject to redemption.
(iii) The term "Junior Shares" shall mean any class or series
of stock junior to the Series A Preferred Stock as to dividends and distribution
of assets.
2
<PAGE>
(iv) The term "Liquidation Event" shall mean the
liquidation, dissolution or winding up of the Corporation, either voluntary or
involuntary and such other events that may be deemed to be liquidation events
pursuant to subsection 3(c) below.
(v) The term "Control Transaction" shall have the meaning
set forth in subsection 3(c) below.
3. LIQUIDATION PREFERENCE.
(a) In the event of any Liquidation Event, the holders of Series
A Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets of this Corporation to the holders of
Nonpreferred Stock and other Junior Shares by reason of their ownership thereof,
an amount per share equal to the sum of (i) $5.50 for each outstanding share of
Series A Preferred Stock and (ii) all accumulations of unpaid dividends on each
share of Series A Preferred Stock. If upon the occurrence of such Liquidation
Event, the assets and funds thus distributed among the holders of the Series A
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred Stock in proportion to the amount of
such Series A Preferred Stock owned by each such holder.
(b) After the distribution described in subsection (a) has been
paid, the remaining assets of the Corporation available for distribution to
shareholders shall be distributed among the holders of Junior Shares in
accordance with their respective rights thereto.
(c) A consolidation or merger of the Corporation with or into
any other corporation or corporations (other than a merger that is not part of a
Control Transaction and that, pursuant to the provisions of Section 251(f) of
the General Corporation Law of the State of Delaware, does not require approval
by stockholders of the Corporation), or a sale, conveyance or disposition of all
or substantially all of the assets of the Corporation or the effectuation by the
Corporation or its stockholders of a transaction or series of related
transactions in which more than 50% of the voting power of the Corporation is
disposed of (a "Control Transaction"), shall be deemed to be a Liquidation
Event, if the holders of at least 60% of the outstanding Series A Preferred
Stock elect to have such transaction treated as a Liquidation Event.
4. CONVERSION. The holders of the Series A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) OPTIONAL CONVERSION RIGHTS AND AUTOMATIC CONVERSION.
(i) Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after March 10,
1997, at the office of the Corporation or any transfer agent for the Series A
Preferred Stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing 5.50 by the Conversion
3
<PAGE>
Factor at the time in effect for such share. The initial Conversion Factor per
share for shares of Series A Preferred Stock shall be 5.50. The Conversion
Factor for the Series A Preferred Stock shall be subject to adjustment as set
forth in this Section 4.
(ii) Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock as is determined by
dividing 5.50 by the Conversion Factor at the time in effect for such Series A
Preferred Stock: (a) immediately upon the consummation of the Corporation's sale
of its Common Stock in a bona fide, firm commitment underwriting pursuant to a
registration statement on Form S-1 under the Securities Act of 1933, as amended
(or any equivalent successor form), the public offering price of which was not
less than $8.00 per share (adjusted to reflect changes after September 9, 1996
in the number of shares of Common Stock outstanding by reason of stock
dividends, stock splits or recapitalizations or the like) and the net proceeds
to the Corporation of which were not less than $20 million (a "Qualifying Public
Offering").
(iii) Upon conversion of any Series A Preferred Stock,
payment shall be made by the Corporation to each holder of the Series A
Preferred Stock so converted on account of dividends accrued but unpaid on the
Series A Preferred Stock.
(b) MECHANICS OF OPTIONAL CONVERSION. If the holder of shares of
Series A Preferred Stock desires to exercise such right of conversion, he shall
give written notice to the Corporation (the "Conversion Notice") of his election
to convert a stated number of shares of Series A Preferred Stock (the
"Conversion Shares") into shares of Common Stock, and surrender to the
Corporation his certificate or certificates representing such Conversion Shares.
The Conversion Notice shall also contain a statement of the name or names (with
addresses) in which the certificate or certificates for Common Stock shall be
issued. Notwithstanding the foregoing, the Corporation shall not be required to
issue any certificates to any person other than the holder thereof unless the
Corporation has obtained reasonable assurance that such transaction is exempt
from the registration requirements of, or is covered by an effective
registration statement under, the Securities Act of 1933, as amended (the
"Act"), and all applicable state securities laws, including, if necessary in the
reasonable judgment of the Corporation or its legal counsel, receipt of an
opinion to such effect from counsel reasonably satisfactory to the Corporation.
In no event would such opinion be required if the shares of Common Stock could,
upon conversion, be resold pursuant to rule 144 under the Act. Promptly after
the receipt of the Conversion Notice and the surrender of the certificate or
certificates representing the Conversion Shares, the Corporation shall issue and
deliver, or cause to be delivered, to the holder of the Conversion Shares or his
nominee or nominees, a certificate or certificates for the number of shares of
Common Stock issuable upon the conversion of such Conversion Shares. Such
conversion shall be deemed to have been effected as of the close of business on
the date the Corporation received the Conversion Notice and the certificate or
certificates representing the Conversion Shares, and the person or persons
entitled to receive the shares of Common Stock issuable upon conversion shall be
treated for all purposes as the holder or holders of record of such shares of
Common Stock as of the close of business on such date.
4
<PAGE>
(c) MECHANICS OF AUTOMATIC CONVERSION.
(i) The Corporation shall give all holders of record of shares
of Series A Preferred Stock prior written notice of the date upon which the
registration statement relating to the Qualifying Public Offering will be
ordered effective by the Securities and Exchange Commission or is anticipated to
be ordered effective. Such notice shall be given as promptly as practicable,
but in no event later than the date upon which the Company submits a request to
the Securities and Exchange Commission to accelerate the effectiveness of such
registration statement. Such notice shall also specify the place designated for
exchanging shares of Series A Preferred Stock for shares of Common Stock, and
shall be sent by first class mail, postage prepaid, to each holder of record of
shares of Series A Preferred Stock at such holder's address as shown in the
records of the Corporation. In the event that the Corporation gives notice of
an anticipated effective date of the Qualifying Public Offering and the actual
effective date is a different date, the conversion of the Series A Preferred
Stock shall nevertheless be effected in accordance with the provisions of this
Section 4.
(ii) From and after the date of conversion, all rights of the
holders of any shares of Series A Preferred Stock, as such, except for the right
to convert their shares of Series A Preferred Stock into shares of Common Stock
as provided in this Section 4, shall cease and terminate, regardless of whether
the holders of such shares of Series A Preferred Stock have tendered their
certificates therefor in accordance with this Section 4.
(d) CONVERSION FACTOR ADJUSTMENTS OF PREFERRED STOCK.
(i) In the event the Corporation should at any time or from
time to time after September 10, 1996 (the "Purchase Date") fix a record date
for the effectuation of a split or subdivision of the outstanding shares of
Nonpreferred Stock or the determination of holders of Nonpreferred Stock
entitled to receive a dividend or other distribution payable in additional
shares of Nonpreferred Stock, then, as of such record date (or, if no record
date is fixed, as of the close of business on the date on which the Board of
Directors adopts the resolution relating to such dividend, distribution,
split or subdivision), the Conversion Factor in effect immediately prior to
such date shall be multiplied by a fraction, the numerator of which shall be
the number of shares of Commmon Stock outstanding immediately prior thereto
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately thereafter. So long as any shares of Series A
Preferred Stock are outstanding, the Corporation shall not fix a record date
for, or effect, such a dividend, distribution, split or subdivision on any
shares of Nonpreferred Stock unless it likewise fixes a record date for, or
effects such a dividend, distribution, split or subdivision on all shares of
Nonpreferred Stock.
(ii) If the number of shares of Nonpreferred Stock outstanding
at any time after the Purchase Date is decreased by a combination of the
outstanding shares of Nonpreferred Stock, then following such combination, the
Conversion Factor in effect immediately prior thereto shall be multiplied by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior thereto and the denominator of which shall be the
number of shares of Common Stock outstanding immediately thereafter.
5
<PAGE>
So long as any shares of Series A Preferred Stock are outstanding, the
Corporation shall not combine any shares of Nonpreferred Stock unless it
likewise combines all shares of Nonpreferred Stock.
(e) RECAPITALIZATIONS, ETC. If any capital reorganization or
reclassification of the Common Stock of the Corporation (other than as set
forth in subsection 2(b)), or consolidation or merger of the Corporation with
or into another corporation, or the sale or conveyance of all or
substantially all of its assets to another corporation, shall be effected,
then, as a condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provision shall be made (unless such
transaction is deemed to be a Liquidation Event pursuant to subsection 3(c))
whereby the holders of the Series A Preferred Stock shall thereafter have the
right to receive, in lieu of the shares of Common Stock of the Corporation
immediately theretofore receivable with respect to such shares of Series A
Preferred Stock, such shares of stock, securities or assets as would have
been issued or payable with respect to or in exchange for the shares of
Common Stock which such holders would have held had the shares of Series A
Preferred Stock been converted immediately prior to such reorganization,
reclassification, consolidation, merger or sale. In any such case,
appropriate provisions shall be made with respect to the rights and interests
of the holders of the Series A Preferred Stock to the end that such
conversion rights (including, without limitation, provisions for adjustment
of the Conversion Factor) shall thereafter be applicable, as nearly as may be
practicable in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise thereof. The Corporation shall not
consummate any such reorganization, reclassification, consolidation, merger
or sale unless it provides the holders of the Series A Preferred Stock at
least 20 days advance notice thereof.
(f) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, reclassification,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series A Preferred Stock against
impairment. Without limiting the foregoing, the Company will not effect any
transaction described in Section 4(e), the result of which is to adversely
affect any of the rights of holders of Common Stock relative to the rights of
holders of any other Nonpreferred Stock.
(g) STOCK TRANSFER TAXES. The issuance of stock certificates upon
the conversion of the Series A Preferred Stock shall be made without charge
to the converting holder for any tax in respect of such issuance. The
Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of
shares in any name other than that of the holder of such shares of Series A
Preferred Stock converted, and the Corporation shall not be required to issue
or deliver any such stock certificate unless and until the person or persons
requesting the issuance thereof shall have paid to the Corporation the amount
of such tax, if any.
6
<PAGE>
(h) NO FRACTIONAL SHARES: CERTIFICATE AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon conversion of
the Series A Preferred Stock, and the number of shares of Common Stock to be
issued shall be rounded to the nearest whole share.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Factor of Series A Preferred Stock pursuant to this Section 4,
the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Factor at the time in effect, and (C) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of a share of Series A
Preferred Stock.
(i) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock or any class of
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series A Preferred Stock, at least 20 days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the shares of the Series A Preferred Stock, free
from any preemptive right or other obligation, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Preferred Stock; and if
at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding
shares of the Series A Preferred Stock, in addition to such other remedies as
shall be available to the holder of such Series A Preferred Stock, the
Corporation will take such corporate action as may be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares
as shall be sufficient for such purposes. The Corporation shall prepare and
shall use its best efforts to obtain and keep in force such governmental or
regulatory permits or other authorizations as may be required by law, and
shall comply with all requirements as to registration, qualification or
listing of the Common Stock, in order to enable the Corporation lawfully to
issue and deliver to each holder of record of Series A Preferred Stock such
number of shares of its Common Stock as shall from time to time be sufficient
to effect the conversion of all Series A Preferred Stock then outstanding and
convertible into shares of Common Stock.
7
<PAGE>
(k) NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Series A Preferred Stock shall
be deemed given if deposited in the United States mail, postage prepaid, or by a
recognized commercial delivery service (e.g., United Parcel Service or Federal
Express), delivery prepaid and addressed to each holder of record at his address
appearing on the books of this Corporation.
5. VOTING RIGHTS
(a) ELECTION OF DIRECTORS
(i) The holders of the Series A Preferred Stock shall have
the exclusive right to elect one director. The holders of the Common Stock and
the Series A Preferred Stock shall have the right to elect all other directors.
(ii) The director who shall have been elected solely by
the holders of Series A Preferred Stock may be removed during his term of
office, either for or without cause, by and only by, the affirmative vote of
the holders of a majority of the shares of the Series A Preferred Stock who
elected such director, given at a special meeting of such shareholders duly
called for that purpose, and any vacancy thereby created may be filled by the
holders of the Series A Preferred Stock represented at that meeting.
(iii) If the director who shall have been elected solely by
the holders of Series A Preferred Stock shall cease to serve for any reason
other than removal as set forth in Subsection (a)(ii) of this Section 5
(including, without limitation, death, incapacity or resignation), any
vacancy thereby created shall be filled exclusively by the holders of the
Series A Stock.
(b) VOTING RIGHTS GENERALLY. Subject to subsection (a) of this
Section 5 and to Section 6, and except as otherwise required by law, the
holder of each share of Series A Preferred Stock shall have the right to one
vote for each share of Common Stock into which such Series A Preferred Stock
could then be converted (with any fractional share determined on an aggregate
conversion basis being rounded to the nearest whole share), and with respect
to such vote, such holder shall have voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, and shall be
entitled, notwithstanding any provision hereof, to notice of any
shareholders' meeting in accordance with the by-laws of the Corporation, and
shall be entitled to vote, together with holders of Common Stock, with
respect to any question upon which holders of Common Stock have the right to
vote.
6. PROTECTIVE PROVISIONS. So long as shares of Series A
Preferred Stock are outstanding, this Corporation shall not, without first
obtaining the approval (by vote or written consent) of the holders of a majority
of the then outstanding shares of Series A Preferred Stock (voting in accordance
with Section 5):
(a) alter or change the rights, preferences or privileges of the
shares of Series A Preferred Stock so as to affect adversely the shares;
8
<PAGE>
(b) increase the number of authorized shares of Series A Preferred
Stock, or create any new series of stock or any other securities convertible
into equity securities of the Corporation having a preference over, or being on
a parity with, the Series A Preferred Stock with respect to voting, dividends,
distribution of assets or conversion rights;
(c) Amend the Certificate of Incorporation or By-Laws of the
Corporation or take any action or enter into any other agreements which prohibit
or conflict with the Corporation's obligations hereunder with respect to the
holders of Series A Preferred Stock.
7. STATUS OF CONVERTED STOCK. In the event any shares of Series A
Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so
converted shall be canceled and thereupon restored to the status of authorized
but unissued Preferred Stock undesignated as to class or series.
9
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused the foregoing
certificate to be signed on September 10, 1996.
EARTHLINK NETWORK, INC.
/s/Charles G. Betty
---------------------------
Charles G. Betty, President
10
<PAGE>
AMENDMENT NO. 1 TO AMENDED AND RESTATED INTERNET SERVICE PROVIDER
NAVIGATOR DISTRIBUTION AGREEMENT
This Amendment No. 1 (the "Amendment") is entered into by and between Netscape
Communications Corporation, a Delaware corporation, with principal offices at
501 E. Middlefield Road, Mountain View, California 94043 ("Netscape"), and
EarthLink Network, Inc., a Delaware corporation with a usual place of business
at 3100 New York Drive, Pasadena, California 91107 ("NSP") and effective as of
the date of execution by Netscape ("Effective Date").
WHEREAS, the parties have entered into an Amended and Restated Internet Service
Provider Navigator Distribution Agreement effective May 31, 1996 (the
"Agreement"); and
WHEREAS, the parties wish to modify and supplement the provisions of such
Agreement;
NOW, THEREFORE, the parties, in consideration of the terms and conditions
herein, agree as follows:
1. The "TERRITORY" set forth on the cover sheet shall be amended to read, in
its entirety, as follows: "All countries where NSP may legally distribute
the software to be distributed under this Agreement."
2. Capitalized terms defined in the Agreement shall have the same meaning in
this Amendment as in the Agreement.
3. Except as explicitly modified, all terms, conditions and provisions of the
Agreement shall continue in full force and effect.
4. In the event of any inconsistency or conflict between the Agreement and
this Amendment, the terms, conditions and provisions of this Amendment
shall govern and control.
5. This Amendment and the Agreement constitute the entire and exclusive
agreement between the parties with respect to this subject matter. All
previous discussions and agreements with respect to this subject matter are
superseded by the Agreement and this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their duly authorized representatives, effective as of the Effective Date.
NETSCAPE COMMUNICATIONS EARTHLINK NETWORK, INC.
CORPORATION
By:/s/ Thomas Dicker By:/s/ Garry G. Betty
------------------------- ---------------------------
Signature Signature
Name: THOMAS DICKER Name: Garry Betty
----------------------- -------------------------
Print or Type
Title: EXECUTIVE DIRECTOR Title: PRESIDENT
---------------------- -------------------------
Date: 8/1/96
----------------------- Date: July 23, 1996
---------------------------
EarthLink Network, Inc. REVIEWED BY
Amendment NETSCAPE LEGAL
CONFIDENTIAL
Initial DRM
-------
<PAGE>
AMENDMENT No. 2 TO AMENDED AND RESTATED INTERNET SERVICE PROVIDER
NAVIGATOR DISTRIBUTION AGREEMENT
This Amendment No. 2 (The "Amendment") is entered into by and between Netscape
Communications Corporation, a Delaware corporation, with principal offices at
501 E. Middlefield Road, Mountain View, California 94043 ("Netscape"), and
EarthLink Network, Inc, a Delaware corporation with a usual place of business at
3100 New York Drive, Pasadena, California 91107 ("NSP") and effective as of
September 1, 1996 ("Effective Date").
WHEREAS, the parties have entered into an Amended and Restated Internet Service
Provider Navigator Distribution Agreement effective May 31, 1996 (the
"Agreement") and an Amendment No. 1 thereto effective August 1, 1996; and
WHEREAS, the parties wish to modify and supplement the provisions of such
Agreement;
NOW, THEREFORE, the parties, in consideration of the terms and conditions
herein, agree as follows:
1. The Netscape products selected on the cover sheet of the Agreement after
"Check Applicable" shall be Netscape Navigator LAN, Netscape Navigator Dial
up kit, and Netscape Navigator Gold only.
2. Section 1.16 of the Agreement shall be amended to read in its entirety as
follows:
1.16 "Registered User" means (a) an End User that is provided Netscape
Navigator Gold upon the date such product is first distributed to
such End User or (b) an End User that is provided Netscape
Navigator LAN who is provided Internet Access through NSP's
Product and who continues to use NSP's Product for Internet
Access as of the shorter of (i) the duration of any free trial or
evaluation period offered by NSP or (ii) thirty (30) days after
the date that such End User is first provided Internet Access
through NSP's Product.
3. Section 1 of Attachment C shall be amended to read in its entirety as
follows:
1. PRICING
LICENSE FEE PER COPY
Netscape Navigator LAN *****
(Windows 95/NT and Macintosh
platforms)
Netscape Navigator Gold *****
(Windows 95/NT and Macintosh
platforms)
4. Capitalized terms defined in the Agreement shall have the same meaning in
this Amendment as in the Agreement.
5. Except as explicitly modified, all terms, conditions and provisions of the
Agreement shall continue in full force and effect.
*-Redacted material subject to confidential treatment application.
1
<PAGE>
6. In the event of any inconsistency or conflict between the Agreement and
this Amendment, the terms, conditions and provisions of this Amendment
shall govern and control.
7. This Amendment and the Agreement constitute the entire and exclusive
agreement between the parties with respect to this subject matter. All
previous discussions and agreements with respect to this subject matter are
superseded by the Agreement and this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their duly authorized representatives, and effective as of the Effective
Date.
NETSCAPE COMMUNICATIONS EARTHLINK NETWORK INC.
CORPORATION
By: /s/ Thomas Dicker By: Garry H. Betty
-------------------------------- -----------------------------
Signature Signature
Name: Thomas Dicker Name: Garry Betty
------------------------------ ---------------------------
Print or Type Print or Type
Title: Executive Director Title: CEO/President
----------------------------- --------------------------
Date: September 24, 1996 Date: September 26, 1996
------------------------------ ---------------------------
2
<PAGE>
EXHIBIT 10.7(a)
ADDENDUM NO. 1 TO
NETWORK SERVICES AGREEMENT
This Addendum No. 1 (the "Addendum") to Network Services Agreement between
UUNET Technologies, Inc. ("UUNET") and EarthLink Network, Inc.
("EarthLink") dated May 31, 1996 (the "Agreement") is made as of October
31, 1996.
The parties agree as follows:
1. AMENDMENT. Each of UUNET and EarthLink wish to amend the Agreement on the
terms and subject to the Conditions set forth in this Addendum.
2. PRICING. The attached Schedule A, NETWORK SERVICES PRICING, TERMS AND
CONDITIONS supersedes and replaces in its entirety Schedule A to the
Agreement.
3. EFFECTIVITY AND TERM. The initial term of the Agreement, as modified by
this Addendum, is 30 months from October 1, 1996, unless earlier terminated
by either party in accordance with the terms of the Agreement, as modified
by this Addendum. The term shall be automatically renewed for additional
one-year terms; provided, that neither party has given the other party a
written notice of intent not to renew for the forthcoming term. Such notice
of intent shall be given not less than 60 days prior to the end of the
current term.
4. EARTHLINK TERMINATION FOR CAUSE. The attached Schedule D, SERVICE LEVEL
AGREEMENT AND TERMINATION FOR CONVENIENCE, supersedes and replaces in its
entirety Section 8 of the Agreement.
5. UUNET TERMINATION FOR CAUSE. The last sentence of Section 9 of the
Agreement is hereby amended to read in its entirety as follows: "If any
amounts due and owing by EarthLink remain unpaid 60 days after the date
payment is due, the UUNET may terminate this agreement immediately without
penalty."
6. CONFIDENTIALITY; NO PUBLICITY. The prices and terms of the Agreement, both
prior to and as modified by this Addendum, shall be held confidential by
both parties, as shall the parties' respective performance under the
Agreement, the quality of UUNET Network performance, and any data provided
by UUNET to EarthLink regarding performance of the UUNET Network. Each
party shall not disclose any such information to third parties, except as
permitted by this Section 6, and shall disseminate such information among
its employees only on a need-to-know basis. In the event that EarthLink is
required for legal or regulatory reasons to disclose the terms of the
Agreement or the Addendum or performance thereunder, EarthLink shall use
its best efforts to minimize such disclosure, shall notify UUNET in advance
of such required disclosure and shall provide to UUNET, to the maximum
extent practicable, the opportunity to comment upon such proposed
disclosure. Each party shall be entitled to all available legal and
equitable remedies in the event of a breach of this Section 6. In addition,
UUNET, in its discretion, may terminate this Agreement upon ten days' notice
and without penalty in the event of EarthLink's breach of the terms of this
Section 6.
7. OUTSTANDING CHARGES. EarthLink agrees that all charges billed by UUNET to
EarthLink to date under the Agreement are final, and EarthLink agrees to pay
to UUNET such charges under the Agreement through September 1996, including
without limitation the charges based on the invoices in the attached
SCHEDULE "E".
8. ENTIRE AGREEMENT; RATIFICATION. Section 13 of the Agreement is replaced in
its entirety by this Section 8. The parties hereby affirm and ratify their
respective rights and obligations under the Agreement, which Agreement
shall remain in full force and effect, as modified by the Addendum. The
Agreement, this Addendum, and the attached Schedules and Exhibits
constitute the entire agreement between the parties and supersede any and
all prior or contemporaneous oral or written
* - Redacted Material Subject to Confidential Treatment Application
1
<PAGE>
communications with respect to the subject matter hereof and thereof. None
of the Agreement, this Addendum or the attached Schedules and Exhibits
shall be modified, amended or in any way altered except by an instrument in
writing signed by both parties.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
EARTHLINK NETWORK, INC.
By: /s/ C. GARRY BETTY
-------------------------------
Name: /s/ C. GARRY BETTY
-----------------------------
Title: President and CEO
----------------------------
UUNET TECHNOLOGIES, INC.
By: /s/ DAVID FOSTER
-------------------------------
Name: David Foster
-----------------------------
Title: Vice President
----------------------------
2
<PAGE>
SCHEDULE A
NETWORK SERVICES PRICING, TERMS AND CONDITIONS
1. DEFINITIONS
"EarthLink Users" are EarthLink customers that reside in the
continental United States or Canada and are making use of the UUNET Network
with connections at either 28.8 Kbps analog or below, or ISDN, for
connecting to the Internet. Such customers shall be those who can
reasonably be expected to use the dial-up connections for ordinary periodic
use and not to maintain continuous or pseudo-dedicated connections.
Further, such customers shall not be permitted directly or indirectly to
sell or permit access to the general public.
***** ************ ****** are EarthLink Users logged into the UUNET Network
from the continental United States or Canada ************** ** ********
****** * ***** **** *********
******* ******* **** ************ ****** are EarthLink Users logged into
the UUNET Network from the continental United States or Canada
************** ***** ** ******* ***** **** **** ******* ****** ******
*********** ********
******** ******* **** ************ ****** is the ******* ** *** *******
****** ** ****** ******* **** ************ ***** for each day of a calendar
month, which, during the period of ******* ** ***** ******* ***** *** ****
for the applicable month, will be ******** ******** ** ******* * ** ****
******** **
******* ****** is the total number of EarthLink connect hours in the
continental U.S. and Canada for a calendar month, less the ******* ** ***
*** ******* ******* **** ************ ****** ********** ** *** *** *****
******* *******
2. PRICING FOR EARTHLINK USERS
EarthLink will pay to UUNET a monthly price based on the ******* *******
**** ************ ***** ** ******** ** UUNET, dependent upon whether
******* ******* **** ************ ****** prior to contractual adjustments,
is at or below the ****** ****** specified below.
In addition to the **** ************ **** ******** EarthLink will pay to
UUNET **** per **** for each ****** ***** plus the ********** *** ****
****** *** ****** ******* ** *** *********** *** as set forth below.
***** *** ******* ******* **** ************ ****
---------------------------------------------------------------------------
---------------------------------------------------------------------------
EACH, PER CALENDAR MONTH, WHEN ***** ******* $******
****** ******
$******
EACH, PER CALENDAR MONTH, ** ** ***** ******
*******
---------------------------------------------------------------------------
* - Redacted Material Subject to Cofidential Treatment Application
3
<PAGE>
****** ****** ** ******* ******* **** ************ *****
---------------------------------------------------
MONTH ****** ******
---------------------------------------------------
October-96 *****
---------------------------------------------------
November-96 *****
---------------------------------------------------
December-96 *****
---------------------------------------------------
January-97 *****
---------------------------------------------------
February-97 *****
---------------------------------------------------
March-97 *****
---------------------------------------------------
April-97 *****
---------------------------------------------------
May-97 *****
---------------------------------------------------
June-97 *****
---------------------------------------------------
July-97 *****
---------------------------------------------------
August-97 *****
---------------------------------------------------
September-97 *****
---------------------------------------------------
October-97 *****
---------------------------------------------------
November-97 *****
---------------------------------------------------
December-97 *****
---------------------------------------------------
January-98 *****
---------------------------------------------------
February-98 *****
---------------------------------------------------
March-98 ******
---------------------------------------------------
April-98 ******
---------------------------------------------------
May-98 ******
---------------------------------------------------
June-98 ******
---------------------------------------------------
July-98 ******
---------------------------------------------------
August-98 ******
---------------------------------------------------
September-98 ******
---------------------------------------------------
October-98 ******
---------------------------------------------------
November-98 ******
---------------------------------------------------
December-98 ******
---------------------------------------------------
January-99 ******
---------------------------------------------------
February-99 ******
---------------------------------------------------
March-99 ******
---------------------------------------------------
3. ******* ****** ADJUSTMENTS
During the period of ******* ** **** ******* ******** *** ***** UUNET will
****** *** ****** ******* ************* **** *** ****** ****** ** *******
******* **** ************ ***** *** ******** ****** *** ****** *** ******
** ******* ** **** ******* ***** *** ***** ***** **** ****** *** ****
******* ************* **** *** ****** ****** ** ******* ******* ****
************ ***** *** ******** ******
In the event that the ******* ******* **** ************ ***** is less than
the ****** ****** (prior to any adjustment pursuant to the preceding
paragraph) for any calendar month from ******* ** **** ******* ***** ***
***** EarthLink will pay to UUNET **** *** **** ************ **** for such
month if ******* ******* **** *********** ****** for such month is more
than *** but less than ****** of the ****** ****** for such month; **** per
**** ************ **** if ******* ******* **** ************ ***** for such
month is more than ***** *** *** or less than the ****** ****** for such
month; and **** *** **** ************ **** for such month if *******
******* **** ************ ***** for such month is ***** or less of the
****** ****** for such month, in lieu of the pricing as stated in the *****
*** **** ************ **** table above.
* - Redacted Material Subject to Confidential Treatment Application
4
<PAGE>
4. ISDN ACCESS PRICING
ISDN access from the continental United States and Canada shall be subject
to a surcharge of **** per **** (per channel). ISDN access from outside of
the continental United States and Canada is not available as part of this
Agreement.
5. CANADA ACCESS PRICING
Access from Canada shall be subject to a surcharge of **** per **** in
addition to any other surcharges which may apply.
6. ALASKA AND HAWAII ACCESS PRICING
Pricing for access from Alaska and Hawaii, subject to such access becoming
commercially available, will be added in a separate addendum to this
Agreement.
7. INTERNATIONAL ROAMING ACCESS PRICING
Access from any one of UUNET's POPs outside of the continental United
States and Canada will be subject to an ****** rate of ***** per *****
8. ******* ********
If the actual charges to EarthLink under the terms of this Schedule A for
dial-up services only ** *** ****** *** ****** ** *** ******* *******
******* ******* *** ***** ****** EarthLink shall pay to UUNET *** *******
******* ******* ******* for charges incurred by EarthLink Users, after
applying all applicable surcharges and the initial period adjustments, as
follows:
---------------------------------------------------------------------------
Time Period ******* ******* *******
---------------------------------------------------------------------------
******* ** **** through ***** *** **** **********
***** ** **** through **** *** **** **********
**** ** **** through ********* *** **** **********
******* ** **** through ******** *** **** **********
******* ** **** through **** *** **** **********
**** ** **** through ***** *** **** **********
- --------------------------------------------------------------------------------
9. RESALE
Resale to other individuals and organizations is permitted, however resale
to Internet Service Providers or other businesses or organizations which
will resell or incorporate the use of the Internet as part of their
service, such that the end user is not a customer of EarthLink, is subject
to advance approval by UUNET, and will require that EarthLink's agreement
with its reseller incorporates the terms and conditions provided in the
attached Exhibit 1. The terms of this Section 9 shall not restrict any
cooperative
* - Redacted Material Subject to Confidential Treatment Application
5
<PAGE>
marketing or referral arrangements so long as all resulting end users are
customers of EarthLink.
10. REFERRALS FROM UUNET
EarthLink agrees to the extent reasonably possible to set-up all customers
referred to EarthLink by UUNET with accounts using the UUNET Network.
EarthLink also agrees to *** ** ***** * ******** *** ** *** *** ******* ***
**** ********** EarthLink and UUNET agree to work diligently to establish
an appropriate procedure for ********** *** ******** *** ********* ***
****** ******* ************
11. ********* ** OTHER SERVICES
UUNET will ******* * ******** ** *** *** ** *** **** ******* **** ***** ***
*** *** *** ****** ***** ********* ******** ** ********** *** *****
******** *** *** **** ******* **** ***** ** *** ***** ***** *** *****
******* ***** *** **** ** **** ********* ** ********* ***** **** *******
*** ******** ** ** *******
In the event that Termination for Convenience is elected, the *********
will be ******* ** *** *** *** **** ******* **** ***** *** *** *** ***
***** ***** ********* ******** ** ********** *** *** *** *** **** *******
**** ***** *** *** ***** ***** *** ***** ******* after the date of this
Addendum.
List prices are not inclusive of any period or term commitment discounts
which may be offered. *** ********* *** ***** in this Section 11 shall
apply only for the term of the ********** ** ******** ** **** *********
12. EARTHLINK RESPONSIBILITIES
- EarthLink will provide to UUNET a six month advance rolling forecast by
POP on a monthly basis.
- EarthLink will cooperate with UUNET to direct new user load to
appropriate POPs as specified by UUNET.
13. UUNET RESPONSIBILITIES
UUNET will make available to EarthLink the following billing data files and
reports regarding the utilization of the UUNET Network for a calendar month
by the 7th day of the following calendar month:
- Monthly Billing Data File containing all session records for the month.
- "One Day Ago" Daily Billing File which will include sessions beginning
on the previous day, noting that the sum of such files for the month does
not include all sessions. UUNET will use reasonable efforts to rewrite the
necessary systems such that Daily Billing Data Files can be provided which
will include all sessions ending on given day, so that the sum of such
files will include all sessions for the month.
- Report of POPs which were ***** ******** *********** *** ** ******* **
**** ** **** ** * ****** ** **** **** ****** *** ******
- ******* ******* ************ **** ***** report including the number of
************ **** ***** for each day of the month.
- The data for such month set forth on Exhibit 2.
In addition, UUNET will provide to EarthLink by Wednesday of the week
following the applicable activity:
- Periodically updated list of all POPs and their primary rotary phone
numbers.
* - Redacted Material Subject to Confidential Treatment Application
6
<PAGE>
- Weekly report of POPs which were heavily utilized, as defined by UUNET.
- Weekly report of expanded or new POPs.
- Report of **** ************ ***** by day.
UUNET may provide other reports, to be determined at UUNET's option, which
will assist EarthLink in managing resource utilization.
14. RESOURCE UTILIZATION REDUCTION
EarthLink and UUNET agree to work diligently to reduce resource utilization.
Specific measures to be investigated include, but are not limited to,
********** ********* ***** **** ****** **** **** *** ************ ********
*********** ************* **** ********* ** ****** ***** ******** ** ******
*** ******* ****** ** ***** *** ******* *** ******
15. PAYMENT TERMS
Payment for leased line services will be due ****** **** **** after the
date of invoice for leased line services invoiced through ********* ***
***** ***** **** **** from the date of invoice for leased line services
invoiced through ******* *** ***** and ****** **** days from the date of
invoice for leased line services invoiced during ******** **** and
thereafter. Payment for dial-up services will be due ****** **** ****
after the last day of the month for which dial-up services were provided
for services provided through ******* *** ***** ***** **** **** from the
last day of the month for which dial-up services were provided through
******** *** ***** and ****** **** **** from the last day of the month for
which dial-up services were provided during ******** **** and thereafter.
16. CONTINGENCIES
EarthLink agrees to re-negotiate the terms of the Agreement, as modified by
this Addendum, in good faith if UUNET so requests in the event of
********** ** *********** ******* ****** * ********** ****** ** ***
******** ******* ******** *********** ***** ********** ******** *******
******
EarthLink agrees to provide at least sixty (60) days' advance written
notice to UUNET in the event that EarthLink desires to ************* ******
*** ****** ** *** ** *** ********** **** ** ******* *** ******* ** ****
**** *** ** ** **** ******* ********
17. PRESS RELEASE; PUBLIC DISCLOSURE
EarthLink and UUNET agree to issue a press release within 30 days of the
effective date of this Addendum which shall include the announcement that
EarthLink and UUNET have entered into a long term agreement and that John
Sidgmore has been appointed to the Board of Directors of EarthLink. The
text of such press release shall be mutually agreed upon by the parties.
* - Redacted Material Subject to Confidential Treatment Application
7
<PAGE>
SCHEDULE D
SERVICE LEVEL AGREEMENT AND TERMINATION FOR CONVENIENCE
SERVICE LEVEL AGREEMENT
1. Definitions
******* ***** is a UUNET Point of Presence (POP) which is ***** ********
*** **** **** ********** ******* *** *** *** **** ** **** **** ****** *
***** ******** ******
**** ****** is the percentage of *** ***** ********* ***** ******* ****
***** * *** ******* ***** ** *** ******** ***** ******* **** ***** *** ****
* ***** ********** ** * ****** *** ******* *** **** ** ******* ****
******** ******* ***** *** ******** *** *** ***** ***** ******* *** ***
**** ***** **** *** ****** *** *** ***** ******* *** ******* ** *** *****
****** *** ****** **** *** *** *** ****** **** ***** *** *** ****** **
***** ** *** *** *******
******** ***** ***** ******* *** ****** is an amount equal to the sum of
the *** ****** *** *** ** *** ******* **** *** * ******** ***** ******* **
***** ****
*********** is the percentage by which the ****** ****** ** ******* *******
**** ************ ***** *** ******* ******* ******* ******* *** ** *******
** ********** *** ** *** *** ** *** ******* ***** ***** ******* *** ******
*** *** ******* *** *** *** ******** *******
2. Eligibility
Earthlink will be eligible for a ********* for ********** ******* **** if
each of the following conditions have been met for ***** *****
- Earthlink has provided to UUNET monthly a six month advance rolling
Forecast of number of **** ************ ***** ** ****
- The Blocked POP ** ***** *********** ******* ****** ***** ** ***
******* *** ******* *** **** ******* **** ** *** ******* *** ***** **
*** * ******* *****
- EarthLink has used ********** ******* ** ********** ***** ******
******** **** ******* *** ****** ******* **** ** *** ******* *** **
********** **** ******* ********** *********
- The number of **** ************ ***** for the ******* *** has not
increased more than *** over the previous calendar month.
Earthlink will be not be eligible for a ********* if any of the following
occur:
- The ******* ******* **** ************ ***** *** ********* **** ****
*** over the prior month.
- Earthlink has elected the option to ********* *** ********* ***
*********** ******** ** **** ******** **
- EarthLink has caused or permitted an "Event of Default" to occur under
the Note Purchase Agreement between EarthLink and UUNET.
Additional conditions that apply:
- ***** *** ****** ** ** **** **** *** **** ** ******* ** *** ***** **
******* ****** ***** ****** ** ********* ***** **** ** *** ********
- The terms of this Service Level Agreement do not take effect until
***** ** *****
* - Redacted Material Subject to Confidential Treatment Application
8
<PAGE>
*** ******* ******* ********* ****** ***** *** ** ******* ****** **********
*** *** ****** ****** ** ******* ******* **** ************ ***** ***** ***
** ******* ***** ***** *** *** ******** ******
3. Example
**** **** ****** ******* **** ******* ******* **** ************ ******
******* ******* ******* ****** ** **********
******* *** *** ***** *** **** **** *********
*** ****
**** * **** ****
**** * *** *** **** ****
**** * *** *** ***
**** * *** *** ***
**** * *** *** ***
**** * *** ***
***** *********** *********** ********** ****
***** ******** ********* ** ***** ****** ****** *** **** ** ***** ***
******* ******* ******* ****** ** *********** *** ********* ******* **
******** ***** *** *** ******* ** ************ *** ******* *** **********
********* *** *** ********* **** **** **********
TERMINATION FOR CONVENIENCE
Each of EarthLink and UUNET may terminate the Agreement for convenience by
providing at least ****** **** ******** ****** ******* ******* ******* ***
**** ****** *** *** ** ***** ***** ** ***** ** *****
In the event that EarthLink elects to terminate for convenience, EarthLink
agrees to pay to UUNET, ****** ** **** ** ****** ******* ** ****** ***** **
*** ** *** ********* ** ******* ************ ** *** ********* ** ****
************ ***** *** *** ******* ****** ********** *** ***** ** ******* *
** ******** * ** **** ********* *** ******* ******* ******* ****** **** **
***** ***** ** *** ******* ******* ******* ****** ********** *** ***
******** ***** *********** ********* *** ***** ****** ***** ****** ** *****
********** ******* ********* *** **** ** ******* ***** ** *** *********
******
* - Redacted Material Subject to Confidential Treatment Application
9
<PAGE>
- --------------------------------------------------------------------------------
Time Period Impact on ******* ******* ******* *******
- --------------------------------------------------------------------------------
Through
***** **** ** *********
******** ***** *****
***** ****** *****
****** *** *****
******** ****** * *** ********* **** ********
******* * ******* ******
******** ****** * ** * ********* **** *********
******* * ******* ******
******** ****** ** *** ********* **** ********
******* ** ******* ******
- --------------------------------------------------------------------------------
In the event that UUNET elects to terminate for convenience, EarthLink
agrees to migrate usage off of the UUNET Network thereby reducing UUNET
Network usage as measured both by the number of **** ************ ***** ***
******** ******* ****** according to the schedule in the following
table. Further, UUNET agrees to ***** *** ******* ****** ******* ***
******* ******* ******* ******* specified in the following table:
- --------------------------------------------------------------------------------
********* **
********* ** ********* ** ****** ******* *******
Time Period ******* ***** ******* ******* *******
- --------------------------------------------------------------------------------
Through ***** **** **** *** ***
******** *****
***** ***** ******
***** ****** ***
*****
******** ***** * *** *** ***
******* *
******** ***** * *** *** ***
******* *
******** ***** ** *** *** ***
******* **
- --------------------------------------------------------------------------------
* - Redacted Material Subject to Confidential Treatment Application
10
<PAGE>
SCHEDULE E-Page 1
UUNET Technologies
3060 Williams Drive
Fairfax, VA 22031
703-206-5600
BILL TO: Invoice Date: 08/20/96
EarthLink Network, Inc. Invoice No.: u03659-r
3100 New York Drive Reference:
Pasadena, CA 91107
Attn: Lydia Hernandz Terms: ** **** from invoice date
- --------------------------------------------------------------------------------
Qty Description Unit Price Total Price
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
******** ******** * ****** * ****** *** ************
*** ** ***** * ******* * **** *** *********
****** ****** ***** * ***** * ***** *** ********
***** **** ******* ******* ******* ************
***** ******** *** *********** ***** **
******** ***** ******* ** ******** ** **********
----------------
Total amount due: ************
----------------
**Important Remittance Information**
------------------------------------
New Remittance Address:
UUNET Technologies
PO Box 85080
Richmond, VA 23285-4100
Please include this invoice number with your payment: u03659-r
* - Redacted Material Subject to Confidential Treatment Application
<PAGE>
SCHEDULE E-Page 2
UUNET Technologies
3060 Williams Drive
Fairfax, VA 22031
703-206-5600
BILL TO: Invoice Date: 10/14/94
EarthLink Network, Inc. Invoice No.: u03659-9608
3100 New York Drive Reference:
Pasadena, CA 91107
Attn: Lydia Hernandz Terms: ** **** from invoice date
- --------------------------------------------------------------------------------
Qty Description Unit Price Total Price
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
******** ******** * ****** * ****** *** ************
*** ** ***** * ******* * **** *** **********
********
***** **** ******* ******* ******* ************
***** ******** *** *********** ***** **
******** ***** ******* ** ******** ** **********
----------------
Total amount due ************
----------------
**Important Remittance Information**
------------------------------------
New Remittance Address:
UUNET Technologies
PO Box 85080
Richmond, VA 23285-4100
Please include this invoice number with your payment: u03659-9608
* - Redacted Material Subject to Confidential Treatment Application
<PAGE>
SCHEDULE E-Page 3
UUNET Technologies
3060 Williams Drive
Fairfax, VA 22031
703-205-5600
BILL TO: Invoice Date: 10\14\96
Earthlink Network, Inc. Invoice No.: u03659-9609
3100 New York Drive Reference:
Pasadena, CA 91107
Attn:Lydia Hernandz Terms: ** **** from invoice date
- --------------------------------------------------------------------------------
Qty Description Unit Price Total Price
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
******** ******** * ****** * ****** *** ************
*** ** ***** * ******* * **** *** **********
********
***** **** ******* ******* ******* ************
***** ******** *** *********** ***** **
******** ***** ******* ** ******** ** **********
----------------
Total amount due ************
----------------
**Important Remittance Information**
------------------------------------
New Remittance Address:
UUNET Technologies
PO Box 85080
Richmond, VA 23285-4100
Please include this invoice number with your payment: u03659-9609
* - Redacted Material Subject to Confidential Treatment Application
<PAGE>
EXHIBIT 1
INTERNET SERVICES PROVIDER AGREEMENT
This Agreement is made in the city of _____, _____, this __ day of _____,
199_, between __________________, whose address is ______________, _____,
____________ (the "Company"), and ________________________________ whose
address is _____________________________________________ ("Reseller").
The parties agree as follows:
1. SERVICE The Company will sell, and Reseller will purchase,
telecommunications services for the interconnection of Reseller's end users
with the Internet. Reseller is responsible for all end-user customer
support, billing, and collections. The Company's relationship under this
Agreement is solely with Reseller and not with any of Reseller's end users.
The Company agrees that its telecommunications services provided to Reseller
will be of a quality usual and customary in the Industry for similarly
situated companies. Although it is understood that the Company cannot
guarantee continuous service, the Company agrees to provide prompt reparation
of any disruption in services to the extent reasonably possible consistent
with its obligations to other customers.
2. PRICING The Prices for services provided by the Company to Reseller are
set forth on the attached Schedule A.
3. TERMS AND CONDITIONS Reseller agrees to comply with the Network Services
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 of Schedule B. Reseller shall defend,
indemnify, and hold harmless the Company and its suppliers or vendors against
any claims resulting from Reseller's use of UUNET's services, or that of its
customers throughout its chain of distribution.
4. TECHNICAL AGREEMENT Reseller agrees to comply with the Technical
Agreement for Network Interoperability, attached as Schedule C.
5. TERM The term of this Agreement is _____ from the date first set forth
above, which term shall be automatically renewed for additional _____ terms,
provided that neither party has delivered to the other party a written notice
of intent not to renew for the forthcoming term. Such notice of intent shall
be given not less than _____ days in advance of the end of the current term.
6. TERMINATION Either party may terminate this Agreement for cause without
penalty in the event that the other party hereto breaches any material term
of this Agreement. Prior to such termination, the party intending to
terminate shall first give the other party written notice of its intent to
terminate which shall clearly describe problem(s) constituting cause. The
other party will have _____ days from the date of receipt of such notice to
correct the problem. If the problem is not corrected within such period, the
party intending to terminate may terminate this Agreement. However, if
Reseller shall violate the acceptable use policy in Section 2 of Schedule B,
or permit such violation, and does not immediately act to remedy such
violation when it becomes aware of it, the Company may terminate this
Agreement without penalty with ten (10) days' written notice. If any amounts
due and owing by Reseller remain unpaid _____ days after date of invoice,
then the Company may terminate this Agreement immediately upon written notice
without penalty. Either party may terminate this agreement for convenience
_____ days after giving the other party written notice. In the event of any
such termination by Reseller, Reseller will pay the Company ________, in
addition to paying all amounts currently due and owing.
7. TESTING The full effectiveness of this contract will be contingent upon
the completion of technical testing to the mutual and reasonable satisfaction
of both parties during the period of _____ days following execution of this
Agreement. If either party shall reasonably declare the testing results to
be unsatisfactory at the conclusion of the _____ day period, then the parties
shall have another _____ days to correct the problem. If such correction is
not completed to the mutual and reasonable satisfaction of the parties then
this Agreement will terminate with no further liability to either party. If
no such declaration is made, acceptance of technical testing shall be
presumed, and the contract shall remain in effect.
Reseller Resale Agreement Page 1 of 5
<PAGE>
8. 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 VENDOR, SUPPLIER, OR 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 3 OF THIS AGREEMENT
AND SECTION 2 OF SCHEDULE B.
9. 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, USA, and the parties agree that any appropriate state or
district court located in Santa Clara County, California, shall have
exclusive jurisdiction over any case or controversy arising hereunder, and
shall be the proper forum in which to adjudicate such case or controversy.
10. 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 written
communications with respect to 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.
11. RELATIONSHIP OF PARTIES No agency, partnership, joint venture or
employment is created as a result of this Agreement. Neither party is
authorized to bind the other in any respect whatsoever.
12. 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.
13. FORECASTS Reseller shall provide the Company with initial and
periodically revised forecasts of its expected usage, and recognizes the
Company's reliance upon the reasonable accuracy of these forecasts.
Specifically, by the _____ day of the first week of each calendar month
Reseller shall provide the Company with its best forecast of users and hours
for each remaining month of the term of the Agreement. Reseller shall also
provide the Company with any information as to marketing programs which will
be helpful in determining expected future loads, particularly any information
relevant to expected loads in particular geographical locations/POPs.
14. CONFIDENTIALITY The parties agree that all disclosures of confidential
and/or proprietary information during the term of this Agreement shall
constitute confidential information of the disclosing party. Each party
shall use its best efforts to ensure the confidentiality of such information
supplied by the disclosing party, or which may be acquired by either in
connection with or as a result of the provision of the services under this
Agreement. Both parties warrant that they shall not disclose, use, modify,
copy, reproduce, or otherwise divulge such confidential information. Both
parties further agree to prevent its employees and representatives from
disclosing, using, modifying, copying, reproducing, or otherwise divulging
such confidential information, and shall hold each other harmless and protect
and indemnify the same in the event of any disclosure by said persons. The
terms of this section 14 shall continue beyond the term of this Agreement and
shall be binding and enforceable even after the termination of this Agreement.
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.
Reseller Resale Agreement Page 2 of 5
<PAGE>
19. NOTICE Unless otherwise provided, any notice to be given hereunder shall
be effective on the fifth day after dispatch. Such notice shall be sent by
first class mail, postage prepaid and marked for delivery by certified or
registered mail, return receipt requested, addressed 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 Reseller: If to Company:
---------------------------- ----------------------------
---------------------------- ----------------------------
---------------------------- ----------------------------
Attn: Attn:
----------------------- ------------------------
20. ASSIGNMENT This Agreement shall not be assignable by either party
hereto without the prior written consent of the other party.
21. FORCE MAJEURE No party shall be liable by reason of any failure or delay
in the performance of its obligations due to strikes, riots, fires, explosions,
acts of God, war, governmental action or any other cause which is beyond the
reasonable control of such party.
22. COMPLIANCE WITH LAWS Each party shall comply with all laws, regulations
and other legal requirements that apply to this Agreement. The Company hereby
warrants that, to its knowledge, it has complied with all laws, regulations, and
orders relating or pertaining to the provision of the services to be provided
under this Agreement, including without limitation, all applicable state or
federal legislation or rule applicable to the services in any material respect.
To the knowledge of the Company, material permits, licenses, and authorizations
required by any regulatory bodies have been obtained and are in effect for the
services.
23. FACSIMILE TRANSMISSION Parties to this Agreement are authorized to
execute the Agreement, and transmit a signed copy of same via fax to the other
parties, who hereby agree to accept and rely upon such documents as if they bore
original signatures. The parties sending such facsimiles 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.
- ----------------------------------- ----------------------------------
By: By:
----------------------------- -----------------------------
Name: Name:
----------------------- -----------------------
Title: Title:
----------------------- -----------------------
Reseller Resale Agreement Page 3 of 5
<PAGE>
SCHEDULE A TO EXHIBIT 1
PRICING
Reseller Resale Agreement Page 4 of 5
<PAGE>
SCHEDULE B TO EXHIBIT 1
NETWORK SERVICES TERMS AND CONDITIONS
1. Neither the Company nor its vendors or suppliers exercise any control
whatsoever over the content of the information passing through the networks to
be accessed by Reseller or its customers. The Company makes no warranties of
any kind, whether expressed or implied, for the service it is providing. The
Company also disclaims any warranty or merchantability or fitness for a
particular purpose. Neither the Company nor its vendors or suppliers will be
responsible for any damage Reseller suffers. This includes loss of data
resulting from delays, nondeliveries, misdeliveries, or service interruptions.
Use of any information obtained via the Company is at the user's own risk. Each
of the Company and its vendors and suppliers specifically denies any
responsibility for the accuracy or quality of information obtained through its
services.
2. The Company's network may be used only for lawful purposes. Transmission of
any material in violation of any applicable law is prohibited. This includes,
but is not limited to: copyrighted material, material which is threatening or
obscene, or material protected by trade secret. Any access to other networks
connected to the Company's network must comply with the rules appropriate for
the other network. Reseller agrees to indemnify and hold harmless the Company
and its vendors and suppliers from any claims resulting from Reseller's use of
the service or the use of the service by any of Reseller's customers or others
throughout Reseller's chain of distribution, including end users, which damages
the Company, its vendors or suppliers, or any other party.
3. Any access to other networks connected to the Company's network must comply
with the rules appropriate for the other network.
4. [Payment terms]
5. Resale to other individuals and organizations is permitted, but they may not
further resell the services.
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 the Company's network
constitutes acceptance of these Terms and Conditions.
SCHEDULE C TO EXHIBIT 1
TECHNICAL AGREEMENT FOR NETWORK INTEROPERABILITY
1. Reseller agrees to assign each end user customer a unique identification
number for billing purposes, and to reasonably cooperate with Company in
establishing the structure of this identification number.
2. Reseller and Company each agree to cooperate with the other in identifying
and resolving any security infringements which involve Reseller's customers and
Company's network.
Reseller Resale Agreement Page 5 of 5
<PAGE>
*** ******* ***** *** SEPT 1996 EXHIBIT 2
City Name Month ELN Connect Hrs
- --------- ----- ---------------
Abilene, TX 9 *********
Akron, OH 9 *********
Albany, GA 9 *********
Albany, NY 9 **********
Albuquerque, NM 9 *********
Allentown, PA 9 *********
Altoona, PA 9 *********
Amarillo, TX 9 *********
Anaheim, CA 9 **********
Ann Arbor, MI 9 *********
Annapolis, MD 9 *********
Asheville, NC 9 *******
Athens, GA 9 *********
Atlanta, GA 9 **********
Auburn/Opelika, AL 9 *********
Augusta, GA 9 *********
Austin, TX 9 **********
Bakersfield, CA 9 *********
Baltimore, MD 9 **********
Baton Rouge,LA 9 *********
Baytown, TX 9 *********
Beaumont, TX 9 *********
Beaverton, OR 9 *********
Belleville, MI 9 *********
Biloxi/Gulfport, MS 9 *********
Binghamton, NY 9 *********
Birmingham, AL 9 **********
Bloomington, IL 9 *******
Bloomington, IN 9 *********
Boise, ID 9 *********
Boston, MA 9 **********
Bradenton, FL 9 *******
Braintree, MA 9 *********
Brentwood, NY 9 **********
Buffalo, NY 9 *********
Burlington, MA 9 *********
Butte, MT 9 ******
Calgary, AB 9 *******
Cambridge, MA 9 **********
Carlsbad, CA 9 **********
Cedar Rapids, IA 9 *********
Champaign, IL 9 *********
Charleston, SC 9 *******
Charleston, WV 9 *********
Charlotte, NC 9 **********
Chattanooga, TN 9 *********
Cherry Hill, NJ 9 *********
Chicago, IL 9 **********
Chico, CA 9 *********
Cincinnati, OH 9 **********
Clarksburg, WV 9 *********
Clearwater, FL 9 **********
Cleveland, OH 9 **********
Clovis, CA 9 *********
* - Redacted Material Subject to Confidential Treatment Application
Page 1
<PAGE>
College Station, TX 9 ********* EXHIBIT 2
Colorado Springs, CO 9 **********
Colton, CA 9 *********
Columbia, MO 9 *********
Columbia, SC 9 *********
Columbus, GA 9 *********
Columbus, OH 9 **********
Concord, CA 9 **********
Conshohocken, PA 9 *********
Corpus Christi, TX 9 *********
Dallas, TX 9 **********
Danvers, MA 9 *********
Davenport, IA 9 *********
Dayton, OH 9 *********
Daytona Beach, FL 9 *********
Decatur, AL 9 *******
DeKalb, IL 9 *********
Denver, CO 9 **********
Des Moines, IA 9 *********
Detroit, MI 9 **********
Durham, NC 9 *********
Edmonton, AB 9 *******
El Paso, TX 9 *********
Elk Grove, IL 9 **********
Elkhart, IN 9 *******
Erie, PA 9 *********
Eugene, OR 9 *********
Evansville, IN 9 *********
Everett, WA 9 *********
Fairfax (ch-t1), VA 9 *****
Fairfax (test), VA 9 *****
Fargo, ND 9 *********
Farmingdale, NY 9 *********
Farmington, MI 9 *********
Fayetteville, NC 9 *********
Fayettville, AR 9 *********
Feathersound, FL 9 **********
Florence, SC 9 *********
Fort Collins, CO 9 *********
Fort Lauderdale, FL 9 **********
Fort Pierce, FL 9 *********
Fort Smith, AR 9 *********
Fort Wayne, TX 9 *******
Fort Worth, TX 9 **********
Framingham, MA 9 *********
Franklin, Il 9 *********
Frederick, MD 9 *********
Fredericksburg, VA 9 *********
Freehold, NJ 9 *******
Fremont, CA 9 **********
Fresno, CA 9 *********
Gadsden, AL 9 *********
Gainesville, FL 9 *********
Garden City, NY 9 **********
Goldsboro, NC 9 *******
Grand Rapids, MI 9 *********
Green Bay, WI 9 *********
Greensboro, NC 9 *********
* - Redacted Material Subject to Confidential Treatment Application
Page 2
<PAGE>
Greensburg, PA 9 ******* EXHIBIT 2
Greenville, SC 9 *******
Hackensack, NJ 9 **********
Harlingen, TX 9 *********
Harrisburg, PA 9 *********
Harrisonburg, VA 9 *******
Hartford, CT 9 **********
Harvester, MO 9 *********
Hershey, PA 9 *******
Hinsdale, IL 9 **********
Holmdel, NJ 9 *********
Hong Kong 9 *****
Houma,LA 9 *****
Houston, TX 9 **********
Huntington Beach, CA 9 *********
Huntington, WV 9 *********
Huntsville, AL 9 *********
Indianapolis, IN 9 **********
Inglewood, CA 9 **********
Iowa City, IA 9 *********
Irvine, CA 9 *********
Irving, IL 9 *********
Irving, TX 9 *********
Ithaca, NY 9 *******
Jackson, MS 9 *********
Jackson, TN 9 *********
Jacksonville, FL 9 **********
Kansas City, MO 9 **********
Kennewick, WA 9 *********
Knoxville, TN 9 **********
Lafayette, IN 9 *********
Lake Charles, LA 9 ******
Lakeland, FL 9 *********
Lancaster, PA 9 *******
Lansing, MI 9 *****
Las Vegas, NV 9 **********
Lawrence, MA 9 *******
Lexington, KY 9 *********
Little Rock, AR 9 *********
Livermore, CA 9 *********
Long Beach, CA 9 **********
Long Branch, NJ 9 *********
Long Branch2, NJ 9 *********
Longview, TX 9 *********
Longview, WA 9 *****
Los Angeles, CA 9 **********
Louisville, KY 9 **********
Lubbock, TX 9 *********
Lynchburg, VA 9 *********
Macon, GA 9 *********
Madison, WI 9 *********
Manassas, VA 9 *********
Marion, OH 9 ******
Melbourne, FL 9 **********
Memphis, TN 9 *********
Memphis2, TN 9 *********
Mercerville, NJ 9 *********
Miami, FL 9 **********
* - Redacted Material Subject to Confidential Treatment Application
Page 3
<PAGE>
Midland, TX 9 ********* EXHIBIT 2
Milwaukee, WI 9 **********
Minneapolis, MN 9 **********
Mobile, AL 9 *********
Modesto, CA 9 *********
Modesto2, CA 9 *********
Monroe, LA 9 *******
Monterey, CA 9 *********
Montgomery, AL 9 *********
Montreal, QB 9 *********
Morgantown, WV 9 *******
Morristown, NJ 9 *********
Mt Pleasant, MI 9 *******
Muskegon, MI 9 *********
Myrtle Beach, SC 9 ******
Naperville, IL 9 **********
Nashua, NH 9 **********
Nashville, TN 9 **********
New Brunswick, NJ 9 *********
New Orleans,LA 9 **********
New York 2, NY 9 *********
New York City 2, NY 9 ******
New York City, NY 9 *****
New York, NY 9 **********
New York2, NY 9 **********
Newark, NJ 9 **********
Norfolk, VA 9 *********
Norfolk2, VA 9 *********
Northbrook, IL 9 **********
Oakland, CA 9 **********
Oakland2, CA 9 *******
Ogden, UT 9 *********
Oklahoma City, OK 9 **********
Olympia, WA 9 *********
Omaha, NE 9 **********
Ontario, CA 9 *********
Orlando, FL 9 **********
Ottawa, ON 9 *******
Oxnard, CA 9 ******
Palm Springs, CA 9 **********
Palo Alto, CA 9 **********
Paoli, PA 9 *********
Paris, FRA 9 *****
Pasadena, CA 9 **********
Paterson, NJ 9 *********
Pensacola, FL 9 *******
Philadelphia, PA 9 **********
Philadelphia2, PA 9 **********
Phoenix, AZ 9 **********
Pine Bluff, AR 9 *******
Pittsburgh, PA 9 *********
Placentia, CA 9 *********
Pleasantville, NJ 9 **********
Port Chester, NY 9 *********
Portland, ME 9 *********
Portland, OR 9 **********
Poughkeepsie, NY 9 **********
Princess Anne, VA 9 *********
* - Redacted Material Subject to Confidential Treatment Application
Page 4
<PAGE>
Princeton, NJ 9 ******* EXHIBIT 2
Providence, RI 9 *********
Provo, UT 9 *********
Pullman, WA 9 *******
Rahway, NJ 9 *********
Raleigh, NC 9 **********
Rancho Cucamonga, CA 9 *********
Reading, PA 9 *******
Redding, CA 9 *********
Redmond, WA 9 *********
Rialto, CA 9 *********
Richardson, TX 9 *********
Richmond, VA 9 **********
Roanoke, VA 9 *********
Rochester, NY 9 *********
Rocky Mount, NC 9 *********
Rome/Utica, NY 9 *********
Sacramento, CA 9 **********
Salem, OR 9 *********
Salinas, CA 9 *********
Salt Lake City, UT 9 *********
San Antonio, TX 9 **********
San Bernardino, CA 9 *********
San Diego, CA 9 **********
San Diego2, CA 9 **********
San Francisco, CA 9 **********
San Francisco2, CA 9 **********
San Jose, CA 9 **********
San Luis Obispo, CA 9 *********
San Mateo, CA 9 **********
San Rafael, CA 9 **********
San Ramon, CA 9 **********
Santa Barbara, CA 9 **********
Santa Clara, CA 9 **********
Santa Cruz, CA 9 *********
Santa Monica, CA 9 **********
Santa Rosa, CA 9 *********
Sarasota, FL 9 *********
Savannah, GA 9 *********
Seattle (Test), WA 9 *****
Seattle, WA 9 **********
Seattle2, WA 9 **********
Sherman Oaks, CA 9 **********
Shreveport, LA 9 *********
Sioux Falls, SD 9 *********
Smyrna, GA 9 **********
South Bend, IN 9 *********
Southfield, MI 9 *********
Spokane, WA 9 *********
Springfield, IL 9 *********
Springfield, MA 9 *********
Springfield, MO 9 *********
St Cloud, MN 9 *******
St Louis, MO 9 **********
Stamford, CT 9 *********
Stewart, IL 9 *********
Stockton, CA 9 *********
Syracuse, NY 9 **********
* - Redacted Material Subject to Confidential Treatment Application
Page 5
<PAGE>
EXHIBIT 2
Tacoma, WA 9 **********
Tallahassee, FL 9 *********
Tampa, FL 9 **********
Temple, TX 9 *******
Terre Haute, IN 9 *********
Thousand Oaks, CA 9 *********
Tokyo, JPN 9 *****
Toledo, OH 9 *********
Topeka, KS 9 *********
Toronto, ON 9 *********
Trenton, NJ 9 *********
Tucson, AZ 9 **********
Tulsa, OK 9 **********
Tuscaloosa, AL 9 *********
Vacaville, CA 9 *********
Valparaiso, IN 9 *******
Vancouver, BC 9 *********
Visilia, CA 9 *********
Waco, TX 9 *********
Waltham, MA 9 *********
Warren, MI 9 *********
Washington, DC 9 **********
West Palm Beach, FL 9 **********
Westheimer, TX 9 *********
Wheeling, WV 9 *********
White Horse, NJ 9 *********
White Plains, NY 9 **********
Wichita, KS 9 *********
Wilkes Barre, PA 9 *********
Williamsburg, VA 9 ******
Wilmington, CA 9 *********
Wilmington, DE 9 *********
Winnipeg, MB 9 *******
Winston/Salem, NC 9 ******
Worcester, MA 9 *******
York, PA 9 *********
Youngstown, OH 9 *****
TOTAL *************
* - Redacted Material Subject to Confidential Treatment Application
Page 6
<PAGE>
INTERNET-SIGN UP WIZARD REFERRAL AND MICROSOFT INTERNET
EXPLORER LICENSE AND DISTRIBUTION AGREEMENT
This Internet-Sign Up Referral and Microsoft Internet Explorer License
and Distribution Agreement ("Agreement") is made and entered into this 16th
day of August, 1996 ("Effective Date"), by and between MICROSOFT CORPORATION,
a Washington corporation, One Microsoft Way, Redmond, WA 98052-6399 ("MS"),
and Earthlink Network, Inc., a Delaware corporation, including its majority
owned subsidiaries and affiliates (collectively, "COMPANY").
INTRODUCTION
This Agreement includes two distinct business arrangements.
Under the first arrangements, MS plans to develop and distribute an
"Internet Connection Wizard" as a means of promoting internet access services
for various Internet access service providers, including COMPANY, and of
acquiring subscribers for such access services. COMPANY will pay MS a
referral fee for each subscriber acquired by means of the Internet Connection
Wizard.
Under the second arrangement, COMPANY may distribute, on a royalty-free
basis, a customized version of Microsoft Internet Explorer to subscribers
or potential subscribers of its Internet access services.
In consideration of the mutual promises and covenants contained herein,
the parties agree as follows:
1. DEFINITIONS. The following terms, whenever initially capitalized, shall
have the following meanings for purposes of this Agreement:
1.1 "Access" shall mean telecommunications facilities and services that
enable a computer user to access and use Internet sites and content by means
of a TCP/IP connection.
1.2 "COMPANY Information" shall mean information regarding or relating to
the ISP Service such as order processing information, fees, service plans,
etc., and other information that is reasonably necessary to describe and
solicit orders of the ISP Service to the ISP Subscriber and/or such other
information that has been mutually agreed to by the parties.
1.3 "Comic Chat" shall mean the graphical Internet chat client in all
available language versions requested by COMPANY, and for all available
platforms.
1.4 "Criteria" shall mean the applicable Internet Explorer criteria as
defined in the Microsoft Internet Explorer Logo Qualification Criteria,
attached to Exhibit G as Attachments 1 and 2, and such future versions as
established by MS in its sole discretion.
1.5 "Guidelines" shall mean the guidelines for use of the Logo as
outlined in the Microsoft Internet Explorer Logo Usage Guidelines which are
attached hereto as Exhibit G and H and are an integral part of this Agreement.
1.6 "IEAK" shall mean the Internet Explorer Administration Kit, including
any updates to the IEAK as may be provided by MS from time to time, which
contains a single copy of the Licensed Software in object code as well as a
set of tools that enable COMPANY to perform limited customizations
LICENSE #7691-6250
* -- Redacted Material subject to Confidential Treatment Application
<PAGE>
to the Licensed Software in order to facilitate the ISP Subscriber sign up
process, and to automate the task of creating diskettes/CD ROMs for
distribution. COMPANY shall use the IEAK in accordance with the instructions
in the IEAK and the Logo Guidelines provided by MS.
1.7 "Internet Connection Wizard" shall mean an electronic referral
mechanism to be developed by MS to promote the ISP services for various ISP
service providers, including COMPANY, and which ordering mechanism shall
enable the end user to order ISP Service via a link to COMPANY's Sign-up
Server or other method mutually agreed to by the parties. The Internet
Connection Wizard shall prompt the ISP Subscriber to enter various Locator
Information. The Internet Connection Wizard shall be launched from an icon on
the "desktop" of the English language version of Windows 95 designated as "The
Internet" or such other name designated by MS. MS may include the Internet
Connection Wizard in other MS products as determined by MS. An overview of
the referral and ordering process is set forth in Exhibit Z.
1.8 "Internet Explorer" shall mean the (a) Microsoft Internet Explorer
(Domestic English Language and such other foreign language versions requested
by COMPANY and which MS has available) for the following platforms: Windows
3.x (including Windows for Workgroups 3.x), Windows NT 3.x, Windows 95 and
Apple Macintosh; and (b) a customized version of Internet Explorer created
through the use of the IEAK. Availability of various versions of Internet
Explorer is summarized in Exhibit F.
1.9 "Internet Mail and News" shall mean the client for email and Internet
newsgroups in all available language versions requested by COMPANY, and for all
available platforms.
1.10 "Internet Product" shall mean any COMPANY product which provides
access to or information about the Internet. An Internet Product may not be a
personal computer. For purposes of this Agreement, "ISP Service" (defined
below) shall be a type of Internet Product.
1.11 "Internet Site" shall mean COMPANY's worldwide web site(s) which
meet the applicable Criteria.
1.12 "ISP Information" shall mean information regarding or relating to
internet access services (including the ISP Service) such as order processing
information, fees, service plans, ETC., and other information that is
reasonably necessary to describe and solicit orders of such internet access
services to the internet access service subscriber and/or such other
information that has been mutually agreed to by MS and an internet service
provided (including COMPANY).
1.13 "ISP Information Page" shall mean a HTML based page which includes
ISP Information, to be maintained by COMPANY and hosted on the MS Referral
Server. The ISP Information Page shall be downloaded to the prospective ISP
Subscriber as part of the ordering and referral process.
1.14 "ISP Phone Book(s)" shall mean a listing of names of ISPs and
associated telephone numbers and other ISP Information, including COMPANY
Information. ISP Phone Books may be unique to a given telephone area code
and/or geographic region. There may be one or more ISP Phone Books specific
to a single telephone area code, geographic region or Service Area. The ISP
Phone Book(s) shall be hosted on one or more Referral Server(s). MS shall
solely determine the placement, presentation and content of COMPANY
Information in the ISP Phone Book(s).
1.15 "ISP Referral Fee" shall mean an amount set forth in Exhibit D for
each new ISP Subscriber. COMPANY shall receive a credit for each ISP
Subscriber for which an ISP Referral Fee was previously paid, who cancels the
ISP Service account within ninety (90) days of initiation of the ISP Service.
1.16 "ISP Service" shall mean a COMPANY service, listed in Exhibit B,
which provides an internet protocol (IP) access service to the Internet as
contemplated by this Agreement. The parties
* -- Redacted Material subject to Confidential Treatment Application
2
<PAGE>
acknowledge that COMPANY may provide access to the Internet via other
Internet Product(s) not listed in Exhibit B.
1.17 "ISP Subscriber" shall mean any individual or legal entity who
subscribes to the ISP Service through or as a result of the Internet
Connection Wizard.
1.18 "License Key" shall mean the 10-digital alpha numeric code provided
by MS that enables COMPANY to use the customization features in the IEAK.
1.19 "Licensed Software" shall mean, collectively, Internet Explorer,
NetMeeting, Internet Mail and News, and Comic Chat.
1.20 "Locator Information" shall mean an ISP Subscriber's name, email and
conventional mailing addresses, telephone and facsimile numbers, credit card
number, and any other data about such subscriber that enables the possessor of
such information to personally identify the end user.
1.21 "Logo" shall mean the Microsoft-Registered Trademark- Internet
Explorer" logo depicted in the Guidelines or such additional or replacement
logos as MS may provide from time to time under this Agreement.
1.22 "NetMeeting" shall mean Microsoft's realtime collaboration and
communication software in all available language versions requested by
COMPANY, and for all available platforms.
1.23 "Referral Server" shall mean a server maintained by MS which shall
provide an ISP Subscriber with one or more ISP Phone Books, and which shall
enable the ISP Subscriber to transmit ordering information, via the Internet
Connection Wizard to the Sign-up Server.
1.24 "Service Area" shall mean the area in which COMPANY currently
provides or will provide Access, as of the Effective Date, as set forth in
Exhibit B.
1.25 "Sign-up Server" shall mean a server maintained by COMPANY which
shall enable the ISP Subscriber to order ISP Service from COMPANY and shall
further enable COMPANY to configure the ISP Subscriber's copy of the Licensed
Software (hosted on the ISP Subscriber's computer), all via online
transmission. COMPANY shall use the Sign-up Server to configure the ISP
Subscriber's copy of Licensed Software in accordance with the ISP Subscriber
Configuration Guidelines set forth in Exhibit E.
2. LICENSE FOR DISTRIBUTION OF CUSTOMIZED VERSION OF MICROSOFT INTERNET
EXPLORER; LOGO LICENSE; AND LICENSE RESTRICTIONS
2.1 MS grants to COMPANY a nonexclusive, limited worldwide, royalty-free
license during the term of this Agreement to (a) customize Internet Explorer
using the IEAK solely in accordance with the instructions provided in the
IEAK's "Custom ISK Wizard"; and (b) reproduce and distribute (directly and
indirectly) through COMPANY's distribution channel the Licensed Software
(including Internet Explorer as may be customized by COMPANY) to potential
end users of COMPANY's Internet Product(s). COMPANY acknowledges and agrees
that its use of the IEAK to customize Internet Explorer requires the rightful
receipt from MS of the License Key allocated to COMPANY. ****** ** ******** **
******* ** ******* *** *** ********* ** *** ************ **** ** ********
******** ******* ** *** *** ************ ********** ** *** ****** **
********* ************* ** *** *** ************ **** ** ******** *********
2.2 COMPANY acknowledges and agrees that its use of the IEAK to customize
Internet Explorer requires the rightful receipt from MS of the License Key
allocated to COMPANY. COMPANY agrees that it shall use the IEAK solely in
accordance with the instructions provided in the IEAK's Custom
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ISK Wizard that is available to COMPANY upon input of the allocated License
Key and in accordance with the Logo Guidelines provided by MS.
2.3 If MS makes a new release (other than an "Update" release which is
designated by MS as a change in the hundredths digit ([x.x(x)]) of any
component of the Licensed Software available, then: (a) COMPANY may no longer
distribute the old version of the Licensed Software component, and may only
distribute such new release of the Licensed Software component with COMPANY's
Internet Product, provided, however that Company may continue to distribute
existing inventory of Company's Internet Product containing a prior version
of a Licensed Software component for a period of six (6) months following MS'
release of a new release; and (b) COMPANY must formally notify its customers
on COMPANY's home page for its main public web site that an upgrade of the
Licensed Software component is available at the download URL specified in the
most current version of the Internet Explorer Logo License Agreement located
on www.microsoft.com for Internet Explorer and at www.microsoft.com/ie for
other components of the Licensed Software. The text of the respective notices
must state: For Internet Explorer: "Microsoft has made available a new
version of Internet Explorer. Click the Internet Explorer Logo to upgrade
your browser today." and for other components: "Microsoft has made available a
new version of (NetMeeting/Internet Mail and News/Comic Chat). Go to
www.microsoft.com/ie to update you software today". This notification will
remain present on the COMPANY's main public web site until the earlier of
COMPANY's depletion of its outdated inventory, or until three (3) months
following the public availability of a new release.
2.4 Subject to and expressly conditioned upon compliance with the terms
and conditions of this Agreement, MS hereby grants to COMPANY a worldwide,
nonexclusive, non-assignable, nontransferable, royalty-free, right to use the
Logo solely in conjunction with COMPANY's Internet Site(s) and/or Internet
Product(s) and solely in the manner described in the Guidelines. COMPANY
agrees and acknowledges: MS owns the Logo; use of the Logo will inure to the
benefit of MS; COMPANY will not adopt, use, or register any corporate name,
trade name, trademark, service mark, or certification mark, or other
designation similar to, or containing in whole or in part, the Logo;
COMPANY's use of the Logo shall adhere to the Criteria.
2.5 COMPANY may not reverse engineer, decompile or disassemble the
Licensed Software.
2.6 COMPANY shall only distribute NetMeeting in conjunction with Internet
Explorer.
2.7 COMPANY may not permit further redistribution of the Licensed Software
by ISP Subscribers and end user customers of COMPANY's other internet access
services, if applicable.
2.8 COMPANY shall maintain and not alter or remove any copyright,
trademark and other protective notices contained in the Licensed Software,
including the end user license agreement ("EULA") which is included in the
setup installation of the Licensed Software. COMPANY shall also comply with
Microsoft's trademark guidelines with respect to the proper use of Microsoft
trademarks associated with the Licensed Software.
2.9 COMPANY shall require its distributors, dealers and others in its
distribution channels to comply with the relevant distribution terms of this
Agreement, in particular with Section 2.
2.10 COMPANY shall not modify, alter or remove contents of the Licensed
Software except as expressly provided in this Agreement.
2.11 All rights not expressly granted herein are reserved by MS.
3. MICROSOFT OBLIGATIONS
MS shall perform the following:
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3.1 DEVELOP INTERNET CONNECTION WIZARD AND ISP PHONE BOOK(S); MAINTAIN
ISP PHONE BOOK(S). Provided that COMPANY complies with its obligations under
this Agreement, MS shall include COMPANY's name, telephone number and other
mutually agreed upon COMPANY Information in the applicable ISP Phone Book(s).
Notwithstanding anything to the contrary in this Agreement, MS may move
COMPANY Information to another ISP Phone book or remove COMPANY Information
from one or all ISP Phone books if (a) during any two calendar quarters
COMPANY's shipments of Licensed Software ****** ******** ******** **
*********** ** *** **** *** ******** ***** ***** ************ ******* *****
** ***** ******* ********* ** *** *** ******** or (b) commencing two calendar
quarters after MS first distributes an Internet Connection Wizard, during any
single calendar quarter *** ****** ** *** *** *********** *** **** *******
******** ** *** ****** ** *** *********** ** ***** **** ***** ****** ** ***
**** *** ***** **** ** ******* *** **** ******** ** **** **** ******* ** **
*** ****** ****** ******* ***** ** *** **** ****** ** *** *** ***** ***** By
way of example, ** ***** *** *** *** **** ** ** *** ***** ***** *** *******
*** *** ****** ****** ** *** *********** ******** ** ***** **** ** *** ***
***** ***** **** ** ***** **** ******* *********** ** ******* *** ***** ****
** ****** ******* *********** **** *** ** *** *** ***** ***** *** ********
** ******* *** *** ******* ******** ************ ***** ******* ***** ******
** * *** ******* ******* ** ******** ******** ********** ****** ** ******* **
3.2 DISTRIBUTION OF INTERNET CONNECTION WIZARD. Incorporate the
Internet Connection Wizard into an icon on the "desktop" of the English
language version of Windows 95 designated as "The Internet" or such other
name designated by MS.
3.3 REFERRAL SERVER. Develop and maintain Referral Server.
3.4 PROMOTION. Include information concerning the ISP Service in press
releases and marketing activities related to promotion of the Internet
Connection Wizard.
4. COMPANY OBLIGATIONS
-------------------
COMPANY shall perform the duties described in Exhibit C.
5. PAYMENT AND REPORTING
---------------------
5.1 ADVANCE. ** ************* *** ** ********* *********** *********
*** *** ******** ** *** *** ***** ***** ******* ***** ********** ** **
******* ****** ** ********* ******** ******** ** *** ******* ******** **** **
******* ********* ** ******* * ******* ** ******* ***** ** ******** ****
******* ****** ** *** ******* *** ************ ********* ******* **
*********** ****** ******** ******* ***** *** *** ******* ** ** ** ** ******
********
5.2 ISP REFERRAL FEE. In consideration of each ISP Subscriber, COMPANY
shall pay MS the ISP Referral Fee for each subscription for ISP Service
ordered by each ISP Subscriber.
5.3 REPORTING. Within forty five (45) days after the end of each
calendar quarter, COMPANY shall furnish MS a statement together with payment
for any amount shown thereby to be due to MS. The royalty statement shall be
based upon ISP Referral Fees for the quarter then ended, and shall be in the
form of the sample report included on Exhibit D. Late payment(s), including
receipts for foreign taxes withheld, if applicable, shall bear interest at
the rate of one and one-half percent (1.5%) per month or the maximum rate
allowable by applicable law, from the date such payment is due until the date
it is actually paid. COMPANY's report shall include for each version of the
Licensed Software, the number of copies of the Licensed Software or
distributed by or for COMPANY during that calendar quarter, including
"competitive upgrade" copies as described in Exhibit D. In the event that no
copies were licensed or distributed by or for COMPANY during a calendar
quarter, COMPANY shall indicate this on the report. COMPANY's report shall
further include the number of copies of all web browsers licensed or
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distributed by or for COMPANY during that calendar quarter. All such reports
shall be maintained in confidence by MS and shall not be disclosed to any
third party except to its immediate legal and financial consultants as may be
required in the ordinary course of MS' business.
5.4 All amounts due hereunder shall be sent to the address listed in
Section 11. All amounts due hereunder are exclusive of any taxes, duties,
fees, excises or tariffs imposed on any of COMPANY's activities in connection
with this Agreement. Such charges, if any, shall be paid by COMPANY.
6. ACCEPTANCE, DISCLAIMER OF WARRANTY AND LIMITATION OF LIABILITY
--------------------------------------------------------------
6.1 The Licensed Software and IEAK are deemed accepted by COMPANY.
6.2 Neither the COMPANY nor any of its employees shall have any right to
make any representation, warranty, or promise on behalf of MS.
6.3 THE LICENSED SOFTWARE AND IEAK ARE PROVIDED TO COMPANY AS IS WITHOUT
WARRANTY OF ANY KIND. THE ENTIRE RISK AS TO THE RESULTS AND PERFORMANCE OF THE
LICENSED SOFTWARE AND IEAK ARE ASSUMED BY COMPANY AND THE END-USER CUSTOMER.
MS DISCLAIMS ALL WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE AND NON-INFRINGEMENT.
6.4 IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY DIRECT (EXCEPT AS TO
AMOUNTS OWED HEREUNDER), CONSEQUENTIAL, INDIRECT, INCIDENTAL, OR SPECIAL
DAMAGES WHATSOEVER, INCLUDING WITHOUT LIMITATION, DAMAGES FOR LOSS OF
BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, AND
THE LIKE, ARISING OUT OF THE USE OF OR INABILITY TO USE THE LICENSED SOFTWARE
OR IEAK, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. BECAUSE SOME STATES DO NOT ALLOW THE EXCLUSION OR LIMITATION OF
LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE LIMITATION MAY
NOT APPLY.
6.5 Not withstanding Section 6.4:
(a) MS agrees to defend COMPANY against, and pay the amount of any adverse
final judgment (or settlement to which MS consents) resulting from, third
party claim(s) (hereinafter "Indemnified Claims") that the Internet Explorer
infringes any copyright or trade secret enforceable in any included
Jurisdictions (defined in Section 6.5(d), below); provided MS is notified
promptly in writing of the Indemnified Claim and has sole control over its
defense or settlement, and COMPANY provides reasonable assistance in the
defense of the same at MS expense for COMPANY's reasonably incurred
out-of-pocket expenses.
(b) In the event MS receives information concerning an intellectual
property infringement claim (including an Indemnified Claim) related to the
Internet Explorer, MS may at its expense, without obligation to do so, either
(i) procure for COMPANY the right to continue to distribute the alleged
infringing Internet Explorer or (ii) replace or modify the Internet Explorer
to make it non-infringing, and in which case, COMPANY shall thereupon cease
distribution of the alleged infringing Internet Explorer.
(c) MS shall have no liability for any intellectual property infringement
claim (including an Indemnified Claim) based on COMPANY's (i) manufacture,
distribution, or use of any Internet Explorer after MS' notice that COMPANY
should cease manufacture, distribution, or use of such Internet Explorer due
to such a claim; or (ii) unauthorized combination of a Internet Explorer with
any other product, program or data; or (iii) unauthorized adaptation or
modification of any Internet
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Explorer. For all claims described in this Section 6.5(c), COMPANY agrees to
defend and indemnify MS to the same extent that MS is obligated to defend and
indemnify COMPANY under Sections 6.5(a), 6.5(b) and 6.5(c).
(d) MS shall have no obligation to COMPANY for any Indemnified Claims
which arise outside the geographical boundaries of the United States, Canada,
Australia, Japan, the European Union, and Norway ("Included Jurisdictions").
7. TERM OF AGREEMENT
-----------------
The term of this Agreement shall commence as of the Effective Date and shall
continue for a period of two (2) years. Thereafter, this Agreement shall
automatically renew for successive one year terms unless either party gives
the other party thirty (30) days written notice of its intent not to renew.
Either party may terminate for any reason upon 30 days written notice.
8. DEFAULT AND TERMINATION
-----------------------
8.1 This Agreement may terminate earlier if any of the following events
of default occur: (a) if COMPANY materially fails to perform or comply with
this Agreement or any provision hereof; (b) if COMPANY fails to strictly
comply with the provisions of Section 10 or makes or attempts to make an
assignment in violation of Section 13.5; (c) if COMPANY becomes insolvent or
admits in writing its inability to pay its debts as they mature, or makes an
assignment for the benefit of creditors; (d) if a petition under any foreign,
state, or United States bankruptcy act, receivership statute, or the like, as
they now exist, or as they may be amended, is filed by COMPANY; or (e) if
such a petition is filed by any third party, or an application for a receiver
of COMPANY is made by anyone and such petition or application is not resolved
favorably to COMPANY within sixty (60) days.
8.2 Termination under subsection 8.1(b) shall be effective as of the
date notice is given. In all other cases, termination shall be effective
thirty (30) days after notice of termination to COMPANY if COMPANY's defaults
have not been cured. The rights and remedies of MS provided in this Section
shall not be exclusive and are in addition to any other rights and remedies
provided by law or this Agreement.
8.3 Upon termination of this Agreement for any reason, COMPANY must
cease distribution of the Licensed Software. Upon termination of this
Agreement, COMPANY's Information shall be immediately removed from the ISP
Phone Book(s). If this Agreement is terminated other than due to COMPANY's
default, COMPANY may distribute Licensed Software remaining in inventory as
of such termination date for a period of three (3) months. After such time,
COMPANY shall destroy all full or partial copies of the Licensed Software and
IEAK in COMPANY's possession or under its control. If this Agreement is
terminated for cause pursuant to Section 8, COMPANY shall return to MS or
destroy all full or partial copies of the Licensed Software and IEAK in
COMPANY'S possession or under its control within ten (10) days following the
termination date, including any in-house copies COMPANY may have produced.
8.4 End user licenses validly granted prior to expiration or termination
of this Agreement shall survive termination or expiration of this Agreement.
8.5 Sections 1, 5, 6, 8, 10, 11, 12 and 13 shall survive termination of
this Agreement.
9. SUPPORT
-------
9.1 COMPANY shall have the sole responsibility and expense for providing
all support for the Sign-up Server and all support needed by ISP Subscribers
for the Licensed Software and the ISP Service.
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9.2 MS will provide COMPANY (but not ISP Subscribers) support for the
Internet Connection Wizard. Except for such support, this Agreement does not
include technical support from MS to COMPANY. Technical support may be
available from MS or an MS subsidiary pursuant to a separate agreement.
10. NONDISCLOSURE AGREEMENT
COMPANY shall keep confidential the terms and conditions of this Agreement,
and other non-public information and know-how disclosed to COMPANY by MS.
However, COMPANY may disclose the terms and conditions of this Agreement in
confidence as follows: (1) in confidence to its immediate legal and financial
consultants as required in the ordinary course of COMPANY's business; (2) to
the SEC or others as legally required in connection with a public offering of
the COMPANY's stock, in which event COMPANY will inform MS of the date and
content of its filing and will cooperate with MS in attempting to keep as
many of the terms of this agreement confidential as possible, especially the
financial terms; (3) to COMPANY's Affinity Marketing Partners only upon
specific request of such partners and then only page 1, paragraph 2.1 and the
signature page.
11. NOTICES AND REQUESTS
All notices, authorizations, and requests in connection with this Agreement
shall be deemed given on the day they are (i) deposited in the U.S. mails,
postage prepaid, certified or registered, return receipt requested; or (ii)
sent by overnight courier, charges prepaid, with a confirming fax; and
addressed as follows:
NOTICES TO COMPANY:
EarthLink Network, Inc.
3100 New York Drive
Pasadena, CA 91107
Attn: Garry Betty, President
Telephone: (818) 296 2408
Fax: (818) 296 4161
NOTICES TO MS AND PAYMENTS/VOLUME DISTRIBUTIONS SUMMARIES:
Notices: MICROSOFT CORPORATION
One Microsoft Way
Redmond, WA 98052-6399
Attn: Senior Vice President, Systems
Copy to: Law & Corporate Affairs, US Legal
Fax: (206) 936-7209
Payments/Volume MICROSOFT CORPORATION
Distribution Remittance Processing
Summaries: P.O. Box 84808
Seattle, WA 98124-6108
or such other address as the party to receive the notice or request so
designates by written notice to the other.
12. AUDITS
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12.1 During the term of this Agreement, COMPANY agrees to keep all
usual and proper records and books of account and all usual and proper
entries relating to COMPANY's ISP Subscriptions sufficient to substantiate
the number of ISP Subscribers. COMPANY shall maintain on COMPANY premises
such records for itself and for each Subsidiary which exercises rights under
this Agreement.
12.2 In order to verify statements issued by COMPANY and COMPANY's
compliance with the terms of this Agreement, MS may cause an audit to be made
of COMPANY's applicable books and records. Any audit shall be conducted
during regular business hours at COMPANY's facilities upon reasonable advance
notice. Any audit shall be conducted by an independent certified public
accountant of national stature selected by MS (other than on a contingent fee
basis).
12.3 COMPANY agrees to provide MS' designated audit team access to the
relevant COMPANY's records and facilities.
12.4 Prompt adjustment shall be made to compensate for any errors or
omissions disclosed by such audit. Any such audit shall be paid for by MS
unless material discrepancies are disclosed. "Material" shall mean the under
reporting of five percent (5%) of the amount due. If material discrepancies
are disclosed, COMPANY agrees to pay MS for the costs associated with the
audit in addition to the amount of any discrepancy.
13. GENERAL
13.1 This Agreement shall be construed and controlled by the laws of the
State of Washington, and COMPANY consents to jurisdiction and venue in the
state and federal courts sitting in the State of Washington. Process may be
served on either party in the manner provided in Section 11 above, or by such
other method as is authorized by law.
13.2 Neither this Agreement, nor any terms and conditions contained
herein, shall be construed as creating a partnership, joint venture, agency
relationship or as granting a franchise.
13.3 This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
and contemporaneous agreements or communications. It shall not be modified
except by a written agreement dated subsequent to the date of this Agreement
and signed on behalf of COMPANY and MS by their respective duly authorized
representatives. No waiver of any breach of any provision of this Agreement
shall constitute a waiver of any prior, concurrent or subsequent breach of
the same of any other provisions hereof, and no waiver shall be effective
unless made in writing and signed by an authorized representative of the
waiving party.
13.4 If any provision of this Agreement shall be held by a court of
competent jurisdiction to be illegal, invalid or unenforceable, the remaining
provisions shall remain in full force and effect.
13.5 The rights and obligations hereunder shall inure to the benefit of
the successors of the parties hereto, provided any rights or obligations
hereunder shall not be assigned by COMPANY without the prior written approval
of MS. COMPANY hereby agrees that it will remain responsible for and guarantee
the compliance of each majority owned subsidiary or affiliate which exercises
rights under this Agreement.
13.6 Any Licensed Software which COMPANY distributes or licenses to or
on behalf of the United States of America, its agencies and/or
instrumentalities (the "Government"), is provided to COMPANY with RESTRICTED
RIGHTS. Use, duplication or disclosure by the Government is subject to
restriction as set forth in subparagraph (c)(l)(ii) of the rights in
Technical Data and Computer Software clause at DFAR 252.227-7013, or as set
forth in the particular department or agency regulations or rules which
provide Microsoft protection equivalent to or greater than the above-cited
clause. COMPANY shall comply with any requirements of the Government to
obtain such RESTRICTED RIGHTS protection,
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including without limitation, the placement of any restrictive legends on the
Tool documentation and any license agreement used in connection with the
distribution thereof. Manufacturer is Microsoft Corporation, One Microsoft
Way, Redmond, Washington 98052-6399. Under no circumstances shall Microsoft
be obligated to comply with any Governmental requirements regarding cost and
pricing data and cost accounting. For any distribution or license of the
Licensed Software that would require compliance by Microsoft with
Governmental requirements relating to cost and pricing data or cost
accounting, COMPANY must obtain an appropriate waiver or exemption from such
requirements for the benefit of Microsoft from the appropriate Governmental
authority before the distribution and/or license of the Licensed Software to
the Government.
13.7 COMPANY acknowledges that the Licensed Software and IEAK are
subject to the export control laws and regulations of the US, and any
amendments thereof. COMPANY confirms that with respect to the Licensed
Software, it will not export or re-export them, directly or indirectly,
either to (a) any countries that are subject to US export restrictions
(currently including, but not necessarily limited to, Cuba, the Federal
Republic of Yugoslavia (Serbia and Montenegro), Iran, Iraq, Libya, North
Korea, and Syria); (b) any end user who COMPANY knows or has reason to know
will utilize them in the design, development or production of nuclear,
chemical or biological weapons; or (c) any end user who has been prohibited
from participating in the US export transactions by any federal agency of the
US government. COMPANY further acknowledges that the Licensed Software and
IEAK may include technical data subject to export and re-export restrictions
imposed by US law.
13.8 COMPANY shall, at its own expense, obtain and arrange for the
maintenance in full force and effect of all governmental approvals, consents,
licenses, authorizations, declarations, filings, and registrations as may be
necessary for the performance of all of the terms and conditions of the
Agreement including, but not limited to, foreign exchange approvals, import
and offer agent licenses, fair trade approvals and all approvals which may be
required to realize the purposes of the Agreement.
13.9 In the event income taxes are required to be withheld by any
non-U.S.A. government on payments required hereunder, COMPANY may deduct such
taxes from the amount owed MS and pay them to the appropriate tax authority.
COMPANY shall promptly deliver to MS an official receipt for any such taxes
withheld or other documents necessary to enable MS to claim a U.S.A. Foreign
Tax Credit. COMPANY will make certain that any taxes withheld are minimized
to the extent permitted by the applicable law.
13.10 If either MS or COMPANY employs attorneys to enforce any rights
arising out of or relating to this Agreement, the prevailing party shall be
entitled to recover reasonable attorney's fees and costs.
13.11 The following Exhibits are part of the Agreement:
Exhibit B Company ISP Service(s)
Exhibit C Company Obligations
Exhibit D ISP Referral Fees
Exhibit E ISP Subscriber Configuration Guidelines
Exhibit F Internet Explorer
Exhibit G Microsoft -Registered Trademark- Internet Explorer Online
Logo Usage Guidelines
Attach 1&2 Microsoft Internet Explorer Logo Qualification
Criteria
Exhibit H Microsoft -Registered Trademark- Internet Explorer
Standard Logo Usage Guidelines
Exhibit X Microsoft Frontpage Server Extensions
Exhibit Y Current agreement list.
Exhibit Z Windows 95 ISP Referral and Ordering Process
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above. All signed copies of this Agreement shall be deemed
originals.
MICROSOFT CORPORATION EarthLink Network, Inc.
---------------------------
(COMPANY)
/s/ Cameron D. Myhrvold /s/ Charles G. Betty
- -------------------------- ---------------------------
By (sign) By (sign)
Cameron D. Myhrvold Garry Betty
- -------------------------- ---------------------------
Name (Print) Name (Print)
VP-Public Network Sales Its President
- -------------------------- ---------------------------
Title Title
9-19-96 8/16/96
- -------------------------- ---------------------------
Date Date
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EXHIBIT B
COMPANY'S ISP SERVICE(S)
EarthLinks co-branded
Affinity Marketing Program
COMPANY SERVICE AREA
Currently United States and Canada
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EXHIBIT C
COMPANY OBLIGATIONS (NOTE: MS OBLIGATIONS ARE SET FORTH IN SECTION 3)
COMPANY SHALL PERFORM THE FOLLOWING DUTIES/OBLIGATIONS;
1. Offer the ISP Services(s).
2. Develop and maintain a Sign-up-Server. The Sign-up Server shall be
operational on a 7X24 basis.
3. Estabilsh a toll free telephone number, or any other communication
medium mutually agreed to by the parties for the processing of orders for ISP
Subscribers. COMPANY shall notify MS in writing by a mutually agreed upon
date of such specific communication medium or other relevant means of order
entry secured by COMPANY for the ISP Service and any other COMPANY
Information. COMPANY shall use unique numbers, extensions or addresses so as
to ensure that all ISP Subscribers (e.g. those directed to the Sign-up Server
by the Internet Connection Wizard) can be easily segregated from other orders
received by COMPANY that do not originate from the Internet Connection Wizard
for revenue reporting purposes.
4. Use and display the "Microsoft Internet Explorer" logo on the home
page for COMPANY's ISP Service, along with a hot link to
www.microsoft.com/ie/ie.htm on the face of the home page.
5. In copies of Microsoft Internet Exployer distributed by COMPANY,
COMPANY may set the "default" URL to point to COMPANY's home page for the ISP
Service, provided that such home page includes a hot link to
www.microsoft.com/ie/ie.htm.
6. ***** *** ********* ******** ******** ** *** ******** *** *******
*** ********* *** ******** At the time of ISP Service request from an ISP
Subscriber, COMPANY shall not express or imply that an alternate browser is
available. COMPANY may provide a non-MS web browser with its ISP Service only
upon a customer initiated request.
7. ******* ***** *** ********* ** ********* ******* *** ****** ***
******* **** **** ** ** *** ** ***** ************ By way of example, COMPANY
shall not display any logo for, or maintain a link to, a non-MS web browser
on Company's home page for the ISP Service, on the Start Page, or on any
COMPANY home page for any other internet access service offered by COMPANY.
8. Use the Microsoft Internet Explorer name and logo in COMPANY's
packaging, advertising and promotional materials. Such use shall be pursuant
to MS' standard trademark policies as attached hereto and as may be provided
by MS to COMPANY from time to time.
9. Within sixty (60) days following execution of this Agreement, issue
a press release announcing that COMPANY has licensed the Microsoft Internet
Explorer and include favorable commments about the Internet Explorer and
ActiveX technology. In the event COMPANY elects to distribute NetMeeting,
COMPANY shall issue a press release announcing such distribution within sixty
(60) days following execution of this Agreement. COMPANY shall provide any
such press release to Microsoft for review at least five (5) days
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prior to release, COMPANY agrees MS may use COMPANY's name in any press
release MS issues regarding licensing of the Microsoft Internet Explorer.
10. Before COMPANY is listed in the ISP Phone Book(s), COMPANY will
test and certify compliance of Access with MS specifications for security and
authentication protocols, other industry protocols, and other specifications
and standards specified by MS from time to time in accordance with the
procedures, and using the testing tools specified by MS from time to time,
COMPANY will provide MS with information and access as requested by MS from
time to time to allow MS to ensure COMPANY's ongoing compliance with such
specifications, the acceptance testing procedures, and the terms of this
Agreement.
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EXHIBIT D
---------
ISP REFERRAL FEES
Number of New ISP Subscribers
Quarterly Fee
----------------------------- ---
************ ***
************ ***
************ ***
************ ***
1. The above Referral Fees shall be reduced by an additional ************
*** if, COMPANY implements at least two (2) "ActiveX" controls in the
design of COMPANY's home page for the ISP Service. COMPANY shall notify
MS of the ActiveX controls implemented by COMPANY.
2. The above Referral Fees shall be reduced by an additional ************
*** if: (a) COMPANY uses Microsoft Windows NT and Microsoft Internet
Information Server as the platform for COMPANY's web site that hosts the
home page for the ISP Service and (b) if COMPANY offers web hosting
services, it uses Microsoft Internet Information Server as one of its
platforms for such web hosting services.
3. If COMPANY offers web hosting services, the above Referral Fees shall be
reduced by an additional *************** if COMPANY uses Microsoft
Front Page server extensions (listed in Exhibit X) on COMPANY's web hosting
servers.
4. ******************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*********************************************************************
*******************************************
* -- Redacted Material subject to Confidential Treatment Application
16
<PAGE>
EXHIBIT D (CONT'D)
-------------------
REFERRAL FEE REPORT
Report for _____________________________
Report Period: _______________________, 19____ to ______________________, 19___
Microsoft License #______________________________
- --------------------------------------------------------------------------------
Referral Fee Calculation:
** ***********************************************
** ***********************************************
******************************************
******************************************
** ***********************************************
** ***********************************************
***********************
******************
- --------------------------------------------------------------------------------
E. *************************************************
*********
F. **************************************************
*********
G. **************************************************
*********
H. **************************************************
*********
The undersigned hereby certifies that he/she is an officer or director of
COMPANY and that this report is complete and correct.
___________________________(Signature)
___________________________(Print)
___________________________(Title)
___________________________(Date)
Telephone Number: ( )
___________________________
* -- Redacted Material subject to Confidential Treatment Application
17
<PAGE>
EXHIBIT E
---------
ISP SUBSCRIBER CONFIGURATION GUIDELINES
1. COMPANY shall configure the ISP Subscriber's copy of Internet Explorer
(hosted on the ISP Subscriber's computer) via an INS file such that the
"default" URL on Internet Explorer points to the Start Page.
2. COMPANY can add and populate a "favorites folder" on the ISP Subscriber's
copy of Internet Explorer via an INS file.
3. [DRAFT] COMPANY's ISP Information Page shall comply with the following:
a. Size of the HTML page limited to 5K.
b. The page should have one exit point that points back to the main
referral page.
c. No scrolling, no tabs, no links, and no fields.
d. Should fit on 640x480 with no fields.
e. Use buttons as much as possible.
f. Do not use hot links.
g. A "cancel" leaves the entire Internet Connection Wizard.
MS reserves the right to change the above criteria.
* -- Redacted Material subject to Confidential Treatment Application
18
<PAGE>
EXHIBIT F
---------
INTERNET EXPLORER
AVAILABILITY VERSION
- -----------------------------------------------------------------------
PLATFORM 2.0 NEXT(c)
- -----------------------------------------------------------------------
Windows 3.x, WFW 3.11 Today(a) *********
Windows NT -- ***********
Windows 95 Today(a) *************
Apple Macintosh Today(b) ********
(a) *******************
(b) **********************
(c) **********************
(d) ***********
* -- Redacted Material subject to Confidential Treatment Application
19
<PAGE>
EXHIBIT G TO THE LICENSE AND DISTRIBUTION AGREEMENT
---------------------------------------------------
MICROSOFT-REGISTERED TRADEMARK- INTERNET EXPLORER
ONLINE LOGO USAGE GUIDELINES
This site is best experienced with
[LOGO]
Click here to start.
1. USAGE
Use the Internet Explorer online logo (the "logo") only to promote
Microsoft Internet Explorer and indicate that your Internet Site includes
or is compatible with the Microsoft Internet Explorer.
The Logo may only be used on your Internet Site which must meet the
applicable Logo Qualification Criteria and may not be used in any other
fashion.
RECOMMENDED TEXT. Based upon extensive research, we suggest that the
Internet Explorer Logo be accompanied by the following text: "This site
is best experienced with ... Click here to start." as indicated in the
below images. This information clarifies how the logo should be used,
especially for new Internet visitors who are unfamiliar with the
different means of navigating the Internet.
This site is best experienced with
[LOGO]
Click here to start.
This site is best experienced with [LOGO] Click here to start.
PRODUCT NAME. It should appear as "Microsoft-Registered Trademark-
Internet Explorer" at the first and most prominent use in all materials
and can thereafter be referred to as "Internet Explorer."
2. INTENT
You are not permitted to use the logo to disparage Microsoft, its
products or services, or for promotional goods or for products which, in
MS' reasonable judgement, may diminish or otherwise damage Microsoft's
goodwill in the Logo, including but not limited to uses which could be
deemed to be obscene, pornographic, excessively violent, or otherwise in
poor taste or unlawful, or which purpose is to encourage unlawful
activities. Similarly, you cannot imitate Microsoft's product packaging
or the Logo in any of your materials, including advertising, product
packaging, and promotional materials. The Logo must not be used in a
manner that implies Microsoft's sponsorship or endorsement of the
product, service, or content presented on your Internet Site.
3. LOGO LINK
Used in an Internet Site, the Logo must be an active link to this
URL address:
http://www.microsoft.com/ie/ie.htm
----------------------------------
20
<PAGE>
4. PRESENTATION
PROMINENCE. Do not use the Logo or the names "Microsoft," "Microsoft
Internet Explorer," or "Internet Explorer" more prominently than your
company, product, or Internet Site name.
ARTWORK. Use only Microsoft authorized electronic artwork of the Logo.
The Logo must stand by itself and must include a minimum amount of empty
space surrounding the Logo (30 pixels) so as to separate it from any
other object, such as type, photography, borders, edges, and so on. The
Logo may not be used as a feature or design element of any other Logo.
SIZE. The Logo cannot be reduced in size beyond what is electronically
provided by Microsoft and must be placed in a prominent location on the
Internet Site where it is used. Do not remove any trademark symbols or
alter the Logo in any way. Redraws, distortions, or animation of the
Logo are not permitted beyond what is provided to authorized/registered
Microsoft Online logo Internet Sites.
FOOTNOTE. Include the following footnote on Internet Sites that include
the Logo: "Microsoft is a registered trademark in the United States and
other countries and the Microsoft Internet Explorer Logo is a trademark
of Microsoft Corporation."
ALTERATIONS TO THESE GUIDELINES
Microsoft reserves the right to change the Logo and these Usage Guidelines at
any time and solely at its discretion. If possible, Microsoft will provide
advanced notice of these changes. Any use of the Logo that is not consistent
with these guidelines is strictly prohibited.
CANCELLATION OF AUTHORIZATION TO HOST LOGO
Microsoft reserves the right to review use of the Internet Explorer Logo.
Disregard for these Usage Guidelines may result in a revocation of the right
to use the logo, and with it all benefits enjoyed through participation in
the logo program.
Third parties improperly using the Logo must correct any deficiencies in
their use of the Logo and/or in the quality of the product used in
conjunction with the Logo upon reasonable notice from Microsoft. Refusal to
correct such deficiencies may result in revocation of the right to use the
Logo.
QUESTIONS
If you have any questions about the Logo Program, please send e-mail to
"[email protected]"
TRADEMARKS. Microsoft and Windows are registered trademarks and ActiveX is a
trademark in the United States and other countries and the Microsoft Internet
Explorer Logo is a trademark of Microsoft Corporation.
21
<PAGE>
ATTACHMENT 1 TO EXHIBIT G OF THE MICROSOFT INTERNET EXPLORER LOGO
USAGE GUIDELINES
Microsoft -Registered Trademark- Internet Explorer Online
Logo Qualification Criteria
This site is best experienced with
[LOGO]
Click here to Start
Gaining authorization to use the version of the Microsoft -Registered
Trademark- Internet Explorer online logo shown above for your Internet Site
is easy. Simply fulfill the following two criteria and you are eligible to
use the logo.
1. Showcase on your Internet Site one or more of these HTML features:
- RATINGS. Support self-regulation of content to ensure
appropriate access to your Internet Site.
- MARQUEES. Scroll text or graphics across your screen.
- ENHANCED TABLES. Use colors/textures to make tabular data
- more legible and visually appealing.
- BACKGROUND SOUNDS. Provide an auditory experience when your
Internet Site is accessed.
- WATERMARKS. Create a mark of distinction on your home page.
- INLINE AVIs. Graphically animate your page beyond static
images.
- ENHANCED HTML FRAME TAGS. Simulate the appearance of a
magazine with borderless, nonscrolling, floating frames,
and even frames within frames.
- ENHANCED HTML STYLE SHEETS. Control margins, line spacing,
and placement of design elements; specify fonts and point
sizes; get desktop publishing support for the Web.
2. Enroll in the logo program, and agree to follow the Logo Usage Guidelines.
NEED HELP GETTING STARTED?
Please go to the FREE Microsoft Internet Explorer online logo-compliant Web
site template at http://www.microsoft.com/ie/log/actxtemp.htm. This template
will help to get you started in building your Internet Site or to simply
enhance your existing Internet Site. See examples of the new HTML features
and ActiveX -TM- -compatible controls at the ActiveX Gallery at
http://www.microsoft.com/ie/appdev/controls/default.htm.
If you want more assistance, order the ActiveX Development Kit at
http://www.microsoft.com/intdev/sdk.
NOTE ABOUT CHANGES:
Note: Due to the rapid development of Internet Explorer technology, these
criteria will change periodically over time. All online logo authorized sites
will be notified by e-mail of any changes to these criteria. Permission to
use the logo is limited to those who meet the then applicable criteria, and
those who no longer meet the criteria must discontinue use of logo.
TRADEMARKS. Microsoft and Windows are registered trademarks and ActiveX is a
trademark in the United States and other countries and the Microsoft Internet
Explorer Logo is a trademark of Microsoft Corporation.
22
<PAGE>
ATTACHMENT 2 TO EXHIBIT G OF THE MICROSOFT INTERNET EXPLORER LOGO
USAGE GUIDELINES
Microsoft -Registered Trademark- Internet Explorer Online
Animated Logo Qualification Criteria
This site is best experienced with
[LOGO]
Click here to start.
Gaining authorization to use the animated version of the Microsoft Internet
Explorer online logo shown above for your Internet Site is easy. Simply
fulfill the following three criteria and you are eligible to use the logo:
1. Showcase on your Internet Site one or more of these HTML features:
- RATINGS. Support self-regulation of content to ensure
appropriate access to your Internet Site.
- MARQUEES. Scroll text or graphics across your screen.
- ENHANCED TABLES. Use colors/textures to make tabular data
more legible and visually appealing.
- BACKGROUND SOUNDS. Provide an auditory experience when your
Internet Site is accessed.
- WATERMARKS. Create a mark of distinction on your home page.
- INLINE AVIs. Graphically animate your page beyond static
images.
- ENHANCED HTML FRAME TAGS. Simulate the appearance of a
magazine with borderless, nonscrolling, floating frames, and
even frames within frames.
- ENHANCED HTML STYLE SHEETS. Control margins, line spacing,
and placement of design elements; specify fonts and point
sizes; get desktop publishing support for the Web.
2. Activate your Internet Site with ActiveX -TM- -compatible Technology.
Support one or more ActiveX-compatible controls on your Internet Site.
- DEMONSTRATE ACTIVEX-COMPATIBLE CONTROLS. Make your
Internet Site interactive today!
- SCRIPT ACTIVEX-COMPATIBLE CONTROLS. Use ActiveX-compatible
scripts to make a Web page interactive. You can easily link
together ActiveX-compatible controls or intrinsic controls to
create dynamic pages.
3. Enroll in the logo program and agree to follow the Logo Usage Guidelines.
NEED HELP GETTING STARTED?
Please go to the FREE Microsoft Internet Explorer online logo-compliant Web
site template at http://www.microsoft.com/ie/log/actxtemp.htm. This template
will help to get you started in building your Internet Site or to simply
enhance your existing Internet Site. See examples of the new HTML features
and ActiveX-compatible controls at the ActiveX Gallery at
http://www.microsoft.com/ie/appdev/controls/default.htm.
If you want more assistance, order the ActiveX Development Kit at
http://www.microsoft.com/intdev/sdk.
Note: Due to the rapid development of Internet Explorer technology, these
criteria will change periodically over time. All online logo authorized sites
will be notified by e-mail of any changes to these criteria. Permission to
use the logo is limited to those who meet the then applicable criteria, and
those who no longer meet the criteria must discontinue use of logo.
TRADEMARKS. Microsoft and Windows are registered trademarks and ActiveX is a
trademark in the United States and other countries and the Microsoft Internet
Explorer Logo is a trademark of Microsoft Corporation.
23
<PAGE>
EXHIBIT H TO THE LICENSE AND DISTRIBUTION AGREEMENT
MICROSOFT-Registered Trademark-INTERNET EXPLORER STANDARD LOGO USAGE GUIDELINES
- -------------------------------------------------------------------------------
Includes
[LOGO]
Microsoft has established the following set of guidelines to assist you in
proper use of the Microsoft Internet Explorer standard logo (the "Logo").
The power of the Logo lies in its consistent and appropriate use. Any usage
outside these guidelines dilutes the effectiveness of the Logo and makes it
more difficult to defend our rights to the trademark.
Microsoft reserves the right to change the Logo and/or these Guidelines at
any time at its discretion. Third parties shall comply with the Guidelines as
amended from time to time.
ACCOMPANYING WORDS
The graphic may not be used without the words "Includes,"
"Microsoft-Registered Trademark-," and "Internet Explorer" attached, except
as otherwise provided below. No additional or substitute words may be used.
The words may not be abbreviated, translated, or transliterated, as in
non-English documentation. Microsoft will, however, provide the Logo in
versions where the word "Includes" may be translated for the local market, as
available. You may not substitute your own translation of the Logo.
USING THE MICROSOFT INTERNET EXPLORER STANDARD LOGO
- - Use the Logo only to promote Microsoft Internet Explorer and indicate that
your product includes Microsoft Internet Explorer.
- - This Logo is NOT to be placed on World Wide Web sites for the purpose of
downloading Microsoft Internet Explorer. For this purpose, please see the
Microsoft Internet Explorer Online Logo Usage guidelines at
http://www.microsoft.com/ie/logo/.
- - Microsoft will provide you with electronic artwork of the Logo. You may not
alter this artwork in any way.
- - This Logo is for Microsoft and third party use only as a graphical
representation of Microsoft Internet Explorer software.
- Microsoft Use: The Logo may be used by Microsoft on packaging, channel,
collateral, advertising, direct mail, and events promotion materials for
Microsoft products that include Microsoft Internet Explorer software. When
referring to Microsoft Internet Explorer by itself, Microsoft may use the
Logo without the word "Includes."
- Third Party Use: The Logo may be used by third parties authorized to
distribute the Microsoft Internet Explorer software under a separate
License and Distribution Agreement. Authorized third parties may use the
Logo only on the product packaging of products that include Microsoft
Internet Explorer software and related advertising.
LEGAL INFORMATION
- - The Logo is owned by Microsoft Corporation. All uses of the Logo must
include the following notice: "Microsoft is a registered trademark in the
United States and other countries and the Microsoft Internet Explorer Logo is
a trademark of Microsoft Corporation." A trademark symbol (-TM-) should appear
to the right of the Logo without alteration from the electronic or
camera-ready artwork provided. In
24
<PAGE>
addition, a registered trademark symbol (-Registered Trademark-) must
appear in the upper-right corner immediately following the word "Microsoft."
Do not remove any trademark symbols or alter the Logo in any way.
- - The product name for Microsoft Internet Explorer should appear as
"Microsoft-Registered Trademark-Internet Explorer" at the first and most
prominent use in all materials and can thereafter be referred to as "Internet
Explorer."
- - Microsoft owns the Microsoft Internet Explorer Logo and all uses of the Logo
will inure to the benefit of Microsoft. Third parties shall employ best
efforts to use the Logo in a manner that does not derogate from Microsoft's
rights in the Logo and will take no action that will interfere with or
diminish Microsoft's rights in the Logo. Third parties should not adopt, use,
or register any corporate name, trade name, trademark, service mark or
certification mark, trade dress, or other designation similar to, or
containing in whole or in part the Logo.
- - Third parties may not use the Logo in a manner that would imply that their
company or any goods or services provided by such third parties are sponsored
or endorsed by, or affiliated with Microsoft.
- - Third parties may not display the Logo on packaging, documentation,
collateral, or advertising in a manner that suggests their product is a
Microsoft product, or in a manner that suggests Microsoft is a part of their
product name.
- - You are not permitted to use the Logo to disparage Microsoft Corporation,
its subsidiaries, products, or services, or for promotional goods or for
products which, in Microsoft's reasonable judgment, may diminish or otherwise
damage Microsoft's goodwill in the Logo, including but not limited to uses
that could be deemed obscene, pornographic, excessively violent, or otherwise
in poor taste or unlawful, or which purpose is to encourage unlawful
activities.
- - Third parties may not imitate Microsoft's product packaging or the Logo in
any of their materials, including advertising, product packaging, and
promotional materials.
- - The Logo or the names "Microsoft," "Microsoft Internet Explorer," or
"Internet Explorer" cannot appear larger and/or more prominent than third
parties' trade name, service name, product name, or trademark on any
materials produced or distributed by such third parties.
- - Microsoft reserves the right to object to unfair uses or misuses of its
trademarks or other violations of applicable law.
SIZING AND PLACEMENT REQUIREMENTS
- - Recommended minimum size is 1" high. The "small" graphic interchange format
(GIF) file provided is an example of the smallest recommended size.
- - The Logo with accompanying words must stand alone. A minimum amount of
empty space must surround the Logo so as to separate it from any other object
such as type, photography, borders, edges, and so on. The required border of
empty space around the Logo must be 1/2X wide, where X equals the height of
the Logo as measured from the top edge of the word "Includes" to the bottom
edge of the word "Explorer."
- - You may not combine the Logo with any other object, including, but not
limited to, other logos, words, graphics, photos, slogans, numbers, design
features, or symbols.
- - The Logo may not be used as a design feature on your product, product
packaging, documentation, collateral, or advertising.
FOUR-COLOR OR ONE-COLOR APPLICATIONS
COLORS
The color version is the preferred way of reproducing the Logo. The Logo
consists of a blue graphic element and black type. The PANTONE-Registered
Trademark- Matching System (PMS) color for the blue is PMS 279 C. Four-color
process (CMYK) equivalents can also be used. For online usage, the blue color
should be Red 0, Green 102, Blue 255 for 8-bit or higher resolution palettes.
The color version can be reproduced only as described here.
25
<PAGE>
BLACK-AND-WHITE APPLICATIONS
The black-and-white Logo consists of a black graphic element and black type.
Please use the file provided.
ACCESSING THE FILES
The print files are provided in Encapsulated PostScript-Registered Trademark-
(EPS) and Windows-Registered Trademark- metafile (WMF) format. Use the EPS
files for materials printed to a PostScript-compatible printer. Use the
Windows metafile to print to a non-PostScript printer. These files should not
be opened and edited, only placed (for example, select "import...picture")
into software programs such as common page-layout or presentation programs,
word-processing software, and so forth.
Due to translation problems between the Mac and PC, Mac-TM- EPS images may
lose their preview. When you place them into your page-layout document, you
will see a box or a big 'X' instead of the preview. The image will still
print correctly and the bounding box accurately shows the size of the image.
EPS images are sizable, but please scale proportionately.
PC EPS images only have black-and-white previews. If you chose to use a color
PC EPS, it will still preview in black-and-white. When you print it, the
color will print correctly.
EPS format is device-dependent so the resolution of the device you are
printing to is the resolution you will achieve.
The art files include Adobe Illustrator (ART) and Macromedia Freehand (FH5)
format. These are provided for use where the print files supplied will not
work. They are not to be altered.
QUALITY CONTROL
Microsoft reserves the right to review your use of the Logo and to conduct
spot checks on all products, product packaging, marketing materials, and
documentation and may periodically send out requests for samples. Microsoft
may also conduct spot checks in retail outlets and other product sources to
monitor your compliance with these Logo Usage Guidelines. Refusal to submit
samples, noncompliance with these Guidelines, or failure to correct any
deficiencies in your use of the Logo and/or in the quality of the product
used in conjunction with the Logo upon reasonable notice from Microsoft could
result in revocation of your license to use the Logo.
- -C- 1996 Microsoft Corporation. All rights reserved.
Microsoft and Windows are registered trademarks in the United States and/or
other countries and the Microsoft Internet Explorer logo is a trademark of
Microsoft Corporation.
PostScript is a registered trademark of Adobe Systems, Inc. Macintosh is a
registered trademark and Mac is a trademark of Apple Computer, Inc. PANTONE
is a registered trademark of Pantone, Inc.
- -------------------------------------------------------------------------------
26
<PAGE>
[LOGO]
NETWORK ACCESS AGREEMENT
PSINet Inc. Purchaser: EarthLink Network, Inc.
510 Huntmar Park Drive 3100 New York Drive
Herndon, VA 22070 Pasadena, CA 91107
703.904.4100 818.296.2400
703.904.4200 (fax) 818.296.4161 (fax)
Business Contact: Contact: Garry Betty
Phone/Fax: Phone/Fax: 818 296 2408
Business Contact: Business Contact: Same
Title/Phone/Fax: Title/Phone/Fax: President/CEO, fax 818 296 4161:
THIS AGREEMENT is made between PSINet Inc., a corporation incorporated under
the laws of the State of New York and having its principal place of business
at 510 Huntmar Park Drive, Herndon, Virginia 22070 ("PSINet"), and the
wholesale customer of PSINet's wide-area computer network system ("EarthLink"
or "Purchaser") as specified above.
WITNESSETH:
WHEREAS, Purchaser desires to obtain from PSINet network access for the
benefit of Purchaser's customers desiring access at speeds up to 128Kbps
(hereinafter, "Customers"); and
WHEREAS, PSINet is willing and able to provide such access;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree, intending to be legally bound, as
follows:
1. DEFINITIONS. The following terms shall have the following meanings for
purposes of this Agreement and for purposes of the Exhibits hereto:
1.2 "HOST" shall mean a computer with a Network address (IP address).
1.3 "NETWORK" shall mean the combination of computer hardware, computer
software programs and data transmission facilities operated by PSINet
which will permit computers operated by Purchaser's Customers to
communicate with
- --------------------------------------------------------------------------------
PSINet/EarthLink
Network Access Agreement Page: 1 7/24/96
* - Redacted Material subject to Confidential Treatment Application
<PAGE>
computers at remote locations which are operated by others and to
provide access to Internet.
1.4 "POP" shall mean a Network point-of-presence where PSINet equipment
will be located and these POPs will be positioned throughout the world
in order to permit authorized users to access the Network by telephone.
1.5 "PSINET CUSTOMER" will be EarthLink's non-dedicated
(non-static-addressed) or non-LAN dial-up customers designated by
EarthLink as having their principal dial-up access through PSINet's
dial-up network in the U.S. and Canada.
1.6 "NON-PSINET CUSTOMER" will be EarthLink's dial-up customers
designated by EarthLink as having their principal dial-up access
through another network than PSINet's, whether it be EarthLink's own
network, or another of EarthLink's network vendors.
1.7 "CUSTOMER" will be a customer of EarthLink, whether a "PSINet
Customer" or "Non-PSINet Customer".
2. INTERNET CONNECTION SERVICES.
2.1 GENERAL. PSINet agrees to provide Purchaser with dialup (also call
"switched") telephone connection services for Purchaser's Customers to
access the Network and the Internet. Purchaser and its Customers may
access the Network from any PSINet POP in the United States and Canada.
The fees to be paid by Purchaser to PSINet for such access services are
set forth in Section 5.1.
2.2 PROVISION OF ACCESS. Throughout the term of this Agreement, PSINet
shall provide Purchaser's Customers with the right to access at
speeds up to 128 Kbps using standard telephone and ISDN lines, and
use its Network at the levels then provided and supported by PSINet
("Access"). A recent estimated listing of Network POPs can be retrieved
by sending electronic mail at '[email protected]' or through access to
PSINet's world-wide web site at 'http://www.psi.net'. PSINet reserves
the right to install new POPs and/or to close existing POPs as it, in
its sole discretion, deems appropriate. In the event PSINet deems it
necessary to close an existing POP, PSINet shall provide Purchaser with
sixty (60) days written notice thereof. Purchaser may order such Access
on behalf of its present or future Customers and there shall be no
limit on the number of Customers who may use the Network; provided,
however, subject to the Service Level Agreement in Section 3.7 that
PSINet may refuse service to Purchaser because there is insufficient
capacity on the Network or in the POP to provide the Access amount
requested.
2.2.1 TERMINATION OF ACCESS. PSINet shall terminate the Access rights of
any Purchaser Customer as soon as is reasonably practicable upon written
notice from Purchaser to do so or upon mutually agreed upon electronic
process with receipt confirmed, but shall have no liability in
connection therewith.
- --------------------------------------------------------------------------------
PSINet/EarthLink
Network Access Agreement Page: 2 7/24/96
<PAGE>
2.2.2 ISDN SERVICE. PSINet shall make ISDN 64k and 128k Internet connection
services available to Purchaser for Purchaser's dial-up customers. The
fees to be paid by Purchaser for such services are set forth in Section
5.1.
3. PURCHASER OBLIGATIONS.
3.1 PURCHASER RESPONSIBILITY FOR ITS CUSTOMERS. Purchaser shall be
responsible for all Customer support, pricing and service plans, billing
and collections with respect to its own Customers.
3.2 PURCHASER CONNECTION TO THE NETWORK. Purchaser may provide, at its
own expense, the telecommunications circuit for its connection to the
Network which shall run between the best suited PSINet POP (as
determined by PSINet) and the Purchaser's operations center (which
includes the local telephone company or Competitive Access Provider
circuits). In addition, Purchaser may provide an estimate of the traffic
it anticipates between Purchaser's network and PSINet's Network.
3.3 [INTENTIONALLY LEFT BLANK]
3.4 [INTENTIONALLY LEFT BLANK]
3.5 CUSTOMER EQUIPMENT. PSINet shall not be responsible for the
installation, operation or maintenance of any computer equipment or
computer software programs used by any Purchaser Customer.
3.6 OPTIONAL PEERING. In addition to the connection of Purchaser's
network and PSINet's Network as set forth in Section 3.2, Purchaser may,
but shall not be obligated to, provide telecommunications circuits
interconnecting Purchaser's network with PSINet's network at a location
agreed upon by the parties and, from time to time, in other locations.
The parties will use these circuits only for traffic originating within
one party's network (or the networks of its Customers) and destined only
to the other party's network (or the networks of its Customers).
3.7 SERVICE LEVEL AGREEMENT. Purchaser will maintain a 90 day rolling
forecast of predicted PSINet Customers at each POP, and provide this
forecast to PSINet as requested. This forecast will include comparative
historical numbers as they become available. Except as set forth in the
section below, Purchaser will have no liability for the inaccuracy of
this forecast.
The number forecasted at each POP 60 days prior to a given day will
give rise to mutual obligations for that day at that POP as follows:
1. If the number of actual PSINet Customers for a given POP on a
given day is greater than 110% of the number forecasted, no
penalty or Service Level Agreement ("SLA") applies.
- --------------------------------------------------------------------------------
PSINet/EarthLink
Network Access Agreement Page: 3 7/24/96
<PAGE>
2. If the number of PSINet Customers on a given day is less than
90% of the number forecasted, Purchaser will pay a penalty of *%
above the applicable fees for that POP for that day.
3. For each POP where neither 1 nor 2 applies, PSINet will be
required to provide 99.5% availability for dial-in-access. For
each day less than 99.5% availability is provided, Purchaser
will be credited *** ********** ********* ***** ****** *** ****
****** ******** ******** ********* ******* ** **** ***. For
example, if on April 2, 1997 Purchaser forecasted that there
would be 910 PSINet Customers on the Smalltown POP, and the
actual number of PSINet Customers on the Smalltown POP on
June 1, 1997 were 1000, and the total number of PSINet
Customers on June 30, 1997 were 155,001, and the availability of
Smalltown POP fell below 99.5% on June 1, 1997, Purchaser would
be credited ***** * ******* ** ******* for that service lapse.
Purchaser will provide at least 60 days' notice if it decides to
build a POP to service existing PSINet Customers in a particular city,
provided the existing PSINet Customers for that POP exceed 5,000
customers.
4. PSINET OBLIGATIONS.
4.1 QUALITY OF SERVICE. PSINet shall provide to Purchaser (for its
Customers) Internet connection services that meet reasonable commercial
standards, including, without limitation, with respect to accessibility,
latency, packet loss, and throughput. For example, PSINet shall maintain
throughput of 80% of nominal port speed (e.g. 23 Kbps for a 28.8 Kbps
connection, 51 Kbps for a 64 Kbps single ISDN connection) 90% of the
time. PSINet shall keep and maintain its Network in good condition and
repair. The Network shall be properly maintained, serviced and upgraded
by PSINet as it, in its sole discretion, shall determine is necessary in
order to ensure connectivity to Purchaser Customers.
4.1.1 REPORTS AND INFORMATION REGARDING SERVICE.
4.1.1.1 ACCESS TO NETWORK MONITORING SYSTEMS. PSINet shall provide Purchaser
with read-only access to all applicable network monitoring systems used
by PSINet to monitor its network. Such access will permit Purchaser to
determine availability at each POP.
4.1.1.2 PSINET NETWORK OUTAGES. PSINet shall provide to Purchaser prompt
notification of any PSINet network outages that affect Purchaser's
Customers. When possible, at least three days advance notice of planned
outages shall be given to Purchaser so that Purchaser's Customers may be
alerted.
4.1.1.3 SNMP ACCESS. PSINet shall provide to Purchaser SNMP access to
PSINet's Network (i.e., direct read-only access to the dialup equipment,
as well as, if
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<PAGE>
possible, the devices used to provide backbone transport) with respect to
Purchaser's dial-up Customers, as soon as such access is practicable.
4.1.1.4 TECHNICAL INTERCONNECT. PSINet will develop a means to allow PSINet
Customers to be authenticated via Purchaser's RADIUS serves in Purchaser's
data center. PSINet Customers will be set up by Purchaser to log into
PSINet's network with an "ELN/" in front of their username.
PSINet will provide real-time monitoring capabilities for Purchaser's
technical and support staff to track access of PSINet Customers on PSINet's
network. PSINet will provide 24X7 NOC-to-NOC support for Purchaser.
5. PRICE AND PRICING TERMS.
5.1 CHARGES. Purchaser will pay PSINet the applicable monthly fee for each
PSINet Customer who has access to PSI's network during a particular month.
Where the PSINet Customer did not have access for the entire month, the
monthly fee will be prorated. Where the PSINet Customer has signed up AND
canceled Purchaser's service within an initial 30 day period, no monthly fee
will be due PSINet for that PSINet Customer.
In addition to PSINet Customers, Purchaser will have customers who use
Purchaser's own dial-up TCP/IP network or other networks provided by vendors
other than PSINet. Purchaser will make reasonable efforts to ensure that it
segregates customers to one network or another in a given billing month.
However, for such Non-PSINet customers who access the PSINet network in a
given month, PSINet will charge Purchaser $**** for each day such Non-PSINet
customer accesses the PSINet network, but no more than the applicable flat
monthly rate for each PSINet Customer.
For each PSINet customer in the United States, monthly charges to Purchaser
shall be based upon the number of PSINet Customers, calculated at the end of
each month, as follows:
TIER PRICE VOLUME
A ****** 0-10,000
B ***** 10,001-125,000
C ***** 125,001 +
For each PSINet Customer in Canada, the monthly charge to the Purchaser will
be $**** more (U.S. dollars) than the price noted above. Canadian and US
Customers will count together cumulatively for the purpose of determining
Purchaser's pricing tier above.
The minimum volume required to maintain Tier C pricing shall increase
according to the month from the period beginning April 30, 1997 until
December 31, 1997, after which the minimum monthly volume necessary to
maintain Tier C pricing shall remain at 250,000 Customers.
* - Redacted Material subject to Confidential Treatment Application
5
<PAGE>
Month-ending Tier C minimum commitment table:
<TABLE>
<CAPTION>
<S> <S> <S> <S> <S> <S> <S> <S> <S>
4/97 5/97 6/97 7/97 8/97 9/97 10/97 11/97 12/97
135,000 145,000 155,000 170,000 185,000 190,000 210,000 230,000 250,000
</TABLE>
The applicable base charges above are applied to all PSINet Customers
irrespective of the rate that previously was applied to
each group of Customers. That is, when the volume threshold for a certain
tier is reached, Purchaser shall be entitled to the pricing for that tier for
all PSINet Customers (e.g. at and below that tier volume).
ISDN Service: Charges will be the same as above for ISDN 64K connection
services. Charges will be twice the 64K rate for 128K service.
5.1.1 MOST FAVORED NATION. PSINet commits that the pricing provided to
Purchaser will be at least as low as for comparable volume levels and similar
services as that provided any other PSINet customer.
5.2 ADJUSTMENTS TO BASE CHARGE. When the number of PSINet Customers exceeds
500,000, PSINet and purchaser will begin good faith negotiations on new
pricing terms.
5.3 MINIMUM COMMITMENT: On January 1, 1997, Purchaser's minimum monthly
commitment to PSINet shall become $******* per month for each month of 1997.
This minimum commitment will expire on December 31, 1997.
5.4 TAXES. Purchaser shall be liable for and shall reimburse PSINet for all
taxes and related charges however designated, imposed in connection with or
arising from the provision of access to the PSINet network by Purchaser or
its Customers. This clause is intended to cover "per-subscriber" or
"per-byte" charges targeted at the Internet traffic of Purchaser or its
customers. These taxes will not include the following:
-Taxes on T1 or PRI local loop lines to PSINet POPs
-Taxes on PSINet's equipment or facilities
-Taxes on PSINet's dedicated data circuits
5.5 INVOICES. PSINet shall invoice Purchaser monthly in arrears for all
charges under this Agreement. Except where inapplicable per Section 5.9, all
invoices will be payable within (30) days of receipt of invoice.
Delinquent payments are subject to a late payment charge at the annualized rate
of prime plus four percent computed monthly (4%), or portion thereof, of the
amount due (but not to exceed the maximum lawful rate). In the event
Purchaser shall fail to pay PSINet any amount due under this Agreement for a
period of forty (40) days, PSINet, in addition to charging applicable
delinquency fees, may discontinue providing to Purchaser and its Customers
upon seven (7) days' prior written notice to Purchaser. PSINet shall resume
providing Access immediately upon receipt of
* - Redacted Material subject to Confidential Treatment Application
6
<PAGE>
such payment, and in such event Purchaser shall pay PSINet a reasonable
reconnection fee. However, Purchaser shall not be deemed to be delinquent,
nor may access be terminated, until Purchaser has exhausted the line of
credit described in Section 5.9
5.6 CUSTOMER CHARGES. Purchaser is solely responsible for establishing and
collecting its Customer charges for services it offers its customers through
the Network and for preparing and mailing invoices to its Customers.
Purchaser is responsible for payment of the total amounts invoiced it by
PSINet regardless of whether Purchaser is paid by its Customers.
5.7 MARKETING REFERRALS. Until January 1, 1997, PSINet will provide
Purchaser with the first opportunity to sell to all leads calling into PSINet
inquiring about or seeking the purchase of non-dedicated, dial up Internet
access. At Purchaser's discretion, such leads will be transferred
telephonically directly to Purchaser's telemarketing group, where Purchaser
will attempt to sell the lead a dial-up access account. Purchaser will pay
PSINet a one-time bounty of $***** for each lead that signs up for services
and remains a paying customer for more than 60 days. By 30 days after the end
of each month, Purchaser shall provide PSINet an accounting of the number of
leads received and the number successfully converted into sign-ups, along
with payment of applicable bounties.
5.8 USAGE REPORTS. PSINet will provide full usage reports at the end of
each day. These reports shall include detailed accounting of each Purchaser
network customer (PSINet Customer or Non-PSINet Customer) login to PSINet's
network. Additionally, PSINet and Purchaser will work to set up a system
whereby Purchaser can track usage (connects and disconnects) in real time.
5.9 ADDITIONAL CONSIDERATION. In exchange for Purchaser issuing to PSINet
the sum of 200,000 warrants to purchase the same number of shares of common
stock of Purchaser (or the equivalent thereof to compensate for any changes
in the capital structure of Purchaser between the time of grant and the time of
exercise by PSINet, with 4 years to exercise), the exercise price to be the fair
market value at the time of grant, PSINet will provide the following credit
and rental facilities to Purchaser:
1. A credit line for Purchaser's payables to PSINet hereunder
according to these terms:
- Up to $5,000,000
- Accruing interest at prime plus 4% per annum
Applied to payables beyond the 30 day payment term described above
- Balloon payment at the end of the initial term hereof
2. A commitment to a rental facility for $5,000,000 of equipment
(owned or leased by PSINet) for deployment in Purchaser's network. Such
rental charges shall include all costs, such as service maintenance, and
shall be for equipment agreed to in advance by the parties.
* - Redacted Material subject to Confidential Treatment Application
7
<PAGE>
The equipment shall be Sun servers, Ascend Max Hubs and
other network equipment. The maximum initial value of
assets being rented shall not exceed $5,000,000 in value.
Rental agreement shall include Fair Market Value buyout
provisions, a 3-year term and an effective rate of not
more than prime plus 3% per annum.
Monthly rental payments will be due beginning 30 days
after funding of Purchaser's IPO, or February 1, 1997,
whichever is sooner.
Terms of Purchaser's warrants shall include a term of 4 years;
will provide for appropriate adjustments to the exercise price
and number of shares which may be purchased in the event of stock
splits, dividends and the like. In addition, PSINet shall receive
registration rights in respect to the shares (the "Shares") issuable
upon the exercise of the Warrants as described in the attached
Exhibit "A". PSINet shall be entitled to receive financial
information regarding the Company for so long as PSINet holds the
Shares.
6. TERM/EXTENSIONS/TERMINATION. The term of this Agreement shall be two
(2) years, commencing on August 1, 1996 and ending July 31, 1998,
and, unless either party notifies the other in writing not less than
one-hundred eighty (180) days prior to the end of the initial term or
any extension thereof, this Agreement shall be automatically renewed
annually thereafter for a period of one year. Notwithstanding the
foregoing, such termination notice shall not be given by either party
prior to December 31, 1997.
Either party may terminate this Agreement if such other party has
materially breached this Agreement and has failed to cure such breach
within thirty (30) days after receiving written notice of such
breach; provided, however, that this notice period shall not apply to
a termination by PSINet in accordance with the provisions of Section
5.5.
7. WARRANTIES EXCLUDED. EXCEPT AS EXPRESSLY PROVIDED HEREIN, PSINet
MAKES NO WARRANTIES IN CONNECTION WITH ITS NETWORK OR THE PROVISION
OF ACCESS AS CONTEMPLATED HEREIN, WHETHER WRITTEN OR ORAL, STATUTORY,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTY OF
MERCHANTABILITY AND THE WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE
OR USE. PURCHASER'S SOLE AND EXCLUSIVE REMEDY SHALL BE PSINET'S
OBLIGATION TO ADJUST THE FEES PAYABLE BY PURCHASER AS SET FORTH
ELSEWHERE HEREIN.
8. LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING CONTAINED IN THIS
AGREEMENT TO THE CONTRARY, THE PARTIES AGREE THAT NEITHER PARTY SHALL
IN ANY EVENT BE LIABLE TO THE OTHER PARTY OR ANY OTHER PERSON FOR ANY
ACTUAL, DIRECT, INDIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL,
RELIANCE, PUNITIVE OR ANY OTHER DAMAGES OR FOR ANY LOST PROFITS OF ANY
Page: 8
<PAGE>
KIND OR NATURE WHATSOEVER, REGARDLESS OF THE FORESEEABILITY THEREOF,
ARISING OUT OF THE PROVISION OF ACCESS OR IN ANY WAY ARISING OUT OF
THIS AGREEMENT, WHETHER IN AN ACTION ARISING OUT OF BREACH OF
CONTRACT, BREACH OF WARRANTY, DELAY, NEGLIGENCE, STRICT TORT
LIABILITY, PATENT MATTERS OR ANY OTHER THEORY. NO ACTION OR
PROCEEDING AGAINST EITHER PARTY MAY BE COMMENCED MORE THAN TWO YEARS
AFTER THE SERVICES ARE RENDERED. THIS CLAUSE SHALL SURVIVE FAILURE OF
AN EXCLUSIVE REMEDY. EITHER PARTY'S TOTAL LIABILITY FOR GROSS
NEGLIGENCE DURING THE LIFETIME OF THIS AGREEMENT SHALL IN NO EVENT
EXCEED FIVE HUNDRED THOUSAND DOLLARS ($500,000) IN THE AGGREGATE.
9. INDEMNIFICATION OF PSINET. Purchaser shall indemnify and hold
harmless PSINet and PSINet's directors, officers, employees, agents
and advisors from and against any and all claims of other persons or
entities arising out of material, data, information or other content
transmitted by Purchaser Customers or other acts or omissions of
Purchaser and/or its Customers.
10. CONFIDENTIAL INFORMATION.
10.1 Nondisclosure. If either party acquires Confidential Information of
the other, such receiving party shall maintain the confidentiality of
the disclosing party's Confidential Information shall use such
Confidential Information only for the purposes for which it is
furnished and shall not reproduce or copy it in whole or in part,
except for use as authorized in this Agreement. Confidential
Information shall mean all information of the disclosing party which
it treats as confidential or proprietary. Confidential Information
shall not include information which is or hereafter becomes generally
available to others without restriction or which is obtained by the
receiving party without violating the disclosing party's rights under
this Article 10 or any other obligation of confidentiality. The terms
and conditions of this Agreement shall constitute Confidential
Information. The provisions in the Bilateral Nondisclosure Agreement
executed between the parties on July 18, 1996 shall survive the
execution and termination of this Agreement for any reason.
10.2 Duration. With respect to all Confidential Information, the parties'
rights and obligations under this Article shall remain in full force
and effect following the termination of this Agreement.
10.3 Ownership. All materials and records which constitute Confidential
Information, other than service orders and copies of this Agreement,
shall be and remain the property of, and belong exclusively to, the
disclosing Party, and the receiving party agrees either to surrender
possession of and turn over or to destroy all such Confidential
Information which it may possess or control upon request of the
disclosing party or upon the termination of this Agreement.
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<PAGE>
10.4 Injunctive Relief. The parties acknowledge and agree that, in the
event of a breach or threatened breach by any party of any provision
of this Article 10, the other party will have no adequate remedy in
money or damages and, accordingly, shall be entitled to an injunction
against such breach. However, no specification in this Section of a
specific legal or equitable remedy shall be construed as a waiver or
prohibition against any other legal or equitable remedies in the
event of a breach of this Article of this Agreement.
10.5 Legal Obligation to Disclose. Each party shall be released from its
obligations under this Article 10 with respect to information which
such party is required to disclose to others pursuant to obligations
imposed by law, rule or regulation; provided, however, that prior to
any such required disclosure, if practicable, such party provides
written notice to and consults with the other party.
11. MISCELLANEOUS.
11.1 Independent Parties/No Agency. The relationship of PSINet and
Purchaser shall be that of independent third parties. Except as
otherwise expressly provided in this Agreement, this Agreement does
not constitute either party as the agent or legal representative of
the other party and does not create a partnership or joint venture
between the parties. Except as otherwise expressly provided in this
Agreement, neither party shall have any authority to contract for or
bind any other party in any manner whatsoever. This Agreement confers
no rights of any kind upon any third party.
11.2 Force Majeure. PSINet shall not be liable for failure to fulfill its
obligations hereunder if such failure is due to causes beyond its
control, including, without limitation, acts of God, fire,
catastrophe, governmental prohibitions or regulations, viruses which
did not result from the acts or omissions of PSINet, its employees or
agents, national emergencies, insurrections, riots or wars, or
strikes, lockouts, work stoppages or other labor difficulties. The
time for any performance required hereunder shall be extended by the
delay incurred as a result of such act of force majeure, and PSINet
shall act with dilligence to correct such force majeure.
11.3 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to a party under this Agreement shall impair
any such right, power or remedy of such party nor shall it be
construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of either party of any breach or
default under this Agreement, or any waiver on the part of either
party of any provisions or conditions of this Agreement must be made
in writing and shall be effective only to the extent specifically set
forth in such writing. All remedies, either under this Agreement or
by law or otherwise afforded to a party, shall be cumulative and not
alternative.
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<PAGE>
11.4 BENEFIT AND ASSIGNMENT. No party hereto shall assign this Agreement, in
whole or in part, whether by operation of law or otherwise, without the
prior written consent of the other party hereto (which consent shall not
be unreasonably delayed or withheld); and any purported assignment in
violation of the foregoing shall be void. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns as permitted hereunder. No
person or entity other than the parties hereto is or shall be entitled
to bring any action to enforce any provision of this Agreement against
any of the parties hereto, and the covenants and agreements set forth
in this Agreement shall be solely for the benefit of, and shall be
enforceable only by, the parties hereto or their respective successors
and assigns as permitted hereunder.
11.5 ADDITIONAL ACTIONS, DOCUMENTS AND INFORMATION: AUDIT. Each of the
parties hereto agrees that it will, at any time, prior to, at or after
the date hereof, take or cause to be taken such further actions, and
execute, deliver and file or cause to be executed, delivered and filed
such further documents and instruments and obtain such consents, as may
be reasonably requested in order to fully effectuate the purposes,
terms and conditions of this Agreement. In addition, PSINet may, at
reasonable intervals and upon reasonable notice to Purchaser, either by
itself or by its outside audit firm, audit the relevant books, records
and electronic data of Purchaser to assure proper payments have been
made by Purchaser hereunder. PSINet shall bear the costs of each such
audit unless the results of such audit show that Purchaser has
underpaid PSINet by 5% or more, in which case the cost of such audit
and the following correctional audit shall be borne by Purchaser.
11.6 NOTICES.
(a) All notices and other communications required or permitted hereunder
shall be in writing and shall be mailed by certified or registered mail
(return receipt requested), express air courier, charges prepaid, or
facsimile addressed as follows:
To Purchaser: as provided above
To PSINet:
PSINet Inc.
510 Huntmar Park Drive
Herndon, Virginia 22070
Facsimile: (703) 904-1608
Attn: Harold S. Wills, Chief Operating Officer
or to such other address as either party shall have furnished to the
other in writing.
(b) If a notice is given by either party by certified or registered mail,
it will be deemed received by the other party on the third business day
following the date on which it is deposited for mailing. If a notice is
given by either party by air express courier, it will be deemed
received by the other party on the next business day following the date
on which it is provided to the air express courier. If a notice is
given by facsimile, it will be deemed received by the other party after
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<PAGE>
confirmation of receipt. Notwithstanding the foregoing, any payments
made under this Agreement shall be deemed received only when actually
received.
11.7 SEVERABILITY. In case any provision of this Agreement shall be invalid,
illegal or unenforceable, such provision shall be construed so as to
render it enforceable and effective to the maximum extent possible in
order to effectuate the intention of this Agreement; and if such
provision shall be wholly invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions
hereof shall not in any way be affected or impaired thereby.
11.8 SURVIVAL OF OBLIGATIONS. The parties' rights and obligations that, by
their nature, would continue beyond the termination, cancellation, or
expiration of this Agreement, shall survive such termination,
cancellation or termination.
11.9 TITLES AND SUBTITLES. The titles of the Articles and Sections of this
Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
11.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
11.11 GOVERNING LAW. This Agreement shall be governed in all respects by the
laws of the State of New York without reference to its principles of
conflicts of laws.
11.12 ENTIRE AGREEMENT/AMENDMENTS. This Agreement (including all Exhibits and
the Bilateral Nondisclosure Agreement) constitutes the full and entire
understanding and agreement between the parties with regard to the
subjects hereof and thereof. Neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated, except by a written
instrument signed by the parties hereto.
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<PAGE>
BOTH PARTIES REPRESENT AND WARRANT THAT THEY HAVE FULL CORPORATE POWER AND
AUTHORITY TO EXECUTE AND DELIVER THIS AGREEMENT AND TO PERFORM THEIR
OBLIGATIONS HEREUNDER, AND THAT THE PERSON WHOSE SIGNATURE APPEARS BELOW IS
DULY AUTHORIZED TO ENTER INTO THIS AGREEMENT ON BEHALF OF THE PARTY.
IN WITNESS WHEREOF, THE PARTIES HAVE ENTERED INTO THIS AGREEMENT AS OF THE
DATE SET FORTH:
Charles G. Betty
- --------------------------------------------------------------------------------
Authorized Purchaser Representative/Title (please type or print)
Charles G. Betty 7/22/96
- --------------------------------------------------------------------------------
Purchaser Signature Date
Harold S. Wills
- --------------------------------------------------------------------------------
Authorized PSINet Representative (please type or print)
Harold S. Wills 7/22/96
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PSINet Representative Signature Date
[GRAPHICS]
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Network Access Agreement Page: 13
<PAGE>
AMENDMENT TO NETWORK ACCESS AGREEMENT
This Amendment to the Network Access Agreement (this "Amendment") is made as of
this _____ day of October, 1996 between PSINet, a New York corporation and
EarthLink Network, Inc., a Delaware corporation.
RECITALS
A. PSINet and EarthLink entered into that certain Network Access
agreement for network access for the benefit of EarthLink's customers, on
July 22, 1996.
B. The parties wish to amend the Original Agreement to reflect certain
revisions as discussed between the parties.
NOW, THEREFORE, in consideration of the mutual obligations in this Amendment and
for other good consideration, the receipt and sufficiency of which are
acknowledged, the parties to this Amendment agree as follows:
1. MODIFICATION OF CLAUSE 5.1. Clause 5.1 of the Original Agreement, titled
Charges, specifically the third paragraph relating to monthly charges, is
modified to read in its entirety as follows:
Tier Price Volume
---- ----- ------
A ****** 0-10,000
B ***** 10,001-100,000
C ***** 100,000+
The fifth paragraph of Clause 5.1 is modified to read as follows:
The minimum volume required to maintain Tier C pricing shall increase according
to the month from the period beginning July 30, 1997 until December 31, 1997,
after which the minimum monthly volume necessary to maintain Tier C pricing
shall remain at 165,000 Customers.
The sixth paragraph of Clause 5.1 is modified to read as follows:
7/97 8/97 9/97 10/97 11/97 12/97
100,000 110,000 120,000 135,000 150,000 165,000
2. MODIFICATION OF CLAUSE 5.3. Clause 5.3 of the Original Agreement, titled
Minimum Commitment, is modified to read in its entirety as follows:
On January 1, 1998, Purchaser's minimum monthly commitment to PSINet shall
become $******* per month for each month until expiring on July 31, 1998.
3. MODIFICATION OF CLAUSE 5.7. Clause 5.7 of the Original Agreement, titled
Marketing Referrals, shall read as follows:
Beginning December 1, 1996, and continuing through March 31, 1997, PSINet
will provide Purchaser with the first opportunity to sell to all leads calling
into PSINet inquiring about or seeking the purchase of non-dedicated, dial up
Internet access. At Purchaser's discretion, such leads will be transferred
telephonically directly to Purchaser's telemarketing group, where Purchaser will
attempt to sell the lead a dial-up access
* - Redacted Material subject to Confidential Treatment Application
<PAGE>
account. Purchaser will pay PSINet a one-time bounty of $***** for each lead
that signs up for services and remains a paying customer for more than 60 days.
By 30 days after the end of each month, Purchaser shall provide PSINet an
accounting of the number of leads received and the number successfully converted
into sign-ups, along with payment of applicable bounties.
CANCELING CUSTOMERS. The following text is added to the Original Agreement
as the second paragraph of Clause 5.7:
Existing PSINet service customers who don't want to move to Mindspring or
who are otherwise canceling the PSINet service will be offered by PSINet
EarthLink as an alternative. If interested, PSINet will transfer or otherwise
direct such customers to EarthLink's sales group to be closed.
4. CONTINUED EFFECT OF ORIGINAL AGREEMENT. All provisions of the Original
Agreement, except as modified by this Amendment, shall remain in full force and
effect and are hereby reaffirmed.
IN WITNESS WHEREOF, the duly authorized representatives of the parties hereto
have executed this Amendment as the date first written above.
EARTHLINK NETWORK, INC. PSINet, INC.
By: /s/ CHARLES G. BETTY By: /s/ HAROLD S. WILLS
-------------------------------- --------------------------------
Charles G. Betty Harold S. Wills
Chief Executive Officer Title:
EarthLink Network, Inc. PSINet, Inc.
3100 New York Drive 510 Huntmar Park Drive
Pasadena, California 91107 Herndon, Virginia 22070
Phone (818) 296-2400 Phone:
Fax (818) 296-4161
* - Redacted Material subject to Confidential Treatment Application
<PAGE>
OFFICE LEASE
by and between
THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK,
as Landlord,
and
EARTHLINK NETWORK, INC.
as Tenant
<PAGE>
TABLE OF CONTENTS
PAGE
NO.
SECTION I. TERMS AND DEFINITIONS ......................................... 1
SECTION II. PROPERTY LEASED .............................................. 2
A. Premises ..................................................... 2
B. Common Areas ................................................. 2
C. Minor Variations In Area ..................................... 2
D. Substitution of Space ........................................ 2
SECTION III. COMMENCEMENT OF TERM AND POSSESSION OF PREMISES ............. 3
A. Lease Commencement Date ...................................... 3
B. Completion of Tenant Improvements and Possession of Premises.. 3
C. Extension of Lease Commencement Date ......................... 3
D. Acceptance and Suitability ................................... 4
SECTION IV. RENT ......................................................... 5
A. Monthly Rental ............................................... 5
B. Consumer Price Index Increases ............................... 5
C. Rent and Additional Rent ..................................... 6
SECTION V. REIMBURSEMENT OF COMMON EXPENSES .............................. 6
A. Definitions .................................................. 6
B. Reimbursement ................................................ 7
C. Rebate or Additional Charges ................................. 8
D. Control of Common Areas ...................................... 8
SECTION VI. SECURITY DEPOSIT SEE ADDENDUM SECTION XXXV.D. ................ 9
SECTION VII. TENANT'S TAXES .............................................. 9
SECTION VIII. USE OF PREMISES ............................................ 10
A. Permitted Uses ............................................... 10
B. Compliance with Laws ......................................... 10
C. Hazardous Materials SEE ADDENDUM SECTION XXXV.E. ............. 11
D. Landlord's Rules and Regulations ............................. 13
E. Traffic and Energy Management ................................ 14
SECTION IX. SERVICE AND UTILITIES ........................................ 14
A. Standard Building Services and Reimbursement by Tenant
SEE ADDENDUM SECTIONS XXXV.C.(2) AND F. ...................... 14
B. Limitation on Landlord's Obligations ......................... 15
C. Excess Service ............................................... 15
D. Security Services ............................................ 16
SECTION X. MAINTENANCE AND REPAIRS ....................................... 16
A. Landlord's Obligations SEE ADDENDUM SECTION XXXV.G. ......... 16
B. Tenant's Obligations ......................................... 17
C. Landlord's Right to Make Repairs ............................. 17
D. Condition of Premises Upon Surrender ......................... 17
SECTION XI. ENTRY BY LANDLORD ............................................ 18
SECTION XII. ALTERATIONS, ADDITIONS AND TRADE FIXTURES ................... 19
SECTION XIII. MECHANIC'S LIENS ........................................... 20
i
<PAGE>
PAGE
NO.
-----
SECTION XIV. INSURANCE ................................................... 20
A. Tenant ....................................................... 20
B. Landlord ..................................................... 21
C. Waiver of Subrogation ........................................ 22
SECTION XV. INDEMNITY .................................................... 22
A. Tenant ....................................................... 22
B. Limitation on Landlord's Liability; Release of Directors,
Officers and Partners of Landlord ............................ 22
SECTION XVI. ASSIGNMENT AND SUBLETTING BY TENANT ......................... 23
SECTION XVII. TRANSFER OF LANDLORD'S INTEREST ............................ 27
SECTION XVIII. DAMAGE AND DESTRUCTION .................................... 27
A. Minor Insured Damage ......................................... 27
B. Major or Uninsured Damage .................................... 28
C. Abatement of Rent ............................................ 28
D. Waiver ....................................................... 28
SECTION XIX. CONDEMNATION ................................................ 28
A. Total or Partial Taking ...................................... 28
B. Award ........................................................ 29
C. Abatement in Rent ............................................ 29
D. Temporary Taking ............................................. 29
E. Transfer of Landlord's Interest to Condemnor ................. 30
SECTION XX. DEFAULT ...................................................... 30
A. Tenant's Default ............................................. 30
B. Remedies ..................................................... 31
SECTION XXI. LATE PAYMENTS/INTEREST AND LATE CHARGES ..................... 33
A. Interest ..................................................... 33
B. Late Charges ................................................. 34
C. Consecutive Late Payment of Rent ............................. 34
D. No Waiver .................................................... 34
SECTION XXII. LIEN FOR RENT .............................................. 35
SECTION XXIII. HOLDING OVER .............................................. 35
SECTION XXIV. ATTORNEYS' FEES ............................................ 35
SECTION XXV. MORTGAGE PROTECTION/SUBORDINATION ........................... 36
A. Subordination ................................................ 36
B. Attornment ................................................... 36
SECTION XXVI. ESTOPPEL CERTIFICATE/FINANCIAL STATEMENTS .................. 37
A. Estoppel Certificate ......................................... 37
B. Furnishing of Financial Statements ........................... 38
SECTION XXVII. PARKING SEE ADDENDUM SECTION XXXV.H. ..................... 38
SECTION XXVIII. SIGNS; NAME OF BUILDING SEE ADDENDUM SECTION XXXV.I. .... 39
ii
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PAGE
NO.
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SECTION XXIX. QUIET ENJOYMENT ............................................ 39
SECTION XXX. BROKER ...................................................... 39
SECTION XXXI. NOTICES .................................................... 40
SECTION XXXII. NOTICE AND CURE TO LANDLORD AND MORTGAGEE ................. 40
SECTION XXXIII. GENERAL .................................................. 40
A. Paragraph Headings ........................................... 40
B. Incorporation of Prior Agreements; Amendments ................ 40
C. Waiver ....................................................... 41
D. Short Form or Memorandum of Lease ............................ 41
E. Time of Essence .............................................. 41
F. Examination of Lease ......................................... 41
G. Severability ................................................. 41
H. Surrender of Lease Not Merger ................................ 41
I. Corporate Authority .......................................... 42
J. Governing Law ................................................ 42
K. Force Majeure ................................................ 42
L. Use of Language .............................................. 42
M. Successors ................................................... 42
N. No Reduction of Rental ....................................... 42
O. No Partnership ............................................... 43
P. Exhibits ..................................................... 43
Q. Indemnities .................................................. 43
R. Nondisclosure of Lease Terms ................................. 43
SECTION XXXIV. EXECUTION ................................................. 44
SECTION XXXV. ADDENDUM ................................................... 45
EXHIBIT A SITE PLAN FOR THE PROJECT
EXHIBIT B FLOOR PLAN OF THE PREMISES
EXHIBIT C CONSTRUCTION WORK LETTER
EXHIBIT D RENT SCHEDULE
EXHIBIT E RULES AND REGULATIONS
EXHIBIT F AMENDMENT OF LEASE COMMENCEMENT DATE
EXHIBIT G JANITORIAL SPECIFICATIONS
EXHIBIT H INTENTIONALLY DELETED
EXHIBIT I FORM OF LETTER OF CREDIT
EXHIBIT J SUBORDINATION, NONDISBURBANCE AND ATTORNMENT
AGREEMENT
iii
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OFFICE LEASE
THIS LEASE is entered into by and between Landlord and Tenant effective as of
this ____ day of September, 1996.
SECTION I. TERMS AND DEFINITIONS
The following terms as used herein shall have the meanings as set forth below:
A. "Landlord" means THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, a New
York corporation, and its successors and assigns.
B. "Tenant" means Earthlink Network, Inc., a Delaware corporation.
C. "Building" means the office building in which the Premises are located,
which Building has approximately 110,419 square feet of Rentable Area and is
located as at 2947 Bradley Street in the City of Pasadena, California.
D. "Project" means the Bradley Street Buildings located at 2923 and 2947
Bradley Street in the City of Pasadena, California, in which Project the
Building is located as shown on the site plan attached hereto as EXHIBIT A.
E. "Premises" means Suite _______ located on the first floor of the Building
and consisting of approximately fifty-five thousand (55,000) square feet of
Rentable Area, as more particularly shown on EXHIBIT B attached hereto and
incorporated herein by this reference. SEE ADDENDUM SECTION XXXV.A.
F. "Term" means the ten (10) year period commencing on the Lease
Commencement Date and expiring on the Expiration Date.
SEE ADDENDUM SECTION XXXV.B.
G. "Lease Commencement Date" means the date on which Landlord tenders
delivery of possession of the Premises to Tenant with "Landlord's Work" (as
defined in Section III.B. below) "Substantially Completed" (also as defined
in Section III.B. below), which is currently expected to be
February 14, 1997; once the Lease Commencement Date is determined in
accordance with this subsection and Section III.C. below, Landlord and
Tenant shall execute an Amendment of Lease Commencement Date in the form of
EXHIBIT F hereto, which shall specify the Lease Commencement Date and
Expiration Date.
H. "Expiration Date" means 11:59 p.m. (Pacific Standard Time) on the day
immediately preceding the tenth (10th) anniversary of the Lease Commencement
Date, as confirmed in an Amendment of Lease Commencement Date executed as
provided above.
I. "Monthly Rental" means the amounts specified in Section IV. below and in
the Rent Schedule attached hereto as EXHIBIT D and incorporated herein,
subject to adjustments as set forth in Section IV.B. below.
J. "Base Operating Expense" means the amount of Common Operating Costs (as
defined in Section V. below) actually incurred and adjusted pursuant to
Section V.A.(4) below for the period from January 1, 1997 to
December 31, 1997, which shall be paid by Landlord and not Tenant.
K. "Rentable Area" is defined in EXHIBIT D attached hereto.
L. "Security Deposit" means Eight Hundred Thousand Dollars ($800,000.00).
SEE ADDENDUM SECTION XXXV.D.
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M. "Permitted Use" means general office and administrative uses including
computers and integrated or associated input and output devices and data
processing center, with kitchen, eating and break facilities for employees.
N. "Broker" means Ramsey-Shilling Co. and Ares Realty Capital, Inc.
O. "Landlord's Address for Notice" means 19712 MacArthur Boulevard,
Suite 200, Irvine, California 92715, Attn: Real Estate Vice President.
P. "Tenant's Address for Notice" means Suite , 2947 Bradley Street,
Pasadena, California.
Q. "Tenant's Proportionate Share" for Tenant's reimbursement for Common
Operating Costs and other expenses to be pro-rated hereunder means 49.81%
which is the quotient obtained by dividing the total number of square feet
of Rentable Area in the Building into the total number of square feet of
Rentable Area within the Premises, which percentage may be adjusted pursuant
to EXHIBIT D hereto.
SECTION II. PROPERTY LEASED SEE ADDENDUM SECTION XXXV.A.
A. PREMISES
Upon and subject to the terms, covenants and conditions hereinafter set
forth, Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the Premises; reserving to Landlord, however, (a) the use of the
exterior walls, roof, return air plenum and the area under the Premises
floor and (b) the rights to make structural (building) modifications and the
right to install, maintain, use, repair and replace pipes, ducts, conduits,
and wires to serve or serving other tenant premises in the Building through
the Premises in locations which will not materially interfere with Tenant's
use (1)thereof.
B. COMMON AREAS
Subject to the terms, covenants and conditions of this Lease, Tenant
shall have the right, for the benefit of Tenant and its employees,
suppliers, shippers, customers and invitees, to the non-exclusive use of all
of the Common Areas as hereinafter defined.
C. MINOR VARIATIONS IN AREA
Subject to the provisions of EXHIBIT D, the Rentable Area of the Premises
contained in Section I. is agreed to be the Rentable Area of the Premises
regardless of minor variations resulting from construction of the Building
and/or tenant improvements.
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(1) and enjoyment
2
<PAGE>
SECTION III. COMMENCEMENT OF TERM AND POSSESSION OF PREMISES
A. LEASE COMMENCEMENT DATE SEE ADDENDUM SECTION XXXV.B.
The Term of the Lease shall commence on the Lease Commencement Date (as
extended only pursuant to Section III.C. below, if applicable), and shall
continue, subject to earlier termination as provided herein, until the
Expiration Date (as extended only pursuant to subsection C. below).
B. COMPLETION OF TENANT IMPROVEMENTS AND POSSESSION OF PREMISES
Upon execution of this Lease by the parties, Landlord shall proceed to
complete the tenant improvements in the Premises described as "Landlord's
Work" in the "Construction Work Letter" attached hereto and incorporated
herein as EXHIBIT C. At the time such work has been substantially completed
in accordance with the Construction Work Letter(2) ("Substantial
Completion"), Landlord shall notify Tenant thereof and Tenant shall take
possession of the Premises on the Lease Commencement Date. In the event
permission is given to Tenant to enter or occupy all or a portion of the
Premises prior to the Lease Commencement Date, such occupancy shall be
subject to all of the terms and conditions of this Lease. Tenant shall
complete all tenant improvements described as "Tenant's Work" in EXHIBIT C
hereto, and shall open the Premises for business, on or before the Lease
Commencement Date. Any professional fees or costs and expenses incurred by
Landlord in reviewing plans and specifications for Tenant's Work shall be
(3)paid to Landlord by Tenant upon demand as additional rent. All tenant
improvements constructed in the Premises, whether by Landlord or by (or on
behalf of) Tenant and whether at Landlord's or Tenant's expense, shall
become part of the Premises and shall be and remain the property of Landlord
unless Landlord specifically agrees otherwise in writing.
C. EXTENSION OF LEASE COMMENCEMENT DATE
If the Premises are not ready for occupancy by Tenant on the original
Lease Commencement Date specified in Section I. due to one or more delays
caused by Landlord or caused by matters beyond the control of Landlord, this
Lease and the obligations of Landlord and Tenant hereunder shall
nevertheless continue in full force and effect. However, in such event
Landlord and Tenant shall agree on an amendment of the original Lease
Commencement Date to reflect such delay or delays and shall, in each
instance, execute and attach hereto an amendment in the form of that
attached as EXHIBIT F hereto stating such amended Lease Commencement Date
and, if applicable, an amended Expiration Date and no rental shall be
payable by Tenant hereunder until the amended Lease Commencement Date. The
delay in commencement of the Term and in the accrual of rent described in
the foregoing sentence shall constitute full settlement of
- ---------------------------
(2) , and any base Building improvements required for Tenant's occupancy of
the Premises are substantially completed
(3) credited against the Tenant Allowance (as defined in EXHIBIT C hereto),
if available, and otherwise shall be
3
<PAGE>
all claims that Tenant might otherwise have by reason of the Premises not
being ready for occupancy on the original Lease Commencement Date specified
in Section I. above.
If the Premises are not ready for occupancy by Tenant on the Lease
Commencement Date due to one or more delays caused by Tenant, or anyone
acting under or for Tenant, Landlord shall have no liability for such delay
and the Lease Commencement Date shall nevertheless begin as of the Lease
Commencement Date stated in Section I. (as extended only because of
Landlord's delay pursuant to this subsection C., if applicable).
(4)
D. ACCEPTANCE AND SUITABILITY
Within fifteen (15) days following the date Tenant takes possession of
the Premises, Tenant may provide Landlord with a "punch list" which sets
forth any itemization of any corrective work to be performed by Landlord
with respect to the Landlord's Work as set forth in the Construction Work
Letter; provided, however, that Tenant's obligation to pay Monthly Rental as
provided below shall not be affected thereby. (5)If Tenant fails to submit
such "punch list" to Landlord within such fifteen (15) day period, Tenant
agrees that by taking possession of the Premises it will conclusively be
deemed to have inspected the Premises and found the Premises in satisfactory
condition. Tenant acknowledges that neither Landlord, nor any agent,
employee or servant of Landlord, has made any representation with respect to
the Premises or the Project, or with respect to the suitability of them for
the conduct of Tenant's business, nor has Landlord agreed to undertake any
modifications, alterations, or improvements of the Premises or Project,
except as specifically provided in this Lease.
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, LANDLORD HEREBY
DISCLAIMS, AND TENANT WAIVES THE BENEFIT OF, ANY AND ALL IMPLIED WARRANTIES,
INCLUDING IMPLIED WARRANTIES OF HABITABILITY, FITNESS OR SUITABILITY FOR
PURPOSE, OR THAT THE BUILDING OR THE IMPROVEMENTS IN THE PREMISES HAVE BEEN
CONSTRUCTED IN A GOOD AND WORKMANLIKE MANNER. TENANT EXPRESSLY ACKNOWLEDGES
THAT LANDLORD DID NOT CONSTRUCT OR APPROVE THE QUALITY OF CONSTRUCTION OF
THE BUILDING.
illegible
---------------------
Tenant's Initials
- ---------------------------
(4) In the event that the Lease Commencement Date fails to occur within sixty
(60) days of the Lease Commencement Date specified in Section I. above
(which sixty (60) day period shall be extended one day for each day of
delay caused by Tenant or force majeure (as defined in Section XXXIII.K.
below)), then Tenant's obligation to pay Monthly Rental shall be delayed
one day for each day after expiration of such sixty (60) day period (as
so extended) and prior to the actual Lease Commencement Date. For
example, if the Lease Commencement Date occurs April 1, 1997 (a delay of
ninety (90) days), solely as a result of Landlord delay, then Tenant's
obligation to pay Monthly Rental shall commence May 1, 1997,
notwithstanding the occurrence of the Lease Commencement Date.
(4) In the event that the Lease Commencement Date fails to occur
within sixty (60) days of the Lease Commencement Date specified in
Section I. above (which sixty (60) day period shall be extended one day
for each day of delay caused by Tenant or force majeure (as defined in
Section XXXIII.K. below)), then Tenant's obligation to pay Monthly Rental
shall be delayed one day for each day after expiration of such sixty (60)
day period (as so extended) and prior to the actual Lease Commencement
Date. For example, if the Lease Commencement Date occurs May 1, 1997 (a
delay of seventy-six (76) days), solely as a result of Landlord delay,
then Tenant's obligation to pay Monthly Rental shall commence May 17,
1997, notwithstanding the occurrence of the Lease Commencement Date.
(5) Upon receipt of such punch-list, Landlord shall promptly commence to
complete the items noted thereon which Landlord agrees are properly included
on the punch-list, and will use reasonable efforts to complete such items
within thirty (30) days of receipt of the punch-list.
4
<PAGE>
SECTION IV. RENT
A. MONTHLY RENTAL
Commencing on the Lease Commencement Date (subject, however, to any
modifications or adjustments specified hereinbelow and/or in the "Rent
Schedule" attached hereto as EXHIBIT D) Tenant shall pay to Landlord
during the Term, rental for the entire Term in the total amount as set
forth in EXHIBIT D payable in monthly installments (the "Monthly Rental")
in the amount set forth in EXHIBIT D, which sum shall be payable by
Tenant on or before the first day of each month, in advance, without
further notice, at the address specified for Landlord in Section I., or
such other place as Landlord shall designate, without any prior demand
therefor and (7) without any abatement, deduction or setoff
whatsoever. Monthly Rental for the first full month of the Term when
rental is due shall be paid upon the execution hereof. If the Lease
Commencement Date should occur on a day other than the first day of a
calendar month, or the Expiration Date should occur on a day other than
the last day of a calendar month, then the rental for such fractional
month shall be prorated on a daily basis upon a thirty (30) day calendar
month.
B. CONSUMER PRICE INDEX INCREASES
The Monthly Rental payable by Tenant under this Section IV. shall be
increased upon the expiration of the twelfth (12th) calendar month of
the Term and upon the expiration of each twelve (12) month period
thereafter according to the increase in the "Consumer Price Index", as
hereinafter defined; provided, however, that the total rate of
increase shall not be less than five percent (5%) per annum compounded
annually from the Lease Commencement Date. As used herein, the term
"Consumer Price Index" shall mean the Consumer Price Index for all
Urban Consumers (all items) as published by the United States
Department of Labor, Bureau of Labor Statistics for the _____________ Area.
The amount of such increase in the Monthly Rental shall be determined by
multiplying the Monthly Rental by a fraction, the denominator of which
shall be the most recent Consumer Price Index figure published prior
to the actual Lease Commencement Date, and the numerator of which
shall be the most recent Consumer Price Index figure published prior
to the date of such adjustment; provided, however, that in no event
shall the Monthly Rental for any month be less than the Monthly Rental
for the immediately preceding month. Should Landlord lack sufficient
data to determine the adjusted Monthly Rental on the date of any such
adjustment, Tenant shall continue to pay the Monthly Rental payable
immediately prior to such adjustment date. As soon as Landlord obtains
the necessary data, it shall determine the Monthly Rental payable from
and after such adjustment date computed on a retroactive basis from
the date of such adjustment and shall notify Tenant of the adjustment
in writing. Should the Monthly Rental for the period following such
adjustment date exceed the amount previously paid by Tenant for such
period, Tenant shall forthwith pay the difference to Landlord. If the
Consumer Price Index is discontinued or revised during the Term, such
other government index or computation with which it is replaced shall
be used in order to obtain substantially the same results as would be
obtained if the Consumer Price Index had not been discontinued or
revised.
- --------------------------
(6) Notwithstanding the foregoing, Landlord will cure any latent defects in
Landlord's Work which are not readily ascertainable upon a thorough
walk-through of the Premises, which defects are identified by Tenant in
a written notice given to Landlord within six (6) months of the Lease
Commencement Date. Moreover, the provisions of this Section III.D. shall
not abrogate Landlord's obligations pursuant to Section X.A. below.
(7) , except as otherwise specifically permitted herein,
5
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C. RENT AND ADDITIONAL RENT
As used in this Lease, the term "rent" shall mean Monthly Rental and
additional rent, and the term "additional rent" shall mean all other
amounts payable by Tenant to Landlord pursuant to this Lease other than
Monthly Rental, including without limitation, Tenant's Proportionate
Share of Common Operating Costs in excess of the Base Operating Expense.
All Monthly Rental and additional rent shall be paid in lawful money of
the United States which shall be legal tender at the time of payment.
Where no other time is stated herein for payment, payment of any amount
payable from Tenant to Landlord hereunder shall be due, and made, within
ten (10) days after Tenant's receipt of Landlord's invoice or statement
therefor.
SECTION V. REIMBURSEMENT OF COMMON EXPENSES
A. DEFINITIONS SEE ADDENDUM SECTION XXXV.C.
(1) "Common Areas" means all areas, space, equipment and special
services provided by Landlord for the common or joint use and
benefit of the tenants, their employees, agents, servants,
suppliers, customers and other invitees, including, by way of
illustration, but not limitation, retaining walls, fences,
landscaped areas, parks, curbs, sidewalks, private roads,
restrooms, stairways, elevators, lobbies, hallways, patios,
service quarters, parking areas, all common areas and other areas
within the exterior of the Building and in the Project or as shown
on the site plan attached to this Lease as EXHIBIT A.
(2) "Taxes" shall mean all real property taxes, personal property
taxes, improvement bonds, and other charges and assessments which
are levied or assessed upon or with respect to the Building and
Project and the land on which the Building and Project are located
and any improvements, fixtures and equipment and all other property
of Landlord, real or personal, located in the Building and Project
and used in connection with the operation of the Building and Project
and the land on which the Building and Project are located,
including any increase in such taxes, whether resulting from a
reassessment of the value of the land, the Building or the
Project, personal property, or for any other reason, imposed by
any governmental authority, and any tax which shall be levied or
assessed in addition to or in lieu of such real or personal
property taxes and any license fees, commercial rental tax, or other
tax upon Landlord's business of leasing the Building and the Project,
but shall not include any federal or state income tax, or any
franchise, capital stock, estate, inheritance, succession, transfer
and excess profit taxes imposed upon Landlord, and shall also include
any tax consultant fee or other costs incurred by Landlord to review
or contest any tax assessed against the Premises, Building or
Project.
(3) "Common Operating Costs" shall mean the aggregate of all costs and
expenses payable by Landlord in connection with the operation and
maintenance of the Premises, Building, Project, and Common Areas,
including, but not limited to, (a) the cost of landscaping,
repaving, resurfacing, repairing, replacing, painting, lighting,
cleaning, removing trash, janitorial services, security services
and other similar items; (b) the total cost of compensation and
benefits or personnel to implement the services referenced herein;
(c) all Taxes; (d) the cost of any insurance obtained by Landlord
in connection with the Building and Project, including, but not
limited to, the insurance required to be obtained by Landlord
pursuant to this Lease; (e) the cost of operating, repairing and
maintaining life, safety, and access systems, including, without
limitation, sprinkler systems; (f) the cost of monitoring
services, if provided by Landlord, including, without limitation,
any monitoring or control devices used by Landlord in regulating
the parking areas; (g) the cost of water, electricity, gas and any
other utilities; (h)
6
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legal, accounting and consulting fees and expenses; (i)
compensation (including employment taxes and fringe benefits)
of all persons who perform duties connected with the operation,
maintenance and repair of the Premises, Project, Building or Common
Areas; (j) energy allocation, energy use surcharges or environmental
charges; (k) expenditures made, and costs, fees, assessments and
other charges paid, by Landlord in connection with traffic or energy
management programs applicable to the Project or in connection with
Landlord's compliance with laws or other governmental requirements;
(l) municipal inspection fees or charges; (m) any other costs or
expenses incurred by Landlord under this Lease which are not
otherwise reimbursed directly by tenants;(8) (n) the amount charged
by any management firm (who may be an affiliate of Landlord)
contracted by Landlord to provide any or all of the foregoing
services; and (o) any fees, costs, expenses or dues payable pursuant
to the terms of any covenants, conditions or restrictions or owners'
association pertaining to the Building and/or the Project. The
computation of Common Operating Costs shall be made in accordance
with generally accepted accounting principles.
(4) In the event during all or any portion of any calendar year (9)
the Building is not at least ninety five percent (95%)(10) rented
and occupied, Landlord (11) may elect to make an appropriate
adjustment to the Common Operating Costs for such year, employing
sound accounting and management principles, to determine the Common
Operating Costs that would have been paid or incurred by Landlord
had the Building been ninety five percent (95%)(12) rented and
occupied and the amount so determined shall be deemed to have been
the Common Operating Costs for such year.
B. REIMBURSEMENT
Within a reasonable time before the commencement of each calendar
year during the Term, Landlord shall deliver to Tenant a
reasonable estimate of the anticipated Common Operating Costs for
the forthcoming calendar year. Tenant shall pay to Landlord, as
additional rental, commencing on (13) the Lease Commencement Date,
and continuing on the first day of each calendar month thereafter,
an amount equal to one-twelfth (1/12th) of the product obtained by
multiplying (1) the remainder of the then estimated Common
Operating Costs less the Base Operating Expense paid by Landlord,
times (2) Tenant's Proportionate Share; provided, however, that
such amount shall not be less than zero dollars ($0). The estimated
monthly charge for Tenant's Proportionate Share may be adjusted
periodically by Landlord during the calendar year on the basis of
Landlord's reasonably anticipated costs. Any expenditure (14)by
Landlord (e.g. resurfacing of parking areas, painting buildings,
refurbishing landscaping or walkways and similar items) during the
year which was not included in determining the estimated Common
Operating Costs, may be billed separately to Tenant according to
Tenant's Proportionate Share.
_________________________________
(8) and
(9) including the year used for calculating the Base Operating Expense
(i.e., 1997)
(10) fully
(11) shall
(12) fully
(13) January 1, 1998
(14) unanticipated
7
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C. REBATE OR ADDITIONAL CHARGES
----------------------------
Within a reasonable time after the end of each calendar year,
Landlord shall furnish to Tenant a statement (each, an "Annual
Statement") showing the total Common Operating Costs and Tenant's
Proportionate Share of the Common Operating Costs less the Base Operating
Expense for the calendar year just ended. Tenant shall have the right, by
written notice to Landlord given within (15)thirty (30) days after
receipt of an Annual Statement, to protest specific items on the most
recent Annual Statement; to be effective, Tenant's notice must state with
specificity the item(s) to which Tenant objects. Tenant's failure to
object to an Annual Statement as, when and in the manner provided in the
preceding sentence shall render such Annual Statement binding on Tenant.
Any objections raised by Tenant in Tenant's notice must be resolved
within sixty (60) days after the same are raised, unless Landlord agrees
otherwise in writing. If the amount of estimated Common Operating Costs
less the Base Operating Expense paid by Tenant for any year during the
Term exceeds the actual Common Operating Costs less the Base Operating
Expense for such year, Landlord shall apply any amounts due to Tenant
hereunder to any outstanding amounts due or amounts next coming due from
Tenant to Landlord. If the estimated Common Operating Costs less the Base
Operating Expense for such year are less than the actual Common Operating
Costs less the Base Operating Expense for such year, then Tenant shall pay
to Landlord, within thirty (30) days of Tenant's receipt of the Annual
Statement, as additional rent, Tenant's Proportionate Share of the
difference between the amount of actual Common Operating Costs in excess
of the Base Operating Expense and the amount of estimated Common
Operating Costs in excess of the Base Operating Expense. In the event the
Term of this Lease expires, or this Lease is otherwise terminated,
Landlord shall compute and prorate the credit or deficiency up to the
date the Lease expired or was terminated and may apply any credit due
Tenant to any outstanding amounts due by Tenant hereunder at that time
and, at the end of the Lease, so long as Tenant is not then in default,
shall(16) refund any excess to Tenant.
D. CONTROL OF COMMON AREAS
Landlord shall have the sole and exclusive control of the Common
Areas, as well as the right to make changes to the Common Areas.
Notwithstanding the preceding sentence, Landlord is not responsible for
any harm or damage to any of Tenant's officers, agents, or employees as a
result of their use of the Common Areas(17). Landlord's rights shall
include, but not be limited to, the right to (a) restrain the use of the
Common Areas by unauthorized persons, (b) utilize from time to time any
portion of the Common Areas for promotional and related matters,
(c) temporarily close any portion of the Common Areas for repairs,
improvements or alterations, (d) change the shape and size of the Common
Areas or change the location of improvements within the Common Areas,
including, without limitation, parking areas, roadways and curb cuts, and
(e) prohibit access to or use of Common Areas that are designated for the
storage of supplies or operation of equipment necessary to operate the
Project or Building(18). Landlord may determine the
- -----------------------------------
(15) ninety (90)
(16) promptly
(17) except, subject to Sections XIV.C. and XV.B. below, if and to the extent
it is determined by a court of competent jurisdiction the same were caused by
Landlord's gross negligence or willful misconduct.
(18) ; provided, however, Landlord shall not exercise its rights pursuant to
(b), (c) or (d) above so as to unreasonably interfere with Tenant's use and
enjoyment of or access to the Premises
8
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nature, size and extent of the Common Areas as well as make changes to the
Common Areas from time to time which, in its (19) opinion, are deemed
desirable.
SECTION VI. SECURITY DEPOSIT See Addendum Section XXXV.D.
Upon execution of this Lease, Tenant shall deposit with Landlord the Security
Deposit defined in Section I. above, which shall be held by Landlord as
security for the performance by Tenant of all terms, covenants and conditions
of this Lease. It is expressly understood and agreed that such deposit is not
an advance rental deposit or a measure of Landlord's damages in case of
Tenant's default. If Tenant defaults with respect to any provision of this
Lease, including, but not limited to, the provisions relating to the payment
of rent or the obligation to repair and maintain the Premises or to perform
any other term, covenant or condition contained herein, Landlord may (but
shall not be required to), without prejudice to any other remedy provided
herein or provided by law and without notice to Tenant, use the Security
Deposit, or any portion of it, to cure the default or to compensate Landlord
for all damages sustained by Landlord resulting from Tenant's default. Tenant
shall immediately on demand pay to Landlord a sum equivalent to the portion
of the Security Deposit so expended or applied by Landlord as provided in
this paragraph so as to maintain the Security Deposit in the sum initially
deposited with Landlord. Although the Security Deposit shall be deemed the
property of Landlord, if Tenant is not in default at the expiration or
termination of this Lease, Landlord shall return the Security Deposit to
Tenant. Landlord shall not be required to keep the Security Deposit separate
from its general funds and Landlord, not Tenant, shall be entitled to all
interest, if any, accruing on any such deposit. Upon any sale or transfer of
its interest in the Building, Landlord shall transfer the Security Deposit to
its successor in interest and thereupon, Landlord shall be released from any
liability or obligation with respect thereto.
SECTION VII. TENANT'S TAXES
To the extent not covered as a Common Operating Cost, Tenant shall be liable
for any tax (now or hereafter imposed by any governmental entity) applicable
to or measured by or on the rents or any other charges payable by Tenant
under this Lease, including (but not limited to) any gross income tax, gross
receipts tax or excise tax with respect to the receipt of such rent or other
charges or the possession, leasing or operation, use or occupancy of the
Premises, but not including any net income, franchise, capital stock, estate
or inheritance taxes. If any such tax is required to be paid to the
governmental taxing entity directly by Landlord, then Landlord shall pay the
amount due and, upon demand, shall be fully reimbursed by Tenant for such
payment.
Tenant shall also be liable for all taxes levied against the leasehold held
by Tenant or against any personal property, leasehold improvements,
additions, alterations and fixtures placed by or for Tenant in, on or about
the Premises, Building and Project or constructed by Landlord (20) for Tenant
in the Premises; and if any such taxes are levied against Landlord or
Landlord's property, or if the assessed value of such property is increased
(whether by special assessment or otherwise) by the inclusion therein of
value placed on such leasehold, personal property, leasehold improvements,
additions, alterations and fixtures, and Landlord pays any such taxes (which
Landlord shall have the right to do regardless of the validity thereof),
Tenant, upon demand, shall fully reimburse Landlord for the taxes so paid by
Landlord or for the proportion of such taxes resulting from such increase in
any assessment.
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(19) reasonable
(20) at Tenant's expense
9
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SECTION VIII. USE OF PREMISES
A. PERMITTED USES
Tenant shall use the Premises and Common Areas solely for the
Permitted Use specified in subsection I.M. above, and for no other
use, and under the name specified in subsection I.B. above. Tenant
shall, at its own cost and expense, obtain any and all licenses and
permits necessary for any such use. Tenant shall not do or permit
anything to be done in or about the Premises, Common Areas, Building
or Project which will in any way(21) obstruct or interfere with the
rights of other tenants or occupants of the Project or injure or annoy them
or use or allow the Premises to be used for any unlawful purpose, nor
shall Tenant cause, maintain or permit any nuisance in, on or about
the Premises and Common Areas or permit any odors to emanate from the
Premises and intrude upon the Common Areas or the premises of other
tenants. Tenant shall not commit or suffer to be committed any waste
in or upon the Premises, Common Areas, Building or Project. Tenant
shall not do or permit anything to be done in or about the Premises,
Common Areas, Building or Project which may render the insurance
thereon void or increase the insurance risk thereon. If an increase
in any fire and extended coverage insurance premiums paid by Landlord
for the Building and Project is caused by Tenant's use and occupancy
of the Premises,(22) then Tenant shall pay as additional rental the
amount of such increase to Landlord.
B. COMPLIANCE WITH LAWS
(23)Tenant shall not use the Premises, Building, Project or Common Areas
in any way (or permit or suffer anything to be done in or about the
same) which will conflict with any law, statute, ordinance or
governmental rule or regulation or any covenant, condition or
restriction (whether or not of public record) affecting the Premises,
Project or Building, now in force or which may hereafter be enacted
or promulgated including, but not limited to, the provisions of any
city or county zoning codes regulating the use thereof. Tenant shall,
at its sole cost and expense, promptly comply with (a) all laws,
statutes, ordinances and governmental rules and regulations, now in
force or which may hereafter be in force, applicable to Tenant (24) or
its use of or business or operations in the Premises, (b) all
requirements, and other covenants, conditions and restrictions, now
in force or which may hereafter be in force, which affect the
Premises, and (c) all requirements, now in force or which may
hereafter be in force, of any board of fire underwriters or other
similar body now or hereafter constituted relating to or affecting
the condition, use or occupancy of the Premises, Building or Project.
The judgment of any court of competent jurisdiction or the admission
by Tenant in any action against Tenant, whether Landlord be a party
thereto or not, that Tenant has violated any law, statute, ordinance,
governmental rule or regulation or any requirement, covenant,
condition or restriction shall be conclusive of the fact as between
Landlord and Tenant. Tenant agrees to fully indemnify Landlord
against any liability, claims or damages arising as a result of a
breach of the provisions of this subsection by Tenant, and against
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(21) , in Landlord's reasonable opinion,
(22) as evidenced by a letter from the insurance company,
(23) If and to the extent that Landlord's Work or the Common Areas
are not in compliance with applicable governmental requirements as in
effect and as applied to the Building as of the Lease Commencement
Date, Landlord shall, if, as and when required by such applicable
governmental authorities, cause Landlord's Work or the Common Areas,
as applicable, to comply therewith.
(24) relating to
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all costs, expenses, fines or other charges arising, therefrom,
including, without limitation, reasonable fees and related costs
incurred by Landlord in connection therewith, which indemnity shall
survive the expiration or earlier termination of this Lease. Without
limiting the generality of the foregoing, it is expressly understood
and agreed that, subject to (25)performance by Landlord of Landlord's
Work described in EXHIBIT C hereto, Tenant is accepting the Premises
"AS IS," in its present state and condition, without any
representations or warranties from Landlord of any kind whatsoever,
either express or implied, with respect to the Premises or the
Building, including without limitation the compliance of the Premises
or the Building with The Americans With Disabilities Act and the
rules and regulations promulgated thereunder, as amended from time to
time (the "ADA").(26) Except as otherwise provided for in EXHIBIT C
hereto, if Tenant's use of the Premises or operations therein cause
Landlord to incur any obligation under the ADA, as reasonably
determined by Landlord, then Tenant shall reimburse Landlord for
Landlord's costs and expenses in connection therewith. If Tenant's
initial use of the Premises is not a "place of public accommodation"
within the meaning of the ADA, then Tenant may not thereafter change
the use of the Premises to cause the Premises to become a "place of
public accommodation." In the event that Tenant desires or is
required hereby to make Alterations (as defined below) to the
Premises in order to satisfy its obligations under the ADA, then all
such Alterations shall be subject to any requirements in the Lease
with respect to Alterations of the Premises, and shall be performed
at Tenant's sole cost and expense. Except for Alterations to the
Premises, Tenant shall have no right whatsoever to make any
alterations or modifications to any portion of the Building or its
appurtenant facilities. Tenant shall be responsible for insuring that
the Premises and Tenant's use thereof and operations therein fully
and completely comply with the ADA.
C. HAZARDOUS MATERIALS SEE ADDENDUM SECTION XXXV.E.
Tenant covenants and agrees that it shall not cause or permit any
Hazardous Material (as defined below) to be brought upon, kept, or
used in or about the Premises, Building or Project by Tenant, its
agents, employees, contractors or invitees. The foregoing covenant
shall not extend to substances typically found or used in general office
applications so long as (i) such substances and any equipment which
generates such substances are maintained only in such quantities as
are reasonably necessary for Tenant's operations in the Premises,
(ii) such substances are used strictly in accordance with the
manufacturers' instructions therefor, (iii) such substances are not
disposed of in or about the Project in a manner which would
constitute a release or discharge thereof, and (iv) all such
substances and any equipment which generates such substances are
removed from the Project by Tenant upon the expiration or earlier
termination of this Lease. Any use, storage, generation, disposal,
release or discharge by Tenant of Hazardous Materials in or about the
Project as is permitted pursuant to this subsection C. shall be
carried out in compliance with all applicable federal, state and
local laws, ordinances, rules and regulations. Moreover, no
hazardous waste resulting from any operations by Tenant shall be
stored or maintained by Tenant in or about the Project for more than
ninety (90) days prior to removal by Tenant. Tenant shall, annually
within thirty (30) days after Tenant's receipt of Landlord's written
request therefor, provide to Landlord a written list identifying any
Hazardous Materials then maintained by Tenant in the Project, the use
of each such Hazardous Material and the approximate quantity of each
such Hazardous Material so maintained by Tenant, together with
written certification by Tenant stating, in substance, that neither
Tenant nor any person for whom Tenant is responsible has released or
discharged any Hazardous Materials in or about the Project.
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(25) footnote 23 above and to
(26) Notwithstanding the foregoing, but subject to the three
immediately succeeding sentences of this subsection B., Landlord
shall be responsible, at Landlord's sole cost and expense, for
compliance of the Common Areas with the ADA.
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In the event that Tenant proposes to conduct any use or to operate any
equipment which will or may utilize or generate a Hazardous Material other
than as specified in the first paragraph of this subsection, Tenant shall
first in writing submit such use or equipment to Landlord for approval. No
approval by Landlord shall relieve Tenant of any obligation of Tenant
pursuant to this subsection, including the removal, clean-up and
indemnification obligations imposed upon Tenant by this subsection. Tenant
shall, within five (5) days after receipt thereof, furnish to Landlord copies
of all notices or other communications received by Tenant with respect to any
actual or alleged release or discharge of any Hazardous Material in or
about the Premises or the Project and shall, whether or not Tenant receives
any such notice or communication, notify Landlord in writing of any discharge
or release of Hazardous Material by Tenant or anyone for whom Tenant is
responsible in or about the Premises or the Project. In the event that Tenant
is required to maintain any Hazardous Materials license or permit in
connection with any use conducted by Tenant or any equipment operated by
Tenant in the Premises, copies of each such license or permit, each renewal
or revocation thereof and any communication relating to suspension, renewal
or revocation thereof shall be furnished to Landlord within five (5) days
after receipt thereof by Tenant. Compliance by Tenant with the two
immediately preceding sentences shall not relieve Tenant of any other
obligation of Tenant pursuant to this subsection.
Upon any violation of the foregoing covenants, Tenant shall be obligated, at
Tenant's sole cost, to clean-up and remove from the Project all Hazardous
Materials introduced into the Project by Tenant or any person or entity for
whom Tenant is responsible. Such clean-up and removal shall include all
testing and investigation required by any governmental authorities having
jurisdiction and preparation and implementation of any remedial action plan
required by any governmental authorities having jurisdiction. All such
clean-up and removal activities of Tenant shall, in each instance, be
conducted to the satisfaction of Landlord and all governmental authorities
having jurisdiction. Landlord's right of entry pursuant to Section XI. shall
include the right to enter and inspect the Premises for violations of
Tenant's covenants herein.
Tenant shall indemnify, defend and hold harmless Landlord, its partners, and
its and their successors, assigns, partners, officers, employees, agents,
lenders and attorneys from and against any and all claims, liabilities,
losses, actions, costs and expenses (including attorneys' fees and costs of
defense) incurred by such indemnified persons, or any of them, as the result
of (A) the introduction into or about the Project by Tenant or anyone for
whom Tenant is responsible of any Hazardous Materials, (B) the usage,
storage, maintenance, generation, disposition or disposal by Tenant or
anyone for whom Tenant is responsible of Hazardous Materials in or about the
Project, (C) the discharge or release in or about the Project by Tenant or
anyone for whom Tenant is responsible of any Hazardous Materials, (D) any
injury to or death of persons or damage to or destruction of property
resulting from the use, introduction, maintenance, storage, generation,
disposal, disposition, release or discharge by Tenant or anyone for whom
Tenant is responsible of Hazardous Materials in or about the Project, and
(E) any failure of Tenant or anyone for whom Tenant is responsible to
observe the foregoing covenants of this subsection.
Upon any violation of the foregoing covenants, Landlord shall be entitled to
exercise all remedies available to a landlord against a defaulting tenant,
including but not limited to those set forth in Section XX. Without limiting
the generality of the foregoing, Tenant expressly agrees that upon any
such violation Landlord may, at its option, (I) (27)immediately terminate
this Lease or (II) (28)continue this Lease in effect until
____________________
(27) which is not cured within the applicable cure period and, at Landlord's
sole option, upon the third or subsequent violation of any one or more
of the foregoing covenants (regardless of whether any prior violations
were cured within any applicable cure period),
(28) upon any such violation,
12
<PAGE>
compliance by Tenant with its clean-up and removal covenant notwithstanding
any earlier expiration date of the term of this Lease. No action by Landlord
hereunder shall impair the obligations of Tenant pursuant to this subsection.
As used in this subsection, "Hazardous Materials" is used in its broadest
sense and shall include any petroleum based products, pesticides, paints and
solvents, polychlorinated biphenyl, lead, cyanide, DDT, acids, ammonium
compounds and other chemical products and any substance or material defined
or designated as hazardous or toxic, or other similar term, by any federal,
state or local environmental statute, regulation, or ordinance affecting the
Premises, Building or Project presently in effect or that may be promulgated
in the future, as such statutes, regulations and ordinances may be amended
from time to time, including but not limited to the statutes listed below:
Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901
ET SEQ.
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, 42 U.S.C. Section 9601 ET SEQ.
Clean Air Act, 42 U.S.C. Sections 7401-7626.
Water Pollution Control Act (Clean Water Act of 1977), 33 U.S.C. Section
1251 ET SEQ.
Insecticide, Fungicide, and Rodenticide Act (Pesticide Act of 1987), 7
U.S.C. Section 135 ET SEQ.
Toxic Substances Control Act, 15 U.S.C. Section 2601 ET SEQ.
Safe Drinking Water Act, 42 U.S.C. Section 300(f) ET SEQ.
National Environmental Policy Act (NEPA) 42 U.S.C. Section 4321
ET SEQ.
Refuse Act of 1899, 33 U.S.C. Section 407 ET SEQ.
California Health and Safety Code Section 25316 ET SEQ.
By its signature to this Lease, Tenant confirms that it has (29)conducted its
own examination of the Premises and the Project with respect to Hazardous
Materials and accepts the same "AS IS" and with no Hazardous Materials
present thereon(30).
Tenant acknowledges that incorporation of any material containing asbestos
into the Premises is absolutely prohibited. Tenant agrees, represents and
warrants that it shall not incorporate or permit or suffer to be
incorporated, knowingly or unknowingly, any material containing asbestos
into the Premises.
D. LANDLORD'S RULES AND REGULATIONS
Tenant shall, and Tenant agrees to cause its agents, servants, employees,
invitees and licensees to, observe and comply fully and faithfully with
the rules and regulations attached hereto as EXHIBIT E or such (31)rules
and regulations which may hereafter be adopted by Landlord (the "Rules")
for the care, protection, cleanliness, and operation of the Premises,
Building and Project, and any modifications or additions to the Rules
____________________
(29) had an opportunity to
(30) except as set forth in Addendum Section XXXV.E.
(31) reasonable
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adopted by Landlord, provided that, Landlord shall give written notice
thereof to Tenant. Landlord shall not be responsible to Tenant for failure
of any other tenant or occupant of the Building or Project to observe or
comply with any of the Rules.
E. TRAFFIC AND ENERGY MANAGEMENT
Landlord and Tenant agree to cooperate and use their best efforts to
participate in governmentally mandated or voluntary traffic management
programs generally applicable to businesses located in the area in which
the Project is situated or to the Project and, initially, shall encourage
and support van and car pooling by employees and shall encourage and
support staggered and flexible working hours for employees to the fullest
extent permitted by the requirements of Tenant's business. Neither this
subsection nor any other provision in this Lease, however, is intended to
or shall create any rights or benefits in any other person, firm, company,
governmental entity or the public.
Landlord and Tenant agree to cooperate and use their best efforts to comply
with any and all guidelines or controls imposed upon either Landlord or
Tenant by federal or state governmental organizations or by any energy
conservation association to which Landlord is a party concerning energy
management.
Any costs, fees, fines or other levies assessed against Landlord as the
result of failure of Tenant to comply with this subsection shall be
reimbursed by Tenant to Landlord as additional rent.
SECTION IX. SERVICE AND UTILITIES
A. STANDARD BUILDING SERVICES AND REIMBURSEMENT BY TENANT SEE ADDENDUM
SECTIONS XXXV.C.(2) AND F.
So long as Tenant is not in default hereunder (including any default of a
type described in clauses (4) - (6) of Section XX.A. below), Landlord agrees
to make available to the Premises, during the Building's normal business
hours of 7:00 a.m. to 6:00 p.m. Monday through Friday and 8:00 a.m. to
12:00 p.m. on Saturday (holidays excepted), which hours are subject to change
from time to time as reasonably determined by Landlord, such heat and air
conditioning (hereinafter "HVAC"), water and electricity, as may be
required in Landlord's (32)judgment for the comfortable use and occupation
of the Premises for general office purposes and at a level which is usual
and customary in similar office buildings in the area where the Project is
located, all of which shall be subject to the Rules of the Building as
well as any governmental requirements or standards relating to, among other
things, energy conservation. Tenant agrees to pay, as a Common Operating
Cost in accordance with Section V. above, Tenant's Proportionate Share in
excess of the Base Operating Expense of the full cost of all utilities
supplied to the Premises, together with any taxes thereon; provided,
however, if(33) any such service or utilities (34)are separately metered to
the Premises, Tenant shall pay the cost thereof in a timely manner directly
to the utility company providing such service. Tenant's obligations in this
Section regarding utilities include, but are not limited to, initial
connection charges, all charges for gas, water and electricity used on the
Premises, and for all electric light lamps or tubes. If any such utility or
service is not separately metered to the Premises, Tenant shall be required
to pay any increased cost, as additional rent, of any such utility and
service, including without limitation water, electricity and HVAC, resulting
from any use of the Premises at any time other
____________________
(32) reasonable
(33) , which are not separately metered to the Premises and, with respect
to
(34) which
14
<PAGE>
than the schedule of normal business hours for providing such utilities
and services as reasonably determined by Landlord or any unusual or
non-customary use beyond that which Landlord has agreed to make available
as described above, or resulting from special electrical, cooling and
ventilating needs created in certain areas by telephone equipment,
computers and other similar equipment or uses. If the Building is designed
for individual tenant operation of the HVAC, Tenant agrees to pay the cost
of operating the HVAC at any time other than the schedule of hours for
providing the same set forth above, which cost may include the operation
of the HVAC for space located outside the Premises when such space is
serviced concurrently with the operation of the HVAC for the benefit of
the Premises.
B. LIMITATION ON LANDLORD'S OBLIGATIONS
Landlord shall not be in breach of its obligations under this Section unless
Landlord fails to make any repairs or perform maintenance which it is
obligated to perform hereunder and such failure persists for an
unreasonable time after written notice of a need for such repairs or
maintenance is given to Landlord by Tenant. Landlord shall be not liable
for and Tenant shall not be entitled to any abatement or reduction of rent by
reason of Landlord's failure to furnish any of the foregoing when such
failure is caused by accidents, breakage, repairs, strikes, brownouts,
blackouts, lockouts or other labor disturbances or labor disputes of any
character, or by any other cause, similar or dissimilar, beyond the
reasonable control of Landlord, nor shall such failure under such
circumstances be construed as a constructive or actual eviction of Tenant.
(35)Landlord shall not be liable under any circumstances for loss or
injury to property or business, however occurring, through or in
connection with or incidental to Landlord's failure to furnish any of said
service or utilities.
C. EXCESS SERVICE
Tenant shall not, without the written consent of Landlord, use any
apparatus or device in the Premises, including, without limitation,
electronic data processing machines, punch card machines or machines
using in excess of one hundred twenty (120) volts or which consumes
more electricity than is usually furnished or supplied for the Permitted
Use of the Premises, as determined by Landlord. Tenant shall not consume
water or electric current in excess of that usually furnished or supplied
for the use of the Premises (as determined by Landlord), without first
procuring the written consent of Landlord, which Landlord may refuse.
The excess cost (including any penalties for excess usage) for such water
and electric current shall be established by an estimate made by a utility
company or independent engineer hired by Landlord at Tenant's expense
and Tenant shall pay such excess costs each month with the Monthly Rental.
All costs and expenses of modifying existing equipment, cables, lines, etc.
or installing additional equipment, cables, lines, etc. to accommodate such
excess usage or use by Tenant of such apparatus or device shall be borne
by Tenant.
____________________
(35) If, as a result of Landlord's negligence or willful misconduct,
utility service to the Premises is interrupted and continues
interrupted for a period of in excess of three (3) consecutive
business days after written notice thereof is given to Landlord by
Tenant (which three (3) business day period shall be extended by
force majeure events described in Section XXXIII.K. below) and which
interruption materially prohibits the use of the Premises for the
Permitted Use, then Monthly Rental and Tenant's obligation to pay
Common Operating Costs shall abate from and after expiration of such
three (3) business day period (as so extended) until service is
restored (regardless of whether it is later interrupted) if and to
the extent that Tenant's ability to conduct business within the
Premises is materially and adversely affected by the interruption.
15
<PAGE>
D. SECURITY SERVICES
Certain security measures (both by electronic equipment and personnel)
may be provided by Landlord in connection with the Building and Common
Areas. However, Tenant hereby acknowledges that such security is intended
to be only for the benefit of the Landlord in protecting its property
from fire, theft, vandalism and similar perils and while certain
incidental benefits may accrue to the Tenant therefrom, such security is
not for the purpose of protecting either the property of Tenant or the
safety of its officers, employees, servants or invitees. By providing
such security, Landlord assumes no obligation to Tenant and shall have no
liability arising therefrom. If, as a result of Tenant's occupancy of the
Premises, Landlord in its sole (36)discretion determines that it is
necessary to provide security or implement additional security measures
or devices in or about the Building or the Common Areas, Tenant shall be
required to pay, as additional rent, the cost or increased cost, as the
case may be, of such security.
SECTION X. MAINTENANCE AND REPAIRS
A. LANDLORD'S OBLIGATIONS SEE ADDENDUM SECTION XXXV.G.
Except for special or non-standard systems and equipment installed for
Tenant's exclusive use, Landlord shall keep in good condition and
repair, at Landlord's initial cost and expense subject to reimbursement
by Tenant of Tenant's Proportionate Share of such cost and expense(37),
heating, ventilating and air conditioning systems which service the
Premises as well as other premises within the Building, the foundations,
exterior walls, structural condition of interior bearing walls and roof
of the Premises, interior walls, interior surfaces of exterior walls,
ceilings, windows, doors, cabinets, draperies, electrical and lighting
facilities within the Premises, window coverings, carpeting and other
floor coverings, plate glass and skylights located within the Premises
and the Building, as well as the parking lots, walkways, driveways,
landscaping, fences, signs, and utility installations of the Project.
Janitorial services to the Premises shall initially be provided as
described in EXHIBIT C(38), which specifications are subject to change
---------
from time to time in the reasonable discretion of Landlord. Landlord
shall not be required to make any repairs that are the obligation of any
other tenant or occupant within the Building or Project or repairs for
damage caused by any negligent or intentional act or omission of Tenant
or any person claiming through or under Tenant or any of Tenant's
employees, suppliers, shippers, customers or invitees, in which event
Tenant shall repair such damage at its sole cost and expense. Tenant
hereby waives and releases its right to make repairs at Landlord's expense
under any law, statute, ordinance, rules and regulations now or hereafter
in effect in any jurisdiction in which the Project is located(39).
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(36) reasonable
(37) as a Common Operating Cost
(38) by Landlord, but at Tenant's sole cost and expense as set forth in
Addendum Section XXXV.C.(2)
(39) Notwithstanding the foregoing, in the event Landlord fails to perform
its obligations pursuant to Section X.A. of the Lease, and such failure
continues without cure or commencement of cure by Landlord for a period
of five (5) business days after Tenant's written notice to Landlord
thereof then Tenant may, after expiration of such five (5) business day
period, provide Landlord with a second notice of such failure, specifying
what Tenant proposes as the nature and cost of the cure thereof. If
Landlord fails to commence to cure such failure within five (5) business
days after receipt of Tenant's second notice, Tenant may perform the cure
identified in Tenant's second notice and Landlord shall reimburse to
Tenant the out-of-pocket costs incurred by Tenant in so
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B. TENANT'S OBLIGATIONS
Tenant shall, at its sole cost and expense, make all repairs and
replacements as and when Landlord deems reasonably necessary to
preserve in good working order and condition any special or
supplementary heating, ventilating and air conditioning systems located
within the Premises and installed for the exclusive use of the Premises,
Tenant's cabling and telephone lines and all other non-standard utility
facilities and systems exclusively serving the Premises, and all of
Tenant's trade fixtures located within the Premises. Tenant shall not
commit or permit any waste in or about the Premises, the Building or the
Project. Tenant shall, at its sole cost and expense, make all repairs to
the Premises, Building and Project which are required, in the reasonable
opinion of Landlord, as a result of any misuse, neglect, negligent or
intentional act or omission committed or permitted by Tenant or by any
subtenant, agent, employee, supplier, shipper, customer, invitee or
servant of Tenant.
C. LANDLORD'S RIGHT TO MAKE REPAIRS
In the event that Tenant fails to maintain the Premises, Building or
Project in good and sanitary order, condition and repair as required by
this Lease, then, following written notification to Tenant (except in the
case of an emergency, in which case no prior notification shall be
required), Landlord shall have the right, but not the obligation, to
enter the Premises and to do such acts and expend such funds at the
expense of Tenant as are required to place the Premises, Building and
Project in good, safe and sanitary order, condition and repair. Any
amount so expended by Landlord shall be paid by Tenant promptly upon
demand as additional rent.
D. CONDITION OF PREMISES UPON SURRENDER
Except as otherwise provided in this Lease, Tenant shall, upon the
expiration or earlier termination of the Term, surrender the Premises to
Landlord in the same condition as on the date Tenant took possession,
reasonable wear and tear(40) excepted. All appurtenances, fixtures,
improvements, additions and other property attached to or installed in
the Premises whether by Landlord or by or on behalf of Tenant, and
whether at Landlord's expense or Tenant's expense, shall be and remain
the property of Landlord unless Landlord specifically(41) agrees otherwise
in writing(42). Any (43)furnishings(44) and
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doing, but in no event in excess of the cost of the cure specified in
Tenant's notice, after receipt of Tenant's invoice therefor accompanied
by documentary evidence reasonably satisfactory to Landlord.
40 , condemnation and casualty
41 states
42 Notwithstanding the foregoing, Landlord and Tenant agree that (a) Tenant
shall remove from the Data Center at the expiration of the Term (i) 50KW
Caterpillar diesel generator/fuel tank, (ii) Liebert power distribution
units, (iii) Liebert uninterruptible power systems with batteries, (iv)
Damac communication racks/equipment and (v) command center in network
operations room, (b) Tenant may, at Tenant's option, remove from the Data
Center at the expiration of the Term (i) Liebert computer room air
conditioners, (ii) security systems such as cameras and monitors, (iii)
alarm equipment such as Liebert site scan and (iv) auto transfer switch,
(c) Tenant must surrender with the Data Center (i) the raised access
floor, (ii) the Data Center walls, ceiling and lighting, (iii) electrical
conduits, wires, et cetera, (iv) mechanical piping and ductwork and (v)
cable trays under the raised floor and above the T-bar ceiling, (d)
Tenant may, with Landlord's prior written consent obtained at the
expiration or earlier termination of the Term, which consent may be
granted or withheld in Landlord's sole discretion, remove from the Data
Center rooftop heat rejectors with pumps and
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personal property(45) of Tenant located in the Premises, whether the
property of Tenant or leased by Tenant (including(46) the fixtures,
improvements and other items agreed, in writing, by Landlord to belong
to the Tenant as provided in the preceding sentence(47) and, unless
Landlord elects to require Tenant to leave the same in the Premises,
which Landlord shall have the right to do, all data, telephone or other
cabling or wiring installed by or on behalf of Tenant in the Premises,
including the plenum area above the ceiling of the Premises), shall be
and remain the property of Tenant and shall be removed by Tenant at
Tenant's sole cost and expense at the expiration of the Term. Tenant
shall promptly repair any damage to the Premises or the Building
resulting from such removal. Any of Tenant's property not removed from
the Premises prior to the expiration of the Term shall, at Landlord's
option, either become the property of Landlord or may be removed by
Landlord and Tenant shall pay to Landlord the cost of such removal
within ten (10) days after delivery of a bill therefor or Landlord, at
its option, may deduct such amount from the Security Deposit. Any damage
to the Premises, including any structural damage, resulting from
Tenant's use or from the removal of Tenant's fixtures, furnishings and
equipment, shall be repaired by Tenant at Tenant's expense.
SECTION XI. ENTRY BY LANDLORD
Landlord reserves and shall at any and all times have the right(48) to enter
the Premises at reasonable times to inspect the same to determine whether
Tenant is complying with its obligations hereunder; to supply janitorial
service and any other service to be provided by Landlord hereunder; and, upon
reasonable notice to Tenant, may exhibit the Premises to prospective
purchasers, mortgagees(49) or(50) prospective tenants(51); to post notices of
nonresponsibility; and to alter, improve or repair the Premises and any
portion of the Building and Project, without abatement of rent, and may for
that purpose erect scaffolding and other necessary structures that are
reasonably required by the character of the work to be performed by Landlord,
provided that the business of Tenant shall not be interfered with
unreasonably. For each of the aforesaid purposes, Landlord shall at all times
have and retain a key with which to unlock all of the doors in, upon and
about the Premises, excluding Tenant's vaults and safes, and Landlord shall
have the right to use any and all means which Landlord may deem proper to
open such doors in the event of an emergency. Any entry to the Premises or
portions thereof obtained by Landlord by any of said means, or otherwise,
shall not under any circumstances be
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accessories and/or electrical distribution panels, and (e) Tenant may
surrender with the balance of the Premises telephone and data wiring
which conforms to code and any Landlord's work.
43 furniture,
44 ,
45 and movable trade fixtures
46 any
47 but excluding, at Landlord's option, any item paid for with the Tenant
Allowance
48 , upon reasonable advance notice to Tenant,
49 , prospective tenants of other premises at the Project
50 , during the last nine (9) months of the Term,
51 of the Premises, in connection with each of which Tenant shall have the
right to appoint a representative of Tenant to accompany Landlord
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construed or deemed to be a forcible or unlawful entry into, or a detainer of,
the Premises, or an eviction, actual or constructive, of Tenant from the
Premises, or any portion thereof.
SECTION XII. ALTERATIONS, ADDITIONS AND TRADE FIXTURES
Tenant shall not make any alterations, additions or improvements to the
Premises, or any part thereof, whether structural or nonstructural
(hereafter "Alterations"), without Landlord's prior written consent(52). In
order to obtain Landlord's preliminary consent, which preliminary consent may
be given or denied(53) in Landlord's sole discretion,(54) Tenant shall submit
such information as Landlord may require, including without limitation plans
and specifications for the Alterations. Any professional fees or other costs
and expenses incurred by Landlord in reviewing such plans and specifications
shall be paid to Landlord by Tenant as additional rent upon demand. After
Landlord gives preliminary consent, in order to obtain Landlord's final
consent, which consent may not be unreasonably withheld, Tenant shall then
submit (i) permits, licenses, bonds, and the construction contract, all in
conformance with the plans and specifications preliminarily approved by
Landlord; (ii) evidence of insurance coverage in such types and amounts and
from such insurers as Landlord deems satisfactory; and (iii) such other
information as Landlord deems reasonably necessary. The construction contract
shall, at a minimum, require the general contractor and all subcontractors to
obey the rules and regulations of the Building and Project. All Alterations
shall be done in a good workmanlike manner by qualified and licensed
contractors or mechanics, as approved by Landlord. In no event shall any
Alterations affect the structure of the Building or its exterior appearance.
All Alterations made by or for Tenant (other than Tenant's moveable trade
fixtures), shall, unless Landlord expressly requires or agrees otherwise in
writing, immediately become the property of Landlord, without compensation to
Tenant, but Landlord has no obligation to repair, maintain or insure those
Alterations. Carpeting, shelving and cabinetry are considered improvements of
the Premises and not movable trade fixtures, regardless of how or where
affixed. No Alterations will be removed by Tenant from the Premises either
during or at the expiration or earlier termination of the Term, and they
shall be surrendered as a part of the Premises unless Landlord has required
that Tenant remove them. At Landlord's discretion, Alterations are subject to
removal by Tenant and at Tenant's sole cost and expense(55). Upon any such
removal, Tenant shall repair any damage caused to the Premises thereby, and
shall return the Premises to the condition they were in prior to installation
of such Alterations so removed. Tenant shall indemnify, defend and keep
Landlord free and harmless from and against all liability, loss, damage,
cost, attorneys' fees and any other expense incurred on account of claims by
any person performing work or furnishing materials or supplies for Tenant or
any person claiming under Tenant. Landlord may require Tenant to provide
Landlord, at Tenant's sole cost and expense, a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such
improvements, to insure Landlord against any liability for mechanic's liens
and to insure completion of the work. Landlord shall have the right at all
times to post on the Premises any notices permitted or required by law, or
that Landlord shall deem proper, for the protection of Landlord, the
Premises, the Building and the Project, and any other party having an
interest therein, from
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52 except that Tenant may make, without Landlord's prior consent but
subject to the remaining provisions of this Section XII., non-structural
Alterations to the Premises which do not affect the Building systems or
the floor plan of the Premises, which do not cost, in the aggregate,
over a twelve (12) month period in excess of $50,000.00 and which are
consistent, in terms of quality and design, with the initial Tenant
Improvements and Tenant's Work in the Premises
53 , in the case of Alterations which affect Building structure and/or
systems or the floor plan of the Premises,
54 and otherwise in Landlord's reasonable discretion,
55 unless, upon Tenant's written request therefor made at the time Tenant
requests Landlord's consent to the Alterations, Landlord has specified
otherwise in writing
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mechanics' and materialmen's liens, and Tenant shall give to Landlord written
notice of the commencement of any construction in or on the Premises at least
thirty (30) business days prior thereto. Prior to the commencement of any
such construction, Landlord shall be furnished certificates of insurance,
naming Landlord as an additional insured, evidencing that each contractor
performing work has insurance acceptable to Landlord, including but not
limited to general liability insurance of not less that Two Million Dollars
($2,000,000.00) and worker's compensation insurance in the statutorily
required amount.
SECTION XIII. MECHANIC'S LIENS
Tenant shall keep the Premises, the Building and the Project free from any
liens arising out of any work performed, material furnished or obligation
incurred by or for Tenant or any person or entity claiming through or under
Tenant. In the event that Tenant shall not, within (56)ten (10) days following
the imposition of any such lien, cause the same to be released of record by
payment or posting of a proper bond, Landlord shall have, in addition to all
other remedies provided herein and by law, the right, but not the obligation,
to cause such lien to be released by such means as Landlord deems proper,
including payment of the claim giving rise to such lien. All such sums paid
and all expenses incurred by Landlord in connection therewith shall be due
and payable to Landlord by Tenant on demand.
SECTION XIV. INSURANCE
A. TENANT
During the Term hereof, Tenant shall keep in full force and effect the
following insurance and shall provide appropriate insurance certificates
to Landlord prior to the Lease Commencement Date and annually thereafter
before the expiration of each policy:
(1) Commercial general liability insurance for the benefit of Tenant
and Landlord as an additional insured, with a limit of not less
than One Million Dollars ($1,000,000.00) combined single limit per
occurrence, against claims for personal injury liability including,
without limitation, bodily injury, death or property damage
liability and covering (i) the business(es) operated by Tenant and
by any subtenant of Tenant on the Premises, (ii) operations of
independent contractors engaged by Tenant for services or
construction on or about the Premises, and (iii) contractual
liability;
(2) Fire, extended coverage, vandalism and malicious mischief
insurance, insuring the personal property, furniture, furnishings
and fixtures belonging to Tenant located on the Premises for not
less than one hundred percent (100%) of the actual replacement
value thereof;
(3) Workers' compensation in the amount required by law;
(4) Business interruption or loss of income insurance in amounts
satisfactory to Landlord, with a rental interruption rider assuring
Landlord that the rent due hereunder will be paid for a period of
not less than twelve (12) months if the Premises are destroyed or
rendered inaccessible by a risk insured against by a policy of all
risk insurance; and
(5) Such other insurance(57) as Landlord deems reasonably necessary(58).
________________________
(56) fifteen (15)
(57) (other than earthquake insurance)
20
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Each insurance policy obtained by Tenant pursuant to this Lease shall
contain a clause that the insurer will provide Landlord with at least
thirty (30) days' prior written notice of any material change, non-renewal
or cancellation of the policy, shall be in a form satisfactory to Landlord
and shall be taken out with an insurance company authorized to do business
in the State in which the Project is located and rated not less than Best's
Financial Class X and Best's Policy Holder Rating "A". In addition, any
insurance policy obtained by Tenant shall be written as a primary policy,
and shall not be contributing with or in excess of any coverage which
Landlord may carry, and shall have loss payable clauses satisfactory to
Landlord and in favor of Landlord naming Landlord, and any other party
reasonably designated by Landlord, as an additional insured. The liability
limits of the above described insurance policies shall in no matter limit
the liability of Tenant under the terms of Section XV. below.
Not more frequently than every two (2) years, if, in the reasonable
opinion of Landlord, the amount of liability insurance specified in this
Section XIV. is not adequate, the above-described limits of coverage
shall be adjusted by Landlord, by written notification to Tenant, in
order to maintain the level of insurance protection at least equal to
the protection afforded on the date the Term commences(59). If Tenant
fails to maintain and secure the insurance coverage required under this
Section XIV., then Landlord shall have, in addition to all other
remedies provided herein and by law, the right, but not the obligation,
to procure and maintain such insurance, the cost of which shall be due
and payable to Landlord by Tenant on demand.
If, on account of the failure of Tenant to comply with the provisions of
this Section, Landlord is deemed a co-insurer by its insurance carrier,
then any loss or damage which Landlord shall sustain by reason thereof
shall be borne by Tenant and shall be immediately paid by Tenant as
additional rent upon receipt of a bill therefor and evidence of such loss.
B. LANDLORD
During the Term hereof, Landlord shall keep in full force and effect the
following insurance:
(1) Fire, extended coverage and vandalism and malicious mischief
insurance insuring the Building and Project of which the Premises
are a part, in an amount not less than eighty percent (80%)(or such
greater percentage as may be required by law) of the full
replacement cost thereof; and
(2) Such other insurance as Landlord deems necessary in its sole and
absolute discretion(60).
All insurance policies shall be issued in the names of Landlord and
Landlord's lender, and any other party reasonably designated by Landlord
as an additional insured, as their interests appear. The insurance
policies shall provide that any proceeds shall be made payable to
Landlord, or to the holders of mortgages or deeds of trust encumbering
________________________
(58) , and which other owners of comparable buildings in the general
geographic area of the Project require tenants to carry
(59) and a level of insurance protection comparable to that required,
considering all pertinent factors, including, without limitation,
the use of the Premises, to be carried by landlords of first class
buildings in the Los Angeles area
(60) , provided that Landlord adjusts the Base Operating Expense
appropriately in the event Landlord carries additional insurance of a
type not included in determining the Base Operating Expense which is not
a replacement for insurance costs included in the Base Operating Expense.
21
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Landlord's interest in the Premises, Building, and Project, or to any
other party reasonably designated by Landlord as an additional insured,
as their interests shall appear. All insurance premiums for Landlord's
insurance shall be included in Common Operating Costs.
(61)
C. WAIVER OF SUBROGATION
Landlord and Tenant each hereby waives any and all rights of recovery
against the other, and against any other tenant or occupant of the
Project and against the officers, employees, agents, representatives,
customers and business visitors of such other party and of each such
other tenant or occupant of the Project, for loss of or damage to such
waiving party or its property or the property of others under its
control, arising from any cause insured against under any policy of
property insurance required to be carried by such waiving party pursuant
to the provisions of this Lease (or any other policy of property
insurance carried by such waiving party in lieu thereof) at the time of
such loss or damage. The foregoing waiver shall be effective whether or
not a waiving party actually obtains and maintains such insurance which
such waiving party is required to obtain and maintain pursuant to this
Lease (or any substitute therefor). Landlord and Tenant shall, upon
obtaining the policies of insurance which they are required to maintain
hereunder, give notice to their respective insurance carrier or carriers
that the foregoing mutual waiver of subrogation is contained in this Lease.
SECTION XV. INDEMNITY
A. TENANT
Tenant agrees to indemnify, defend and hold Landlord and its officers,
directors, partners and employees entirely harmless from and against all
liabilities, losses, demands, actions, expenses or claims, including
reasonable attorneys' fees and court costs(62), for injury to or death of
any person or for damages to any property or for violation of law arising
out of or in any manner connected with (i) the use, occupancy or enjoyment
of the Premises, Building or Project by Tenant or Tenant's agents,
employees, invitees or contractors (the "Tenant's Agents") or any work,
activity or other things allowed or suffered by Tenant or Tenant's Agents
to be done in or about the Premises, Building or Project, (ii) any breach
or default in the performance of any obligation of Tenant under this Lease,
and (iii) any act or failure to act, whether negligent or otherwise
tortious, by Tenant or Tenant's Agents in or about the Premises, Building
or Project.(63)
B. LIMITATION ON LANDLORD'S LIABILITY; RELEASE OF DIRECTORS, OFFICERS AND
PARTNERS OF LANDLORD
Tenant agrees that, in the event Tenant shall have any claim against
Landlord under this Lease arising out of the subject matter of this
Lease, Tenant's sole recourse shall be
________________________
(61) If, on account of the failure of Landlord to comply with the provisions
of this Section, Tenant is deemed a co-insurer by its insurance
carrier, then any loss or damage which Tenant shall sustain by reason
thereof shall be borne by Landlord and shall be immediately paid by
Landlord upon receipt of a bill therefor and evidence of such loss.
(62) (herein "Claims")
(63) Notwithstanding the foregoing, if and to the extent that a court of
competent jurisdiction determines that a Claim was caused by the gross
negligence or willful misconduct of Landlord, then Landlord shall be
required to reimburse to Tenant the reasonable attorneys' fees incurred
by Tenant in defending Landlord in connection with such Claim.
22
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against the Landlord's interest in the Building, for the satisfaction of
any claim, judgment or decree requiring the payment of money by Landlord
as a result of a breach hereof or otherwise in connection with this
Lease, and no other property or assets of Landlord, its successors or
assigns, shall be subject to the levy, execution or other enforcement
procedure for the satisfaction of any such claim, judgment, injunction
or decree. Moreover, Tenant agrees that Landlord shall in no event and
under no circumstances be responsible for any consequential damages
incurred or sustained by Tenant, or its employees, agents, contractors
or invitees as a result of or in any way connected to Tenant's occupancy
of the Premises. Tenant further hereby waives any and all right to
assert any claim against or obtain any damages from, for any reason
whatsoever, the directors, officers and partners of Landlord, including
all injuries, damages or losses to Tenant's property, real and personal,
whether known, unknown, foreseen, unforeseen, patent or latent, which
Tenant may have against Landlord or its directors, officers or partners.
Tenant understands and acknowledges the significance and consequence of
such specific waiver.
Landlord shall not be liable or responsible to Tenant for any loss or
damage to any property or person occasioned by theft, fire, act of God,
public enemy, injunction, riot, strike, insurrection, war, court order,
requisition, or order of governmental body or authority, or for any
damage or inconvenience that may arise through repair or alteration of
any part of the Project, the Building or the Premises, or a failure to
make any such repairs, except as expressly provided in this Lease.
SECTION XVI. ASSIGNMENT AND SUBLETTING BY TENANT
A. Tenant shall not, directly or indirectly, voluntarily or by operation of
law, sell, assign, encumber, pledge or otherwise transfer or hypothecate
all or any part of the Premises or Tenant's leasehold estate hereunder
(collectively "Assignment"), or permit the Premises to be occupied by
anyone other than Tenant or sublet the Premises ("Sublease") or any
portion thereof without Landlord's prior written consent being had and
obtained in each instance, subject to the terms and conditions contained
in the Section(64).
B. If Tenant desires at any time to enter into an Assignment of this Lease
or a Sublease of the Premises or any portion thereof(65), Tenant shall
request, in writing, at least sixty (60) days prior to the effective
date of the Assignment or Sublease, Landlord's consent to the Assignment
or Sublease, and shall provide Landlord with the following information:
(1) The name of the proposed assignee, subtenant or occupant;
(2) The nature of the proposed assignee's, subtenant's or occupant's
business to be carried on in the Premises;
________________________
(64) Notwithstanding the foregoing, Landlord's consent to an Assignment or
Sublease to Tenant's parent or to a wholly-owned subsidiary of Tenant or
its parent (herein, "Affiliate") shall not be required so long as there
is no change in use of the Premises. Moreover, Landlord's prior consent
shall not be required in connection with an Assignment of the Lease in
connection with (1) a sale of all or substantially all of Tenant's
assets to a single purchaser in a single transaction, (2) a merger or
consolidation of Tenant with or into another entity or (3) in connection
with a public offering of Tenant's stock on a nationally recognized
public exchange, so long as, in connection therewith, (a) there shall be
no change in use of the Premises and (b) the net worth and proforma
revenues of the assignee immediately after such transfer are equal to or
greater than that of Tenant immediately prior to such transfer.
(65) for which Landlord's consent is required hereunder
23
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(3) The terms and provisions of the proposed Assignment or Sublease and a
copy of such documents; and
(4) Such financial information concerning the proposed assignee,
subtenant or occupant which Landlord shall have requested following
its receipt of Tenant's request for consent.
(66)
C. At any time within thirty (30) days after Landlord's receipt of the
notice specified above, Landlord may by written notice to Tenant elect
either to (a) consent to the proposed Assignment or Sublease(67), (b) refuse
to consent to the proposed Assignment or Sublease, or (c) terminate this
Lease in full with respect to an Assignment or terminate in part with
respect to a Sublease and enter into a lease directly with the proposed
assignee or sublessee. Landlord and Tenant agree (by way of example and
without limitation) that Landlord shall be entitled to take into account
any fact or factor which Landlord reasonably deems relevant to such
decision, including but not necessarily limited to the following, all of
which are agreed to be reasonable factors for Landlord's consideration:
(1) The financial strength of the proposed assignee or subtenant
(which shall be at least equal to that of Tenant as of the date of
execution of this Lease), including the adequacy of its working
capital to pay all expenses anticipated in connection with any
remodeling of the Premises.
(2) The experience of the proposed assignee or subtenant with respect to
businesses of the type and size which such assignee or subtenant
proposes to conduct in the Premises.
(3) The quality and nature of the business and/or services to be
conducted in or from the Premises by the proposed assignee or
subtenant and in any other locations which it has, as reflected by,
among other things, average sales or revenue.
(4) Violation of exclusive use rights previously granted by Landlord to
other tenants of the Building or Project.
(5) The effect of the type of services and business which the proposed
assignee or subtenant proposes to conduct in the Premises upon the
tenant mix in the Building or in the portion of the Project which
contains the Premises, including duplication of services offered by
surrounding tenants and compatibility of the services and business
which such assignee or subtenant proposes to conduct in or offer from
the Premises with business and services conducted by surrounding
tenants in the Project.
(6) Diminution or potential diminution of percentage rent, if any,
payable pursuant to this Lease as the result of such Assignment or
Sublease.
(7) The quality of the appearance of the Premises resulting from any
remodeling or renovation to be conducted by the proposed assignee or
subtenant, and the compatibility of such quality with that of other
premises in the Building.
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(66) Tenant shall also provide to Landlord the foregoing information at the
time Tenant notifies Landlord of any Assignment or Sublease for which
Landlord's consent is not required hereunder.
(67) or
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(8) Whether the business in the Premises is, and whether the business to
be operated by the proposed assignee or subtenant will be, a "(68)
destination business" (i.e., a business which draws patrons to the
Project or the Building specifically to obtain services from such
business).
(9) Whether there then exists any default by Tenant pursuant to this
Lease or any non-payment or non-performance by Tenant under this
Lease which, with the passage of time and/or the giving of notice,
would constitute a default under this Lease.
(10) Any fact or factor upon which Landlord reasonably concludes that the
business to be conducted by such assignee or subtenant will not be a
financial success in the Premises.
Moreover, Landlord shall be entitled to be reasonably satisfied that each
and every covenant, condition or obligation imposed upon Tenant by this
Lease and each and every right, remedy or benefit afforded Landlord by
this Lease is not impaired or diminished by such Assignment or Sublease.
In no event shall there be any substantial change in the use of the Premises
in connection with any Assignment or Sublease except as expressly approved
in writing by Landlord in advance. Landlord and Tenant acknowledge that
the express standards and provisions set forth in this Lease dealing with
Assignment and Sublease, including those set forth in subsections XVI.D.,
E. and G. have been freely negotiated and are reasonable at the date
hereof taking into account Tenant's proposed use of the Premises and the
nature and quality of the Building and Project. No withholding of consent
by Landlord for any reason deemed sufficient by Landlord shall give rise
to any claim by Tenant or any proposed assignee or subtenant or entitle
Tenant to terminate this Lease or to any abatement of rent. Approval of
any Assignment of Tenant's interest shall, whether or not expressly so
stated, be conditioned upon such assignee assuming in writing all
obligations of Tenant hereunder by a written instrument satisfactory to
Landlord.
D. If Landlord consents to the Sublease or Assignment within said thirty (30)
day period, Tenant may enter into such Assignment or Sublease of the
Premises or portion thereof, but only upon the terms and conditions set
forth in the notice furnished by Tenant to Landlord pursuant to
subsection B. above; provided, however, that in connection with(69) such
Assignment or Sublease(70), as a condition to Landlord's consent, Tenant
shall pay to Landlord one hundred percent (100%) of the excess, if any,
of (i) in the case of an Assignment, the rental and other payment
obligations of the proposed assignee under the terms of the proposed
Assignment over (71)the rental and other payment obligations of Tenant
under the terms of this Lease(72), or (ii) in the case of a Sublease, the
amount proposed to be paid by the sublessee over (73)the proportionate
amount of rental and other
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(68) place of public accommodation."
(69) any
(70) to any person or entity other than an Affiliate
(71) (a)
(72) plus (b) the unamortized costs of improvements incurred and paid for
by Tenant (i.e., not covered by the Tenant Allowance) which are
----
included in Tenant's Work and which are usable and used by the assignee
and brokers' commissions, advertising costs and costs of tenant
improvements required to be paid or performed by Tenant as a condition
to or in connection with such Assignment
(73) (1)
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payment obligations required to be paid by Tenant to Landlord under the
terms of this Lease (74)as applicable to the portion of the Premises so
subleased.
E. No consent by Landlord to any Assignment or Sublease by Tenant shall
relieve Tenant of any obligation to be performed by Tenant under this
Lease, whether arising before or after the Assignment or Sublease. The
consent by Landlord to any Assignment or Sublease shall not relieve
Tenant of the obligation to obtain Landlord's express written consent to
any other Assignment or Sublease. Any Assignment or Sublease that is not
in compliance with this Section shall be void and, at the option of
Landlord, shall constitute a material default by Tenant under this Lease.
The acceptance of rent by Landlord or payment to Landlord of any other
monetary obligation by a proposed assignee or sublessee shall not
constitute the consent by Landlord to such Assignment or Sublease. Tenant
shall promptly provide to Landlord a copy of the fully executed Sublease
or Assignment.
F. Any sale or other transfer, including transfer by consolidation, merger or
reorganization, of twenty-five percent (25%) or more of the voting stock of
Tenant, if Tenant is a corporation, or any sale or other transfer of
twenty-five percent (25%) or more of the partnership interest in Tenant,
if Tenant is a partnership, shall be an Assignment for purposes of this
Section. As used in this subsection, the term "Tenant" shall also mean any
entity that has guaranteed Tenant's obligation under this Lease, and the
prohibition hereof shall be applicable to any sales or transfers of stock
or partnership interests of said guarantor.
G. Each assignee, sublessee or other transferee, other than Landlord, shall
assume, as provided in this subsection all obligations of Tenant under
this Lease and shall be and remain liable jointly and severally with
Tenant for the payment of Monthly Rental and all other monetary
obligations hereunder, and for the performance of all the terms,
covenants, conditions and agreements herein contained on Tenant's part to
be performed for the Term; provided, however, that the assignee,
sublessee, or other transferee shall be liable to Landlord for rent only
in the amount set forth in the Assignment or Sublease. No Assignment shall
be binding on Landlord unless the assignee or Tenant shall deliver to
Landlord a counterpart of the Assignment and an instrument in recordable
form that contains a covenant of assumption by the assignee satisfactory in
substance and form to Landlord, consistent with the requirements of this
subsection but the failure or refusal of the assignee to execute such
instrument of assumption shall not release or discharge the assignee from
its liability as set forth above.
H. If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, 11 U.S.C. Section 101 ET SEQ., (the
"Bankruptcy Code"), any and all monies or other consideration payable or
otherwise to be delivered in connection with such assignment shall be paid
or delivered to Landlord, shall be and remain the exclusive property of
Landlord and shall not constitute property of Tenant or of the estate of
Tenant within the meaning of the Bankruptcy Code. Any and all monies or
other considerations constituting Landlord's property under the preceding
sentence not paid or delivered to Landlord shall be held in trust for the
benefit of Landlord and be promptly paid or delivered to Landlord.
I. Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code, shall be deemed, without further act
or deed, to have assumed all of the obligations arising under this Lease
on and after the date of such assignment. Any
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(74) plus (2) the unamortized costs of improvements incurred and paid for by
Tenant (I.E., not covered by the Tenant Allowance) which are included
in Tenant's Work and which are usable and used by the subtenant and
brokers' commissions, advertising costs and costs of tenant
improvements required to be paid or performed by Tenant as a condition
to or in connection with such Sublease, spread evenly over the term of
the Sublease and deducted from the sublessee's rentals so amortized,
in each case
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such assignee shall upon demand execute and deliver to Landlord an
instrument confirming such assumption.
J. Tenant shall pay Landlord's expenses and (75)attorneys' fees incurred in
processing an Assignment or Sublease, but in no event less than Five
Hundred Dollars ($500.00) for each such proposed transfer to cover the
legal review and processing expenses of Landlord, whether or not Landlord
shall grant its consent to such proposed transfers.
K. All options to extend, renew or expand, if any, contained in this Lease
are personal to Tenant(76). Consent by Landlord to any Assignment or
Subletting shall not include consent to the assignment or transfer of any
such rights with respect to the Premises or any special privileges or
extra services granted to Tenant by this Lease, or any addendum or
amendment hereto or letter of agreement. All such options, rights,
privileges and extra services shall terminate upon such assignment or
subletting unless Landlord specifically grants in writing such options,
rights, privileges and extra services to such assignee or subtenant.
Similarly, any allowance, abatement or monetary concession provided to
Tenant as an inducement to execute this Lease is personal to Tenant and
shall be amortized (on a straight line basis) over the term of this Lease.
Upon any assignment or subletting, the then unamortized portion thereof
shall be paid by Tenant to Landlord in cash on or before the effective
date of such assignment or subletting.
SECTION XVII. TRANSFER OF LANDLORD'S INTEREST
In the event Landlord shall sell or otherwise convey its title to the Building,
then, after the effective date of such sale or conveyance, Landlord shall have
no further liability under this Lease to Tenant except as to matters of
liability which have accrued and are unsatisfied as of the date of sale or
conveyance, and Tenant shall seek performance solely from Landlord's
purchaser or successor in title. In connection with such sale or transfer,
Landlord may assign its interest under this Lease without notice to or
consent by Tenant. In such event, Tenant agrees to be bound to any successor
Landlord.
SECTION XVIII. DAMAGE AND DESTRUCTION
A. MINOR INSURED DAMAGE
In the event the Premises or the Building, or any portion thereof, is
damaged or destroyed by any casualty that is covered by the insurance
maintained by Landlord pursuant to Section XIV. above, then Landlord shall
rebuild, repair and restore the damaged portion thereof, provided that
(1) the amount of insurance proceeds available to Landlord equals or
exceeds the cost of such rebuilding, restoration and repair, (2) such
rebuilding, restoration and repair can be completed within one hundred
eighty (180) days after the work commences in the (77)opinion of a
registered architect or engineer appointed by Landlord, (3) the damage or
destruction has occurred more than twelve (12) months before the
expiration of the Term, and (4) such rebuilding, restoration or repair is
then permitted, under applicable governmental laws, rules and regulations,
to be done in such a manner as to return the damaged portion thereof to
substantially its condition immediately prior to the damage or
destruction, including, without limitation, the same net rentable floor
area. To the extent that insurance proceeds must be paid to a mortgagee
or beneficiary under, or must be applied to reduce any indebtedness
secured
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(75) reasonable
(76) , and may be transferred by Tenant only to an Affiliate to whom Tenant
assigns the Lease
(77) reasonable
27
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by, a mortgage or deed of trust encumbering the Premises, Building or
Project, such proceeds, for the purposes of this subsection, shall be
deemed not available to Landlord unless such mortgagee or beneficiary
permits Landlord to use such proceeds for the rebuilding, restoration and
repair of the damaged portion thereof. Notwithstanding the foregoing,
Landlord shall have no obligation to repair any damage to, or to replace
any of, Tenant's personal property, furnishings, trade fixtures,
equipment or other such property or effects of Tenant.
B. MAJOR OR UNINSURED DAMAGE
In the event the Premises or the Building, or any portion thereof, is
damaged or destroyed by any casualty to the extent that Landlord is not
obligated, under subsection A. above, to rebuild, repair or restore the
damaged portion thereof, then Landlord shall, within sixty (60) days
after such damage or destruction, notify Tenant of its election, at its
option, to either (1) rebuild, restore and repair the damaged portions
thereof, in which case Landlord's notice shall specify the time period
within which Landlord estimates such repairs or restoration can be
completed; or (2) terminate this Lease effective as of the date the
damage or destruction occurred. If Landlord does not give Tenant written
notice within (60) days after the damage or destruction occurs of
its election to rebuild or restore and repair the damaged portions
thereof, Landlord shall be deemed to have elected to terminate this
Lease.(78)
C. ABATEMENT OF RENT
There shall be an abatement of rent by reason of damage to or
destruction of the Premises or the Building, or any portion thereof,
to the extent that Landlord receives insurance proceeds for loss of
rental income attributable to the Premises, commencing on the date that
the damage to or destruction of the Premises or Building has occurred.
D. WAIVER
Tenant shall have no claim against Landlord for any damage suffered by
Tenant by reason of any such damage, destruction, repair or
restoration. Tenant waives the provisions of Civil Code Sections
1932(2) and 1933(4) and any present or future laws or case decisions
to the same effect. Upon completion of such repair or restoration,
Tenant shall promptly refixture the Premises substantially to the
condition they were in prior to the casualty and shall reopen for
business if closed by the casualty.
SECTION XIX. CONDEMNATION
A. TOTAL OR PARTIAL TAKING
If all or substantially all of the Premises is condemned or taken in
any manner for public or quasi-public use, including but not limited
to, a conveyance or assignment in lieu of
.........................
(78)Notwithstanding the foregoing, upon the occurrence of major damage
after Tenant has paid Monthly Rental for at least twenty-four (24)
months of the Term, for which the estimated repair time is
determined to exceed on hundred eighty (180) days, Tenant shall have
the right to terminate the Lease provided Tenant is not then in
default hereunder and the damage or destruction was not caused
by Tenant or anyone for whom Tenant is responsible, and
provided further that Tenant notifies Landlord of its election to
terminate the Lease in writing within ten (10) days after the damage
or destruction occurs. If Tenant is entitled to and properly
exercises the foregoing option strictly in the manner and within the
time set forth herein, and if Landlord's notice given pursuant to the
first sentence of this subsection B. specifies an estimated repair
time in excess of one hundred eighty (180) days, then the Lease shall
terminate effective as of the later of the date of Tenant's election
notice or the date Tenant vacated the Premises.
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the condemnation or taking, this Lease shall automatically terminate as
of the earlier of the date on which actual physical possession is
taken by the condemnor or the date of dispossession of Tenant as a
result of such condemnation or other taking. If less than all or
substantially all of the Premises is so condemned or taken, this Lease
shall automatically terminate only as to the portion of the Premises so
taken as of the earlier of the date on which actual physical possession
is taken by the condemnor or the date of dispossession of Tenant as a
result of such condemnation or taking (79). If such portion of the
Building is condemned or otherwise taken so as to require, in the
opinion of Landlord, a substantial alteration or reconstruction of the
remaining portions thereof, this Lease may be terminated by Landlord,
as or the date on which actual physical possession is taken by the
condemnor of dispossession of Tenant as a result of such condemnation
or taking, by written notice to Tenant within sixty (60) days following
notice to Landlord of the date on which such physical possession is
taken or dispossession will occur.
B. AWARD
Landlord shall be entitled to the entire award in any condemnation
proceeding or other proceeding for taking for public or quasi-public
use, including, without limitation, any award made for the value of the
leasehold estate created by this Lease. No award for any partial or
total taking shall be apportioned, and Tenant hereby assigns to
Landlord any award that may be made in such condemnation or other
taking, together with any and all rights of Tenant now or hereafter
arising in or to the same or any part thereof. Although all damages in
the event of any condemnation are to belong to Landlord whether such
damages are awarded as compensation for diminution in value of the
leasehold or to the fee of the Premises, Tenant shall have the right to
claim and recover from the condemnor, but not from Landlord, such
compensation as may be separately awarded or recoverable by Tenant in
Tenant's own right on account of damages to Tenant's business by reason
of the condemnation and for or on account of any cost or loss to which
Tenant might be put in removing Tenant's merchandise, furniture and
other personal property, fixtures, and equipment or for the
interruption of or damage to Tenant's business.
C. ABATEMENT IN RENT
In the event of a partial condemnation or other taking that does not
result in a termination of this Lease as to the entire Premises
pursuant to this Section the rent and all other charges shall abate in
proportion to the portion of the Premises taken by such condemnation
or other taking. If this Lease is terminated, in whole or in part,
pursuant to any of the provisions of this Section all rentals and other
charges payable by Tenant to Landlord hereunder and attributable to the
Premises taken shall be paid up to the date upon which actual physical
possession shall be taken by the condemnor. Landlord shall be entitled
to retain all of the Security Deposit until such time as this Lease is
terminated as to all of the Premises.
D. TEMPORARY TAKING
If all or any portion of the Premises is condemned or otherwise taken
for public or quasi-public use for a limited period of time(80), this
Lease shall remain in full force and effect and Tenant shall continue
to perform all terms, conditions and covenants of this Lease; provided,
however, the rent and all other charges payable by Tenant to Landlord
.........................
(79); provided, however, if more than ten percent (10%) of the Premises
is taken in condemnation, then unless Landlord makes available
additional replacement space in the Building, Tenant shall have the
right to terminate the Lease, effective as of the date such portion of
the Premises is taken.
(80)(not to exceed six (6) consecutive months, if the taking materially
impairs Tenant's ability to use the Premises)
29
<PAGE>
hereunder shall abate during such limited period in proportion to the
portion of the Premises that is rendered untenantable and unusable as a
result of such condemnation or other taking.(81) Landlord shall be
entitled to receive the entire award made in connection with any such
temporary condemnation or other taking. Tenant shall have the right to
claim and recover from the condemnor, but not from Landlord, such
compensation as may be separately awarded or recoverable by Tenant in
Tenant's own right on account of damages to Tenant's business by reason
of the condemnation and for or on account of any cost or loss to which
Tenant might be put in removing Tenant's merchandise, furniture and
other personal property, fixtures and equipment or for the interruption
of or damage to Tenant's business.
E. TRANSFER OF LANDLORD'S INTEREST TO CONDEMNOR
Landlord may, without any obligation to Tenant, agree to sell and/or
convey to the condemnor the Premises, the Building, the Project or any
portion thereof, sought by the condemnor, free from this Lease and the
rights of Tenant hereunder, without first requiring that any action or
proceeding be instituted or, if instituted, pursued to a judgment.
SECTION XX. DEFAULT
A. TENANT'S DEFAULT
The failure by Tenant to perform any one or more of the following
obligations shall constitute a default hereunder by Tenant:
(1) If Tenant abandons or vacates all or a substantial portion of the
Premises;
(2) If Tenant fails to pay any rent or other charge required
to be paid by Tenant under this Lease and such
failure continues for five (5) (82)days after such
payment is due and payable(83); provided, however,
that the obligation of Tenant to pay a late charge
or interest pursuant to this Lease below shall
commence as of the due date of the rent or such
other monetary obligation and not on the expiration
of such five (5) (84)day grace period;
(3) If Tenant involuntarily transfers Tenant's interest in
this Lease or voluntarily transfers (attempted or actual) its
interest in this Lease, without Landlord's prior written
consent(85);
(4) If Tenant files a voluntary petition for relief or if a
petition against Tenant in a proceeding under the Federal
Bankruptcy Laws or other insolvency laws is filed
.........................
(81)Any "temporary" taking in excess of six (6) consecutive months which
materially impairs Tenant's ability to use the Premises shall be deemed
a taking governed by subsection A. above.
(82)three (3)
(83)written notice from Landlord to Tenant thereof, which notice shall
be in lieu of and not in addition to any notice required to be given by
the California Code of Civil Procedure Section 1161 et seq. or any
successor statute prior or as a condition to the commencement of any
action to terminate the Lease or Tenant's right to possession of the
Premises
(84)three (3)
(85)except where such consent is not required pursuant to Section XVI.A.
above
30
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and not withdrawn or dismissed within (86)forty five (45) days
thereafter, or if under the provisions of any law providing
for reorganization or winding up of corporations, any court
of competent jurisdiction assumes jurisdiction, custody or
control of Tenant or any substantial part of the Premises or
any of Tenant's personal property located at the Premises and
such jurisdiction, custody or control remains in force
unrelinquished, unstayed or unterminated for a period of
(87)forty five (45) days;
(5) If any proceeding or action in which Tenant is a party, a
trustee, receiver, agent or custodian is appointed to take
charge of the Premises or any of Tenant's personal property
located at the Premises (or has the authority to do so) for
the purpose of enforcing a lien against the Premises or
Tenant's personal property;
(6) If Tenant shall make any general assignment for the benefit
of creditors or convene a meeting of its creditors or any
class thereof for the purpose of effecting a moratorium upon
or composition of its debts, or any class thereof;
(7) If Tenant fails to discharge any lien placed upon the
Premises, the Building or the Project by Tenant or any
person claiming under, by or through Tenant within (88)ten
(10) days of the imposition of such lien;
(8) If Tenant fails to promptly and fully perform any other
covenant, condition or agreement contained in this Lease
(other than subparagraphs (1) through (7) above) and such
failure continues for (89)ten (10) days after written notice
thereof from Landlord to Tenant, or if such failure cannot
be completely cured within such (90)ten (10) day period, then
if Tenant fails to commence such cure within such (91)ten
(10) day period and thereafter proceed to completely cure
such failure within (92)thirty (30) days after such
written notice; or
(9) If Tenant is a partnership or consists of more than one (1)
person or entity, if any partner of the partnership or other
person or entity is involved in any of the acts or events
described in subparagraphs (1) through (8) above.
B. REMEDIES
Upon the occurrence of a default by Tenant that is not cured by Tenant
within any applicable grace period specified above, Landlord shall have
the following rights and remedies in addition to all other rights and
remedies available to Landlord at law or in equity, which shall be
cumulative and non-exclusive:
(1) The right to declare this Lease and the term of this Lease
terminated; re-enter the Premises and the improvements located
thereon, with or without process of law; to eject all parties in
possession thereof therefrom; repossess and enjoy the Premises
together with all said improvements; and to recover from Tenant all
of the following:
___________________________
(86) sixty (60)
(87) sixty (60)
(88) fifteen (15)
(89) thirty (30)
(90) thirty (30)
(91) thirty (30)
(92) sixty (60)
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(a) The worth at the time of award of the unpaid rent which had been
earned at the time of termination;
(b) 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 Tenant proves could
have been reasonably avoided;
(c) 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 rental loss that Tenant proves could be reasonably avoided; and
(d) Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including, but not limited to,
any(93) attorneys' fees, broker's commissions or finder's fees (not
only in connection with the reletting of the Premises, but also that
portion of any leasing commission paid by Landlord in connection with
this Lease which is applicable to that portion of the Term which is
unexpired as of the date on which this Lease is terminated); the then
unamortized cost of any tenant improvements constructed for or on
behalf of Tenant by or at the expense of Landlord or of any moving
allowance or other concession made available to Tenant and/or paid by
Landlord pursuant to this Lease; any costs for repairs, clean-up,
refurbishing, removal (including the repair of any damage caused by
such removal) and storage (or disposal) of Tenant's personal property,
equipment, fixtures, and anything else that Tenant is required (under
this Lease) to remove but does not remove; any costs for alterations,
additions and renovations; and any other costs and expenses, including
reasonable attorneys' fees and costs, incurred by Landlord in
regaining possession of and reletting (or attempting to relet) the
Premises.
(2) The right to continue this Lease in effect and to enforce all of
Landlord's rights and remedies under this Lease, including the right to
recover rent and any other additional monetary charges as they become
due, for as long as Landlord does not terminate Tenant's right to
possession. Acts of maintenance or preservation, efforts to relet the
Premises, the appointment of a receiver upon Landlord's initiative to
protect its interest under this Lease or Landlord's withholding of
consent to an Assignment or Subletting pursuant to the terms and
conditions of Section XVI. above shall not constitute a termination of
Tenant's right to possession.
(3) The foregoing provisions of clause (2) shall apply even though Tenant
has breached the Lease and abandoned the Premises, in which case Landlord
shall have the right to re-enter the Premises with or without process of
law to eject therefrom all parties in possession thereof, and, without
terminating this Lease, at any time and from time to time, but without
obligation to do so, to relet the Premises and the improvements located
therein or any part or parts of any thereof for the account of Tenant, or
otherwise, on such conditions as Landlord in its discretion may deem
proper, with the right to make alterations and repairs to the Premises in
connection therewith, and to receive and collect the rents therefor, and
apply the same (i) first to the payment of such costs and expenses as
Landlord may have paid, assumed or incurred: (A) in recovering possession
of the Premises and said improvements, including attorneys' fees, and
costs; (B) expenses for placing the Premises and said improvements in
good order and condition, for decorating and preparing the Premises for
reletting; (C) for making
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(93) reasonable
32
<PAGE>
any alterations, repairs, changes or additions to the Premises that may
be necessary or convenient; and (D) all other costs and expenses,
including leasing and subleasing commissions, and charges paid, assumed
or incurred by Landlord in or upon reletting the Premises and said
improvements, or in fulfillment of the covenants of Tenant under this
Lease; (ii) then to the payment of Monthly Rental, Tenant's Proportionate
Share of Common Operating Costs, and other monetary obligations due and
unpaid hereunder; and (iii) any balance shall be held by Landlord and
applied in payment of future amounts as the same may become due and
payable hereunder. Any such reletting may be for the remainder of the
term of this Lease or for a longer or shorter period. Landlord may
execute any lease or sublease made pursuant to the terms of this clause
(3) either in its own name or in the name of Tenant as its agent, as
Landlord may see fit. The tenant(s) or subtenant(s) thereunder shall be
under no obligation whatsoever with regard to the application by Landlord
of any rent collected by Landlord from such tenant or subtenant to any
and all sums due and owing or which may become due and owing under the
provisions of this Lease, nor shall Tenant have any right or authority
whatever to collect any rent whatever from such tenant(s) or
subtenant(s). If Tenant has been credited with any rent received by such
reletting and such rent shall not be promptly paid to Landlord by the
tenant(s) or subtenant(s), or if such rentals received from reletting
during any month are less than those to be paid during that month by
Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such
deficiency shall be calculated and paid monthly. Tenant shall also pay to
Landlord as soon as ascertained, any costs and expenses incurred by
Landlord in such reletting or in making such alterations and repairs not
covered by the rentals received from such reletting. For all purposes set
forth in this subsection, Landlord is hereby irrevocably appointed as
agent for Tenant. No taking of possession of the Premises by Landlord
shall be construed as Landlord's acceptance of a surrender of the
Premises by Tenant or an election of Landlord's part to terminate this
Lease unless written notice of such intention is given to Tenant.
Notwithstanding any such subletting without termination, Landlord may
at any time thereafter elect to terminate this Lease for such previous
breach. Election by Landlord to proceed pursuant to this clause (3) shall
be made upon written notice to Tenant and shall be deemed an election of
the remedy described in California Civil Code Section 1951.4 (providing
that a lessor of real property may continue a lease in effect after a
lessee's breach or abandonment and recover rent as it becomes due, if the
lessee has the right to sublet or assign, subject only to reasonable
limitations). If Landlord elects to pursue such remedy, unless Landlord
relets the Premises, Tenant shall have the right to sublet the Premises
and to assign its interest in this Lease, subject to all of the standards
and conditions set forth in Section XVI. Landlord may elect to terminate
the prosecution of such remedy at any time by written notice to Tenant,
and the right of Tenant to sublet or assign shall terminate upon receipt
by Tenant of such notice.
(4) The right to have a receiver appointed for Tenant, upon application by
Landlord, to take possession of the Premises and to apply any rental
collected from the Premises and to exercise all other rights and remedies
granted to Landlord pursuant to this subsection.
SECTION XXI. LATE PAYMENTS/INTEREST AND LATE CHARGES
A. INTEREST
Any amount due from Tenant to Landlord which is not paid when due shall
bear interest at the maximum rate permitted by law from the date such payment
is due until paid, except that amounts spent by Landlord on behalf of Tenant
shall bear interest at such rate from the date of disbursement by Landlord
which Tenant agrees is to compensate
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Landlord for Tenant's use of Landlord's money after it is due. Payment of
such interest shall not excuse or cure any default by Tenant pursuant to this
Lease. Such rate shall remain in effect after the occurrence of any breach or
default hereunder by Tenant to and until payment of the entire account due.
B. LATE CHARGES
TENANT HEREBY ACKNOWLEDGES THAT IN ADDITION TO LOST INTEREST, THE LATE
PAYMENT BY TENANT TO LANDLORD OF RENT OR ANY OTHER SUMS DUE HEREUNDER WILL
CAUSE LANDLORD TO INCUR OTHER COSTS NOT CONTEMPLATED IN THIS LEASE. THE EXACT
AMOUNT OF WHICH WILL BE EXTREMELY DIFFICULT AND IMPRACTICABLE TO ASCERTAIN.
SUCH OTHER COSTS INCLUDE, BUT ARE NOT LIMITED TO, PROCESSING, ADMINISTRATIVE
AND ACCOUNTING COSTS, AND LATE CHARGES WHICH MAY BE IMPOSED UPON LANDLORD BY
THE TERMS OF ANY ENCUMBRANCE COVERING THE PREMISES. ACCORDINGLY, IF ANY
INSTALLMENT OF RENT OR ANY ADDITIONAL RENT OR OTHER SUM DUE FROM TENANT
SHALL NOT BE RECEIVED BY LANDLORD WHEN SUCH AMOUNT SHALL BE DUE (WITHOUT
REGARD TO ANY GRACE PERIOD GRANTED IN THIS LEASE), TENANT SHALL PAY TO
LANDLORD AS ADDITIONAL RENT HEREUNDER A LATE CHARGE EQUAL TO TEN(94) PERCENT
(10(95)%) OF SUCH OVERDUE AMOUNT. THE PARTIES HEREBY AGREE THAT (I) SUCH LATE
CHARGE REPRESENTS A FAIR AND REASONABLE ESTIMATE OF THE COSTS LANDLORD WILL
INCUR IN PROCESSING SUCH DELINQUENT PAYMENT BY TENANT, (II) SUCH LATE CHARGE
SHALL BE PAID TO LANDLORD AS LIQUIDATED DAMAGES FOR EACH DELINQUENT PAYMENT,
AND (III) THE PAYMENT OF THE LATE CHARGE IS TO COMPENSATE LANDLORD FOR THE
ADDITIONAL ADMINISTRATIVE EXPENSE INCURRED BY LANDLORD IN HANDLING AND
PROCESSING DELINQUENT PAYMENTS.
[ILLEGIBLE] [ILLEGIBLE]
---------------------- ---------------------
Landlord's Initials Tenant's Initials
C. CONSECUTIVE LATE PAYMENT OF RENT
Following each (96)second consecutive late payment of rent, Landlord shall
have the option (i) to require that beginning with the first payment of rent
next due, rent shall no longer be paid in monthly installments but shall be
payable quarterly three (3) months in advance and/or (ii) to require that
Tenant increase the amount, if any, of the Security Deposit by one hundred
percent (100%), which additional Security Deposit shall be retained by
Landlord, and may be applied by Landlord, in the manner provided for Security
Deposits in this Lease.
D. NO WAIVER
Neither assessment nor acceptance of partial payments, interest or late
charges by Landlord shall constitute a waiver of Tenant's default with
respect to such overdue amount, nor prevent Landlord from exercising any of
its other rights and remedies under this Lease. Nothing contained in this
Section shall be deemed to condone, authorize, sanction or grant to Tenant
an option for the late payment of rent, additional rent or
- --------------------
(94) FIVE
(95) 5
(96) third
34
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other sums due thereunder, and Tenant shall be deemed in default with
regard to any such payments should the same not be made by the date on which
they are due.
SECTION XXII. LIEN FOR RENT
IN CONSIDERATION OF THE MUTUAL BENEFITS ARISING UNDER THIS LEASE, TENANT
HEREBY GRANTS TO LANDLORD A LIEN AND SECURITY INTEREST IN ALL PROPERTY OF
TENANT (INCLUDING, BUT NOT LIMITED TO, ALL FIXTURES, MACHINERY, EQUIPMENT,
FURNISHINGS, AND OTHER ARTICLES OF PERSONAL PROPERTY NOW OR HEREAFTER PLACED
IN OR ON THE PREMISES BY TENANT, TOGETHER WITH THE PROCEEDS FROM THE
DISPOSITION OF THOSE ITEMS TOGETHER WITH ALL ITEMS OF COLLATERAL DESCRIBED IN
EXHIBIT A TO EXHIBIT H HERETO, WHICH EXHIBIT A IS HEREBY INCORPORATED HEREIN BY
REFERENCE) [THE "COLLATERAL"], NOW OR HEREAFTER PLACED IN OR ON THE PREMISES,
AS SECURITY FOR PAYMENT OF ALL RENT AND OTHER SUMS AGREED TO BE PAID BY
TENANT HEREIN. THE PROVISIONS OF THIS SECTION (XXII.) CONSTITUTE A SECURITY
AGREEMENT UNDER THE UNIFORM COMMERCIAL CODE OF THE STATE IN WHICH THE
BUILDING IS LOCATED, AND LANDLORD HAS AND MAY ENFORCE A SECURITY INTEREST IN
THE COLLATERAL. THE COLLATERAL SHALL BE REMOVED WITHOUT THE CONSENT OF
LANDLORD UNTIL ALL ARREARAGES IN RENT AND OTHER SUMS OF MONEY THEN DUE TO
LANDLORD HEREUNDER HAVE BEEN PAID AND DISCHARGED. CONCURRENTLY WITH THE
EXECUTION AND DELIVERY HEREOF, TENANT SHALL EXECUTE, AS DEBTOR, TWO OR MORE
FINANCING STATEMENTS IN THE FORM ATTACHED HERETO AS EXHIBIT H, TO PERFECT
THIS SECURITY INTEREST PURSUANT TO THE UNIFORM COMMERCIAL CODE OF THE STATE
IN WHICH THE BUILDING IS LOCATED. LANDLORD MAY AT ITS ELECTION AT ANY TIME
FILE A COPY OF THIS LEASE AS A FINANCING STATEMENT. LANDLORD, AS SECURED
PARTY, HAS ALL THE RIGHTS AND REMEDIES AFFORDED A SECURED PARTY UNDER THE
UNIFORM COMMERCIAL CODE OF THE STATE IN WHICH THE BUILDING IS LOCATED IN
ADDITION TO AND CUMULATIVE OF THE LANDLORD'S LIENS AND RIGHTS PROVIDED BY
LAW OR BY THE OTHER TERMS AND PROVISIONS OF THIS LEASE.
SECTION XXIII. HOLDING OVER
Any holding over by Tenant in the possession of the Premises, or any
portion thereof, after the expiration or earlier termination of the Term,
with or without the consent of Landlord, shall be construed to be a tenancy
from month to month at (97)two hundred percent (200%) of the Monthly Rental
herein specified for the last month in the Term (prorated on a monthly basis)
unless Landlord shall specify a lesser amount for rent in its sole
discretion, together with an amount estimated by Landlord for the monthly
Common Operating Costs payable under this Lease, and shall otherwise be on
the terms and conditions herein specified as far as applicable. Any holding
over without Landlord's consent shall constitute a default by Tenant and
shall entitle Landlord to pursue all remedies provided in this Lease and
Tenant shall be liable for any and all direct or consequential damages or
losses of Landlord resulting from Tenant's holding over without Landlord's
consent.
SECTION XXIV. ATTORNEYS' FEES
Tenant shall pay to Landlord all amounts for costs and expenses, including,
but not limited to, reasonable attorneys' fees and amounts paid to any
collection agency, incurred by Landlord in
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(97) one hundred fifty percent (150%)
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connection with any breach or default by Tenant under this Lease or incurred
in order to enforce or interpret the terms or provisions of this Lease.
Tenant shall also pay to Landlord all such amounts, including attorneys'
fees, incurred by Landlord in responding to any request by Tenant (a) to
amend or modify this Lease or (b) to prepare any statement or document in
connection with this Lease, including without limitation estoppel certificates
or subordination agreements or the like. Such amounts shall be payable upon
demand. In addition, if any action shall be instituted by either Landlord or
Tenant for the enforcement or interpretation of any of its rights or remedies
in or under this Lease, the prevailing party shall be entitled to recover
from the losing party all costs incurred by the prevailing party in said
action and any appeal therefrom, including reasonable attorneys' fees and
court costs to be fixed by the court therein. In the event Landlord is made a
party to any litigation between Tenant and any third party, then Tenant shall
pay all costs and attorneys' fees incurred by or imposed upon Landlord in
connection with such litigation; provided, however, if Landlord is ultimately
held to be liable, then Landlord shall reimburse Tenant for the cost of any
attorneys' fees paid by Tenant on behalf of Landlord.
SECTION XXV. MORTGAGE PROTECTION/SUBORDINATION
A. SUBORDINATION
The rights of Tenant under this Lease are and shall be, at the option of
Landlord, either subordinate or superior to any mortgage or deed of
trust (including a consolidated mortgagee or deed of trust) constituting
a lien on the Premises, Building or Project, or Landlord's interest
therein or any part thereof, whether such mortgage or deed of trust has
heretofore been, or may hereafter be, placed upon the Premises by
Landlord, and to any ground or master lease if Landlord's title to the
Premises or any part thereof is or shall become a leasehold interest. To
further assure the foregoing subordination or superiority, Tenant shall,
upon Landlord's request, together with the request of any mortgagee under
a mortgage or beneficiary under a deed of trust or ground or master
lessor, execute any instrument (including without limitation an
amendment to this Lease that does not materially and adversely affect
Tenant's rights or duties under this Lease), or instruments intended to
subordinate this Lease, or at the option of Landlord, to make it
superior to any mortgage, deed of trust, or ground or master lease.
Notwithstanding any such subordination, Tenant's right to occupy the
Premises pursuant to this Lease shall remain in effect for the full Term
as long as Tenant is not in default hereunder.
(98)
B. ATTORNMENT
Notwithstanding subsection A. above, Tenant agrees (1) to attorn to any
mortgagee of a mortgage or beneficiary of a deed of trust encumbering
the Premises and to any party acquiring title to the Premises by
judicial foreclosure, trustee's sale, or deed in lieu of foreclosure,
and to any ground or master lessor, as the successor to Landlord
hereunder, (2) to execute any attornment agreement reasonably requested
by a mortgagee, beneficiary, ground or master lessor, or party so
acquiring title to the Premises, and (3) that this Lease, subject to the
rights under any outstanding non-disturbance agreement, at the option of
such mortgagee, beneficiary, or ground or master lessor, or other party,
shall remain in force notwithstanding any such judicial foreclosure,
trustee's sale, deed in lieu of foreclosure, or merger of titles.
Notwithstanding the foregoing, neither a
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(98) Notwithstanding the foregoing, this Lease shall not be subordinate
to any future encumbrance in favor of Landlord's lender for the
Project unless and until Tenant, Landlord and such lender shall
have mutually executed and delivered a Subordination,
Non-Disturbance and Attornment Agreement, substantially in the form
of EXHIBIT I hereto (which Tenant shall, upon request by Landlord,
execute and deliver, and Tenant's failure to do so within ten
(10) days after written demand therefor by Landlord shall
constitute a default by Tenant under this Lease).
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mortgagee of a mortgage or beneficiary of a deed of trust encumbering
the Premises, any party acquiring title to the Premises by judicial
foreclosure, trustee sale, or deed in lieu of foreclosure, or any ground
lessor or master lessor, as the successor to Landlord hereunder, shall
be liable or responsible for any breach of a covenant contained in this
Lease that occurred before such party acquired its interest in the
Premises or for any continuing breach thereof until after the successor
Landlord has received the notice and right to cure as provided herein,
and no such party shall be liable or responsible for any security
deposits held by Landlord hereunder which have not been transferred or
actually received by such party, and such party shall not be bound by
any payment of rent or additional rent for more than two (2) months in
advance.
C. AMENDMENT
If any lending institution with which Landlord has negotiated or may
negotiate for financing for the Building or Project requires any changes
to this Lease, Tenant shall promptly execute and deliver an amendment to
this Lease prepared by Landlord and embodying such changes, so long as
such changes do not materially increase Tenant's obligations (99)
hereunder (100). In the event that Tenant shall fail to execute and
deliver such amendment within twenty (20) days after receipt thereof by
Tenant, such failure shall constitute a default hereunder by Tenant and
shall entitle Landlord to all remedies available to a landlord against a
defaulting tenant pursuant to a written lease, including but not limited
to those remedies set forth in Section XX.
SECTION XXVI. ESTOPPEL CERTIFICATE/FINANCIAL STATEMENTS
A. ESTOPPEL CERTIFICATE
Tenant, at any time and from time to time upon not less than ten (10)
days' prior written notice from Landlord, agrees to execute and deliver
to Landlord a statement in the form provided by Landlord (a) certifying
that this Lease is unmodified and in full force and effect, or, if
modified, stating the nature of such modification and certifying that
this Lease, as so modified, is in full force and effect and the date to
which the rent and other charges are paid in advance, if any; (b)
acknowledging that there are not, to Tenant's knowledge, any uncured
defaults on the part of Landlord hereunder, or specifying such defaults
if they are claimed evidencing the status of this Lease; (c)
acknowledging the amount of the Security Deposit held by Landlord;
and (d) containing such other information regarding this Lease
or Tenant as Landlord reasonably requests. (101) Tenant's failure to
deliver an estoppel certificate within such time shall be conclusive
upon Tenant that (i) this Lease is in full force and effect without
modification except as may be represented by Landlord, (ii) to Tenant's
knowledge there are no uncured defaults in Landlord's performance, (iii)
no rent has been paid in advance except as set forth in this Lease, and
(iv) such other information regarding this Lease and Tenant set forth
therein by Landlord is true and complete.
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(99) or materially decrease Tenant's rights
(100) In no event shall Tenant be required to execute an amendment
pursuant to this subsection C. which reduces the Rentable Area of
the Premises, increases the Monthly Rental rate(s), changes the
base year for the purposes of calculating Tenant's Proportionate
Share of Common Operating Costs, deprives Tenant of its options
pursuant to Addendum Section XXXV.A., restricts Tenant's ability
to access or use the Premises for the Permitted Use, reduces the
parking spaces available to Tenant or requires Tenant to use
Landlord's provider of janitorial services.
(101) Upon Tenant's written request therefor, Landlord agrees to
deliver to Tenant, not more than twice per calendar year, an
estoppel certificate containing information of the type described
in clauses (a) through (d) of the previous sentence.
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B. FURNISHING OF FINANCIAL STATEMENTS
Landlord has reviewed the financial statements, if any, requested of the
Tenant and has relied upon the truth and accuracy thereof with Tenant's
knowledge and representations of the truth and accuracy of such
statements and that said statements accurately and fairly depict the
financial condition of Tenant. Said financial statements are an inducing
factor and consideration for the entering into of this Lease by Landlord
with this particular Tenant. Tenant shall, at any time and from time to
time (102) upon not less than ten (10) days' prior written notice from
Landlord, furnish Landlord with (a) Tenant's most recent audited
financial statements, including a balance sheet and income statement, or
a document in which Tenant states that its books are not independently
audited (103) and (b) unaudited financial statements, including a
balance sheet and income statement, dated within ninety (90) days of the
request from Landlord. (104)
SECTION XXVII. PARKING SEE ADDENDUM SECTION XXXV.H.
Landlord agrees to maintain or cause to be maintained an automobile parking
area and to maintain and operate, or cause to be maintained and operated,
said automobile parking area during the Term of this Lease for the benefit
and use of the customers, service suppliers, other invitees and employees of
Tenant. Whenever the words "automobile parking area" or "parking area" are
used in this Lease, it is intended that the same shall include, whether in a
surface parking area or a parking structure, the automobile parking stalls,
driveways, loading docks, truck areas, service drives, entrances and exits
and sidewalks, landscaped areas, pedestrian passageways in conjunction
therewith and other areas designed for parking. Landlord shall keep said
automobile parking area in a neat, clean and orderly condition, lighted and
landscaped, and shall repair any damage to the facilities thereof, the cost
of which shall be included in Common Operating Costs. Nothing contained
herein shall be deemed to impose liability upon Landlord for personal injury
or theft, for damage to any motor vehicle, or for loss of property from
within any motor vehicle, which is suffered by Tenant or any of its
employees, customers, service suppliers or other invitees in
connection with their use of said automobile parking area. Landlord shall
also have the right to establish such reasonable rules and regulations as may
be deemed desirable, at Landlord's sole discretion, for the proper and
efficient operation and maintenance of said automobile parking area. Such
rules and regulations may include, without limitation, (i) restrictions in
the hours during which the automobile parking area shall be open for use and
(ii) (105) the establishment of charges for parking therein (on either a
reserved or unreserved basis, at Landlord's sole discretion) by tenants of
the Building and Project as well as by their employees, customers and service
suppliers.
Landlord shall at all times during the Term hereof have the sole and
exclusive control of the automobile parking area, and may at any time during
the Term hereof exclude and restrain any person from use or occupancy
thereof; excepting, however, Tenant and employees, customers, service
suppliers and other invitees of Tenant and of other tenants in the Building
and Project who make use of said area in accordance with any rules and
regulations established by Landlord from time to time with respect thereto.
The rights of Tenant and its employees, customers, service suppliers and
invitees referred to in this Section XXVII. shall at all times be subject to
(i) the rights of Landlord and other tenants in the Building and Project to
use the same in common with Tenant and its employees, customers, service
suppliers and invitees, (ii) the availability of parking spaces in said
automobile parking area, and (iii) Landlord's right to
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(102) (but no more frequently than quarterly)
(103) or, if Tenant's stock is publicly traded, Tenant's most recent
10K report.
(104) Landlord will keep such statements confidential and not disclose
such statements, except to any person or entity to whom Landlord
is permitted to disclose the terms of this Lease pursuant to
Section XXXII.R.
(105) subject to Addendum Section XXXV.H.
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change the location of any assigned reserved parking spaces in such instances
as shall be determined at Landlord's sole discretion. (106) Notwithstanding
Landlord's exclusive control and obligations to provide a parking area,
Landlord is not responsible or liable for any damage to any automobiles or
persons in the parking area.
SECTION XXVIII. SIGNS; NAME OF BUILDING SEE ADDENDUM SECTION XXXV.I.
Tenant shall not have the right to place, construct, or maintain on or about
the Premises, Building or Project, or in any interior portions of the
Premises that may be visible from the exterior of the Building or Common
Areas, any signs, names, insignia, trademark, advertising placard,
descriptive material or any other similar item ("Sign") without Landlord's
prior written consent, which consent may be withheld in Landlord's sole
discretion; provided, however, any Signs are further subject to approval of
any applicable governmental authority and/or compliance with applicable
governmental requirements. In the event Landlord consents to Tenant placing a
Sign on or about the Premises, Building or Project, any such Sign shall be
subject to Landlord's approval of the color, size, style and location of such
Sign, and shall conform to any current or future Sign criteria established by
Landlord for the Building or Project. If Landlord enacts a Sign criteria or
revises an existing Sign criteria, after Tenant has erected a Sign to which
Landlord has granted its consent, if Landlord so elects, Tenant agrees,
at Landlord's expense, subject to Landlord's prior approval of the cost
thereof, to make the necessary changes to its Sign in order to conform the
Sign to Landlord's Sign criteria, as enacted or revised, provided that such
changes shall be limited to the color, size, style and location of Tenant's
Sign and that Tenant shall not be required to change the content of its Sign.
In the event Landlord consents to Tenant's placement of a Sign on the
Building, Tenant shall, at its sole cost, remove such Sign from the Building
at the end of the Term, restore the Building to the same condition as before
the installation of the Sign, ordinary wear and tear excepted and remove any
discoloration of the Building caused by the presence of such sign.
Landlord reserves the right at any time it deems necessary or appropriate to
(a) place Signs at any location on the Building and Project as it deems
necessary and (b) change the name, address or designation of the Building and
Project (107).
SECTION XXIX. QUIET ENJOYMENT
Upon payment of Tenant of the rents herein provided, and upon the observance
and performance of all the covenants, terms and conditions on Tenant's part
to be observed and performed, Tenant shall peaceably and quietly hold and
enjoy the Premises for the Term without hindrance or interruption by
Landlord or any other person or persons lawfully or equitably claiming by,
through or under Landlord, subject, nevertheless, to the terms and conditions
of this Lease, and any mortgage and/or deed of trust to which this Lease is
subordinate.
SECTION XXX. BROKER
Tenant warrants and represents that it has not dealt with any real estate
broker or agent in connection with this Lease or its negotiation except the
Broker identified in Section I.N. Tenant shall indemnify and hold Landlord
harmless from any cost, expense or liability (including costs of suit and
reasonable attorneys' fees) for any compensation, commission or fees claimed
by any
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(106) In no event shall Landlord reduce the parking available for the
Building to less than the parking ratio required to be maintained
by applicable governmental authorities, and if Landlord changes
the parking area for the Building, Landlord shall continue to be
made available to Tenant parking in an area adjacent to the
Building.
(107) ; provided, however, in no event shall Landlord change the name
of the Building (as opposed to installing signs on the Building or
at the Project) to the name of a competitor of Tenant or to any
name other than that befitting an institutional office building.
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other real estate broker or agent in connection with this Lease or its
negotiation by reason of any act of Tenant.
SECTION XXXI. NOTICES
Any notice, demand, approval, consent, bill, statement or other communication
("Notice") required or desired to be given under this Lease shall be in
writing, shall be directed to Tenant at Tenant's Address for Notice or to
Landlord at Landlord's Address for Notice and shall be personally served or
given by pre-paid certified U.S. Mail or "overnight" delivery service. In the
case of personal delivery, any Notice shall be deemed to have been given when
delivered; in the case of service by certified mail, any Notice shall be
deemed delivered of the date of receipt, refusal or non-delivery indicated on
the return receipt; and in the case of overnight delivery service, any Notice
shall be deemed given when delivered as evidenced by a receipt. If more than
one Tenant is named under this Lease, service of any Notice upon any one of
said Tenants shall be deemed as service upon all of such Tenants. The parties
hereto and their respective heirs, successors, legal representatives, and
assigns may from time to time change their respective addresses for Notice by
giving at least fifteen (15) days' written notice to the other party,
delivered in compliance with this Section.
SECTION XXXII. NOTICE AND CURE TO LANDLORD AND MORTGAGEE
On any act or omission by Landlord which might give, or which Tenant
claims or intends to claim gives, Tenant the right to damages from
Landlord or the right to terminate this Lease by reason of a
constructive or actual eviction from all or part of the Premises, or
otherwise, Tenant shall not sue for damages or attempt to terminate this
Lease until it has given written notice of the act or omission to
Landlord and to the holder(s) of the indebtedness or other obligations
secured by any mortgage or deed of trust affecting the Premises as
identified by Landlord, and a reasonable period of time for remedying
the act or omission has elapsed following the giving of the notice,
during which time Landlord and the lienholder(s), or either of them,
their agents or employees, may enter upon the Premises and do therein
whatever is necessary to remedy the act or omission. (108) During the
period after the giving of notice and during the remedying of the act or
omission, the Monthly Rental payable by Tenant shall not be abated and
apportioned except to the extent that the Premises are untenantable.
SECTION XXXIII. GENERAL
A. PARAGRAPH HEADINGS
The paragraph headings used in this Lease are for the purposes of
convenience only. They shall not be construed to limit or to extend the
meaning of any part of this Lease.
B. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS
The Lease contains all agreements of Landlord and Tenant with respect to
any matter mentioned, or dealt with, herein. No prior agreement or
understanding pertaining to any such matter shall be binding upon
Landlord. Any amendments to or modifications of this Lease shall be in
writing, signed by the parties hereto, and neither Landlord nor Tenant
shall be liable for any oral or implied agreements.
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(108) As used in the previous sentence, the phrase "reasonable period
of time" means, as to Landlord thirty (30) days and, as to
Landlord's lender, sixty (60) days, in each case within which to
effect a cure or commence a cure and thereafter diligently
prosecute the same to completion.
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LANDLORD HAS NOT MADE, AND TENANT MAY NOT RELY ON, ANY REPRESENTATIONS
OR WARRANTIES, EXPRESSED OR IMPLIED, WITH REGARD TO THE PROJECT, THE
BUILDING, THE PREMISES OR OTHERWISE OR THE SUITABILITY THEREOF FOR
TENANT'S BUSINESS, EXCEPT AS EXPRESSLY STATED IN THIS LEASE. IN
PARTICULAR, LANDLORD HAS NOT AUTHORIZED ANY AGENT OR BROKER TO MAKE A
REPRESENTATION OR WARRANTY INCONSISTENT WITH THE TERMS OF THIS LEASE AND
TENANT MAY NOT REPLY ON ANY SUCH INCONSISTENT REPRESENTATION OR WARRANTY.
C. WAIVER
Any waiver by Landlord of any breach of any term, covenant, or condition
contained in this Lease shall not be deemed to be a waiver of such term,
covenant, or condition or of any subsequent breach of the same or of any
other term, covenant, or condition contained in this Lease. Landlord's
consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Landlord's consent to, or approval of, any
subsequent act by Tenant. The acceptance of rent or other sums payable
hereunder by Landlord shall not be a waiver of any preceding breach by
Tenant of any provision hereof, other than failure of Tenant to pay the
particular rent or other sum so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of acceptance of such
rent, or sum equivalent to rent.
D. SHORT FORM OR MEMORANDUM OF LEASE
Tenant agrees, at the request of Landlord, to execute, deliver, and
acknowledge a short form or memorandum of this Lease satisfactory to
counsel for Landlord, and Landlord may, in its sole discretion, record
such short form or memorandum in the county where the Premises are
located. Tenant shall not record this Lease, or a short form or
memorandum of this Lease, without Landlord's prior written consent.
E. TIME OF ESSENCE
Time is of the essence in the performance of each provision of this
Lease.
F. EXAMINATION OF LEASE
Submission of this instrument for examination or signature by Tenant
does not constitute a reservation of or option for lease, and it is not
effective as a lease or otherwise until execution by and delivery to
both Landlord and Tenant.
G. SEVERABILITY
If any term or provision of this Lease or the application thereof to any
person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such
term or provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
H. SURRENDER OF LEASE NOT MERGER
Neither the voluntary or other surrender of the Lease by Tenant nor the
mutual cancellation thereof shall cause a merger of the titles of
Landlord and Tenant, but such surrender or cancellation shall, at the
option of Landlord, either terminate all or any existing subleases or
operate as an assignment to Landlord of any such subleases.
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I. CORPORATE AUTHORITY
If Tenant is a corporation, each individual executing this Lease on
behalf of Tenant represents and warrants (1) that he is duly authorized
to execute and deliver this Lease on behalf of Tenant in accordance
with a duly adopted resolution of the Board of Directors of Tenant in
accordance with the By-laws of Tenant and (2) that this Lease is binding
upon and enforceable by Landlord against Tenant in accordance with its
terms. If Tenant is a corporation, Tenant shall, concurrently with
delivery of an executed Lease to Landlord, deliver to Landlord a
certified copy of a resolution of its Board of Directors authorizing or
ratifying the execution of this Lease.
J. GOVERNING LAW
This Lease and the right and obligations of the parties hereto shall be
interpreted, construed and enforced in accordance with the local laws of
the State in which the Project is located.
K. FORCE MAJEURE
If the performance by (109) Landlord of any provision of this Lease is
delayed or prevented by any act of God, strike, lockout, shortage of
material or labor, restriction by any governmental authority, civil
riot, flood, and any other cause not within the control of (110)
Landlord, then the period for (111) Landlord's performance of the
provision shall be automatically extended for the same time (112)
Landlord is so delayed or hindered. (113)
L. USE OF LANGUAGE
Words of gender used in this Lease include any other gender, and words
in the singular include the plural, unless the context otherwise
requires.
M. SUCCESSORS
The terms, conditions and covenants contained in the Lease inure to the
benefit of and are binding on, the parties hereto and their respective
successors in interest, assigns and legal representatives, except as
otherwise herein expressly provided. All rights, privileges, immunities
and duties of Landlord under this Lease, including without limitation,
notices required or permitted to be delivered by Landlord to Tenant
hereunder, may, at Landlord's option, be exercised or performed by
Landlord's agent or attorney.
N. NO REDUCTION OF RENTAL
Except as otherwise expressly and unequivocally provided in this Lease,
Tenant shall not for any reason withhold or reduce the amounts payable
by Tenant under this Lease, it being understood that the obligations of
Landlord hereunder are independent of Tenant's obligations. If Landlord
is required by governmental authority to reduce energy consumption or
impose a parking or similar charge with respect to the Premises, Building
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(109) a party
(110) the party required to perform
(111) the performing party's
(112) the party required to perform
(113) The foregoing shall not, however, apply to delay payment of
rent.
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or Project, to restrict the hours of operation of, limit access to, or
reduce parking spaces available at the Building, or take other limiting
actions, then Tenant is not entitled to abatement or reduction of rent
or to terminate this Lease.
O. NO PARTNERSHIP
Notwithstanding anything else to the contrary, Landlord is not, and
under no circumstances shall it be considered to be, a partner of
Tenant, or engaged in a joint venture with Tenant.
P. EXHIBITS
All exhibits attached hereto are made a part hereof and are incorporated
herein by a reference. A complete list of said exhibits is set forth in
the Table of Contents.
Q. INDEMNITIES
The obligations of the indemnifying party under each and every
indemnification and hold harmless provision contained in this Lease
shall survive the expiration or earlier termination of this Lease to and
until the last to occur of (a) the last date permitted by law for the
bringing of any claim or action with respect to which indemnification may
be claimed by the indemnified party against the indemnifying party under
such provision or (b) the date on which any claim or action for which
indemnification may be claimed under such provision is fully and finally
resolved and, if applicable, any compromise thereof or judgment or award
thereon is paid in full by the indemnifying party and the indemnified
party is reimbursed by the indemnifying party for any amounts paid by
the indemnified party in compromise thereof or upon a judgment or award
thereon and in defense of such action or claim, including reasonable
attorneys' fees incurred. Payment shall not be a condition precedent to
recovery upon any indemnification provision contained herein.
R. NONDISCLOSURE OF LEASE TERMS
Landlord and Tenant agree that the terms of this Lease are confidential
and constitute proprietary information of the parties hereto. Disclosure
of the terms hereof could adversely affect the ability of Landlord to
negotiate with other tenants of the Project. Each of the parties hereto
agrees that such party, and its respective partners, officers,
directors, employees, agents and attorneys, shall not disclose the terms
and conditions of this Lease to any other person without the prior
written consent of the other party hereto except pursuant to an order of
a court of competent jurisdiction. Provided, however, that Landlord may
disclose the terms hereof to any lender now or hereafter having a lien
on Landlord's interest in the Project, or any portion thereof, and
either party may disclose the terms hereof to its respective independent
accountants who review its respective financial statements or prepare
its respective tax returns, (114) to any prospective transferee of all or
any portions of their respective interests hereunder (including a
prospective sublease or assignee of Tenant), to any lender or
prospective lender to such party, to any governmental entity, agency or
person to whom disclosure is required by applicable law, regulation or
duty of diligent inquiry (115) and in connection with any action brought
to enforce the terms of this Lease, on account of the breach or alleged
breach hereof or to seek a judicial determination of the rights and
obligations of the parties hereunder.
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(114) to its attorneys,
(115) (including in connection with a public offering)
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SECTION XXXIV. EXECUTION
This Lease may be executed in several duplicate counterparts, each of
which shall be deemed an original of this Lease for all purposes.
SECTION XXXV. ADDENDUM
See Addendum attached hereto and incorporated herein by this reference.
IN WITNESS WHEREOF, the parties have executed this Lease,
consisting of the foregoing provisions, any typed addenda appended
hereto and all Exhibits appended hereto, on the dates indicated below,
the later of which shall be deemed the date of execution of this Lease.
"TENANT" "LANDLORD"
EARTHLINK NETWORK, INC. THE MUTUAL LIFE INSURANCE
a Delaware corporation COMPANY OF NEW YORK, a New
York corporation
By: /s/ BARRY HALL By: /s/ STUART J. SIMON
--------------------------------- ---------------------------------
Name: Barry Hall Stuart J. Simon
---------------------------- Senior Vice President
Title: Chief Financial Officer ARES Realty Capital, Inc.
--------------------------- Authorized Signatory
By: /s/ CHARLES G. BERRY Dated: 10/10/96
--------------------------------- ---------------------------------
Name: Charles G. Berry
-----------------------------
Title: Chief Executive Officer
----------------------------
Dated: 20 September 96
-------------------------------
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ADDENDUM TO LEASE BETWEEN THE MUTUAL LIFE INSURANCE COMPANY
OF NEW YORK, AS LANDLORD, AND EARTHLINK NETWORK, INC., AS TENANT,
DATED SEPTEMBER __, 1996
SECTION XXXV. ADDENDUM
A. PREMISES
(1) RIGHT OF FIRST REFUSAL
During the twelve (12) month period commencing on the
Lease Commencement Date, Tenant shall have a one-time right of
first refusal to lease the second floor of the Building (the
"Expansion Space") from Landlord if, after the Lease Commencement
Date and during the initial Term of this Lease, Landlord is or
becomes interested in marketing such space. Landlord shall notify
Tenant in writing upon receipt by Landlord from a third party of
an offer for any portion of the Expansion Space (including all)
that Landlord desires to accept. Tenant shall, within (5)
business days following its receipt of Landlord's notice,
indicate in writing its intention to add to the Premises the
entire portion of the Expansion Space (including all) so offered
by Landlord on the terms and conditions specified herein. Any
failure by Tenant to respond to Landlord's notice within such
five (5) business day period, or any notice by Tenant specifying
Tenant's acceptance of the Expansion Space on terms other than
those set forth herein or of only a portion of the Expansion
Space so offered by Landlord, shall cause Tenant's rights under
this subsection A.(1) to terminate with respect to the Expansion
Space so offered, and Landlord shall thereafter be free to lease
the Expansion Space so offered to another party at any rate and
on any terms Landlord chooses.
If Tenant is entitled to and gives notice to Landlord
within such five (5) business days of its desire to add the
offered Expansion Space to the Premises, the entire Expansion
Space shall be added to the Premises on the following terms and
conditions: the Expansion Space so offered shall be delivered by
Landlord to Tenant as soon as the same is available and shall be
added to the Premises on the same terms and conditions set forth
in this Lease with respect to the Premises (except that the
Security Deposit for the Expansion Space shall be prorated such
that Tenant shall deposit an amount equal to $1.455 per square
foot of Rentable Area within the Expansion Space (per year) of
the balance of the Term with respect to such Expansion Space, the
Tenant Allowance shall be an amount equal to $2.50 per square
foot of Rentable Area within the Expansion Space per year of the
balance of the Term with respect to the Expansion Space and the
Lease Commencement Date with respect to the Expansion Space shall
be a date selected by Landlord as the date for Substantial
Completion of Landlord's Work therein) AND the balance of the
Expansion Space (i.e., the portion of the Expansion Space, if
any, not covered by the third party offer) shall be added to the
Premises and delivered by Landlord to Tenant on the day before
the first anniversary of the date Landlord's notice offering
Tenant the Expansion Space was given (or sooner, if mutually
agreed in writing by Landlord and Tenant), on the terms and
conditions set forth herein with respect to the Expansion Space
identified in Landlord's notice.
Notwithstanding anything to the contrary contained in this
subsection A.(1), Landlord shall be required to offer any portion
of the Expansion Space (including all) to Tenant, and Tenant
shall be entitled to exercise its rights hereunder with respect
thereto, only if, at the time of such offer and exercise,
respectively, Tenant is not in default under any of the terms,
conditions, provisions or
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covenants of this Lease, and there has not then occurred an event
which, with notice and/or lapse of time, would constitute such a
default.
(2) OPTION TO EXPAND
During the twelve (12) month period commencing on the Lease
Commencement Date, and so long as no event has previously
occurred giving rise to Landlord's obligations to give notice to
Tenant pursuant to clause (1) of this subsection A. above, Tenant
shall have the option to lease the entire Expansion Space by
giving to Landlord written notice of its election to do so.
Provided that Tenant is entitled to and gives notice to Landlord
as provided in the foregoing sentence, the entire Expansion Space
shall be added to the Premises as soon as the same is available
on the terms and conditions set forth herein with respect to the
Premises (except that the Security Deposit for the Expansion
Space shall be prorated such that Tenant shall deposit an amount
equal to $1.455 per square foot of Rentable Area within the
Expansion Space per year of the balance of the Term with respect
to such Expansion Space, the Tenant Allowance shall be an amount
equal to $2.50 per square foot of Rentable Area within the
Expansion Space per year of the balance of the Term with respect
to the Expansion Space and the Lease Commencement Date with
respect to the Expansion Space shall be a date selected by
Landlord as the date for Substantial Completion of Landlord's
Work therein). Notwithstanding anything to the contrary contained
in this subsection A.(2), Tenant shall be entitled to exercise
its rights hereunder with respect to the Expansion Space only if,
at the time of such offer and exercise, respectively, Tenant is
not in default under any of the terms, conditions, provisions or
covenants of this Lease, and there has not then occurred an event
which, with notice and/or lapse of time, would constitute such a
default.
B. OPTIONS TO EXTEND TERM
Provided that Tenant is not in default hereunder either at
the date Tenant's notice of exercise is given or on the date an
Additional Term (as defined below) would otherwise commence,
Tenant shall have the option to extend the Term with respect to
the entire Premises then leased to Tenant by two (2) additional
periods of five (5) years each (each, an "Additional Term").
Tenant's option for the first Additional Term (the "First
Additional Term") shall be exercised, if at all, by written
notice to Landlord given at least six (6) and no more than nine
(9) months prior to the Expiration Date determined pursuant to
Section I. of this Lease. Tenant's option for the second
Additional Term, if any (the "Second Additional Term"), shall be
exercisable by Tenant only if Tenant has previously exercised the
option for the First Additional Term and shall be exercised, if
at all, by written notice to Landlord given at least six (6) and
no more than nine (9) months prior to the expiration date of the
First Additional Term. If Tenant is entitled to and gives notice
in the manner and within the time set forth in this subsection
B., then the Term shall be extended by the applicable Additional
Term, on all of the conditions set forth in this Lease for the
Premises for original Term, except that parking rates shall be at
then-current fair market value:
(1) Monthly Rental for each Additional Term shall be determined as
follows:
(a) Monthly Rental for each Additional Term
shall be 95% of fair market rental rate or rates for
comparable buildings (considering size, age, quality,
utility, location, access, improvements and amenities)
located within the general geographic location of the
Project, as reasonably determined by Landlord. Landlord
shall, upon receipt of Tenant's notice provided for above
and at least three (3) months prior to the then-current
Expiration Date, notify Tenant in writing of its
determination of the fair market rental rate or rates for
parking and for the purpose of determining Monthly Rental
for the ensuing Additional Term.
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(b) Within ten (10) days after such notice is given, Tenant may
elect in written notice to Landlord either to (i)
unequivocally accept such Monthly Rental for the ensuing
Additional Term as determined by Landlord or (ii) submit the
matter of the fair market value for the purpose of determining
Monthly rental (only) to appraisal in accordance with (c)
below. Tenant's failure to make a written election strictly
in accordance with the preceding sentence shall be deemed to
be an acceptance of the Monthly Rental as determined by
Landlord, EXCEPT that an equivocal acceptance of the Monthly
Rental shall be deemed an election by Tenant to submit the
matter of the fair market value for the purpose of
determining Monthly rental (only) to appraisal in accordance
with (c) below; and
(c) If Tenant elects or is deemed to have
elected to submit the matter to appraisal in accordance
with (b) above, then each party shall, by written notice
to the other party given within ten (10) days after such
election or deemed election by Tenant, select an
appraiser. If either party shall fail to select an
appraiser in such manner and within such time, the single
appraiser actually selected shall perform the appraisal.
If each party timely and properly selects an appraiser,
the two appraisers selected by the parties shall determine
and attempt to agree on the fair market rental value for
the ensuing Additional Term within thirty (30) days after
their appointment; if they are unable to so agree and
their appraised values differ by more than five percent
(5%) in the aggregate over the ensuing Additional Term,
the two appraisers shall, by written notice to Landlord
and Tenant, select a third appraiser within five (5) days
after expiration of the thirty (30) day period within
which they were to determine and agree on the fair market
rental, which third appraiser shall analyze the fair
market rental for the ensuing Additional Term. If they
cannot agree on a third appraiser within such time period,
or if both parties fail to select an appraiser in the
manner and within the time herein provided, either party
may have the third (or sole, if applicable) appraiser
appointed by application to the presiding judge of the Los
Angeles County Superior Court or his or her designee. If
the appraised values of the first two appraisers are
within five percent (5%) in the aggregate over the ensuing
Additional Term, then Landlord shall calculate the average
of the two appraised values as a flat rental rate for the
ensuing Additional Term, which average shall be the fair
market rental rate for such Additional Term.
The appraisers shall have the MAI designation and a
minimum of ten (10) years experience in the Los Angeles
County (Glendale/Pasadena) office market. Each of the
first two appraisers shall analyze the fair market rental
value of the Premises and shall give written notice to the
parties of his or her appraisal within thirty (30) days
following his or her appointment or selection, but in no
event later than the commencement of the Additional Term.
If a single appraiser is used, his or her determination
shall be the fair market rental rate. If three appraisers
are used, the third appraiser shall select one of the
values determined by the first two appraisers as the fair
market rental rate. The cost of the appraisals shall be
shared equally by Landlord and Tenant;
(2) The provisions of Sections III.B. and C. and EXHIBIT C shall not
apply to the Additional Term; and
(3) In the case of the First Additional Term, there shall
be one further option to extend the Term, and, in the case of the
Second Additional Term, there shall be no further options to
extend the Term. In the event Tenant fails or is not entitled to
exercise its option for the First Additional Term, or Tenant is
deemed
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(pursuant to (1)(b) above) to have elected to terminate the Lease
upon receipt of Landlord's notice of the fair market rental for
the First Additional Term, then Tenant's option for the Second
Additional Term shall lapse and shall thereafter not be
exercisable by Tenant.
C. COMMON OPERATING COSTS
(1) As used in this Lease, the term "Project Operating
Costs" shall include all costs of the type included in Common
Operating Costs applicable to the Common Areas and/or the Project
in general, such as real property taxes applicable to the Common
Areas, liability insurance with respect to the Common Areas,
maintenance service for the buildings within the Project and
repair costs with respect to the Project or any equipment or
machinery therein, but excluding costs which are directly and
separately identifiable to the operation and maintenance of the
Building or other buildings within the Project. Common Operating
Costs shall also include the Building's share of Project
Operating Costs, which shall include, as appropriate, liability
and other insurance with respect the the Project generally,
expenses of operating and maintaining the parking structures,
landscaping expenses for exterior landscaping within the Project,
security services for the Project, property management fees and
costs for a manager and fees and other charges in connection with
membership in energy conservation associations and traffic
management organizations. To the extent that, in Landlord's sole
but reasonable judgment, it may not be equitable to allocate
certain Project Operating Costs on a pro rata basis based upon
the Rentable Areas of the buildings in the Project, as the case
may be, then Landlord may allocate the same on such basis as
Landlord, in its sole but reasonable judgment, determines to be
equitable.
(2) Notwithstanding anything to the contrary in the Lease,
Tenant's Proportionate Share of any and all costs of providing
janitorial service to the Premises which are includable in Common
Operating Costs in accordance with this Lease shall be payable by
Tenant, commencing on the Lease Commencement Date and on the
first day of each calendar month in the Term thereafter, without
any deduction for the Base Operating Expense attributable to such
janitorial services. In addition, electrical service to the
Premises will be separately metered, and Tenant shall pay such
separately metered costs directly to the providers of such
utilities as provided in Section IX.A. of the Lease. Accordingly,
costs attributable to tenant-area janitorial services and/or to
tenant-area electrical shall be excluded from the Base Operating
Expense, and Tenant's Proportionate Share of all Common Operating
Costs, other than such janitorial and electrical utility costs,
shall be determined by reference to the Base Operating Expense,
as so reduced.
(3) In the event that during all or any portion of any
calendar year, including the year used in calculating the Base
Operating Expense, the Building is not assessed as a completed
building, at such time as the Building is thereafter assessed as
a fully completed building, Landlord shall make an adjustment to
the Common Operating Costs for such year (including the year for
the Base Operating Expense, if applicable) employing sound
accounting and management principles, to reflect the Common
Operating Costs that would have been paid or incurred by Landlord
had the Building been fully completed. In no event shall Landlord
be entitled to recover from tenants of the Project more than one
hundred percent (100%), in the aggregate, of the increase in
Common Operating Costs actually incurred by Landlord.
(4) Notwithstanding the foregoing, the follow shall not be included in
Common Operating Costs (or shall be deducted therefrom if included
therein):
(a) Costs incurred by Landlord in performing or providing special
work or services to a particular tenant of the Project at
such tenant's cost, and
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costs of any additions, changes, replacements and other items
to tenant-area premises which are made exclusively to prepare
for a new tenant's occupancy and which benefit only that
particular tenant;
(b) Compensation paid to officers and executives of Landlord and of
Landlord's managing agent who are not directly involved in the
management of the Project;
(c) Costs which were previously included in Common Operating Costs
for either the base year (i.e., 1997) or any other year during
the Term which are reimbursed to Landlord by insurance or
condemnation proceeds, under warranty or otherwise outside of
Common Operating Costs;
(d) Costs of repairs or restoration incurred by reason of fire or
other casualty if and to the extent that Landlord failed to
obtain insurance against such fire or casualty, if such insurance
was available at commercially reasonable rates and was required
to be carried by Landlord pursuant to this Lease; provided,
however, that the foregoing shall not apply to preclude Landlord
from including in Common Operating Costs the deductible amounts
under insurance policies maintained by Landlord;
(e) Any financing or refinancing costs and expenses secured by real
estate within the Project including, but not limited to,
interest or amortization on debt and rent under any ground or
underlying lease;
(f) Any real estate brokerage commissions or other costs incurred in
procuring tenants or any fee or other form of compensation in
lieu of such commission;
(g) Any media advertising or any other advertising expenses incurred
in connection with the marketing of the Building or any rentable
space therein; provided, however, that the foregoing shall not
apply to preclude Landlord from including in Common Operating
Costs, costs incurred in connection with signage for the Project
which is not exclusively for marketing purposes;
(h) Costs of capital repairs, replacements or improvements (as
reasonably determined by Landlord) except: (i) to the extent the
same are amortized over the reasonable useful life of the item
as reasonably determined by Landlord and included in Common
Operating Costs as so amortized, or (ii) those designed to
reduce Common Operating Costs; provided, however, in no
event shall the foregoing apply to preclude Landlord from
including in Common Operating Costs, costs of routine maintenance
and repair;
(i) Rental payments for base building equipment, such as HVAC
equipment and elevators, which, if purchased by Landlord, would
be excluded from Common Operating Costs pursuant to item (h)
above; provided, however, in no event shall the foregoing
preclude Landlord from including in Common Operating Costs rental
payments for equipment leased temporarily (e.g., in order to
facilitate repair or replacement of Building equipment) or
equipment leased to perform routine maintenance and repair
(e.g., window washing equipment);
(j) Depreciation or amortization which would be excluded pursuant to
items (h) or (i) above;
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(k) Costs for materials or services paid to a related person or
entity, if and to the extent that such costs exceed the amount
that would have been paid if the services or materials had been
procured from an unrelated person or entity;
(l) Costs incurred by Landlord due to the violation by Landlord of
the terms and conditions of any lease of space in the Building
or the Project which would not otherwise be included in Common
Operating Costs in the absence of such default;
(m) Fines or penalties for late payments or non-compliance with laws
assessed against Landlord as a result of Landlord's negligence;
(n) Painting or decorating space in the Project other than the Common
Areas and/or the management office at the Building; and
(o) Costs incurred in connection with bringing the Premises,
Building, Project or Common Areas into initial compliance with
any laws as in effect and as applicable thereto as of the date of
this Lease.
(5) Upon receipt of Tenant's notice protesting an Annual Statement
delivered to Tenant by Landlord pursuant to Section V.C. of the
Lease, Landlord will provide to Tenant reasonable documentary
back-up for those item(s) protested by Tenant. Tenant shall pay to
Landlord upon demand as additional rent the costs and expenses
incurred by Landlord in responding to such request. In the event
that, upon reviewing the back-up so provided by Landlord, Tenant
disagrees with the amount charged by Landlord to Tenant for any
such item, Tenant may so notify Landlord. If Landlord agrees with
the findings of Tenant, then an appropriate adjustment shall be made.
In the event that there is a disagreement, then Landlord and Tenant
shall each identify an accountant, who shall meet to resolve the
dispute, whose determination shall be binding upon Landlord and
Tenant. Any such dispute must be resolved within nine (9) months
after the end of the year to which the Annual Statement applies.
D. SECURITY DEPOSIT
All or any portion of the Security Deposit described in Section I.L. of
the Lease may be provided by Tenant in the form of one or more
irrevocable letters of credit from an independent financial institution
selected by Tenant and acceptable to Landlord in the form of EXHIBIT "I"
hereto (collectively (if applicable) the "Letter of Credit"). If Tenant
elects to provide a Letter of Credit to satisfy all or a portion of its
obligations pursuant to Sections I.L. and VI. of the Lease, Tenant shall
deliver to Landlord, concurrently with the execution and delivery of this
Lease, cash and/or a Letter of Credit in the aggregate amount of Eight
Hundred Thousand Dollars ($800,000.00) as security for Tenant's full and
faithful performance of its obligations and payment of amounts due
pursuant to this Lease. Notwithstanding anything to the contrary herein,
in no event shall Landlord be required to accept a letter of credit in
excess of, in the aggregate, Four Hundred Thousand Dollars ($400,000.00)
from any one financial institution. Notwithstanding the foregoing
sentence, (a) Landlord hereby agrees that the Letter of Credit initially
provided to Landlord upon execution and delivery of this Lease may be
drawn on Union Bank of California in the entire amount required to be
posted (i.e., $800,000.00) and (b) prior to renewing the Letter of Credit
annually, Tenant shall give notice to Landlord of the financial
institution(s) with whom Tenant proposes to renew the Letter of Credit
for the ensuing year, and Landlord shall have the right to approve such
financial institution(s) for the renewal Letter of Credit, and may
require Tenant to provide two Letters of Credit if the aggregate amount
thereof is greater than Four Hundred Thousand Dollars ($400,000.00) if
Landlord, in its sole but reasonable discretion, deems the financial
strength of the proposed financial institution to be insufficient.
Any Letter of Credit
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provided hereunder shall be as available to Landlord as if the same were
a cash security deposit made pursuant to Section VI. of the Lease. Any
such Letter of Credit shall be renewed by Tenant annually, on or before
its expiration date and, if Landlord does not receive an original
replacement letter of credit at least three (3) business days prior to
the expiration date of an expiring Letter of Credit, then Landlord shall
have the right to draw the as-yet unexpired Letter of Credit in full;
provided, however, that in the absence of the occurrence, prior to the
applicable anniversary date set forth below, of any event giving rise to
Landlord's right to use, apply or retain all or any part of the Security
Deposit pursuant to Section VI. of the Lease (herein, an "Event"), then
Tenant's obligation shall be to renew the Letter of Credit in an
applicable amount (in the aggregate, if applicable, with other Letters of
Credit provided hereunder) set forth below. The occurrence of an Event
prior to any anniversary date set forth below shall cause Tenant's
obligation to provide the Letter of Credit pursuant to this Addendum
Section to continue thereafter without any of the subsequent reductions
described herein.
Anniversary Date Amount of Renewed Letter of Credit
---------------- ----------------------------------
1st "Anniversary"* $700,000.00
2nd Anniversary $600,000.00
3rd Anniversary $500,000.00
4th Anniversary $400,000.00
5th Anniversary $300,000.00
6th Anniversary $200,000.00
7th Anniversary $100,000.00
8th Anniversary -0-
As used in the foregoing table, the term "Anniversary" refers to the
applicable anniversary of the Lease Commencement Date specified in the
table.
E. HAZARDOUS MATERIALS
(1) To the best of Landlord's knowledge, Landlord has not itself used
the Building or Project in violation of governmental laws and
regulations governing Hazardous Materials applicable to the Project
and, Landlord's actual knowledge, the Building does not contain any
Hazardous Materials in violation of law and/or friable asbestos,
and the only non-friable asbestos discovered in the Building is in
roofing materials located on the roof of the Building.
Notwithstanding anything to the contrary in this Lease, in the event
that Hazardous Materials are discovered in the Project, the presence
of which is not caused by a breach of the obligations of Tenant set
forth in Section VI.C. of the Lease, Landlord shall, at Landlord's
sole cost and expense, remove, remediate, or otherwise deal with
such Hazardous Materials if, as and when required by applicable
governmental authorities.
(2) Due to the former existence of a landfill in the area of the
Project, a methane venting system has been installed at the Project
and on adjacent properties. In addition, a nearby property owner,
whose property is closer to the Southern California Edison (SCE)
power lines which are in the general geographic area of the Project,
has experienced some interference with MacIntosh computers adjacent
to the walls of its premises nearest the power lines, which may be
caused by electric and magnetic fields which may be being induced
by the SCE power lines. Landlord is unaware of any similar or
related complaints from the occupant of the other building at the
Project or from the former occupant of the Building. Information
with respect to the possible effects of power lines on equipment
and human health is available from SCE, and Landlord will make
available to Tenant upon request a copy of such SCE information and
any other environmental reports in Landlord's possession regarding
the Project. Tenant accepts the Premises "AS-IS" with respect to the
SCE power lines and the effect thereof.
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F. SERVICE AND UTILITIES
Access to the Building is available 24 hours per day, 7 days per week via
a card-key security system. Landlord may assess a charge for any access
cards for such system provided to Tenant and/or its employees. Utilities
are, subject to Section XXXIII.K. below, available 24 hours per day,
subject to Tenant's payment to Landlord of the reasonable costs thereof,
as determined by Landlord. In the event that the Premises are not
separately zoned such that after-hours HVAC can be made available to the
Premises (only), and Tenant requests after-hours HVAC service to the
Premises at the same time as a tenant or occupant of another area of the
Building which is in the same zone as the Premises requests the same,
then (unless the fees to Tenant and such other tenant or occupant are
prorated by Landlord) any fees received by Landlord for such after-hours
HVAC from such other tenant or occupant for any period of time for which
Tenant is assessed a charge for after-hours HVAC shall be applied to
reduce the charge imposed on Tenant.
G. JANITORIAL SERVICE
So long as Tenant is the only occupant of the Building, Tenant may
provide janitorial service to the Premises, the scope and the provider
of which are subject to Landlord's prior written approval. Landlord
hereby approves Omni Facility Group of Pasadena as the initial provider
of Tenant's janitorial service; provided, however, that Landlord reserves
the right to approve the proposed scope of such provider's service and
the contract therefor, and further reserves the right to require Tenant
to replace such provider (and any subsequent provider) if Landlord
determines that health, cleanliness or maintenance conditions are
adversely affected by the standard and level of service provided. If
Tenant elects to contract directly for janitorial service, Tenant shall
provide to Landlord a copy of the contract therefor for Landlord's
approval. In the event that another tenant or occupant takes occupancy of
the Building, Landlord shall have the right to require that janitorial
service to the Premises be provided by Landlord's contractor, at Tenant's
cost as provided in Addendum Section XXXV.C.(2) above, in accordance with
Landlord's standard janitorial specifications, a copy of which are
attached to the Lease as EXHIBIT G, but which are subject to change from
time to time.
H. PARKING
Landlord shall make available for the use of Tenant, its employees,
contractors, agents and invitees up to 4 unreserved parking spaces per
1,000 square feet of Rentable Area, free of charge (subject to applicable
governmental requirements) for the initial Term. If and so long as Tenant
is the only tenant in the Building, Tenant may, with Landlord's prior
written consent, restrict access to the parking area serving the Building
so long as Landlord and its agents, employees and invitees are provided
free access thereto and any improvements in connection therewith are
treated as "Alterations" within the meaning of Section XII. of the Lease.
I. SIGNAGE
Notwithstanding anything to the contrary in Section XXVIII. of the Lease,
Tenant may install on or before the Lease Commencement Date, at Tenant's
sole cost and expense, one sign indicating Tenant's name on the Building
and may erect a monument sign for the Project, and, on such date (if any)
as the entire second floor is added to the Premises pursuant to Addendum
Section XXXV.A. above upon exercise by Tenant of its rights thereunder, a
second such sign above the entrance to the Building, and in each case the
contents, design, size, materials, location and method of application of
each such sign shall be subject to Landlord's prior written approval and
compliance with the CC&Rs for the Project, all applicable sign programs
and all other governmental requirements then in effect for the Project.
From and after the date, if any, that Tenant leases the entire Building,
and so long as there is no other occupant of the Building, Landlord
shall not
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grant to any other person any rights to erect or maintain Building
identification signage on the Building. In no event shall governmental
disapproval of any signage for Tenant constitute a default by Landlord
pursuant to this Lease. Tenant shall be solely responsible to insure all
signage erected by Tenant pursuant to this subsection I. and to maintain
such signage in first-class condition at all times; provided, however, if
Tenant fails to insure, repair or otherwise maintain any such signage
within ten (10) days after request therefor by Landlord, Landlord may
obtain insurance and/or perform any necessary repairs or maintenance for
the account of Tenant, and any and all amounts incurred by Landlord in
connection therewith shall be due and payable by Tenant to Landlord
within ten (10) days after demand therefor as additional rent.
Notwithstanding anything to the contrary in this Lease, upon the
expiration or earlier termination of this Lease, Tenant shall be
responsible, as to both cost and performance, for removing Tenant's
Building sign(s) and Tenant's name from the monument sign and returning
the surface to which such signs were affixed to the condition they were
in prior to such installation, including without limitation removal of
any discoloration.
J. INTERPRETATION
This Addendum is attached to and forms a part of the Lease. In the event
of any inconsistency between the provisions of this Addendum and the
balance of the Lease, the provisions of this Addendum shall control.
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EXHIBIT A
SITE PLAN FOR THE PROJECT
[MAP]
EXHIBIT A
<PAGE>
EXHIBIT B
FLOOR PLAN OF THE PREMISES
[MAP]
EXHIBIT B
<PAGE>
EXHIBIT C
CONSTRUCTION WORK LETTER
(Tenant Allowance)
In connection with the Lease to which this Work Letter is attached and in
consideration of the mutual covenants hereinafter contained, Landlord and
Tenant hereby agree as follows:
1. BASE BUILDING.
Landlord and Tenant understand and acknowledge that this Work Letter
Agreement relates only to "non-base building" work in the Premises. The
"base building work" has or will be performed by Landlord at Landlord's
sole cost and expense. The term "base building work" means and refers to
the following elements of the initial (i.e., first floor) Premises:
concrete floors (without above-standard floor covering, i.e., in a
condition such that Tenant is not required to perform above-standard
floor preparation (e.g., no excessive cracking, hazing or spalling), but
Landlord shall not be required, e.g., to remove existing standard
flooring, remove mastic or depress the floor for Tenant's finishes)),
perimeter walls in place (which may require wall repair, removal of
existing wall-covering, preparation of walls to receive covering and/or
utility device removal and/or installation by Tenant), existing 2x2 "fine
line" ceiling grid, including (on first floor (i.e., initial) Premises
only) existing 2x4 parabolic light fixtures (which may require
modification to conform with Tenant's plans), finished toilet rooms
upgraded (if necessary) to conform to current California Handicap and ADA
code compliance, closets for telephone and electrical systems (but not
the systems themselves) and building systems as follows: elevator system
upgraded (if necessary) to conform to current California Handicap and ADA
code compliance, mechanical (including heating, ventilating and
air-conditioning systems, which may require modification by Tenant to
conform with Tenant's distribution plan), electrical and plumbing
systems, all within the Building core only.
The "base building work" shall also include the building exterior,
grounds and parking lot (including striping and accessibility relative to
California Handicap law and ADA code compliance), corridors connecting
the new building lobby; (see Section 4 as it pertains to the new building
lobby), to exits as required by code and to the elevator vestibules (but
not exterior doors for the Premises, and excluding the cost of the
interior half of all walls, i.e., corridor walls and demising walls,
which adjoin the Premises).
Notwithstanding anything to the contrary herein, any changes in existing
improvements required to be performed above the drop-ceiling within the
Premises and/or below the roof of the Building shall not be included in
"base building work;" provided, however, that "base building work" shall
include any repair required to be performed to existing HVAC equipment on
the roof of the Building to render the same operable (i.e., to ensure
there is out-take and in-take capacity).
2. SPACE PLANS AND GENERAL SPECIFICATIONS.
a. The tenant improvements in the Premises consist of two components:
(i) improvements to the data center portion of the Premises, which is
located approximately as indicated on EXHIBIT B hereto (the "Data
Center") and (ii) improvements to the balance of the Premises
("Landlord's Work" and, collectively with the Data Center
improvements, the "Tenant Improvements"). Tenant shall be solely
responsible, subject to Landlord's approval of the plans therefor, to
coordinate with Landlord's construction manager, ARES, Inc. ("ARES"),
in connection therewith and to Section 4.f. below, for all work to be
performed in the Data Center, both as to payment and performance.
Landlord
EXHIBIT C,
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shall be responsible to perform Landlord's Work and, subject to
Section 4.e. below, for payment of costs incurred in connection
therewith.
b. Upon execution of the Lease, Tenant shall (i) authorize Wirt Design
Group ("ELN Spaceplanner") to coordinate the development of space
plans for the tenant improvements with ARES and Compel Corporation
("Tenant's Contractor") and (ii) authorize Tenant's Contractor to
construct the improvements for the Data Center (the "Data Center
Improvements") on a design/build basis for Tenant. ELN Spaceplanner
will work with MEP and structural engineers selected or approved by
Landlord to assure complete coordination of Landlord's Work and the
Data Center.
c. Upon execution of the Lease, ARES shall republish the Work Schedule
attached hereto as EXHIBIT C-1 (which schedule is hereby approved by
Landlord and Tenant in all respects, including as to sequence,
resources, phasing and duration of tasks), inserting the date of
mutual execution and delivery of the Lease and the balance of the
dates based on the time periods specified therein, and shall
distribute the Work Schedule, as so revised, to Tenant. Upon
execution of the Lease, ARES and Tenant's Contractor shall together
develop a complete list of subcontractors for review by Tenant and
ELN Spaceplanner and their respective engineers and consultants. The
final subcontractor list approved by both Landlord and Tenant in
writing will designate those subcontractors who may be requested to
perform the Tenant Improvements.
d. Tenant shall cause ELN Spaceplanner to prepare space plans for the
Tenant Improvements for submission to Landlord for Landlord's
approval on or before the date specified therefor on the Work
Schedule, which space plans, together with general descriptions of
construction techniques, materials and finishes proposed for
Landlord's Work, for the Data Center and for the common lobby on the
first floor of the Building described in Section 4.b. below, shall be
delivered to Landlord for review and approval. Landlord shall approve
or disapprove said plans, in writing, within three (3) days of receipt
thereof as reflected on the Work Schedule. If Landlord timely
notifies Tenant of any disapproval of the space plans, Landlord's
notice of disapproval shall also set forth its reasons for
disapproval and suggested revisions to the space plans in order to
satisfy Landlord's concerns. Once the space plans have been approved
by both Landlord and Tenant (as so approved, the "Space Plans"),
Landlord shall develop from the Space Plans, within five (5) days
after final approval of the Space Plans and delivery to Landlord of
final Space Plans, a detailed "line-item" cost budget for Landlord's
Work which shall be presented to ELN Spaceplanner and Tenant for
review in budgeting.
3. CONSTRUCTION DRAWINGS AND DETAILED SPECIFICATIONS.
a. Upon approval of the Space Plans by Landlord and Tenant and Tenant's
approval of the budget for Landlord's Work, ELN Spaceplanner,
together with the MEP and structural engineers approved by Landlord,
will develop working drawings for Landlord's Work and for the Data
Center. After approval by Tenant, the working drawings shall be
submitted to Landlord for review and approval. Landlord shall approve
or disapprove said drawings, in writing, within three (3) days of
receipt thereof as reflected on the Work Schedule.
b. After approval by Landlord and Tenant of the working drawings for the
Tenant Improvements (as so approved, the "Working Drawings"), ELN
Spaceplanner shall submit the drawings to the appropriate
governmental body for plan checking and building permitting.
EXHIBIT C,
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c. After review by governmental authorities, ELN Spaceplanner, together
with Landlord and Tenant, shall cause to be made any change in the
Working Drawings necessary to obtain the building permit.
d. The final set of Working Drawings prepared by ELN Spaceplanner will
be issued to Tenant's Contractor and ARES concurrently to assure that
the scheduling and execution of the Tenant Improvements are
completely coordinated.
e. After final approval of the Working Drawings, subject to Section 4.c.
above, no further changes thereto may be made without the prior
written approval of both Landlord and Tenant, and then only after
agreement by Tenant to pay any excess costs resulting from such
changes. Futhermore, Tenant shall be liable for any delays in
completing the Tenant Improvements, if any, resulting from such
changes. See "Over Tenant Allowance Payment Schedule", Section 6.
4. COST OF TENANT IMPROVEMENTS.
a. Landlord shall pay the cost of the Tenant Improvements to be made
pursuant to the Space Plans, up to a total amount (inclusive of all
architectural, engineering, space planning, construction management,
permitting and other fees of Landlord in connection therewith) of
$25.00 per square foot of Rentable Area (one million three hundred
seventy-five and 00/100 dollars ($1,375,000.00); the "Tenant
Allowance"). Tenant shall be responsible for any excess of the costs
of Landlord's Work over the Tenant Allowance and, subject to Section
4.f. below, for the cost of the Data Center Improvements.
b. Costs incurred by Landlord in constructing the new common area lobby
on the first floor of the Building shall be Landlord's responsibility
and shall not be reimbursed to Landlord from the Tenant Allowance.
c. Costs incurred by Landlord in delivery of utilities to the existing
equipment in the equipment room for the Building from which such
systems are distributed to tenant(s) of the Building shall be
Landlord's responsibility and shall not be reimbursed to Landlord
from the Tenant Allowance.
d. In the event that the estimated costs of the Tenant Improvements
exceed the Tenant Allowance, Landlord shall so notify Tenant,
submitting such estimate and Landlord's calculation of the excess.
Tenant shall approve or disapprove the estimate in writing within
seven (7) days of receipt of the same. Any notice of disapproval
shall specify the reasons therefor. Tenant's failure to respond, in
writing, to the estimate within such seven (7) day period shall be
deemed approval of the estimate. If Tenant shall fail to approve any
estimate in full within such seven (7) day period, Tenant shall be
deemed to have disapproved the estimate, and Landlord shall not
proceed with any Landlord's Work affected thereby. Landlord and
Tenant shall thereafter cooperate to amend the plans and
specifications for the Premises as necessary to obtain Tenant's approval
of the cost of the Tenant Improvements; provided, however, that
Tenant shall pay any costs resulting from such amendments and Tenant
shall be liable for the delay in completing the Tenant Improvements
and the increased costs in completing the affected Tenant
Improvements, if any, in excess of the Tenant Allowance resulting
from such delay. In addition, the cost of the changes requested by
Tenant which are to be paid by Tenant as set forth herein shall
include the contractor's charges and the construction management fee
based on the total cost of construction of any additional Landlord's
Work in excess of the Tenant Allowance. If Tenant approves any such
estimate, it shall pay Landlord the amount of such estimate on
account of Landlord's Work on a prorated basis as set forth in
"Over Tenant Allowance Payment Schedule", Section 6.
EXHIBIT C,
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e. Landlord may credit against the Tenant Allowance (i.e., reduce the
outstanding balance of the Tenant Allowance by) all costs incurred by
Landlord in connection with the Tenant Improvements (excluding fees
of engineers, space planners or architects hired by Landlord); permit
fees; a construction management fee of five percent (5%) based on the
total cost of Landlord's Work (which will be paid to an affiliate of
Landlord, ARES, for construction management services rendered by
ARES), profit and general conditions and other costs payable to
reimburse to ARES actual costs incurred by ARES in connection with
Landlord's Work and all hard construction costs.
f. In the event that there is any excess of the Tenant Allowance after
Landlord completely reconciles the cost of Landlord's Work and any
other costs permitted by Landlord to be applied against the Tenant
Allowance pursuant to Section 4.e. above, then Landlord shall so
notify Tenant, and Tenant may request Landlord to disburse the
balance of the Tenant Allowance to Tenant to cover actual,
out-of-pocket costs incurred by Tenant in connection with the Tenant
Improvements, including without limitation, costs of preparing the
Space Plans and Working Drawings; fees and reimbursable expenses of
professionals such as telephone/data consultants, mechanical,
electrical, plumbing and structural engineers, permit fees and all
hard construction costs including demountable full height walls and
systems furniture and exterior Building identification signage.
Disbursement of the balance, if any, of the Tenant Allowance pursuant
to this subsection f. (the "Excess Allowance") shall be made by
Landlord to Tenant upon Tenant's written request therefor and upon
the last to occur of the following: (A) submission by Tenant to
Landlord of a detailed list of improvements paid for with the Excess
Allowance, (B) submission by Tenant to Landlord of (i) a copy of a
Notice of Completion with respect to the Tenant's Work showing
thereon the recording stamp of the Los Angeles County Recorder, (ii)
evidence reasonably satisfactory to Landlord that all of Tenant's
Work has been paid in full and that no claim of any mechanic or
materialman may become a lien on the Premises and (iii) a copy of the
inspection card for Tenant's Work with all final signatures complete,
(C) completion of all punch-list items for Tenant's Work and (D) the
expiration (without filing of a claim) of the applicable period
within which a lien may be filed pursuant to California Civil Code
Section 3114 ET SEQ.; provided, however, that in no event shall
Landlord be required to pay the Excess Allowance or any portion
thereof until and unless Tenant is not then in default pursuant to
the Lease. Landlord shall be entitled to all tax benefits in
connection with the allowed costs covered by the Tenant Allowance,
including without limitation the Excess Allowance. Any application by
Tenant for payment of the Excess Allowance shall be accompanied by
documentary evidence reasonably satisfactory to Landlord as to the
amount so requested by Tenant (including without limitation a
detailed breakdown of any amount applied for on account of the
construction contract for the Data Center), and by conditional liens
executed by Tenant and its contractors or subcontractors in favor of
Landlord in the amount of the installment to be paid by Landlord with
respect to any permanent improvements covered thereby. As and when
progress payments are made by Tenant with respect to Tenant's Work,
Tenant shall obtain, from each person furnishing labor or material
with respect to Tenant's Work, unconditional waivers and releases of
lien claims in the forms required by California Civil Code Section
3262. All of Tenant's Work shall comply with all applicable
governmental requirements.
g. Upon completion by Landlord of Landlord's Work, Landlord shall
determine the actual final cost of the work for the Premises to be
paid for by Tenant in accordance with Section 4.d. above and shall
submit a written statement of such amount to Tenant. If the estimate
previously paid by Tenant for such work exceeds the actual cost of
such work, such excess shall be credited by Landlord against the next
rental coming due under the Lease. If the actual cost of such
EXHIBIT C,
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work exceeds the estimate therefor previously paid by Tenant, then
Tenant shall pay such excess in full within ten (10) days of receipt
of Landlord's invoice therefor.
5. OVER TENANT ALLOWANCE PAYMENT SCHEDULE.
Upon completion of bidding, if the maximum Tenant Allowance is less than
the final approved cost of constructing Landlord's Work, Tenant shall have
the following options for payment and/or reduction in payment liabilities
to Landlord:
a. Should the budget for Landlord's Work exceed the Tenant Allowance,
Tenant shall pay Landlord the excess amount which is determined in
accordance with Section 4.d. above (the "Excess Costs") in four (4)
installments, as follows: thirty percent (30%) of the Excess Costs
shall be paid to Landlord by Tenant concurrently with Tenant's
approval of the estimate therefor in accordance with Section 4.d.
(which approval shall constitute Tenant's authorization to Landlord
to proceed with Landlord's Work); the second and third payments
(which shall each be equal to thirty percent (30%) of the Excess
Costs) shall be paid to Landlord by Tenant thirty (30) and sixty (60)
days, respectively, following the date Landlord commences
construction of Landlord's Work (which shall be conclusively
evidenced by Landlord's written notice to Tenant that such
construction has commenced); and the last payment of ten percent
(10%) of the Excess Costs shall be paid to Landlord by Tenant upon
completion by Landlord of the punchlist items for Landlord's Work in
accordance with Section III.D. of the Lease and ELN Spaceplanner's
"sign-off" to that effect.
b. If, during the course of construction, Tenant elects to modify the
scope of Landlord's Work, the subsequent increase or decrease in the
cost thereof shall be prorated over the balance of the payments to be
made by Landlord to Tenant pursuant to subsection a. above such that
the final payment is ten percent (10%) of the total Excess Costs, and
the balance of any such increase or decrease is spread evenly among the
other payments remaining to be made.
6. CONSTRUCTION OF TENANT IMPROVEMENTS.
a. After the Working Drawings for the Tenant Improvements have been
approved by Tenant and Landlord and while the building department is
reviewing the plan submittals, ELN Spaceplanner shall coordinate with
the structural engineers to issue a complete set of construction
drawings for competitive bid.
b. Concurrently, Landlord shall cause its contractor, or
subcontractors, to complete the "base building" work required by the
Work Schedule to be completed prior to commencement of construction
of the Tenant Improvements.
c. All work, including the Tenant Improvements, shall be performed in
compliance with the ADA, the Space Plans and Working Drawings, and
shall be completed, subject to "Force Majeure" (as that term is
defined in Section XXXIII.K. of the Lease), on or before the
respective dates specified therefor on the Work Schedule.
Notwithstanding the foregoing, installation or construction of
Landlord's Work requested by Tenant after approval of the Space
Plans, or otherwise affected by any such request, shall not commence
until Tenant shall have approved the estimated cost thereof in
accordance with Section 4.d. above.
d. The construction of the Data Center shall not be included in
Landlord's Work and shall be performed by Tenant's Contractor under
separate contract with Tenant. Landlord shall have the right to
approve the contractor for the Data Center Improvements, and the form
of the contract Tenant proposes to use, which
EXHIBIT C,
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contract shall meet the requirements of Section XII. of the Lease and
shall contain a waiver, executed by the contractor on behalf of its
and all subcontractors and in favor of Landlord, specifically waiving
any and all rights to recover any amount from Landlord on account of
the performance of the Data Center Improvements and waiving all lien
rights with respect to Landlord's interest in the Premises, Building
and Project. It shall be Tenant's sole responsibility, in a timely
manner and (subject to Section 4.f. above) at Tenant's sole cost and
expense, to perform all work necessary to completely segregate the
Data Center from the balance of the Premises (which work shall be
considered a Data Center Improvement) on or before December 19, 1996,
including without limitation to relocate any utilities serving the
balance of the Premises from the Data Center, such that the Data
Center is completely self-sufficient and separate from the balance of
the Premises and such that Tenant Improvements can be constructed
concurrently in the Data Center, by Tenant, and in the balance of the
Premises, by Landlord, without any interference and/or
interdependency in connection therewith.
7. COMPLETION AND LEASE COMMENCEMENT DATE.
If the Lease Commencement Date of the Lease, as determined under Sections
I.G. and III.C., is delayed by any of the following, then the Lease
Commencement Date of the Lease and the payment of rent shall be
accelerated (i.e., moved earlier in time) by the number of days of such
delay:
a. Tenant's failure to approve or furnish Space Plans or Working
Drawings or failure to approve any other item (including without
limitation estimates) or perform any other obligation in accordance
with and by the dates specified herein or in the Work Schedule.
b. Any delays caused by ELN Spaceplanner and/or Tenant's Contractor;
provided, however, that any delays prior to December 19, 1996 that do
not delay Tenant's ability to obtain all permits necessary to enable
Landlord to commence Landlord's Work in the Premises on December 19,
1996 in the condition specified in the last sentence of Section 6.d.
above and do not otherwise affect Landlord's ability to perform its
work in the Premises thereafter shall not accelerate the Lease
Commencement Date.
c. Delays of any nature resulting from Tenant's decision to use any
materials, finishes or installations other than Building standard
materials.
d. Tenant's changes in the Space Plans, Working Drawings or other plans
and specifications after the approval thereof by Tenant.
e. Delays in construction of the base building work, Landlord's Work
and/or the Data Center Improvements as a result of Tenant's failure
to approve written estimates in accordance with Section 4.
f. Delays in Tenant obtaining any necessary governmental approvals or
permits for Tenant's intended use of the Premises.
8. FURNITURE AND TELEPHONE SYSTEM.
Subject to Section 4.f. above, Tenant acknowledges and agrees that Tenant
is solely responsible, both as to performance and payment of costs, for
"Tenant's Work", which includes designing and constructing the Data
Center as provided above, obtaining, delivering and installing on the
Premises all necessary or desired telephone equipment, telephone cabling,
telephone service, business equipment, freestanding furniture, art work
EXHIBIT C,
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and other similar items, and that Landlord shall have no responsibility
whatsoever with regard thereto. Tenant further acknowledges and agrees
that neither the Lease Commencement Date of the Lease nor the payment of
rent shall be delayed for any period of time whatsoever due to any delay
in the furnishing of the Premises with such items. Installation of all
telephone, computer and other electronic wires and cables within the
Premises and within the common ducts and shafts of the Building is
subject to Landlord's prior approval and shall be performed in accordance
with Landlord's reasonable rules and regulations.
9. FAILURE OF TENANT TO COMPLY.
Any failure of Tenant to comply with any of the provisions contained in
this EXHIBIT C, within the times for compliance set forth herein or in
the Work Schedule, shall be deemed a default pursuant to the Lease. In
addition to the remedies provided to Landlord in this EXHIBIT C, upon the
occurrence of such a default by Tenant, Landlord shall have all remedies
available at law or equity to a landlord against a defaulting tenant
pursuant to a written lease, including but not limited to those set forth
in Section XX. DEFAULT and Section XXIV. ATTORNEYS' FEES of the Lease.
10. AUTHORIZED APPROVALS.
All approvals required pursuant to the terms of this Work Letter or
requests for changes and modifications to the Space Plans, Working
Drawings or any other matter relating to the construction of the Tenant
Improvements shall be deemed given for Tenant if approved or requested in
writing by Ken Washburn, Tenant's Construction Representative, and for
Landlord if approved or requested in writing by John Monahan, Landlord's
Construction Representative.
11. DESTRUCTION.
If at any time prior to the completion of the Tenant Improvements a
casualty occurs resulting in any damage or destruction of the partially
completed Tenant Improvements or the Premises or Building, the terms and
conditions of Section XVIII. DAMAGE AND DESTRUCTION of the Lease shall
govern the rights and obligations of the parties.
EXHIBIT C,
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EXHIBIT C-1
[CHART]
EXHIBIT C-1,
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EXHIBIT C-1
[CHART]
EXHIBIT C-1,
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EXHIBIT D
RENT SCHEDULE
Monthly Rental Rate Monthly
(per sq. ft. of Rental
Months Rentable Area) Payable
- ------ -------------- -------
1-60 $1.20 $66,000.00
61-120 $1.40 $77,000.00
The term "Rentable Area" as used in the Lease shall be determined in
accordance with BOMA standards. For purposes of establishing the Monthly
Rental, the Rentable Area of the Premises is deemed to be as set forth in
Section 1.E. above, and the Rentable Area of the Building is deemed to be
110,419 square feet. Prior to the Lease Commencement Date, and from time to
time thereafter at Landlord's option, Landlord's architect shall determine
and certify in writing to Tenant and Landlord the actual Rentable Area of the
Premises and the Building, respectively, in accordance with the foregoing.
Within five (5) days after receipt of Landlord's architect's calculation of
the Rentable Area of the Premises, Building and/or Project, Tenant may, by
written notice, protest Landlord's architect's determination. Landlord will
provide to Tenant's architect reasonable back-up for its measurement of the
areas objected to. In the event that, upon reviewing the back-up so provided
by Landlord, Tenant disagrees with the measurements by Landlord's architect,
Tenant may so notify Landlord. If Landlord agrees with the findings of
Tenant, then an appropriate adjustment shall be made. In the event that there
is a disagreement, then Landlord's architect and Tenant's architect shall
select an architect who is an AIA member, who shall determine the Rentable
Area(s) in dispute, which determination shall be binding upon Landlord and
Tenant. Thereupon the Monthly Rental, Tenant's Proportionate Share, the
Tenant Allowance and the Security Deposit shall be adjusted accordingly.
Tenant shall, within ten (10) days after such determination, deliver to
Landlord any additional Monthly Rental due as a result of such adjustment and
shall deposit with Landlord, as an additional cash Security deposit, and
amount equal to the increase, if any, in the Security Deposit effected
thereby. If, as a result of such remeasurement, the Rentable Area is
decreased, Landlord shall apply any overpayment of Monthly Rental against the
next Monthly Rental coming due hereunder.
EXHIBIT D,
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EXHIBIT E
RULES AND REGULATIONS
ATTACHED TO AND MADE A PART OF THE LEASE
The following Rules and Regulations shall be in effect at the Building.
Landlord reserves the right to adopt reasonable modifications and additions
hereto. In the case of any conflict between these regulations and the Lease,
the Lease shall be controlling. Landlord shall have the right to waive one or
more rules for the benefit of a particular tenant in Landlord's reasonable
discretion.
1. Except with the prior written consent of Landlord, no tenant shall
conduct any retail sales (other than electronic or mail order sales)
in or from the Premises, or any business other than that specifically
provided for in the Lease. The foregoing shall not apply to sales of
internet services, to incidental, occasional sales of promotional
retail products associated with Tenant's business to invitees of
Tenant whose presence at the Premises is not for the primary purpose
of purchasing promotional retail products associated with Tenant's
business to employees of Tenant at the Premises. There shall be no
solicitation by Tenant of other tenants or occupants of the Building.
2. Landlord reserves the right to prohibit personal goods and services
vendors from access to the Building except upon such reasonable terms
and conditions, including but not limited to a provision for
insurance coverage, as are related to the safety, care and
cleanliness of the Building, the preservation of good order thereon,
and the relief of any financial or other burden on Landlord
occasioned by the presence of such vendors or the sale by them of
personal goods or services to a tenant or its employees. If
reasonably necessary for the accomplishment of these purposes,
Landlord may exclude a particular vendor entirely or limit the number
of vendors who may be present at any one time in the Building. The
term "personal goods or services vendors" means persons who
periodically enter the Building of which the Premises are a part for
the purpose of selling goods or services to a tenant, other than
goods or services which are used by a tenant only for the purpose of
conducting its business on the Premises. "Personal goods or services"
include, but are not limited to, drinking water and other beverages,
food, barbering services, and shoeshining services.
3. The sidewalks, halls, passages, elevators and stairways shall not be
obstructed by any tenant or used by it for any purpose other than for
ingress to and egress from their respective Premises. The halls,
passages, entrances, elevators, stairways, balconies, janitorial
closets, and roof are not for the use of the general public, and
Landlord shall in all cases retain the right to control and prevent
access thereto of all persons whose presence in the judgment of
Landlord shall be prejudicial to the safety, character, reputation
and interests of the Building and its tenants, provided that nothing
herein contained shall be construed to prevent such access to persons
with whom Tenant normally deals only for the purpose of conducting
its business on the Premises (such as clients, customers, office
suppliers and equipment vendors, and the like) unless such persons
are engaged in illegal activities. No tenant and no employees of any
tenant shall go upon the roof of the Building without the written
consent of the Landlord.
4. The sashes, sash doors, windows, glass lights, and any lights or
skylights that reflect or admit light into the halls or other places
of the Building shall not be covered or obstructed. The toilet rooms,
water and wash closets and other water apparatus shall not be used
for any purpose other than that for which they were constructed, and
no foreign substance of any kind whatsoever shall be thrown therein,
and the expense of any
EXHIBIT E,
Page 1
<PAGE>
breakage, stoppage or damage, resulting from the violation of this rule
shall be borne by the tenant who, or whose clerks, agents, employees, or
visitors, shall have caused it.
5. No sign, advertisement or notice visible from the exterior of the
Premises or Building shall be inscribed, painted or affixed by Tenant
on any part of the Building or the Premises without the prior written
consent of Landlord. If Landlord shall have given such consent at any
time, whether before or after the execution of this Lease, such
consent shall in no way operate as a waiver or release of any of the
provisions hereof or of this Lease, and shall be deemed to relate
only to the particular sign, advertisement or notice so consented to
by Landlord and shall not be construed as dispensing with the
necessity of obtaining the specific written consent of Landlord with
respect to each and every such sign, advertisement or notice other
than the particular sign, advertisement or notice, as the case may
be, so consented to by Landlord.
6. In order to maintain the outward professional appearance of the
Building, all window coverings to be installed at the Premises shall
be subject to Landlord's prior reasonable approval. If Landlord, by a
notice in writing to Tenant, shall object to any curtain, blind,
shade or screen attached to, or hung in, or used in connection with,
any window or door of the Premises, such use of such curtain, blind,
shade or screen shall be forthwith discontinued by Tenant. No awnings
shall be permitted on any part of the Premises.
7. Tenant shall not do or permit anything to be done in the Premises, or
bring or keep anything therein, which shall in any way increase the
rate of fire insurance on the Building, or on the property kept
therein, or obstruct or interfere with the rights of other tenants,
or in any way injure or annoy them; or conflict with the regulations
of the Fire Department or the fire laws, or with any insurance policy
upon the Building, or any part thereof, or with any rules and
ordinances established by the Board of Health or other governmental
authority. Tenant shall not bring into, or permit or suffer in, the
Building or the Project, any weapons or firearms of any kind.
Landlord shall have the right, in order to conduct such fire drills
as may be required by applicable governmental authorities and/or
insurance requirements, and in all other situations where Landlord
reasonably deems the same necessary to avoid property damage and/or
personal injury, to cause tenants and/or occupants of the Project to
vacate the same for such period as is required or reasonably
necessary, and Tenant shall cause its employees, agents, contractors
and invitees to cooperate in connection therewith.
8. No safes or other objects larger or heavier than the freight
elevators of the Building are limited to carry shall be brought into
or installed in the Premises. Landlord shall have the power to
prescribe the weight, method of installation and position of such
safes or other objects. The moving of safes shall occur only between
such hours as may be designated by, and only upon previous notice to,
the manager of the Building, and the persons employed to move safes
in or out of the Building must be acceptable to Landlord. No freight,
furniture or bulky matter of any description shall be received into
the Building or carried into the elevators except during hours and in
a manner approved by Landlord.
9. Except as provided in the Lease, Landlord shall clean the Premises as
provided in the Lease, and except with the written consent of
Landlord, no person or persons other than those approved by Landlord
will be permitted to enter the Building for such purpose, but Tenant
shall not cause unnecessary labor by reason of Tenant's carelessness
and indifference in the preservation of good order and cleanliness.
10. No tenant shall sweep or throw or permit to be swept or thrown from
the Premises any dirt or other substance into any of the corridors or
halls or elevators, or out of the doors or windows or stairways of
the Building, and Tenant shall not use, keep or permit to be used or
kept any foul or noxious gas or substance in the Premises, or permit
or suffer
EXHIBIT E,
Page 2
<PAGE>
the Premises to be occupied or used in a manner offensive
or objectionable to Landlord or other occupants of the Building by
reason of noise, odors and/or vibrations, or interfere in any way
with other tenants or those having business therein, nor shall any
animals, firearms or birds be kept in or about the Building. The
Building is a non-smoking building. Smoking or carrying lighted
cigars or cigarettes in any buildings located in the Project,
including the Building and the elevators of the Building, is
prohibited.
11. Except for the use of microwave ovens and coffee makers for Tenant's
personal use, no cooking shall be done or permitted by Tenant on the
Premises, nor shall the Building be used for lodging.
12. Tenant shall not use or keep in the Building any kerosene, gasoline,
or inflammable fluid or any other illuminating material, or use any
method of heating other than that supplied by Landlord.
13. Unless Tenant occupies the entire Building, if Tenant desires
telephone connections, Landlord will direct electricians as to where
and how the wires are to be introduced. Unless Tenant occupies the
entire Building, no boring or cutting for wires or other otherwise
shall be made without directions from Landlord.
14. Each tenant, upon the termination of its tenancy, shall deliver to
Landlord all the keys of offices, rooms and toilet rooms, and
security access card/keys which shall have been furnished such tenant
or which such tenant shall have had made, and in the event of loss of
any keys so furnished, shall pay Landlord therefor.
15. No Tenant shall lay linoleum or other similar floor covering so that
the same shall be affixed to the floor of the Premises in any manner
except by a paste, or other material which may easily be removed with
water, the use of cement or other similar adhesive materials being
expressly prohibited. The method of affixing any such linoleum or
other similar floor covering to the floor, as well as the method of
affixing carpets or rugs to the Premises shall be subject to
reasonable approval by Landlord. The expense of repairing any damage
resulting from a violation of this rule shall be borne by Tenant by
whom, or by those agents, clerks, employees or visitors, the damage
shall have been caused.
16. No furniture, packages or merchandise will be received in the
Building or carried up or down in the elevators, except between such
Building hours and in such elevators as shall be designated by
Landlord.
17. On Saturdays, Sundays and legal holidays, and on other days between
the hours of 6:00 p.m. and 7:00 a.m. access to the Building or to the
halls, corridors, elevators or stairways in the Building, or to the
Premises, may be refused unless the person seeking access is known to
the building watchman, if any, in charge and has a pass or is
properly identified. Landlord shall in no case be liable for damages
for the admission to or exclusion from the Building of any person
whom Landlord has the right to exclude under Rule 3 above. In case of
invasion, mob, riot, public excitement, or other commotion, Landlord
reserves the right but shall not be obligated to prevent access to
the Building during the continuance of the same by closing the doors
or otherwise, for the safety of the tenants and protection of
property in the Building.
18. Tenant shall see that the windows and doors of the Premises are
closed and securely locked before leaving the Building and Tenant
shall exercise extraordinary care and caution that all water faucets
or water apparatus are entirely shut off before Tenant or Tenant's
employees leave the Building, and that all electricity, gas or air
shall likewise be carefully shut off, so as to prevent waste or
damage, and for any default or
EXHIBIT E,
Page 3
<PAGE>
carelessness Tenant shall make good all injuries sustained by other
tenants or occupants of the Building or Landlord.
19. Tenant shall not alter any lock or install a new or additional lock
or any bolt on any door of the Premises without prior written consent
of Landlord. If Landlord shall give its consent, Tenant shall in each
case furnish Landlord with a key for any such lock, Landlord shall
have the right to impose a charge for each key issued and for
rekeying any lock or bolt on any door of the Premises.
20. Tenant shall not install equipment, such as but not limited to
electronic tabulating or computer equipment, requiring electrical or
air conditioning service without Landlord's prior written consent.
21. No shopping cart or other vehicle or any animal shall be brought into
the Premises or the halls, corridors, elevators or any part of the
Building by Tenant.
22. Landlord shall have the right to prohibit the use of the name of the
Building or Project or any other publicity by Tenant which in
Landlord's opinion tends to impair the reputation of the Building or
Project or their desirability for other tenants, and upon written
notice from Landlord, Tenant will refrain from or discontinue such
publicity.
23. Tenant shall not erect any aerial or antenna on the roof or exterior
walls of the Premises, Building, or Project without the prior written
consent of Landlord.
EXHIBIT E,
Page 4
<PAGE>
EXHIBIT F
AMENDMENT OF LEASE COMMENCEMENT DATE
In connection with that certain Office Lease dated between The
Mutual Life Insurance Company of New York, as Landlord, and EarthLink
Network, Inc., as Tenant concerning the Premises located at ,
Landlord and Tenant hereby agree as follows:
1. The Lease Commencement Date stated in Section I. of the Office Lease is
amended to be , 19 , and the Expiration Date stated in Section I.
is amended to be , 19 .
2. Landlord has satisfactorily complied with all requirements and conditions
precedent to the commencement of the Term as specified in the Office Lease.
3. The Premises covered by the Office Lease and the tenant improvements
therein have been fully completed as required, are in good condition, are
ready for occupancy and have been accepted by Tenant.
4. Tenant has or shall commence paying Monthly Rental pursuant to the Office
Lease on , 19 .
Dated effective this day of , 199 .
"TENANT" "LANDLORD"
EARTHLINK NETWORK, INC., a THE MUTUAL LIFE INSURANCE
corporation COMPANY OF NEW YORK, a New York
- ---------------- corporation
By:
------------------------ By:
----------------------------
Name:
---------------------- Stuart J. Simon,
Title: Senior Vice President,
--------------------- ARES Realty Capital, Inc.
Authorized Signatory
[SAMPLE]
EXHIBIT F
<PAGE>
EXHIBIT G
JANITORIAL SERVICES
OFFICE AREAS
Janitorial personnel will report to building management any breakage of
Tenant's or Building property regardless of its nature. It will be the
responsibility of the Janitorial Services contractor to enforce this.
Landlord shall be responsible for the cost of all cleaning materials and for
the cost of supplies for restocking, including without limitation all
restroom supplies, all of which costs shall be included in Common Operating
Costs.
DAILY
1. Empty all waste containers and remove to designated disposal areas.
Replace liners as necessary.
2. Thoroughly vacuum all carpeted areas.
3. Dust and wipe clean exposed areas on desks, counter tops, filing
cabinets, office furniture, telephones, window ledges, and other horizontal
surfaces with chemically treated cloths. Light feather dusting on areas that
have items or paper work left on desk.
4. Spot clean both sides of glass doors, sidelights and all interior glass.
5. Sweep and/or spot damp mop all floors.
6. Remove spots and fingerprints on walls around doors, and by light
switches. Polish door hardware.
7. Shut and lock all doors during the cleaning operation. Secure all suite
doors and turn off lights when leaving.
8. Remove all foreign matter from the floors (e.g., gum and tar).
9. Empty all ash trays and damp wipe clean.
WEEKLY
1. Dust low ledges and up seven feet on high ledges, window sills and levelor
blinds.
MONTHLY
1. Vacuum upholstered furniture.
2. Spot clean carpets.
3. Dust levelor blinds and vertical cloth blinds.
4. Mop, clean and buff hard surface floors. Scrub and wax all tile floors.
5. Clean all baseboards.
6. Wipe down both sides of suite entrance doors.
7. Pick up chair pads, vacuum carpet thoroughly and/or wet mop and buff floor.
EXHIBIT G,
Page 1
<PAGE>
QUARTERLY
1. Strip and refinish tile floors. (Monthly, if needed.)
2. Window cleaning (exterior and interior).
TWICE PER YEAR
1. Clean all air supply and return grilles.
LIGHT FIXTURES
1. Dust all light fixtures lenses, as necessary.
RESTROOMS
DAILY
1. Remove all waste to disposal area.
2. Wet mop ceramic tile floor with disinfectant solution, remove all stains.
3. Clean wash basins and counter tops to remove soil, stains and soap film
with a non-abrasive cleaner.
4. Clean and dry polish faucets, soap dispensers, napkin machines, napkin
disposal units, towel and tissue dispensers and waste receptacles with a
non-abrasive cleaner.
5. Restock handsoap, towels, tissue and sanitary products. Check soap
dispensers for clogging and proper operation.
6. Wash and polish mirrors and vanity shelves.
7. Wash all surfaces of stools and urinals with disinfectant solution as
well as both surfaces of stool seats.
8. Damp wipe low ledges, sills and stall partitions.
9. Spot clean all walls, tile and vinyl.
10. Dust and spot clean both sides of doors.
11. Report any equipment malfunctions to building management.
MONTHLY
1. Wash stall partitioning with disinfectant solution.
2. Wash air supply and return grilles.
3. Machine scrub ceramic tile floors.
4. Thoroughly spot clean all tile walls and ceilings - on call, as needed.
5. Clean all light fixtures - on call - as needed.
EXHIBIT G,
Page 2
<PAGE>
ENTRANCE LOBBY, CORRIDORS, AND PUBLIC AREAS
DAILY
1. Sweep and spot clean lobby floors.
2. Vacuum and spot clean carpets where applicable.
3. Vacuum entry vestibules and walk off mats.
4. Clean directory board glass as necessary and dust frame.
5. Clean and polish drinking fountains using a non-abrasive polish.
6. Empty, strain sand, replenish when required and clean cigarette urns.
7. Clean lobby door frames sidelights, frames and polish with non-abrasive
product. Spot clean both sides of all glass.
8. Clean and polish entry door thresholds.
9. Clean elevator call buttons.
10. Properly treat granite floor in lobby area.
11. Dust corridor and stairwell doors and frames, base along corridors and
remove all finger smudges from doors and door frames.
WEEKLY
1. Clean window sills.
MONTHLY
1. Clean Base, removing scuff marks.
2. Clean air supply and return grilles.
TWICE PER YEAR
1. Dust corridor and lobby walls, full height.
2. Wash exit lights.
ELEVATORS
DAILY
1. Wash and dry polish both sides of doors to remove dust, hand prints, and
stains, using non-abrasive cleaner.
2. Vacuum and spot clean carpet.
3. Dust ceiling panels and high ledges.
EXHIBIT G,
Page 3
<PAGE>
4. Vacuum elevator door tracks.
5. Damp wipe and dry polish control panel.
6. Elevator door tracks cleaned and polished.
WEEKLY
1. Shampoo floor coverings, as necessary.
STAIRWELLS AND LANDINGS
DAILY
1. Sweep and vacuum stairs and landings.
2. Dust handrails and ledges.
EXHIBIT G,
Page 4
<PAGE>
EXHIBIT H
---------
INTENTIONALLY DELETED
EXHIBIT H,
----------
Page 1
<PAGE>
EXHIBIT I
---------
FORM OF LETTER OF CREDIT
______________ BANK
P.O. BOX _____, __________, __________, __________
CABLE ADDRESS:__________ TELEX NO. __________
SWIFT:_______
IRREVOCABLE TRANSFERRABLE STANDBY LETTER OF CREDIT NO. _______________________
Date:______________, 19__
Place of Issue:____________
Date of Expiration:___________, 19__
Beneficiary:
The Mutual Life Insurance Company
of New York
19712 Mac Arthur, Suite 200
Irvine, California 92715
Attention: Vice President - Real Estate
Gentlemen:
We hereby establish our irrevocable Letter of Credit No.__________ in your
favor for account of ____________________ ("Applicant") up to an aggregate
amount of __________________________ Dollars (US$________) available by your
drafts on us at sight to be accompanied by Beneficiary's signed statement
that it is entitled to draw hereunder.
This letter of credit is transferrable and Beneficiary may transfer its
interest herein to any transferee of Beneficiary's interest in that certain
Lease dated ________________, 19__, between Beneficiary and Applicant.
Drafts must be presented to ________________ Bank not later than ____________,
19__.
The address for presentation of drafts and accompanying documents shall be:
_____________________________ Bank
__________________________________
__________________________________
Attention: _______________________
This credit is subject to the Uniform Customs and Practice for Documentary
Credits (1983 Revision), International Chamber of Commerce Publication No.
400. We hereby agree with the drawers, endorsers and bona fide holders of the
drafts under and in compliance with the terms of this credit that these
drafts will be duly honored by the above drawee. All drafts must be marked:
"Drawn under _____________________ Bank, Credit No. ________________."
Very truly yours,
__________________________
Authorized Signature
EXHIBIT I,
----------
Page 1
<PAGE>
EXHIBIT J
Recording Requested by
and When Recorded Mail to:
[_________________________]
[_________________________]
[_________________________]
Attention: [______________]
______________________________________________________________________________
(Space above this line for Recorder's use)
SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT
(_____________________ / Loan No. ___________)
NOTICE; THE SUBORDINATION PROVIDED FOR IN THIS AGREEMENT RESULTS IN YOUR
LEASEHOLD ESTATE IN THE PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY
THAN THE SECURITY INTEREST IN THE PROPERTY CREATED BY SOME OTHER OR LATER
INSTRUMENT.
THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT (the "Agreement")
is made this ____ day of ___________________, 19__, by and between ___________
____________________, a ______________________ ("Lessor"), and _______________
______________, a __________________________ ("Lessee"), the lessee under the
lease hereinafter described, in favor of _________________________________, a
_______________________ ("Beneficiary"), the owner and holder of the Deed of
Trust and Note hereinafter described and the lessor under a ground lease
between Lessor as Tenant and Beneficiary as Landlord.
W I T N E S S E T H:
--------------------
WHEREAS, Lessor has entered into or is about to execute a Deed of Trust,
Assignment of Rents, Security Agreement and Fixture Filing in favor of
Beneficiary and naming therein __________________________, Trustee (the "Deed
of Trust"), covering certain real property (the "Property") located in the
City of _____________________, County of ____________, State of ____________,
more particularly described in EXHIBIT A attached hereto and incorporated
herein by this reference. The Deed of Trust will secure the obligations of
Lessor to Beneficiary pursuant to that certain promissory note (the "Note")
in the principal sum of _______________________ Dollars ($________) dated (or
to be dated) of even date with the Deed of Trust, payable to Beneficiary or
order, which Deed of Trust has been or will be recorded in the Official
Records of said County; and
WHEREAS, Lessor and Lessee have entered into a lease dated as of
_______________, 19__ (the "Lease"), covering a portion of the building located
on the Property, for the term and upon the terms and conditions therein set
forth; and,
WHEREAS, for the purpose of completing the loan financing to be provided to
Lessor by Beneficiary with respect to the Property and improvements thereon,
the parties hereto desire to expressly subordinate the Lease and all rights
and interests of Lessee thereunder to the lien of the Deed of Trust (as the
same may hereafter be amended), it being a condition precedent to the
consummation of said loan financing that the lien of the Deed of Trust be
unconditionally and at all times prior and superior to the leasehold
interests and estates created by the Lease; and,
WHEREAS, it is to the mutual benefit of all of the parties hereto that
Beneficiary make said loan to Lessor.
EXHIBIT J,
----------
Page 1
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
and of the mutual benefits to accrue to the parties hereto, and in order to
induce Beneficiary to make the loan hereinabove referred to, it is hereby
declared, understood and agreed as follows:
1. Lessor and Lessee declare and acknowledge that each hereby
intentionally waives, relinquishes and subordinates the priority and
superiority of the Lease, the leasehold interests and estates
created thereby, and the rights, privileges and powers of the Lessee
and Lessor thereunder, including without limitation any purchase
options, rights of first refusal, rights to any condemnation awards
and similar rights or interests of the Lessee under said Lease, in
favor of the Deed of Trust (and any and all modifications of the
same or replacements therefor entered into after the date hereof),
and that each understands that in reliance upon, and in consideration
of, this waiver, relinquishment and subordination, Beneficiary is
making the loan referred to hereinabove, which would not be made but in
said reliance upon, and in consideration of, this waiver,
relinquishment and subordination.
2. It is expressly understood and agreed that this Agreement and the
Deed of Trust shall supersede, the provisions of the Lease, to the
extent that the same are inconsistent with this Agreement or the Deed
of Trust (as later modified, amended or replaced).
3. In the event Beneficiary or any other purchaser at a foreclosure
sale or sale under private power contained in the Deed of Trust
succeeds to the interest of Lessor in the Property by reason of any
foreclosure of the Deed of Trust or the acceptance of a deed in lieu
of foreclosure, or by any other manner, it is agreed that,
notwithstanding the subordination of the Lease provided for
hereinabove:
a. Lessee shall be bound to Beneficiary or such other purchaser
under all of the terms, covenants and conditions of the Lease
for the remaining balance of the term thereof and any extensions
thereof, with the same force and effect as if Beneficiary or such
other purchaser were the original lessor under such Lease, and
Lessee does hereby agree to attorn to Beneficiary or such other
purchaser as its lessor, such attornment to be effective and
self-operative without the execution of any further instruments
on the part of any of the parties to this Agreement, immediately
upon Beneficiary or such other purchaser succeeding to the interest
of Lessor in the Property.
b. Subject to the observance and performance by Lessee of all of
the terms, covenants and conditions of the Lease on the part of the
Lessee to be observed and performed, and provided that Lessee is
then in possession of the leased premises, Beneficiary or such
other purchaser shall recognize the leasehold estate of Lessee
under all of the terms, covenants and conditions of the Lease for
the remaining balance of the term or extension thereof with the
same force and effect as if Beneficiary or such other purchaser
were the original lessor under the Lease; provided, however, that
Beneficiary or such other purchaser shall not be (i) liable for any
act or omission of any prior lessor (including Lessor), (ii)
obligated to cure any defaults of any prior lessor (including
Lessor) under the Lease which occurred prior to the time that
Beneficiary or such other purchaser succeeded to the interest of
Lessor in the Property, (iii) subject to any offsets or defenses
which Lessee may be entitled to assert against any prior lessor
(including Lessor), (iv) bound by any payment of rent or additional
rent by Lessee to any prior lessor (including Lessor) for more than
two (2) months in advance, (v) bound by any amendment or
modification of the Lease made without the prior written consent of
Beneficiary or such other purchaser, (vi) liable or responsible for
or with
EXHIBIT J,
----------
Page 2
<PAGE>
respect to the retention, application and/or return to Lessee of
any security deposit paid to any prior lessor (including
Lessor), unless and until Beneficiary or such other purchaser has
actually received for its own account as lessor the full amount of
such security deposit or (vii) liable to Lessee or its respective
successors or assigns for any damages, monetary judgments, or
other judicial, quasi-judicial, arbitration, administrative or
other awards arising out of or in connection with ownership of the
Property by Beneficiary or such other purchaser, in excess of the
interest in the Property held by Beneficiary or such other
purchaser (it being understood that no other property or assets of
Beneficiary or its successors or assigns shall be subject to the
levy, execution or other enforcement procedure for the satisfaction
of any claim, award, judgment, injunction or decree, and that in
no event shall Beneficiary or its successors or assigns be
responsible for any consequential damages incurred by Lessee or its
employees, agents, contractors, invitees, successors or assigns, or
(viii) bound by any right of Lessee under the Lease to terminate
the Lease, except in the event of damage or destruction and/or
eminent domain; provided further that any right of first refusal,
or option in favor of Lessee under the Lease to purchase any
interest in the Property, shall not apply (A) to the foreclosure
by Beneficiary of the Deed of Trust in connection with which
Beneficiary or a third party acquires title to the Property, (B) to
a sale of the Property to Beneficiary or a third party in lieu of
such foreclosure or (C) to a sale of the Property or any portion
thereof by Beneficiary to a third party following foreclosure of
the Deed of Trust or sale in lieu thereof, in which Beneficiary
acquired title to the Property; and provided finally that the
Lease shall be subject to the rights of Beneficiary under the Deed
of Trust with respect to insurance and condemnation proceeds
relating to the Property.
4. Lessee hereby agrees that it will not exercise any right granted it
under the Lease, or which it might otherwise have under applicable law,
to terminate the Lease or perform any obligations of Lessor under the
Lease for Lessor's account because of a default of Lessor thereunder or
the occurrence of any other event without first giving to
Beneficiary prior written notice of Lessee's intent so to terminate
or perform, which notice shall include a statement of the default or
event on which such intent to terminate or perform is based.
Thereafter, Lessee shall not take any action to terminate the Lease or
so perform if Beneficiary: (i) within sixty (60) days after service of
such written notice on Beneficiary by Lessee of its intention so to
terminate the Lease or perform, shall cure such default or event, if
the same can be cured by the payment or expenditure of money; or (ii)
shall diligently take action to obtain possession of the leased
premises (including possession by receiver and/or foreclosure) and to
cure such default or event in the case of a default or event which
cannot be cured unless and until the Beneficiary has obtained
possession.
5. Subject to paragraph 4 above, Lessor and Lessee hereby agree not to
terminate, modify or amend the Lease, or any of the terms thereof,
without the prior written consent of Beneficiary, and further agree
that any attempted termination, modification or amendment of the
Lease without prior written consent of Beneficiary shall be null and
void.
6. For the purposes of facilitating Beneficiary's right hereunder,
Beneficiary shall have, and for such purposes is hereby granted by
Lessee and Lessor, the right to enter upon the Property and any
improvements thereon for the purpose of effecting any cure provided
for herein and for the purpose of inspecting the Property and the
improvements thereon and showing the same to prospective bidders and
their agents and employees in connection with a pending judicial or
non-judicial foreclosure sale.
EXHIBIT J,
----------
Page 3
<PAGE>
7. Lessee hereby agrees to give to Beneficiary, concurrently with the
giving of any notice of any nature given by Lessee to the Lessor under
the Lease, a copy of such notice by mailing the same to Beneficiary in
the manner set forth hereinbelow, and no such notice given to the
Lessor which is not at or about the same time also given to Beneficiary
shall be valid or effective against Beneficiary for any purpose. Cure
rights and other rights provided to Beneficiary herein shall run from
the date of Beneficiary's receipt of such notice from Lessee (without
regard to the date upon which Lessee delivers notice to Lessor).
For purposes of any notices to be given to Beneficiary hereunder,
the same shall be sent by U.S. certified mail, return receipt
requested, postage prepaid, to Beneficiary at the following address:
[Address]
or to such other address as Beneficiary may hereafter notify
Lessee in writing by notice sent to Lessee as aforesaid at Lessee's
address at the Property, or such other address as Beneficiary may
hereafter be advised of in writing by notice sent to Beneficiary as
aforesaid.
8. The agreements contained herein shall run with the land and shall be
binding upon and inure to the benefit of the respective heirs,
administrators, executors, legal representatives, successors and
assigns of the parties hereto.
9. Lessee, by the execution of this Agreement, acknowledges: (i) that
Lessor has collaterally assigned or is about to collaterally assign to
Beneficiary all of Lessor's right, title and interest in and to the
Lease pursuant to an Assignment of Lessor's Interest (the
"Assignment"); (ii) that under the terms of the Assignment, until the
Note is paid in full, Lessor may not without the prior written consent
of Beneficiary agree to any modification or termination of the Lease,
accept the surrender of the Lease, collect any rent in advance of the
due date specified in the Lease, collect any lease termination
payments, exercise any right of election which would have an adverse
effect upon the Lease or consent to any assignment or further
subordination of Lessee's interest in the Lease; and (iii) that in the
event of a default of any of the terms and conditions of the Note or
any documents executed in connection therewith, Beneficiary has the
right to collect the rental, lease termination and other payments due
under the Lease in partial satisfaction of the Note. Unless and until
Beneficiary notifies Lessee in writing of such a default (at which time
all payments are to be made as the notice directs), all payments called
for by the Lease are to be made as required by the Lease. Lessee
acknowledges that the Lease has been assigned as security for the
repayment of the Note only and no duty, liability, or obligation
whatsoever under said Lease, solely by virtue of the Assignment, is
assumed by Beneficiary.
10. Lessee shall, promptly upon written request of Beneficiary, execute,
cause to be acknowledged and deliver to Beneficiary any and all
documents which are required by Beneficiary to further carry out the
provisions of this Agreement, or the provisions of the Lease, including
without limitation, execution, acknowledgement and delivery of a new
subordination, nondisturbance and attornment agreement, or a new lease,
on the terms of such Lease, and as described herein, in the event this
Agreement or the Lease, is deemed ineffective, following a foreclosure
of the Deed of Trust, or an exercise of the power of sale thereunder,
or for any other reason.
11. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, and all such counterparts taken
together shall be deemed to constitute one and the same instrument.
EXHIBIT J,
----------
Page 4
<PAGE>
12. This Agreement, including EXHIBIT A incorporated herein by this
reference: (i) integrates all the terms and conditions mentioned in
or incidental to this Agreement; (ii) supersedes all oral negotiations
and prior and other writings with respect to its subject matter; and
(iii) is intended by the parties as the final expression of the
agreement with respect to the terms and conditions set forth in this
Agreement.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of the
day and year first above written.
LESSOR: ______________________________________
_____________________ a ______________
By: __________________________________
Name: ______________________________
Title: _____________________________
By: __________________________________
Name: ______________________________
Title: _____________________________
LESSEE: ______________________________________
_____________________ a ______________
By: __________________________________
Name: ______________________________
Title: _____________________________
By: __________________________________
Name: ______________________________
Title: _____________________________
BENEFICIARY: ______________________________________
_____________________ a ______________
By: __________________________________
Name: ______________________________
Title: _____________________________
EXHIBIT J,
----------
Page 5
<PAGE>
STANDARD OFFICE LEASE -- GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. BASIC LEASE PROVISIONS ("Basic Lease Provisions")
1.1 PARTIES: This Lease, dated, for reference purposes only, JULY 2, 1996,
is made by and between GLEN FELIZ PROPERTIES, A CALIFORNIA LIMITED PARTNERSHIP
(herein called "Lessor") and EARTHLINK NETWORK, INC., A CALIFORNIA
CORPORATION, doing business under the name of ______________________________,
(herein called "Lessee").
1.2 PREMISES: Suite Number(s) 203, 203A, 204, 2ND floors, consisting
of approximately 7,198 SQUARE feet, more or less, as defined in paragraph 2
and as shown on Exhibit "A" hereto (the "Premises").
1.3 BUILDING: Commonly described as being located at 3171 LOS FELIZ
BOULEVARD, in the City of LOS ANGELES, County of LOS ANGELES, State of
CALIFORNIA, as more particularly described in Exhibit A hereto, and as
defined in paragraph 2.
1.4 USE: GENERAL OFFICE AND COMPUTER DATA CENTER, subject to paragraph 6.
1.5 TERM: SEE ADDENDUM 50 commencing JULY 15, 1996 ("Commencement Date")
and ending SEE ADDENDUM 50, as defined in paragraph 3.
1.6 BASE RENT: $10,077.20 ($1.40/SQ.FT.) per month, payable on the 1ST
day of each month, per paragraph 4.1 RENT FOR JULY 15-31 DUE JULY 15, 1996.
SEE ADDENDUM 51.
1.7 BASE RENT INCREASE: On AUGUST 1, 1997 & AUGUST 1, 1998 the monthly
Base Rent payable under paragraph 1.6 above shall be adjusted as provided in
paragraph 4.3 below. SEE ADDENDUM 51.
1.8 RENT PAID UPON EXECUTION: $2,041.85 for JULY 15, 1996 THRU JULY 31,
1996.
1.9 SECURITY DEPOSIT: $10,077.20 LESS $6,083.50 CURRENT DEPOSIT:
$3,993.70 DUE JULY 15, 1996.
1.10 LESSEE'S SHARE OF OPERATING EXPENSE INCREASE: 28.80% as defined in
paragraph 4.2.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES: The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in paragraph 1.3 of the Basic
Lease Provisions. "Building" shall include adjacent parking structures used
in connection therewith. The Premises, the Building, the Common Areas, the
land upon which the same are located, along with all other buildings and
improvements thereon or thereunder, are herein collectively referred to as
the "Office Building Project." Lessor hereby leases to Lessee and Lessee
leases from Lessor for the term, at the rental, and upon all of the
conditions set forth herein, the real property referred to in the Basic Lease
Provisions, paragraph 1.2, as the "Premises," including rights to the Common
Areas as hereinafter specified.
2.2 VEHICLE PARKING: So long as Lessee is not in default, and subject to
the rules and regulations attached hereto, and as established by Lessor from
time to time, Lessee shall be entitled to rent and use 24 parking spaces in
the Office Building Project at the monthly rate applicable from time to time
for monthly parking as set by Lessor and/or its licensee.
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, 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.
2.2.2 The monthly parking rate per parking space will be $24.75 per
month at the commencement of the term of this Lease, and is subject to change
upon five (5) days prior written notice to Lessee. Monthly parking fees shall
be payable one month in advance prior to the first day of each calendar month.
2.3 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 Office Building Project that are provided and designated by the
Lessor from time to time for the general non-exclusive use of Lessor, Lessee
and of other lessees of the Office Building Project and their respective
employees, suppliers, shippers, customers and invitees, including but not
limited to common entrances, lobbies, corridors, stairways and stairwells,
public restrooms, elevators, escalators, parking areas to the extent not
otherwise prohibited by this Lease, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, ramps, driveways, landscaped areas
and decorative walls.
2.4 COMMON AREAS--RULES AND REGULATIONS. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with
respect to the Office Building Project and Common Areas, and to cause its
employees, suppliers, shippers, customers, and invitees to so abide and
conform. 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 modify, amend and enforce said rules and
regulations. Lessor shall not be responsible to Lessee for the non-compliance
with said rules and regulations by other lessees, their agents, employees and
invitees of the Office Building Project.
2.5 COMMON AREAS--CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common
Areas, including, without limitation, changes in the location, size, shape,
number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas,
ingress, egress, direction of traffic, decorative walls, landscaped areas and
walkways; provided, however, Lessor shall at all times provide the parking
facilities required by applicable law;
(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 and improvements outside the boundaries
of the Office Building Project to be a part of the Common Areas, provided
that such other land and improvements have a reasonable and functional
relationship to the Office Building Project;
(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 Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Office Building Project as Lessor
may, in the exercise of sound business judgment deem to be appropriate.
3. TERM.
3.1 TERM. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 DELAY IN POSSESSION. Notwithstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor 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 be obligated to pay rent or perform any other
obligation of Lessee under the terms of this Lease, except as may be
otherwise provided in this Lease, until possession of the Premises is
tendered to Lessee, as hereinafter defined: provided, however, that if Lessor
shall not have delivered possession of the Premises within sixty (60) days
following said Commencement Date, as the same may be extended under the terms
of a Work Letter executed by Lessor and Lessee, Lessee may, at Lessee's
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option, by notice in writing to Lessor within ten (10) days thereafter,
cancel this Lease, in which event the parties shall be discharged from all
obligations hereunder: provided, however, that, as to Lessee's obligations,
Lessee first reimburses Lessor for all costs incurred for Non-Standard
Improvements and, as to Lessor's obligations, Lessor shall return any money
previously deposited by Lessee (less any offsets due Lessor for Non-Standard
Improvements): and provided further, that if such written notice by 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.
3.2.1 POSSESSION TENDERED--DEFINED. Possession of the Premises shall
be deemed tendered to Lessee ("Tender of Possession") when (1) the
improvements to be provided by Lessor under this Lease are substantially
completed, (2) the Building utilities are ready for use in the Premises, (3)
Lessee has reasonable access to the Premises, and (4) ten (10) days shall
have expired following advance written notice to Lessee of the occurrence of
the matters described in (1), (2) and (3), above of this paragraph 3.2.1.
3.2.2 DELAYS CAUSE BY LESSEE. There shall be no abatement of rent,
and the sixty (60) day period following the Commencement Date before which
Lessee's right to cancel this lease accrues under paragraph 3.2, shall be
deemed extended to the extent of any delays caused by acts or omissions of
Lessee, Lessee's agents, employees and contractors.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 UNCERTAIN COMMENCEMENT. In the event commencement of the Lease term is
defined as the completion of the improvements, Lessee and Lessor shall
execute an amendment to this Lease establishing the date of Tender of
Possession (as defined in paragraph 3.2.1) or the actual taking of possession
by Lessee, whichever first occurs, as the Commencement Date.
4. RENT.
4.1 BASE RENT. Subject to adjustment as hereinafter provided in paragraph
4.3, and except as may be otherwise expressly provided in this Lease, Lessee
shall pay to Lessor the Base Rent for the Premises set forth in paragraph 1.6
of the Base Lease Provisions, without offset or deduction. Lessee shall pay
Lessor upon execution hereof the advance Base Rent described in paragraph 1.8
of the Basic Lease Provisions. Rent for any period during the term hereof
which is for less than one month shall be prorated based upon the actual
number of days of the calendar month involved. Rent shall be payable in
lawful money of the United States to Lessor at the address stated herein or
to such other persons or at such other places as Lessor may designate in
writing.
4.2 OPERATING EXPENSE INCREASE. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share, as hereinafter
defined, of the amount by which all Operating Expenses, as hereinafter
defined, for each Comparison Year exceeds the amount of all Operating
Expenses for the Base Year, such excess being hereinafter referred to as the
"Operating Expense Increase," in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this lease, as the
percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage of
the Premises by the total approximate square footage of the rentable space
contained in the Office Building Project. It is understood and agreed that the
square footage figures set forth in the Basic Lease Provisions are
approximations which Lessor and Lessee agree are reasonable and shall not be
subject to revision except in connection with an actual change in the size of
the Premises or a change in the space available for lease in the Office
Building Project.
(b) "Base Year" is defined as the calendar year in which the Lease
term commences. Base year is 1996.
(c) "Comparison Year" is defined as each calendar year during the
term of this Lease subsequent to the Base Year; provided, however Lessee
shall have no obligation to pay a share of the Operating Expense Increase
applicable to the first twelve (12) months of the Lease Term (other than such
as are mandated by a governmental authority, as to which government mandated
expenses Lessee shall pay Lessee's Share, notwithstanding they occur during
the first twelve (12) months). Lessee's Share of the Operating Expense
Increase for the first and last Comparison Years of the Lease Term shall be
prorated according to that portion of such Comparison Year as to which Lessee
is responsible for a share of such increase.
(d) "Operating Expenses" is defined, for purposes of this Lease, to
include all costs, if any, incurred by Lessor in the exercise of its
reasonable discretion, for:
(i) The operation, repair, maintenance, and replacement, in neat,
clean, safe, good order and condition, of the Office Building Project,
including but not limited to, the following:
(aa) The Common Areas, including their surfaces, coverings,
decorative items, carpets, drapes and window coverings, and including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, stairways, parkways, driveways, landscaped areas, striping,
bumpers, irrigation systems, Common Area lighting facilities, building
exteriors and roofs, fences and gates;
(bb) All heating, air conditioning, plumbing, electrical
systems, life safety equipment, telecommunication and other equipment used in
common by, or for the benefit of, lessees or occupants of the Office Building
Project, including elevators and escalators, tenant directories, fire
detection systems including sprinkler system maintenance and repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is elsewhere
in this Lease stated to be an "Operating Expense";
(iv) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property taxes to be paid by Lessor
under paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and other
publicly mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits and costs,
materials, supplies and tools, used in maintaining and/or cleaning the Office
Building Project and accounting and a management fee attributable to the
operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby
amortized over its useful life according to Federal income tax regulations or
guidelines for depreciation thereof (including interest on the unamortized
balance as is then reasonable in the judgment of Lessor's accountants);
(ix) Replacements of equipment or improvements that have a useful
life for depreciation purposes according to Federal income tax guidelines of
five (5) years or less, as amortized over such life.
(e) Operating Expenses shall not include the costs of replacements of
equipment or improvements that have a useful life for Federal income tax
purposes in excess of five (5) years unless it is of the type described in
paragraph 4.2(d)(viii) in which case their cost shall be included as above
provided.
(f) Operating Expenses shall not include any expenses paid by any
lessee directly to third parties, or as to which Lessor is otherwise
reimbursed by any third party, other tenant, or by insurance proceeds.
(g) Lessee's Share of Operating Expense increase shall be payable by
Lessee within ten (10) days after a reasonably 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 in advance of Lessee's
Share of the Operating Expense Increase for any Comparison Year, and the same
shall be payable monthly or quarterly, as Lessor shall designate, during each
Comparison Year of the Lease term, on the same day as the Base Rent is due
hereunder. In the event that the Lessee pays Lessor's estimate of Lessee's
Share of Operating Expense Increase as aforesaid, Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each Comparison Year a
reasonably detailed statement showing Lessee's Share of the actual Operating
Expense Increase incurred during such year. If Lessee's payments under this
paragraph 4.2(g) during said Comparison Year exceed Lessee's Share as
indicated on said statement, Lessee shall be entitled to credit the amount of
such overpayment against Lessee's Share of Operating Expense increase next
falling due. If Lessee's payments under this paragraph during said Comparison
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. Lessor and Lessee shall
forthwith adjust between them by cash payment any balance determined to exist
with respect to that portion of the last Comparison Year for which Lessee is
responsible as to Operating Expense increases, notwithstanding that the Lease
term may have terminated before the end of such Comparison Year.
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5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the security deposit set forth in paragraph 1.9 of the Basic Lease Provisions
as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may
use, apply or retain all or any portion of said deposit for the payment of
any rent or other charge in default for the payment of any other sum to which
Lessor may become obligated by reason of Lessee's default, or to compensate
Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so
uses or applies all or any portion of said deposit, Lessee shall within ten
(10) days after written demand therefor deposit cash with Lessor in an amount
sufficient to restore said deposit to the full amount then required of
Lessee. If the monthly Base Rent shall, from time to time, increase during
the term of this Lease, Lessee shall, at the time of such increase, deposit
with Lessor additional money as a security deposit so that the total amount
of the security deposit held by Lessor shall at all times bear the same
proportion to the then current Base Rent as the initial security deposit
bears to the initial Base Rent set forth in paragraph 1.6 of the Basic Lease
Provisions. Lessor shall not be required to keep said security deposit
separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not heretofore
been applied by Lessor, shall be returned, without payment of interest or
other increment for its use, to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest hereunder) at the expiration of the
term hereof, and after Lessee has vacated the Premises. No trust relationship
is created herein between Lessor and Lessee with respect to said Security
Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the purpose
set forth in paragraph 1.4 of the Basic Lease Provisions or any other use
which is reasonably comparable to that use and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to
alterations or improvements made by Lessee or the use for which Lessee will
occupy the Premises, does not violate any covenants or restrictions of
record, or any applicable building code, regulation or ordinance in effect on
such Lease term Commencement Date. In the event it is determined that this
warranty has been violated, then it shall be the obligation of the Lessor,
after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements
of any fire insurance underwriters or rating bureaus, now in effect or which
may hereafter come into effect, whether or not they reflect a change in
policy from that now existing, during the term or any part of the term
hereof, relating in any manner to the Premises and the occupation and use by
Lessee of the Premises. Lessee shall conduct its business in a lawful manner
and shall not use or permit the use of the Premises or the Common Areas in
any manner that will tend to create waste or a nuisance or shall tend to
disturb other occupants of the Office Building Project.
6.3 CONDITIONS OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee in a clean condition
on the Lease Commencement Date (unless Lessee is already in possession) and
Lessor warrants to Lessee that the plumbing, lighting, air conditioning, and
heating system in the Premises shall be in good operating condition. In the
event that it is determined that this warranty has been violated, then it
shall be the obligation of Lessor, after receipt of written notice from
Lessee setting forth with specificity the nature of the violation, to
promptly, at Lessor's sole cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises and the Office Building Project in their condition
existing as of the Lease Commencement Date or the date that Lessee takes
possession of the Premises, whichever is earlier, subject to all applicable
zoning, municipal, county and state laws, ordinances and regulations
governing and regulating the use of the Premises, and any easements,
covenants or restrictions of record, and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto.
Lessee acknowledges that it has satisfied itself by its own independent
investigation that the Premises are suitable for its intended use, and that
neither Lessor nor Lessor's agent or agents has made any representation or
warranty as to the present or future suitability of the Premises, Common
Areas, or Office Building Project for the conduct of Lessee's business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Lessor shall keep the Office Building Project,
including the Premises, interior and exterior walls, roof, and common areas,
and the equipment whether used exclusively for the Premises or in common with
other premises, in good condition and repair; provided, however, Lessor shall
not be obligated to paint, repair or replace wall coverings, or to repair or
replace any improvements that are not ordinarily a part of the Building or
are above then Building standards. Except as provided in paragraph 9.5, there
shall be no abatement of rent or liability of Lessee on account of any injury
or interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any
part thereof. Lessee expressly waives the benefits 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 Premises in good order, condition and repair.
7.2 LESSEE'S OBLIGATIONS.
(a) Notwithstanding Lessor's obligation to keep the Premises in good
condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located)
that serves only Lessee or the Premises, to the extent such cost is
attributable to causes beyond normal wear and tear. Lessee shall be
responsible for the cost of painting, repairing or replacing wall coverings,
and to repair or replace any Premises Improvements that are not ordinarily a
part of the Building or that are above then Building standards. Lessor may,
at its option, upon reasonable notice, elect to have Lessee perform any
particular such maintenance or repairs the cost of which is otherwise
Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as
received, ordinary wear and tear excepted, clean and free of debris. Any
damage or deterioration of the Premises shall not be deemed ordinary wear and
tear if the same could have been prevented by good maintenance practices by
Lessee. Lessee shall repair any damage to the Premises occasioned by the
installation or removal of Lessee's trade fixtures, alterations, furnishings
and equipment. Except as otherwise stated in this Lease, Lessee shall leave
the air lines, power panels, electrical distribution systems, lighting
fixtures, air conditioning, window coverings, wall coverings, carpets, wall
paneling, ceilings and plumbing on the Premises and in good operating
condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make
any alterations, improvements, additions, Utility Installations or repairs
in, on or about the Premises, or the Office Building Project. As used in this
paragraph 7.3 the term "Utility Installation" shall mean carpeting, window
and wall coverings, power panels, electrical distribution systems, lighting
fixtures, air conditioning, plumbing, and telephone and telecommunication
wiring and equipment. At the expiration of the term, Lessor may require the
removal of any or all of said alterations, improvements, additions or Utility
Installations, and the restoration of the Premises and the Office Building
Project to their prior condition, at Lessee's expense. Should Lessor permit
Lessee to make its own alterations, improvements, additions or Utility
Installations, Lessee shall use only such contractor as has been expressly
approved by Lessor, and Lessor may require Lessee to provide Lessor, at
Lessee's sole cost and expense, a lien and completion bond in an amount equal
to one and one-half times the estimated cost of such improvements, to insure
Lessor against any liability for mechanic's and materialmen's liens and to
insure completion of the work. Should Lessee make any alterations,
improvements, additions or Utility Installations without the prior approval
of Lessor, or use a contractor not expressly approved by Lessor, Lessor may,
at any time during the term of this Lease, require that Lessee remove any
part or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Office Building Project that
Lessee shall desire to make shall be presented to Lessor in written form,
with proposed detailed plans. If Lessor shall give its consent to Lessee's
making such alteration, improvement, addition or Utility Installation, the
consent shall be deemed conditioned upon Lessee acquiring a permit to do so
from the applicable governmental agencies, furnishing a copy thereof to
Lessor prior to the commencement of the work, and compliance by Lessee with
all conditions of said permit in a prompt and expeditious manner.
(c) 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 in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises by Lessee, and Lessor
shall have the right to post notices of non-responsibility in or on the
Premises or the Building 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 itself and Lessor against the same and shall pay and
satisfy
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any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises, the Building or the
Office Building Project, upon the condition that if Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an
amount equal to such contested lien claim or demand indemnifying Lessor
against liability for the same and holding the Premises, the Building and the
Office Building Project free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's reasonable attorneys'
fees and costs in participating in such action if Lessor shall decide it is
to Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of
Lessee), which may be made to the Premises by Lessee, including but not
limited to, floor coverings, panelings, doors, drapes, built-ins, moldings,
sound attenuation, and lighting and telephone or communication systems,
conduit, wiring and outlets, shall be made and done in a good and workmanlike
manner and of good and sufficient quality and materials and shall be the
property of Lessor and remain upon and be surrendered with the Premises at
the expiration of the Lease term, unless Lessor requires their removal
pursuant to paragraph 7.3(a). Provided Lessee is not in default,
notwithstanding the provisions of this paragraph 7.3(e), Lessee's personal
property and equipment, other than that which is affixed to the Premises so
that it cannot be removed without material damage to the Premises or the
Building, and other than Utility Installations, shall remain the property of
Lessee and may be removed by Lessee subject to the provisions of paragraph
7.2.
(f) Lessee shall provide Lessor with as-built plans and specifications
for any alterations, improvements, additions or Utility Installations.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building
Project, including, but not by way of limitation, such utilities as plumbing,
electrical systems, communication systems, and fire protection and detection
systems, so long as such installations do not unreasonably interfere with
Lessee's use of the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE--LESSEE. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Comprehensive
General Liability Insurance utilizing an Insurance Services Office standard
form with Broad Form General Liability Endorsement (GL0404), or equivalent,
in an amount of not less than $1,000,000 per occurrence of bodily injury and
property damage combined or in a greater amount as reasonably determined by
Lessor and shall insure Lessee with Lessor as an additional insured against
liability arising out of the use, occupancy or maintenance of the Premises.
Compliance with the above requirement shall not, however, limit the liability
of Lessee hereunder.
8.2 LIABILITY INSURANCE--LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other
risks Lessor deems advisable from time to time, insuring Lessor, but not
Lessee, against liability arising out of the ownership, use, occupancy or
maintenance of the Office Building Project in an amount not less than
$5,000,000.00 per occurrence.
8.3 PROPERTY INSURANCE--LESSEE. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 PROPERTY INSURANCE--LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss
or damage to the Office Building Project Improvements, but not Lessee's
personal property, fixtures, equipment or tenant improvements, in the amount
of the full replacement cost thereof, as the same may exist from time to
time, utilizing Insurance Services Office standard form, or equivalent,
providing protection against all perils included within the classification of
fire, extended coverage, vandalism, malicious mischief, plate glass, and such
other perils as Lessor deems advisable or may be required by a lender having
a lien on the Office Building Project. In addition, Lessor shall obtain and
keep in force, during the term of this Lease, a policy of rental value
insurance covering a period of one year, with loss payable to Lessor, which
insurance shall also cover all Operating Expenses for said period. Lessee
will not be named in any such policies carried by Lessor and shall have no
right to any proceeds therefrom. The policies required by these paragraphs
8.2 and 8.4 shall contain such deductibles as Lessor or the aforesaid lender
may determine. In the event that the Premises shall suffer an insured loss as
defined in paragraph 9.1(f) hereof, the deductible amounts under the
applicable insurance policies shall be deemed an Operating Expense. Lessee
shall not do or permit to be done anything which shall invalidate the
insurance policies carried by Lessor. Lessee shall pay the entirety of any
increase in the property insurance premium for the Office Building Project
over what it was immediately prior to the commencement of the term of this
Lease if the increase is specified by Lessor's insurance carrier as being
caused by the nature of Lessee's occupancy or any act or omission of Lessee.
8.5 INSURANCE POLICIES. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing
the existence and amounts of such insurance within seven (7) days after the
Commencement Date of this Lease. No such policy shall be cancellable or
subject to reduction of coverage or other 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 renewals
thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the
other, for direct or consequential loss or damage arising out of or incident
to the perils covered by property insurance carried by such party, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. If necessary all property insurance policies
required under this Lease shall be endorsed to so provide.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and
against any and all claims for damage to the person or property of anyone or
any entity arising from Lessee's use of the Office Building Project, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and
shall further indemnify and hold harmless Lessor from and against any and all
claims, costs and expenses arising from any breach or default in the
performance of any obligation on Lessee's part to be performed under the
terms of this Lease, or arising from any act or omission of Lessee, or any of
Lessee's agents, contractors, employees, or invitees, and from and against
all costs, attorney's fees, expenses and liabilities incurred by Lessor as
the result of any such use, conduct, activity, work, things done, permitted
or suffered, breach, default or negligence, and in dealing reasonably
therewith, including but not limited to the defense or pursuit of any claim
or any action or proceeding involved therein; and in case any action or
proceeding be brought against Lessor by reason of any such matter, 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. Lessee, as a material part of the consideration to Lessor,
hereby assumes all risk of damage to property of Lessee or injury to persons,
in, upon or about the Office Building Project arising from any cause and
Lessee hereby waives all claims in respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. SEE ADDENDUM 55. Lessee hereby
agrees that Lessor shall not be liable for injury to Lessee's business or any
loss of income therefrom or for loss of or damage to the goods, wares,
merchandise or other property of Lessee, Lessee's employees, invitees,
customers, or any other person in or about the Premises or the Office
Building Project, nor shall Lessor be liable for injury to the person of
Lessee, Lessee's employees, agents or contractors, whether such damage or
injury is caused by or results from theft, fire, steam, electricity, gas,
water or rain, or from the breakage, leakage, obstruction or other defects of
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether said damage or injury results from
conditions arising upon the Premises or upon other portions of the Office
Building Project, or from other sources or places, or from new construction
or the repair, alteration or improvement of any part of the Office Building
Project, or of the equipment, fixtures or appurtenances applicable
thereto, and regardless of whether the cause of such damage or injury or the
means of repairing the same is inaccessible. Lessor shall not be liable for
any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure of Lessor to
enforce the provisions of any other lease of any other lessee of the Office
Building Project.
8.9 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no representation
that the limits or forms of coverage of insurance specified in this paragraph
8 are adequate to cover Lessee's property or obligations under this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent (50%) of the then Replacement Cost
of the building.
(c) "Premises Building Total Destruction" shall mean if the Building
of which the Premises are a part is damaged or destroyed to the extent that
the cost to repair is fifty percent (50%) or more of the then Replacement
Cost of the Building.
(d) "Office Building Project Buildings" shall mean all of the
buildings on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean
if the Office Building Project Buildings are damaged or destroyed to the
extent that the cost of repair is fifty percent (50%) or more of the then
Replacement Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was caused
by an event required to be covered by the insurance described in paragraph 8.
The fact that an Insured Loss has a deductible amount shall not make the loss
an uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
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9.2 PREMISES DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of other Premises Damage
or Premises Building Partial Damage, then Lessor shall, as soon as reasonably
possible and to the extent the acquired materials and labor are readily
available through usual commercial channels at Lessor's expense, repair such
damage (but not Lessee's fixtures, equipment or tenant improvements originally
paid for by Lessee) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is
not an insured Loss and which falls within the classification of Premises
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at
Lessee's expense), which damage prevents Lessee from making any substantial
use of the Premises, 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 the date of the occurrence of
such damage of Lessor's intention to cancel and terminate this Lease as of
the date of the occurrence of such damage, in which event this Lease shall
terminate as of the date of the occurrence of such damage.
9.3 PREMISES BUILDING TOTAL DESTRUCTION; OFFICE BUILDING PROJECT TOTAL
DESTRUCTION. Subject to the provisions of paragraphs 9.4 and 9.5, if at any
time during the term of this Lease there is damage, whether or not it is an
Insured Loss, which falls into the classification of either (i) Premises
Building Total Destruction, or (ii) Office Building Project Total
Destruction, then Lessor may at Lessor's option either (i) repair such damage
or destruction as soon as reasonably possible at Lessor's expense (to the
extent the required materials are readily available through usual commercial
channels) to its condition existing at the time of the damage, but not
Lessee's fixtures, equipment or tenant improvements, and this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee
within thirty (30) days after the date of occurrence of such damage of
Lessor's intention to cancel and terminate this Lease in which case this
Lease shall terminate as of the date of the occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the last twelve
(12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of
such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option
may be exercised has not yet expired, Lessee shall exercise such option, if
it is to be exercised at all, no later than twenty (20) days after the
occurrence of an Insured Loss falling within the classification of Premises
Damage during the last twelve (12) months of the term of this Lease. If
Lessee duly exercises such option during said twenty (20) day period, Lessor
shall, at Lessor's expense, repair such damage, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise
such option during said twenty (20) day period, than Lessor may at Lessor's
option terminate and cancel this Lease as of the expiration of said twenty
(20) day period by giving written notice to Lessee of Lessor's election to do
so within ten (10) days after the expiration of said twenty (20) day period,
notwithstanding any term or provision in the grant of option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Building or Premises
pursuant to the provisions of this paragraph 9, and any part of the Premises
are not usable (including loss of use due to loss of access or essential
services), the rent payable hereunder (including Lessee's Share of Operating
Expense Increase) for the period during which such damage, repair or
restoration continues shall be abated, provided (1) the damage was not the
result of the negligence of Lessee, and (2) such abatement shall only be to
the extent the operation and profitability of Lessee's business as operated
from the Premises is adversely affected. Except for said abatement of rent,
if any, Lessee shall have no claim against Lessor for any damage suffered by
reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises or
the Building under the provisions of this Paragraph 9 and shall not commence
such repair or restoration within sixty (60) days after such occurrence, or
if Lessor shall not complete the restoration and repair within six (6) months
after such occurrence, Lessee may at Lessee's option cancel and terminate
this Lease by giving Lessor written notice of Lessee's election to do so at
any time prior to the commencement of completion, respectively, of such
repair or restoration. In such event this Lease shall terminate as of the
date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with any such
restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessee shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree
that such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. SEE ADDENDUM 56. Lessor shall pay the real property
tax, as defined in paragraph 10.3, applicable to the Office Building Project
subject to reimbursement by Lessee of Lessee's Share of such taxes in accordance
with the provisions of paragraph 4.2, except as otherwise provided in
paragraph 10.2.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying
any increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operation Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" 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 on the Office Building Project or
any portion thereof by any authority having the direct or indirect power to
tax, including any city, county, state or federal government, or any school,
agricultural, sanitary, fire, street, drainage or other improvement district
thereof, as against any legal or equitable interest of Lessor in the Office
Building Project or in any portion thereof, as against Lessor's right to rent
or other income therefrom, and as against Lessor's business of leasing the
Office Building Project. The term "real property tax" shall also include any
tax, fee, levy, assessment of charge (i) in substitution of, partially or
totally, any tax, fee, levy, assessment or charge hereinabove included within
the definition of "real property tax," of (ii) the nature of which was
hereinbefore included within the definition of "real property tax," or
(iii) which is imposed for a service or right not charged prior to June 1, 1978
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a change in ownership, as defined by applicable local
statutes for property tax purposes, of the Office Building Project or which
is added to a tax or charge hereinbefore included within the definition of
real property tax by reason of such change of ownership, or (v) which is
imposed by reason of this transaction, any modifications or changes hereto, or
any transfers hereof.
10.4 JOINT ASSESSMENTS. If the improvements or property, the taxes for
which are to be paid separately by Lessee under paragraph 10.2 or 10.5 are
not separately assessed, Lessee's portion of that tax shall be equitably
determined by Lessor from the respective valuations assigned in the
assessor's work sheets or such other information (which may include the cost
of construction) as may be reasonably available. Lessor's reasonable
determination thereof, in good faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting
forth the taxes applicable to Lessee's property.
11. UTILITIES. SEE ADDENDUM 52.
11.1 SERVICES PROVIDED BY LESSOR. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably
required, reasonable amounts of electricity for normal lighting and office
machines, water for reasonable and normal drinking and lavatory use, and
replacement light bulbs and/or fluorescent tubes and ballasts for standard
overhead fixtures.
11.2 SERVICES EXCLUSIVE TO LESSEE. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately
metered to the Premises, Lessee shall pay at Lessor's option, either Lessee's
Share or a reasonable proportion to be determined by Lessor of all charges
jointly metered with other premises in the Building.
11.3 HOURS OF SERVICE. Said services and utilities shall be provided during
generally accepted business days and hours or such other days or hours as
may hereafter be set forth. Utilities and services required at other times
shall be subject to advance request and reimbursement by Lessee to Lessor of
the cost thereof.
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11.4 EXCESS USAGE BY LESSEE. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water,
lighting or power, or suffer or permit any act that causes extra burden upon
the utilities or services, including but not limited to security services,
over standard office usage for the Office Building Project. Lessor shall
require Lessee to reimburse Lessor for any excess expenses or costs that may
arise out of a breach of this subparagraph by Lessee. Lessor may, in its sole
discretion, install at Lessee's expense supplemental equipment and/or
separate metering applicable to Lessee's excess usage or loading.
11.5 INTERRUPTIONS. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the
Premises, without Lessor's prior written consent, which Lessor shall not
unreasonably withhold. Lessor shall respond to Lessee's request for consent
hereunder in a timely manner and any attempted assignment, transfer,
mortgage, encumbrance or subletting without such consent shall be void, and
shall constitute a material default and breach of this Lease without the need
for notice to Lessee under paragraph 13.1. "Transfer" within the meaning of
this paragraph 12 shall include the transfer or transfers aggregating: (a) if
Lessee is a corporation, more than twenty-five percent (25%) of the voting
stock of such corporation, or (b) if Lessee is a partnership, more than
twenty-five percent (25%) of the profit and loss participation in such
partnership.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent to any corporation which controls, is controlled by
or is under common control with Lessee, or to any corporation resulting from
the merger or consolidation with Lessee, or to any person or entity which
acquires all the assets of Lessee as a going concern of the business that is
being conducted on the Premises, all of which are referred to as "Lessee
Affiliate"; provided that before such assignment shall be effective, (a) said
assignee shall assume, in full, the obligations of Lessee under this Lease
and (b) Lessor shall be given written notice of such assignment and
assumption. Any such assignment shall not, in any way, affect or limit the
liability of Lessee under the terms of this Lease even if after such
assignment or subletting the terms of this Lease are materially changed or
altered without the consent of Lessee, the consent of whom shall not be
necessary.
12.3 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, no assignment or subletting
shall release Lessee of Lessee's obligations hereunder or alter the primary
liability of Lessee to pay the rent and other sums due Lessor hereunder
including Lessee's Share of Operating Expense increase, and to perform all
other obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such
assignment or subletting, nor the acceptance of rent, shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the breach
of any of the terms or conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed
by third parties, then an assignment or sublease, and Lessor's consent
thereto, shall not be effective unless said guarantors give their written
consent to such sublease and the terms thereof.
(e) The consent by 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 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 on the Lease or sublease and without obtaining their
consent and such action shall not relieve such persons from liability under
this Lease or said sublease; however, such persons shall not be responsible
to the extent any such amendment or modification enlarges or increases the
obligations of the Lessee or sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may
proceed directly against Lessee, any guarantors or any one else responsible
for the performance of this Lease, including the sublessee, without first
exhausting Lessor's remedies against any other person or entity responsible
therefor to Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgement that no default
then exists under this Lease of the obligations to be performed by Lessee nor
shall such consent be deemed a waiver of any then existing default, except
as may be otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied
upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent
null and void.
12.4 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING.
Regardless of Lessor's consent, 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 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 default shall occur in the performance of Lessee's obligations
under this Lease, Lessee may receive, collect and enjoy the rents accruing
under such sublease. Lessor shall not, by reason of this 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 default exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor the rents due and to become due under the
sublease. Lessee agrees that such sublessee shall have the right to rely upon
any such statement and request from Lessor, and that such sublessee shall pay
such rents to Lessor without any obligation or right to inquire as to whether
such default exists and notwithstanding any notice from or claim from Lessee
to the contrary. Lessee shall have no right or claim against said sublessee
or Lessor or any such rents so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless
and until it has been approved in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of sublessee as is satisfactory to
Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublease shall, by
reason of entering into a sublease under this Lease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every obligation herein to be performed by Lessee other than such
obligations as are contrary to or inconsistent with provisions contained in a
sublease to which Lessor has expressly consented in writing.
(c) In the event Lessee shall default 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 Lessee under such sublease from the
time of the exercise of said option to the termination of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or
security deposit paid by such sublessee to Lessee or for any other prior
defaults of Lessee under such sublease.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset
from and against Lessee for any such defaults cured by the sublessee.
12.5 LESSOR'S EXPENSES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or
if Lessee shall request the consent of Lessor for any act Lessee proposes to
do then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants' fees.
12.6 CONDITIONS TO CONSENT. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the
proposed assignee or sublessee shall conduct a business on the Premises of a
quality substantially equal to that of Lessee and consistent with the general
character of the other occupants of the Office Building Project and not in
violation of any exclusives or rights then held by other tenants, and (b) the
proposed assignee or sublessee be at least as financially responsible as
Lessee was expected to be at the time of the execution of this Lease or of
such assignment or subletting, whichever is greater.
13. DEFAULTS; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee. Vacation
of the Premises shall include the failure to occupy the Premises for a
continuous period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment
or subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency),
13.1(f) (false statement), 16(a) (estoppel certificate), 30(b)
(subordination), 33 (auctions), or 41.1 (easements), all of which are hereby
deemed to be material, non-curable defaults without the necessity of any
notice by Lessor to Lessee thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
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(d) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee
other than those referenced in subparagraphs (b) and (c) above, where
such failure shall continue for a period of thirty (30) days after written
notice thereof from Lessor to Lessee; provided, however, that if the nature
of Lessee's noncompliance is such that more than thirty (30) days are
reasonably required for its cure, then Lessee shall not be deemed to be in
default if Lessee commenced such cure within said thirty (30) day period and
thereafter diligently pursues such cure to completion. To the extent
permitted by law, such thirty (30) day notice shall constitute the sole and
exclusive notice required to be given to Lessee under applicable Unlawful
Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in II U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within
sixty (60) days; (iii) the appointment of a trustee or receiver to take
possession of substantially all of Lessee's assets located at the Premises or
of Lessee's interest in this Lease, where possession is not restored to
Lessee within thirty (30) days; or (iv) the attachment, execution or other
judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days. In the event that any provision of this
paragraph 13.1(e) is contrary to any applicable law, such provision shall be
of no force or effect.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee, or its successor in interest or by any guarantor of
Lessee's obligation hereunder, was materially false.
13.2 REMEDIES. In the event of any material default or breach of this
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy
which Lessor may have by reason of such default:
(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 all damages
incurred by Lessor by reason of Lessee's default 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 any real estate commission actually paid; the worth at
the time of award by the court having jurisdiction thereof of the amount by
which the unpaid rent for the balance of the term after the time of such
award exceeds the amount of such rental loss for the same period that Lessee
proves could be reasonably avoided; that portion of the leasing commission
paid by Lessor pursuant to paragraph 15 applicable to the unexpired term of
this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor shall be entitled to enforce all
of Lessor's rights and remedies under this Lease, including the right to
recover the rent as it becomes due hereunder.
(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.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have theretofore been furnished to
Lessee in writing, specifying wherein Lessor has failed to perform such
obligation; provided, however, that if the nature of Lessor's obligation is
such that more than thirty (30) days are required for performance then Lessor
shall not be in default if Lessor commences performance within such 30-day
period and thereafter diligently pursues the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expense Increase or
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 on Lessor by the
terms of any mortgage or trust deed covering the Office Building Project.
Accordingly, if any installment of Base Rent, Operating Expense Increase, or
any other sum due from Lessee shall not be received by Lessor or Lessor's
designee within five (5) 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 10% 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 with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
14. CONDEMNATION. If the Premises or any portion thereof or the Office
Building Project 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 of the condemning authority takes title or possession, whichever first
occurs; provided that if so much of the Premises or the Office Building
Project are taken by such condemnation as would substantially and adversely
affect the operation and profitability of Lessee's business conducted from
the Premises, Lessee shall have the option, to be exercised only in writing
within thirty (30) days after Lessor shall have given Lessee written notice
of such taking (or in the absence of such notice, within thirty (30) days
after the condemning authority shall have taken possession), to 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 rent and Lessee's Share of Operating Expense
Increase shall be reduced in the proportion that the floor area of the
Premises taken bears to the total floor area of the Premises. Common Areas
taken shall be excluded from the Common Areas usable by Lessee and no
reduction of rent shall occur with respect thereto or by reason thereof.
Lessor shall have the option in its sole discretion to terminate this Lease
as of the taking of possession by the condemning authority, by giving written
notice to Lessee of such election within thirty (30) days after receipt of
notice of a taking by condemnation of any part of the Premises or the Office
Building Project. Any award for the taking of all or any part of the
Premises or the Office Building Project 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 in value of the leasehold or for the taking of the fee, or as
severance damages, provided, however, that Lessee shall be entitled to any
separate award for loss of or damage to Lessee's trade natures, removable
personal property and unamortized tenant improvements that have been paid for
by Lessee. For that purpose the cost of such improvements shall be amortized
over the original term of this Lease excluding any options. In the event
that this Lease is not terminated by reason of such condemnation, Lessor
shall to the extent of severance damages received by Lessor in connection
with such condemnation, repair any damage to the Premises caused by such
condemnation except to the extent that Lessee has been reimbursed therefor by
the condemning authority. Lessee shall pay any amount in excess of such
severance damages required to complete such repair.
15. BROKER'S FEE.
(a) The brokers involved in this transaction WILL BE PAID BY
LESSOR as "listing broker" and _______________________ as "cooperating broker,"
licensed real estate broker(s). A "cooperating broker" is defined as any
broker other than the listing broker entitled to a share of any commission
arising under this Lease. Upon execution of this Lease by both parties, Lessor
shall pay to said brokers jointly, or in such separate shares as they may
mutually designate in writing, a fee as set forth in a separate agreement
between Lessor and said broker(s), or in the event there is no separate
agreement between Lessor and said broker(s), the sum of $_____________ for
brokerage services rendered by said broker(s) to Lessor in this transaction.
(b) Lessor further agrees that (i) if Lessee exercises any Option, as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under
this Lease, or any subsequently granted option which is substantially similar
to an Option granted to Lessee under this Lease, or (ii) if Lessee acquires
any rights to the Premises or other premises described in this Lease which
are substantially similar to what Lessee would have acquired had an Option
herein granted to Lessee been exercised, or (iii) if Lessee remains in
possession of the Premises after the expiration of the term of this Lease
after having failed to exercise an Option, or (iv) if said broker(s) 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 (v) if the Base Rent is increased, whether by agreement or
operation of an escalation clause contained herein, then as to any of said
transactions or rent increases, Lessor shall pay said broker(s) a fee in
accordance with the schedule of said broker(s) in effect at the time of
execution of this Lease. Said fee shall be paid at the time such increased
rental is determined.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee
is due hereunder. Any 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 listing and
cooperating broker shall be a third party beneficiary of the provisions of
this paragraph 15 to the extent of their interest in any commission arising
under this Lease and may enforce that right directly against Lessor;
provided, however, that all brokers having a right to any part of such total
commission shall be a necessary party to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that
neither has had any dealings with any person, firm, broker or finder (other
than the person(s), if any, whose names are set forth in paragraph 15(a),
above) in connection with the negotiation of this Lease and/or the
consummation of the transaction contemplated hereby, and no other broker or
other person, firm or entity is entitled to any commission or finder's fee in
connection with said transaction and Lessee and Lessor do each hereby
indemnify and hold the other harmless from and against any costs, expenses,
attorney's fees or 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.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement
in writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and
the date
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to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied
upon by any prospective purchaser or encumbrancer of the Office Building
Project or of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it
shall be conclusive upon such party that (i) this Lease is in full force and
effect, without modification, except as may be represented by the requesting
party, (ii) there are no uncured defaults in the requesting party's
performance, and (iii) if Lessor is the requesting party, not more than one
month's rent has been paid in advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, Lessee hereby agrees to deliver to any lender
or purchaser designated by Lessor such financial statements of Lessee as may
be reasonably required by such lender or purchaser. Such statements shall
include the past three (3) years' financial statements of Lessee. All such
financial statements shall be received by Lessor and such lender or purchaser
in confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such
title or interest, Lessor herein named (and in case of any subsequent
transfers then the grantor) shall be relieved from and after the date of such
transfer of all liability as respects Lessor's obligations thereafter to be
performed, provided that any funds in the hands of Lessor or the then grantor
at the time of such transfer, in which Lessee has an interest, shall be
delivered to the grantee. The obligations contained in this Lease to be
performed by Lessor shall, subject as aforesaid, be binding on Lessor's
successors and assigns, only during their respective periods of ownership.
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. Except as expressly herein provided,
any amount due to Lessor not paid when due shall bear interest at the maximum
rate then allowable by law or judgments from the date due. Payment of such
interest shall not excuse or cure any default by Lessee under this Lease;
provided, however, that interest shall not be payable on late charges
incurred by Lessee nor on any amounts upon which late charges are paid by
Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations
to be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No
prior or contemporaneous agreement or understanding pertaining to any such
matter shall be effective. This Lease may be modified in writing only,
signed by the parties in interest at the time of the modification. Except as
otherwise stated in this Lease, Lessee hereby acknowledges that neither the
real estate broker listed in paragraph 15 hereof nor any cooperating broker
on this transaction nor the Lessor or any employee or agents of any of said
persons has made any oral or written warranties or representations to Lessee
relative to the condition or use by Lessee of the Premises or the Office
Building Project and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use
and adaptability of the Premises and the compliance thereof with all
applicable laws and regulations in effect during the term of this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified or
registered mail, and shall be deemed sufficiently given if delivered or
addressed to Lessee or to Lessor at the address noted below or adjacent to
the signature of the respective parties, as the case may be. Mailed notices
shall be deemed given upon actual receipt at the address required, or
forty-eight hours following deposit in the mail, postage prepaid, whichever
first occurs. Either party may by 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 notice
purposes. 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 notice to
Lessee.
24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any
act shall not be deemed to render unnecessary the obtaining of Lessor's
consent to or approval of any subsequent act by Lessee. The acceptance of
rent hereunder by Lessor shall not be a waiver of any preceding breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted, regardless of Lessor's knowledge of such
preceding breach at the time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of
this Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof,
such occupancy shall be a tenancy from month to month upon all the
provisions of this Lease pertaining to the obligations of Lessee, except that
the rent payable shall be two hundred percent (200%) of the rent payable
immediately preceding the termination date of this Lease, and all Options, if
any, granted under the terms of this Lease shall be deemed terminated and be
of no further effect during said month to month tenancy.
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. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions
of paragraph 17, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the State where the Office Building Project is located and any
litigation concerning this Lease between the parties hereto shall be
initiated in the county in which the Office Building Project is located.
30. SUBORDINATION.
(a) This Lease, and any Option or right of first refusal granted hereby,
at Lessor's option, shall be subordinate to any ground lease, mortgage, deed
of trust, or any other hypothecation or security now or hereafter placed upon
the Office Building Project and to any and all advances made on the security
thereof and to all renewals, modifications, consolidations, replacements and
extensions thereof. Notwithstanding such subordination, Lessee's right to
quiet possession of the Premises shall not be disturbed if Lessee is not in
default and so long as Lessee shall pay the rent and observe and perform all
of the provisions of this Lease, unless this Lease is otherwise terminated
pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect
to have this Lease and any Options granted hereby prior to the lien of its
mortgage, deed of trust or ground lease, and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
mortgage, deed of trust or ground lease, whether this Lease or such Options
are dated prior or subsequent to the date of said mortgage, deed of trust or
ground lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted
herein prior to the lien of any mortgage, deed of trust or ground lease, as
the case may be. Lessee's failure to execute such documents within ten (10)
days after written demand shall constitute a material default by Lessee
hereunder without further notice to Lessee or, at Lessor's option, Lessor
shall execute such documents on behalf of Lessee as Lessee's
attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint
Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to
execute such documents in accordance with this paragraph 30(b).
31. ATTORNEYS' FEES.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the
same or a separate suit, and whether or not such action is pursued to
decision or judgment. The provisions of this paragraph shall inure to the
benefit of the broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with
any court fee schedule, but shall be such as to fully reimburse all
attorneys' fees reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the preparation and service of notice of
default and consultations in connection therewith, whether or not a legal
transaction is subsequently commenced in connection with such default.
32. LESSOR'S ACCESS.
32.1 Lessor and Lessor's agents shall have the right to enter the
Premises at reasonable times for the purpose of inspecting the same,
performing any services required of Lessor, showing the same to prospective
purchasers, lenders, or lessees, taking such safety measures, erecting such
scaffolding or other necessary structures, making such alterations, repairs,
improvements or additions to the Premises or to the Office Building Project
as Lessor may reasonably deem necessary or desirable and the erecting, using
and maintaining of utilities, services, pipes and conduits through the
Premises and/or other premises as long as there is no material adverse effect
to Lessee's use of the Premises. Lessor may at any time place on or about the
Premises or the Building any ordinary "For Sale" signs and Lessor may at any
time during the last 120 days of the term hereof place on or about the
Premises any "For Lease" signs.
32.2 All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
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32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and
safes, and in the case of emergency to enter the Premises by any reasonably
appropriate means, and any such entry shall not be deemed a forceable or
unlawful entry or detainer of the Premises or an eviction. Lessee waives any
charges for damages or injuries or interference with Lessee's property or
business in connection therewith.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common
Areas 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. The holding of any auction on the Premises or Common
Areas in violation of this paragraph shall constitute a material default of
this Lease.
34. SIGNS. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no
circumstances shall Lessee place a sign on any roof of the Office Building
Project.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
36. CONSENTS. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Office Building Project.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option 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; (2) the option of 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 space within the Office Building Project or
other property of Lessor or the right of first offer to lease other space
within the Office Building Project or other property of Lessor; (3) the right
or option to purchase the Premises or the Office Building Project, or the
right of first refusal to purchase the Premises or the Office Building
Project or the right of first offer to purchase the Premises or the Office
Building Project, or the right or option 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. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original
Lessee while occupying the Premises who does so without the intent of
thereafter assigning this Lease or subletting the Premises or any portion
thereof, and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee; provided,
however, that an Option may be exercised by or assigned to any Lessee
Affiliate as defined in paragraph 12.2 of this Lease. The Options, if any,
herein granted to Lessee are not assignable separate and apart from this
Lease, nor may any Option be separated from this Lease in any manner, either
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 option to extend or renew this Lease has been so exercised.
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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 time commencing from the date Lessor gives to Lessee a notice of
default pursuant to paragraph 13.1(c) or 13.1(d) and continuing until the
noncompliance alleged in said notice of default is cured, or (ii) during the
period of time commencing on the day after a monetary obligation to Lessor is
due from Lessee and unpaid (without any necessity for notice thereof to
Lessee) and continuing until the obligation is paid, or (iii) in the event
that Lessor has given to Lessee three or more notices of default under
paragraph 13.1(c), or paragraph 13.1(d), whether or not the defaults are
cured, during the 12 month period of time immediately prior to the time that
Lessee attempts to exercise the subject Option, (iv) if Lessee has committed
any non-curable breach, including without limitation those described in
paragraph 13.1(b), or is otherwise in default of any of the terms, covenants
or conditions in this Lease.
(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)
Lessee fails to commence to cure a default specified in paragraph 13.1(d)
within thirty (30) days after the date that Lessor gives notice to Lessee of
such default and/or Lessee fails thereafter to diligently prosecute said cure
to completion, or (iii) Lessor gives to Lessee three or more notices of default
under paragraph 13.1(c), or paragraph 13.1(d), whether or not the defaults
are cured, or (iv) if Lessee has committed any non-curable breach, including
without limitation those described in paragraph 13.1(b), or is otherwise in
default of any of the terms, covenants and conditions of this Lease.
40. SECURITY MEASURES -- LESSOR'S RESERVATIONS.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the
benefit of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole
option, from providing security protection for the Office Building Project or
any part thereof, in which event the cost thereof shall be included within
the definition of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than 90
days prior written notice;
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business
as long as such exclusive does not conflict with any rights expressly given
herein;
(d) To place such signs, notices or displays as Lessor reasonably
deems necessary or advisable upon the roof, exterior of the buildings of the
Office Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building
or the Office Building Project or their name(s) in connection with Lessee's
business;
(b) Suffer or permit anyone, except in emergency, to go upon the
roof of the Building.
41. EASEMENTS.
41.1 Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or
desirable and to cause the recordation of Parcel Maps and restrictions, so
long as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure
to do so shall constitute a material default of this Lease by Lessee without
the need for further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. 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.
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43. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of
such entity represent and warrant that such individual is duly authorized to
execute and deliver this Lease on behalf of said entity. If Lessee is a
corporation, trust or partnership, Lessee shall, within thirty (30) days
after execution of this Lease, deliver to Lessor evidence of such authority
satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
45. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully
executed by both parties.
46. LENDER MODIFICATION. Lessee agrees to make such reasonable modifications
to this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the
Office Building Project.
47. MULTIPLE PARTIES. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee, respectively.
48. WORK LETTER. This Lease is supplemented by that certain Work Letter of
even date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49. ATTACHMENTS. Attached hereto are the following documents which constitute
a part of this Lease: See attached Addendum.
----------------------
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN AND, BY 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
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS
LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
Glen Feliz Properties EarthLink Network, Inc.
- ------------------------------------ ------------------------------------
By /s/ Lynn Geller By /s/ Barry Hall
---------------------------------- ------------------------------------
Its General Partner Its CFO
------------------------- ------------------------
By By
---------------------------------- ----------------------------------
Its Its
------------------------- ------------------------
Executed at Los Angeles, California Executed at Pasadena, California
------------------------- -------------------------
on 7-12-96 on 7/12/96
---------------------------------- ----------------------------------
Address 3171 Los Feliz Blvd., #304 Address
----------------------------- -----------------------------
- -C- 1984 American Industrial Real Estate Association
FULL SERVICE-GROSS
PAGE 10 OF 10 PAGES
For these forms write or call the American Industrial Real Estate
Association, 350 South Figuerna Street, Suite 275, Los Angeles, CA 90071,
(213) 687-8777
- -C- 1984-By American Industrial Real Estate Association. All rights reserved.
No part of these words may be reproduced in any form without permission in
writing.
<PAGE>
ADDENDUM TO LEASE
50. LEASE TERM:
SUITES 203A, 204 - three years and one-half month, commencing July 15,
1996 and expiring July 31, 1999.
SUITE 203 - two years and one-half month, commencing July 15, 1996 and
expiring July 31, 1998.
51. MONTHLY RENTAL RATE:
SUITES 203A, 204 - 2,533 sq. ft.
July 15, 1996 to July 31, 1997 -- $1.40/sq. ft. ($3,546.20)
August 1, 1997 to July 31, 1998 -- $1.45/sq. ft. ($3,672.85)
August 1, 1998 to July 31, 1999 -- $1.50/sq. ft. ($3,799.50)
SUITE 203 - 4,665 sq. ft.
July 15, 1996 to July 31, 1997 -- $1.40/sq. ft. ($6,531.00)
August 1, 1997 to July 31, 1998 -- $1.45/sq. ft. ($6,764.25)
Rent for July 15-31, 1996:
Suites 203, 203A, 204, $10,077.20 DIVIDED BY 2 = $5,038.60
Less CREDIT for Suites 203, 203A
$6,038.50 - $6,083.50 DIVIDED BY 2 = $2,996.75
---------
Balance due: $2,041.85
52. UTILITIES. Lessee to assume all costs of operating his separately
metered suites for the entire Lease term. Lessee to pay an additional
monthly amount, currently $819.13, for after hour usage of garage
lights, HVAC, etc. This amount will be based on usage requested.
53. SMOKING. Lessee is responsible for providing appropriate containers
for disposal of its employees' cigarettes and seeing that cigarettes
are not disposed of anywhere on the grounds of the property. Lessee is
also responsible for its employees' conduct regarding compliance with
State and Local smoking ordinances. Public areas designated as
non-smoking include all corridors, stairwells, toilet rooms, elevator
and lobbies.
54. All persons working in the building after normal operating hours
are required to obtain a garage gate opener from the building office.
55. PARAGRAPH 8.8. Add the following to the beginning of the first
sentence: "Except in the event of gross negligence or willful intent
by Lessor or Lessor's agents or employees,"
56. PARAGRAPH 10. Add the following: In the event the building is
sold or otherwise transferred during the Lease term, the
Lessor/Landlord shall be one hundred percent (100%) responsible for the
Proposition 13 increase or any other increase in real estate taxes due
to the said sale or transfer, over the then current base.
57. TENANT IMPROVEMENTS. Premises are accepted in their present
condition. Additional improvements to this space are the sole
responsibility of the Lessee. Plans of all changes, additions and
remodeling must be submitted to Lessor for prior approval. All
permanent improvements, (walls, built-in cabinets, air conditioning
equipment, etc.), to said premises are considered the property of the
building at lease termination. Any permits and licenses required must
be obtained at Lessee's expense. Lessor, in its sole discretion,
may request Lessee, at Lessee's cost, to remove all Lessee installed
improvements at termination of the Lease. See Paragraph 58.
58. Lessee plans to convert Suites 203A and 204 to a computer data
center. The agreed upon payment of $75,000 represents consideration for
the Lessor entering into this Lease which sum is fully earned and not
refundable. Additionally, Lessor agrees to waive any provision in the
Lease requiring Lessee to restore Suites 203A and 204 to their original
office improvements. Lessee is to remove all of its surface mounted
electrical conduits and electronic equipment upon lease termination and
leave the suite in a broom clean condition.
59. COMPUTER AND TELEPHONE INSTALLATION. Lessor will direct
electricians as to where and how telephone and telegraph wires are to
be introduced. No boring and cutting for wires will be allowed without
the prior consent of the lessor. The location of telephones, call boxes
and other office equipment affixed to the Premises shall be subject to
approval of Lessor prior to installation.
Initials: /s/ BH
--------------
/s/ LG
--------------
<PAGE>
60. AIR CONDITIONING. Lessee to provide new split air conditioning
system in Suites 203A and 204 at his sole cost. Lessee shall pay for
all repairs to the building necessitated by the installation of same
which may include, but is not limited to, roofing, walls, ceilings,
etc. Any work done by Lessee shall be done only with Lessor's prior
written consent and in compliance with all applicable rules,
regulations, laws and ordinances, and be done in a good and workmanlike
manner with good and sufficient materials. All work shall be done only
by contractors approved by Lessor, it being understood that all
plumbing, mechanical, electrical wiring and ceiling work are to be done
only by contractors designated by Lessor. Complete engineered plans to
be submitted to Lessor for approval at least five (5) business days
prior to commencement of scheduled work.
61. RELOCATION OF LAW OFFICES OF OHANESSIAN & AROUSTAMIAN. Should
Lessor relocate the above Lessee, Lessor is to pay $2,000 towards cost
of relocation. Additional costs, if any, to be paid by EarthLink
Network, Inc.
62. EXCESS USE OF BUILDING SERVICES AND SUPPLIES. The Addendum, in
reference to Paragraph 11.4 of the previous Lease, dated September 22,
1995 and signed on October 4, 1995 by Sky Dylan Dayton, will remain in
force. Lease Paragraph 11.4 obligates the Lessee to pay the cost of its
excess usage of building services and supplies. In addition to the
basic monthly rent and all other charges due under the Lease, including
Lessee's share under Lease Paragraph 4.2 of increases in base building
service expenses, the Lessee shall pay a lump sum for excess usage of
building services which sum shall be based upon the number of Lessee's
employees. The lump sum payment shall be applied to increased
consumption of building and janitorial supplies (for example, but
without limitation, electricity, toilet paper, towels, soap, and
fluorescent lights) and toward additional maintenance, repair and
replacement on account of the reduction in the useful life of the
building components. The additional monthly charge, based upon current
expenses, shall be determined as follows:
EMPLOYEES LUMP SUM
--------- --------
50 to 100 $250.00
101 to 120 $300.00
121 to 140 $350.00
The Lessor shall reserve the right to increase the monthly lump
sum for excess usage on a going-forward basis if the Lessor reasonably
determines over time that the actual cost of the excess usage exceeds
the applicable described amount.
Lessee shall provide Lessor by not later than the 25th calendar day of
each month a statement certified by an officer of Lessee setting forth
the number of employees currently employed by it and the number of
employees that shall be employed by it effective as of the first
calendar day of the following month. Lessee shall pay to Lessor with
its next base monthly rent payment the lump sum allocable to the number
of projected employees as of the first day of the following month. If
Lessee fails to timely provide Lessor with such monthly statement, then
the lump sum which shall be due and payable shall be the highest lump
sum payable under the schedule set forth above.
Finally, Lessor reserves the right to prohibit or deny the use of the
Premises by employees in excess of 140 people, and nothing set forth in
this letter shall constitute a waiver of Lessor's right to require
separate metering under Lease Paragraph 11.4, or to declare a default
for over-usage of the Office Building Project by employees in excess of
140.
Initials: /s/ BH
--------------
/s/ LG
--------------
<PAGE>
STANDARD OFFICE LEASE
FLOOR PLAN
[LOGO]
[FLOORPLAN]
EXHIBIT A
<PAGE>
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
[LOGO]
DATED: July 2, 1996
-------------------------------
BY AND BETWEEN Glen Feliz Properties and EarthLink Network, Inc.
-----------------------------------------------------------------
-------------------------------------------------------------------------
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.
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. SEE ADDENDUM 53.
6. Lessee shall not alter any lock or install new or additional locks or
bolts.
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 only with the Lessor's knowledge and consent, and 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 approved by Lessor.
12. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on other days between the hours of 7:30 P.M.
----
and 7:30 A.M. of the following day if Lessee uses the Premises during such
----
periods, Lessee shall be responsible for securely locking any doors it may
have opened for entry. SEE ADDENDUM 54.
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 Lessor. SEE ADDENDUM 53.
18. Lessee shall not install, maintain or operate any vending machines upon
the Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing, cooking or
food preparation.
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.
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
Parking Company and be returned to Parking Company 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. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entity that willfully refuses to comply with the
applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking spaces
from floor to floor, within one floor, and/or to reasonably adjacent offsite
location(s), and 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. Validation, if established, will be permissible only by such method or
methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles by Lessee 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/ BH
--------------
/s/ LG
--------------
- -C-1984 American Industrial Real Estate Association
FULL SERVICE-GROSS
EXHIBIT B
PAGE 1 OF 1 PAGES
<PAGE>
EXHIBIT "C"
LESSEE'S ESTOPPEL CERTIFICATE
The undersigned, as Lessee, under that certain Office Lease (the "Lease")
dated as of _____________, 19__, made with Glen Feliz Properties as Lessor,
hereby certifies as follows (all initially capitalized terms or phrases used
herein shall have the same meaning as in the Lease):
1. The undersigned entered into occupancy of the Premises described in the
Lease on ________________;
2. The undersigned opened for business in the Premises on _________________;
3. The Lease (including all Exhibits) is in full force and effect and has not
been assigned, modified, supplemented or amended in any way, except as follows:
_________________________________________________
4. The Lease, as affected by those changes set forth in Paragraph 3 above,
represents the entire agreement between the parties as to the Premises;
5. The Commencement Date under the Lease was ___________;
6. The term of the Lease will expire on ________________;
7. All conditions of the Lease to be performed by Lessor and necessary to the
enforceability of the Lease have been satisfied;
8. There are no uncured defaults by Lessor under the Lease and Lessee knows
of no events or conditions which with the passage of time or notice or both,
would constitute a default by Lessor under the Lease, except as follows:
_________________________________________________;
9. No rents have been prepaid, other than as provided in the Lease;
10. At the date hereof there are no existing defenses or offsets which the
undersigned has against the enforcement of the Lease by Lessor; and
11. The current monthly rental (including all Consumer Price Index adjustments
and/or otherwise adjusted pursuant to the terms of the Lease) is
$___________________;
EXECUTED on _______________, 19___.
"LESSEE"
/s/ Barry Hall
-------------------------------
-------------------------------
-------------------------------
Initials: /s/ LG
------
/s/ (ILLEGIBLE)
---------------
<PAGE>
EXHIBIT 11.1
EARTHLINK NETWORK, INC.
STATEMENT OF COMPUTATION OF
EARNINGS PER SHARE EARNINGS*
<TABLE>
<CAPTION>
Inception
(May 26,
1994)
through Year ended Six months ended
December 31, December 31, --------------------------------
1994 1995 June 30, 1995 June 30, 1996
----------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net loss $146 $6,120 $1,113 $11,704
----------- -------------- -------------- --------------
----------- -------------- -------------- --------------
Average shares outstanding 5,175 7,674 7,815 10,743
Common equivalent shares:
Purchase of shares of Common
Stock below the expected IPO
price during fiscal 1995 2,752 1,750 1,287 0
Purchase of shares of Common
Stock below the expected IPO
price during fiscal 1996 1,620 1,620 1,620 1,340
Assumed exchange of warrants
for Common Stock 699 699 699 699
Assumed exchange of options
for Common Stock 1,863 1,863 1,863 1,863
----------- -------------- -------------- --------------
Weighted average
shares outstanding 12,109 13,606 13,284 14,645
----------- -------------- -------------- --------------
----------- -------------- -------------- --------------
Net loss per share (0.01) (0.45) (0.08) (0.80)
----------- -------------- -------------- --------------
----------- -------------- -------------- --------------
</TABLE>
* All shares in these tables are weighted on the basis of the number of days
the shares were outstanding or assumed to be outstanding during each
period.
<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
Notes 11 and 12, as to which the dates are June 27, 1996 and November 4, 1996,
respectively, relating to the financial statements of EarthLink Network, Inc.,
which appears in such Prospectus. We also consent to the reference to us under
the heading "Experts" and "Selected Financial Data" in such Prospectus. However,
it should be noted that Price Waterhouse LLP has not prepared or certified such
"Selected Financial Data."
PRICE WATERHOUSE LLP
Costa Mesa, California
November 7, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF PERSON ABOUT TO BE NAMED A DIRECTOR
The undersigned consents to be named in the Registration Statement on Form
S-1 of EarthLink Network, Inc. (the "Company") as a person about to become a
director of the Company.
November 7, 1996 /s/ PAUL MCNULTY
-------------------------------------
Paul McNulty
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 JUN-30-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 290 1,200
<SECURITIES> 1,500 454
<RECEIVABLES> 218 716
<ALLOWANCES> 0 126
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,253 3,271
<PP&E> 2,863 0
<DEPRECIATION> (312) 0
<TOTAL-ASSETS> 4,874 14,560
<CURRENT-LIABILITIES> 4,229 12,449
<BONDS> 0 0
0 0
0 0
<COMMON> 101 120
<OTHER-SE> 189 (2,536)
<TOTAL-LIABILITY-AND-EQUITY> 4,874 14,560
<SALES> 0 0
<TOTAL-REVENUES> 3,028 10,146
<CGS> 0 0
<TOTAL-COSTS> 1,404 6,890
<OTHER-EXPENSES> 7,642 14,719
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 136 261
<INCOME-PRETAX> (6,120) (11,704)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (6,120) (11,704)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,120) (11,704)
<EPS-PRIMARY> (.45) (.76)
<EPS-DILUTED> 0 0
</TABLE>
