<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 20, 1998.
REGISTRATION NO. 333-56527
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
HIWAY TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 4813 94-3211977
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
5050 BLUE LAKE DRIVE, SUITE 100
BOCA RATON, FLORIDA 33431
(561) 989-8574
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ARTHUR L. CAHOON, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
5050 BLUE LAKE DRIVE, SUITE 100
BOCA RATON, FLORIDA 33431
(561) 989-8574
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
LAIRD H. SIMONS III, ESQ. THOMAS A. SKORNIA, ESQ. DONALD M. KELLER, JR.,
KATHERINE TALLMAN SCHUDA, THE SKORNIA LAW FIRM ESQ.
ESQ. SUITE 1500 JEFFREY Y. SUTO, ESQ.
JEFFERY L. DONOVAN, ESQ. 160 W. SANTA CLARA STREET DAVID C. LEE, ESQ.
DAVID A. BELL, ESQ. SAN JOSE, CALIFORNIA DAVID Y. EU, ESQ.
FENWICK & WEST LLP 95113 VENTURE LAW GROUP A
TWO PALO ALTO SQUARE (408) 280-2820 PROFESSIONAL CORPORATION
PALO ALTO, CALIFORNIA 2800 SAND HILL ROAD
94306 MENLO PARK, CALIFORNIA
(650) 494-0600 94025
(650) 854-4488
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 of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_] _______________
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE PRICE(2) REGISTRATION FEE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.001 per share...... 4,600,000 15.00 $69,000,000 $3,392(3)
======================================================================================
</TABLE>
(1) Includes 600,000 shares that the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(a) solely for the purpose of calculating
the registration fee.
(3) Represents the incremental registration fee for an increase of $11,500,000
in the proposed maximum aggregate offering price. The Registrant paid a
registration fee of $16,963 for the remaining $57,500,000 of aggregate
offering price with its filing on June 10, 1998.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
JULY 20, 1998
4,000,000 Shares
[HIWAY TECHNOLOGIES LOGO APPEARS HERE]
Common Stock
--------
Of the 4,000,000 shares of Common Stock offered hereby, 3,500,000 shares are
being sold by Hiway Technologies, Inc. (the "Company") and 500,000 shares are
being sold by certain stockholders of the Company (the "Selling Stockholders").
See "Principal and Selling Stockholders." The Company will not receive any of
the proceeds from the sale of shares by the Selling Stockholders. Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price per share will
be between $13.00 and $15.00. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
Company has applied for quotation of its Common Stock on the Nasdaq National
Market under the symbol "HWAY."
--------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
--------
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>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share......... $ $ $ $
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Total(3).......... $ $ $ $
</TABLE>
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(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $1,100,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
600,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public shown above. 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 several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the
offices of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about
, 1998.
BT Alex. Brown
Donaldson, Lufkin & Jenrette
Securities Corporation
Bear, Stearns & Co. Inc.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
[Artwork]
Hiway Technologies
Narrative Description of Inside Front Cover
Inside Front Cover -- Portrait
Top Center -- [HT ellipse Logo]; caption adjacent-right "Hiway Technologies A
Home for Your Web Site" caption beneath logo "A leading global provider of Web
hosting and related enhanced Internet services to small and medium sized
businesses."
Diagram consisting of a landscape created from a cascaded array of web pages
(each of a mixed graphic and text nature) of a wide variety which retreat to a
horizon just below the sub-logo caption.
Appearing on the landscape in the center of the lower-third of the page are
three persons; the left-most of which is a man seated and typing on a laptop
computer; the center of which is a woman using a palm-top computing device
while standing; the right-most of which is a man reading a newspaper while
standing.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
Hiway Technologies
Narrative Description of Inside Cover Gatefold
Landscape Gatefold, Inside Cover Page: Title heading, center -- "A Home for
Your Web Site."
Left-side margin, perpendicular heading -- "HIWAY TECHNOLOGIES"
Upper-left diagram showing a cascade (moving up to the left) of sample web
pages, each of which have a photograph of a person on the right half of the
web page; the top-most of which shows a heading in the upper left "Chlorgen";
caption beneath -- "Small and medium sized businesses worldwide are
recognizing the need to take advantage of the Internet to provide information
about their products and services and communicate internally and externally.
Often these Companies find an outsourced Web hosting solution effective due to
limited internal resources."
Upper Right Quadrant: Wire-line connecting upper left diagram to space between
captions above right side of upper-right quadrant diagram.
Upper-right diagram showing a map of the continental United States (tilted to
left-top) superimposed over which are wire-lines connected from a cloud
representing the Internet connected to two computer-server racks displayed to
the left and right immediately adjacent to the map; caption above -- "The
established Best brand is used to market the Company's services in the
California market. The Company maintains a data center in Mountain View,
California."; caption below-right -- "Hiway Technologies, Inc., based in Boca
Raton, Florida, is a leading provider of Web hosting and related enhanced
Internet services to small and medium sized businesses and has more than
91,000 Web hosting accounts. The Company reaches customers through direct
sales, its RapidSite value added reseller channel and OEM partnerships."; [HT
ellipse Logo] displayed beneath map; [Best Logo] displayed above the server-
rack adjacent to the west coast of map.
Center of Gatefold -- [HT ellipse Logo]; "Hiway Technologies"
Lower-right sixth of page -- three pictures one beneath another in single
column; the topmost of which shows the "Control Panel" -- web page through
which users control features of their Web Page visible control titles "ACCOUNT
ADMINISTRATION", "SPECIAL TOOLS", "CGI SCRIPT INSTALLERS" and "SPECIAL
OFFERS"; the second down shows a web page showing the logo for Microsoft's
FrontPage product; the third down shows an arial photograph of the Company's
Blue Lake facility; three captions adjacent to the left; top caption -- "The
Company's proprietary front-end interface, the Control Panel, allows customers
to set-up accounts, change account parameters and check Web site statistics
quickly and easily online."; middle caption -- "The Company currently hosts
over 25,000 Web sites created using Microsoft FrontPage, more FrontPage
accounts than any of the Company's competitors."; bottom caption -- "The
facility inside the Blue Lake complex in Boca Raton, Florida, incorporates
physical, network and personal security and is designed to withstand natural
disasters, including hurricanes, without service interruption."
Lower left half of the page showing a blue and gray map of the globe (flat
mercator projection) with blue-shaded countries representing customer
distribution; caption adjacent to left -- "RapidSite's network of over 1,800
value added resellers offers local marketing and support in over 100
countries." [Rapidsite Logo] beneath caption in lower left corner of page;
wire-line from lower right of world map connecting to the [HT eclipse Logo]
previously described in upper left quadrant.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus (i) reflects the 1-for-2 reverse split of the Company's Common
Stock and the Company's reincorporation into Delaware, both of which will occur
prior to the completion of this offering, and (ii) assumes that the
Underwriters' over-allotment option will not be exercised. See "Description of
Capital Stock" and "Underwriting."
THE COMPANY
Hiway is a leading global provider of Web hosting and related enhanced
Internet services to small and medium sized businesses. With over 91,000 Web
hosting accounts worldwide, the Company believes that it is currently the
largest provider of business Web hosting services, as measured by number of Web
hosting accounts. The Company focuses on delivering high-quality, reliable and
flexible services that are backed by 24x7 customer support and can be scaled to
host millions of Web sites. Hiway's services enable its customers to deploy,
expand and update Web sites more rapidly and cost-effectively than internally
developed solutions. The Company offers its solutions directly, through third-
party dealers that resell and support the Company's Web hosting services
("VARs") and through large companies that offer the Company's Web hosting
services to their established customer bases under their own brand names
("OEMs"). Hiway's OEMs include two of the five regional Bell operating
companies ("RBOCs"), which two in the aggregate provide telecommunications
services to approximately 30% of the U.S. business market.
Use of the Internet has grown rapidly in recent years and represents a
substantial opportunity for enterprises to interact in innovative ways with
geographically distributed offices, employees, customers, suppliers and
partners. Enterprises are increasingly recognizing the need to take advantage
of the Internet by establishing Web sites that provide information about them
and their products and services. As a result, high-performance and reliable Web
site hosting services have become increasingly critical for many mainstream
enterprises, and many enterprises are seeking to outsource these functions in
order to ensure reliability, high performance, scalability, sophisticated
monitoring and expert management. International Data Corporation ("IDC")
estimates that Web hosting revenues generated by small and medium sized
businesses in the U.S. will grow from $217 million in 1997 to over $3.4 billion
in 2000, a 150% compound annual growth rate.
Only 7% of all small businesses had a Web site at the end of 1997, according
to IDC. However, IDC expects small and medium sized businesses to generate most
of the growth in the Web hosting market, and to account for 95% of the total
estimated Web hosting market in the United States by 2000. Many of these
businesses find an outsourced Web hosting solution effective because they lack
the technology expertise, IT resources, capital or ability to bear the time-to-
market risks required to install, maintain and monitor their own Web servers
and Internet connectivity. Currently, a number of these businesses utilize a
Web site to provide basic information about their products and services.
However, competition for Web traffic continues to drive businesses to create
Web sites with greater functionality. Companies are also augmenting their Web
sites with related enhanced Internet services such as secure electronic
commerce, unified messaging and email. IDC estimates the market for enhanced
Internet services in the United States, including Web hosting, will grow from
approximately $352 million in 1997 to over $7 billion in 2000.
The Company's services are designed to provide small to medium sized
businesses with the high performance, scalability, flexibility and expertise
they need to deploy a Web presence or expand its functionality cost
effectively. The Company's services utilize a redundant, high-speed, secure,
proprietary network architecture and a fault tolerant hosting platform,
monitored on a 24x7 basis through two
3
<PAGE>
Network Operations Centers ("NOCs"). This enables Hiway to offer its customers
a 99.9% uptime service level warranty. In addition, the Company has developed
various proprietary operating system level tools to facilitate a high customer
to server ratio, allowing Hiway to host over 2,000 Web sites on a single
server. Hiway also utilizes various proprietary technologies to improve the
back-end processing and customer interface components of its solutions,
allowing customers to order, change and manage their Web hosting accounts
easily and flexibly, regardless of their level of technical expertise. To meet
its customers' needs, the Company offers Web hosting services on a range of
operating systems and computing platforms: Silicon Graphics, Intel and Sun
Microsystems. The Company expects to offer Windows NT-based Web hosting
services commencing in the fourth quarter of 1998.
The Company seeks to maximize market share by utilizing three distribution
channels--direct sales, VARs and OEM partnerships. In addition to driving
direct sales through the use of traditional media and online marketing
campaigns, the Company has developed a global VAR network consisting of over
1,800 value-added resellers that resell the Company's services to customers
located in more than 100 countries. The Company has also recently commenced the
distribution of its services through OEM partners, which include two of the
five RBOCs. The Company believes that these relationships present a significant
opportunity to penetrate the large, established customer bases of these OEMs.
Hiway intends to continue to increase its market share as a leading provider
of Web hosting services to small to medium sized businesses. The Company also
intends to seek additional opportunities by offering a range of enhanced
Internet services. In order to achieve this objective, the Company plans to (i)
increase its marketing efforts in order to extend its established brand
recognition; (ii) continue to deliver high quality services at affordable
prices; (iii) pursue multiple direct and indirect distribution channels; (iv)
expand its presence internationally; and (v) leverage its innovative and
proprietary technology.
THE MERGER
The Company was formed in May 1998 through the merger (the "Merger") of Best
Internet Communications, Inc., a California corporation ("Best"), which was
incorporated in September 1994, and Hiway Technologies, Inc., a Florida
corporation ("Hiway Florida"), which was incorporated in April 1995. Prior to
the Merger, Hiway Florida was a leading provider of shared server Web hosting
domestically and, through its established network of VARs, internationally.
Hiway Florida had also begun to expand its distribution channels by entering
into relationships with RBOCs and other OEMs. Best was a leading provider of
shared server Web hosting bundled with dial-up Internet access in the
California market prior to the Merger, and also offered stand-alone high-speed
Internet connectivity and co-location Web hosting services. In 1997 and the
first quarter of 1998, Hiway Florida had revenues of $10.4 million and $4.3
million, respectively, and Best had revenues of $15.8 million and $4.5 million,
respectively. At March 31, 1998, Hiway Florida had approximately 49,000 Web
hosting accounts and Best had approximately 29,000 Web hosting accounts.
The Company intends to reincorporate in Delaware in August 1998 and to change
its name to Hiway Technologies, Inc. in connection with the reincorporation.
Unless the context otherwise requires, the terms the "Company" and "Hiway"
refer to Hiway Technologies, Inc., a Delaware corporation, its California and
Florida predecessor corporations and its wholly-owned subsidiary, RapidSite,
Inc., which was incorporated in Florida in January 1997. The address of the
Company's principal executive offices is 5050 Blue Lake Drive, Suite 100, Boca
Raton, Florida 33431, and its telephone number is (561) 989-8574.
Hiway Technologies(R) and Best Internet Communications(R) (stylized) are
registered trademarks of the Company. Hiway(TM), HWAY(TM), A Home For Your
Page(TM) and RapidSite(TM) are trademarks of the Company. This Prospectus also
includes trade names and trademarks of other companies.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company............. 3,500,000 shares
Common Stock offered by the Selling 500,000 shares
Stockholders....................................
Common Stock to be outstanding after this 21,378,911 shares(1)
offering........................................
Use of proceeds by the Company.................. Working capital and other
general corporate purposes.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol.......... HWAY
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER OPERATING DATA
(in thousands, except per share and other operating data)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER ENDED
31, JUNE 30,
----------------------- ---------------
1995 1996 1997 1997 1998
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues............................... $2,011 $12,217 $26,185 $11,535 $18,510
Income (loss) from operations.......... (539) 783 4,871 2,556 2,665
Historical net income (loss)........... $ (551) $ 664 $ 4,435 $ 2,353 $ 2,000
Historical diluted net income (loss)
per share(3).......................... $(0.07) $ 0.05 $ 0.25 $ 0.14 $ 0.11
Pro forma net income (loss) (2)........ $ (551) $ 632 $ 2,871 $ 1,531 $ 1,256
Pro forma diluted net income (loss) per
share (3)............................. $(0.07) $ 0.04 $ 0.17 $ 0.09 $ 0.07
Shares used in computing diluted net
income (loss) per share (3)........... 8,436 14,063 17,439 17,170 18,150
OTHER OPERATING DATA:
Web hosting accounts at end of period.. N/A 35,000 68,000 52,000 91,000
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
-----------------------
ACTUAL AS ADJUSTED (4)
------- ---------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 5,088 $49,558
Working capital........................................ 2,257 46,727
Total assets........................................... 24,863 69,333
Long-term debt and capital lease obligations, less
current portion....................................... 5,189 5,189
Total stockholders' equity............................. 11,532 56,002
</TABLE>
- --------
(1) Based on shares outstanding as of June 30, 1998. Does not include (i)
722,413 shares of Common Stock issuable upon the exercise of stock options
outstanding as of that date under the Company's Stock Option Plan (the
"1995 Plan"), the Company's Amended and Restated 1996 Stock Option Plan
(the "1996 Plan") or the Hiway Florida Stock Option Plan (the "Hiway
Florida Plan"), with a weighted average per share exercise price of $5.90,
(ii) 1,718,175 shares of Common Stock available as of that date for future
grant under the Company's 1998 Equity Incentive Plan (the "1998 Plan"),
(iii) 800,000 shares of Common Stock available for future grant or issuance
immediately after this offering under the Company's 1998 Directors Stock
Option Plan (the "Directors Plan") and 1998 Employee Stock Purchase Plan
(the "Purchase Plan") or (iv) 1,557,558 shares of Common Stock issuable
upon the exercise of warrants outstanding as of June 30, 1998, with a
weighted average per share exercise price of $5.38. See "Capitalization,"
"Management--Director Compensation," "Management--Employee Benefit Plans,"
"Description of Capital Stock" and Notes 9-13 of Notes to Consolidated
Financial Statements.
(2) See Note 17 of Notes to Consolidated Financial Statements for an
explanation of the determination of pro forma net income (loss), which
reflects a provision for income taxes as if Hiway Florida was a corporation
subject to income taxes.
(3) See Note 18 of Notes to Consolidated Financial Statements for an
explanation of the determination of the number of shares used in computing
pro forma diluted net income (loss) per share.
(4) As adjusted to reflect receipt of the net proceeds from the sale of the
3,500,000 shares of Common Stock offered by the Company hereby, at an
assumed initial public offering price of $14.00 per share and after
deducting the estimated underwriting discounts and commissions and offering
expenses.
5
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. In addition to the other
information set forth in this Prospectus, the following risk factors should be
considered carefully in evaluating the Company and its business before
purchasing any of the shares of Common Stock of the Company. This Prospectus
contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed in this Prospectus. Factors that could
cause or contribute to such differences include those discussed below, as well
as those discussed elsewhere in this Prospectus.
Limited Operating History. Best and Hiway Florida, the two companies that
merged to form the Company, were incorporated in September 1994 and April
1995, respectively. As a result, the Company's business model is still in an
emerging stage. The revenue and income potential of the Company's business and
market is unproven, and the Company's limited operating history makes an
evaluation of the Company and its prospects difficult. The Company and its
prospects must be considered in light of the risks, expenses and difficulties
encountered by companies in the new and rapidly evolving market for Web
hosting and related enhanced Internet services. To address these risks, among
other things, the Company must market its services and build its brand names
effectively, provide scalable, reliable and cost-effective services, continue
to grow its infrastructure to accommodate additional customers and increased
use of its network bandwidth, expand its channels of distribution, continue to
respond to competitive developments and retain and motivate qualified
personnel. Although the Company has experienced significant growth in revenues
in recent periods, the Company may not achieve a significant rate of revenue
growth and may not sustain profitability in future quarterly or annual
periods. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Potential Fluctuations in Results of Operations. The Company has experienced
significant fluctuations in its results of operations on a quarterly and an
annual basis. The Company expects to continue to experience significant
fluctuations in its quarterly and annual results of operations due to a
variety of factors, many of which are outside the Company's control. These
factors include: (i) demand for and market acceptance of the Company's
services; (ii) introductions of products or services by the Company and its
competitors; (iii) reliable continuity of service and network availability;
(iv) the ability to increase bandwidth as necessary; (v) the mix of services
sold by the Company; (vi) provisions for customer discounts and credits; (vii)
customer retention; (viii) the timing and success of marketing efforts and
service introductions by the Company and its VARs and OEMs; (ix) the timing
and magnitude of capital expenditures, including construction costs relating
to the expansion of operations; (x) the introduction by third parties of new
Internet and networking technologies; (xi) increased competition in the
Company's markets; (xii) changes in the pricing policies of the Company and
its competitors; (xiii) fluctuations in bandwidth used by customers; (xiv) the
timing and magnitude of expenditures on advertising and promotion; (xv)
economic conditions specific to the Internet industry; and (xvi) other general
economic factors. In addition, a relatively large portion of the Company's
expenses are fixed in the short-term, and therefore the Company's results of
operations are particularly sensitive to fluctuations in revenues. Also, if
the Company were unable to continue using third-party products in the
Company's services offerings, the Company's service development costs could
increase significantly. Although the Company has not encountered significant
difficulties in collecting accounts receivable in the past, many of the
Company's customers are individuals and small businesses, and the Company may
not be able to collect accounts receivable on a timely basis. For these and
other reasons, in some future quarters, the Company's results of operations
may not meet or exceed the expectations of securities analysts or investors,
which could have a material adverse effect on the market price of the
Company's Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Recent Merger; Risks Associated with Integration of Operations. Prior to the
Merger, Hiway Florida and Best were headquartered in Florida and California,
respectively, with different service offerings
6
<PAGE>
operating on different networks and technologies. The Merger was consummated in
May 1998 and, accordingly, the Company has not yet completed a full quarter of
combined operations. The successful integration of the operations of Hiway
Florida and Best will require, among other things, the integration of their
respective service offerings, networks and technologies, financial and
information systems, brand names and management teams, and coordination of
their sales and marketing and service development efforts. In this regard, the
Company will be promoting the Hiway brand name nationally, the Best brand name
in California and the RapidSite brand name through its network of domestic and
international VARs. In addition, the Company will be headquartered in Florida
but will maintain a significant management and operational presence in
California. The diversion of the attention of management and any difficulties
encountered in the process of combining the operations of the two organizations
could cause the interruption of, or a loss of momentum in, the activities of
the Company's business. Furthermore, the Company may not achieve any
operational synergies from the Merger, and employees of each company may choose
not to continue to work for the Company following the Merger. As a result of
uncertainty over the integration and continued support of the services of both
companies in connection with the Merger, customers or potential customers may
delay or cancel orders for the Company's Web hosting services. Failure to
accomplish the integration of the two companies' operations efficiently and
effectively could have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, if the Company does
not experience the business synergies expected as a result of the Merger as
quickly as may be expected by financial analysts or investors, or if such
synergies are not achieved or are at levels below those expected by financial
analysts or investors, the market price of the Company's Common Stock may be
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--The Merger."
Dependence Upon New Market; Uncertainty of Acceptance of Services. The market
for Web hosting and related enhanced Internet services has only recently begun
to develop and is evolving rapidly. There is significant uncertainty regarding
whether this market ultimately will prove to be viable or, if it becomes
viable, whether it will grow. The Company's future growth, if any, will depend
upon the willingness of businesses to outsource Web hosting services and the
Company's ability to market its services in a cost-effective manner to a
sufficiently large number of customers. The market for the Company's services
may not develop further, the Company's services may not be more widely adopted,
and significant numbers of businesses or organizations may not use the Internet
for commerce and communication. If this market fails to develop further or
develops more slowly than expected, or if the Company's services do not achieve
broader market acceptance, the Company's business, results of operations and
financial condition would be materially and adversely affected. In addition, to
be successful in this emerging market, the Company must be able to
differentiate itself from its competition through its service offerings and
brand recognition. The Company may not be successful in differentiating itself
or achieving market acceptance of its services, and the Company may experience
difficulties that could delay or prevent the successful development,
introduction or marketing of these services. If the Company incurs increased
costs or is unable, for technical or other reasons, to develop and introduce
new services or products or enhancements to existing services in a timely
manner, or if new services do not achieve market acceptance in a timely manner
or at all, the Company's business, results of operations and financial
condition could be materially adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Dependence Upon Channel Partners. An important element of the Company's
strategy for growth is to continue to develop its reseller channel through
RapidSite, which manages the Company's network of domestic and international
VARs, and through the Company's OEM relationships. The Company's VARs typically
are Web development or Web consulting companies that also sell the Company's
Web hosting services but that do not generally have established customer bases
to which they can market the Company's services. Therefore, in those markets,
primarily international, where the Company does not focus its direct marketing
efforts, the Company is dependent on third parties to stimulate demand for the
Company's services. Although the Company attempts to incentivize its VARs by
providing them with
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price discounts on the Company's services that the VARs seek to resell at a
profit, the failure of the Company's services to be commercially accepted in
certain markets, whether as a result of a VAR's performance or otherwise,
could cause the Company's current channel partners to discontinue their
relationships with the Company, and the Company may not be successful in
establishing additional channel partner relationships as required. The Company
has also developed strategic relationships with certain of its international
VARs through its "Premier Partner" program. Each of the Company's Premier
Partners is responsible for building and supporting a VAR channel, which
allows the Company to leverage the Premier Partner's local marketing and
distribution expertise, and for helping the Company build the RapidSite brand
internationally. In addition, the Company recently has established OEM
relationships with several large companies and is pursuing OEM relationships
with additional companies. The Company's OEM relationships have not generated
a material amount of revenue to date, and, in order for the Company to be
successful, revenues generated by OEMs must increase significantly. OEMs and
VARs have no obligation to market or resell the Company's Web hosting
services, and OEMs can terminate their relationships with the Company with
limited or no penalty with as little as 30 days' notice. The loss of Premier
Partners, other VARs or OEMs, the failure of such parties to perform under
agreements with the Company or the Premier Partner or the inability of the
Company to attract and retain new Premier Partners, VARs or OEMs with the
industry experience required to market the Company's Web hosting services
successfully in the future could have a material adverse effect on the
Company's business, results of operations and financial condition. The
Company's direct sales efforts may conflict with the efforts of its indirect
channel partners, which may adversely affect the Company's relationships with
such partners. In addition, to the extent that the Company succeeds in
increasing its sales through indirect channels such as Premier Partners, VARs
or OEMs, those sales will be at discounted rates, and revenue and gross margin
to the Company for each such sale will be less than if the Company had sold
the same services to the customer directly. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Distribution and Sales."
Competition. The market served by the Company is highly competitive and is
becoming more so. There are few substantial barriers to entry, and the Company
expects that it will face additional competition from existing competitors and
new market entrants in the future. The principal competitive factors in this
market include: (i) brand name; (ii) Internet system engineering and technical
expertise; (iii) quality of service, including network capability,
scalability, reliability and functionality; (iv) price; (v) ability to
maintain and expand distribution channels; (vi) customer service and support;
(vii) broad geographic presence; (viii) variety of services and products
offered; (ix) timing of introductions of new and enhanced services and
products; (x) network security; (xi) financial resources; and (xii) conformity
with industry standards. The Company may not have the resources, expertise or
other competitive factors to compete successfully in the future.
The Company's current and potential competitors include: (i) other Web
hosting and Internet services companies; (ii) national and regional Internet
access service providers ("ISPs"); (iii) global, regional and local
telecommunications companies, including the RBOCs; (iv) large IT outsourcing
firms; (v) data center companies; and (vi) cable companies. Many of the
Company's competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories,
greater name recognition and more established relationships in the industry
than the Company. As a result, certain of these competitors may be able to
develop and expand their network infrastructures and service offerings more
rapidly, adapt to new or emerging technologies and changes in customer
requirements more quickly, take advantage of acquisition and other
opportunities more readily, devote greater resources to the marketing and sale
of their services and adopt more aggressive pricing policies than can the
Company. In particular, Verio Inc. ("Verio"), a national provider of Internet
connectivity and enhanced Internet services, including Web hosting, to small
and medium sized businesses, has announced plans to consolidate its market by
acquiring local and regional ISPs. To that end, Verio recently purchased
TABNet, a company that hosts over 20,000 Web sites and provides other enhanced
Internet services similar to those provided by Hiway. In announcing that
acquisition, Verio indicated that it hosted over 60,000 Web sites following
the acquisition. In addition, the Company's competitors have
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entered and will likely continue to enter into joint ventures or consortiums
to provide additional services competitive with those provided by the Company.
In an effort to gain market share, certain of the Company's competitors have
offered Web hosting services similar to those of the Company at lower prices
than those of the Company or with incentives not matched by the Company,
including free start-up and domain name registration, periods of free service,
low-priced Internet access or free software. In addition, certain of the
Company's competitors may be able to provide customers with additional
benefits, including reduced communications costs, which could reduce the
overall costs of their services relative to those of the Company. The Company
may not be able to reduce the pricing of its services or offer incentives in
response to the actions of its competitors without a material adverse impact
on its operating results. The Company also believes that the market in which
it competes is likely to encounter consolidation in the near future, which
could result in increased price and other competition that could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Business--Competition."
Management of Growth. The Company is currently experiencing a period of
rapid expansion of its customer base. In addition, the number of Company
employees increased from 172 on June 30, 1997 to 283 on June 30, 1998. This
growth has placed, and if it continues will place, a significant strain on the
Company's financial, management, operational and other resources. In addition,
the Company must manage relationships with a growing number of third parties
as it seeks to complement its service offerings and increase its indirect
sales efforts. The Company's management, personnel, systems, procedures and
controls may not be adequate to support the Company's existing and future
operations, particularly if there is an increase in accounts generated by OEM
sales. The Company's ability to manage its growth effectively will require it
to continue to expand its operating and financial procedures and controls, to
replace or upgrade its operational, financial and management information
systems and to attract, train, motivate, manage and retain key employees. For
example, the Company is currently selecting a new accounting system. The
Company is also in the process of integrating the management of Hiway Florida
and Best, and, as a result, the Company's entire management team has worked
together for only a brief time. In addition, certain executives have recently
assumed new positions and responsibilities. If the Company's executives are
unable to manage growth effectively, the Company's business, results of
operations and financial condition could be materially adversely affected. See
"Management."
Risks Associated with International Expansion and Operations. In 1996, 1997
and the first six months of 1998, revenues derived from customers outside the
United States, primarily in Europe and Asia, represented approximately 9.5%,
14.0% and 19.8%, respectively, of the Company's revenues. The Company's
success is dependent in part on expanding its international presence,
primarily through the Company's VARs and RapidSite's Premier Partners and
their VARs. As a result, the Company will depend upon its VAR network to
market and sell its services and manage the accounts of customers
internationally. The Company's VARs may not be able to continue to market and
sell the Company's Web hosting services successfully. The Company denominates
its sales to VARs and Premier Partners in U.S. dollars. Thus, fluctuations in
the value of the U.S. dollar relative to the currency of a given country may
make the Company's services more or less profitable and therefore more or less
attractive to VARs selling in that country. In addition, there are certain
risks inherent in conducting business internationally, such as changes in
regulatory requirements, export restrictions, tariffs and other trade
barriers, differing technology standards, longer payment cycles, political and
economic instability, fluctuations in currency exchange rates, imposition of
currency exchange controls, seasonal reductions in business activity,
increased difficulty in enforcing contracts and potentially adverse tax
consequences, any of which could adversely affect the Company's international
operations. Furthermore, certain foreign governments, such as Germany, have
enforced laws and regulations related to content distributed over the Internet
that are more strict than those currently in place in the United States. One
or more of these factors could have a material adverse effect on the Company's
current or future international operations and, consequently, on the Company's
business, results of operations and financial condition. To the extent that
the
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Company does business in foreign markets directly, the Company will also be
subject to risks such as challenges in staffing and managing foreign
operations, employment laws and practices in foreign countries and problems in
collecting accounts receivable. In addition, the Company or its channel
partners may not be able to compete effectively in international markets. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Unproven Network Scalability. The Company must continue to expand and adapt
its network infrastructure as the number of users and the amount of
information they wish to transport increase and to meet changing customer
requirements. The expansion and adaptation of the Company's telecommunications
infrastructure will require substantial financial, operational and management
resources as the Company negotiates telecommunications capacity with existing
and other network infrastructure suppliers. If the Company is required to
expand its network significantly and rapidly due to increased usage,
additional stress will be placed upon the Company's network hardware and
traffic management systems. Due to the limited deployment of the Company's
services to date, the ability of the Company's network to connect and manage a
substantially larger number of customers at high transmission speeds is as yet
unknown, and the Company faces risks related to the network's ability to be
scaled up to its expected customer levels while maintaining superior
performance. As customers' usage of bandwidth increases, the Company will need
to make additional investments in its infrastructure to maintain adequate
downstream data transmission speeds, the availability of which may be limited
or the cost of which may be significant. Additional network capacity may not
be available from third-party suppliers as it is needed by the Company, and,
as a result, the Company's network may not be able to achieve or maintain a
sufficiently high capacity of data transmission, especially if the usage of
the Company's customers increases. The Company's failure to achieve or
maintain high-capacity data transmission could significantly reduce consumer
demand for its services and have a material adverse effect on its business,
results of operations and financial condition. See "Business--Technology and
Network Operations."
Risk of System Failure. The Company's operations depend upon its ability to
protect its network infrastructure, equipment and customer files against
damage from human error, fire, earthquakes, hurricanes, floods, power loss,
telecommunications failures, sabotage, intentional acts of vandalism and
similar events. Despite precautions taken by, and planned to be taken by the
Company, the occurrence of a natural disaster or other unanticipated problems
at the Company's data centers could result in interruptions in the services
provided by the Company. The Company has no formal disaster recovery plan.
Although the Company has attempted to build redundancy into its network, the
Company's network is currently subject to various single points of failure,
and a problem with one of the Company's routers or switches could cause an
interruption in the services provided by the Company to a portion of its
customers. The Company has in the past experienced periodic interruptions in
service. In addition, failure of any of the Company's telecommunications
providers to provide the data communications capacity required by the Company,
as a result of human error, a natural disaster or other operational
disruption, could result in interruptions in the Company's services. Any
damage to or failure of the systems of the Company or its service providers
could result in reductions in, or terminations of, services supplied to the
Company's customers, which could have a material adverse effect on the
Company's business, results of operations and financial condition. In
addition, the Company's reputation could be materially adversely affected.
The Company currently offers to all customers a 99.9% service level
warranty. Under this policy, the Company guarantees that each customer's Web
site will be available at least 99.9% of the time in each calendar month for
as long as the customer is using the Company's Web hosting services. If uptime
drops below this level in any month, the Company will provide Web hosting
services free for that month. To date, only a few customers have been eligible
under this policy to receive free service and the amounts paid by the Company
under this warranty have been minimal. Should the Company incur significant
obligations in connection with system downtime, the Company could experience a
material revenue decline. See "Business--Technology and Network Operations."
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Dependence Upon Network Infrastructure. The Company's success will depend
upon the capacity, scalability, reliability and security of its network
infrastructure, including the capacity leased from its telecommunications
network suppliers. In particular, the Company depends upon MCI, UUNet and
Sprint for its backbone capacity and on Pacific Bell and MFS (in California)
and BellSouth (in Florida) for its local connections to MCI, UUNet and Sprint,
and the Company is therefore dependent on such companies to maintain the
operational integrity of their telecommunications networks. In addition, the
Company's California operations depend upon Pacific Bell in San Francisco and
ICG Communications Inc. in Los Angeles to provide dial-up Internet access to
the Company's customers. In San Francisco, Pacific Bell and MFS provide local
leased lines for the Company's high-speed Internet connectivity customers.
Therefore, the Company's operating results depend, in part, upon the pricing
and availability of telecommunications network capacity from a limited number
of providers in a consolidated market. In the event of a material increase in
pricing or decrease in telecommunications capacity available to the Company,
if the Company were unable either to access alternative networks on a cost-
effective basis to distribute its customers' content or to pass through any
additional costs of utilizing existing or alternative networks to its
customers, the Company's business, results of operations and financial
condition could be materially adversely affected. See "Business--Technology
and Network Operations."
Dependence Upon the Internet and Internet Infrastructure Development. The
use of the Internet for retrieving, sharing and transferring information among
businesses, consumers, suppliers and partners has escalated in recent periods,
and the Company's success will depend in large part upon continued growth in
the use of the Internet. Critical issues concerning the commercial use of the
Internet, including security, reliability, cost, ease of access, quality of
service and necessary increases in bandwidth availability, remain unresolved
and are likely to affect the development of the market for the Company's
services. The adoption of the Internet for information retrieval and exchange,
commerce and communications, particularly by those enterprises that have
historically relied upon alternative means of information gathering, commerce
and communications, generally will require the acceptance of a new medium of
conducting business and exchanging information. Demand and market acceptance
of the Internet are subject to a high level of uncertainty and depend upon a
number of factors, including the growth in consumer access to and acceptance
of new interactive technologies, the development of technologies that
facilitate interactive communication between organizations and targeted
audiences and increases in the speed of user access. If the Internet as a
commercial or business medium fails to develop further or develops more slowly
than expected, the Company's business, results of operations and financial
condition could be materially adversely affected. See "Business--Technology
and Network Operations."
Rapid Technological Change; Evolving Industry Standards. The Company's
future success will depend, in part, upon its ability to offer services that
incorporate leading technologies, address the increasingly sophisticated and
varied needs of its current and prospective customers and respond to
technological advances and emerging industry standards and practices on a
timely and cost-effective basis. The market for the Company's services is
characterized by rapidly changing and unproven technologies, evolving industry
standards, changes in customer needs, emerging competition and frequent new
service introductions. Technological advances may have the effect of
encouraging certain of the Company's current or future customers to rely on
in-house personnel and equipment to furnish the services currently provided by
the Company. In addition, keeping pace with technological advances in the
Company's industry may require substantial expenditures and lead time, which
may have a material adverse effect on the Company's business, results of
operations and financial condition.
The Company believes that its ability to compete successfully also depends
upon the continued compatibility and interoperability of its services with
products offered by various vendors. Enhanced or newly developed third-party
products may not be compatible with the Company's infrastructure, and such
products may not adequately address the needs of the Company's customers.
Although the Company currently intends to support emerging standards, industry
standards may not be established, and, even if they are established, the
Company may not be able to conform to these new standards in a
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timely fashion and maintain a competitive position in the market. The failure
of the Company to conform to the prevailing standard, or the failure of a
common standard to emerge, could have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
products, services or technologies developed by others could render the
Company's services noncompetitive or obsolete.
System Security Risks. A significant barrier to electronic commerce and
communications is the need for secure transmission of confidential information
over public networks. Certain of the Company's services rely on security
technology licensed from third parties to provide the encryption and
authentication necessary to effect secure transmission of confidential
information. Despite the Company's design and implementation of a variety of
network security measures, unauthorized access, computer viruses, accidental or
intentional actions and other disruptions could occur. The Company has in the
past experienced and may in the future experience delays or interruptions in
service as a result of the accidental or intentional actions of Internet users,
current and former employees or others. Furthermore, such inappropriate use of
the network by third parties could also potentially jeopardize the security of
confidential information, such as credit card and bank account numbers, stored
in the computer systems of the Company, which could result in liability to the
Company and the loss of existing customers or the deterrence of potential
customers. Although the Company intends to continue to implement industry-
standard security measures, such measures have been circumvented in the past,
and any such measures implemented by the Company could be circumvented in the
future. The costs required to eliminate computer viruses and alleviate other
security problems could be prohibitively expensive and the efforts to address
such problems could result in interruptions, delays or cessation of service to
the Company's customers, which could have a material adverse effect on the
Company's business, results of operations and financial condition. Concerns
over the security of Internet transactions and the privacy of users may also
inhibit the growth of the Internet, especially as a means of conducting
commercial transactions. See "Business--Technology and Network Operations."
Government Regulation and Legal Uncertainties. The Company is not currently
subject to direct federal, state or local government regulation, other than
regulations that apply to businesses generally. Only a small body of laws and
regulations currently applies specifically to access to, or commerce on, the
Internet. Due to the increasing popularity and use of the Internet, however, it
is possible that laws and regulations with respect to the Internet may be
adopted at federal, state and local levels, covering issues such as user
privacy, freedom of expression, pricing, characteristics and quality of
products and services, taxation, advertising, intellectual property rights,
information security and the convergence of traditional telecommunications
services with Internet communications. Although sections of the Communications
Decency Act of 1996 (the "CDA") that, among other things, proposed to impose
criminal penalties on anyone distributing "indecent" material to minors over
the Internet were held to be unconstitutional by the U.S. Supreme Court,
similar laws may be proposed, adopted and upheld. The nature of future
legislation and the manner in which it may be interpreted and enforced cannot
be fully determined and, therefore, legislation similar to the CDA could
subject the Company and/or its customers to potential liability, which in turn
could have a material adverse effect on the Company's business, results of
operations and financial condition. The adoption of any such laws or
regulations might decrease the growth of the Internet, which in turn could
decrease the demand for the services of the Company or increase the cost of
doing business or in some other manner have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
applicability to the Internet of existing laws governing issues such as
property ownership, copyright and other intellectual property issues, taxation,
libel, obscenity and personal privacy is uncertain. The vast majority of such
laws were adopted prior to the advent of the Internet and related technologies
and, as a result, do not contemplate or address the unique issues of the
Internet and related technologies. Changes to such laws intended to address
these issues could create uncertainty in the marketplace that could reduce
demand for the services of the Company or increase the cost of doing business
as a result of costs of litigation or increased service delivery costs, or
could in some other manner have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, because
the
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Company's services are available over the Internet virtually worldwide, and
because the Company facilitates sales by its customers to end users located in
multiple states and foreign countries, such jurisdictions may claim that the
Company is required to qualify to do business as a foreign corporation in each
such state or that the Company has a permanent establishment in each such
foreign country. The Company is qualified to do business in only Delaware,
Florida and California, and failure by the Company to qualify as a foreign
corporation in a jurisdiction where it is required to do so could subject the
Company to taxes and penalties for failure to qualify and could result in the
inability of the Company to enforce contracts in such jurisdictions. Any new
legislation or regulation, or the application of laws or regulations from
jurisdictions whose laws do not currently apply to the Company's business,
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business--Government Regulation."
Risks Associated With Information Disseminated Through the Company's
Network. The law relating to the liability of online services companies and
Internet access providers for information carried on or disseminated through
their networks is currently unsettled. It is possible that claims could be made
against online services companies and Internet access providers under both
United States and foreign law for defamation, negligence or copyright or
trademark infringement, or other theories based on the nature and content of
the materials disseminated through their networks. Several private lawsuits
seeking to impose such liability upon online services companies and Internet
access providers are currently pending. In addition, legislation has been
proposed that imposes liability for or prohibits the transmission over the
Internet of certain types of information. The imposition upon the Company and
other Web hosting providers of potential liability for information carried on
or disseminated through their systems could require the Company to implement
measures to reduce its exposure to such liability, which may require the
expenditure of substantial resources, or to discontinue certain service
offerings. The increased attention focused upon liability issues as a result of
these lawsuits and legislative proposals also could affect the growth of
Internet use. In addition, the Company is subject to a number of risks
associated with the potential actions of customers utilizing the Company's
network. For example, if a customer were to engage in "spamming" (a practice of
sending large quantities of unsolicited e-mail), the Company would have an
obligation to block that customer's access to the Internet through the
Company's network. A failure by the Company to satisfy this obligation could
result in the Company being denied access to the telecommunications networks
through which the Company's network links to the Internet. Spamming could also
cause a significant disruption in the Company's ability to route e-mail to and
from its customers. See "Business--Government Regulation."
Dependence on Key Personnel. The Company's success depends in significant
part upon the continued services of its key technical, sales and senior
management personnel. Any officer or employee of the Company can terminate his
or her relationship with the Company at any time. The Company's future success
will also depend on its ability to attract, train, retain and motivate highly
qualified technical, marketing, sales and management personnel. Competition for
such personnel is intense, and the Company may not be able to attract and
retain key personnel. The loss of the services of one or more of the Company's
key employees or the Company's failure to attract additional qualified
personnel could have a material adverse effect on the Company's business,
results of operations and financial condition. The Company does not carry key-
man life insurance for any of its employees. See "Business--Employees" and
"Management."
Protection and Enforcement of Intellectual Property Rights. The Company
relies on a combination of copyright, trademark, service mark and trade secret
laws and contractual restrictions to establish and protect certain proprietary
rights in its services. The Company has no patented technology that would
preclude or inhibit competitors from entering the Company's market. The Company
has entered into confidentiality and invention assignment agreements with its
employees and contractors, and nondisclosure agreements with its suppliers,
distributors and certain customers in order to limit access to and disclosure
of its proprietary information. These contractual arrangements or the other
steps taken by the Company to protect its intellectual property may not prove
sufficient to prevent misappropriation
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of the Company's technology or to deter independent third-party development of
similar technologies. The laws of certain foreign countries may not protect
the Company's services or intellectual property rights to the same extent as
do the laws of the United States. The Company also relies on certain
technologies that it licenses from third parties. These third-party technology
licenses may not continue to be available to the Company on commercially
reasonable terms. The loss of the ability to use such technology could require
the Company to obtain the rights to use substitute technology, which could be
more expensive or offer lower quality or performance, and therefore have a
material adverse effect on the Company's business, results of operations and
financial condition.
To date, the Company has not been notified that the Company's services
infringe the proprietary rights of third parties, but third parties could
claim infringement by the Company with respect to current or future services.
The Company expects that participants in its markets will be increasingly
subject to infringement claims as the number of services and competitors in
the Company's industry segment grows. Any such claim, whether meritorious or
not, could be time-consuming, result in costly litigation, cause service
installation delays or require the Company to enter into royalty or licensing
agreements. Such royalty or licensing agreements might not be available on
terms acceptable to the Company or at all. As a result, any such claim could
have a material adverse effect upon the Company's business, results of
operations and financial condition. See "Business--Intellectual Property
Rights."
Potential Future Capital Needs. The Company expects to invest in the
development of new services. During the next 12 months, the Company expects to
meet its working capital requirements, including such requirements associated
with the Company's planned expansion, with existing cash and cash equivalents
and short-term investments, the net proceeds from this offering and cash
generated from operations. However, the Company may not be successful in
generating sufficient cash from operations or in raising capital in sufficient
amounts on acceptable terms. The failure to generate sufficient cash flows or
to raise sufficient funds may require the Company to delay or abandon some or
all of its development and expansion plans or otherwise forego market
opportunities and may make it difficult for the Company to respond to
competitive pressures, any of which could have a material adverse effect on
the Company's business, results of operations and financial condition. See
"Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Year 2000 Risks. The Company recognizes the need to ensure its operations
will not be adversely impacted by Year 2000 software failures. Software
failures due to processing errors potentially arising from calculations using
the dates on or after Year 2000 are a known risk. The Company has established
procedures for evaluating and managing the risks and costs associated with
this problem and believes that its systems are Year 2000 compliant. The
Company currently anticipates hiring an independent consultant to review the
Company's systems and certify that they are Year 2000 compliant in order to
satisfy inquiries from customers. The cost of this review could exceed
$100,000, and, were it to uncover Year 2000 problems, the Company could incur
significant operating expenses or be required to invest in improved computer
systems to be Year 2000 compliant. Such expenditures could have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, the Company maintains most of its customers' Web pages
on UNIX-based servers, which may be impacted by Year 2000 complications. The
failure of such servers could have a material adverse effect on the Company's
customers, which in turn could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Possible Volatility of Stock Price. The market price of the shares of Common
Stock is likely to be highly volatile and could be subject to wide
fluctuations in response to factors such as actual or anticipated variations
in the Company's results of operations, announcements of technological
innovations, new products or services introduced by the Company or its
competitors, changes in financial estimates by securities analysts, conditions
and trends in the Internet, general market conditions
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and other factors. Further, the stock markets, and in particular the Nasdaq
National Market, have experienced extreme price and volume fluctuations that
have particularly affected the market prices of equity securities of many
technology companies and that often have been unrelated or disproportionate to
the operating performance of such companies. The trading prices of many
technology companies' stocks are at or near historical highs and reflect price
to earnings ratios substantially above historical levels. These trading prices
and price to earnings ratios may not be sustained. Market fluctuations, as
well as general economic, political and market conditions such as recessions,
interest rate changes or international currency fluctuations, may adversely
affect the market price of the Common Stock. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such companies. Such
litigation, if instituted, could result in substantial costs and a diversion
of management's attention and resources, which could have a material adverse
effect on the Company's business, results of operations and financial
condition.
Control by Principal Stockholders, Executive Officers and Directors. Upon
completion of this offering, the Company's executive officers, directors and
greater than 5% stockholders (and their affiliates) will, in the aggregate,
beneficially own approximately 59.2% of the Company's outstanding Common Stock
(57.6% if the Underwriters' over-allotment option is exercised in full). As a
result, such persons, acting together, will have the ability to control all
matters submitted to stockholders of the Company for approval (including the
election and removal of directors and any merger, consolidation or sale of all
or substantially all of the Company's assets) and to control the management
and affairs of the Company. Accordingly, such concentration of ownership may
have the effect of delaying, deferring or preventing a change in control of
the Company, impeding a merger, consolidation, takeover or other business
combination involving the Company or discouraging a potential acquirer from
making a tender offer or otherwise attempting to obtain control of the
Company, which in turn could have a material adverse effect on the market
price of the Company's Common Stock. See "Management" and "Principal
Stockholders."
Benefit of the Offering to Existing Stockholders. As of June 30, 1998, there
were outstanding 17,378,911 shares of Common Stock held of record by
approximately 155 stockholders. These existing stockholders will recognize
significant benefits from this offering. These benefits include the creation
of a public market for the Company's Common Stock, which will afford them the
ability to liquidate their investments, subject in certain cases to volume
limitations and other limitations and restrictions upon the sale of their
Common Stock. See "Shares Eligible for Future Sale." Moreover, certain of the
Company's existing stockholders are selling shares in this offering, thereby
liquidating a portion of their investment at the price set forth on the cover
page of this Prospectus, which represents a substantial gain to such
stockholders. Included among the Selling Stockholders are six officers and
directors of the Company selling an aggregate of 323,500 shares for an
aggregate of approximately $4.5 million (assuming an initial public offering
price of $14.00 per share). Following the offering, the current executive
officers and directors as a group will own 11,567,525 shares worth
approximately $161.9 million (assuming an initial public offering price of
$14.00 per share). These shares were generally purchased at prices
significantly less than $1.00 per share. Accordingly, after this offering
these stockholders will have substantial unrealized gains on their shares. See
"Dilution," "Principal and Selling Stockholders" and "Certain Transactions."
Shares Eligible for Future Sale. Sales of substantial amounts of the
Company's Common Stock (including shares issued upon the exercise of
outstanding warrants and options) in the public market after this offering
could adversely affect the market price of the Common Stock. Such sales also
might make it more difficult for the Company to sell equity or equity-related
securities in the future at a time and price that the Company deems
appropriate. In addition to the 4,000,000 shares of Common Stock offered
hereby (assuming no exercise of the Underwriters' over-allotment option), as
of the date of this Prospectus, there will be 17,378,911 shares of Common
Stock outstanding, all of which are restricted shares ("Restricted Shares")
under the Securities Act of 1933, as amended (the "Securities Act") as of the
date of this Prospectus. As of such date, 121,650 Restricted Shares will be
immediately eligible for sale
15
<PAGE>
in the public market. Following the expiration of 120-day and 180-day lock-up
agreements with the Company and the Underwriters that arise pursuant to
arrangements entered into prior to the Merger, 20,000 and 10,331,021 Restricted
Shares, respectively, will be available for sale in the public market, and the
remaining Restricted Shares will become eligible for sale between March 27,
1999 and May 27, 1999. In addition, as of June 30, 1998, there were outstanding
warrants to purchase 1,557,558 shares of Common Stock and options to purchase
722,413 shares of Common Stock. In addition, the holders of 1,100,000
Restricted Shares and warrants to purchase 1,557,558 shares of Common Stock are
entitled to certain rights with respect to registration of such shares for sale
in the public market. If such holders sell in the public market, such sales
could have a material adverse effect on the market price of the Company's
Common Stock.
Immediately after this offering, the Company intends to register
approximately 3,820,670 shares of Common Stock subject to outstanding options
and reserved for issuance under the 1995 Plan, the 1996 Plan, the Hiway Florida
Plan, the 1998 Plan, the Directors Option Plan and the Purchase Plan. See
"Shares Eligible for Future Sale."
Broad Management Discretion in Allocation of Proceeds. The primary purposes
of this offering are to obtain additional capital, create a public market for
the Common Stock and facilitate future access to public markets. The Company
expects to use the net proceeds, over time, for working capital and other
general corporate purposes. A portion of the net proceeds also may be used to
acquire or invest in complementary businesses, products or services or to
obtain the right to use complementary technologies. Accordingly, the Company's
management will retain broad discretion regarding the allocation of the
proceeds of this offering. The failure of management to apply such funds
effectively could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Use of Proceeds."
Anti-Takeover Effects of Charter Provisions and Delaware Law. Upon completion
of this offering, the Company's Board of Directors will have the authority to
issue up to 10,000,000 shares of Preferred Stock and to determine the price,
powers, designations, preferences, rights and qualifications, limitations or
restrictions of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. The issuance of Preferred Stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no current plans to issue shares of Preferred Stock.
In addition, the Company's certificate of incorporation and bylaws contain
certain provisions that, together with the ownership position of the Company's
executive officers and directors and their affiliates, could discourage
potential takeover attempts and make more difficult attempts by stockholders to
change management which could adversely affect the market price of the
Company's Common Stock. For example, the Company's charter documents contain a
provision eliminating the ability of the Company's
stockholders to take any action by written consent effective upon the closing
of this offering. This provision is designed to reduce the vulnerability of the
Company to an unsolicited acquisition proposal and to render the use of
stockholder written consent unavailable as a tactic in a proxy fight. However,
such provision could have the effect of discouraging others from making tender
offers for the Company's shares, thereby inhibiting increases in the market
price of the Company's shares that could result from actual or rumored takeover
attempts. Such provision also may have the effect of preventing changes in the
management of the Company. The Company is also subject to certain provisions of
Delaware law that could have the effect of delaying, deterring or preventing a
change in control of the Company, including Section 203 of the Delaware General
Corporation Law, which prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three
years from the date the person became an interested stockholder unless certain
conditions are met. See "Description of Capital Stock."
16
<PAGE>
No Prior Market for Common Stock. Prior to this offering, there has been no
public market for the Company's Common Stock. An active public market may not
develop or be sustained after this offering and investors may not be able to
sell the Common Stock should they desire to do so. The initial public offering
price will be determined by negotiations between the Company and the
representatives of the Underwriters and may bear no relationship to the price
at which the Common Stock will trade upon completion of this offering. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
Immediate and Substantial Dilution. Purchasers of the Common Stock in this
offering will suffer immediate and substantial dilution of $11.43 per share in
the net tangible book value of the Common Stock from the initial public
offering price. To the extent that any outstanding warrants or options to
purchase the Company's Common Stock are exercised, there will be further
dilution. See "Dilution."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,500,000 shares of
Common Stock offered by the Company hereby (at an assumed initial public
offering price of $14.00 per share) are estimated to be $44.5 million ($52.3
million if the Underwriters' over-allotment option is exercised in full),
after deducting the estimated underwriting discounts and commissions and
offering expenses. The primary purposes of this offering are to obtain
additional capital, create a public market for the Common Stock and facilitate
future access to public markets. The Company expects to use the net proceeds,
over time, for working capital and other general corporate purposes. A portion
of the net proceeds also may be used to acquire or invest in complementary
businesses, products or services or to obtain the right to use complementary
technologies. However, the Company has no present understandings, commitments
or agreements with respect to any acquisition of businesses, products,
services or technologies. Pending use of the net proceeds for the above
purposes, the Company intends to invest such funds in short-term, interest-
bearing, investment-grade securities.
DIVIDEND POLICY
Neither the Company nor its California predecessor has paid any cash
dividends on its capital stock. The Company does not anticipate paying any
cash dividends in the foreseeable future, since the Company intends to retain
any earnings to finance the Company's operations and to expand its business.
Moreover, under the Company's banking arrangement with Silicon Valley Bank,
the Company is not permitted to declare or pay any dividends without the
bank's prior consent. The Company's Florida predecessor was a Subchapter S
corporation and made distributions of significant portions of its income in
the amounts of $125,000 and $2,974,435 to its shareholders in 1996 and 1997,
respectively. See "Certain Transactions."
17
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company, as
of June 30, 1998, and the actual capitalization as adjusted to reflect receipt
of the net proceeds from the sale of the 3,500,000 shares of Common Stock
offered by the Company hereby, at an assumed initial public offering price of
$14.00 per share and after deducting the estimated underwriting discounts and
commissions and offering expenses.
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------
ACTUAL AS ADJUSTED
------- -----------
(in thousands)
<S> <C> <C>
Short-term debt:
Current portion of notes payable......................... $ 93 $ 93
Current portion of capital lease obligations............. 305 305
------- -------
Total short-term debt................................... $ 398 $ 398
======= =======
Notes payable, less current portion....................... $ 4,889 $ 4,889
Capital lease obligations, less current portion........... 300 300
------- -------
Stockholders' equity (1):
Preferred Stock, $0.001 par value per share:
10,000,000 shares authorized, no shares issued or
outstanding............................................ -- --
Common Stock, $0.001 par value per share:
60,000,000 shares authorized; 17,878,911 shares issued
and outstanding; 21,378,911 shares issued and
outstanding, as adjusted................................ 18 21
Additional paid-in capital............................... 9,423 53,890
Notes receivable from stockholders....................... (1,358) (1,358)
Retained earnings........................................ 3,449 3,449
------- -------
Total stockholders' equity.............................. 11,532 56,002
------- -------
Total capitalization................................... $16,721 $61,191
======= =======
</TABLE>
- --------
(1) Based on shares outstanding as of June 30, 1998. Does not include (i)
722,413 shares of Common Stock issuable upon the exercise of stock options
outstanding as of that date under the 1995 Plan, the 1996 Plan or the Hiway
Florida Plan, with a weighted average per share exercise price of $5.90,
(ii) 1,718,175 shares of Common Stock available as of that date for future
grant under the 1998 Plan, (iii) 800,000 shares of Common Stock available
for future grant or issuance immediately after this offering under the
Directors Plan and the Purchase Plan or (iv) 1,557,558 shares of Common
Stock issuable upon the exercise of warrants outstanding as of June 30,
1998, with a weighted average per share exercise price of $5.38. See
"Management--Director Compensation," "Management--Employee Benefit Plans,"
"Description of Capital Stock" and Notes 9-13 of Notes to Consolidated
Financial Statements.
18
<PAGE>
DILUTION
The net tangible book value of the Company, as of June 30, 1998, was $10.5
million, or $0.59 per share of Common Stock. "Net tangible book value per
share" is determined by dividing the number of outstanding shares of Common
Stock into the net tangible book value of the Company (total tangible assets
less total liabilities). After giving effect to receipt of the net proceeds
from the sale of the 3,500,000 shares of Common Stock offered by the Company
hereby (at an assumed initial public offering price of $14.00 per share and
after deducting the estimated underwriting discounts and commissions and
offering expenses), the pro forma net tangible book value of the Company as of
June 30, 1998 would have been approximately $54.9 million, or $2.57 per share.
This represents an immediate increase in net tangible book value of $1.98 per
share to existing stockholders and an immediate dilution of $11.43 per share to
new investors purchasing shares at the initial public offering price. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $14.00
Net tangible book value per share as of June 30, 1998.......... $0.59
Increase per share attributable to new investors............... 1.98
-----
Pro forma net tangible book value per share after this offering. 2.57
------
Dilution per share to new investors............................. $11.43
======
</TABLE>
The following table summarizes, as of June 30, 1998, the number of shares of
Common Stock purchased from the Company, the total consideration paid to the
Company and the average price per share paid by the existing stockholders and
by the investors purchasing shares of Common Stock in this offering (before
deducting the estimated underwriting discounts and commissions and offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 17,878,911 83.6% $ 9,441,000 16.2% $ 0.53
New investors.......... 3,500,000 16.3 49,000,000 83.8 $14.00
---------- ----- ----------- -----
Total................ 21,378,911 100.0% $58,441,000 100.0%
========== ===== =========== =====
</TABLE>
The foregoing table assumes no exercise of the Underwriters' over-allotment
option and no exercise of warrants and stock options outstanding as of June 30,
1998. As of June 30, 1998, there were warrants and options outstanding to
purchase a total of 1,557,558 shares and 722,413 shares of Common Stock, at
weighted average per share exercise prices of $5.38 and $5.90, respectively. To
the extent that any of these warrants or options are exercised, there will be
further dilution to new investors. See "Capitalization," "Management--Employee
Benefit Plans," "Description of Capital Stock" and Notes 9-13 of Notes to
Consolidated Financial Statements.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus. The consolidated
statement of operations data for each of the years in the three-year period
ended December 31, 1997, and the consolidated balance sheet data as of December
31, 1996 and 1997, are derived from consolidated financial statements of the
Company that, except as they relate to the financial statements of Hiway
Florida for the period from April 6, 1995 (date of inception) to December 31,
1995 and for the year ended December 31, 1996, have been audited by
PricewaterhouseCoopers LLP independent accountants, and, insofar as they relate
to the financial statements of Hiway Florida for the period from April 6, 1995
(date of inception) to December 31, 1995 and for the year ended December 31,
1996, have been audited by De Meo, Young, McGrath & Company, P.A., independent
accountants, and are included elsewhere in this Prospectus. The consolidated
statement of operations data for the three months ended March 31, June 30,
September 30 and December 31, 1997 and March 31 and June 30, 1998, and the
consolidated balance sheet data as of December 31, 1995 and June 30, 1998, are
derived from unaudited consolidated financial statements that are not included
herein. The unaudited consolidated financial statements have been prepared on
substantially the same basis as the audited consolidated financial statements
and, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly, in all material
respects, the financial condition and results of operations for such periods
and as of such dates. Historical results are not necessarily indicative of the
results to be expected in the future, and results of interim periods are not
necessarily indicative of results to be expected for the entire year.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, THREE MONTHS ENDED
------------------------ ------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1996 1997 1997 1997 1997 1997 1998 1998
------ ------- ------- -------- -------- --------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues................ $2,011 $12,217 $26,185 $5,371 $6,164 $6,918 $7,732 $8,844 $9,666
------ ------- ------- ------ ------ ------ ------ ------ ------
Operating costs and
expenses:
Cost of revenues....... 231 3,233 7,213 1,577 1,789 1,766 2,081 2,475 2,813
Sales and marketing.... 154 2,555 3,589 626 756 898 1,309 1,365 1,396
Product development and
systems engineering... 97 1,005 2,112 353 485 581 693 717 639
General and
administrative........ 2,068 4,641 8,400 1,579 1,814 2,239 2,768 3,027 3,413
------ ------- ------- ------ ------ ------ ------ ------ ------
Total operating costs
and expenses......... 2,550 11,434 21,314 4,135 4,844 5,484 6,851 7,584 8,261
------ ------- ------- ------ ------ ------ ------ ------ ------
Income (loss) from
operations............. (539) 783 4,871 1,236 1,320 1,434 881 1,260 1,405
Interest and other
income (expense), net. (11) (118) (75) (18) 9 (6) (60) 62 (628)
------ ------- ------- ------ ------ ------ ------ ------ ------
Income (loss) before
provision (benefit) for
income taxes........... (550) 665 4,796 1,218 1,329 1,428 821 1,322 777
Provision (benefit) for
income taxes.......... 1 1 361 91 103 107 60 176 (77)
------ ------- ------- ------ ------ ------ ------ ------ ------
Net income (loss)....... $ (551) $ 664 $ 4,435 $1,127 $1,226 $1,321 $ 761 $1,146 $ 854
====== ======= ======= ====== ====== ====== ====== ====== ======
Pro forma net income
(loss) (1)............. $ (551) $ 632 $ 2,871 $ 737 $ 794 $ 848 $ 492 $ 792 $ 464
====== ======= ======= ====== ====== ====== ====== ====== ======
Historical net income
(loss) per share (2)
--Basic................ $(0.07) $ 0.05 $ 0.30 $ 0.08 $ 0.08 $ 0.09 $ 0.05 $ 0.07 $ 0.05
--Diluted.............. $(0.07) $ 0.05 $ 0.25 $ 0.07 $ 0.07 $ 0.07 $ 0.04 $ 0.05 $ 0.05
Pro forma net income
(loss) per share (2)
--Basic................ $(0.07) $ 0.05 $ 0.19 $ 0.05 $ 0.05 $ 0.06 $ 0.03 $ 0.05 $ 0.03
--Diluted.............. $(0.07) $ 0.04 $ 0.17 $ 0.04 $ 0.05 $ 0.05 $ 0.03 $ 0.04 $ 0.03
Shares used in computing
basic net income (loss)
per share (2).......... 8,436 12,939 15,010 14,800 14,983 14,984 15,274 15,578 16,723
Shares used in computing
diluted net income
(loss) per share (2)... 8,436 14,063 17,439 16,931 17,408 17,577 17,838 18,031 18,268
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1995 1996 1997 1998
------ ------ ------- --------
CONSOLIDATED BALANCE SHEET DATA: (in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents...................... $ 55 $1,588 $ 5,672 $5,088
Working capital (deficiency)................... (503) 389 4,169 2,257
Total assets................................... 1,243 9,539 19,467 24,863
Long-term debt and capital lease obligations,
less current portion.......................... 22 778 5,197 5,189
Total stockholders' equity .................... 487 4,969 8,957 11,532
</TABLE>
- -------
(1) See Note 17 of Notes to Consolidated Financial Statements for an
explanation of the determination of pro forma net income (loss), which
reflects a provision for income taxes as if Hiway Florida was a corporation
subject to income taxes.
(2) See Note 18 of Notes to Consolidated Financial Statements for an
explanation of the computation of per share data.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
This discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from those
anticipated in these forward-looking statements. Factors that may cause such a
difference include, but are not limited to, those set forth under "Risk
Factors."
OVERVIEW
Hiway is a leading global provider of Web hosting and related enhanced
Internet services to small and medium sized businesses. With over 91,000 Web
hosting accounts worldwide, the Company believes that it is currently the
largest provider of business Web hosting services, as measured by number of
Web hosting accounts. The Company focuses on delivering high-quality, reliable
and flexible services that are backed by 24x7 customer support and can be
scaled to host millions of Web sites.
The Company was formed in May 1998 through the merger of Best, which was
incorporated in September 1994, and Hiway Florida, which was incorporated in
April 1995. Prior to the Merger, Hiway Florida was a leading provider of
shared server Web hosting domestically and, through its established network of
VARs, internationally. Hiway Florida had also begun to expand its distribution
channels by entering into relationships with RBOCs and other OEMs. Best was a
leading provider of shared server Web hosting bundled with dial-up Internet
access in the California market prior to the Merger, and also offered stand-
alone high-speed Internet connectivity and co-location Web hosting services.
In 1997 and the first quarter of 1998, Hiway Florida had revenues of $10.4
million and $4.3 million, respectively, and Best had revenues of $15.8 million
and $4.5 million, respectively. At March 31, 1998, Hiway Florida had
approximately 49,000 Web hosting accounts and Best had approximately 29,000
Web hosting accounts. The merged Company currently expects to focus on shared
server Web hosting, both stand-alone and bundled with dial-up Internet access,
and to deemphasize stand-alone high-speed Internet connectivity and co-
location Web hosting services. The Merger was accounted for as a pooling of
interests, and accordingly all prior financial statements have been restated
to combine the results of Best and Hiway Florida. Primarily as a direct or
indirect result of the Merger, the Company wrote off approximately $395,000 of
related Merger costs in the second quarter of 1998, including approximately
$204,000 of legal costs, $89,000 of accounting costs and $102,000 of travel
and miscellaneous costs. See "Risk Factors--Limited Operating History," "Risk
Factors--Recent Merger; Risk Associated with Integration of Operations" and
Notes 1 and 4 of Notes to Consolidated Financial Statements.
The Company is in the process of completing leasehold improvements in a
70,000 square foot state-of-the-art data center and headquarters facility in
Boca Raton, Florida, which will replace its existing facility in Boca Raton.
Leasehold improvements, equipment and other capital expenditures for this
facility are expected to aggregate up to $4.5 million, of which approximately
$3.0 million had been spent by June 30, 1998. Most of the remaining
expenditures, including relocation costs, will be spent by August 1998.
Following the completion of this facility, the Company will maintain two
Network Operations Centers, one in Boca Raton and one in Mountain View,
California. The Company believes that its two data centers will be adequate to
scale its domestic business for at least the next two years. Rather than build
international data centers, the Company expects to lease data center space in
Europe, Japan and South America as the Company's customer base grows in these
geographic regions. As a result, the Company expects that future capital
expenditures will occur only incrementally as the Company's business expands.
21
<PAGE>
The Company derived approximately 19.8% of its revenues internationally in
the first half of 1998 and expects that this percentage will increase over the
next several years. Although a portion of international customers purchase
services online directly from the Company, the Company markets and sells shared
server Web hosting to international customers and services these customers
primarily through its indirect distribution channel comprised of Premier
Partners and VARs. Premier Partners are VARs that are responsible for building
the Company's brand in their local markets through marketing programs and by
establishing a network of additional VARs. The Company has ownership stakes in
four of its 11 Premier Partners -- Germany (20%), Japan (35%), France (25%) and
the United Kingdom (60%)-- for which it has paid an aggregate of $370,000. The
Company grants its Premier Partners and VARs substantial discounts from the
Company's retail prices on the services they resell to their customers, and the
Premier Partners and VARs are responsible for localizing the Company's services
and providing technical support and other services to their customers. The
Company denominates its sales to VARs and Premier Partners in U.S. dollars.
Thus, fluctuations in the value of the U.S. dollar relative to the currency of
a given country may make the Company's services more or less profitable and
therefore more or less attractive to VARs selling in that country. See "Risk
Factors--Risks Associated With International Expansion and Operations."
The Company derives its revenues primarily from ongoing monthly fees and one-
time setup fees for Web hosting and, to a lesser extent, from similar fees for
high-speed Internet connectivity and enhanced Internet services. The Company
advertises in traditional and online media to attract potential customers. As a
result, to date, the Company has derived a significant majority of its accounts
from inbound requests from potential customers. The Company also markets its
services through over 1,800 international and domestic VARs and through OEMs,
including two RBOCs and SwissCom (a European telecommunications company), which
offer the Company an opportunity to derive revenue from the large established
customer bases of these companies. In addition, the Company is in discussions
with a number of other telecommunications companies regarding possible
establishment of distribution relationships. Although the Company contemplates
significant increases in advertising in order to attempt to grow sales through
its direct sales channel, the Company anticipates that an increasing percentage
of its revenues will be derived from sales through its VARs and OEMs. Because
sales to VARs and OEMs are made at a discount to the Company's retail prices
for similar services, they result in lower gross margins to the Company than
direct sales; however, sales and marketing expenses for these reseller channels
are significantly less than such expenses for direct sales. As a result, the
Company expects that, to the extent the portion of its new customer base from
these indirect reseller channels increases, this increase will have a positive
effect on its operating margin. See "Risk Factors--Dependence Upon Channel
Partners."
22
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain selected items in the Company's
supplemental consolidated statements of operations as a percentage of revenues
for the periods indicated. This information has been derived from the
Company's unaudited supplemental consolidated financial statements, which, in
management's opinion, have been prepared on substantially the same basis as
the audited financial statements and include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
financial information for the quarters presented. This information should be
read in conjunction with the Supplemental Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus. The operating results
in any quarter are not necessarily indicative of the results for any future
period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1997 1997 1998 1998
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- ----- -----
Operating costs and ex-
penses:
Cost of revenues....... 29.3 29.0 25.5 26.9 28.0 29.1
Sales and marketing.... 11.7 12.3 13.0 16.9 15.5 14.5
Product development and
systems engineering... 6.6 7.9 8.4 9.0 8.1 6.6
General and
administrative........ 29.4 29.4 32.4 35.8 34.2 35.3
----- ----- ----- ----- ----- -----
Total operating costs
and expenses......... 77.0 78.6 79.3 88.6 85.8 85.5
----- ----- ----- ----- ----- -----
Income from operations.. 23.0 21.4 20.7 11.4 14.2 14.5
Interest and other
income (expense), net. (0.3) 0.2 (0.1) (0.8) 0.7 (6.5)
----- ----- ----- ----- ----- -----
Income before provision
(benefit) for income
taxes.................. 22.7 21.6 20.6 10.6 14.9 8.0
Provision (benefit) for
income taxes.......... 1.7 1.7 1.5 0.8 2.0 (0.8)
----- ----- ----- ----- ----- -----
Net income.............. 21.0% 19.9% 19.1% 9.8% 12.9% 8.8%
===== ===== ===== ===== ===== =====
</TABLE>
Revenues. Revenues consist primarily of customer fees for Web hosting and,
to a lesser extent, customer fees for high-speed Internet connectivity and
enhanced Internet services. Customers typically pay recurring monthly fees and
one-time set-up fees for Web hosting and enhanced Internet services and for
high-speed Internet connectivity. Monthly fees are generally billed for, and
recognized ratably over, the one or three-month billing period selected by a
customer, and one-time set-up fees are typically recognized at the time the
set-up services are performed.
The Company's revenues increased sequentially each quarter from $5.4 million
to $6.2 million to $6.9 million to $7.7 million to $8.8 million and to $9.7
million in the quarters ended March 31, June 30, September 30 and December 31,
1997 and March 31 and June 30, 1998, respectively. International revenues
increased sequentially each quarter from $809,000 to $952,000 to $1.2 million
to $1.3 million to $1.6 million and to $2.0 million, a compound quarterly
growth rate of 20.2%, while domestic revenues increased sequentially from $4.6
million to $5.2 million to $5.7 million to $6.4 million to $7.2 million and to
$7.7 million, a compound quarterly growth rate of 10.9%. As a result, the
percentage of the Company's revenues derived internationally increased from
15.1% to 15.4% to 17.7% to 17.5% to 18.5% and to 21.0% during the comparison
periods.
Substantially all of this growth in revenues resulted from increases in the
number of the Company's Web hosting accounts, which totaled approximately
44,000, 52,000, 59,000, 68,000, 78,000 and 91,000 at March 31, June 30,
September 30 and December 31, 1997 and March 31 and June 30, 1998,
respectively. The Company did not materially alter the pricing of its various
Web hosting or high-speed Internet connectivity services during the comparison
periods; however, certain shifts in distribution and service mix served to
reduce the Company's overall average selling price. During these periods,
shared server Web
23
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hosting revenues from direct sales, which are made at the Company's retail
prices, grew less rapidly than shared server Web hosting sales to VARs and
OEMs, which are made at a significant discount from the Company's retail
prices. Sales to VARs and OEMs represented 10.5%, 13.0%, 15.3%, 18.7%, 19.1%
and 20.4% of the Company's revenues in the quarters ended March 31, June 30,
September 30 and December 31, 1997 and March 31 and June 30, 1998,
respectively, while revenues from direct sales represented 89.5%, 87.0%,
84.7%, 81.3%, 80.9% and 79.6%, respectively. Sales to OEMs, although growing,
still did not represent a material portion of revenues in the quarter ended
June 30, 1998. Overall average selling price during the comparison periods was
also reduced by the fact that revenues from shared server Web hosting (with or
without dial-up access) grew more rapidly than revenues from high-speed
Internet connectivity, which have higher monthly fees. Shared server Web
hosting revenues increased from 73.3% of the Company's revenues in the first
quarter of 1997 to 80.4% of its revenues in the second quarter of 1998, while
high-speed Internet connectivity revenues decreased from 17.8% of the
Company's revenues in the first quarter of 1997 to 14.1% of its revenues in
the second quarter of 1998. The Company does not plan to devote significant
resources to marketing stand-alone high-speed Internet connectivity services.
In the future, as competition for Web hosting services becomes more intense,
the Company may find that competitive pressures will force it to reduce the
prices of its services, although the Company may be able to mitigate such
pressures by incorporating more features into those services. See "Risk
Factors--Competition." Also, if OEMs and VARs, as expected, continue to
represent an increasing percentage of the Company's revenues, the Company's
average revenues per shared server Web hosting account will decline.
Cost of Revenues. The Company's cost of revenues is comprised primarily of
the Company's Internet connectivity costs, salaries and benefits for Company
personnel responsible for provisioning customer accounts and providing
customer service and technical support, depreciation of the Company's servers
and network equipment, the cost of third-party equipment sold by the Company
and merchant fees on credit card transactions. The Company's cost of revenues
increased from $1.6 million to $1.8 million to $1.8 million to $2.1 million to
$2.5 million and to $2.8 million in the quarters ended March 31, June 30,
September 30 and December 31, 1997 and March 31 and June 30, 1998,
respectively, and represented 29.3%, 29.0%, 25.5%, 26.9%, 28.0% and 29.1% of
revenues, respectively. The increases in cost of revenues in absolute dollars
were primarily the result of increased Internet connectivity costs, increased
salaries and benefits for customer support personnel and increased
depreciation of server and network equipment, all of which tend to grow as
revenues grow. The Company's cost of revenues remained relatively constant as
a percentage of revenues during the comparison periods. The increase in
percentage from the third quarter of 1997 to the second quarter of 1998 was
primarily the result of increased headcount in the customer support
organization in anticipation of growth in the number of Web hosting accounts
and increased Internet connectivity costs related to the Company's expansion
into the Los Angeles Basin. The Company expects that its cost of revenues may
continue to increase as a percentage of revenues to the extent competitive
pressures cause it to reduce prices or increase features and as the Company
derives a greater percentage of its revenues from OEMs and VARs, which
purchase at discounts from the Company's retail prices. The decreases in gross
margin that would result may be offset in part by the fact that the
depreciation on the Company's leasehold improvements and equipment at its new
data center and headquarters in Boca Raton, Florida will decrease as a
percentage of revenues as revenues grow and that, if the Company develops
significantly more Internet traffic, it may be able to negotiate lower costs
for certain types of Internet connectivity.
Sales and Marketing. The Company's sales and marketing expenses are
comprised primarily of salaries and benefits for the Company's sales and
marketing personnel, print and online advertising costs associated with the
Company's marketing efforts and costs for trade shows. After increasing
gradually in absolute dollar terms in the quarters ended March 31, June 30 and
September 30, 1997, the Company's sales and marketing expenses jumped
significantly in the quarter ended December 31, 1997 both in absolute dollars
and as a percentage of total revenues as a result of increased advertising
designed to accelerate the rate of customer growth. The Company's sales and
marketing expenses continued to
24
<PAGE>
increase minimally in absolute dollars in the first two quarters of 1998 but
declined as a percentage of revenues as Best reduced its advertising in
anticipation of the Merger. The Company's cost of acquiring new direct sales
customers increased each quarter in 1997 as it sought to attract not only
technologically sophisticated "early adopters" but also more mainstream small
and medium sized businesses, but decreased in each of the first two quarters
of 1998 as a result of more efficient marketing campaigns. The Company expects
sales and marketing expenses to continue to increase significantly in absolute
dollar terms and, at least through the end of 1998, as a percentage of
revenues, as the Company continues to focus on customer growth and to
advertise more heavily and in more expensive broadbased publications and
online. To the extent revenue growth does not justify continued increases in
advertising and promotion expenses, the Company may elect to reduce the rate
of growth of such expenses.
Product Development and Systems Engineering. The Company's product
development and systems engineering expenses are comprised almost entirely of
salaries and benefits for the Company's product development and systems
engineering organizations, which focus on enhancing and administering the
functionality and breadth of the Company's Web hosting platforms and enhanced
Internet service offerings. Product development and systems engineering
expenses increased each quarter through the first quarter of 1998 in absolute
dollars, primarily as a result of hiring additional personnel, and also
increased as a percentage of revenues from the first quarter of 1997 through
the fourth quarter of 1997. Product development and systems engineering
expenses decreased as a percentage of revenues in the first and second
quarters of 1998 and in absolute dollars in the second quarter of 1998,
although the Company also capitalized approximately $108,000 of costs in the
second quarter of 1998 in connection with the development of a Windows NT Web
hosting platform. The Company expects that product development and systems
engineering expenses will increase significantly in absolute dollars as the
Company continues to develop new service offerings and enhance its network
infrastructure and operations but will not increase significantly as a
percentage of revenues if revenues increase at the rate expected.
General and Administrative. The Company's general and administrative
expenses are comprised primarily of salaries and benefits for the Company's
executive, administrative, human resources, financial and accounting
personnel, the Company's occupancy costs and other overhead, depreciation on
the Company's leasehold improvements, furniture and fixtures, fees for the
Company's outside professional advisers and the allowance for bad debts. The
increases in general and administrative expenses in absolute dollars and as a
percentage of revenues during 1997 were primarily the result of increased
salaries and benefits for personnel as well as increases in fees for outside
professional advisers and depreciation. In the first quarter of 1998, the
Company experienced a significant increase in rent as a result of its new Blue
Lake facility, but general and administrative expenses still declined as a
percentage of revenues. In the second quarter of 1998, general and
administrative expenses again increased in absolute dollars and as a
percentage of revenues due to the first full quarter of occupancy costs at the
Company's new Florida facilities and an increase in salaries and benefits for
personnel and fees for outside professional advisers. The Company expects that
general and administrative expenses will increase in absolute dollars but will
continue to decline as a percentage of revenues if revenues increase at the
rate expected.
Provision for Income Taxes. The Company's effective income tax rate during
1997 approximated 7.5%. The effective income tax rate differed from the
statutory federal rate of 34% as Hiway Florida did not pay taxes at the
corporate level during the comparison periods because it operated as a
Subchapter S corporation. Best had an effective tax rate of 18.0% throughout
1997, which differed from the statutory rate primarily as a result of a change
in the deferred tax valuation allowance. In the first quarter of 1998, the
Company's effective tax rate was 13.3%, which differed from the federal
statutory rate primarily as a result of the use of net operating loss
carryforwards. In the second quarter of 1998, the Company's effective tax rate
was a credit of 10%, which differed from the federal statutory rate primarily
as a result
25
<PAGE>
of a tax benefit that resulted from Hiway Florida's conversion from a
Subchapter S corporation to a Subchapter C corporation. The Company
anticipates that its effective rate for the remainder of 1998 will be
approximately 42.0%.
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND SIX MONTHS ENDED JUNE 30,
1997 AND 1998
Revenues. The Company's revenues increased 508% from $2.0 million in 1995 to
$12.2 million in 1996 and increased an additional 114% to $26.2 million in
1997. The rapid revenue increases from 1995 to 1997 resulted primarily from
the Company's success in increasing its number of Web hosting accounts, which
totaled approximately 35,000 and 68,000 at the end of 1996 and 1997,
respectively. Best also acquired the assets and ongoing operations of two
Internet service providers in July 1996, which resulted in incremental
revenues of approximately $900,000 in 1996. Price and service mix changes did
not have significant effects on revenues between the comparison periods. The
Company's revenues increased 60.5% from $11.5 million in the first six months
of 1997 to $18.5 million in the first six months of 1998 primarily as a result
of the Company's success in increasing its number of Web hosting accounts,
which totaled approximately 52,000 and 91,000 at June 30, 1997 and 1998,
respectively.
Cost of Revenues. Cost of revenues increased from $231,000 in 1995 to $3.2
million in 1996 and to $7.2 million in 1997. The rapid increase in costs of
revenues from 1995 to 1996 resulted primarily from (i) increased connectivity
costs of approximately $1.9 million necessary to support a rapidly growing
customer base and implement redundancy in the Company's network connectivity,
(ii) increased depreciation of servers and network equipment and (iii)
increased technical support personnel. In 1997, the Company continued to
increase its connectivity and support costs in absolute dollars (to
approximately $3.1 million) but began to experience a slight decrease in such
costs as a percentage of revenues as the Company achieved some operating
leverage in its support personnel. Cost of revenues increased 57.1% from $3.4
million in the first six months of 1997 to $5.3 million in the first six
months of 1998 primarily due to increases in Internet connectivity costs
(approximately $924,000), technical support salaries and benefits
(approximately $711,000) and depreciation of servers and network equipment
(approximately $254,000).
Sales and Marketing. The Company's sales and marketing expenses increased
from $154,000 in 1995 to $2.6 million in 1996 and $3.6 million in 1997. These
increases were primarily the result of hiring additional sales and marketing
personnel, which contributed approximately $41,000, $1.6 million and $2.0
million to sales and marketing expenses in 1995, 1996 and 1997, respectively,
and expanding marketing and advertising programs in connection with the
Company's efforts to create national, international and regional brands, which
contributed approximately $113,000, $1.0 million and $1.6 million to sales and
marketing expenses in 1995, 1996 and 1997, respectively. The decline in sales
and marketing expenses as a percentage of revenues from 20.9% in 1996 to 13.7%
in 1997 was primarily a result of a slowing in the growth rate of the
Company's advertising and promotion expenses. The Company's sales and
marketing expenses increased 99.8% from $1.4 million in the first six months
of 1997 to $2.8 million in the first six months of 1998 primarily as a result
of increases in expenditures for sales and marketing personnel (approximately
$729,000) and marketing and advertising expenditures (approximately $652,000).
Product Development and Systems Engineering. Product development and systems
engineering expenses increased from $97,000 in 1995 to $1.0 million in 1996
and $2.1 million in 1997. These increases were primarily the result of payroll
increases. Product development and systems engineering expenses increased as a
percentage of revenues from 4.8% in 1995 to 8.2% in 1996 and then remained
relatively constant at 8.1% in 1997. Product development and systems
engineering expenses increased from $838,000 in the first six months of 1997
to $1.4 million in the first six months of 1998 as a result of increased
expenditures for product development and systems engineering personnel. The
Company also capitalized approximately $108,000 in the second quarter of 1998
in connection with the development of a Windows NT Web hosting platform.
26
<PAGE>
General and Administrative. General and administrative expenses increased
from $2.1 million in 1995 to $4.6 million in 1996 to $8.4 million in 1997.
These increases were primarily the result of increases in headcount, occupancy
costs and the provision for bad debts, which generally increases as a
percentage of revenues. Occupancy costs contributed approximately $155,000,
$346,000 and $856,000 to general and administrative expenses in 1995, 1996 and
1997, respectively, and the provision for bad debts contributed approximately
$8,000, $423,000 and $1.5 million to general and administrative expenses in
1995, 1996 and 1997, respectively. General and administrative expenses
decreased as a percentage of revenues from 102.8% in 1995 to 38.0% in 1996 and
32.1% in 1997. General and administrative expenses increased from $3.4 million
in the first six months of 1997 to $6.4 million in the first six months of
1998, primarily as a result of increased expenditures on salaries and benefits
for an increased number of administrative personnel (approximately $924,000),
occupancy costs (approximately $611,000) and provision for bad debts
(approximately $535,000).
Provision for Income Taxes. The Company recorded a $1,000 tax provision for
both 1995 and 1996 for minimum state income taxes. No other income taxes were
payable since Best incurred losses during these periods and Hiway Florida
operated as a Subchapter S corporation. During 1997, Hiway Florida continued
to operate as a Subchapter S corporation and therefore paid no tax at the
corporate level. In 1997, Best had a provision for income taxes of $361,000,
which represented an effective tax rate of 18.0% for Best and 7.5% for the
combined Company. The effective tax rate differed from the federal statutory
rate of 34.0% primarily as a result of a change in the Company's deferred tax
valuation allowance. During the first six months of 1998, the Company had a
provision for income taxes of $99,000, which represented an effective tax rate
of 4.7%. The effective tax rate differed from the federal statutory rate of
34.0% primarily as a result of the use of net operating loss carryforwards and
the tax benefit that resulted from Hiway Florida's conversion from a
Subchapter S corporation to a Subchapter C corporation.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private sales of equity securities and debt issuances, cash generated from
operating activities and various types of equipment loans and lease lines.
The Company generated $92,000, $1.9 million, $6.5 million and $4.4 million
in cash from operations in the years ended December 31, 1995, 1996 and 1997
and the six months ended June 30, 1998, respectively. Net cash provided by
operations in 1995 resulted primarily from increases in accounts payable and
other liabilities mostly offset by the Company's net loss for the year. For
each of the other periods, net cash provided by operations resulted primarily
from the Company's net income plus non-cash depreciation, amortization and
doubtful accounts expenses, coupled with increases in deferred revenue,
partially offset by increases in accounts receivable.
Net cash used in investing activities in 1995, 1996, 1997 and the six months
ended June 30, 1998 was $1.0 million, $4.8 million, $5.5 million and $5.2
million, respectively. Net cash used for investing activities in these periods
resulted almost entirely from expenditures for network and computer equipment
and leasehold improvements and investments in the Company's network
infrastructure and, in 1996, cash used to acquire two Internet service
products.
Cash provided by financing activities in 1995, 1996 and 1997 was $1.0
million, $4.4 million and $3.1 million, respectively, and was almost entirely
the result of private sales of equity securities and, in 1996 and 1997, $0.8
million and $5.9 million, respectively, of net debt issuances, offset in 1996
and 1997 by distributions to shareholders of Hiway Florida, a Subchapter S
corporation, of $125,000 and $3.0 million, respectively. The Company did not
have any material financing activities in the six months ended June 30, 1998.
27
<PAGE>
At June 30, 1998, the principal source of liquidity for the Company was $5.1
million of cash and cash equivalents. As of that date, the Company also had
aggregate principal amount of $5 million in 5% Senior Unsecured Notes (the
"Notes") outstanding. The Notes bear interest at 5% until January 1, 2000 and
then bear interest at 9% through maturity at December 31, 2002. Interest
payments on the Notes are due quarterly, and the outstanding principal balance
is due at maturity. The Notes may be prepaid at the option of the Company after
December 1999, subject to certain conditions, at a premium of ten percent. At
June 30, 1998, the Company had no material commitments for capital expenditures
but expects such expenditures to be approximately $3.0 million in the remainder
of 1998. Such expenditures will primarily be for property and equipment in
connection with the Company's investments in its network infrastructure and
buildout of its Blue Lake facilities in Boca Raton, Florida. The Company also
has minimum lease obligations of between $800,000 and $1.2 million annually for
the next five years. The Company believes that its existing cash and cash
equivalents, the net proceeds from this offering and any cash generated from
operations will be sufficient to fund its operating activities, capital
expenditures and other obligations through at least the next 18 months. The
Company may not be successful in generating sufficient cash flow from
operations or in raising additional capital when required in sufficient amounts
on terms acceptable to the Company. The failure of the Company to raise capital
when needed could have a material adverse effect on the Company's business,
results of operations and financial condition. If additional funds are raised
through the issuance of equity securities, the percentage ownership of its
then-current stockholders would be reduced. Furthermore, such equity securities
might have rights, preferences or privileges senior to those of the Company's
Common Stock.
FACTORS AFFECTING RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company has experienced significant fluctuations in its results of
operations on a quarterly and an annual basis. The Company expects to continue
to experience significant fluctuations in its quarterly and annual results of
operations due to a variety of factors, many of which are outside the Company's
control. These factors include: (i) demand for and market acceptance of the
Company's services; (ii) introductions of products or services by the Company
and its competitors; (iii) reliable continuity of service and network
availability; (iv) the ability to increase bandwidth as necessary; (v) the mix
of services sold by the Company; (vi) provisions for customer discounts and
credits; (vii) customer retention; (viii) the timing and success of marketing
efforts and service introductions by the Company and its VARs and OEMs; (ix)
the timing and magnitude of capital expenditures, including construction costs
relating to the expansion of operations; (x) the introduction by third parties
of new Internet and networking technologies; (xi) increased competition in the
Company's markets; (xii) changes in the pricing policies of the Company and its
competitors; (xiii) fluctuations in bandwidth used by customers; (xiv) the
timing and magnitude of expenditures on advertising and promotion; (xv)
economic conditions specific to the Internet industry; and (xvi) other general
economic factors. In addition, a relatively large portion of the Company's
expenses are fixed in the short-term, and therefore the Company's results of
operations are particularly sensitive to fluctuations in revenues. Also, if the
Company were unable to continue using third-party products in the Company's
services offerings, the Company's service development costs could increase
significantly. Although the Company has not encountered significant
difficulties in collecting accounts receivable in the past, many of the
Company's customers are individuals and small businesses, and the Company may
not be able to collect accounts receivable on a timely basis. For these and
other reasons, in some future quarters, the Company's results of operations may
not meet or exceed the expectations of securities analysts or investors, which
could have a material adverse effect on the market price of the Company's
Common Stock.
The market for Web hosting and related enhanced Internet services has only
recently begun to develop and is evolving rapidly. There is significant
uncertainty regarding whether this market ultimately will prove to be viable
or, if it becomes viable, whether it will grow. The Company's future growth, if
any, will depend upon the willingness of businesses and consumers to outsource
Web hosting services
28
<PAGE>
and the Company's ability to market its services in a cost-effective manner to
a sufficiently large number of customers. The market for the Company's services
may not develop further, the Company's services may not be more widely adopted,
and significant numbers of businesses, organizations or consumers may not use
the Internet for commerce and communication. If this market fails to develop
further or develops more slowly than expected, or if the Company's services do
not achieve broader market acceptance, the Company's business, results of
operations and financial condition would be materially and adversely affected.
In addition, to be successful in this emerging market, the Company must be able
to differentiate itself from its competition through its service offerings and
brand recognition. The Company may not be successful in differentiating itself
or achieving market acceptance of its services, and the Company may experience
difficulties that could delay or prevent the successful development,
introduction or marketing of these services. If the Company incurs increased
costs or is unable, for technical or other reasons, to develop and introduce
new services or products or enhancements to existing services in a timely
manner, or if new services do not achieve market acceptance in a timely manner
or at all, the Company's business, results of operations and financial
condition could be materially adversely affected.
An important element of the Company's strategy for growth is to continue to
develop its reseller channel through RapidSite, which manages the Company's
network of over 1,800 domestic and international VARs, and through the
Company's OEM relationships. The Company's VARs typically are Web development
or Web consulting companies that also sell the Company's Web hosting services
but that do not generally have established customer bases to which they can
market the Company's services. Therefore, in those markets, primarily
international, where the Company does not focus its direct marketing efforts,
the Company is dependent on third parties to stimulate demand for the Company's
services. Although the Company attempts to incentivize its VARs by providing
them with price discounts on the Company's services that the VARs seek to
resell at a profit, the failure of the Company's services to be commercially
accepted in certain markets, whether as a result of a VAR's performance or
otherwise, could cause the Company's current channel partners to discontinue
their relationships with the Company, and the Company may not be successful in
establishing additional channel partner relationships as required. The Company
has also developed strategic relationships with certain of its international
VARs through its "Premier Partner" program. Each of the Company's Premier
Partners is responsible for building and supporting a VAR channel, which allows
the Company to leverage the Premier Partner's local marketing and distribution
expertise, and for helping the Company build the RapidSite brand
internationally. In addition, the Company recently has established OEM
relationships with several large companies and is pursuing OEM relationships
with additional companies. The Company's OEM relationships have not generated a
material amount of revenue to date, and, in order for the Company to be
successful, revenues generated by OEMs must increase significantly. OEMs and
VARs have no obligation to market or resell the Company's Web hosting services,
and OEMs can terminate their relationships with the Company with limited or no
penalty with as little as 30 days' notice. The loss of Premier Partners, other
VARs or OEMs, the failure of such parties to perform under agreements with the
Company or the Premier Partner or the inability of the Company to attract and
retain new Premier Partners, VARs or OEMs with the industry experience required
to market the Company's Web hosting services successfully in the future could
have a material adverse effect on the Company's business, results of operations
and financial condition. The Company's direct sales efforts may conflict with
the efforts of its indirect channel partners, which may adversely affect the
Company's relationships with such partners. In addition, to the extent that the
Company succeeds in increasing its sales through indirect channels such as
Premier Partners, VARs or OEMs, those sales will be at discounted rates, and
revenue and gross margin to the Company for each such sale will be less than if
the Company had sold the same services to the customer directly.
In 1996, 1997 and the first six months of 1998, revenues derived from
customers outside the United States, primarily in Europe and Asia, represented
approximately 9.5%, 14.0% and 19.8%, respectively, of the Company's revenues.
The Company's success is dependent in part on expanding its international
29
<PAGE>
presence, primarily through the Company's VARs and RapidSite's Premier Partners
and their VARs. As a result, the Company will depend upon its VAR network to
market and sell its services and manage the accounts of customers
internationally. The Company's VARs may not be able to continue to market and
sell the Company's Web hosting services successfully. The Company denominates
its sales to VARs and Premier Partners in U.S. dollars. Thus, fluctuations in
the value of the U.S. dollar relative to the currency of a given country may
make the Company's services more or less profitable and therefore more or less
attractive to VARs selling in that country. In addition, there are certain
risks inherent in conducting business internationally, such as changes in
regulatory requirements, export restrictions, tariffs and other trade barriers,
differing technology standards, longer payment cycles, political and economic
instability, fluctuations in currency exchange rates, imposition of currency
exchange controls, seasonal reductions in business activity, increased
difficulty in enforcing contracts and potentially adverse tax consequences, any
of which could adversely affect the Company's international operations.
Furthermore, certain foreign governments, such as Germany, have enforced laws
and regulations related to content distributed over the Internet that are more
strict than those currently in place in the United States. One or more of these
factors could have a material adverse effect on the Company's current or future
international operations and, consequently, on the Company's business, results
of operations and financial condition. To the extent that the Company does
business in foreign markets directly, the Company will also be subject to risks
such as challenges in staffing and managing foreign operations, employment laws
and practices in foreign countries and problems in collecting accounts
receivable. In addition, the Company or its channel partners may not be able to
compete effectively in international markets.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments of
an Enterprise and Related information." SFAS No. 131 establishes standards for
the way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. The Company has determined that it does not
have any separately reportable business segments.
In March 1998, the AICPA issued Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The Company is reviewing the impact of SOP 98-1, which will be
effective for the year ending December 31, 1999.
YEAR 2000 ISSUES
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the dates on or
after Year 2000 are a known risk. The Company has established procedures for
evaluating and managing the risks and costs associated with this problem and
believes that its systems are Year 2000 compliant. The Company currently
anticipates hiring an independent consultant to review the Company's systems
and certify that they are Year 2000 compliant in order to satisfy inquiries
from customers. The cost of this review could exceed $100,000, and, were it to
uncover Year 2000 problems, the Company could incur significant operating
expenses or be required to invest in improved computer systems to be Year 2000
compliant. Such expenditures could have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
the Company maintains most of its customers' Web pages on UNIX-based servers,
which may be impacted by Year 2000 complications. The failure of such servers
could have a material adverse effect on the Company's customers, which in turn
could have a material adverse effect on the Company's business, results of
operations and financial condition.
30
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BUSINESS
THE COMPANY
Hiway is a leading global provider of Web hosting and related enhanced
Internet services to small and medium sized businesses. With over 91,000 Web
hosting accounts worldwide, the Company believes that it is currently the
largest provider of business Web hosting services, as measured by number of Web
hosting accounts. The Company focuses on delivering high-quality, reliable and
flexible services that are backed by 24x7 customer support and can be scaled to
host millions of Web sites. Hiway's services enable its customers to deploy,
expand and update Web sites more rapidly and cost-effectively than internally
developed solutions. The Company offers its solutions directly and through VARs
and OEMs. Hiway's OEMs include two of the five RBOCs, which two in the
aggregate provide telecommunications services to approximately 30% of the U.S.
business market.
The Company was formed in May 1998 through the merger of Best, which was
incorporated in September 1994, and Hiway Florida, which was incorporated in
April 1995. Prior to the Merger, Hiway Florida was a leading provider of shared
server Web hosting domestically and, through its established network of VARs,
internationally. Hiway Florida had also begun to expand its distribution
channels by entering into relationships with RBOCs and other OEMs. Best was a
leading provider of shared server Web hosting bundled with dial-up Internet
access in the California market prior to the Merger, and also offered stand-
alone high-speed Internet connectivity and co-location Web hosting services. In
1997 and the first quarter of 1998, Hiway Florida had revenues of $10.4 million
and $4.3 million, respectively, and Best had revenues of $15.8 million and $4.5
million, respectively. At March 31, 1998, Hiway Florida had approximately
49,000 Web hosting accounts and Best had approximately 29,000 Web hosting
accounts. Because the Merger was only recently completed, the Company faces a
number of risks related to the integration of differing Web hosting services,
platforms and technologies, distribution channels, marketing efforts,
information systems and management teams. See "Risk Factors--Recent Merger;
Risks Associated with Integration of Operations."
INDUSTRY BACKGROUND
Use of the Internet has grown rapidly in recent years, driven by a number of
factors, including the large and growing installed base of personal computers,
improvements in network architectures, increasing numbers of network-enabled
applications, the emergence of compelling content and commerce-enabling
technologies, and easier, faster and cheaper Internet access. IDC estimates
that the number of Web users in the United States will increase from
approximately 39 million in 1997 to 136 million in 2002, a 28% compound annual
growth rate, and that the number of Web users outside the United States will
increase even more rapidly from approximately 30 million users in 1997 to 184
million in 2002, a 44% compound annual growth rate. As a result of this growing
usage, the Internet has become an important global communications and commerce
medium and represents a substantial opportunity for enterprises to interact in
innovative ways with a large number of geographically distributed offices,
employees, customers, suppliers and partners.
As use of the Internet grows, enterprises of all sizes are increasingly
recognizing the need to take advantage of the Internet in connection with their
business operations and product and service offerings. Specifically,
enterprises are seeking to establish Web sites that provide information about
them and their products and services, and to augment these Web sites with
related enhanced Internet services such as secure electronic commerce, unified
messaging, customer service, and internal and external communications with
geographically distributed offices, employees, customers, suppliers and
partners. As a result, high-performance and reliable Web site hosting combined
with enhanced Internet services has become increasingly critical for many
mainstream enterprises. Many enterprises are seeking to
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outsource this function in order to ensure reliability, high performance,
scalability, sophisticated monitoring and expert management.
Small and medium sized businesses (i.e., businesses with fewer than 1,000
employees) are expected to generate most of the growth in the Web hosting
market. IDC estimates that Web hosting revenues generated by small and medium
sized businesses in the U.S. will grow from approximately $217 million in 1997
to over $3.4 billion, or 95% of total estimated U.S. Web hosting revenue, in
2000, a 150% compound annual growth rate. Often, these companies find an
outsourced Web hosting solution cost-effective because they typically lack the
technology expertise, IT resources, capital, bandwidth needs or ability to bear
the time-to-market risks required to install, maintain and monitor their own
Web servers and Internet connectivity. Currently, many small and medium sized
businesses with a presence on the Internet utilize a Web site to provide basic
information about their products and services. However, competition for Web
traffic has driven businesses to create Web sites with greater functionality.
In addition, Web users expect small and medium sized businesses to continue to
augment their Internet presence with enhanced Internet services. As a result,
companies are increasingly seeking outsourcing arrangements that enable them to
augment their Web sites with related enhanced Internet services such as secure
electronic commerce, unified messaging and email. IDC believes that the market
for enhanced Internet services in the United States, including Web hosting,
will grow from an estimated $352 million in 1997 to over $7 billion in 2000.
Given the growth rate of Internet usage internationally, the Company believes
that the international Web hosting market for small and medium sized businesses
also represents a significant opportunity.
A variety of companies, such as regional Web hosting companies, ISPs, data
center companies and large IT outsourcing firms, offer products and services
that attempt to address enterprises' Internet outsourcing needs. However, the
products and services offered by these companies often do not effectively meet
the needs of small and medium sized businesses. Many regional Web hosting
companies and ISPs do not have the sophistication, scalability, reliability,
expertise or focus required to meet the evolving needs of large numbers of
geographically dispersed and growing small and medium sized businesses. Data
center companies and large IT outsourcing firms tend to focus on large
enterprises and sophisticated Internet companies and lack the expertise to
provide high-quality Web hosting and related enhanced Internet services cost-
effectively to a large number of smaller customers. As a result, Hiway believes
a significant opportunity exists for a highly-focused company to provide end-
to-end, high-quality Web hosting and related enhanced Internet services that
will enable large numbers of small and medium sized business to create or
enhance a Web presence rapidly and cost-effectively.
THE HIWAY SOLUTION
Hiway is a leading provider of Web hosting services to small and medium sized
businesses, with over 91,000 Web hosting accounts worldwide. The Company also
offers a number of related enhanced Internet services. The Company focuses on
delivering high-quality, reliable and flexible Web hosting services that are
backed by 24x7 customer support and can be scaled to host millions of Web
sites. The Company's Web hosting services enable its customers to deploy,
expand and update Web sites more rapidly and cost-effectively than internally
developed solutions. The Hiway solution provides the following key advantages
to its customers:
High-Quality Performance and Reliability. The Company's Web hosting solutions
provide enterprises with mission-critical performance and reliability, ensuring
that Web sites load rapidly and are continuously online and functional. The
Company's solutions are designed to ensure high-quality performance and
reliability through features such as a redundant, high-speed, secure,
proprietary network architecture, data centers that are constantly monitored,
back-up power sources, secure physical
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facilities, spare servers, regular back-ups and a fault tolerant hosting
platform. These features enable Hiway to offer its customers a 99.9% uptime
service level warranty.
Fast and Automated Implementation and Customer Support. The Company has
developed a standardized system for delivering its Web hosting solutions that
enables customers to deploy Web sites rapidly, eliminating the need for
customers to select and purchase costly Web server hardware. This system also
reduces the time and IT resources required for customers to deploy and
maintain Web sites. In addition, the Company's proprietary technology enables
customers to host Web sites on an automated basis, without involvement by
Company personnel. The Company supports its Web hosting and related services
with a customer service organization that can address technical problems on a
24x7 basis. The Company endeavors to provide rapid and accurate responses
through its highly trained service force, which can field questions over the
telephone or via e-mail. The Company also provides Web-based customer services
that enable users to manage their accounts and Web sites directly.
Scalability and Flexibility. The Company's Web hosting solutions are
designed to be scalable to host increasing amounts of traffic to millions of
Web sites, ensuring its customers a consistently high level of performance
without interruption in the quality of service as the Company and its
customers' Internet operations expand. For customers that experience
increasing numbers of visits to their Web sites or that deploy increasingly
data intensive Web-based applications, the Company can quickly increase the
disk storage and bandwidth available and provide the resources for enhanced
Web site functionality. As its customer base grows, the Company also can
rapidly increase its Internet connectivity, number of servers and internal
network resources in a way that is transparent to its customers. To address
the diverse requirements of its customers, the Company offers Web hosting
services on a range of operating systems and computing platforms: (i) IRIX
(Silicon Graphics platform); (ii) UNIX FreeBSD (Intel/PC platform); (iii)
Solaris (Sun Microsystems platform); and (iv) commencing in the fourth quarter
of 1998, Microsoft Windows NT (Intel/PC platform).
Broad Range of Services. The Company's Web hosting services include Web site
publishing and management tools, e-mail management tools, support for third-
party Web site-related applications and domain name registration. Although the
Company's current revenues are derived primarily from Web hosting services,
Hiway also provides to users of these services related enhanced Internet
services, including electronic commerce solutions for those enterprises that
wish to conduct business on the Web, enhanced disk storage and bandwidth
options, and support for the mSQL database interface and for RealAudio and
RealVideo (multimedia support applications). In addition to its Web hosting
services, the Company offers high-speed Internet access services and co-
located Web servers in the San Francisco Bay Area and plans to offer dedicated
server Web hosting services globally in the third quarter of 1998 for users
that require a higher level of bandwidth or disk storage capacity.
Ease of Use. The Company has implemented proprietary software tools that
allow its customers to order, change and manage their Web sites easily and
flexibly, regardless of their level of technical expertise. The Company's Web
hosting services provide detailed Web statistics, access to raw log files and
tools to provide customers with detailed account and performance information.
In addition, the Company offers tools that enable its customers to update
their Web site easily and remotely. In addition, the Company is developing a
Web site development tool that will enable relatively unsophisticated
customers to use intuitive templates to establish a one-page Web presence
without the use of more complex Web site authoring applications or third-party
Web site development assistance.
Cost-Effective Solution. The Company's customers benefit from its
significant operating experience and the capital and labor investments that it
has made to support Web hosting and related enhanced Internet services in an
automated fashion. Small and medium sized businesses often cannot afford to
develop the hardware, software and IT infrastructure required to deploy a Web
site, particularly given constraints on their IT resources and expertise. The
Company believes that its external Web hosting solutions are significantly
more cost-effective than in-house solutions, especially for users with low
bandwidth and disk storage requirements.
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STRATEGY
Hiway's objective is to be the leading global provider of Web hosting and
related Internet services to small and medium sized businesses. To achieve
this objective, the Company's strategy includes the following key elements:
Increase Recognition of Established Brands. The Company believes that brand
recognition will be an increasingly important decision factor among small and
medium sized businesses that are establishing a Web presence. As a result, the
Company intends to continue to focus on increasing its brand recognition
worldwide. Specifically, the Company intends to market its full range of
services aggressively under the national Hiway brand using print media and
online campaigns and to take advantage of the Best brand in the California
market, where it is well recognized. To avoid channel conflicts, the Company
markets internationally and to VARs through its RapidSite brand. The Company
also has established and intends to continue to establish strategic co-
marketing relationships with leading providers of Web-site creation tools,
including Microsoft, in order to further increase brand awareness.
Deliver High-Quality, Affordable Services. A key element of the Company's
success has been its ability to provide sophisticated Web hosting solutions,
including support for electronic commerce, at prices affordable to small and
medium sized businesses. Establishing a large customer base early in its
history has enabled the Company to make the infrastructure investments and to
develop the expertise required to deliver and scale its services. The Company
intends to continue to take advantage of its established customer base and
infrastructure. In addition, the Company has created and continues to improve
its proprietary technology, which permits the Company to scale its business
without reducing the quality of service or investing in substantial additional
network or support infrastructure. For example, the Company has developed
Autobahn, a proprietary and sophisticated online ordering and provisioning
system that enables customers to set up accounts, change account parameters
and check Web site statistics in an automated fashion, without interaction
with Company personnel.
Maximize Direct and Indirect Distribution Channels. The Company seeks to
maximize market share by utilizing three distribution channels--direct sales,
VARs and OEMs. The Company currently acquires most of its Web hosting
customers through an automated online registration process and inbound calls.
The Company also maintains a network of over 1,800 VARs that resell the
Company's services to customers located in more than 100 countries. These VARs
resell the Company's solutions to their existing and potential customers and
interface directly with the end user, providing billing customer support and
other services to these customers. In addition, the Company has recently
commenced the distribution of its services through OEMs. The Company believes
that these relationships present a significant opportunity to penetrate the
large, established customer bases of these OEMs. The Company's OEM partners
include two of the five RBOCs, which two in the aggregate provide
telecommunications services to approximately 30% of the business market.
Expand International Presence. The Company believes that the Web hosting
needs of international small and medium sized businesses are not being
adequately served and therefore represent a significant growth opportunity.
The Company seeks to utilize VARs in local international markets and to
develop strategic relationships, through investment or acquisition, with
certain of its leading VARs through a "Premier Partner" program. Each of the
Company's Premier Partners is responsible for building and supporting a VAR
network, which allows the Company to leverage the Premier Partner's local
marketing and a distribution expertise. The Company also seeks to sign OEM
contracts with international companies with attractive customer bases to
further expand its distribution.
Leverage Innovative and Proprietary Technology. The Company believes that
its innovative and proprietary technology is an important factor in
differentiating its services, and therefore seeks to take advantage of and
improve this technology in order to deliver high-quality Web hosting solutions
and to build market share rapidly. The Company has developed specialized
innovations to Web server
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applications that enhance the customer's ability to deploy, expand and update
their Web sites and the Company's ability to provide complex Web hosting
solutions on a cost-effective and technologically efficient basis. For
example, the Company has developed a high-performance, reliable, secure and
scalable Web hosting platform that can be deployed in remote data centers in
various regions around the world and in OEM customers' local facilities. In
addition, the Company is developing a Web site development tool that will
enable relatively unsophisticated customers to use intuitive templates to
establish a one-page Web presence easily and rapidly.
Provide Enhanced Internet Services. The Company believes that a significant
opportunity exists to provide complementary services to its existing and
potential customers. The Company believes that as use of the Internet
increases, business needs will become more complex and enterprises will seek
more comprehensive Web-based solutions. The Company intends to continue to
meet the needs of its current and potential customers in the future by
offering related enhanced Internet services which may include expanded
electronic commerce capabilities, Web-based faxing and e-mail, unified
messaging and "virtual" offices, audio and video applications, automated Web
site authoring tools and templates, basic automated marketing tools, and
redundant "hot" sites across multiple national and international data centers.
The Company seeks to take advantage of third-party technology and products in
order to manage development costs while upgrading its solutions.
SERVICES
The Company's services are designed to provide its customers with the high
performance, scalability, flexibility and expertise they need to deploy or
expand the functionality of a Web presence. Hiway has designed its services to
meet customers' unique business and technical requirements, and has the
ability to provide enhanced Internet services as customers' needs evolve.
Customers generally pay monthly or quarterly fees for services they utilize,
as well as one-time fees for installation and for any equipment purchased by
the customer.
Web Hosting Services
Shared Server Web Hosting. The Company offers a series of shared server Web
hosting plans that allows individuals and businesses to establish a
sophisticated presence on the Internet at a reasonable cost. The shared server
Web hosting plans allow customers to leverage the expertise and equipment of
the Company to deploy an effective Web site. The Company offers four
standardized Web hosting options at prices ranging from $25-$300 per month.
The basic standardized Web hosting option (Plan 1) offers 1,500 megabytes of
data transfer per month and 20 megabytes of disk storage. This service level
allows customers to store HTML, graphics, video and sound files on a Web site
and generally satisfies customers' bandwidth and disk storage requirements. In
order to allow customers to use their Web site as an effective interface for
communication, the Company provides additional services bundled into its
various shared server hosting plans. For example, customers are provided
autoresponders, which send pre-defined e-mail messages to visitors to their
Web sites, and can establish mailboxes on the Company's server, which allow e-
mail associated with the account to be stored and later accessed by the
customer. In addition, the Company provides e-mail forwarding from the
Company's servers to another location, support for Microsoft FrontPage
extensions and chat room capability as part of the basic Web hosting account.
The higher tier shared server Web hosting offerings (Plans 2-4) provide
customers enhanced services, functionality and resources. Each successive tier
allocates the customer more disk storage and increases the monthly data
transfer limit. In addition, the more advanced plans offer Real Audio, Real
Video and mSQL database support and support for electronic commerce-enabled
Web sites. A majority of the Company's current shared server Web hosting
customers use the entry-level Plan 1 service, which costs $25 per month.
The Company has also implemented a variety of tools to allow its customers
to use their sites more effectively. Customers are able to update Web sites
remotely by sending files through FTP (file transfer
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protocol). All of the four standardized Web hosting plans feature detailed Web
statistics and access to raw log files, giving customers the ability to track
the performance and evaluate the effectiveness of their Web sites. In
addition, the Company provides a number of popular CGI scripts that allow
customers to deploy hit counters, guest books, mail forms and discussion
forums rapidly and easily and also supports custom CGI scripts that enable
customers to build additional functionality into their Web sites. The Control
Panel, a proprietary account interface, increases the control a customer has
over Web site management. For example, customers can use the Control Panel to
change passwords, set e-mail forwarding options and view Web site statistics.
The Company derived 37% and 47% of its revenues in 1997 and the first six
months of 1998, respectively, from its shared server Web hosting services.
Shared Server Web Hosting with Dial-up Internet Access. In the California
market, the Company offers a series of shared server Web hosting plans with
unlimited dial-up Internet access via 36 local access numbers. Currently, the
Company offers the plans in most of the San Francisco Bay Area, including the
Silicon Valley, and in major portions of the Los Angeles Basin. These plans
provide Web hosting on a custom built Intel-based system, using a UNIX
operating system that has been optimized for shared server Web hosting. The
entry-level plan includes 200 megabytes of data transfer per day and 25
megabytes of disk storage, and costs $30 per month. The Company offers higher-
tier bundled plans that provide the customer with more disk storage and an
increased monthly data transfer limit, but most of the Company's customers use
the entry-level bundled plan.
The shared server Web hosting with dial-up Internet access plans offer a
number of the same services as the four standardized shared server Web hosting
plans, including e-mail autoresponders, mailboxes, e-mail forwarding,
unlimited FTP, site statistics, CGI scripting and Microsoft FrontPage
extensions. Additionally the plans allow customers to access the Company's
news and chat servers. Included in the basic plan, customers are provided a
local access number and may choose either 28.8 Kbps, 56 Kbps or single-channel
ISDN dial-up access through the local access number.
The Company derived 32% and 28% of its revenues in 1997 and the first six
months of 1998, respectively, from its shared server Web hosting with dial-up
Internet access services.
Domain Name Reservation. Each business or individual that desires a
personalized Web address must first reserve a domain name. As more individuals
and businesses establish a Web presence, desirable domain names, like trade or
service marks, become more difficult to secure. For a one-time fee, the
Company will register and maintain a domain name for two years or until the
customer decides to use the domain name to host an active Web site. Domain
name registration generates minimal revenue for the Company, but more
importantly provides the Company a marketing advantage when this group of
customers selects a Web hosting company.
Dedicated Server Web Hosting. The Company plans to launch a dedicated server
Web hosting solution in the third quarter of 1998 for customers that prefer
not to host their Web sites on a shared server. The dedicated server Web
hosting solution provides the customer with a Company-owned dedicated server
that is maintained by the Company on a 24x7 basis. A dedicated server will
allow the customer substantially more server and network resources than
available under shared server Web hosting plans. It also will provide
customers with the ability to run complex applications without the additional
IT administration costs and considerations that customers would experience if
they managed their own servers and Web sites internally. The Company will be
responsible for all maintenance and system administration and will house the
server in one of the Company's data centers. The Company intends to maintain
spare equipment and to back up data regularly. The Company expects to offer
the dedicated server service at prices starting at approximately $1,500 per
month. Actual pricing will depend upon the hardware configuration, level of
service and data transfer rates required by the customer.
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Enhanced Internet Services
Electronic Commerce. The Company offers a variety of electronic commerce
solutions to help businesses create and maintain a successful Web storefront.
Different electronic commerce plans enable customers to choose the options and
level of complexity that meet their individual needs. Merchants inexperienced
with the Web can quickly build a simple catalog and begin taking orders via e-
mail, while more experienced developers can choose enhanced features to build
a sophisticated electronic commerce Web site that includes order taking,
credit card processing and order fulfillment. Rather than develop electronic
commerce software internally, the Company provides electronic commerce
software products from third-party software companies.
The Company offers a range of Web hosting options with added features to
enable electronic commerce at prices starting at $50. Lower-tier electronic
commerce Web hosting plans add secure socket layer ("SSL") encryption
capability to the basic Web hosting Plan, while higher-tier plans add
encryption, a personal Verisign certificate and other electronic commerce
features, including support for high-end, third-party electronic commerce
software and access to the Company's specialized Network Services Engineers
("NSEs").
The Company provides a basic shopping cart module that allows customers to
track Web site shopper order and billing information. This module is provided
at no additional charge to the Company's electronic commerce Web hosting
customers. The Company also resells several third-party electronic commerce
software packages that help merchants interact with their customers.
OpenMarket's ShopSite software enables merchants to build an online store
using pre-designed templates, simplifying the creation of the Web site and
reducing start-up costs and complex integration. For more sophisticated
electronic commerce, Hiway offers Mercantec Softcart, which enables merchants
to build customized storefronts that, among other features, allow shoppers to
search the entire Web site for products. Mercantec's product can be integrated
with various payment systems and accounting packages for an end-to-end
electronic commerce solution. Segue Systems provides automated payment
processing from credit card authorization to fund capture and settlement,
allowing merchants increased electronic commerce functionality. Additionally,
the Company supports Cybercash, a product that enables customers to process
credit card transactions on a real-time basis, allowing them to accept credit
card purchases online and to initiate the credit card authorization process at
the time of sale.
OEM Web Hosting. The Company's end-to-end OEM Web hosting solutions enable
OEMs to utilize the Company's proprietary technology, network infrastructure,
expertise and customer support organization to provide outsourced private
label Web hosting services to their customer bases rapidly and cost
effectively. Four tiers of OEM solutions are available depending upon the
OEM's Web hosting requirements. Each solution requires the OEM to purchase at
least one dedicated Web server from the Company. In addition, OEMs can choose
to purchase the additional equipment required to enhance the OEM's private
label branding efforts, including an e-mail server to eliminate routing e-mail
through Hiway, a DNS server to provide domain names based upon the OEM's
brand, and a transaction server to control and customize such events as
customer activations, deletions, statistics, plan changes and notices. Most
OEM Web hosting solutions take advantage of the Company's high-quality
performance and reliability by locating the OEM's equipment in one of the
Company's data centers; however, the most advanced OEM solution allows an OEM
to locate all required hardware and software in its own data center. The
Company has generated minimal revenues to date from its OEM relationships, and
these relationships may not generate significant revenues in the future. See
"Risk Factors--Dependence on Channel Partners."
Future Enhanced Internet Services. The Company is exploring other Web-based
services through internal development and third-party licensing arrangements
to serve the evolving needs of small and medium sized businesses. The Company
has focused its efforts on select areas, including expanded electronic
commerce capabilities, Web-based faxing and e-mail, unified messaging and
"virtual offices,"
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audio and video applications, automated Web site authoring tools and
templates, basic automated marketing tools, and redundant "hot" sites across
multiple national and international data centers. The Company strives to be
market driven, assessing potential opportunities to extend its offerings as
they arise and evaluating its ability to implement these solutions in a cost-
effective way while maintaining quality of service for its customers.
Other Services
Co-location. The Company offers co-location services for customers that
require the resources of a dedicated server, but want to retain access to and
own their server. The Company's co-location facilities in Mountain View, San
Francisco and San Jose, California offer customers a secure location,
environmental control, monitoring and a high-speed connection to the Internet
at prices starting at $500 per month. Each customer is allocated an enclosed
cage and an Ethernet connection to the Company's network. Each co-location
facility provides an uninterruptible power source, a back-up diesel generator,
raised floor, climate control and 24x7 monitoring. This is an appropriate
solution for companies that desire a dedicated server and have the expertise
to maintain the Web site and the server. The Company expects co-location
services to represent a declining portion of the Company's business over time.
High-Speed Internet Connectivity. For customers in the San Francisco Bay
Area, the Company offers stand-alone high-speed Internet connectivity services
independent of the Company's Web hosting services. Customers are able to
purchase point-to-point or frame relay connections to the Company's locations
in Mountain View, San Francisco or San Jose, California, and thereby leverage
the Company's high-speed connections to the Internet. The Company offers
value-added services to those customers that purchase high-speed Internet
connectivity. For example, customers have the option of purchasing hardware
from the Company, and the Company provides engineering support to specifically
configure the customer's equipment and test their local connection. The
Company expects stand-alone Internet connectivity to represent a declining
portion of the Company's business over time.
MARKETING
The Company's 15-person (as of June 30, 1998) marketing organization is
responsible for services management, advertising, marketing communications and
public relations, and focuses on stimulating demand for the Company's services
and extending the Company's brands. Services management includes defining the
Company's services roadmap and bringing to market the portfolio of services
and programs that will enable the Company to meet its business objectives. The
Company stimulates demand for its services and seeks to extend its brands
through a broad range of advertising, marketing communications and public
relations activities. The Company relies upon a combination of traditional
media and online advertising. The Company focuses its traditional media
efforts on advertisements in major business and technical publications, radio
spots and direct mail. The Company's online marketing program consists of
general rotation and keyword-specific Web banner advertisements. Other
marketing vehicles include collateral materials, trade shows, direct response
programs and management of the Company's Web site. Public relations focuses on
cultivating industry analyst and media relationships with the goal of securing
broad media coverage and public recognition of the Company.
The Company aggressively markets the full range of its Web hosting services
under the national Hiway brand using traditional media and online campaigns
and takes advantage of the Best brand in the California market. The Company
markets internationally and to OEMs and VARs through its RapidSite brand,
which the Company established in order to avoid channel conflicts associated
with OEM and VAR pricing structures that differ from the Company's retail
pricing.
The Company enters into strategic marketing relationships in order to expand
its marketing opportunities and increase brand awareness. For example, the
Company, under its Best and Hiway brands, currently represents two of
Microsoft's twelve preferred Web hosting service alternatives for the
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FrontPage 98 Web authoring tool. The Company currently hosts over 25,000 Web
sites created using Microsoft FrontPage, more FrontPage accounts than any of
the Company's competitors. The Company also has relationships with a number of
Internet hardware, software and services companies that refer potential
customers to Hiway.
DISTRIBUTION AND SALES
The Company utilizes multiple distribution channels in order to maximize
market share. These channels include direct sales, VARs and OEMs. As of June
30, 1998, the Company had 38 employees engaged in distribution and sales.
Direct Sales. The Company currently acquires most of its Web hosting
accounts through online registrations and inbound calls generated through
traditional media and online marketing campaigns. The Company offers an
automated online sales interface that allows customers to purchase services 24
hours a day and services its inbound calls through its direct sales force. In
addition, the Company maintains an outbound telesales group that seeks to
generate customer referrals by developing relationships with Web developers.
In order to sell its more complex service offerings, the Company has built a
sales group dedicated to selling commerce, co-location and connectivity
services. These account representatives handle both inbound and outbound
customer calls.
VARs. The Company has established a network of over 1,800 VARs that resell
the Company's services to customers located in more than 100 countries. These
VARs maintain customer relationships after the initial sale by providing
technical support, managing customer billing and providing value-added
services such as Web page design and system integration. The Company offers
its VARs a discount from the Company's retail price on the services the VARs
resell to their customers.
The Company has also developed relationships with Premier Partners in 12
countries. In addition to reselling the Company's services directly to their
customers, the Company's Premier Partners are responsible for building the
RapidSite brand in their local markets through marketing programs and by
recruiting a network of additional VARs. The Company's relationships with its
Premier Partners are generally exclusive within their geographic regions
provided the Premier Partner attains established performance targets. Premier
Partner agreements typically have a duration of one or two years, and Premier
Partners are granted a discount from the Company's retail price that is larger
than the VAR discount on the services they resell to their customers and VARs.
Premier Partners are responsible for all contact with customers including
selling, billing and support. Premier Partner relationships allow the Company
to maintain a cost-effective extended organization, serving foreign customers
in their languages and time zones. The Company has taken an ownership stake in
its Premier Partners in the United Kingdom (60%), Japan (35%), France (25%)
and Germany (20%). The Company has also established Premier Partner
relationships with companies in Brazil, Denmark, Finland, Israel, Norway,
Spain, Sweden and Switzerland.
OEMs. The Company has recently entered into a number of OEM relationships,
including relationships with two of the five RBOCs, which two in the aggregate
provide telecommunications services to approximately 30% of the U.S. business
market. The Company has also entered into an OEM relationship with SwissCom (a
European telecommunications company). The Company is in various stages of
discussion with other potential OEMs in the telecommunications and cable
industries, as well as with companies with attractive target customer bases,
such as online search engine and Internet portal companies, ISPs, marketing
companies, system integrators and others.
CUSTOMER SERVICE
The Company provides a number of different support services to its
customers. Technical questions are handled by the Technical Support and
Network Service Engineering groups, while account and
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billing questions are handled by the Customer Service and Accounts
Receivable/Accounting Solutions groups. Although the Company handles a large
portion of its customer service through e-mail and online FAQs, the Company is
committed to offering customers the opportunity to talk directly with customer
support personnel.
The Company had 51 technical support representatives on staff as of June 30,
1998. This group is responsible for answering technical questions concerning
customers' Web hosting accounts, such as how to transfer Web pages to the
Company's servers or how to use the customer control panel. These individuals
are highly trained and are available on a 24x7 basis. The Company also provides
technical support directly to the customers of certain OEMs.
The Company also has eight NSEs trained to deal with the issues that face
customers with more complex services. The NSEs are located in Mountain View,
California and are the contact point for high-end electronic commerce hosting,
co-location and high-speed Internet connectivity customers. The Company
believes that the knowledge and quality of its NSEs provide the Company with an
advantage in selling its enhanced Internet services. The internal support
organizations of VARs and OEMs can also contact the Company's technical support
staff in order to resolve complex Web hosting issues.
Customers are able to contact representatives in the Company's Customer
Service and Accounts Receivable/Accounting Solutions groups during business
hours to obtain information on their accounts and resolve any issues that
arise. As of June 30, 1998, there are 43 individuals in these groups.
TECHNOLOGY AND NETWORK OPERATIONS
The Company has developed a high-performance, reliable, secure and scalable
Web hosting solution, which the Company believes provides it with a significant
competitive advantage. This solution is comprised of multiple proprietary Web
hosting platforms that incorporate automated functionality and a highly
reliable network infrastructure that includes multiple data centers and is
managed on a 24x7 basis by the Company's Network Operations Centers. The
Company's strategy in developing its Web hosting solution focuses on utilizing
proprietary technological innovations that it integrates with third-party
software and hardware.
Web Hosting Platform. The Company has developed multiple proprietary Web
hosting platforms that permit efficient hosting of over two thousand Web sites
on a single server. Although industry-standard Web servers can enable Web
hosting, the Company believes that efficiently managing large numbers of Web
sites and users on a single shared server is technologically difficult and
requires significant technological innovations. Accordingly, the Company has
focused its technology development efforts on creating various proprietary
operating system level tools to facilitate a high-density customer to server
ratio. The Company has also customized or developed Web server applications
designed to improve performance in a shared server environment and resource
monitoring tools designed to report and address scarcity of shared CPU and
memory resources. The Company's solution can scale easily, allowing server
groups to be added seamlessly and to be monitored centrally wherever they are
located. To address the diverse requirements of its customers, the Company
offers Web hosting services on a range of operating systems and computing
platforms: (i) IRIX (Silicon Graphics platforms); (ii) UNIX FreeBSD (Intel/PC
platforms); (iii) Solaris (Sun Microsystems platforms); and (iv) commencing in
the fourth quarter of 1998, Microsoft Windows NT (Intel/PC platforms).
The Company has developed proprietary software known as Autobahn that allows
the Company to provide its services on an efficient and cost-effective basis by
automating the following back-end functions: (i) order-taking and processing;
(ii) customer billing via credit cards, check, bank transfer and accounts
receivable; (iii) account provisioning and activation; (iv) server management
and monitoring; (v) coordination of the e-mail subsystem to integrate e-mail
forwarding, multiple e-mail accounts on a
40
<PAGE>
single Web site and autoresponders; (vi) inherent distributor--dealer--
customer hierarchy of all data; and (vii) support for third-party feature
"plug-ins." In addition, Autobahn incorporates the Company's Control Panel, a
front-end interface that allows a customer to set up accounts, change account
parameters and check Web site statistics quickly and easily. Autobahn was
engineered to maximize automation to achieve high levels of scalability, and
the modular design of Autobahn allows additional server groups to be supported
easily. Autobahn's language and branding independence enables international
VARs and OEMs to localize for foreign languages and customize the Control
Panel interface quickly and with minimal effort.
Network Operations. In order to provide its customers with high-quality
service, the Company has invested substantial resources in building its
network infrastructure. The Company has designed its network to avoid single
points of failure and to minimize the effect of any interruptions. The Company
has also implemented security measures to ensure that the Company's network is
protected. Monitoring systems have been put in place to identify potential
sources of failure, limit downtime and notify staff of any problems.
The Company currently has four data centers located in Boca Raton, Florida;
Mountain View, California; San Jose, California; and San Francisco,
California. All of the Company's data centers are fitted with environmental
controls, back-up generators, Cisco routers and switches, and continuous
monitoring capabilities to ensure high-quality service with minimal
interruptions. The San Jose and San Francisco data centers primarily serve the
Company's co-location and high-speed Internet connectivity customers. Both the
Florida location and the locations in California are linked to the Internet
through MCI, UUNet and Sprint via a total of six 45 Mbps T-3 connections. The
Company believes that these full transit, dedicated, diverse connections with
the primary Internet backbone carriers provide the best quality service.
Although the Company peers at the Metropolitan Area Exchange in the San
Francisco Bay Area ("MAE West") to distribute local traffic, the majority of
the Company's traffic is routed over the full transit lines to maintain
quality and avoid packet loss that may occur at the MAEs. The Company also
maintains private peering relationships with Exodus, Frontier/GlobalCenter and
AboveNet.
The Company's Network Operations Centers are located in Boca Raton, Florida
and Mountain View, California. The NOCs are responsible for monitoring the
Company's entire network on a 24x7 basis. The NOCs employ simple network
management protocol ("SNMP") software provided by Hewlett-Packard Openview.
This SNMP software allows the Company to monitor each piece of equipment,
including routers, switches and servers, and determine its load and
temperature. The NOCs also monitor all Internet connections and local
telecommunications connections, ensuring that they are functional and properly
loaded. The design of the NOCs enables NOC staff to be alerted to problems
within five seconds of occurrence, and the Company has established procedures
for rapidly resolving any technical problems that arise.
The Company's bundled shared server Web hosting services with dial-up access
and its high-speed Internet connectivity solution require a local extension of
the network. The Company maintains 13 local access numbers in the San
Francisco Bay Area and 23 local access numbers in the Los Angeles Basin. The
Company deploys Lucent Technologies' Port Master3 technology in its point of
presence ("POP") locations. All of the POPs are managed remotely with remote
power boots and console access. The Company's high-speed Internet connectivity
customers are provided local telecommunications services through either
Pacific Bell or MFS (a division of WorldCom, Inc.). The Company generally does
not maintain telecommunications lines for its high-speed Internet connectivity
customers; rather, it facilitates the customer's installation of local
telecommunications lines.
COMPETITION
The market served by the Company is highly competitive and is becoming more
so. There are few substantial barriers to entry, and the Company expects that
it will face additional competition from
41
<PAGE>
existing competitors and new market entrants in the future. The principal
competitive factors in this market include: (i) brand name; (ii) Internet
system engineering and technical expertise; (iii) quality of service, including
network capability, scalability, reliability and functionality; (iv) price; (v)
ability to maintain and expand distribution channels; (vi) customer service and
support; (vii) broad geographic presence; (viii) variety of services and
products offered; (ix) timing of introductions of new and enhanced services and
products; (x) network security; (xi) financial resources; and (xii) conformity
with industry standards. The Company may not have the resources, expertise or
other competitive factors to compete successfully in the future.
The Company's current and potential competitors include: (i) other Web
hosting and Internet services companies; (ii) national and regional ISPs; (iii)
global, regional and local telecommunications companies, including the RBOCs;
(iv) large IT outsourcing firms; (v) data center companies; and (vi) cable
companies. Many of the Company's competitors have substantially greater
financial, technical and marketing resources, larger customer bases, longer
operating histories, greater name recognition and more established
relationships in the industry than the Company. As a result, certain of these
competitors may be able to develop and expand their network infrastructures and
service offerings more rapidly, adapt to new or emerging technologies and
changes in customer requirements more quickly, take advantage of acquisition
and other opportunities more readily, devote greater resources to the marketing
and sale of their services and adopt more aggressive pricing policies than can
the Company. In particular, Verio, a national provider of Internet connectivity
and enhanced Internet services, including Web hosting, to small and medium
sized businesses, has announced plans to consolidate its market by acquiring
local and regional ISPs. To that end, Verio recently purchased TABNet, a
company that hosts over 20,000 Web sites and provides other enhanced Internet
services similar to those provided by Hiway. In announcing that acquisition,
Verio indicated that it hosted over 60,000 Web sites following the acquisition.
In addition, the Company's competitors have entered and will likely continue to
enter into joint ventures or consortiums to provide additional services
competitive with those provided by the Company.
In an effort to gain market share, certain of the Company's competitors have
offered Web hosting services similar to those of the Company at lower prices
than those of the Company or with incentives not matched by the Company,
including free start-up and domain name registration, periods of free service,
low-priced Internet access or free software. In addition, certain of the
Company's competitors may be able to provide customers with additional
benefits, including reduced communications costs, which could reduce the
overall costs of their services relative to those of the Company. The Company
may not be able to reduce the pricing of its services or offer incentives in
response to the actions of its competitors without a material adverse impact on
its operating results. The Company also believes that the market in which it
competes is likely to encounter consolidation in the near future, which could
result in increased price and other competition that could have a material
adverse effect on the Company's business, results of operations and financial
condition.
INTELLECTUAL PROPERTY RIGHTS
The Company relies on a combination of copyright, trademark, service mark and
trade secret laws and contractual restrictions to establish and protect certain
proprietary rights in its services. The Company has no patented technology that
would preclude or inhibit competitors from entering the Company's market. The
Company has entered into confidentiality and invention assignment agreements
with its employees and contractors, and nondisclosure agreements with its
suppliers, distributors and certain customers in order to limit access to and
disclosure of its proprietary information. These contractual arrangements or
the other steps taken by the Company to protect its intellectual property may
not prove sufficient to prevent misappropriation of the Company's technology or
to deter independent third-party development of similar technologies. The laws
of certain foreign countries may not protect the Company's services or
intellectual property rights to the same extent as do the laws of the United
States. The Company also relies on certain technologies that it licenses from
third parties. These third-party technology licenses may not continue to be
available to the Company on commercially
42
<PAGE>
reasonable terms. The loss of the ability to use such technology could require
the Company to obtain the rights to use substitute technology, which could be
more expensive or offer lower quality or performance, and therefore have a
material adverse effect on the Company's business, results of operations and
financial condition.
To date, the Company has not been notified that the Company's services
infringe the proprietary rights of third parties, but third parties could claim
infringement by the Company with respect to current or future services. The
Company expects that participants in its markets will be increasingly subject
to infringement claims as the number of services and competitors in the
Company's industry segment grows. Any such claim, whether meritorious or not,
could be time-consuming, result in costly litigation, cause service
installation delays or require the Company to enter into royalty or licensing
agreements. Such royalty or licensing agreements might not be available on
terms acceptable to the Company or at all. As a result, any such claim could
have a material adverse effect upon the Company's business, results of
operations and financial condition.
GOVERNMENT REGULATION
The Company is not currently subject to direct federal, state or local
government regulation, other than regulations that apply to businesses
generally. Only a small body of laws and regulations currently applies
specifically to access to, or commerce on, the Internet. Due to the increasing
popularity and use of the Internet, however, it is possible that laws and
regulations with respect to the Internet may be adopted at federal, state and
local levels, covering issues such as user privacy, freedom of expression,
pricing, characteristics and quality of products and services, taxation,
advertising, intellectual property rights, information security and the
convergence of traditional telecommunications services with Internet
communications. Although sections of the Communications Decency Act of 1996
(the "CDA") that, among other things, proposed to impose criminal penalties on
anyone distributing "indecent" material to minors over the Internet were held
to be unconstitutional by the U.S. Supreme Court, similar laws may be proposed,
adopted and upheld. The nature of future legislation and the manner in which it
may be interpreted and enforced cannot be fully determined and, therefore,
legislation similar to the CDA could subject the Company and/or its customers
to potential liability, which in turn could have a material adverse effect on
the Company's business, results of operations and financial condition. The
adoption of any such laws or regulations might decrease the growth of the
Internet, which in turn could decrease the demand for the services of the
Company or increase the cost of doing business or in some other manner have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, applicability to the Internet of existing
laws governing issues such as property ownership, copyright and other
intellectual property issues, taxation, libel, obscenity and personal privacy
is uncertain. The vast majority of such laws were adopted prior to the advent
of the Internet and related technologies and, as a result, do not contemplate
or address the unique issues of the Internet and related technologies. Changes
to such laws intended to address these issues could create uncertainty in the
marketplace that could reduce demand for the services of the Company or
increase the cost of doing business as a result of costs of litigation or
increased service delivery costs, or could in some other manner have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, because the Company's services are available over the
Internet virtually worldwide, and because the Company facilitates sales by its
customers to end users located in multiple states and foreign countries, such
jurisdictions may claim that the Company is required to qualify to do business
as a foreign corporation in each such state or that the Company has a permanent
establishment in each such foreign country. The Company is qualified to do
business in only Delaware, Florida and California, and failure by the Company
to qualify as a foreign corporation in a jurisdiction where it is required to
do so could subject the Company to taxes and penalties for failure to qualify
and could result in the inability of the Company to enforce contracts in such
jurisdictions. Any new legislation or regulation, or the application of laws or
regulations from jurisdictions whose laws do not currently apply to the
Company's business, could have a material adverse effect on the Company's
business, results of operations and financial condition.
43
<PAGE>
EMPLOYEES
As of June 30, 1998, the Company had 283 employees, of which 53 were in
sales, distribution and marketing, 62 were in engineering and service
development, 104 were in customer service and technical support and 64 were in
finance and administration. The Company believes that its future success will
depend in part upon its continued ability to attract, hire and retain qualified
personnel. The competition for such personnel is intense, and the Company may
not be able to identify, attract and retain such personnel in the future. None
of the Company's employees is represented by a labor union, and management
believes that its employee relations are good.
FACILITIES
The Company's executive offices are located in Boca Raton, Florida and
consist of approximately 8,620 square feet on Congress Road that are leased
pursuant to agreements that expire in 1999 and 2001 and approximately 70,000
square feet at Blue Lake that are leased pursuant to an agreement that expires
in 2005. The Company anticipates that it will be vacating the facility on
Congress Road before the end of 1998. The Company also leases two buildings of
approximately 15,850 and 8,000 square feet in Mountain View, California, under
agreements that expire in May 2002 and February 1999, respectively. In
addition, the Company leases a sales and technical office consisting of
approximately 10,600 square feet in San Francisco, California, under an
agreement that expires in 2004, and a co-location facility consisting of
approximately 4,390 square feet of space in San Jose, California pursuant to an
agreement that expires in 2001. The Company's Network Operations Centers are
located at Blue Lake in Boca Raton and in the 15,850 square foot space in
Mountain View, California. The Company also leases space in the San Francisco
Bay Area for its points of presence. These sites are located in San Mateo, San
Rafael, Pleasanton, Novato, Rohnert Park, Nicosia and Walnut Creek, California.
The Company's aggregate expense for rent in 1997 and the first six months of
1998 was $670,000 and $793,000, respectively.
44
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------------------- --- -----------------------------------------
<C> <C> <S>
Arthur L. Cahoon............ 42 Chairman of the Board of Directors, Chief
Executive Officer and Director
David S. Buzby.............. 38 Executive Vice President, Chief Financial
Officer and Director
Scott H. Adams.............. 34 President and Director
William G. Nesbitt.......... 30 Chief Technical Officer and Director
Steven J. Umberger.......... 37 Chief Marketing Officer and Director
James R. Zarley............. 54 Chief Operating Officer and Director
Thomas C. Barry(1)(2)....... 54 Director
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Mr. Cahoon has served as Chairman of the Board of Directors, Chief Executive
Officer and a director of the Company since May 1998. From October 1997 to May
1998, he was Chairman of Hiway Florida. Since March 1993, he has served as
general partner of Rock Creek Partners, Ltd., an investment company, and
executive vice president of James Dahl & Co., an investment banking company.
Since January 1995, Mr. Cahoon also has served as executive vice president of
Timberland Investment Services, LLP, an investment management company, which
he co-founded. In addition, from June 1995 to June 1996, he served as
president of QuinStone Industries, Inc., a manufacturing company. Prior to
March 1993, Mr. Cahoon served as executive vice president and chief financial
officer of Cain & Bultman, Inc., a wholesale distributor. Mr. Cahoon holds a
B.B.A. in accounting and finance from Stetson University.
Mr. Buzby has served as Executive Vice President, Chief Financial Officer
and a director of the Company since August 1995. From 1992 to January 1995,
Mr. Buzby served as chief executive officer of Recycling Resource LLC, a
multi-material recycler, which he co-founded. He holds a B.A. in political
science from Middlebury College and an M.B.A. from the Harvard Graduate School
of Business.
Mr. Adams has served as President and a director of the Company since May
1998. From April 1995 to May 1998, he served as President, Treasurer and a
director of Hiway Florida, which he co-founded. From April 1993 to April 1995,
Mr. Adams served as president of Adams Computer Consulting, Inc., a consulting
company, which he founded. He holds a B.A. in finance from Florida Atlantic
University.
Mr. Nesbitt has served as Chief Technical Officer and a director of the
Company since May 1998. From May 1995 to May 1998, he served in various
positions with Hiway Florida, which he co-founded, including Vice President-
Technology, Secretary and a director. From 1991 to May 1995, he was employed
by Unicom Business Systems, Inc., a computer consulting company, most recently
as president.
Mr. Umberger has served as Chief Marketing Officer and a director of the
Company since May 1998. From April 1996 to May 1998, he was Executive Vice
President--Marketing and a director of Hiway Florida. In 1992, he co-founded
International Authorized Agents, an IBM business partner, where he served as
president until that company was sold in 1998. In 1992, he founded Acme
Barricades Company, a traffic safety rental company, where he served as vice
president until that company was sold
45
<PAGE>
in 1997. Mr. Umberger holds a B.A. in economics from Virginia Military
Institute and an M.B.A. from the College of William and Mary.
Mr. Zarley has served as Chief Operating Officer of the Company since July
1998. Since May 1998, he has served as a director of the Company, and, from May
1998 to July 1998, he served as Chief Operating Officer--West Coast Operations
of the Company. From December 1996 to May 1998, he was Chairman, Chief
Executive Officer and a director of Best. Since May 1998, Mr. Zarley has also
served as chairman of Value Click LLC, an on-line advertising company. From
1985 to December 1996, he served as president and chief executive officer of
Quantech Corporation, a marketing company, which he founded. He also served as
president and chief executive officer of Quantech Information Systems, an
information services company, until it was sold to Automated Data Processing,
Inc. in 1997. From 1991 to December 1997, Mr. Zarley served as president and
chief executive officer of Quantech Investment Company, which he founded.
Mr. Barry has served as a director of the Company since December 1996. Since
December 1993, he has served as president of Zephyr Management, L.P., a
financial consulting and investment firm, and chairman of CZ Management/South
Africa Capital Growth Fund, each of which he founded. From 1983 to December
1993, Mr. Barry served as president and chief executive officer of Rockefeller
& Co., Inc., a registered investment advisor. Mr. Barry is also a director of
Banco Finantia, South Africa Growth Fund Ltd., the France Growth Fund, Inc. and
Levco Series Trust. Mr. Barry holds a B.A. in Latin American studies from Yale
University and an M.B.A. from the Harvard Graduate School of Business.
Each director will hold office until the 1999 Annual Meeting of Stockholders
and until his successor is elected and qualified or until his earlier
resignation or removal. Each officer serves at the discretion of the Board of
Directors (the "Board"). The Company expects to appoint an additional outside
director within 90 days of the date of this Prospectus.
BOARD COMMITTEES
The Audit Committee of the Board currently consists of Mr. Barry and will be
expanded to include a second outside director when he or she is appointed. The
Audit Committee reviews the Company's financial statements and accounting
practices, makes recommendations to the Board regarding the selection of
independent auditors and reviews the results and scope of the audit and other
services provided by the Company's independent auditors. The Compensation
Committee of the Board currently consists of Mr. Barry and will be expanded to
include a second outside director when he or she is appointed. The Compensation
Committee makes recommendations to the Board concerning salaries and incentive
compensation for the Company's officers and employees and administers the
Company's employee benefit plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Board was at any time since
the formation of the Company an officer or employee of the Company. No
executive officer of the Company serves as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving on the Company's Board or Compensation Committee of the Board.
DIRECTOR COMPENSATION
Directors of the Company do not receive cash compensation for their services
as directors but are reimbursed for their reasonable expenses in attending
meetings of the Board. In July 1998, Mr. Barry, the Company's only current non-
employee director, was granted an option under the Company's 1998 Equity
Incentive Plan to purchase 20,000 shares of Common Stock at a price of $12.00
per share.
46
<PAGE>
For a description of option grants to directors who are also employees of the
Company, see "--Executive Compensation."
In June 1998, the Board adopted the 1998 Directors Stock Option Plan and
reserved a total of 300,000 shares of the Company's Common Stock for issuance
thereunder. Stockholders are expected to approve the Directors Plan in August
1998. Members of the Board who are not also employees of the Company, or any
parent or subsidiary of the Company ("Outside Directors"), are eligible to
participate in the Directors Plan. Each Outside Director who first becomes a
member of the Board on or after the date of this offering (the "Effective
Date") will automatically be granted an option for 20,000 shares (an "Initial
Grant") on the date such director first becomes a director. On each annual
anniversary of a director's Initial Grant or, if an Outside Director was
ineligible for an Initial Grant, on each anniversary of the Effective Date,
each Outside Director will automatically be granted an additional option to
purchase 10,000 shares (an "Annual Grant") if such director has served
continuously as a member of the Board since the date of such director's Initial
Grant or since the Effective Date, as applicable. Initial Grants and Annual
Grants will vest as to 12.5% of the total shares on the six-month anniversary
of the date of grant and as to 2.083% of the total shares on each subsequent
monthly anniversary of the date of grant provided the optionee continues as a
member of the Board or as a consultant to the Company. Options will cease
vesting once the individual ceases to provide services as a director or
consultant. Following the individual's cessation of services to the Company, he
or she will have seven months in which to exercise the options granted under
the Directors Plan (to the extent such options are vested on the date of
termination), 12 months if the cessation of services resulted from the
director's death or disability. The exercise price of all options granted under
the Directors Plan will be the fair market value of the Common Stock on the
date of grant.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or paid
for services rendered to the Company in all capacities during 1997 by (i) the
Chief Executive Officer of Best, (ii) the Chief Executive Officer of Hiway
Florida and (iii) each executive officer of Best or Hiway Florida as of
December 31, 1997 whose annual compensation for 1997 was in excess of $100,000
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL
COMPENSATION AWARDS
------------ ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITIONS(1) SALARY($)(2) OPTIONS(#)
- ------------------------------- ------------ ------------
<S> <C> <C>
Scott H. Adams...................................... $119,433(3) --
President and Treasurer of Hiway Florida
David S. Buzby...................................... 150,008 117,505
Executive Vice President and Chief Financial
Officer of Best
William G. Nesbitt.................................. 123,825(3) --
Vice President-Technology of Hiway Florida
Steven J. Umberger.................................. 120,487 --
Executive Vice President-Marketing of Hiway Florida
Robert E. Tomasi, Jr. (4)........................... 193,492 33,333
Vice President and Chief Operating Officer of Best
James R. Zarley..................................... 125,888 10,000
Chairman and Chief Executive Officer of Best
</TABLE>
- --------
(1) For the current positions of each individual continuing as an executive
officer of the Company, see "--Executive Officers and Directors" above.
(2) The current annual salary rate for Messrs. Adams, Buzby, Nesbitt, Umberger,
Zarley and Arthur L. Cahoon, the Company's Chief Executive Officer, is
$160,000.
(3) The compensation of Messrs. Adams, Nesbitt and Umberger does not include
Subchapter S corporation distributions from Hiway Florida of $1.0 million,
$1.1 million and $528,000, respectively. See "Certain Transactions."
47
<PAGE>
(4) Mr. Tomasi took a seven-month leave of absence from Best in December 1997
and did not return to the Company following that leave of absence.
The following table sets forth further information regarding option grants to
each of the Named Executive Officers during 1997. In accordance with the rules
of the Securities and Exchange Commission, the table sets forth the
hypothetical gains or "option spreads" that would exist for the options at the
ends of their respective terms. These gains are based on assumed annual
compound rates of stock price appreciation of 5% and 10% from the date the
option was granted to the end of the option term.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENTAGE OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED(#)(1) 1997 PER SHARE DATE 5% 10%
- ------------------------ ------------- ------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Scott H. Adams.......... -- --% $ -- -- $ -- $ --
David S. Buzby.......... 100,000 21.1 1.50 6/10/2007 94,334 239,061
17,505 3.7 1.00 6/10/2007 11,009 27,898
William G. Nesbitt...... -- -- -- -- -- --
Steven J. Umberger...... -- -- -- -- -- --
Robert E. Tomasi, Jr.... 33,333 7.0 1.50 2/24/2007 31,445 79,688
James R. Zarley......... 10,000 2.1 0.50 6/25/2007 3,144 7,969
</TABLE>
- --------
(1) These options generally are incentive stock options that were granted at
fair market value on the date of grant and vest over a four-year period.
These options all became fully vested upon the closing of the Merger in May
1998.
(2) The 5% and 10% assumed annual compound rates of stock price appreciation
are mandated by the rules of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of future Common Stock
price appreciation. The potential realizable value is based on the term of
the option at the time of grant, which is ten years for each of the options
set forth in this table.
The following table sets forth the number of shares acquired upon the
exercise of stock options during 1997 and the number of shares subject to
exercisable and unexercisable stock options held by each of the Named Executive
Officers at December 31, 1997. Also reported are values of "in-the-money"
options, which represent the positive spreads between the respective exercise
prices of the outstanding stock options and $6.00, the fair market value of the
shares at December 31, 1997 as determined by the Board.
AGGREGATE OPTION EXERCISES IN 1997 AND YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT YEAR-END AT YEAR-END
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ -------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Scott H. Adams.......... -- $ -- -- -- $ -- $ --
David S. Buzby (1)...... 120,390 421,365 39,968 26,183 186,381 122,584
William G. Nesbitt...... -- -- -- -- -- --
Steven J. Umberger...... -- -- -- -- -- --
Robert E. Tomasi, Jr.
(1).................... -- -- 23,437 62,500 105,469 281,250
James R. Zarley (1)..... 166,666 583,333 574,042 16,666 969,585 74,583
</TABLE>
- --------
(1) The closing of the Merger on May 27, 1998 caused all unexercisable options
of Messrs. Buzby, Tomasi and Zarley to become exercisable in full.
In May 1998, Messrs. Zarley and Buzby exercised options to purchase 233,333
shares and 66,170 shares of Common Stock, respectively, at weight average
exercise prices of $1.53 and $1.33 per share. See "Certain Transactions."
48
<PAGE>
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
In January 1997, Best entered into an employment agreement with James R.
Zarley, pursuant to which Mr. Zarley held the positions of Chairman of the
Board, President and Chief Executive Officer of Best, and received a salary of
$10,000 per month. In addition, pursuant to such agreement, Mr. Zarley received
an option to purchase 390,000 shares at an exercise price of $1.50 per share
and 10,000 shares at an exercise price of $2.50 per share under the 1996 Plan,
which vest over a 24-month period, ending December 31, 1998. The agreement also
provided that, in the event of an initial public offering or the transfer of
ownership of 51% or more of Best, these options would become fully vested and
exercisable. As a result of the Merger, the options became fully vested on May
27, 1998. This agreement was terminated in July 1998.
In February 1997, Best entered into an employment agreement with David S.
Buzby, pursuant to which Mr. Buzby held the positions of Chief Financial
Officer and Senior Vice President of Business Development of Best and received
a salary of $12,500 per month plus 2% of all net private equity funding raised
by Mr. Buzby prior to a public offering. In addition, pursuant to such
agreement Mr. Buzby received an option to purchase 40,000 shares at an exercise
price of $0.50 per share, and every three months was entitled to receive
"evergreen" options to purchase a sufficient number of shares such that he had
the right to purchase 1% of the outstanding Common Stock of Best on a fully
diluted basis, capped at 72,505 shares, at an exercise price of $1.00 per
share. The Company further agreed to grant an additional option to purchase
100,000 shares at an exercise price of $1.50 per share. The agreement also
provided that these options would vest over a 50-month period, with full
acceleration upon (i) sale of all or substantially all of Best's assets, (ii)
sale of Best, (iii) a merger of Best, (iv) a change in control of greater than
50% of Best's outstanding stock or (v) an initial public offering of Best's
securities. As a result of the Merger, the options became fully vested on May
27, 1998. This agreement was terminated in July 1998.
In February 1997, Best entered into an employment agreement with Robert E.
Tomasi, Jr. pursuant to which Mr. Tomasi held the position of Chief Operating
Officer at an annual salary of $200,000. In addition, pursuant to such
agreement, Mr. Tomasi received an immediately vested option to purchase 33,333
shares of Common Stock at an exercise price of $1.50 per share and an option to
purchase 125,000 shares under the 1996 Plan at an exercise price of $1.50 per
share, which latter option vests ratably over 48 months ending December 3,
2000. The agreement also provided that, in the event of an initial public
offering or the transfer of ownership of 51% or more of Best, these options
would become fully vested. As a result of the Merger, the options became fully
vested on May 27, 1998. This agreement is terminable by either party upon 10
days' notice. The agreement provided that, if Mr. Tomasi was terminated without
cause, he would receive severance pay equal to one week's salary for every four
weeks of service to Best, with a minimum of 16 weeks and a maximum of 26 weeks
of severance pay. In December 1997, Best granted an unpaid leave of absence for
seven months to Mr. Tomasi. Pursuant to the agreement whereby such leave of
absence was granted, Best continued to provide full regular employee benefits
to Mr. Tomasi, and the options to purchase Common Stock held by him continued
to vest during the leave period. In addition, the severance provisions of Mr.
Tomasi's employment agreement were eliminated.
Hiway Florida had employment agreements with Scott H. Adams, Arthur L.
Cahoon, William G. Nesbitt and Steven J. Umberger, pursuant to which they held
the positions of President, Chairman, Vice President-Technology and Executive
Vice President-Marketing, respectively, of Hiway Florida, each at an annual
salary of $160,000. In addition, each employment agreement provided that these
individuals would receive a bonus starting in 1998 equal to the lesser of 5% of
Hiway Florida's earnings before interest and taxes (before bonus) or $140,000.
Pursuant to his employment agreement, Mr. Cahoon also purchased a warrant to
purchase 280,409 shares of Hiway Common Stock. See "Certain Transactions--Hiway
Florida Transactions." These employment agreements were terminated in July
1998.
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<PAGE>
In July 1998, the Company entered into employment agreements with each of
the Company's executive officers, pursuant to which Arthur L. Cahoon, David S.
Buzby, Scott H. Adams, William G. Nesbitt, Steven J. Umberger and James R.
Zarley serve as Chief Executive Officer, Executive Vice President and Chief
Financial Officer, President, Chief Technical Officer, Chief Marketing Officer
and Chief Operating Officer, respectively, and receive a salary of $160,000
per annum (beginning June 1, 1998). In addition, pursuant to such agreements,
each executive officer will be entitled to receive annual bonuses during the
term of such agreement equal to 5% of the Company's earnings before interest,
taxes, depreciation and amortization (calculated before such bonuses) up to a
maximum of $140,000 for each calendar year to be paid by the end of the first
quarter of the succeeding year. The term of the employment agreements is three
years, terminating December 31, 2000. However, the Company may terminate any
of these agreements "for cause" upon reasonable notice and a hearing before
the Board, and each such executive officer may terminate his agreement upon 30
days' written notice, or upon the occurence of certain events including a
"change in control" of the Company (defined as any person or entity becoming
the beneficial owner of 50% or more of the combined voting power of the
Company).
EMPLOYEE BENEFIT PLANS
1995 Stock Option Plan. In August 1995, the Board adopted, and in October
1995 the stockholders approved, the 1995 Plan. The 1995 Plan provided for the
grant of stock options by the Company to employees, officers, directors,
consultants, independent contractors and advisors of the Company or any parent
or subsidiary of the Company. A total of 100,000 shares of Common stock were
reserved for issuance under the 1995 Plan. The 1995 Plan is administered by
the Compensation Committee of the Board. The Compensation Committee has the
authority to construe and interpret the 1995 Plan and any agreement made
thereunder and make all other determinations necessary or advisable for the
administration of the 1995 Plan. The maximum term of an option granted under
the 1995 Plan is ten years and options granted vest over periods determined by
the Board on the date of grant. Vesting will stop if the optionee ceases to
provide services to the Company or any parent or subsidiary of the Company,
but options will generally remain exercisable for a period of three months
following the termination of services. If the optionee's termination is for
cause, his or her options will generally terminate immediately. If the
optionee's termination is due to death or disability, the optionee or his or
her estate will generally have 12 months in which to exercise the option. In
the event of certain change of control transactions, outstanding options may
be assumed or substituted by the successor corporation. If the successor
corporation does not assume or substitute the awards, the options will
terminate prior to the effectiveness of the transaction. Options granted under
the 1995 Plan before its termination in May 1996 continue to remain
outstanding in accordance with their terms, but no further options may be
granted under the 1995 Plan.
1996 Stock Option Plan. In May 1996, the Board adopted and the stockholders
approved the 1996 Plan, which served as the successor to the 1995 Plan. The
1996 Plan provided for the grant of stock options by the Company to employees,
officers, directors, consultants, independent contractors and advisors of the
Company or any parent or subsidiary of the Company. A total of 2,000,000
shares of Common stock were reserved for issuance under the 1996 Plan. The
1996 Plan is administered by the Compensation Committee of the Board. The
Compensation Committee has the authority to construe and interpret the 1996
Plan and any agreement made thereunder and make all other determinations
necessary or advisable for the administration of the 1996 Plan. The 1996 Plan
permitted the grant of incentive stock options ("ISOs") and nonqualified stock
options ("NQSOs"). ISOs could be granted only to employees of the Company or
of any parent or subsidiary of the Company. NQSOs, stock bonuses and
restricted stock could be granted to all individuals eligible to receive
grants under the 1996 Plan. The exercise price of ISOs had to be at least
equal to the fair market value of the Company's Common Stock on the date of
grant. The exercise price of NQSOs had to be at least equal to 85% of the fair
market value of the Company's Common Stock on the date of grant. The maximum
term of an option granted under the 1996 Plan was ten years and options
granted typically vest over a four-year period.
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Vesting will stop if the optionee ceases to provide services to the Company or
any parent or subsidiary of the Company, but options will generally remain
exercisable for a period of one month following the termination of services.
If the optionee's termination is for cause, his or her options will generally
terminate immediately. If the optionee's termination is due to death or
disability, the optionee or his or her estate will generally have six months
in which to exercise. In the event of certain change of control transactions,
outstanding options may be assumed or substituted by the successor
corporation. If the successor corporation does not assume or substitute the
awards, the vesting of the options will accelerate prior to the effectiveness
of the transaction and such options will terminate if not exercised with three
months of the transaction. Options granted under the 1996 Plan before its
termination in March 1998 continue to remain outstanding in accordance with
their terms, but no further options may be granted under the 1996 Plan.
Hiway Florida Stock Option Plan. In January 1997, the Board of Hiway Florida
adopted, and in June 1997 the shareholders of Hiway Florida approved, the
Hiway Florida Plan. The Hiway Florida Plan provided for the grant of stock
options by the Company to employees, officers and consultants of the Hiway
Florida or any parent or subsidiary of Hiway Florida. A total of 250,000
shares of Common stock were reserved for issuance under the Hiway Florida
Plan. The Hiway Florida Plan is administered by the Compensation Committee of
the Board. The Compensation Committee has the authority to construe and
interpret the Hiway Florida Plan and any agreement made thereunder and make
all other determinations necessary or advisable for the administration of the
Hiway Florida Plan. The Hiway Florida Plan permitted the grant of incentive
stock options ("ISOs") and nonqualified stock options ("NQSOs"). ISOs could be
granted only to employees of the Company or of any parent or subsidiary of the
Company. NQSOs, stock bonuses and restricted stock could be granted to all
individuals eligible to receive grants under the Hiway Florida Plan. The
exercise price of ISOs had to be at least equal to the fair market value of
the Company's Common Stock on the date of grant. The maximum term of an option
granted under the Hiway Florida Plan is ten years and options granted
typically vest over a three-year period. Vesting will stop if the optionee
ceases to provide services to the Company or any parent or subsidiary of the
Company, but options will generally remain exercisable for a period of three
months following the termination of services. If the optionee's termination is
for cause, his or her options will generally terminate immediately. If the
optionee's termination is due to death or disability, the optionee or his or
her estate will generally have twelve months in which to exercise. In the
event of certain change of control transactions, outstanding options may be
assumed or substituted by the successor corporation. If the successor
corporation does not assume or substitute the awards, the options will
terminate prior to the effectiveness of the transaction. Upon the Merger, the
options outstanding under the Hiway Florida Plan were assumed by the Company
and converted into options to purchase Common Stock of the Company. Options
granted under the Hiway Florida Plan before its termination in May 1998
continue to remain outstanding in accordance with their terms, but no further
options may be granted under the Hiway Florida Plan.
1998 Equity Incentive Plan. In March 1998, the Board adopted, and in April
1998 the stockholders approved, the 1998 Plan. The 1998 Plan became effective
in April 1998 and serves as the successor to the 1996 Plan. Options granted
under the 1996 Plan before its termination in March 1998 continue to remain
outstanding in accordance with their terms, but no further options may be
granted under the 1996 Plan. In June and July 1998, the Board amended and
restated the 1998 Plan and increased the number of shares reserved for
issuance thereunder. Stockholders are expected to approve the amendment and
restatement in August 1998. The 1998 Plan as amended and restated provides for
the grant of stock options and stock bonuses and the issuance of restricted
stock by the Company to employees, officer, directors, consultants,
independent contractors and advisors of the Company or any parent or
subsidiary of the Company. A total of 2,000,000 shares of Common stock were
reserved for issuance under the 1998 Plan, of which 281,825 shares were
subject to outstanding options at June 30, 1998 and 1,718,125 shares were
available for future grant. Shares that are subject to (i) issuance upon
exercise of an option granted under the 1998 Plan that cease to be subject to
such option for any reason
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<PAGE>
other than exercise, (ii) awards granted under the 1998 Plan that are forfeited
or are repurchased by the Company at the original issue price and (iii) awards
that otherwise terminate without shares being issued will again be available
for grant and issuance under the 1998 Plan. On each January 1 during the term
of the 1998 Plan, the aggregate number of shares reserved and available for
grant and issuance under the 1998 Plan will be increased automatically by a
number of shares equal to 2.5% of the total outstanding shares of the Company
as of the immediately preceding December 31.
The 1998 Plan will terminate in March 2008, unless earlier terminated by the
Board. No person will be eligible to receive more than 2,000,000 shares in any
calendar year pursuant to equity awards under the 1998 Plan, other than a new
employee who will be eligible to receive no more than 3,000,000 shares in the
calendar year in which such employee commences employment. The 1998 Plan will
be administered by the Compensation Committee of the Board. The Compensation
Committee has the authority to construe and interpret the 1998 Plan and any
agreement made thereunder, grant equity awards and make all other
determinations necessary or advisable for the administration of the 1998 Plan.
The 1998 Plan permits the grant of incentive stock options ("ISOs"),
nonqualified stock options ("NQSOs"), stock bonuses and restricted stock
awards. ISOs may be granted only to employees of the Company or of any parent
or subsidiary of the Company. NQSOs, stock bonuses and restricted stock may be
granted to all individuals eligible to receive grants under the 1998 Plan. The
exercise price of ISOs must be at least equal to the fair market value of the
Company's Common Stock on the date of grant. The exercise price of NQSOs must
be at least equal to 85% of the fair market value of the Company's Common Stock
on the date of grant. The purchase price of restricted stock will be determined
by the Compensation Committee. The maximum term of an option is ten years.
Option typically vest over a four-year period. Vesting will stop if the
optionee ceases to provide services to the Company or any parent or subsidiary
of the Company, but options will generally remain exercisable for a period of
three months following the termination of services. If the optionee's
termination is for cause, his or her options will generally terminate
immediately. If the optionee's termination is due to death or disability, the
optionee or his or her estate will generally have twelve months in which to
exercise. In the event of certain change of control transactions, outstanding
equity awards may be assumed or substituted by the successor corporation. If
the successor corporation does not assume or substitute the awards, the awards
will terminate prior to the effectiveness of the transaction unless the
Committee determines that the vesting of all outstanding awards will accelerate
and outstanding options will become exercisable in full prior to the
effectiveness of the transaction.
1998 Employee Stock Purchase Plan. In June 1998, the Board adopted the
Purchase Plan, reserving a total of 500,000 shares of the Company's Common
Stock for issuance thereunder. In addition, on each January 1 during the term
of the Purchase Plan, the number of shares reserved for issuance under the
Purchase Plan will be increased automatically by a number of shares equal to 1%
of the total outstanding shares of the Company as of the immediately preceding
December 31, up to a maximum of 1,000,000 shares per year. Stockholders are
expected to approve the Purchase Plan in August 1998. The Purchase Plan will
become effective on the first business day on which price quotations for the
Company's Common Stock are available on the Nasdaq National Market. The
Purchase Plan permits eligible employees to acquire shares of the Company's
Common Stock through payroll deductions. The Purchase Plan is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Code.
Except for the initial offering, each offering under the Purchase Plan will be
for a period of six months (the "Offering Period") commencing on February 25
and August 25 of each year and ending on the August 24 and February 24
thereafter. The first Offering Period will begin on the date on which price
quotations for the Company's Common Stock are first available on the Nasdaq
National Market and will end on February 24, 1999, unless otherwise determined
by the Board. Except for the first Offering Period, each Offering Period will
consist of one purchase periods, six months in length ("Purchase Period"). The
Committee has the power to change the duration of Offering Periods without
stockholder approval, provided that the change is announced at least 15 days
prior to the scheduled beginning of the first Offering Period to be affected.
In addition, the Board may suspend or terminate any Purchase Period or
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<PAGE>
Offering Period if the accounting standards in effect on the date the Purchase
Plan was adopted by the Board change in any way. Eligible employees may select
a rate of payroll deduction between 2% and 10% of their W-2 compensation,
subject to certain limits set forth in the Purchase Plan. The purchase price
for the Company's Common Stock purchased under the Purchase Plan is 85% of the
lesser of the fair market value of the Company's Common Stock on the first day
of the applicable Offering Period or on the last day of the respective Purchase
Period.
401(k) Plan. The Company sponsors the Hiway Technologies, Inc. 401(k) Plan
(the "401(k) Plan"). Employees who complete three months of service with the
Company are eligible to participate ("Participants"). Participants may
contribute up to 15% of their current compensation, up to a statutorily
prescribed annual limit, to the 401(k) Plan. Each Participant is fully vested
in his or her salary reduction contributions. Participant contributions are
held in trust as required by law. Individual Participants may direct the
trustee to invest their accounts in authorized investment alternatives. The
401(k) Plan is intended to qualify under Section 401(a) of the Internal Revenue
Code so that contributions to the 401(k) Plan, and income earned on such
contributions, are not taxable to Participants until withdrawn or distributed
from the 401(k) Plan.
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<PAGE>
CERTAIN TRANSACTIONS
Since January 1, 1995, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company was or
is to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of the Common Stock of
the Company had or will have a direct or indirect interest other than (i)
compensation arrangements, which are described where required under
"Management," and (ii) the transactions described below.
BEST TRANSACTIONS
In July 1995, Robert D. Leppo, a greater than 5% stockholder of the Company,
and David S. Buzby, the Executive Vice President, Chief Financial Officer and a
director of the Company, purchased 300,000 shares and 50,000 shares,
respectively, of the Company's Common Stock for $150,000 and $25,000,
respectively.
In January 1996, Best issued a warrant to purchase 66,666 shares of the
Company's Common Stock, with an exercise price of $1.00 per share, to Mr. Leppo
in consideration for his guaranteeing the repayment of $800,000 loaned to Best.
In March 1997, Best repaid this loan in full and Mr. Leppo surrendered his
warrant to Best for cancellation.
In January 1996, Best issued a warrant to purchase 50,000 shares of Common
Stock to BI Partners, LLC, an affiliate of Thomas C. Barry, a director of the
Company, in connection with the loan by BI Partners, LLC of $200,000 to the
Company. The loan bore interest at 6% and was convertible into Series A
Preferred Stock of Best at the rate of $4.00 per share. The Company repaid this
loan in July 1996. The warrant, which continues to be outstanding, has an
exercise price of $1.00 and expires in January 2001.
In July 1996 and March 1997, Mr. Leppo, in July 1996 BI Partners, LLC, and in
March 1997 James R. Zarley, the Chief Operating Officer-West Coast and a
director of the Company, and Mr. Buzby purchased 2,200,000 shares, 240,000
shares, 240,000 shares and 200,000 shares of Series B Common Stock of Best,
respectively, for $2.75 million, $300,000, $300,000 and $250,000, respectively.
Each share of Series B Common Stock was converted into one-half share of the
Company's Common Stock. See "Description of Capital Stock--Registration
Rights."
In November 1997, Best loaned Mr. Zarley and the Buzby-Vasan 1997 Trust, of
which Mr. Buzby is a trustee, $254,161 and $128,516, respectively, in
connection with their purchase of 166,666 shares and 120,390 shares,
respectively, of Best Common Stock pursuant to the exercise of options. The
notes are full recourse, bear simple interest at the rate of 8.5% per annum,
are secured by the shares that were purchased, and become due on the earliest
of (i) 30 days after the borrower's resignation or termination for cause, (ii)
the sale of any of the shares purchased with the note or (iii) November 4,
1998. Mr. Buzby intends to repay his loan out of his proceeds from the sale of
shares in this offering.
In May 1998, the Board of Best approved loans to Mr. Zarley and Mr. Buzby in
the amounts of $355,824 and $88,045 in connection with the purchase of 233,333
shares and 66,170 shares, respectively, of Best Common Stock pursuant to the
exercise of options. The loans bear interest at a floating rate equal to the
prime rate plus 2%. All principal of and interest on these loans become due
upon the earlier of May 1999 or three months following the Company's initial
public offering. Mr. Buzby intends to repay his loan out of his proceeds from
the sale of shares in this offering.
HIWAY FLORIDA TRANSACTIONS
In April 1995, Scott H. Adams, President and a director of the Company, and
William G. Nesbitt, Chief Technical Officer and a director of the Company, each
purchased shares, which subsequently split into 1,900,000 shares of Hiway
Florida Common Stock, for $100 at the founding of the Company. In the
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<PAGE>
Merger, Mr. Nesbitt's 1,900,000 shares and Mr. Adams' 1,749,206 shares
remaining after the sales described below were exchanged for 3,930,535 shares
and 3,618,587 shares, respectively, of the Company's Common Stock.
In May 1996, Steven J. Umberger, Chief Marketing Officer and a director of
the Company, purchased 950,000 shares of Hiway Florida Common Stock for
$225,000. In the Merger, these shares were exchanged for 1,965,267 shares of
the Company's Common Stock.
During 1997, Arthur L. Cahoon, Chairman of the Board of Directors and Chief
Executive Officer of the Company purchased 197,917 shares of Hiway Florida's
Common Stock for $187,500. In the Merger, these shares were exchanged for
409,431 shares of the Company's Common Stock.
In conjunction with the employment of Mr. Cahoon as Chairman of the Board of
Directors of Hiway Florida in November 1997, Hiway Florida sold to Mr. Cahoon
for a $280,409 promissory note warrants to purchase 280,409 shares of Hiway
Florida Common Stock at an exercise price of $11.50 per share. As a result of
the Merger and the reincorporation, the warrant represents the right to
purchase 580,082 shares of the Company's Common Stock at an exercise price of
approximately $5.56.
In October 1997, Scott H. Adams, President and a director of the Company,
sold 37,699 shares of Hiway Florida Class A Common Stock to Mr. Cahoon for
$250,003. In the Merger, these shares were exchanged for 77,988 shares of the
Company's Common Stock.
In 1996 and 1997, in connection with taxes incurred by the shareholders of
Hiway Florida as a result of Hiway Florida's status as a Subchapter S
corporation and its generation of net income in 1996, 1997 and the first five
months of 1998, Hiway Florida made the following net distributions: Mr. Adams--
$52,000 in 1996 and $1.0 million in 1997; Mr. Cahoon--$12,000 in 1997; Mr.
Nesbitt--$52,000 in 1996 and $1.1 million in 1997; and Mr. Umberger--$21,000 in
1996 and $528,000 in 1997.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
Except as otherwise noted, the following table sets forth certain information
known to the Company with respect to beneficial ownership of the Company's
Common Stock as of June 30, 1998 by (i) each stockholder known by the Company
to be the beneficial owner of more than 5% of the Company's Common Stock, (ii)
each director of the Company, (iii) each of the Named Executive Officers, (iv)
each Selling Stockholder and (v) all current executive officers and directors
as a group.
<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP PRIOR TO THE OWNERSHIP AFTER THE
OFFERING(1)(2) NUMBER OF OFFERING(1)(2)(3)
----------------------------SHARES BEING ---------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ------------------------ -------------- ------------------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
William G. Nesbitt (4).. 3,930,535 22.0% 75,000 3,855,535 18.0%
Scott H. Adams (4)(5)... 3,618,587 20.2 50,000 3,568,587 16.7
Steven J. Umberger
(4)(6)................. 1,965,267 11.0 87,500 1,877,767 8.8
Robert D. Leppo (7)..... 1,471,523 8.2 -- 1,471,523 6.9
Arthur L. Cahoon (4)(8). 1,067,501 5.8 50,000 1,017,501 4.6
Eugene P. Jarvis (9).... 865,000 4.8 50,000 815,000 3.8
James R. Zarley (10).... 625,075 3.5 31,000 594,075 2.8
David S. Buzby (11)..... 374,060 2.1 30,000 344,060 1.6
Thomas C. Barry
BI Partners, LLC (12).. 310,000 1.7 -- 310,000 1.4
Richard P. White........ 300,000 1.7 20,000 280,000 1.3
Steven E. Hayes......... 299,000 1.7 5,000 294,000 1.4
Robert E. Tomasi, Jr.
(13)................... 258,333 1.4 12,500 245,833 1.1
Twelve other Selling
Stockholders, each of
whom owned less than 1%
of the Company's Common
Stock and is selling
less than 30,000 shares
of Common Stock........ 89,000
All current executive
officers and directors
as a group (7 persons)
(14)................... 11,891,025 64.2 323,500 11,567,525 52.6
</TABLE>
- --------
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable.
(2) Percentage ownership is based on 17,878,911 shares outstanding as of June
30, 1998 and 21,378,911 shares outstanding after this offering. Shares of
Common Stock subject to options or warrants that are currently exercisable
or exercisable within 60 days of June 30, 1998 are deemed to be
outstanding and to be beneficially owned by the person holding such
options or warrants for the purpose of computing the percentage ownership
of such person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
(3) Assumes that the Underwriters' over-allotment option to purchase up to
600,000 shares from the Company is not exercised.
(4) The address of Messrs. Nesbitt, Adams, Umberger and Cahoon is c/o Hiway
Technologies, Inc., 5050 Blue Lake Drive, Suite 100, Boca Raton, Florida,
33431.
(5) Represents 3,118,587 shares held of record by Mr. Adams and 500,000 shares
held of record by Franklin H. Adams as Trustee of the Scott H. Adams
Grantor Retained Annuity Trust dated May 29, 1998.
(6) Represents 1,590,267 shares held of record by Mr. Umberger, 250,000 shares
held of record by Margaret Norine Davis as Trustee of the Steven J.
Umberger Grantor Retained Annuity Trust III dated May 29, 1998, 87,500
shares held of record by Timothy D. Umberger as Trustee of the Steven
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<PAGE>
J. Umberger Grantor Retained Annuity Trust I dated May 29, 1998 and 37,500
shares held of record by Carolyn Davis Oates as Trustee of the Steven J.
Umberger Grantor Retained Annuity Trust II dated May 29, 1998.
(7) The address of Mr. Leppo is 5655 College Ave., #250, Oakland, California
94618.
(8) Represents 362,419 shares held of record by Arthur L. Cahoon, 125,000
shares held of record by Pam Fitch as Trustee of the Arthur Logan Cahoon
Grantor Retained Annuity Trust dated May 29, 1998 and 580,082 shares
subject to immediately exercisable warrants held of record by Mr. Cahoon.
(9) The address of Mr. Jarvis is 3401 N. California Street, Chicago, IL 60618.
(10) Represents 520,000 shares held of record by The Zarley Family Trust dated
as of May 1, 1994, 74,075 shares held of record by Mr. Zarley and 31,000
shares held of record by Quantech Investment Co., which was founded by Mr.
Zarley.
(11) Represents shares held of record by David S. Buzby and Susheela D. Vasan,
Trustees of the Buzby-Vasan 1997 Trust. See "Certain Transactions."
(12) Represents 260,000 shares and 50,000 shares subject to a warrant held of
record by BI Partners, LLC, of which Mr. Barry is the founder and manager.
See "Certain Transactions."
(13) Represents 253,333 shares held of record by Mr. Tomasi and 5,000 shares
held of record by Mr. Tomasi's children. See "Management--Employment
Agreements and Change in Control Arrangements."
(14) Includes the shares subject to warrants that are identified in footnotes
(8) and (12).
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 60,000,000 shares of
Common Stock, $0.001 par value per share, and 10,000,000 shares of Preferred
Stock, $0.001 par value per share. As of June 30, 1998, there were outstanding
17,878,911 shares of Common Stock held of record by 155 stockholders, warrants
to purchase 1,557,558 shares of Common Stock and options to purchase 722,413
shares of Common Stock.
COMMON STOCK
Subject to preferences that may apply to shares of Preferred Stock
outstanding at the time, the holders of outstanding shares of Common Stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the Board of Directors may from time to time
determine. Each stockholder is entitled to one vote for each share of Common
Stock held on all matters submitted to a vote of stockholders. Cumulative
voting for the election of directors is not provided for in the Company's
Certificate of Incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election. The
Common Stock is not entitled to preemptive rights and is not subject to
conversion or redemption. Upon a liquidation, dissolution or winding-up of the
Company, the assets legally available for distribution to stockholders are
distributable ratably among the holders of the Common Stock and any
participating Preferred Stock outstanding at that time after payment of
liquidation preferences, if any, on any outstanding Preferred Stock and payment
of other claims of creditors. Each outstanding share of Common Stock is, and
all shares of Common Stock to be outstanding upon completion of this offering
will be, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, subject to limitations prescribed by
Delaware law, to provide for the issuance of additional shares of Preferred
Stock in one or more series, to establish from time to time the number of
shares to be included in each such series, to fix the powers, designations,
preferences and rights of the shares of each wholly unissued series and
designate any qualifications, limitations or restrictions thereon and to
increase or decrease the number of shares of any such series (but not below the
number of shares of such series then outstanding) without any further vote or
action by the stockholders. The issuance of Preferred Stock with voting or
conversion rights could adversely affect the voting power or other rights of
the holders of Common Stock and may have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no current plan
to issue any shares of Preferred Stock.
WARRANTS
As of June 30, 1998, the Company had outstanding warrants to purchase
1,557,558 shares of Common Stock at a weighted average per share exercise price
of $5.38. These warrants will expire in 2001 and 2002. See "Certain
Transactions."
ANTI-TAKEOVER PROVISIONS
Delaware Law
Section 203 ("Section 203") of the Delaware General Corporation Law is
applicable to corporate takeovers of Delaware corporations. Subject to certain
exceptions set forth therein, Section 203 provides that a corporation shall not
engage in any business combination with any "interested stockholder" for a
three-year period following the date that such stockholder becomes an
interested stockholder unless (a) prior to such date, the board of directors of
the corporation approved either the business combination or the transaction
that resulted in the stockholder's becoming an interested stockholder,
58
<PAGE>
(b) upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding certain shares) or (c) on or subsequent to
such date, the business combination is approved by the board of directors of
the corporation and by the affirmative votes of at least two-thirds of the
outstanding voting stock that is not owned by the interested stockholder.
Except as specified in Section 203, an interested stockholder is generally
defined to include any person that is the owner of 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within three years immediately prior to
the relevant date, and the affiliates and associates of such person. Under
certain circumstances, Section 203 makes it more difficult for an interested
stockholder to effect various business combinations with a corporation for a
three-year period, although the stockholders may, by adopting an amendment to
the corporation's certificate of incorporation or bylaws, elect not to be
governed by Section 203, effective 12 months after adoption. The Company's
Certificate of Incorporation and Bylaws do not exclude the Company from Section
203. It is anticipated that the provisions of Section 203 may encourage
companies interested in acquiring the Company to negotiate in advance with the
Board since the stockholder approval requirement would be avoided if a majority
of the directors then in office approve either the business combination or the
transaction that resulted in the stockholder's becoming an interested
stockholder. These provisions may have the effect of deterring hostile
takeovers or delaying changes in control of the Company, which could depress
the market price of the Common Stock and which could deprive the stockholders
of opportunities to realize a premium on shares of the Common Stock held by
them.
Charter and Bylaw Provisions
The Company's Certificate of Incorporation and Bylaws contain certain
provisions that could discourage potential takeover attempts and make more
difficult attempts by stockholders to change management. The Company's
Certificate of Incorporation provides that stockholders may not take action by
written consent but may only act at a stockholders' meeting, and that special
meetings of the stockholders of the Company may only be called by the Chairman
of the Board or a majority of the Board. These provisions are designed to
reduce the vulnerability of the Company to an unsolicited acquisition proposal
and to render the use of stockholder written consent unavailable as a tactic in
a proxy fight. However, such provision could have the effect of discouraging
others from making tender offers for the Company's shares, thereby inhibiting
increases in the market price of the Company's shares that could result from
actual or rumored takeover attempts. Such provision also may have the effect of
preventing changes in the management of the Company.
REGISTRATION RIGHTS
Following this Offering, the holders of approximately 2,657,558 shares of
Common Stock (issued upon conversion of Preferred Stock or issuable upon the
exercise of warrants) and their permitted transferees are entitled to certain
rights with respect to the registration of such shares ("Registrable
Securities") under the Securities Act. All such registration rights are subject
to certain conditions and limitations, including the right of the underwriters
of an offering to limit the number of shares to be included in such
registration.
Under the terms of agreements between Hiway Florida and certain individuals
and entities (the "Hiway Holders") holding warrants to purchase approximately
1,407,558 shares of Common Stock (the "Hiway Securities"), if the Company
proposes to register any of its securities under the Securities Act, either for
its own account or for the account of other security holders exercising
registration rights, the Hiway Holders are entitled to notice of such
registration and are entitled to include shares of such Common Stock therein.
At any time after the first anniversary date of the effectiveness of the
registration
59
<PAGE>
of the Company's Common Stock under the Exchange Act, the Hiway Holders may
require the Company, on one occasion, to register all or a portion of their
Registrable Securities on Form S-3 (or any successor form). If a Hiway Holder
is able to sell his Hiway Securities under Rule 144 in a three-month period,
the rights of that Hiway Holder to request inclusion in any Company
registration terminate.
Under the terms of an agreement between Best and Robert D. Leppo, an 8.5%
stockholder of the Company (the "Best Preferred Holder"), who holds
approximately 1,100,000 shares of Common Stock (the "Best Preferred
Securities") issued upon conversion of Preferred Stock, the Best Preferred
Holder is entitled to certain registration rights. If the Company proposes to
register any of its securities under the Securities Act, either for its own
account or for the account of other security holders exercising registration
rights, other than the Company's initial public offering, the Best Preferred
Holder is entitled to notice of such registration and is entitled to include
shares of such Common Stock therein. Further, the Best Preferred Holder may
require the Company to maintain the effectiveness of such registration for
approximately 180 days. The right of the Best Preferred Holder to request
inclusion in such registration will terminate upon the earlier of (i) three
years following this offering or (ii) such time that the Best Preferred Holder
holds less than 2% of the outstanding stock of the Company.
Under the terms of agreements between Best and the holders (the "Best Warrant
Holders") of warrants to purchase approximately 150,000 shares of Common Stock
(the "Best Warrant Securities"), if the Company proposes to register any of its
securities under the Securities Act (other than registrations related solely to
employee benefit plans or Rule 145 under the Securities Act), either for its
own account or for the account of other security holders exercising
registration rights, other than the Company's initial public offering, the Best
Warrant Holders are entitled to notice of such registration and are entitled to
include shares of such Common Stock therein. In the event the registration
represents at least two million shares, the Best Warrant Holders may request
inclusion of 50% of the Best Warrant Securities. In the event the registration
represents fewer than two million shares, the Best Warrant Holders may request
inclusion of the lesser of 50% of the Best Warrant Securities or 10% of the
total number of shares registered. If, at any time on or after the closing of
this offering, all shares of Best Warrant Securities may immediately be sold
under Rule 144 (or any other applicable exemption that allows for resale free
of registration) during any three-month period, the right of Best Warrant
Holders to request inclusion in such registration will terminate.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is
ChaseMellon Shareholder Services, L.L.C. Its telephone number is (800) 777-
3694.
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company, and a significant public market for the Common Stock may not develop
or be sustained after this offering. Future sales of substantial amounts of
Common Stock (including shares issued upon exercise of outstanding warrants
and options) in the public market after this offering could adversely affect
market prices prevailing from time to time and could impair the Company's
ability to raise capital through sale of its equity securities. As described
below, no shares currently outstanding will be available for sale immediately
after this offering due to certain contractual restrictions on resale that
arise pursuant to arrangements entered into prior to the Merger. Sales of
substantial amounts of Common Stock of the Company in the public market after
the restrictions lapse could adversely affect the prevailing market price and
the Company's ability to raise equity capital in the future.
Upon completion of this offering, the Company will have outstanding
21,378,911 shares of Common Stock, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding warrants or options. Of
these shares, the 4,000,000 shares sold in this offering will be freely
tradable without restriction under the Securities Act unless purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act. Of the remaining 17,378,911 shares (the "Restricted Shares"),
an aggregate of 17,235,313 shares held by existing stockholders are subject to
lock-up agreements with the Underwriters providing that, with certain limited
exceptions, the stockholder will not offer, sell, contract to sell, grant an
option to purchase, make a short sale or otherwise dispose of or engage in any
hedging or other transaction that is designed or reasonably expected to lead
to a disposition of any shares of Common Stock or any option or warrant to
purchase shares of Common Stock or any securities exchangeable for or
convertible into shares of Common Stock for a period of 180 days after the
date of this Prospectus. An additional 20,000 and 1,948 shares held by
existing stockholders are subject to lock-up agreements with the Company
providing that, with certain limited exceptions, the stockholder will not
offer, sell, contract to sell, grant an option to purchase, make a short sale
or otherwise dispose of or engage in any hedging or other transaction that is
designed or reasonably expected to lead to a disposition of any shares of
Common Stock or any option or warrant to purchase shares of Common Stock or
any securities exchangeable for or convertible into shares of Common Stock for
a period of 120 days or 180 days, respectively, after the date of this
Prospectus. As a result of the contractual restrictions described above and
the provisions of Rule 144 and 701, the Restricted Shares will be available
for sale in the public market as follows: (i) 121,650 shares will be eligible
for immediate sale on the date of this Prospectus; (ii) 20,000 shares will be
eligible for sale upon expiration of lock-up agreements 120 days after the
date of this Prospectus; (iii) 10,331,021 shares will be eligible for the sale
upon expiration of the lock-up agreements 180 days after the date of this
Prospectus, subject in most instances to the volume limitations of Rule 144;
and (iv) of the remaining shares, 100,000 shares will become eligible for sale
on March 27, 1999, 50,000 shares will become eligible for sale on April 26,
1999, 2,500 shares will become eligible for sale on each of May 5, 1999, and
May 9, 1999, and 6,800,114 shares will become eligible for sale on May 27,
1999, subject to the volume limitations of Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an affiliate) would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of: (i) 1% of the number of shares of Common Stock then
outstanding (which will equal approximately 214,000 shares immediately after
this offering); or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed
to have been an affiliate of the Company at any time during the three months
preceding a sale,
61
<PAGE>
and who has beneficially owned the shares proposed to be sold for at least two
years (including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period requirement,
of Rule 144. Any employee, officer or director of or consultant to the Company
who purchased his or her shares pursuant to a written compensatory plan or
contract may be entitled to rely on the resale provisions of Rule 701. Rule 701
permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144. All holders of Rule 701 shares are
required to wait until 90 days after the date of this Prospectus before selling
such shares.
Immediately after this offering, the Company intends to file a registration
statement under the Securities Act covering shares of Common Stock subject to
outstanding options under the 1995 Plan, the 1996 Plan, the Hiway Florida Plan
and the 1998 Plan and reserved for issuance under the 1998 Plan, the Directors
Plan and the Purchase Plan, as well as certain shares of Common Stock subject
to outstanding warrants granted outside of such plans. Based on the number of
shares subject to outstanding options and warrants at June 30, 1998 and
currently reserved for issuance under all such plans, such registration
statement would cover approximately 3,820,670 shares. Such registration
statement will automatically become effective upon filing. Accordingly, shares
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to affiliates of the Company, be available for sale in
the open market immediately after the 180-day lock-up agreements expire. In
addition, the holders of 1,100,000 Restricted Shares and warrants to purchase
1,557,558 shares of Common Stock are entitled to certain rights with respect to
registration of such shares for sale in the public market. See "Description of
Capital Stock--Registration Rights."
62
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
BT Alex. Brown Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation and Bear, Stearns & Co. Inc., have severally agreed to purchase
from the Company the following respective numbers of 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:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
BT Alex. Brown Incorporated....................................
Donaldson, Lufkin & Jenrette Securities Corporation............
Bear, Stearns & Co. Inc........................................
---------
Total........................................................ 4,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares
are purchased.
The Company has been advised by the Representatives of the Underwriters that
the Underwriters propose to offer the shares of Common Stock to the public at
the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession of not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other dealers.
After the initial public offering, the offering price and other selling terms
may be changed by the Representatives of the Underwriters.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 600,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the above table bears to 4,000,000, and the Company
will be obligated, pursuant to the option, to sell such shares to the
Underwriters. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of Common Stock offered hereby. If
purchased, the Underwriters will offer such additional shares on the same
terms as those on which the 4,000,000 shares of Common Stock offered hereby
are being offered.
Subject to applicable limitations, the Underwriters, in connection with this
offering, may place bids for or make purchases of the Common Stock in the open
market or otherwise, for long or short account or cover short positions
incurred, to stabilize, maintain or otherwise affect the price of the Common
Stock, which may be higher than the price that might otherwise prevail in the
open market. There can be no assurance that the price of the Common Stock will
be stabilized, or that stabilizing, if commenced, will not be discontinued at
any time.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act.
63
<PAGE>
The Company has agreed that until 180 days after the date of this Prospectus,
it will not, without the prior written consent of BT Alex. Brown Incorporated,
sell, offer to sell, issue, distribute or otherwise dispose of any shares of
Common Stock or any options, rights or warrants with respect to any Common
Stock or register for sale under the Securities Act any Common Stock, except
for options or shares issued pursuant to securities granted or issued under the
1995 Plan, the 1996 Plan, the 1998 Plan, the Directors Plan or the Purchase
Plan. See "Shares Eligible for Future Sale."
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Prior to the offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined through negotiations between the Company and the
Representatives of the Underwriters. Among the factors to be considered in such
negotiations are the prevailing market conditions, the price earnings ratios of
publicly traded companies that the Company and the Representatives of the
Underwriters believe to be comparable to the Company, revenues and earnings of
the Company in recent periods, estimates of the business potential of the
Company, the present state of the Company's business operations and other
factors deemed relevant.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Fenwick & West LLP, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Venture Law Group, A Professional
Corporation, Menlo Park, California.
EXPERTS
The consolidated financial statements included in this Prospectus, except as
they relate to the financial statements of Hiway Florida as of December 31,
1996, for the period from April 6, 1995 (date of inception) to December 31,
1995 and for the year ended December 31, 1996, have been audited by
PricewaterhouseCoopers LLP, independent accountants, and, insofar as they
relate to the financial statements of Hiway Florida as of and for the periods
so indicated, by De Meo, Young, McGrath & Company, P.A., independent
accountants, whose reports thereon appear herein. Such financial statements
have been so included in reliance on the reports of such independent
accountants given on the authority of said firms as experts in auditing and
accounting.
CHANGE IN INDEPENDENT ACCOUNTANTS
Effective January 20, 1998, Hiway Florida selected PricewaterhouseCoopers LLP
as its principal auditors to replace De Meo, Young, McGrath & Company, P.A.,
who were dismissed as auditors of Hiway Florida on that date. The decision to
change independent accountants was approved by the Hiway Florida Board of
Directors and was made to facilitate the combination of the financial
statements of Hiway Florida and Best because PricewaterhouseCoopers LLP were
Best's independent accountants. The reports on the audits of Hiway Florida for
the period from April 6, 1995 (date of inception) to December 31, 1995 and for
the year ended December 31, 1996 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. In connection with the audits of Hiway
Florida for the period from April 6, 1995 (date of inception) to December 31,
1995 and for the year ended December 31, 1996 and during the period from
January 1, 1997 to January 20, 1998, there were no disagreements with De Meo,
Young, McGrath & Company, P.A., on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedures that,
if not resolved to the satisfaction of De Meo, Young, McGrath & Company, P.A.,
would have caused them to make reference to the matter in their report.
64
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act
with respect to the shares of Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedule thereto. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedule thereto. Statements
contained in this Prospectus regarding the contents of any contract or any
other document to which reference is made are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. A copy of the Registration
Statement and the exhibits and schedule thereto may be inspected without charge
at the offices of the Commission at Judiciary Plaza, 450 Fifth Street,
Washington, D.C. 20549, and copies of all or any part of the Registration
Statement may be obtained from the Public Reference Section of the Commission,
Washington, D.C. 20549 upon the payment of the fees prescribed by the
Commission. The Commission maintains a Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission. Information concerning the Company is also available for inspection
at the offices of the Nasdaq National Market, Reports Section, 1735 K Street,
N.W., Washington, D.C. 20006.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by its independent accountants and to make
available to its stockholders quarterly reports containing unaudited financial
data for the first three quarters of each fiscal year.
65
<PAGE>
HIWAY TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of
PricewaterhouseCoopers
LLP, Independent
Accountants............ F-2
Report of De Meo, Young,
McGrath & Company,
P.A., Independent
Accountants............ F-3
Consolidated Balance
Sheets................. F-4
Consolidated Statements
of Operations.......... F-5
Consolidated Statements
of Stockholders'
Equity................. F-6
Consolidated Statements
of Cash Flows.......... F-7
Notes to Consolidated
Financial Statements... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Hiway Technologies, Inc.
In our opinion, based on our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated
statements of operations, stockholders' equity, and cash flows present fairly,
in all material respects, the financial position of Hiway Technologies, Inc.
and its subsidiaries at December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, 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 and the report of other auditors
provide a reasonable basis for the opinion expressed above. We did not audit
the financial statements of Hiway Technologies, Inc. (Hiway Florida) for 1995
and 1996, which statements reflect total assets of $2,150,000 at December 31,
1996 and revenues of $2,700,000 and $10,400,000, respectively, for the years
ended 1995 and 1996. Those statements were audited by other auditors whose
unqualified reports have been furnished to us and our opinion, insofar as it
relates to amounts included for Hiway Florida for such periods, is based solely
on the report of the other auditors.
San Jose, California
May 27, 1998
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholders
Hiway Technologies, Inc.
The consolidated financial statements included herein have been adjusted to
give effect to the one-for-two reverse stock split and the reincorporation of
the Company in Delaware as described more fully in Note 20 to the financial
statements. The above report is in the form that will be signed by
PricewaterhouseCoopers LLP upon the effectiveness of such stock split and
reincorporation assuming that, from May 27, 1998 to the effective date of such
reincorporation, no other events shall have occurred that would affect the
accompanying consolidated financial statements or notes thereto.
PricewaterhouseCoopers LLP
San Jose, California
May 27, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of Hiway Technologies, Inc.
Boca Raton, Florida
We have audited the accompanying balance sheet of Hiway Technologies, Inc. as
of December 31, 1996 and the related statements of income, retained earnings
and cash flows for the period from April 6, 1995 (date of inception) to
December 31, 1995 and the year ended December 31, 1996. These financial
statements are the responsibility of Hiway Technologies, Inc.'s management. Our
responsibility is to express an opinion on the financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hiway Technologies, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
period from April 6, 1995 (date of inception) to December 31, 1995 and for the
year ended December 31, 1996, in conformity with generally accepted accounting
principles.
De meo, Young, McGrath & Company,
P.A.
September 17, 1997
Fort Lauderdale, Florida
F-3
<PAGE>
HIWAY TECHNOLOGIES, INC.
(FORMERLY BEST INTERNET COMMUNICATIONS, INC.)
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1996 1997 1998
------ ------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....................... $1,588 $ 5,672 $ 5,088
Accounts receivable, net of allowance for
doubtful accounts of $373, $1,072 and $940,
respectively................................... 1,380 2,550 3,352
Note receivable................................. -- 160 160
Inventory--equipment held for resale............ 71 35 22
Prepaid expenses and other current assets....... 237 297 363
Deferred taxes.................................. -- 342 660
------ ------- -------
Total current assets.......................... 3,276 9,056 9,645
Property and equipment, net...................... 4,813 8,706 13,126
Deposits and other............................... 68 196 694
Investments...................................... -- 344 333
Intangible assets, net of accumulated
amortization of $101, $318 and $424,
respectively.................................... 1,382 1,165 1,065
------ ------- -------
Total assets.................................. $9,539 $19,467 $24,863
====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................ $1,165 $ 1,234 $ 1,688
Accrued payroll and related liabilities......... 265 458 851
Other accrued liabilities....................... 201 141 600
Deferred revenue................................ 981 2,578 3,851
Current portion of notes payable................ 140 225 93
Current portion of capital lease obligations.... 135 251 305
------ ------- -------
Total current liabilities..................... 2,887 4,887 $ 7,388
Deferred rent.................................... 105 119 400
Deferred taxes................................... -- 307 354
Notes payable, less current portion.............. 541 4,944 4,889
Capital lease obligations, less current portion.. 237 253 300
Convertible note payable......................... 800 -- --
------ ------- -------
Total liabilities............................. 4,570 10,510 13,331
------ ------- -------
Commitments (Note 8)
STOCKHOLDERS' EQUITY:
Preferred stock, convertible and redeemable,
$0.001 par value per share:
Authorized: 10,000,000 shares;
Series B:
Authorized: 4,000,000 shares;
Issued and outstanding: 2,822,000, 3,462,000
and no shares, respectively................. 3,441 4,229 --
Liquidation preference: $3,528, $4,328 and
$0, respectively
Common stock, $0.001 par value per share:
Authorized: 60,000,000 shares;
Issued and outstanding: 13,888,310, 15,560,119
and 17,878,911 shares, respectively.......... 14 16 18
Additional paid-in capital...................... 1,526 4,152 9,423
Notes receivable from stockholders.............. -- (889) (1,358)
Retained earnings (accumulated deficit)......... (12) 1,449 3,449
------ ------- -------
Total stockholders' equity.................. 4,969 8,957 11,532
------ ------- -------
Total liabilities and stockholders' equity. $9,539 $19,467 $24,863
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
HIWAY TECHNOLOGIES, INC.
(FORMERLY BEST INTERNET COMMUNICATIONS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
------------------------ ----------------------
1995 1996 1997 1997 1998
------ ------- ------- ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues..................... $2,011 $12,217 $26,185 $11,535 $18,510
------ ------- ------- ------- -------
Operating costs and expenses:
Cost of revenues........... 231 3,233 7,213 3,366 5,288
Sales and marketing........ 154 2,555 3,589 1,382 2,761
Product development and
systems engineering....... 97 1,005 2,112 838 1,356
General and administrative. 2,068 4,641 8,400 3,393 6,440
------ ------- ------- ------- -------
Total operating costs and
expenses................ 2,550 11,434 21,314 8,979 15,845
------ ------- ------- ------- -------
Income (loss) from
operations.................. (539) 783 4,871 2,556 2,665
Other income (expense)....... (7) -- 67 30 (387)
Interest expense, net........ (4) (118) (142) (39) (179)
------ ------- ------- ------- -------
Income (loss) before
provision for income taxes.. (550) 665 4,796 2,547 2,099
Provision for income taxes... 1 1 361 194 99
------ ------- ------- ------- -------
Net income (loss)............ $ (551) $ 664 $ 4,435 $ 2,353 $ 2,000
====== ======= ======= ======= =======
Basic net income (loss) per
share..................... $(0.07) $ 0.05 $ 0.30 $ 0.16 $ 0.12
====== ======= ======= ======= =======
Diluted net income (loss)
per share................. $(0.07) $ 0.05 $ 0.25 $ 0.14 $ 0.11
====== ======= ======= ======= =======
Pro forma net income data
(unaudited) (Note 17):
Income (loss) before
provision for income
taxes..................... $ (550) $ 665 $ 4,796 $ 2,547 $ 2,099
Pro forma provision for
income taxes.............. 1 33 1,925 1,016 843
------ ------- ------- ------- -------
Pro forma net income
(loss).................. $ (551) $ 632 $ 2,871 $ 1,531 $ 1,256
====== ======= ======= ======= =======
Pro forma basic net income
(loss) per share.......... $(0.07) $ 0.05 $ 0.19 $ 0.10 $ 0.08
====== ======= ======= ======= =======
Pro forma diluted net
income (loss) per share... $(0.07) $ 0.04 $ 0.17 $ 0.09 $ 0.07
====== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
HIWAY TECHNOLOGIES, INC.
(FORMERLY BEST INTERNET COMMUNICATIONS, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1997 AND SIX MONTHS ENDED JUNE 30, 1998
(in thousands, except share amounts)
<TABLE>
<CAPTION>
SERIES B NOTES RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE EARNINGS TOTAL
------------------- ------------------ PAID-IN FROM (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS DEFICIT) EQUITY
---------- ------- ---------- ------ ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1,
1995................... -- $ -- -- $-- $ -- $ -- $ -- $ --
Issuance of common stock
for cash, net of
issuance costs of $7... -- -- 11,311,065 11 1,001 -- -- 1,012
Issuance of common stock
for services rendered.. -- -- 255,000 1 25 -- -- 26
Net loss................ -- -- -- -- -- -- (551) (551)
---------- ------- ---------- --- ------ ------- ------- -------
BALANCES, DECEMBER 31,
1995................... -- -- 11,566,065 12 1,026 -- (551) 487
Issuance of common stock
and exercise of stock
options for cash, net
of issuance costs of
$3..................... -- -- 2,254,737 2 433 -- -- 435
Issuance of common stock
for acquisitions....... -- -- 67,500 -- 67 -- -- 67
Issuance of preferred
stock for cash, net of
issuance costs of $86.. 2,822,000 3,441 -- -- -- -- -- 3,441
Net income.............. -- -- -- -- -- -- 664 664
Distributions by Hiway
Florida (a Subchapter S
corporation)........... -- -- -- -- -- -- (125) (125)
---------- ------- ---------- --- ------ ------- ------- -------
BALANCES, DECEMBER 31,
1996................... 2,822,000 3,441 13,883,302 14 1,526 -- (12) 4,969
Issuance of common stock
and exercise of stock
options for cash....... -- -- 1,139,750 1 545 -- -- 546
Issuance of common stock
and exercise of stock
options for notes...... -- -- 542,057 1 608 (609) -- --
Repurchase of common
stock.................. -- -- (10,000) -- (40) -- -- (40)
Issuance of warrants for
note................... -- -- -- -- 280 (280) -- --
Issuance of warrant..... -- -- -- -- 1,233 -- -- 1,233
Issuance of preferred
stock for cash, net of
issuance costs of $12.. 640,000 788 -- -- -- -- -- 788
Net income.............. -- -- -- -- -- -- 4,435 4,435
Distributions by Hiway
Florida (a Subchapter S
corporation)........... -- -- -- -- -- -- (2,974) (2,974)
---------- ------- ---------- --- ------ ------- ------- -------
BALANCES, DECEMBER 31,
1997................... 3,462,000 4,229 15,560,109 16 4,152 (889) 1,449 8,957
Exercise of stock
options for cash....... -- -- 277,446 -- 395 -- -- 395
Exercise of stock
options for notes...... -- -- 310,356 1 468 (469) -- --
Conversion of preferred
stock.................. (3,462,000) (4,229) 1,731,000 1 4,228 -- -- --
Contribution from
stockholders........... -- -- -- -- 180 -- -- 180
Net income.............. -- -- -- -- -- -- 2,000 2,000
---------- ------- ---------- --- ------ ------- ------- -------
BALANCES, JUNE 30, 1998
(unaudited)............ -- $ -- 17,878,911 $18 $9,423 $(1,358) $ 3,449 $11,532
========== ======= ========== === ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
HIWAY TECHNOLOGIES, INC.
(FORMERLY BEST INTERNET COMMUNICATIONS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- -----------------------
1995 1996 1997 1997 1998
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss).......... $ (551) $ 664 $ 4,435 $ 2,353 $ 2,000
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities:
Depreciation and
amortization.............. 87 608 1,371 523 916
Amortization of
intangibles............... -- 101 217 111 106
Services rendered in
exchange for common
stock..................... 26 -- -- -- --
Provision for doubtful
accounts.................. 8 365 699 152 689
Loss on sale of property
and equipment............. -- 39 2 -- (3)
Equity in earnings of
foreign resellers......... -- -- -- -- (13)
Amortization of discount
on convertible debt....... -- -- -- -- 150
Deferred taxes............. -- -- (35) -- (443)
Changes in operating
assets and liabilities:
Accounts receivable....... (92) (1,660) (1,869) (579) (1,492)
Inventory................. (30) (41) 36 10 13
Prepaid expenses and
other current assets..... (4) (233) (60) (80) (66)
Deposits.................. (34) (15) (128) (85) (504)
Accounts payable.......... 360 804 69 59 453
Accrued liabilities....... 150 316 133 323 1,024
Deferred revenue.......... 115 866 1,597 854 1,273
Deferred rent............. 57 48 14 6 281
------- ------- ------- ------- -------
Net cash provided by
operating activities.... 92 1,862 6,481 3,647 4,384
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of
property and equipment.... -- 47 7 -- 2
Purchases of property and
equipment................. (1,047) (3,491) (4,955) (2,003) (5,137)
Issuance of note
receivable................ -- -- (160) -- --
Purchase of investments.... -- -- (344) -- (26)
Acquisitions............... -- (1,312) -- -- --
------- ------- ------- ------- -------
Net cash used in investing
activities................ (1,047) (4,756) (5,452) (2,003) (5,161)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
common stock.............. 1,012 422 500 500 --
Proceeds from exercise of
stock options............. -- 13 46 9 395
Proceeds from issuance of
preferred stock........... -- 3,441 788 788 --
Repurchase of common stock. -- -- (40) -- --
Proceeds from (repayment
of) convertible notes..... -- 800 (800) (800) --
Proceeds from notes
payable................... -- 43 5,912 -- --
Principal payments on notes
payable................... -- (79) (190) (77) (285)
Proceeds from stockholder
loans..................... 9 -- -- -- --
Repayment of stockholder
loans..................... (8) (21) -- -- --
Loans to stockholder....... -- -- -- (250) --
Principal payment on
capital lease obligations. (3) (67) (187) (76) (97)
Distributions to
stockholders.............. -- (125) (2,974) (1,219) --
Contribution from
stockholders.............. -- -- -- -- 180
------- ------- ------- ------- -------
Net cash provided by (used
in) financing activities.. 1,010 4,427 3,055 (1,125) 193
------- ------- ------- ------- -------
Net increase (decrease) in
cash and cash equivalents.. 55 1,533 4,084 519 (584)
Cash and cash equivalents,
beginning of period........ -- 55 1,588 1,588 5,672
------- ------- ------- ------- -------
Cash and cash equivalents,
end of period.............. $ 55 $ 1,588 $ 5,672 $ 2,107 $ 5,088
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
HIWAY TECHNOLOGIES, INC.
(FORMERLY BEST INTERNET COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30,
1997 AND 1998 IS UNAUDITED)
(in thousands, except for share and per share amounts)
1. COMPANY BACKGROUND
Hiway Technologies, Inc. (the Company), formerly Best Internet
Communications, Inc. (Best), was incorporated in California on September 21,
1994. Activity from September 21, 1994 (date of inception) to December 31, 1994
resulted in revenues of $20 and a net loss of $46, which have been included in
the results for the year ended December 31, 1995. On May 27, 1998, Best merged
with Hiway Technologies, Inc. (Hiway Florida), a company based in Florida, and
will change its name to Hiway Technologies, Inc. in July 1998. Hiway Florida
was formed on April 6, 1995 and operated as a Subchapter S corporation.
The Company is a leading global provider of Web hosting and related enhanced
Internet services to small and medium sized businesses. The Company focuses on
delivering high-quality, reliable and flexible services that are backed by 24x7
customer support.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
The Company has minority investments in certain of its foreign resellers. The
activities of these entities are not significant.
Management Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents:
The Company considers all highly liquid investments purchased with original
maturities of three months or less, and short-term borrowings from banks and
other financial institutions which are due on demand to be cash equivalents.
These instruments are stated at cost, which approximates fair value.
Fair Value of Financial Instruments:
Carrying amounts of certain financial instruments held by the Company
including cash and cash equivalents, accounts receivable, accounts payable and
other accrued liabilities approximate fair value due to their short maturities.
Based on borrowing rates currently available to the Company for loans with
similar terms, the carrying value of the notes payable and capital lease
obligations approximates fair value.
Inventory:
Inventory is stated at the lower of cost (determined on a first-in, first-out
basis) or market, and consists primarily of third party equipment for resale.
F-8
<PAGE>
HIWAY TECHNOLOGIES, INC.
(FORMERLY BEST INTERNET COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30,
1997 AND 1998 IS UNAUDITED)
(in thousands, except for share and per share amounts)
Property and Equipment:
Property and equipment is stated at cost and is depreciated on a straight
line basis over their estimated useful lives of five to seven years. Leasehold
improvements are amortized over the length of the lease or estimated useful
life, whichever is less. Major additions and betterments are capitalized, while
replacements, maintenance, and repairs that do not improve or extend the life
of the assets are charged to expense. In the period assets are retired or
otherwise disposed of, the costs and related accumulated depreciation and
amortization are removed from the accounts, and any gain or loss on disposal is
included in results of operations.
Intangible Assets:
Intangible assets consist of goodwill which arose from the acquisition of two
Internet service providers in 1996 (see Note 4) and is being amortized on a
straight-line basis over seven years. The Company reviews the carrying value of
goodwill for impairment whenever events or changes in circumstance indicate
that the carrying amount may not be recoverable.
Revenue Recognition:
Revenues consist primarily of Web hosting and Internet service fees, set-up
fees and equipment sales. The Company generally sells its Web hosting services
for contractual periods ranging from one to three months. Revenues from these
services are recognized ratably over the contractual period. Internet service
fees consist of fixed monthly amounts that are recognized as the service is
provided. Payments received in advance of providing services are deferred until
the period such services are provided. Set-up fees and equipment sales are
recognized when the set-up services are performed.
Advertising:
The Company charges advertising costs to expense as they are incurred.
Advertising expense for the years ended December 31, 1995, 1996 and 1997 was
$113, $988 and $1,353, respectively.
Product Development:
Product development expenses are charged to operations as incurred.
Income Taxes:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." Under SFAS 109, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases 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 affect taxable income. Valuation
allowances are established when, in management's estimate, there is uncertainty
over the recovery of deferred tax assets. The provision for income tax is
comprised of taxes payable for the current period, plus the net change in
deferred tax amounts during the period.
Income taxes are recognized in these consolidated financial statements for
the operations of Best which was a C Corporation during all periods presented.
Because Hiway Florida was a Subchapter S corporation during all periods
presented, the income taxes for Hiway Florida's operations were the
responsibility of that company's stockholders. Pro forma income tax expenses,
as though both Best and Hiway Florida reported on a combined basis as a C
corporation is disclosed in Note 17.
F-9
<PAGE>
HIWAY TECHNOLOGIES, INC.
(FORMERLY BEST INTERNET COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30,
1997 AND 1998 IS UNAUDITED)
(in thousands, except for share and per share amounts)
Unaudited Interim Financial Information:
The accompanying interim balance sheet as of June 30, 1998 and the statements
of operations and cash flows for the six months ended June 30, 1997 and 1998
together with the related notes are unaudited but include all adjustments,
consisting of only normal recurring adjustments, which the Company considers
necessary to present fairly, in all material respects, the financial position,
as of June 30, 1998 and the results of operations and cash flows for the six
months ended June 30, 1997 and 1998. Results for the six months ended June 30,
1997 and 1998 are not necessarily indicative of results for an entire year.
Recent Accounting Pronouncements:
In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information," which is
effective for the year ending December 31, 1998.
In March 1998, the AICPA issued Statement of Position (SOP) 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use." The
Company is reviewing the impact of SOP 98-1, which will be effective for the
year ending December 31, 1999.
3. BUSINESS RISKS AND CREDIT CONCENTRATION
The Company operates in the intensely competitive Internet industry which is
characterized by rapid technological change, short product life cycles, and
heightened competition. Significant technological changes in the industry could
affect operating results adversely.
Financial instruments that potentially subject the Company to concentrations
of credit risk comprise principally cash and cash equivalents, trade accounts
receivable, and other receivables and deposits. As of December 31, 1997, the
Company's cash and cash equivalents are deposited with numerous domestic
financial institutions. With respect to accounts receivable, the Company's
customer base is dispersed across many different geographic areas. The Company
monitors customers' payment history and establishes reserves for bad debt as
warranted. In addition to individual customers, the Company also provides Web
hosting services to resellers who in turn provide services to their own
customers.
4. MERGERS AND ACQUISITIONS
Merger with Hiway Florida:
On May 27, 1998, the Company merged with Hiway Florida, a provider of Web
hosting services. Under the terms of the merger agreement, each share of Hiway
Florida common stock was exchanged for 2.0687 shares of the Company's common
stock. The Company issued approximately 10.9 million shares of common stock in
exchange for all the outstanding shares of Hiway Florida. The Company also
assumed and exchanged all options and warrants to purchase Hiway Florida stock
for options and warrants to purchase approximately 1.5 million shares of the
Company's common stock. The transaction was accounted for as a pooling of
interest and accordingly the Company's financial statements have been restated
to include the results of Hiway Florida for all periods presented.
F-10
<PAGE>
HIWAY TECHNOLOGIES, INC.
(FORMERLY BEST INTERNET COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30,
1997 AND 1998 IS UNAUDITED)
(in thousands, except for share and per share amounts)
Separate and combined results of operations for the periods prior to the
merger are as follows:
<TABLE>
<CAPTION>
SIX
YEAR ENDED DECEMBER MONTHS
31, ENDED
------------------------ JUNE 30,
1995 1996 1997 1998
------ ------- ------- --------
<S> <C> <C> <C> <C>
Revenues:
Best.................................... $1,965 $ 9,517 $15,785 $ 9,333
Hiway Florida........................... 46 2,700 10,400 9,177
------ ------- ------- -------
Combined................................ $2,011 $12,217 $26,185 $18,510
====== ======= ======= =======
Net income (loss)--historical:
Best.................................... $ (566) $ (474) $ 1,662 $ 365
Hiway Florida........................... 15 1,138 2,773 1,635
------ ------- ------- -------
Combined................................ $ (551) $ 664 $ 4,435 $ 2,000
====== ======= ======= =======
</TABLE>
Other Acquisitions:
In July 1996, the Company acquired certain assets and the ongoing operations
of two Internet service providers for a total of $2,076. The aggregate purchase
price comprised $1,312 in cash, $697 in notes payable to sellers, and 67,500
shares of common stock valued at $67. The purchase price was allocated to the
net tangible assets acquired ($593) and to goodwill ($1,483).
5. NOTE RECEIVABLE
The note receivable is due from one of the Company's partners in a foreign
reseller. The note is uncollateralized, bears interest at the rate of 12% and
is due on demand.
6. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997
------ ------
<S> <C> <C>
Network and computer equipment................................ $4,661 $8,841
Furniture and fixtures........................................ 124 471
Leasehold improvements........................................ 566 1,199
Other......................................................... 148 252
------ ------
5,499 10,763
Less accumulated depreciation and amortization................ 686 2,057
------ ------
$4,813 $8,706
====== ======
</TABLE>
Included in network and computer equipment are $490 and $776 of equipment
acquired under capital leases at December 31, 1996 and 1997, respectively.
Accumulated amortization related to such capital leases was $40 and $158 at
December 31, 1996 and 1997, respectively. Network and computer equipment also
includes $1,064 of equipment not yet placed in service at December 31, 1997.
F-11
<PAGE>
HIWAY TECHNOLOGIES, INC.
(FORMERLY BEST INTERNET COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30,
1997 AND 1998 IS UNAUDITED)
(in thousands, except for share and per share amounts)
7. CAPITAL LEASE OBLIGATIONS
The Company leases network equipment under several capital leases. The
agreements require the Company to maintain liability and property insurance.
Capital leases at December 31, 1997 expire at various dates through September
2000 and bear interest ranging from 5.8% to 18.5%. Future minimum lease
payments as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998................................................................... $284
1999................................................................... 209
2000................................................................... 58
----
551
Less amount representing interest...................................... 47
----
Present value of minimum lease payments................................ 504
Less current portion................................................... 251
----
$253
====
</TABLE>
8. COMMITMENTS
The Company rents office facilities and equipment under several operating
leases which expire at various times through May 2005. Rent expense charged to
operations was $155, $345 and $670 for the years ended December 31, 1995, 1996,
and 1997, respectively.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998.................................................................. $ 786
1999.................................................................. 861
2000.................................................................. 1,148
2001.................................................................. 1,140
2002.................................................................. 977
Thereafter............................................................ 1,818
------
Total commitments..................................................... $6,730
======
</TABLE>
9. NOTES PAYABLE
Notes payable comprise the following:
<TABLE>
<CAPTION>
DECEMBER
31,
-----------
1996 1997
---- ------
<S> <C> <C>
Seller notes..................................................... $649 $ 475
Bank notes....................................................... 32 927
Senior unsecured notes........................................... -- 3,767
---- ------
681 5,169
Less current portion............................................. 140 225
---- ------
$541 $4,944
==== ======
</TABLE>
F-12
<PAGE>
HIWAY TECHNOLOGIES, INC.
(FORMERLY BEST INTERNET COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30,
1997 AND 1998 IS UNAUDITED)
(in thousands, except for share and per share amounts)
The seller notes bear interest at 8% per annum and are repayable in monthly
equal installments through July 2001. These notes resulted from the
acquisitions made in 1996 (see Note 4).
The bank notes bear interest at 9.75% to 10% per annum and are repayable in
equal monthly installments through October 2001. The bank notes are
collateralized by the Company's assets and require the Company to comply with
certain covenants including a minimum quick ratio, a minimum tangible net
worth, a maximum ratio of total liabilities to tangible net worth, a minimum
monthly subscriber additions to disconnections ratio, and minimum cash
requirements. The Company also has an unused line of credit with this bank in
the amount of $500. The line of credit bears interest at 1% above the bank's
prime rate, and advances are limited to 75% of eligible accounts receivable.
On December 19, 1997, the Company issued $5,000 of 5% Senior Unsecured Notes
(the Notes) with detachable warrants to purchase 827,476 shares of common
stock. The warrants can be exercised for $6.04 per share, at any time after
December 19, 1997. The Notes are uncollateralized and bear interest at 5% from
December 19, 1997 until January 1, 2000 and then bear interest at 9% through
maturity on December 31, 2002. Quarterly payments of interest only are due
beginning March 31, 1998 with the outstanding principal balance due on December
31, 2002. The notes may be prepaid at the option of the Company, subject to
certain conditions, at a premium of ten percent.
In connection with the issuance of the Notes and warrants, the Company
attributed a portion of the proceeds to the warrants, which has been recorded
as additional paid in capital and as a reduction to the face amount of the
Notes, thereby increasing effective interest to 13.895% and increasing interest
expense for the year ended December 31, 1997 to $42. The value of the warrants
was determined by discounting the debt using an assumed interest rate of 12%.
Future payments of the notes payable as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998.................................................................. $ 225
1999.................................................................. 437
2000.................................................................. 448
2001.................................................................. 292
2002.................................................................. 3,767
------
$5,169
======
</TABLE>
10. CONVERTIBLE NOTE
In January 1996, the Company issued two convertible notes in the amounts of
$200,000 and $800,000. In connection with the $200,000 note, the Company issued
a warrant to purchase 50,000 shares of common stock at $1.00 per share to the
noteholder. In connection with the $800,000 note, the Company issued warrants
to purchase 133,333 and 66,666 shares of common stock at $1.00 per share to the
noteholder and the guarantor of the note, respectively.
In July 1996, the Company repaid the $200,000 convertible note. The $800,000
convertible note was repaid in March 1997 and the warrant issued to the
noteholder to purchase 133,333 shares of common stock was replaced by a warrant
to purchase 100,000 shares of common stock at $1.00 per share. In addition, the
warrant held by the guarantor of the note was canceled. The costs related to
the issuance of these warrants were not significant.
F-13
<PAGE>
HIWAY TECHNOLOGIES, INC.
(FORMERLY BEST INTERNET COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30,
1997 AND 1998 IS UNAUDITED)
(in thousands, except for share and per share amounts)
11. NOTES RECEIVABLE FROM STOCKHOLDERS
Notes receivable from stockholders comprise loans made to stockholders in
connection with the exercise of options for the Company's common stock or to
purchase the Company's common stock. The loans are with full recourse and bear
interest at rates from 2% above prime to 8.5%. The loans are due between 1998
to 2000.
The Company also issued a warrant to purchase 580,082 shares of common stock
at $5.56 per share to a stockholder in return for a promissory note in the
amount of $280. The note bears interest at prime and is due in 2000.
12. STOCKHOLDERS' EQUITY
Preferred Stock
In connection with the issuance of convertible promissory notes in 1996, the
Board of Directors designated 500,000 shares of the Serial preferred stock as
Series A preferred stock. As at December 31, 1997, the convertible promissory
notes had been repaid by the Company and there were no conversions into the
Series A preferred stock.
In 1996, the Board of Directors designated 4,000,000 shares of the Serial
preferred stock as Series B preferred stock. These shares were issued and sold
by the Company in July 1996 and March 1997 to independent third party
investors. Effective May 27, 1998, all of the outstanding shares of Series B
preferred stock were converted into 1,731,000 shares of common stock.
Warrants
In 1996 and 1997, the Company issued warrants to purchase common stock to
investors and lenders. At December 31, 1997 such warrants were as follows:
<TABLE>
<CAPTION>
SHARES OF EXERCISE EXPIRATION
COMMON STOCK PRICE DATE PURPOSE OF WARRANT
- ------------ -------- ------------- --------------------------------------------------------
<S> <C> <C> <C>
50,000 $1.00 January 2001 Issued in connection with $200 convertible note
100,000 $1.00 January 2001 Issued in connection with $800 convertible note
580,082 $5.56 December 2000 Issued to stockholder in return for $280 promissory note
827,476 $6.04 December 2002 Issued in connection with $5,000 senior unsecured notes
</TABLE>
13. STOCK OPTION PLANS
Under the Company's 1996 Stock Option Plan, as amended, (the Plan) the
Company could issue incentive options to employees at prices not lower than
fair market value at the date of grant, as determined by the Board of
Directors. Supplemental stock options (options that do not qualify as incentive
stock option) could be granted to employees, directors and consultants, at
prices not lower than 85% of fair market value at the date of grant, as
determined by the Board of Directors. The Board also had the authority to set
the term of the options (no longer than ten years from date of grant). Options
granted generally vest over three to four years. Unexercised options expire at
least 30 days after termination of employment with the Company.
F-14
<PAGE>
HIWAY TECHNOLOGIES, INC.
(FORMERLY BEST INTERNET COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30,
1997 AND 1998 IS UNAUDITED)
(in thousands, except for share and per share amounts)
In April 1998, the Board of Directors and the stockholders approved the
adoption of a 1998 Equity Incentive Plan (the 1998 Plan) which serves as the
successor of the 1996 Stock Option Plan. As amended through July 1998, the
Company has reserved, subject to stockholder approval, a total of 2,000,000
shares of common stock. In June 1998, the Board also adopted the 1998 Directors
Stock Option Plan and reserved a total of 300,000 shares of common stock for
issuance thereunder. The amended and restated 1998 Plan and the 1998 Directors
Stock Option Plan are subject to the stockholders' approval.
Activity under the Plans is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------------------------------
SHARES WEIGHTED
AVAILABLE NUMBER AVERAGE
FOR OF EXERCISE AGGREGATE EXERCISE
GRANT SHARES PRICE PRICE PRICE
---------- --------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Options reserved at Plan
inception.............. 2,000,000
Options granted......... (578,250) 578,250 $0.10-$ 1.00 $ 149,564 $ 0.26
---------- --------- ----------
Balances, December 31,
1995................... 1,421,750 578,250 149,564 $ 0.26
Options granted......... (1,360,750) 1,360,750 $1.00-$ 1.50 1,549,955 $ 1.14
Options exercised....... -- (89,472) $0.10-$ 1.00 (20,012) $ 0.22
Options canceled........ 296,416 (296,416) $0.20-$ 1.00 (214,015) $ 0.72
---------- --------- ----------
Balances, December 31,
1996................... 357,416 1,580,499 1,465,492 $ 0.94
Options granted......... (754,078) 754,078 $0.72-$ 6.00 1,459,085 $ 1.93
Options exercised....... -- (539,993) $0.10-$ 2.50 (444,347) $ 0.82
Options canceled........ 709,665 (709,675) $1.00-$ 2.50 (727,566) $ 1.03
---------- --------- ----------
Balances, December 31,
1997................... 313,003 1,057,522 1,752,664 $ 1.66
Options reserved under
new Plan............... 2,000,000
Cancellation of shares
available for grant
under old Plan......... (289,253)
Options granted......... (305,575) 305,575 $6.00-$12.00 3,496,663 $11.44
Options exercised....... -- (587,802) $0.50-$ 4.00 (857,022) $ 1.46
Options canceled........ -- (52,882) $1.00-$ 6.00 (127,729) $ 2.42
---------- --------- ----------
Balances, June 30, 1998. 1,718,175 722,413 $4,264,576 $ 5.90
========== ========= ==========
</TABLE>
F-15
<PAGE>
HIWAY TECHNOLOGIES, INC.
(FORMERLY BEST INTERNET COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30,
1997 AND 1998 IS UNAUDITED)
(in thousands, except for share and per share amounts)
The following table summarizes information with respect to stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS CURRENTLY
OPTIONS OUTSTANDING EXERCISABLE
-----------------------------------------------------------------------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.20................... 70,000 7.07 $0.20 70,000 $0.20
$0.50................... 23,000 7.50 $0.50 23,000 $0.50
$0.72................... 103,434 9.45 $0.72 34,479 $0.72
$1.00................... 120,060 8.62 $1.00 40,600 $1.00
$1.50................... 527,164 9.04 $1.50 106,017 $1.50
$2.50................... 54,375 9.47 $2.50 5,340 $2.50
$3.50................... 86,249 9.84 $3.50 990 $3.50
$4.00................... 64,000 9.84 $4.00 -- --
$6.00................... 9,250 9.92 $6.00 -- --
--------- -------
1,057,532 280,426 $0.96
========= =======
</TABLE>
The following information concerning the Company's stock option plan is
provided in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company accounts for the plan in accordance with APB No. 25
and related Interpretations.
The fair value of each option grant has been estimated on the date of grant
using the minimum value method with the following assumptions:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Risk-free interest rates..................................... 6.25% 6.55%
Expected volatility.......................................... 0% 0%
Expected life................................................ 5 years 5 years
Dividends.................................................... None None
</TABLE>
The weighted average fair value of the options granted in 1996 and 1997 was
$0.84 and $1.44, respectively.
The following pro forma net income (loss) information has been prepared as if
the Company had followed the provisions of SFAS No. 123:
<TABLE>
<CAPTION>
1996 1997
----- ------
<S> <C> <C>
Net income:
As reported (pro forma)...................................... $ 632 $2,871
Pro forma.................................................... $ 513 $2,600
Basic net income per share:
As reported (pro forma)...................................... $0.05 $ 0.19
Pro forma.................................................... $0.04 $ 0.17
Diluted net income per share:
As reported (pro forma)...................................... $0.04 $ 0.17
Pro forma.................................................... $0.04 $ 0.15
</TABLE>
F-16
<PAGE>
HIWAY TECHNOLOGIES, INC.
(FORMERLY BEST INTERNET COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30,
1997 AND 1998 IS UNAUDITED)
(in thousands, except for share and per share amounts)
These pro forma amounts may not be representative of the effects on reported
net income (loss) for future years as options vest over several years and
additional awards are generally made each year.
14. INCOME TAXES
The Company's provision for income taxes for the year ended December 31, 1997
is as follows:
<TABLE>
<S> <C>
Current provision:
Federal............................................................ $(314)
State.............................................................. (81)
-----
(395)
-----
Deferred benefit:
Federal............................................................ 33
State.............................................................. 1
-----
34
-----
Provision for income taxes........................................... $(361)
=====
</TABLE>
The Company recorded a $1 tax provision for both years ended December 31,
1995 and 1996 for minimum state income tax. No other income taxes were payable
since Best incurred losses during these periods and Hiway Florida operated as a
Subchapter S corporation (see Note 17 for pro forma provision for income tax).
The Tax Reform Act of 1986 limits the use of net operating loss and tax
credit carryforwards in certain situations where changes occur in the stock
ownership of a company. Since the Company underwent a change in ownership
during 1996 as defined in the Internal Revenue Code, the net operating loss
carryforwards of $995 and $940 at December 31, 1996 for Federal and California
purposes, respectively, could not be fully utilized in 1997. At December 31,
1997 the Company had net operating loss carryforwards of approximately $49 and
$47 for Federal and California purposes, respectively. These carryforwards
expire in 2003 through 2012 if not utilized beforehand.
F-17
<PAGE>
HIWAY TECHNOLOGIES, INC.
(FORMERLY BEST INTERNET COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30,
1997 AND 1998 IS UNAUDITED)
(in thousands, except for share and per share amounts)
The Company's deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------ ------
<S> <C> <C>
Deferred tax assets (current):
Net operating losses....................................... $ 426 $ 21
Allowance for doubtful accounts............................ 144 208
Deferred rent.............................................. 45 51
Accrued liabilities........................................ 33 35
Other...................................................... 1 28
Deferred tax assets (non-current):
Amortization............................................... 30 72
------ ------
Deferred tax assets...................................... 679 415
Deferred tax liabilities (non-current):
Depreciation............................................... (239) (380)
Other...................................................... (30) --
------ ------
Deferred tax liabilities................................. (269) (380)
Valuation allowance...................................... (410) --
------ ------
Net deferred tax asset................................... $ -- $ 35
====== ======
</TABLE>
The deferred tax valuation allowance decreased by $410 in 1997 as management
determined that the net deferred tax asset as of December 31, 1997 was more
likely to be realized than not.
The following schedule reconciles the differences between the federal income
tax rate and the effective income tax rate for the year ended December 31,
1997:
<TABLE>
<S> <C>
Statutory rate....................................................... 34.0%
State taxes, net..................................................... 1.1
Change in valuation allowance........................................ (8.5)
Effect of income not subject to income taxes due to Hiway Florida's
Subchapter S status................................................. (19.7)
Other................................................................ 0.6
-----
Effective tax rate................................................... 7.5%
=====
</TABLE>
15. EMPLOYEE BENEFIT PLAN
In September 1995, the Company adopted a 401(k) Plan which qualifies under
Section 401(k) of the Internal Revenue Code of 1986. The Plan provides
retirement benefits through tax deferred salary deductions for all eligible
employees meeting certain age and service requirements. The Company may make
discretionary matching contributions on behalf of employees. All employee
contributions are 100% vested. The Company did not make any contribution to the
Plan during the years ended December 31, 1995, 1996 or 1997.
F-18
<PAGE>
HIWAY TECHNOLOGIES, INC.
(FORMERLY BEST INTERNET COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30,
1997 AND 1998 IS UNAUDITED)
(in thousands, except for share and per share amounts)
16. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1995 1996 1997
---- ---- ------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Taxes paid............................................... $ 1 $ 56 $ 283
Interest paid............................................ 4 103 122
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITY:
Note payable issued for rent deposit..................... 18 406 --
Equipment purchased under capital lease.................. 36 490 286
Common stock issued in acquisitions...................... -- 67 --
Note issued in acquisitions.............................. -- 697 --
Shareholders contributions of equipment in exchange for
stockholder loans payable............................... 21 -- --
Allowances on trade in of equipment...................... -- 34 --
Exercise of stock options for notes...................... -- -- 409
Issuance of common stock for note........................ -- -- 200
Issuance of warrant for note............................. -- -- 280
Issuance of warrant...................................... -- -- 1,233
</TABLE>
17. UNAUDITED PRO FORMA DATA
The statement of operations includes a pro forma provision for income taxes
to reflect income tax expense as if both entities in the merged company, Best
and Hiway Florida (which operated as a Subchapter S corporation), had been a C
corporation on a combined basis for all periods presented. The components of
the pro forma provision for income taxes consisted of:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
Current provision:
Federal..................... $ -- $ 79 $ 1,636 $ 863 $ 641
State....................... 1 22 428 226 204
------ ------- --------- -------- ------
1 101 2,064 1,089 845
------ ------- --------- -------- ------
Deferred provision (benefit):
Federal..................... -- (58) (138) (72) 15
State....................... -- (10) (1) (1) (17)
------ ------- --------- -------- ------
-- (68) (139) (73) (2)
------ ------- --------- -------- ------
Pro forma provision for income
taxes........................ $ 1 $ 33 $ 1,925 $ 1,016 $ 843
====== ======= ========= ======== ======
</TABLE>
F-19
<PAGE>
HIWAY TECHNOLOGIES, INC.
(FORMERLY BEST INTERNET COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30,
1997 AND 1998 IS UNAUDITED)
(in thousands, except for share and per share amounts)
18. EARNINGS PER SHARE (EPS) DISCLOSURES
In accordance with the requirements of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," a reconciliation of the numerator and
denominator of basic and diluted EPS is provided as follows.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- ---------------------
1995 1996 1997 1997 1998
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Numerator-Basic EPS
Historical net income
(loss)................ $ (551) $ 654 $ 4,435 $ 2,353 $ 2,000
========= ========== ========== ========== ==========
Pro forma net income
(loss) (unaudited).... $ (551) $ 632 $ 2,871 $ 1,531 $ 1,256
========= ========== ========== ========== ==========
Denominator-Basic EPS
Weighted average
common stock
outstanding........... 8,435,550 12,938,900 15,010,230 14,891,220 16,150,540
========= ========== ========== ========== ==========
Basic earnings (loss)
per share--Historical.. $ (0.07) $ 0.05 $ 0.30 $ 0.16 $ 0.12
========= ========== ========== ========== ==========
--Pro forma... $ (0.07) $ 0.05 $ 0.19 $ 0.10 $ 0.08
========= ========== ========== ========== ==========
Numerator--Diluted EPS
Historical net income
(loss)................ $ (551) $ 654 $ 4,435 $ 2,353 $ 2,000
Interest on
convertible debt (net
of related tax
effect)............... -- -- 6 6 --
--------- ---------- ---------- ---------- ----------
Historical net income
(loss)................. $ (551) $ 654 $ 4,441 $ 2,359 $ 2,000
========= ========== ========== ========== ==========
Pro forma net income
(loss) (unaudited).... $ (551) $ 632 $ 2,871 $ 1,531 $ 1,256
Interest on
convertible debt (net
of related tax
effect)............... -- -- 6 6 --
--------- ---------- ---------- ---------- ----------
Pro forma net income
(loss) (unaudited)..... $ (551) $ 632 $ 2,877 $ 1,537 $ 1,256
========= ========== ========== ========== ==========
Denominator-Diluted EPS
Denominator--Basic
EPS................... 8,435,550 12,938,900 15,010,230 14,891,220 16,150,540
Effect of Dilutive
Securities:
Common stock options. -- 442,840 709,690 588,340 481,720
Warrants............. -- 34,230 71,050 67,500 219,320
Convertible preferred
stock............... -- 646,710 1,606,000 1,539,330 1,298,250
Convertible debt..... -- -- 41,670 83,340 --
--------- ---------- ---------- ---------- ----------
8,435,550 14,062,680 17,438,640 17,169,730 18,149,830
========= ========== ========== ========== ==========
Diluted earnings (loss)
per share--Historical.. $ (0.07) $ 0.05 $ 0.25 $ 0.14 $ 0.10
========= ========== ========== ========== ==========
--Pro forma... $ (0.07) $ 0.04 $ 0.17 $ 0.09 $ 0.07
========= ========== ========== ========== ==========
</TABLE>
For the years ended December 31, 1995, stock options, preferred stock,
convertible debt and warrants and in 1996 and 1997, convertible debt and
certain warrants were excluded from the determination of the diluted EPS since
their effect would have been antidilutive.
F-20
<PAGE>
HIWAY TECHNOLOGIES, INC.
(FORMERLY BEST INTERNET COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH
31, 1997 AND 1998 IS UNAUDITED)
(in thousands, except for share and per share amounts)
19. SEGMENT REPORTING
The Company operates in one industry segment.
The distribution of revenues by geographic area was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
North America...................................... $ 2,011 $ 11,052 $ 22,507
Europe............................................. -- 593 2,194
Rest of the world.................................. -- 572 1,484
------- -------- --------
$2,011 $ 12,217 $ 26,185
======= ======== ========
</TABLE>
20. REINCORPORATION AND SUBSEQUENT EVENTS
In June 1998, the Board of Directors approved the reincorporation of the
Company in Delaware. The reincorporation is subject to the stockholders'
approval. Under the new Certificate of Incorporation in Delaware, the Company
is authorized to issue 60,000,000 shares of common stock at $0.001 par value
and 10,000,000 shares of preferred stock at $0.001 par value. The Board also
adopted the 1998 Employee Stock Purchase Plan, reserving 500,000 shares of
common stock for issuance thereunder.
In June 1998, the Board of Directors authorized management of the Company to
file a Registration Statement with the Securities and Exchange Commission
relating to a public offering of the Company's common stock.
In July 1998, the Company authorized a one-for-two reverse stock split that
will be effective upon the Company's reincorporation in Delaware and authorized
an increase to 2,000,000 in the number of shares of common stock reserved for
issuance under the 1998 Equity Incentive Plan.
F-21
<PAGE>
Hiway Technologies
Narrative Description of Inside Back Cover
Inside Back Cover Portrait
Top two-thirds of page is a diagram showing a stylized globe of the earth
which has been altered to show the majority of the eastern and western
hemispheres simultaneously (including the continents of North and South
America, Antarctica, Africa, Europe, Asia and a portion of Australia) with
latitude lines tracing from side-to-side and longitude lines tracing from
pole-to-pole; super-imposed over the globe are four captions with headings:
Convenience
Hiway has implemented proprietary software tools that allow its customers to
easily manage their Web sites online. The Company provides direct 24x7
technical support and local support through a global network of value added
resellers.
Performance
Hiway's Web hosting solutions provide enterprises with mission-critical
performance, ensuring that Web sites load rapidly and are continuously online
and functional. The Company has six T-3 fiber optic network connections, Cisco
routers and Silicon Graphics servers.
Reliability
All of Hiway's systems are designed to achieve redundancy. The Company's data
centers protect Web site data through the use of back-up power sources, secure
physical facilities, spare servers, regular back-ups and a fault tolerant
hosting platform. Hiway provides a 99.9% uptime warranty for all of the Web
sites that it hosts.
Global Presence
Hiway's network of value added resellers supports Web hosting accounts in over
a hundred countries. These VARs are responsible for building the RapidSite
brand internationally.
Beneath the globe are a list in eight columns listing 109 nations:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Antigua and Bulgaria Estonia Indonesia Malaysia Oman Saudi Arabia Trinidad and Tobago
Barbuda Canada Finland Iran Malta Pakistan Senegal Tunisia
Argentina Chile France Ireland Mexico Panama Singapore Turkey
Australia China Georgia Israel Moldova Papua New Guinea Slovakia Ukraine
Austria Colombia Germany Italy Monaco Paraguay Slovenia United Arab Emirates
Azerbaijan Costa Rica Ghana Jamaica Morocco Peru South Africa United Kingdom
Bahamas Croatia Greece Japan Namibia Philippines South Korea United States of
Bahrain Cyprus Grenada Jordan Nepal Poland Spain America
Bangladesh Czech Republic Guatemala Kenya Netherlands Portugal Sri Lanka Uruguay
Barbados Denmark Guyana Kuwait New Zealand Qatar Sudan Venezuela
Belarus Dominican Honduras Lebanon Nicaragua Romania Swaziland Vietnam
Belgium Republic Hungary Luxembourg Nigeria Russia Sweden Yugoslavia
Belize Ecuador Iceland Macedonia Norway Rwanda Switzerland Zambia
Bolivia Egypt India Saint Lucia Thailand
Bosnia and El Salvador
Herzegovina
Brazil
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO-
SPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEI-
THER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 17
Dividend Policy........................................................... 17
Capitalization............................................................ 18
Dilution.................................................................. 19
Selected Consolidated Financial Data...................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 31
Management................................................................ 45
Certain Transactions...................................................... 54
Principal and Selling Stockholders........................................ 56
Description of Capital Stock.............................................. 58
Shares Eligible for Future Sale........................................... 61
Underwriting.............................................................. 63
Legal Matters............................................................. 64
Experts................................................................... 64
Changes in Independent Accountants........................................ 64
Additional Information.................................................... 65
Index to Consolidated Financial Statements................................ F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PAR-
TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACT-
ING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,000,000 Shares
[HIWAY TECHNOLOGIES LOGO APPEARS HERE]
Common Stock
-----------
PROSPECTUS
-----------
BT Alex. Brown
Donaldson, Lufkin & Jenrette
Securities Corporation
Bear, Stearns & Co. Inc.
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid by the
Registrant in connection with the sale of the shares of Common Stock being
registered hereby. All amounts are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 20,355
NASD filing fee.................................................. 7,400
Nasdaq National Market filing fee................................ 50,000
Accounting fees and expenses..................................... 300,000
Legal fees and expenses.......................................... 450,000
Road show expenses............................................... 20,000
Printing and engraving expenses.................................. 200,000
Blue sky fees and expenses....................................... 10,000
Transfer agent and registrar fees and expenses................... 5,000
Miscellaneous.................................................... 37,245
----------
Total............................................................ $1,100,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Certificate of Incorporation Represents a provision that
eliminates the personal liability of its directors to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit. In
addition, as permitted by Section 145 of the Delaware General Corporation Law,
the Bylaws of the Registrant provide that: (i) the Registrant is required to
indemnify its directors and executive officers to the fullest extent permitted
by the Delaware General Corporation Law; (ii) the Registrant may, in its
discretion, indemnify other officers, employees and agents as set forth in the
Delaware General Corporation Law; (iii) upon receipt of an undertaking to repay
such advances if indemnification is determined to be unavailable, the
Registrant is required to advance expenses, as incurred, to its directors and
executive officers to the fullest extent permitted by the Delaware General
Corporation Law in connection with a proceeding (except if a determination is
reasonably and promptly made by the Board of Directors by a majority vote of a
quorum consisting of directors who were not parties to the proceeding or, in
certain circumstances, by independent legal counsel in a written opinion that
the facts known to the decision-making party demonstrate clearly and
convincingly that such person acted in bad faith or in a manner that such
person did not believe to be in, or not opposed to, the best interests of the
corporation); (iv) the rights conferred in the Bylaws are not exclusive and the
Registrant is authorized to enter into indemnification agreements with its
directors, officers and employees and agents; (v) the Registrant may not
retroactively amend the Bylaw provisions relating to indemnity; and (vi) to the
fullest extent permitted by the Delaware General Corporation Law, a director or
executive officer will be deemed to have acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests of
the Registrant and, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe that his or her conduct was unlawful if his
or her action is based on the records or books of account of the corporation or
on information supplied to him or her by officers of the corporation in the
course of their duties or on the advice of legal counsel for the corporation or
on information or records given or reports made to the corporation by
independent certified public accountants or appraisers or other experts.
II-1
<PAGE>
The Registrant's policy is to enter into indemnity agreements with each of
its directors and executive officers. The indemnity agreements provide that
directors and executive officers will be indemnified and held harmless to the
fullest possible extent permitted by law including against all expenses
(including attorneys' fees), judgments, fines and settlement amounts paid or
reasonably incurred by them in any action, suit or proceeding, including any
derivative action by or in the right of the Registrant, on account of their
services as directors, officers, employees or agents of the Registrant or as
directors, officers, employees or agents of any other company or enterprise
when they are serving in such capacities at the request of the Registrant. The
Registrant will not be obligated pursuant to the agreements to indemnify or
advance expenses to an indemnified party with respect to proceedings or claims
(i) initiated by the indemnified party and not by way of defense, except with
respect to a proceeding authorized by the Board of Directors and successful
proceedings brought to enforce a right to indemnification under the Indemnity
Agreement, (ii) for any amounts paid in settlement of a proceeding unless the
Registrant consents to such settlement, (iii) on account of any suit in which
judgment is rendered against the indemnified party for an accounting of profits
made from the purchase or sale by the indemnified party of securities of the
Registrant pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and related laws, (iv) on account of conduct by a director
which is finally adjudged to have been in bad faith or conduct that the
director did not reasonably believe to be in, or not opposed to, the best
interests of the Registrant, (v) on account of any criminal action or
proceeding arising out of conduct that the director had reasonable cause to
believe was unlawful or (vi) if a final decision by a court having jurisdiction
in the matter shall determine that such indemnification is not lawful.
The indemnity agreement also provides for contribution in certain situations
in which the Registrant and a director or executive officer are jointly liable
but indemnification is unavailable, such contribution to be based on the
relative benefits received and the relative fault of the Registrant and the
director or executive officer. Contribution is not allowed in connection with a
Section 16(b) judgment, an adjudication of bad faith or conduct that a director
or executive officer did not reasonably believe to be in, or not opposed to,
the best interests of the Registrant or a proceeding arising out of conduct a
director or executive officer had reasonable cause to believe was unlawful.
The indemnity agreement requires a director or executive officer to reimburse
the Registrant for all expenses advanced only to the extent it is ultimately
determined that the director or executive officer is not entitled, under
Delaware law, the Bylaws, the indemnity agreement or otherwise, to be
indemnified for such expenses. The indemnity agreement provides that it is not
exclusive of any rights a director or executive officer may have under the
Certificate of Incorporation, Bylaws, other agreements, any majority-in-
interest vote of the stockholders or vote of disinterested directors, the
Delaware law or otherwise.
The indemnification provision in the Bylaws, and the indemnity agreements
entered into between the Registrant and its directors and executive officers,
may be sufficiently broad to permit indemnification of the Registrant's
executive officers and directors for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act").
As authorized by the Registrant's Bylaws, the Registrant, with approval by
the Board, expects to purchase director and officer liability insurance.
See also the undertakings set out in response to Item 17.
II-2
<PAGE>
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
-------- -------
<S> <C>
Underwriting Agreement (draft dated July 17, 1998)...................... 1.01
Registrant's Certificate of Incorporation............................... 3.01
Registrant's Bylaws..................................................... 3.05
Form of Indemnification Agreement....................................... 10.08
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table sets forth information regarding all securities sold by
the Registrant or its predecessors since June 1, 1995.
<TABLE>
<CAPTION>
AGGREGATE
DATE OF TITLE OF NUMBER OF PURCHASE FORM OF
CLASS OF PURCHASERS SALE SECURITIES SECURITIES PRICE CONSIDERATION
------------------- --------- ------------------------ ---------- ---------- -------------
<C> <C> <S> <C> <C> <C>
SALES BY HIWAY
TECHNOLOGIES, INC. (1)
Steven J. Umberger 5/13/96 Common Stock 1,965,267 $225,000 Cash
James H. Dahl 1/1/97 Class A Common Stock 682,384 $312,500 Cash
Arthur L. Cahoon 10/16/97 Class A Common Stock 409,759 $187,500 Cash
7 employees 6/17/97 Options to purchase -- -- Services
103,435 shares of Class
B Common Stock for $0.72
per share
Arthur L. Cahoon 11/3/97 Warrant to purchase -- $280,409 Note
580,082 shares of Class
A Common Stock for $5.56
per share
13 investors 12/19/97 Warrants to purchase -- -- (2)
827,476 shares of Class
A Common Stock for $6.04
per share
SALES BY BEST INTERNET
COMMUNICATIONS, INC.
7 individuals, including 7/15/95 Common Stock 615,000 $300,000 Cash
an officer and a direc-
tor
7 individuals 10/18/95 Common Stock 105,000 $105,000 Cash
14 individuals 10/26/95- Common Stock 222,500 $222,500 Cash
11/16/95
1 individual and one en- 1/16/96 Convertible promissory -- $1,000,000(3) Cash
tity notes (3)
The two holders of con- 1/16/96 Warrants to purchase up -- (5) (5)
vertible promissory to 250,000 shares of
notes and the guarantor Common Stock for $1.00
of one of the notes per share (4)
2 entities 7/10/96 Common Stock 267,500 $267,500 Cash (6)
1 individual 3/20/97 Warrants to purchase -- (7) (7)
100,000 shares of Common
Stock for $1.00 per
share
1 individual 11/4/97 Common Stock 50,000 $200,000 Note
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
DATE OF TITLE OF NUMBER OF PURCHASE FORM OF
CLASS OF PURCHASERS SALE SECURITIES SECURITIES PRICE CONSIDERATION
------------------- -------- ------------------------ ---------- ------------ -------------
<C> <C> <S> <C> <C> <C>
14 individuals, includ- 7/16/96- Series B Preferred Stock 1,730,999 $ 4,327,500 Cash
ing two officers and 3/24/97
one non-officer direc-
tor
73 employees 1/26/96- Common Stock (option 1,217,256 1,331,872.98 Cash and
6/30/98 exercises) notes (8)
8 stockholders of Hiway 5/27/98 Common Stock 10,918,149 (9) (9)
12 investors in Hiway 5/27/98 Warrants to purchase -- (9) (9)
827,476 shares of Common
Stock for $6.04 per
share
Arthur L. Cahoon 5/27/98 Warrant to purchase -- (9) (9)
580,082 shares of Common
Stock for $5.56 per
share
7 employees of Hiway 5/27/98 Options to purchase -- (9) (9)
103,433 shares of Class
B Common Stock for $0.73
per share
</TABLE>
SALES BY REGISTRANT
In the reincorporation, Registrant will issue to shareholders, option holders
and warrant holders of Best the numbers of shares, options or warrants
equivalent to the respective numbers of shares, options and warrants that they
hold in Best at the time of the reincorporation. These issuances will not be
considered offers or sales as a result of Rule 145(a)(2) promulgated under the
Securities Act.
- --------
(1) All sales by Hiway Florida have been adjusted to reflect (i) the conversion
of each share of Hiway Florida Common Stock outstanding in June 1997 into
19,000 shares of Hiway Florida Class A Common Stock, (ii) the subsequent
exchange of each share of Hiway Florida Class A Common Stock for 2.0687
shares of Best's Common Stock as a result of the Merger of Hiway Florida
and Best and (iii) the subsequent reincorporation of Best into Delaware.
(2) Issued in connection with the sale of $5.0 million of 5% senior unsecured
notes due 2002.
(3) Best repaid a $200,000 convertible promissory note to one individual in
July 1996 and an $800,000 convertible promissory note to the other
individual in March 1997.
(4) All but one warrant to purchase 50,000 shares of Common Stock were
cancelled when Best repaid the convertible promissory notes. See footnote
(3) above and footnote (7) below.
(5) Issued in conjunction with the sale of the convertible promissory notes.
(6) Of these shares, 67,500 were issued in partial payment for assets acquired
from North Bay Networks.
(7) This warrant was issued as part of a transaction where warrants to purchase
200,000 shares of Common Stock were cancelled, an $800,000 loan to the
Company was repaid and the guarantee on that loan was cancelled. See
footnotes (3) and (4) above.
(8) Five employees purchased shares with notes aggregating $877,414.
(9) These securities were issued in exchange for Hiway Florida securities in
the Merger.
The securities acquired by Best's and Hiway Florida's officers, directors,
employees and consultants were made in reliance on Rule 701 under the
Securities Act. All other sales of Common Stock and all sales of Preferred
Stock, warrants and notes and the sale of the debentures were made in reliance
on Section 4(2) of the Securities Act and/or Regulation D promulgated under the
Securities Act. The securities were sold to a limited number of people with no
general solicitation or advertising.
II-4
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.01 --Underwriting Agreement (draft dated July 17, 1998).
2.01 --Form of Agreement and Plan of Merger by and between the Registrant
and Best Internet Communications, Inc., a California corporation
("Best").
2.02 --Agreement and Plan of Merger dated as of April 15, 1998 by and
between Best and Hiway Technologies, Inc., a Florida corporation
("Hiway Florida").*
3.01 --Registrant's Certificate of Incorporation.
3.02 --Amended and Restated Articles of Incorporation of Best.*
3.03 --Registrant's Bylaws.
3.04 --Bylaws of Best.
4.01 --Form of Specimen Certificate for Registrant's Common Stock.
5.01 --Opinion of Fenwick & West LLP regarding legality of the securities
being registered.**
10.01 --Warrant registered in the name of Arthur L. Cahoon.
10.02 --Investors' Rights Agreement, dated as of June 12, 1996 between the
Registrant and Robert D. Leppo.*
10.03 --Hiway Florida 1997 Stock Option Plan.
10.04 --Registrant's 1995 Stock Option Plan.
10.05 --Registrant's Amended and Restated 1996 Stock Option Plan.*
10.06 --Registrant's 1998 Equity Incentive Plan.
10.07 --Registrant's 1998 Directors Stock Option Plan.
10.08 --Registrant's 1998 Employee Stock Purchase Plan.
10.09 --Form of Indemnification Agreement entered into by Registration with
each of its directors and executive officers.
10.10 --Amended and Restated Key Employee Agreement between the Registrant
and David S. Buzby.*
10.11 --Key Employee Agreement between the Registrant and James R. Zarley.*
10.12 --Key Employee Agreement between the Registrant and Robert E. Tomasi.
10.13 --Leave of Absence Agreement between the Registrant and Robert E.
Tomasi.
10.14 --Sublease Agreement between the Registrant and Sysorex International.
10.15 --Lease between the Registrant and Golden Gate Commercial Company.
10.16 --Lease between Blue Lake, LTD. and Hiway Florida.
10.17 --CB Commercial Lease between Champion Leasing, Corp. and Hiway
Florida.
10.18 --Commercial Lease between Catexor Limited Partnership and Hiway
Florida.
10.19 --Form of employment agreement entered into by Registrant and six of
its executive officers.
10.20 -- Lease Agreement between Registrant and AMB Properties II, L.P.
16.01 --Letter re Change in Certifying Accountant from De Meo, Young,
McGrath & Company, P.A., independent accountants.**
21.01 --List of Subsidiaries.*
23.01 --Consent of Fenwick & West LLP (included in Exhibit 5.01).**
23.02 --Consent of PricewaterhouseCoopers LLP, independent accountants.
23.03 --Consent of De Meo, Young, McGrath & Company, P.A., independent
accountants.*
24.01 --Power of Attorney (see Page II-7 of this Registration Statement).*
27.01 --Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
** To be supplied by amendment.
II-5
<PAGE>
(b) The following financial statement schedule is filed herewith:
Schedule II--Valuation and Qualifying Accounts.
Other financial statement schedules are omitted because the information
called for is not required or is shown either in the financial statements or
the notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate 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 a form
of 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-6
<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 BOCA RATON, STATE OF
FLORIDA, ON THE 19TH DAY OF JULY, 1998.
Hiway Technologies, Inc.
/s/ David S. Buzby
By __________________________________
DAVID. S. BUZBY, EXECUTIVE VICE
PRESIDENT AND CHIEF FINANCIAL
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
Arthur L. Cahoon* Chairman of the July 19, 1998
- ------------------------------------- Board, Chief
Executive Officer
and a Director
PRINCIPAL FINANCIAL OFFICER:
/s/ David S. Buzby Executive Vice July 19, 1998
- ------------------------------------- President, Chief
DAVID S. BUZBY Financial Officer
and a Director
PRINCIPAL ACCOUNTING OFFICER:
Joel B. Richardson* Controller July 19, 1998
- -------------------------------------
Thomas C. Barry* Director July 19, 1998
- -------------------------------------
Scott H. Adams* Director July 19, 1998
- -------------------------------------
William G. Nesbitt* Director July 19, 1998
- -------------------------------------
Steven J. Umberger* Director July 19, 1998
- -------------------------------------
James R. Zarley* Director July 19, 1998
- -------------------------------------
/s/ David S. Buzby
*By: ________________________________
DAVID S. BUZBY
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
Our report on the consolidated financial statements of Hiway Technology, Inc.
is included on page F-2 of this Form S-1. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule on page S-2 of the Registration Statement.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand, L.L.P.
San Jose, California
May 27, 1998
S-1
<PAGE>
HIWAY TECHNOLOGY, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ------------------------------------ ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for returns and doubtful
accounts........................... -- 12 (4) 8
Year ended December 31, 1996:
Allowance for returns and doubtful
accounts........................... 8 687 (322) 373
Year ended December 31, 1997:
Allowance for returns and doubtful
accounts........................... 373 1,525 (826) 1,072
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT TITLE
------- -------------
<C> <S>
1.01 --Underwriting Agreement (draft dated July 17, 1998).
2.01 --Form of Agreement and Plan of Merger by and between the Registrant
and Best Internet Communications, Inc., a California corporation
("Best").
2.02 --Agreement and Plan of Merger dated as of April 15, 1998 by and
between Best and Hiway Technologies, Inc., a Florida corporation
("Hiway Florida").*
3.01 --Registrant's Certificate of Incorporation.
3.02 --Amended and Restated Articles of Incorporation of Best.*
3.03 --Registrant's Bylaws.
3.04 --Bylaws of Best.
4.01 --Form of Specimen Certificate for Registrant's Common Stock.
5.01 --Opinion of Fenwick & West LLP regarding legality of the securities
being registered.**
10.01 --Warrant registered in the name of Arthur L. Cahoon.
10.02 --Investors' Rights Agreement, dated as of June 12, 1996 between the
Registrant and Robert D. Leppo.*
10.03 --Hiway Florida 1997 Stock Option Plan.
10.04 --Registrant's 1995 Stock Option Plan.
10.05 --Registrant's Amended and Restated 1996 Stock Option Plan.*
10.06 --Registrant's 1998 Equity Incentive Plan.
10.07 --Registrant's 1998 Directors Stock Option Plan.
10.08 --Registrant's 1998 Employee Stock Purchase Plan.
10.09 --Form of Indemnification Agreement entered into by Registration with
each of its directors and executive officers.
10.10 --Amended and Restated Key Employee Agreement between the Registrant
and David S. Buzby.*
10.11 --Key Employee Agreement between the Registrant and James R. Zarley.*
10.12 --Key Employee Agreement between the Registrant and Robert E. Tomasi.
10.13 --Leave of Absence Agreement between the Registrant and Robert E.
Tomasi.
10.14 --Sublease Agreement between the Registrant and Sysorex International.
10.15 --Lease between the Registrant and Golden Gate Commercial Company.
10.16 --Lease between Blue Lake, LTD. and Hiway Florida.
10.17 --CB Commercial Lease between Champion Leasing, Corp. and Hiway
Florida.
10.18 --Commercial Lease between Catexor Limited Partnership and Hiway
Florida.
10.19 --Form of employment agreement entered into by Registrant and six of
its executive officers.
10.20 -- Lease Agreement between Registrant and AMB Properties II, L.P.
16.01 --Letter re Change in Certifying Accountant from De Meo, Young,
McGrath & Company, P.A., independent accountants.**
21.01 --List of Subsidiaries.*
23.01 --Consent of Fenwick & West LLP (included in Exhibit 5.01).**
23.02 --Consent of PricewaterhouseCoopers LLP, independent accountants.
23.03 --Consent of De Meo, Young, McGrath & Company, P.A., independent
accountants.*
24.01 --Power of Attorney (see Page II-7 of this Registration Statement).*
27.01 --Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
** To be supplied by amendment.
<PAGE>
Exhibit 1.01
4,000,000 Shares
Hiway Technologies, Inc.
Common Stock
($0.001 Par Value)
EQUITY UNDERWRITING AGREEMENT
-----------------------------
_______________, 1998
BT Alex. Brown Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
Bear Stearns & Co. Inc.
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Hiway Technologies, Inc., a Delaware corporation (the "Company"), and
certain stockholders of the Company (the "Selling Stockholders") propose to sell
to the several underwriters (the "Underwriters") named in Schedule I hereto for
whom you are acting as representatives (the "Representatives") an aggregate of
4,000,000 shares of the Company's Common Stock, $0.001 par value (the "Firm
Shares"), of which 3,500,000 shares will be issued and sold by the Company and
500,000 shares will be sold by the Selling Stockholders. The respective
amounts of the Firm Shares to be so purchased by the several Underwriters are
set forth opposite their names in Schedule I hereto, and the respective amounts
to be sold by the Selling Stockholders are set forth opposite their names in
Schedule II hereto. The Company and the Selling Stockholders are sometimes
referred to herein collectively as the "Sellers." The Company and the Selling
Stockholders also propose to sell at the Underwriters' option an aggregate of up
to 600,000 additional shares of the Company's Common Stock (the "Option
Shares") as set forth below.
As the Representatives, you have advised the Company and the Selling
Stockholders (a)
<PAGE>
that you are authorized to enter into this Agreement on behalf of the several
Underwriters, and (b) that the several Underwriters are willing, acting
severally and not jointly, to purchase the numbers of Firm Shares set forth
opposite their respective names in Schedule I, plus their pro rata portion of
the Option Shares if you elect to exercise the over-allotment option in whole or
in part for the accounts of the several Underwriters. The Firm Shares and the
Option Shares (to the extent the aforementioned option is exercised) are herein
collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
(a) The Company represents and warrants to each of the Underwriters as
follows:
(i) A registration statement on Form S-1 (File No. 333-56527) with
respect to the Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462(b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means the form of prospectus first filed
with the Commission pursuant to Rule 424(b). Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus." Any reference herein to the
Registration Statement, any Preliminary Prospectus or to the Prospectus shall be
deemed to refer to and include any supplements or amendments thereto, filed with
the Commission after the date of filing of the Prospectus under Rules 424(b) or
430A, and prior to the termination of the offering of the Shares by the
Underwriters.
(ii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and corporate authority to own or lease its properties and
conduct its business as described in the Registration Statement. Each of the
subsidiaries of the Company as listed in Exhibit 21.01 to Item 16(a) of the
Registration Statement and each of the entities listed in Exhibit A attached
---------
hereto (collectively, the "Subsidiaries") has been duly organized and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, with corporate power and corporate authority to own or lease
its properties and conduct its business as described in the Registration
Statement. The Subsidiaries are the only subsidiaries, direct or indirect, of
the Company. The Company and each of the Subsidiaries are duly qualified to
transact business in all jurisdictions in which the conduct of their business
requires such qualification and in which the failure to qualify would have
-2-
<PAGE>
a material adverse effect upon the business of the Company and the Subsidiaries
taken as a whole. The outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid and
non-assessable and are owned by the Company or another Subsidiary to the extent
set forth in the Registration Statement, free and clear of all liens,
encumbrances and equities and claims except such as are described in the
Registration Statement; and no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into shares of capital stock or ownership interests in the
Subsidiaries are outstanding.
(iii) The outstanding shares of Common Stock of the Company, including all
shares to be sold by the Selling Stockholders, have been duly authorized and
validly issued and are fully paid and non-assessable; the portion of the Shares
to be issued and sold by the Company have been duly authorized and when issued
and paid for as contemplated herein will be validly issued, fully paid and non-
assessable; and no preemptive rights of stockholders exist with respect to any
of the Shares or the issue and sale thereof. Neither the filing of the
Registration Statement nor the offering or sale of the Shares as contemplated by
this Agreement gives rise to any rights, other than those which have been waived
or satisfied, for or relating to the registration of any shares of Common Stock.
(iv) The information set forth under the caption "Capitalization" in the
Prospectus is true and correct as of the date and based on the assumptions set
forth therein. All of the Shares conform to the description thereof contained
in the Registration Statement. The form of certificates for the Shares conforms
to the corporate law of the jurisdiction of the Company's incorporation.
(v) The Commission has not issued an order preventing or suspending the
use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. The Registration Statement contains,
and the Prospectus and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and conform or will
conform, as the case may be, to the requirements of the Act and the Rules and
Regulations. The Registration Statement and any amendment thereto do not
contain any untrue statement of a material fact and do not omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus and any amendments and supplements
thereto do not contain, and will not contain, any untrue statement of material
fact; and do not omit, and will not omit, to state any material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that the Company makes no representations or warranties as to information
contained in or omitted from the Registration Statement or the Prospectus, or
any such amendment or supplement, in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of any Underwriter
through the Representatives, specifically for use in the preparation thereof.
(vi) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set forth in the
Registration Statement, present fairly the consolidated financial position and
the results of operations and cash flows of the Company and the Subsidiaries, at
the indicated dates and for the indicated periods. Such financial statements
and
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related schedules have been prepared in accordance with generally accepted
principles of accounting, consistently applied throughout the periods involved,
except as disclosed therein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary financial
and statistical data included in the Registration Statement present fairly the
information shown therein and such data have been compiled on a basis consistent
with the financial statements presented therein and the books and records of the
Company. The pro forma financial statements and other pro forma financial
information included in the Registration Statement and the Prospectus present
fairly the information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements, have been properly compiled on the pro forma bases described
therein, and, in the opinion of the Company, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein. The financial results of the Company's Premier Partners, other than its
United Kingdom Premier Partner, have not to date been required to be
consolidated with the Company's financial statements or separately disclosed in
the Company's financial statements.
(vii) Coopers & Lybrand, L.L.P., who have certified certain of the
consolidated financial statements filed with the Commission as part of the
Registration Statement, are independent public accountants as required by the
Act and the Rules and Regulations.
(viii) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of the
Subsidiaries before any court or administrative agency or otherwise which if
determined adversely to the Company or any of its Subsidiaries might result in
any material adverse change in the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company and of the Subsidiaries taken as a whole or prevent the consummation
of the transactions contemplated hereby, except as set forth in the Registration
Statement.
(ix) The Company and the Subsidiaries have good and marketable title to
all of the properties and assets reflected in the consolidated financial
statements (or as described in the Registration Statement) hereinabove
described, subject to no lien, mortgage, pledge, charge or encumbrance of any
kind except those reflected in such consolidated financial statements (or as
described in the Registration Statement) or which are not material in amount.
The Company and the Subsidiaries occupy their leased properties under valid and
binding leases conforming in all material respects to the description thereof
set forth in the Registration Statement.
(x) The Company and the Subsidiaries have filed all Federal, State, local
and foreign tax returns which have been required to be filed and have paid all
taxes indicated by said returns and all assessments received by them or any of
them to the extent that such taxes have become due and are not being contested
in good faith and for which an adequate reserve for accrual has been established
in accordance with generally accepted accounting principles. All tax
liabilities have been adequately provided for in the consolidated financial
statements of the Company, and the Company does not know of any actual or
proposed additional material tax assessments.
(xi) Since the respective dates as of which information is given in the
Registration
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<PAGE>
Statement, as it may be amended or supplemented, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the earnings, business, management, properties, assets,
rights, operations, condition (financial or otherwise), or prospects of the
Company and its Subsidiaries taken as a whole, whether or not occurring in the
ordinary course of business, and there has not been any material transaction
entered into or any material transaction that is probable of being entered into
by the Company or the Subsidiaries, other than transactions in the ordinary
course of business and changes and transactions described in the Registration
Statement, as it may be amended or supplemented. The Company and the
Subsidiaries have no material contingent obligations which are not disclosed in
the Company's consolidated financial statements which are included in the
Registration Statement.
(xii) Neither the Company nor any of the Subsidiaries is or with the
giving of notice or lapse of time or both, will be, in violation of or in
default under its Charter or By-Laws or under any agreement, lease, contract,
indenture or other instrument or obligation to which it is a party or by which
it, or any of its properties, is bound, or of any provision of any statute, rule
or regulation applicable to the Company or any of its Subsidiaries, and which
default is of material significance in respect of the condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole or the business,
management, properties, assets, rights, operations, condition, or prospects of
the Company and the Subsidiaries taken as a whole. The execution and delivery
of this Agreement and the consummation of the transactions herein contemplated
and the fulfillment of the terms hereof will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust or other agreement or instrument to which the
Company or any Subsidiary is a party, or of the Charter or By-Laws of the
Company or any order, rule or regulation applicable to the Company or any
Subsidiary of any court or of any regulatory body or administrative agency or
other governmental body having jurisdiction over the Company or any Subsidiary.
(xiii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission
or the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect.
(xiv) The Company and each of the Subsidiaries holds all material
licenses, certificates and permits from governmental authorities which are
necessary to the conduct of their respective businesses; and neither the Company
nor any of the Subsidiaries has infringed any patents, patent rights, trade
names, trademarks or copyrights, which infringement is material to the business
of the Company and the Subsidiaries taken as a whole. The Company knows of no
material infringement by others of patents, patent rights, trade names,
trademarks or copyrights owned by or licensed to the Company.
(xv) Neither the Company nor, to the Company's knowledge, any of its
affiliates, has taken, directly or indirectly, any action designed to cause or
result in, or which has constituted
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<PAGE>
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate the sale
or resale of the Shares.
(xvi) Neither the Company nor any Subsidiary is an "investment company"
within the meaning of such term under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations of the Commission
thereunder.
(xvii) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xviii) The Company and each of its Subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the conduct
of their respective businesses and the value of their respective properties.
(xix) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
(xx) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company's officers,
directors or 5% or greater securityholders, except as set forth in the
Registration Statement.
(xxi) Neither the Company nor any of the Selling Stockholders has
distributed and, prior to the later of (i) the Closing Date and (ii) the
completion of the distribution of the shares, will not distribute any offering
material in connection with the offering and sale of the shares other than the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or other materials, if
any, permitted by the Act.
(xxii) The Common Stock has been approved for listing, subject to notice
of issuance on The Nasdaq Stock Market.
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<PAGE>
(xxiii) Except as described in the Prospectus, the Company has no
knowledge indicating that any officer or key employee of the Company intends to
terminate his or her employment or change his or her current position with the
Company.
(xxiv) The information in the Prospectus regarding the Company's
relationships with its Premier Partners is true and correct as of the date of
this Agreement. Exhibit B attached hereto identifies all of the agreements,
understandings and arrangements between the Company and such Premier Partners,
and true and correct copies of such agreements have been provided to counsel for
the Underwriters. Except as set forth on Exhibit B attached hereto, the Company
does not have any material oral agreements or understandings with any of its
Premier Partners, nor does the Company have any contingent obligations to any of
the Premier Partners except as described in the agreements with such Premier
Partners identified on Exhibit B attached hereto. The Company's obligation
and/or liability with respect to each of the Premier Partners in which it has an
ownership stake is limited to $370,000.
(b) Each of the Selling Stockholders severally represents and warrants as
follows:
(i) Except for certain pledged Shares to be sold pursuant to the
Registration Statement, such Selling Stockholder now has and at the Closing Date
and the Option Closing Date, as the case may be (as such dates are hereinafter
defined) will have good and marketable title to the Firm Shares and the Option
Shares to be sold by such Selling Stockholder, free and clear of any liens,
encumbrances, equities and claims, and full right, power and authority to effect
the sale and delivery of such Firm Shares and Option Shares. Upon the delivery
of, against payment for, such Firm Shares and Option Shares pursuant to this
Agreement, the Underwriters will acquire good and marketable title thereto, free
and clear of any liens, encumbrances, equities and claims.
(ii) Such Selling Stockholder has full right, power and authority to
execute and deliver this Agreement, the Power of Attorney, and the Custodian
Agreement referred to below and to perform its obligations under such
Agreements. The execution and delivery of this Agreement and the consummation
by such Selling Stockholder of the transactions herein contemplated and the
fulfillment by such Selling Stockholder of the terms hereof will not require any
consent, approval, authorization, or other order of any court, regulatory body,
administrative agency or other governmental body (except as may be required
under the Act, the regulations of the NASD, state securities laws or Blue Sky
laws) and will not result in a breach of any of the terms and provisions of, or
constitute a default under, organizational documents of such Selling
Stockholder, if not an individual, or any indenture, mortgage, deed of trust or
other agreement or instrument to which such Selling Stockholder is a party, or
of any order, rule or regulation applicable to such Selling Stockholder of any
court or of any regulatory body or administrative agency or other governmental
body having jurisdiction.
(iii) Such Selling Stockholder has not taken, directly or indirectly, any
action designed to stabilize or manipulate, or which has constituted, or which
might reasonably be expected to cause or result in the stabilization or
manipulation, of the price of the Common Stock of the Company and, other than as
permitted by the Act, the Selling Stockholder will not distribute any prospectus
or other offering material in connection with the offering of the Shares.
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<PAGE>
(iv) Without having taken any steps to determine independently the
accuracy or completeness of either the representations and warranties of the
Company contained herein or the information contained in the Registration
Statement, such Selling Stockholder (1) if an officer or director, is familiar
with the Registration Statement and (2) has no knowledge of any material fact,
condition or information not disclosed in the Registration Statement which has
materially adversely affected or may materially adversely affect the business of
the Company and the Subsidiaries taken as a whole; and the sale of the Firm
Shares and the Option Shares by such Selling Stockholder pursuant hereto is not
prompted by any information concerning the Company or any of the Subsidiaries
which is not set forth in the Registration Statement. The information
pertaining to such Selling Stockholder under the caption "Selling Stockholders"
in the Prospectus is complete and accurate in all material respects.
(c) Each of the Selling Stockholders who is also an officer or director of
the Company severally represents and warrants that such Selling Stockholder has
no reason to believe that the representations and warranties of the Company
contained in this Section 1 are not true and correct.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
----------------------------------------------
(a) On the basis of the representations, warranties and covenants herein
contained, and subject to the conditions herein set forth, the Sellers agree to
sell to the Underwriters and each Underwriter agrees, severally and not jointly,
to purchase, at a price of $_____ per share, the number of Firm Shares set forth
opposite the name of each Underwriter in Schedule I hereof, subject to
adjustments in accordance with Section 9 hereof. The number of Firm Shares to
be purchased by each Underwriter from each Seller shall be as nearly as
practicable in the same proportion to the total number of Firm Shares being sold
by each Seller as the number of Firm Shares being purchased by each Underwriter
bears to the total number of Firm Shares to be sold hereunder. The obligations
of the Company and of each of the Selling Stockholders shall be several and not
joint.
(b) Certificates in negotiable form for the total number of the Shares to
be sold hereunder by the Selling Stockholders have been placed in custody with
Chase Mellon Shareholder Services as custodian (the "Custodian") pursuant to the
Custodian Agreement executed by each Selling Stockholder for delivery of all
Firm Shares and any Option Shares to be sold hereunder by the Selling
Stockholders. Such Custodian Agreement shall require that up to all of the
proceeds from the sale of any pledged Shares shall be applied first to the
repayment of the debt secured by such pledged Shares. Each of the Selling
Stockholders specifically agrees that the Firm Shares and any Option Shares
represented by the certificates held in custody for the Selling Stockholders
under the Custodian Agreement are subject to the interests of the Underwriters
hereunder, that the arrangements made by the Selling Stockholders for such
custody are to that extent irrevocable, and that the obligations of the Selling
Stockholders hereunder shall not be terminable by any act or deed of the Selling
Stockholders (or by any other person, firm or corporation including the Company,
the Custodian or the Underwriters) or by operation of law (including the death
of an individual Selling Stockholder or the dissolution of a corporate Selling
Stockholder) or by the occurrence of any other event or events, except as set
forth in the Custodian Agreement. If any such event should occur
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<PAGE>
prior to the delivery to the Underwriters of the Firm Shares or the Option
Shares hereunder, certificates for the Firm Shares or the Options Shares, as the
case may be, shall be delivered by the Custodian in accordance with the terms
and conditions of this Agreement as if such event has not occurred. The
Custodian is authorized to receive and acknowledge receipt of the proceeds of
sale of the Shares held by it against delivery of such Shares.
(c) Payment for the Firm Shares to be sold hereunder is to be made in
Federal (same day) funds to an account designated by the Company for the shares
to be sold by it and to an account designated by the Custodian for the shares to
be sold by the Selling Stockholders, in each case against delivery of
certificates therefor to the Representatives for the several accounts of the
Underwriters. Such payment and delivery are to be made through the facilities
of the Depository Trust Company at 10:00 a.m., New York time, on the fourth
business day after the date of this Agreement or at such other time and date not
later than five business days thereafter as you and the Company shall agree
upon, such time and date being herein referred to as the "Closing Date." (As
used herein, "business day" means a day on which the New York Stock Exchange is
open for trading and on which banks in New York are open for business and not
permitted by law or executive order to be closed.) The certificates for the
Firm Shares will be delivered in such denominations and in such registrations as
the Representatives request in writing not later than the second full business
day prior to the Closing Date, and will be made available for inspection by the
Representatives at least one business day prior to the Closing Date.
(d) In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
and the Selling Stockholders listed on Schedule III hereto hereby grants an
option to the several Underwriters to purchase the Option Shares at the price
per share as set forth in the first paragraph of this Section 2. The maximum
number of Option Shares to be sold by the Company and the Selling Stockholders
is set forth opposite their respective names on Schedule III hereto. The option
granted hereby may be exercised in whole or in part by giving written notice (i)
at any time two or more days before the Closing Date and (ii) only once
thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company, the Attorney-in-
Fact, and the Custodian setting forth the number of Option Shares as to which
the several Underwriters are exercising the option, the names and denominations
in which the Option Shares are to be registered and the time and date at which
such certificates are to be delivered. If the option granted hereby is
exercised in part, the respective number of Option Shares to be sold by the
Company and each of the Selling Stockholders listed in Schedule III hereto shall
be determined on a pro rata basis in accordance with the percentages set forth
opposite their names on Schedule II hereto, adjusted by you in such manner as to
avoid fractional shares. The time and date at which certificates for Option
Shares are to be delivered shall be determined by the Representatives but shall
not be earlier than three nor later than 10 full business days after the
exercise of such option, nor in any event prior to the Closing Date (such time
and date being herein referred to as the "Option Closing Date"). If the date of
exercise of the option is two or more days before the Closing Date, the notice
of exercise shall set the Closing Date as the Option Closing Date. The number
of Option Shares to be purchased by each Underwriter shall be in the same
proportion to the total number of Option Shares being purchased as the number of
Firm Shares being purchased by such Underwriter bears to the total number of
Firm Shares, adjusted by you in such manner as to avoid fractional shares. The
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<PAGE>
option with respect to the Option Shares granted hereunder may be exercised only
to cover over-allotments in the sale of the Firm Shares by the Underwriters.
You, as Representatives of the several Underwriters, may cancel such option at
any time prior to its expiration by giving written notice of such cancellation
to the Company and the Attorney-in-Fact. To the extent, if any, that the option
is exercised, payment for the Option Shares shall be made on the Option Closing
Date in Federal (same day) funds drawn to the order of the Company for the
Option Shares to be sold by it and to the order of "Chase Mellon Shareholder
Services, as Custodian" for the Option Shares to be sold by the Selling
Stockholders against delivery of certificates therefor through the facilities of
the Depository Trust Company, New York, New York.
(e) If on the Closing Date or Option Closing Date, as the case may be, any
Selling Stockholder fails to sell the Firm Shares or Option Shares which such
Selling Stockholder has agreed to sell on such date as set forth in Schedule II
hereto, the Company agrees that it will sell or arrange for the sale of that
number of shares of Common Stock to the Underwriters which represents Firm
Shares or the Option Shares which such Selling Stockholder has failed to so
sell, as set forth in Schedule II hereto, or such lesser number as may be
requested by the Representatives.
3. OFFERING BY THE UNDERWRITERS.
----------------------------
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Shares in accordance with a Master
Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDERS.
-----------------------------------------------------
(a) The Company covenants and agrees with the several Underwriters that:
(i) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations and (C) file on a timely basis all
reports and any definitive proxy or information statements required to be filed
by the Company with the Commission subsequent to the date of the Prospectus and
prior to the termination of the offering of
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<PAGE>
the Shares by the Underwriters.
(ii) The Company will advise the Representatives promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (B) of receipt of any comments from the Commission, (C) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (D) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in endeavoring
to qualify the Shares for sale under the securities laws of such jurisdictions
as the Representatives may reasonably have designated in writing and will make
such applications, file such documents, and furnish such information as may be
reasonably required for that purpose, provided the Company shall not be required
to qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified or required to file
such a consent. The Company will, from time to time, prepare and file such
statements, reports, and other documents, as are or may be required to continue
such qualifications in effect for so long a period as the Representatives may
reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or
before the Closing Date, four signed copies of the Registration Statement and
all amendments thereto including all exhibits filed therewith, and will deliver
to the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(v) The Company will comply with the Act and the Rules and Regulations,
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the Shares as contemplated in this Agreement
and the Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which, in the judgment of the Company or in the reasonable opinion of
the Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances existing
at the time the Prospectus is delivered to a purchaser, not misleading, or, if
it is necessary at any time to amend or supplement the Prospectus to comply with
any law, the Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be
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misleading, or so that the Prospectus will comply with the law.
(vi) Unless the requirement is otherwise satisfied, the Company will
make generally available to its security holders, as soon as it is practicable
to do so, but in any event not later than 16 1/2 months after the effective date
of the Registration Statement, an earning statement (which need not be audited)
in reasonable detail, covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement, which earning
statement shall satisfy the requirements of Section 11(a) of the Act and Rule
158 of the Rules and Regulations and will advise you in writing when such
statement has been so made available.
(vii) Prior to the Closing Date, the Company will furnish to the
Underwriters, as soon as they have been prepared by or are available to the
Company, a copy of any unaudited interim consolidated financial statements of
the Company for any period subsequent to the period covered by the most recent
financial statements appearing in the Registration Statement and the Prospectus.
(viii) No offering, sale, short sale or other disposition of any shares of
Common Stock of the Company or other securities convertible into or exchangeable
or exercisable for shares of Common Stock or derivative of Common Stock (or
agreement for such) will be made for a period of 180 days after the date of this
Agreement, directly or indirectly, by the Company, including any grants of
options which are immediately exercisable for some or all of the shares covered
by the option within 180 days after the date of this Agreement, otherwise than
hereunder or with the prior written consent of BT Alex. Brown Incorporated,
except (i) the Company's issuance of Common Stock upon the exercise of warrants
and stock options that are presently outstanding and described as such in the
Prospectus, or any other issuance of options or Common Stock hereafter under the
option or equity incentive plans described in the Prospectus, provided that no
such issuance of Common Stock results from any acceleration of vesting of any
such security, (ii) the Company's issuance of Common Stock under the employee
stock purchase plan described in the Prospectus and (iii) the Company's issuance
of shares of Common Stock in acquisitions of other corporations or entities
provided that (1) the aggregate number of shares issued in all such acquisitions
represents less than 20% of the Company's then outstanding shares of Common
Stock, (2) subject to applicable pooling of interests rule, the Company has
taken reasonable steps to ensure that such shares may not be resold during the
180 days after the date of the Prospectus and (3) the Company provides written
notice to BT Alex. Brown of such acquisition at least five (5) days prior to
concluding a term sheet, memorandum of understanding or similar agreement with a
party.
(ix) The Company will use its best efforts to list, subject to notice of
issuance, the Shares on The Nasdaq Stock Market.
(x) The Company will cause each officer and director and specific
stockholders of the Company to furnish to you, on or prior to the date of this
agreement, a letter or letters, in form and substance satisfactory to the
Underwriters, pursuant to which each such person will agree not to offer, sell,
sell short or otherwise dispose of any shares of Common Stock of the Company or
other capital stock of the Company, or any other securities convertible,
exchangeable or exercisable for
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Common Shares or derivative of Common Shares owned by such person or request the
registration for the offer or sale of any of the foregoing (or as to which such
person has the right to direct the disposition of) for a period of 180 days
after the date of this Agreement, directly or indirectly, except with the prior
written consent of BT Alex. Brown Incorporated ("Lockup Agreements").
(xi) The Company will apply the net proceeds of its sale of the Shares as
set forth in the Prospectus and will file such reports with the Commission with
respect to the sale of the Shares and the application of the proceeds therefrom
as may be required in accordance with Rule 463 under the Act.
(xii) The Company will not invest, or otherwise use, the proceeds received
by the Company from its sale of the Shares, in such a manner as would require
the Company or any of the Subsidiaries to register as an investment company
under the 1940 Act.
(xiii) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar for the Common
Stock.
(xiv) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that might reasonably be expected to
constitute, the stabilization or manipulation of the price of any securities of
the Company.
(b) Each of the Selling Stockholders, severally but not jointly, covenants
and agrees with the several Underwriters that:
(i) Such Selling Stockholder will not offer, sell, sell short or
otherwise dispose of any shares of Common Stock or other capital stock of the
Company or other securities convertible, exchangeable or exercisable for Common
Stock or derivative of Common Stock owned by such Selling Stockholder or request
the registration for the offer or sale of any of the foregoing (or as to which
such Selling Stockholder has the right to direct the disposition of) for a
period of 180 days after the date of this Agreement, directly or indirectly,
otherwise than hereunder or with the prior written consent of BT Alex. Brown
Incorporated.
(ii) In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Tax Equity and Fiscal Responsibility Act of
1982 and the Interest and Dividend Tax Compliance Act of 1983 with respect to
the transactions herein contemplated, such Selling Stockholder will deliver to
you prior to or at the Closing Date a properly completed and executed United
States Treasury Department Form W-8 or W-9 (or other applicable form or
statement specified by Treasury Department regulations in lieu thereof).
(iii) Such Selling Stockholder will not take, directly or indirectly, any
action designed to cause or result in, or that might reasonably be expected to
constitute, the stabilization or manipulation of the price of any securities of
the Company.
5. COSTS AND EXPENSES.
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The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Sellers under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting
fees of the Company; the fees and disbursements of counsel for the Company and
the Selling Stockholders; the cost of printing and delivering to, or as
requested by, the Underwriters copies of the Registration Statement, Preliminary
Prospectuses, the Prospectus, and any supplements or amendments thereto; the
filing fees of the Commission; the filing fees and expenses (including legal
fees and disbursements of counsel for the Underwriters) incident to securing any
required review by the National Association of Securities Dealers, Inc. (the
"NASD") of the terms of the sale of the Shares; the Listing Fee of The Nasdaq
Stock Market; and the expenses, including the fees and disbursements of counsel
for the Underwriters, incurred in connection with the qualification of the
Shares under State securities or Blue Sky laws. Any transfer taxes imposed on
the sale of the Shares to the several Underwriters will be paid by the Sellers
pro rata. The Company agrees to pay all costs and expenses of the Underwriters,
including the fees and disbursements of counsel for the Underwriters, incident
to the offer and sale of directed shares of the Common Stock by the Underwriters
to employees and persons having business relationships with the Company and its
Subsidiaries. The Sellers shall not, however, be required to pay for any of the
Underwriters expenses (other than those related to qualification under NASD
regulations and State securities or Blue Sky laws) except that, if this
Agreement shall not be consummated because the conditions in Section 6 hereof
are not satisfied, or because this Agreement is terminated by the
Representatives pursuant to Section 11(i) or (vi) hereof, or by reason of any
failure, refusal or inability on the part of the Company or the Selling
Stockholders to perform any undertaking or satisfy any condition of this
Agreement or to comply with any of the terms hereof on their part to be
performed, unless such failure to satisfy said condition or to comply with said
terms be due to the default or omission of any Underwriter, then the Company
shall reimburse the several Underwriters for out-of-pocket expenses, including
fees and disbursements of counsel, reasonably incurred in connection with
investigating, marketing and proposing to market the Shares or in contemplation
of performing their obligations hereunder; but the Company and the Selling
Stockholders shall not in any event be liable to any of the several Underwriters
for damages on account of loss of anticipated profits from the sale by them of
the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
---------------------------------------------
The several obligations of the Underwriters to purchase the Firm Shares on
the Closing Date and the Option Shares, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company and the
Selling Stockholders contained herein, and to the performance by the Company and
the Selling Stockholders of their covenants and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement and all post-effective amendments thereto
shall have become effective and any and all filings required by Rule 424 and
Rule 430A of the Rules and Regulations shall have been made, and any request of
the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued
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and no proceedings for that purpose shall have been taken or, to the knowledge
of the Company or the Selling Stockholders, shall be contemplated by the
Commission and no injunction, restraining order, or order of any nature by a
Federal or state court of competent jurisdiction shall have been issued as of
the Closing Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Fenwick & West LLP,
counsel for the Company and Selling Stockholders who are directors or officers
of the Company, dated the Closing Date or the Option Closing Date, as the case
may be, addressed to the Underwriters to the effect that:
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and corporate authority to own or lease its properties and
conduct its business as described in the Registration Statement; the Company is
duly qualified to transact business in all jurisdictions in which the conduct of
its business requires such qualification and in which the failure to qualify
would have a materially adverse effect upon the business of the Company and the
Subsidiaries taken as a whole.
(ii) The Company had authorized and outstanding capital stock as set forth
under the caption "Capitalization" in the Prospectus as of the date and based on
the assumptions stated therein; the authorized shares of the Company's Common
Stock have been duly authorized; the outstanding shares of the Company's Common
Stock, including the Shares to be sold by the Selling Stockholders, have been
duly authorized and validly issued and are non-assessable and, to such counsel's
knowledge, fully paid; all of the Shares conform in all material respects to the
description thereof contained in the Prospectus; the certificates for the
Shares, assuming they are in the form filed with the Commission, are in due and
proper form in all material respects; the shares of Common Stock, including the
Option Shares to be sold by the Company pursuant to this Agreement, have been
duly authorized and will be validly issued, fully paid and non-assessable when
issued and paid for as set forth in this Agreement; and, to such counsel's
knowledge, no preemptive rights of stockholders exist with respect to any of the
Shares or the issue or sale thereof.
(iii) Except as described in or contemplated by the Prospectus, to such
counsel's knowledge, there are no outstanding securities of the Company
convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company; and, except as
described in or contemplated by the Prospectus, to such counsel's knowledge,
there are no outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to such counsel's knowledge, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any Common Shares or other securities of the Company
included in the Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under the Act of any
shares of Common Stock or other securities of the Company.
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(iv) Based solely upon oral advice of the Staff of the Commission, the
Registration Statement has become effective under the Act and, to such counsel's
knowledge, no stop order proceedings with respect thereto have been instituted
or are pending or threatened under the Act.
(v) The Registration Statement, the Prospectus and each amendment or
supplement thereto comply as to form in all material respects with the
requirements of the Act and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the consolidated
financial statements, the related notes and related schedules thereto or the
other financial and statistical data in the Prospectus).
(vi) The statements under the captions "Business -- Legal Proceedings,"
"Management -- Employee Benefit Plans," "Certain Transactions," "Description of
Capital Stock" and "Shares Eligible for Future Sale" in the Prospectus, insofar
as such statements constitute a summary of documents referred to therein or of
matters of law, fairly summarize in all material respects the information called
for with respect to such documents and matters.
(vii) Such counsel does not know of any contracts or documents required to
be filed as exhibits to the Registration Statement or required to be described
in the Registration Statement or the Prospectus which are not so filed or
described therein, and such contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized in all material
respects.
(viii) Such counsel knows of no material legal or governmental proceedings
pending or overtly threatened against the Company except as set forth in the
Prospectus.
(ix) To such counsel's knowledge, the execution and delivery of this
Agreement and the consummation of the transactions herein set forth do not and,
as of the Closing Date, will not conflict with or result in a material breach of
any of the terms or provisions of, or constitute a material default under, the
Charter or By-Laws of the Company, or any agreement or instrument identified in
Schedule I to be attached to such opinion, which shall include agreements
delivered to counsel for the Underwriters in connection with its due diligence
review.
(x) This Agreement has been duly authorized, executed and delivered by the
Company.
(xi) No approval, consent, order, authorization, designation, declaration
or filing by or with any regulatory, administrative or other governmental body
is necessary in connection with the execution and delivery of this Agreement and
the consummation of the transactions herein set forth (other than as may be
required by the NASD or as required by State securities and Blue Sky laws as to
which such counsel need express no opinion) except such as have been obtained or
made.
(xii) The Company is not, and will not become as a result of the
consummation of the transactions contemplated by this Agreement and application
of the net proceeds therefrom as described in the Prospectus, required to
register as an investment company under the 1940 Act.
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<PAGE>
(xiii) This Agreement has been duly authorized, executed and delivered on
behalf of the Selling Stockholders.
(xiv) To such counsel's knowledge, each Selling Stockholder has full legal
right, power and authority, and any approval required by law (other than as
required by the NASD rules and regulations or as required by State securities
and Blue Sky laws as to which such counsel need express no opinion), to sell,
assign, transfer and deliver the portion of the Shares to be sold by such
Selling Stockholder.
(xv) The Custodian Agreement and the Power of Attorney executed and
delivered by each Selling Stockholder is valid and binding.
(xvi) Upon delivery of and payment for the Shares to be sold by the Selling
Stockholders as provided in this Agreement, and upon the issuance by the Company
of stock certificates therefor, the Underwriters will be the beneficial owners
of such Shares, free and clear of any adverse claim, provided that (a) neither
the Underwriters nor their nominees grant any right, title or interest in or to
such Shares to any person or entity prior to sale of such Shares to the public,
(b) the Underwriters are purchasing such Shares in good faith and (c) the
Underwriters, together with their nominees (if any), hold such Shares without
notice of any adverse claim.
In rendering such opinion Fenwick & West LLP may rely as to matters
governed by the laws of states other than California, Delaware or Federal laws
on local counsel in such jurisdictions, provided that in each case Fenwick &
West LLP shall state that they believe that they and the Underwriters are
justified in relying on such other counsel. In rendering opinions (xiii) -
(xvi), Fenwick & West LLP may rely, and state that it is relying, solely upon
the representations and warranties contained herein and in the Powers of
Attorney and Custodian Agreements executed by the Selling Shareholders, provided
that it confirms that it does not know such representations and warranties are
materially inaccurate. In addition to the matters set forth above, such opinion
shall also include a statement to the effect that nothing has come to the
attention of such counsel which causes them to believe that (i) the Registration
Statement, at the time it became effective under the Act (but after giving
effect to any modifications incorporated therein pursuant to Rule 430A under the
Act) contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading (except that such counsel may exclude from the scope of
its statement the consolidated financial statements, the notes and schedules
thereto and the other financial and statistical information in the Prospectus),
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel may exclude from the scope of its statement
the consolidated financial statements, the notes and schedules thereto and the
other financial and statistical information in the Prospectus). With respect to
such statement, Fenwick & West LLP may state that their statement is based upon
the procedures set forth therein, but is without independent check and
verification.
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(c) The Representatives shall have received from Venture Law Group, a
Professional Corporation, counsel for the Underwriters, an opinion dated the
Closing Date or the Option Closing Date, as the case may be, substantially to
the effect specified in subparagraphs (ii), (iii), (iv), (ix) and (xi) of
Paragraph (b) of this Section 6, and that the Company is a duly organized and
validly existing corporation under the laws of the State of Delaware. In
rendering such opinion Venture Law Group may rely as to all matters governed
other than by the laws of the State of California or Delaware or Federal laws on
the opinion of counsel referred to in Paragraph (b) of this Section 6. In
addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
which leads them to believe that (i) the Registration Statement, or any
amendment thereto, as of the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading (except that such counsel may exclude from the
scope of its statement the consolidated financial statements, the notes and
schedules thereto and the other financial and statistical information in the
Prospectus), and (ii) the Prospectus, or any supplement thereto, on the date it
was filed pursuant to the Rules and Regulations and as of the Closing Date or
the Option Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact, necessary in order to make
the statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel may exclude from the scope of its statement
the consolidated financial statements, the notes and schedules thereto and the
other financial and statistical information in the Prospectus). With respect to
such statement, Venture Law Group may state that their belief is based upon the
procedures set forth therein, but is without independent check and verification.
(d) The Representatives shall have received from The Skornia Law Firm an
opinion dated the Closing Date or the Option Closing Date, as the case may be,
substantially to the effect specified in subparagraphs (ii), (iii), (vii) and
(viii) of Paragraph (b) of this Section 6. In rendering such opinion, The
Skornia Law Firm may rely as to matters governed by the laws of states other
than California, Delaware or Federal laws on local counsel in such
jurisdictions, provided that in each case such law firm shall state that it
believes that it and the Underwriters are justified in relying on such other
counsel. In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration Statement, or any
amendment thereto, as of the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) as of the Closing Date or the Option Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading (except that such counsel may exclude from the scope of
its statement the consolidated financial statements, the notes and schedules
thereto and the other financial and statistical information in the Prospectus),
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact, necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel may exclude from the scope of its statement
the consolidated financial statements,
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the notes and schedules thereto and the other financial and statistical
information in the Prospectus). With respect to such statement, The Skornia Law
Firm may state that its belief is based upon the procedures set forth therein,
but is without independent check and verification.
(e) The Representatives shall have received from Steel Hector & Davis LLP
an opinion dated the Closing Date or the Option Closing Date, as the case may
be, as follows: "Each of the Company's Subsidiares has been duly organized and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with corporate power and corporate authority
to own or lease its properties and conduct its business as described in the
Registration Statement; each of the Subsidiaries is duly qualified to transact
business in all jurisdictions in which the conduct of their business requires
such qualification and in which the failure to qualify would have a materially
adverse effect upon the business of the Company and the Subsidiaries taken as a
whole; and the outstanding shares of capital stock of each of the Subsidiaries
have been duly authorized and validly issued and are fully paid and non-
assessable and are owned by the Company or a Subsidiary to the extent set forth
in the Registration Statement; and, to the best of such counsel's knowledge, the
outstanding shares of capital stock of each of the Subsidiaries owned by the
Company is owned free and clear of all liens, encumbrances and equities and
claims, and no options, warrants or other rights to purchase, agreements or
other obligations to issue or other rights to convert any obligations into any
shares of capital stock or of ownership interests in the Subsidiaries are
outstanding." In rendering such opinion, Steel Hector & Davis LLP may rely as
to matters governed by the laws of states other than Florida, Delaware or
Federal laws on local counsel in such jurisdictions, provided that in each case
such law firm shall state that it believes that it and the Underwriters are
justified in relying on such other counsel. In addition to the matters set
forth above, such opinion shall also include a statement to the effect that
nothing has come to the attention of such counsel which leads them to believe
that (i) the Registration Statement, or any amendment thereto, as of the time it
became effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading
(except that such counsel may exclude from the scope of its statement the
consolidated financial statements, the notes and schedules thereto and the other
financial and statistical information in the Prospectus), and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary in order to make the statements, in the light
of the circumstances under which they are made, not misleading (except that such
counsel may exclude from the scope of its statement the consolidated financial
statements, the notes and schedules thereto and the other financial and
statistical information in the Prospectus). With respect to such statement,
Steel Hector & Davis LLP may state that its belief is based upon the procedures
set forth therein, but is without independent check and verification.
(f) The Representatives shall have received, on the date hereof, the
Closing Date and the Option Closing Date, as the case may be, a letter dated the
date hereof, the Closing Date or the Option Closing Date, as the case may be, in
form and substance satisfactory to you, of Coopers & Lybrand L.L.P. confirming
that they are independent public accountants within the meaning of the Act and
the applicable published Rules and Regulations thereunder and stating that in
their opinion
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the consolidated financial statements and schedules examined by them and
included in the Registration Statement comply in form in all material respects
with the applicable accounting requirements of the Act and the related published
Rules and Regulations; and containing such other statements and information as
is ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(g) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and the Chief Financial Officer of the Company to the
effect that, as of the Closing Date or the Option Closing Date, as the case may
be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the Act
and no stop order suspending the effectiveness of the Registrations Statement
has been issued, and no proceedings for such purpose have been taken or are, to
his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company contained in
Section 1 hereof are true and correct in all material respects as of the Closing
Date or the Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules 424
or 430A under the Act have been made;
(iv) He has carefully examined the Registration Statement and the
Prospectus and, in his opinion, as of the effective date of the Registration
Statement, the statements contained in the Registration Statement were true and
correct, and such Registration Statement and Prospectus did not omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, and since the effective date of the
Registration Statement, no event has occurred which should have been set forth
in a supplement to or an amendment of the Prospectus which has not been so set
forth in such supplement or amendment; and
(v) Since the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole or the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and the Subsidiaries taken as a whole, whether or not
arising in the ordinary course of business.
(g) The Company and the Selling Stockholders shall have furnished to the
Representatives such further certificates and documents confirming the
representations and warranties, covenants and conditions contained herein and
related matters as the Representatives may reasonably have requested.
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(h) The Firm Shares and Option Shares, if any, have been approved for
designation upon notice of issuance on the NASDAQ Stock Market.
(i) The Lockup Agreements described in Section 4(x) are in full force and
effect.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects reasonably satisfactory to the Representatives and to Venture Law
Group, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company and the Selling Stockholders of such
termination in writing or by telegram at or prior to the Closing Date or the
Option Closing Date, as the case may be.
In such event, the Selling Stockholders, the Company and the Underwriters
shall not be under any obligation to each other (except to the extent provided
in Sections 5 and 8 hereof).
7. Conditions of the Obligations of the Sellers.
--------------------------------------------
The obligations of the Sellers to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. Indemnification.
---------------
(a) The Company agrees:
(i) to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of the Act,
against any losses, claims, damages or liabilities to which such Underwriter or
any such controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, (ii) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) untrue statement or alleged untrue
statement of material fact or any omission or alledged omission to state a
material fact in any written material prepared by any Underwriter in connection
with, or relating in any manner to, the Shares or the offering contemplated
hereby, and which is included as part of or referred to in any loss, claim,
damage, liability or action arising out of or based upon matters covered by
clause (i) or (ii) above (provided, that the Company shall not be liable under
this clause (iii) to the extent that it is determined in a final judgment by a
court of competent jurisdiction that such loss, claim, damage, liability or
action resulted from any such
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statement or omission by such Underwriter through its negligence or willful
misconduct); provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement, or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof and provided
further that the foregoing indemnity agreement with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Shares, or any person controlling such Underwriter, if a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person at or prior to the written confirmation of the sale
of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such losses, claims,
damages or liabilities, unless such failure is the result of non-compliance by
the Company with Section 4(a)(iv). This indemnity obligation will be in addition
to any liability which the Company may otherwise have.
(ii) to reimburse each Underwriter and each such controlling person
upon demand for any legal or other out-of-pocket expenses reasonably incurred by
such Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage or liability, action or proceeding or in
responding to a subpoena or governmental inquiry related to the offering of the
Shares, whether or not such Underwriter or controlling person is a party to any
action or proceeding. In the event that it is finally judicially determined that
the Underwriters were not entitled to receive payments for legal and other
expenses pursuant to this subparagraph, the Underwriters will promptly return
all sums that had been advanced pursuant hereto together with interest,
compounded daily, determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) announced from time
to time by Bank of America NT&SA, San Francisco, California (the "Prime Rate").
(b) The Selling Stockholders, severally and not jointly, agree to
indemnify the Underwriters and each person, if any, who controls any Underwriter
within the meaning of the Act, against any losses, claims, damages or
liabilities to which such Underwriter or controlling person may become subject
under the Act or otherwise to the same extent as indemnity is provided by the
Company pursuant to Section 8(a) above, provided that each Selling Stockholder
who is not an officer or director of the Company will be liable in any such case
only to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement, or omission or
alleged omission, made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, in reliance
upon and in conformity with written information furnished to the Company by such
Selling Stockholder specifically for use in the preparation thereof. In
addition, no Selling Stockholder shall be required to provide indemnification
hereunder until the Underwriter or person seeking indemnification shall have
first made a demand for payment on the Company with respect to any such loss,
claim, damage, or liability and the Company shall have either rejected such
demand or shall fail to make such requested payment within ninety (90) days
after receipt of such demand.
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In addition, the foregoing indemnity agreement with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Shares, or any person controlling such Underwriter, if a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person at or prior to the written confirmation of the sale
of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such losses, claims,
damages or liabilities, unless such failure is the result of non-compliance by
the Company with Section 4(a)(iv). This indemnity obligation will be in addition
to any liability which the Selling Stockholders may otherwise have.
(c) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who has signed
the Registration Statement, the Selling Stockholders, and each person, if any,
who controls the Company or a Selling Stockholder within the meaning of the Act,
against any losses, claims, damages or liabilities to which the Company or any
such director, officer, Selling Stockholder or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made; and will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, Selling Stockholder or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding or in responding to a subpoena or governmental inquiry related to the
offering of the Shares, whether or not such Underwriter or controlling person is
a party to any action or proceeding; provided, however, that each Underwriter
will be liable in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission has
been made in the Registration Statement, any Preliminary Prospectus, the
Prospectus or such amendment or supplement, in reliance upon and in conformity
with written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have.
(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a), (b) or (c) shall be available to any party who shall fail to give notice
as provided in this Section 8(d) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a), (b) or (c). In case
any such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the
-23-
<PAGE>
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party and shall pay as incurred the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the indemnifying party shall pay as incurred (or
within 30 days of presentation) the fees and expenses of the counsel retained by
the indemnified party in the event (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel,
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them or (iii) the indemnifying party shall
have failed to assume the defense and employ counsel acceptable to the
indemnified party within a reasonable period of time after notice of
commencement of the action. It is understood that the indemnifying party shall
not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. Such firm shall be designated in
writing by you in the case of parties indemnified pursuant to Section 8(a) or
(b) and by the Company and the Selling Stockholders in the case of parties
indemnified pursuant to Section 8(c). The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(e) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under Section 8(a), (b)
or (c) above in respect of any losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other from the offering
of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the Selling Stockholders on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling Stockholders
bear to the total underwriting
-24-
<PAGE>
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Selling Stockholders on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company, the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this Section 8(e)
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
8(e). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 8(e) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (e), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter, and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this Section 8(e) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
-25-
<PAGE>
(h) Anything herein to the contrary notwithstanding, the aggregate
liability of any Selling Stockholder under this Agreement, including without
limitation liability as a result of the representations and warranties in
Section 1 hereof and the indemnification, contribution and reimbursement
provisions of Section 8 hereof, shall be limited to the lesser of (i) that
portion of the total of such losses, claims, damages or liabilities indemnified
or contributed against equal to the proportion of the total shares sold
hereunder which is being sold by such Selling Shareholder or (ii) the net
proceeds received by such Selling Stockholder from the Underwriters in the
offering made hereunder.
9. Default by Underwriters.
-----------------------
If on the Closing Date or the Option Closing Date, as the case may be, any
Underwriter shall fail to purchase and pay for the portion of the Shares which
such Underwriter has agreed to purchase and pay for on such date (otherwise than
by reason of any default on the part of the Company or a Selling Stockholder),
you, as Representatives of the Underwriters, shall use your reasonable efforts
to procure within 36 hours thereafter one or more of the other Underwriters, or
any others, to purchase from the Company and the Selling Stockholders such
amounts as may be agreed upon and upon the terms set forth herein, the Firm
Shares or Option Shares, as the case may be, which the defaulting Underwriter or
Underwriters failed to purchase. If during such 36 hours you, as such
Representatives, shall not have procured such other Underwriters, or any others,
to purchase the Firm Shares or Option Shares, as the case may be, agreed to be
purchased by the defaulting Underwriter or Underwriters, then (a) if the
aggregate number of shares with respect to which such default shall occur does
not exceed 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the other Underwriters shall be obligated, severally, in proportion to
the respective numbers of Firm Shares or Option Shares, as the case may be,
which they are obligated to purchase hereunder, to purchase the Firm Shares or
Option Shares, as the case may be, which such defaulting Underwriter or
Underwriters failed to purchase, or (b) if the aggregate number of shares of
Firm Shares or Option Shares, as the case may be, with respect to which such
default shall occur exceeds 10% of the Firm Shares or Option Shares, as the case
may be, covered hereby, the Company and the Selling Stockholders or you as the
Representatives of the Underwriters will have the right, by written notice given
within the next 36-hour period to the parties to this Agreement, to terminate
this Agreement without liability on the part of the non-defaulting Underwriters
or of the Company or of the Selling Stockholders except to the extent provided
in Section 8 hereof. In the event of a default by any Underwriter or
Underwriters, as set forth in this Section 9, the Closing Date or Option Closing
Date, as the case may be, may be postponed for such period, not exceeding seven
days, as you, as Representatives, may determine in order that the required
changes in the Registration Statement or in the Prospectus or in any other
documents or arrangements may be effected. The term "Underwriter" includes any
person substituted for a defaulting Underwriter. Any action taken under this
Section 9 shall not relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.
10. Notices.
-------
All communications hereunder shall be in writing and, except as otherwise
provided herein,
-26-
<PAGE>
will be mailed, delivered, telecopied or telegraphed and confirmed as follows:
if to the Underwriters, to BT Alex. Brown Incorporated, One South Street,
Baltimore, Maryland 21202, Attention: General Counsel; with a copy to BT
Alex. Brown Incorporated, One Bankers Trust Plaza, 130 Liberty Street, New York,
New York 10006, Attention: General Counsel; if to the Company or the Selling
Stockholders, to Hiway Technologies, Inc., 5050 Blue Lake Drive, Suite 100, Boca
Raton, Florida 33431, Attention: Arthur L. Calhoun, with a copy to: Laird H.
Simons III, Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California
94306.
11. Termination.
-----------
(a) This Agreement may be terminated by you by notice to the Company and
the Sellers at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company and
its Subsidiaries taken as a whole, whether or not arising in the ordinary course
of business, (ii) any outbreak or escalation of hostilities or declaration of
war or national emergency or other national or international calamity or crisis
or change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable or inadvisable to market the Shares or to enforce contracts for
the sale of the Shares, (iii) suspension of trading in securities generally on
the New York Stock Exchange or the American Stock Exchange or limitation on
prices (other than circuit breakers or limitations on hours or numbers of days
of trading) for securities on either such Exchange, (iv) the enactment,
publication, decree or other promulgation of any statute, regulation, rule or
order of any court or other governmental authority which in your reasonable
opinion materially and adversely affects or may materially and adversely affect
the business or operations of the Company, (v) declaration of a banking
moratorium by United States or New York State authorities, (vi) the suspension
of trading of the Company's common stock by The Nasdaq Stock Market, the
Commission, or any other governmental authority, or (vii) the taking of any
action by any governmental body or agency in respect of its monetary or fiscal
affairs which in your reasonable opinion has a material adverse effect on the
securities markets in the United States; or
(b) as provided in Sections 6 and 9 of this Agreement.
12. Successors.
----------
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and the Selling Stockholders and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of such
purchase.
13. Information Provided by Underwriters.
------------------------------------
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<PAGE>
The Company, the Selling Stockholders and the Underwriters acknowledge and
agree that the only information furnished or to be furnished by any Underwriter
to the Company for inclusion in any Prospectus or the Registration Statement
consists of the information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters), legends required
by Item 502(d) of Regulation S-K under the Act and the information under the
caption "Underwriting" in the Prospectus.
14. Miscellaneous.
-------------
The reimbursement, indemnification and contribution agreements contained in
this Agreement and the representations, warranties and covenants in this
Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of
any Underwriter or controlling person thereof, or by or on behalf of the Company
or its directors or officers and (c) delivery of and payment for the Shares
under this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Maryland.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Stockholders, the
Company and the several Underwriters in accordance with its terms.
-28-
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Stockholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and
binding Power of Attorney which authorizes such Attorney-in-Fact to take such
action.
Very truly yours,
HIWAY TECHNOLOGIES, INC.
By
___________________________________
Arthur L. Cahoon,
Chairman and Chief Executive Officer
Selling Stockholders listed on Schedule II
By
____________________________________
Attorney-in-Fact
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
BT ALEX. BROWN INCORPORATED
___________________________________
___________________________________
As Representatives of the several
Underwriters listed on Schedule I
By: BT Alex. Brown Incorporated
By:
________________________________
Authorized Officer
-29-
<PAGE>
EXHIBIT A
---------
SUBSIDIARIES
RapidSite, Inc., a Florida corporation, and each of the Premier Partners or
Value Added Resellers of the Company in which the Company has taken an equity
ownership interest, including, but not limited to, its Premier Partners in the
United Kingdom, Germany, France and Japan.
<PAGE>
EXHIBIT B
---------
LIST OF AGREEMENTS WITH PREMIER PARTNERS
Set forth below is a list of all of the agreements between the Company and
each of its Premier Partners. Except as set forth below, no other agreement,
written or oral, exists between the Company and its Premier Partners.
A. United Kingdom: RapidSite Ltd.
1. Memorandum of Association; and
2. Articles of Association.
B. Germany: WWW Service Online Dienstleistungen GmbH
1. Purchase Contract Assignment of Shares between Holger Helbut Gerlach
and Todd Treusdell acting on behalf of Hiway Technologies dated as of June 18,
1997;
2. Assignment of Shares between Stefan Kreidl and Ulrich Kuchenreuther
dated as of September 17, 1997;
4. Special License Agreement between Hiway and WWW-Service Online, dated
as of December 22, 1996; and
5. Premier Partner Agreement between Hiway and WWW-Service Online dated as
of January 1, 1997.
C. Japan: RapidSite Kabushiki Kaisha
1. Registration Record;
2. Articles of Incorporation;
3. Joint Venture Agreement between Hiway and Isle, Inc.; and
4. Premier Partner Agreement between RapidSite and Isle, Inc. dated as of
August 29, 1997.
D. France: RapidSite France
1. Bylaws;
2. Agreement between RapidSite, Mr. Perrin and Mr. Le Meur appointing Mrs.
Le Meur manager of RapidSite France, dated as of October 6, 1997; and
3. Premier Partner Agreement between RapidSite, Inc. and RapidSite France
dated as of September 4, 1997
<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
Number of Firm Shares
Underwriter to be Purchased
----------- ------------------------
BT Alex. Brown Incorporated
----------
Total
----------
<PAGE>
SCHEDULE II
SCHEDULE OF SELLING STOCKHOLDERS
Number of Firm Shares
Selling Stockholder to be Sold
------------------- -----------------------------------
----------
Total
----------
<PAGE>
SCHEDULE III
SCHEDULE OF OPTION SHARES
Maximum Number Percentage of
of Option Shares Total Number of
Name of Seller to be Sold Option Shares
-------------- -------------------------- -----------------
--------- ---------
Total 100%
--------- ---------
<PAGE>
EXHIBIT 2.01
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Merger Agreement") is made as
----------------
of _________, 1998 by and between Best Internet Communications, Inc., a
California corporation ("Best California"), and Hiway Technologies, Inc., a
---------------
Delaware corporation ("Hiway Delaware"). Best California and Hiway Delaware are
--------------
hereinafter sometimes collectively referred to as the "Constituent
-----------
Corporations."
- ------------
R E C I T A L S
---------------
A. Best California was incorporated on September 21, 1994, Its
current authorized capital stock consists of: (1) 60,000,000 shares of Common
Stock, no par value ("Best California Common Stock"), of which ____________
----------------------------
shares are issued and outstanding; and (2) 10,000,000 shares of Preferred Stock,
no par value ("Best California Preferred Stock"), none of which are issued and
-------------------------------
outstanding.
B. Hiway Delaware was incorporated on June 4, 1998. Its authorized
capital stock consists of: (1) 60,000,000 shares of Common Stock, with a par
value of $0.001 per share ("Hiway Delaware Common Stock"), of which 1,000 shares
---------------------------
are issued and outstanding; and (2) 10,000,000 shares of Preferred Stock, $0.001
par value per share ("Hiway Delaware Preferred Stock"), none of which are issued
------------------------------
and outstanding.
C. The respective Boards of Directors of Best California and Hiway
Delaware deem it advisable and to the advantage of each of the Constituent
Corporations that Best California merge with and into Hiway Delaware upon the
terms and subject to the conditions set forth in this Merger Agreement for the
purpose of effecting a change of the state of incorporation of Best California
from California to Delaware, changing the name of Best California to Hiway
Technologies, Inc. and effecting a one-for-two reverse stock split in which the
outstanding securities of Best California will be combined, on a two-for-one
basis, into securities of Hiway Delaware.
D. The Boards of Directors of each of the Constituent Corporations
have approved this Merger Agreement.
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization
set forth in this Merger Agreement and do hereby agree that Best California
shall merge with and into Hiway Delaware on the following terms, conditions and
other provisions:
1. MERGER AND EFFECTIVE TIME. At the Effective Time (as defined
-------------------------
below), Best California shall be merged with and into Hiway Delaware (the
"Merger"), and Hiway Delaware shall be the surviving corporation of the Merger
------
(the "Surviving Corporation"). The Merger shall become effective upon the close
---------------------
of business on the date when a duly executed copy of this Merger Agreement,
along with all required officers' certificates, is filed with the Secretary of
State of the State of California, or upon the close of business on the date when
a duly executed
<PAGE>
Hiway Technologies, Inc.
Agreement and Plan of Merger
copy of this Merger Agreement, along with all required officers' certificates,
is filed with the Secretary of State of the State of Delaware , whichever later
occurs (the "Effective Time").
--------------
2. EFFECT OF MERGER. At the Effective Time, the separate corporate
----------------
existence of Best California shall cease; the corporate identity, existence,
powers, rights and immunities of Hiway Delaware as the Surviving Corporation
shall continue unimpaired by the Merger; and Hiway Delaware shall succeed to and
shall possess all the assets, properties, rights, privileges, powers,
franchises, immunities and purposes, and be subject to all the debts,
liabilities, obligations, restrictions and duties of Best California, all
without further act or deed.
3. GOVERNING DOCUMENTS. At the Effective Time, the Certificate of
-------------------
Incorporation of Hiway Delaware in effect immediately prior to the Effective
Time shall become the Certificate of Incorporation of the Surviving Corporation
and the Bylaws of Hiway Delaware in effect immediately prior to the Effective
Time shall become the Bylaws of the Surviving Corporation.
4. DIRECTORS AND OFFICERS. At the Effective Time, the directors and
----------------------
officers of Hiway Delaware shall be and become the directors and officers
(holding the same titles and positions) of the Surviving Corporation and after
the Effective Time shall serve in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation.
5. CONVERSION OF SHARES OF BEST CALIFORNIA. Subject to the terms and
---------------------------------------
conditions of this Agreement, at the Effective Time, each share of Best
California Common Stock outstanding immediately prior thereto shall be
automatically changed and converted into one-half of one fully paid and
nonassessable, issued and outstanding share of Hiway Delaware Common Stock
(subject to the elimination of fractional shares as provided in Section 9
below).
6. CANCELLATION OF SHARES OF HIWAY DELAWARE . At the Effective Time,
-----------------------------------------
all of the previously issued and outstanding shares of Hiway Delaware Common
Stock that were issued and outstanding immediately prior to the Effective Time
shall be automatically retired and canceled.
7. STOCK CERTIFICATES. At and after the Effective Time, all of the
------------------
outstanding certificates that, prior to that date, represented shares of Best
California Common Stock shall be deemed for all purposes to evidence ownership
of and to represent the number of shares of Hiway Delaware Common Stock into
which such shares of Best California Common Stock are converted as provided
herein. The registered owner on the books and records of Best California of any
such outstanding stock certificate for Best California Common Stock shall, until
such certificate shall have been surrendered for transfer or otherwise accounted
for to Hiway Delaware or its transfer agent, be entitled to exercise any voting
and other rights with respect to, and to receive any dividend and other
distributions upon, the shares of Hiway Delaware Common Stock evidenced by such
outstanding certificate as above provided.
-2-
<PAGE>
Hiway Technologies, Inc.
Agreement and Plan of Merger
8. CONVERSION OF OPTIONS AND WARRANTS. At the Effective Time, all
----------------------------------
outstanding and unexercised portions of all options to purchase shares of Best
California Common Stock under Best California's 1998 Equity Incentive Plan,
Stock Option Plan, Amended and Restated 1996 Stock Option Plan and Stock Option
Plan of Hiway Technologies, Inc., a Florida corporation (collectively, the
"Plans"), shall become options to purchase one-half the number of shares of
-----
Hiway Delaware Common Stock subject to such options (subject to the elimination
of fractional shares as provided in Section 9 below) at twice the original
exercise price per share and shall, to the extent permitted by law and otherwise
reasonably practicable, have the same term, exercisability, vesting schedule,
status as an "incentive stock option" under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), if applicable, and all other material
----
terms and conditions (including but not limited to the terms and conditions
applicable to such options by virtue of the Plans). Continuous employment with
Best California will be credited to an optionee for purposes of determining the
vesting of the number of shares of Hiway Delaware Common Stock under a converted
Best California option at the Effective Time. Additionally, at the Effective
Time, Hiway Delaware shall adopt and assume the Plans. At the Effective Time,
all outstanding and unexercised portions of all warrants to purchase or acquire
Best California Common Stock shall become warrants to purchase or acquire, at
twice the exercise price but otherwise on the same terms and conditions, one-
half the number of shares of Hiway Delaware Common Stock subject to such
warrants.
9. FRACTIONAL SHARES. No fractional shares of Hiway Delaware Common
-----------------
Stock will be issued in connection with the Merger. In lieu thereof, Hiway
Delaware shall pay each shareholder of Best California who would otherwise be
entitled to receive a fractional share of Hiway Delaware Common Stock (assuming
the aggregation of all shares held by the same holder of more than one stock
certificate representing shares of Best California Common Stock) a cash amount
equal to the applicable fraction multiplied by the fair market value of a share
of Hiway Delaware Common Stock, as the case may be, as determined by the Board
of Directors of Hiway Delaware in good faith (the "Fair Market Value Per
---------------------
Share"). Upon exercise of each assumed option or warrant of Best California to
- -----
purchase Hiway Delaware Common Stock, cash will be paid by Hiway Delaware in
lieu of any fractional share of Hiway Delaware Common Stock issuable upon
exercise of such option or warrant, and the amount of cash received for such
fractional share shall be the Fair Market Value Per Share upon exercise thereof
multiplied by the applicable fraction, less the unpaid exercise price per share
for such fraction.
10. EMPLOYEE BENEFIT PLANS. At the Effective Time, the obligations
----------------------
of Best California under or with respect to every plan, trust, program and
benefit then in effect or administered by Best California for the benefit of the
directors, officers and employees of Best California or any of its subsidiaries
shall become the lawful obligations of Hiway Delaware and shall be implemented
and administered in the same manner and without interruption until the same are
amended or otherwise lawfully altered or terminated. Effective at the Effective
Time, Hiway Delaware hereby expressly adopts and assumes all obligations of Best
California under such employee benefit plans.
-3-
<PAGE>
Hiway Technologies, Inc.
Agreement and Plan of Merger
11. FURTHER ASSURANCES. From time to time, as and when required by
------------------
the Surviving Corporation or by its successors or assigns, there shall be
executed and delivered on behalf of Best California such deeds, assignments and
other instruments, and there shall be taken or caused to be taken by it all such
further action as shall be appropriate, advisable or necessary in order to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation the
title to and possession of all property, interests, assets, rights, privileges,
immunities, powers, franchises and authority of Best California, and otherwise
to carry out the purposes of this Merger Agreement. The officers and directors
of the Surviving Corporation are fully authorized in the name of and on behalf
of Best California, or otherwise, to take any and all such actions and to
execute and deliver any and all such deeds and other instruments as may be
necessary or appropriate to accomplish the foregoing.
12. CONDITION. The consummation of the Merger is subject to the
---------
approval of this Merger Agreement and the Merger contemplated hereby by the
shareholders of Best California and by the sole stockholder of Hiway Delaware,
prior to or at the Effective Time.
13. ABANDONMENT. At any time before the Effective Time, this Merger
-----------
Agreement may be terminated and the Merger abandoned by the Board of Directors
of Best California or Hiway Delaware notwithstanding approval of this Merger
Agreement by the Boards of Directors and shareholders of Best California and
Hiway Delaware.
14. AMENDMENT. At any time before the Effective Time, this Merger
---------
Agreement may be amended, modified or supplemented by the Boards of Directors of
the Constituent Corporations notwithstanding approval of this Merger Agreement
by the shareholders of Best California and the sole stockholder of Hiway
Delaware; provided, however, that any amendment made subsequent to the adoption
-------- -------
of this Agreement by the shareholders of Best California or the sole stockholder
of Hiway Delaware shall not: (i) alter or change the amount or kind of shares,
securities, cash, property and/or rights to be received in exchange for or upon
conversion of any shares of Best California; (ii) alter or change any of the
terms of the Certificate of Incorporation of the Surviving Corporation to be
effected by the Merger; or (iii) alter or change any of the terms or conditions
of this Merger Agreement if such alteration or change would adversely affect the
holders of any shares of Best California or Hiway Delaware.
15. TAX-FREE REORGANIZATION. The Merger is intended to be a tax-free
-----------------------
plan of reorganization within the meaning of Section 368(a)(1)(F) of the Code.
16. GOVERNING LAW. This Agreement shall be governed by and construed
-------------
under the internal laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California, without reference to the principles of conflicts of law or choice of
laws, except to the extent that the laws of the State of Delaware would apply in
matters relating to the internal affairs of Hiway Delaware and the Merger.
-4-
<PAGE>
Hiway Technologies, Inc.
Agreement and Plan of Merger
17. COUNTERPARTS. In order to facilitate the filing and recording of
------------
this Merger Agreement, it may be executed in any number of counterparts, each of
which shall be deemed to be an original.
IN WITNESS WHEREOF, this Merger Agreement is hereby executed on behalf
of each of the Constituent Corporations and attested by their respective
officers hereunto duly authorized.
BEST INTERNET HIWAY TECHNOLOGIES, INC.
COMMUNICATIONS, INC., a Delaware corporation
a California corporation
By:____________________________ By: ____________________________
David S. Buzby David S. Buzby
Executive Vice President and Executive Vice President and
Chief Financial Officer Chief Financial Officer
ATTEST: ATTEST:
- ------ ------
By:____________________________ By: ____________________________
Thomas A. Skornia, Secretary Thomas A. Skornia, Secretary
[Signature Page to Agreement and Plan of Merger]
-5-
<PAGE>
EXHIBIT 3.01
CERTIFICATE OF INCORPORATION
OF
HIWAY TECHNOLOGIES, INC.
ARTICLE I
The name of the corporation is Hiway Technologies, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 15 E. North Street, City of Dover, 19901, County of Kent. The name
of its registered agent at that address is Incorporating Services, Ltd.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
A. Authorization of Shares
-----------------------
The corporation is authorized to issue two (2) classes of shares, designated
respectively Serial Preferred Stock, par value $0.001 per share ("Preferred
---------
Stock"), and Common Stock, par value $0.001 per share ("Common Stock"). The
- ----- ------------
total number of shares of capital stock that the corporation is authorized to
issue is seventy million (70,000,000). The total number of shares of Serial
Preferred Stock the corporation shall have authority to issue is ten million
(10,000,000). The total number of shares of Common Stock the corporation shall
have authority to issue is sixty million (60,000,000).
B. Designation of Future Series of Preferred Stock
-----------------------------------------------
The Board of Directors is authorized, subject to any limitations prescribed
by the law of the State of Delaware, to provide for the issuance of the shares
of Preferred Stock in one or more series, and, by filing a certificate of
designation pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, to fix the designation, powers, preferences and rights of the shares of
each such series and any qualifications, limitations or restrictions thereof and
to increase or decrease the number of shares of any such series (but not below
the number of shares of such series then outstanding). The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the stock of the corporation entitled to vote, unless a
vote of any other holders is required pursuant to a certificate or certificates
establishing a series of Preferred Stock.
<PAGE>
Except as expressly provided in any certificate of designation designating
any series of Preferred Stock pursuant to the foregoing provisions of this
Article IV, any new series of Preferred Stock may be designated, fixed and
determined as provided herein by the Board of Directors without approval of the
holders of Common Stock or the holders of Preferred Stock, or any series
thereof, and any such new series may have powers, preferences and rights,
including, without limitation, voting rights, dividend rights, liquidation
rights, redemption rights and conversion rights senior to, junior to or pari
passu with the rights of the Common Stock, the Preferred Stock, or any future
class or series of Preferred Stock or Common Stock.
If the certificate of designation creating a series of Preferred Stock so
provides, any shares of a series of Preferred Stock that are acquired by the
corporation, whether by redemption, purchase, conversion or otherwise, so that
such shares are issued but not outstanding, may not be reissued as shares of
such series or as shares of the class of Preferred Stock. Upon the retirement
of any such shares and the filing of a certificate of retirement pursuant to
Sections 103 and 243 of the Delaware General Corporation Law with respect
thereto, the shares of such series shall be eliminated and the number of shares
of Preferred Stock shall be reduced accordingly.
ARTICLE V
The Board of Directors of the corporation shall have the power to adopt,
amend or repeal the Bylaws of the corporation.
ARTICLE VI
Election of directors need not be by written ballot unless the Bylaws of the
corporation shall so provide.
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation shall
be personally liable for monetary damages for breach of fiduciary duty as a
director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment nor repeal of this Article VII, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article VII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such amendment, repeal or adoption of such an inconsistent
provision.
ARTICLE VIII
Effective immediately after the closing of an underwritten public offering
of shares of the corporation's Common Stock pursuant to a registration statement
filed with and declared
2
<PAGE>
effective by the Securities and Exchange Commission, actions shall be taken by
the corporation's stockholders only at annual or special meetings of
stockholders, and the corporation's stockholders shall not be able to act by
written consent.
ARTICLE IX
The name and mailing address of the incorporator is Jeffery L. Donovan, c/o
Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California 94306.
The undersigned incorporator hereby acknowledges that the foregoing
certificate is his act and deed and that the facts stated herein are true.
Dated: June 4, 1998
________________________________
Jeffery L. Donovan, Incorporator
3
<PAGE>
EXHIBIT 3.03
---------------------------------------
BYLAWS
OF
HIWAY TECHNOLOGIES, INC.
(a Delaware corporation)
As Adopted June 5, 1998
---------------------------------------
<PAGE>
BYLAWS
OF
HIWAY TECHNOLOGIES, INC.
(a Delaware corporation)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I - STOCKHOLDERS........................................... 1
Section 1.1: Annual Meetings.............................. 1
Section 1.2: Special Meetings............................. 1
Section 1.3: Notice of Meetings........................... 1
Section 1.4: Adjournments................................. 1
Section 1.5: Quorum....................................... 2
Section 1.6: Organization................................. 2
Section 1.7: Voting; Proxies.............................. 2
Section 1.8: Fixing Date for Determination of Stockholders
of Record.................................... 3
Section 1.9: List of Stockholders Entitled to Vote........ 4
Section 1.10: Action by Written Consent of Stockholders.... 4
Section 1.11: Inspectors of Elections...................... 5
Section 1.12: Notice of Stockholder Business; Nominations.. 6
ARTICLE II - BOARD OF DIRECTORS.................................... 8
Section 2.1: Number; Qualifications....................... 8
Section 2.2: Election; Resignation; Removal; Vacancies.... 8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 2.3: Regular Meetings............................. 8
Section 2.4: Special Meetings............................. 9
Section 2.5: Telephonic Meetings Permitted................ 9
Section 2.6: Quorum; Vote Required for Action............. 9
Section 2.7: Organization................................. 9
Section 2.8: Written Action by Directors.................. 9
Section 2.9: Powers....................................... 9
Section 2.10: Compensation of Directors.................... 9
ARTICLE III - COMMITTEES........................................... 10
Section 3.1: Committees................................... 10
Section 3.2: Committee Rules.............................. 10
ARTICLE IV - OFFICERS.............................................. 11
Section 4.1: Generally.................................... 11
Section 4.2: Chief Executive Officer...................... 11
Section 4.3: Chairman of the Board........................ 12
Section 4.4: President.................................... 12
Section 4.5: Vice President............................... 12
Section 4.6: Chief Financial Officer...................... 12
Section 4.7: Treasurer.................................... 12
Section 4.8: Secretary.................................... 12
Section 4.9: Delegation of Authority...................... 12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 4.10: Removal...................................... 13
ARTICLE V - STOCK.................................................. 13
Section 5.l: Certificates................................. 13
Section 5.2: Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificate.................. 13
Section 5.3: Other Regulations............................ 13
ARTICLE VI - INDEMNIFICATION....................................... 13
Section 6.1: Indemnification of Officers and Directors.... 13
Section 6.2: Advance of Expenses.......................... 14
Section 6.3: Non-Exclusivity of Rights.................... 14
Section 6.4: Indemnification Contracts.................... 14
Section 6.5: Effect of Amendment.......................... 14
ARTICLE VII - NOTICES.............................................. 15
Section 7.l: Notice....................................... 15
Section 7.2: Waiver of Notice............................. 15
ARTICLE VIII - INTERESTED DIRECTORS................................ 15
Section 8.1: Interested Directors; Quorum................. 15
ARTICLE IX - MISCELLANEOUS......................................... 16
Section 9.1: Fiscal Year.................................. 16
Section 9.2: Seal......................................... 16
Section 9.3: Form of Records.............................. 16
Section 9.4: Reliance Upon Books and Records.............. 16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 9.5: Certificate of Incorporation Governs......... 16
Section 9.6: Severability................................. 16
ARTICLE X - AMENDMENT.............................................. 17
Section 10.1: Amendments................................... 17
</TABLE>
<PAGE>
BYLAWS
OF
HIWAY TECHNOLOGIES, INC.
(a Delaware corporation)
As Adopted June 5, 1998
ARTICLE I
STOCKHOLDERS
Section 1.1: Annual Meetings. An annual meeting of stockholders shall be
----------- ---------------
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as the Board of Directors shall each year fix.
Any other proper business may be transacted at the annual meeting.
Section 1.2: Special Meetings. Special meetings of stockholders for any
----------- ----------------
purpose or purposes may be called at any time by the Chairman of the Board, the
Chief Executive Officer, the President or the holders of shares of the
Corporation that are entitled to cast not less than ten percent (10%) of the
total number of votes entitled to be cast by all stockholders at such meeting,
or by a majority of the members of the Board of Directors. Special meetings may
not be called by any other person or persons. If a special meeting of
stockholders is called by any person or persons other than by a majority of the
----- ----
members of the Board of Directors, then such person or persons shall call such
meeting by delivering a written request to call such meeting to each member of
the Board of Directors, and the Board of Directors shall then determine the
time, date and place of such special meeting, which shall be held not more than
one hundred twenty (120) nor less than thirty-five (35) days after the written
request to call such special meeting was delivered to each member of the Board
of Directors.
Section 1.3: Notice of Meetings. Written notice of all meetings of
----------- ------------------
stockholders shall be given stating the place, date and time of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by applicable law or the Certificate of
Incorporation of the Corporation, such notice shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting.
Section 1.4: Adjournments. Any meeting of stockholders may adjourn from
----------- ------------
time to time to reconvene at the same or another place, and notice need not be
given of any such adjourned meeting if the time, date and place thereof are
announced at the meeting at which the adjournment is taken; provided, however,
-------- -------
that if the adjournment is for more than thirty (30)
<PAGE>
days, or if after the adjournment, a new record date is fixed for the adjourned
meeting, then a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. At the adjourned meeting,
the Corporation may transact any business that might have been transacted at the
original meeting.
Section 1.5: Quorum. At each meeting of stockholders, the holders of
----------- ------
a majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business, except if otherwise required by applicable law. If a quorum shall
------
fail to attend any meeting, the chairman of the meeting or the holders of a
majority of the shares entitled to vote who are present, in person or by proxy,
at the meeting may adjourn the meeting. Shares of the Corporation's stock
belonging to the Corporation (or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other corporation
are held, directly or indirectly, by the Corporation), shall neither be entitled
to vote nor be counted for quorum purposes; provided, however, that the
-------- -------
foregoing shall not limit the right of the Corporation or any other corporation
to vote any shares of the Corporation's stock held by it in a fiduciary
capacity.
Section 1.6: Organization. Meetings of stockholders shall be
----------- ------------
presided over by such person as the Board of Directors may designate, or, in the
absence of such a person, the Chairman of the Board, or, in the absence of such
person, the President of the Corporation, or, in the absence of such person,
such person as may be chosen by the holders of a majority of the shares entitled
to vote who are present, in person or by proxy, at the meeting. Such person
shall be chairman of the meeting and, subject to Section 1.11 hereof, shall
determine the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seems to him
or her to be in order. The Secretary of the Corporation shall act as secretary
of the meeting, but in his or her absence, the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 1.7: Voting; Proxies. Unless otherwise provided by law or
----------- ---------------
the Certificate of Incorporation, and subject to the provisions of Section 1.8
of these Bylaws, each stockholder shall be entitled to one (1) vote for each
share of stock held by such stockholder. Each stockholder entitled to vote at a
meeting of stockholders, or to express consent or dissent to corporate action in
writing without a meeting, may authorize another person or persons to act for
such stockholder by proxy. Such a proxy may be prepared, transmitted and
delivered in any manner permitted by applicable law. Voting at meetings of
stockholders need not be by written ballot unless such is demanded at the
meeting before voting begins by a stockholder or stockholders holding shares
representing at least one percent (1%) of the votes entitled to vote at such
meeting, or by such stockholder's or stockholders' proxy; provided, however,
-------- -------
that an election of directors shall be by written ballot if demand is so made by
any stockholder at the meeting before voting begins. If a vote is to be taken
by written ballot, then each such ballot shall state the name of the stockholder
or proxy voting and such other information as the chairman of the meeting deems
appropriate. Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Unless otherwise provided by applicable law,
the Certificate of Incorporation or these Bylaws, every matter other than the
election of directors shall be decided
-2-
<PAGE>
by the affirmative vote of the holders of a majority of the shares of stock
entitled to vote thereon that are present in person or represented by proxy at
the meeting and are voted for or against the matter.
Section 1.8: Fixing Date for Determination of Stockholders of Record.
----------- -------------------------------- ----------------------
(a) Generally. In order that the Corporation may determine the
---------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors and which shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. If no record date is fixed by the
Board of Directors, then the record date shall be as provided by applicable law.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
--------
however, that the Board of Directors may fix a new record date for the adjourned
- -------
meeting.
(b) Stockholder Request for Action by Written Consent. For such
-------------------------------------------------
period of time as stockholders are authorized to act by written consent pursuant
to the provisions of the Certificate of Incorporation and Section 1.10 hereof,
any stockholder of record seeking to have the stockholders authorize or take
corporate action by written consent without a meeting shall, by written notice
to the Secretary of the Corporation, request the Board of Directors to fix a
record date for such consent. Such request shall include a brief description of
the action proposed to be taken. The Board of Directors shall, within ten (10)
days after the date on which such a request is received, adopt a resolution
fixing the record date. Such record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. If no record date
has been fixed by the Board of Directors within ten (10) days after the date on
which such a request is received, then the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, to
its principal place of business or to any officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by applicable law, then the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts the resolution taking such prior action.
-3-
<PAGE>
Section 1.9: List of Stockholders Entitled to Vote. A complete list
----------- -------------------------------------
of stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present at the meeting.
Section 1.10: Action by Written Consent of Stockholders.
------------ -----------------------------------------
(a) Procedure. Unless otherwise provided by the Certificate of
---------
Incorporation, and except as set forth in Section 1.8(b) above, any action
required or permitted to be taken at any annual or special meeting of the
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted;
provided, however, that effective immediately after the closing of an
- -------- -------
underwritten public offering of shares of the Corporation's Common Stock
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission, any action required or permitted to be taken
by the Corporation's stockholders shall be taken only at a duly called annual or
special meeting of such stockholders, and the Corporation's stockholders shall
not be able to act by written consent. For such period of time as written
stockholder consents are permitted, such consents shall bear the date of
signature of each stockholder who signs the consent and shall be delivered to
the Corporation by delivery to its registered office in the State of Delaware,
to its principal place of business or to any officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. No written
consent shall be effective to take the action set forth therein unless, within
sixty (60) days of the earliest dated consent delivered to the Corporation in
the manner provided above, written consents signed by a sufficient number of
stockholders to take the action set forth therein are delivered to the
Corporation in the manner provided above.
(b) Notice of Consent. Prompt notice of the taking of corporate
-----------------
action by stockholders without a meeting by less than unanimous written consent
of the stockholders shall be given to those stockholders who have not consented
thereto in writing, and, in the case of a Certificate Action (as defined below),
if the Delaware General Corporation Law so requires, such notice shall be given
prior to filing of the certificate in question. If the action which is
consented to requires the filing of a certificate under the Delaware General
Corporation Law (a "Certificate Action"), then if the Delaware General
------------------
Corporation Law so requires, the certificate so filed shall state that written
stockholder consent has been given in accordance with Section 228 of the
Delaware General Corporation Law and that written notice of the taking of
corporate
-4-
<PAGE>
action by stockholders without a meeting as described herein has been given as
provided in such section.
Section 1.11: Inspectors of Elections.
------------ -----------------------
(a) Applicability. Unless otherwise provided in the Corporation's
-------------
Certificate of Incorporation or required by the Delaware General Corporation
Law, the following provisions of this Section 1.11 shall apply only if and when
the Corporation has a class of voting stock that is: (i) listed on a national
securities exchange; (ii) authorized for quotation on an interdealer quotation
system of a registered national securities association; or (iii) held of record
by more than 2,000 stockholders; in all other cases, observance of the
provisions of this Section 1.11 shall be optional and at the discretion of the
Corporation.
(b) Appointment. The Corporation shall, in advance of any meeting of
-----------
stockholders, appoint one or more inspectors of election to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting shall appoint one or more inspectors to act at
the meeting.
(c) Inspector's Oath. Each inspector of election, before entering
----------------
upon the discharge of his duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his ability.
(d) Duties of Inspectors. At a meeting of stockholders, the
--------------------
inspectors of election shall (i) ascertain the number of shares outstanding and
the voting power of each share, (ii) determine the shares represented at a
meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period of time a record of
the disposition of any challenges made to any determination by the inspectors
and (v) certify their determination of the number of shares represented at the
meeting and their count of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist the inspectors in the performance of
the duties of the inspectors.
(e) Opening and Closing of Polls. The date and time of the opening
----------------------------
and the closing of the polls for each matter upon which the stockholders will
vote at a meeting shall be announced by the inspectors at the meeting. No
ballot, proxies or votes, nor any revocations thereof or changes thereto, shall
be accepted by the inspectors after the closing of the polls unless the Court of
Chancery upon application by a stockholder shall determine otherwise.
(f) Determinations. In determining the validity and counting of
--------------
proxies and ballots, the inspectors shall be limited to an examination of the
proxies, any envelopes submitted with those proxies, any information provided in
connection with proxies in accordance with Section 212(c)(2) of the Delaware
General Corporation Law, the ballots and the regular books and records of the
Corporation, except that the inspectors may consider other reliable information
------
for the limited purpose of reconciling proxies and ballots submitted by or on
behalf of banks,
-5-
<PAGE>
brokers, their nominees or similar persons that represent more votes than the
holder of a proxy is authorized by the record owner to cast or more votes than
the stockholder holds of record. If the inspectors consider other reliable
information for the limited purpose permitted herein, the inspectors at the time
they make their certification of their determinations pursuant to this Section
1.11 shall specify the precise information considered by them, including the
person or persons from whom they obtained the information, when the information
was obtained, the means by which the information was obtained and the basis for
the inspectors' belief that such information is accurate and reliable.
Section 1.12: Notice of Stockholder Business; Nominations.
------------ -------------------------------------------
(a) Annual Meeting of Stockholders.
------------------------------
(i) Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by the stockholders shall be made
at an annual meeting of stockholders (A) pursuant to the Corporation's notice of
such meeting, (B) by or at the direction of the Board of Directors or (C) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of the notice provided for in this Section 1.12, who is entitled to vote
at such meeting and who complies with the notice procedures set forth in this
Section 1.12.
(ii) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (C) of subparagraph
(a)(i) of this Section 1.12, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other business
must otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice must be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
sixtieth (60th) day nor earlier than the close of business on the ninetieth
(90th) day prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
-------- -------
meeting is more than thirty (30) days before or more than sixty (60) days after
such anniversary date, notice by the stockholder, to be timely, must be so
delivered not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or the close of
business on the tenth (10th) day following the day on which public announcement
of the date of such meeting is first made by the Corporation. Such
stockholder's notice shall set forth: (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), including such person's written consent to being named in
------------
the proxy statement as a nominee and to serving as a director if elected; (b) as
to any other business that the stockholder proposes to bring before the meeting,
a brief description of the business desired to be brought before the meeting,
the reasons for conducting such business at the meeting and any material
interest in such business of such stockholder and the beneficial owner, if any,
on whose behalf the proposal is made; and (c) as to the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made, (1) the name and address of such stockholder, as they appear
on
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<PAGE>
the Corporation's books, and of such beneficial owner and (2) the class and
number of shares of the Corporation that are owned beneficially and held of
record by such stockholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of
subparagraph (a)(ii) of this Section 1.12 to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the Corporation
is increased and there is no public announcement by the Corporation naming all
of the nominees for director or specifying the size of the increased board of
directors at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting (or, if the annual meeting is held more than
thirty (30) days before or sixty (60) days after such anniversary date, at least
seventy (70) days prior to such annual meeting), a stockholder's notice required
by this Section 1.12 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary of the Corporation at the principal executive office
of the Corporation not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first made by the
Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
--------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of such meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
Corporation's notice of such meeting (i) by or at the direction of the Board of
Directors or (ii) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice of
the special meeting, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 1.12. In the
event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by subparagraph (a)(ii) of this Section 1.12 shall
be delivered to the Secretary of the Corporation at the principal executive
offices of the Corporation not earlier than the ninetieth (90th) day prior to
such special meeting and not later than the close of business on the later of
the sixtieth (60th) day prior to such special meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(c) General.
-------
(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.12 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.12. Except as otherwise provided by law or these
Bylaws, the chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made or proposed, as the case may be, in accordance with the procedures set
forth in this Section 1.12
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and, if any proposed nomination or business is not in compliance herewith, to
declare that such defective proposal or nomination shall be disregarded.
(ii) For purposes of this Section 1.12, the term "public announcement"
-------------------
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
sections 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 1.12, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section 1.12 shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1: Number; Qualifications. The Board of Directors shall
----------- ----------------------
consist of one or more members. The initial number of directors shall be seven
(7), and thereafter shall be fixed from time to time by resolution of the Board
of Directors. No decrease in the authorized number of directors constituting
the Board of Directors shall shorten the term of any incumbent director.
Directors need not be stockholders of the Corporation.
Section 2.2: Election; Resignation; Removal; Vacancies. The Board of
----------- -----------------------------------------
Directors shall initially consist of the person or persons elected by the
incorporator or named in the Corporation's initial Certificate of Incorporation.
Each director shall hold office until the next annual meeting of stockholders
and until his or her successor is elected and qualified, or until his or her
earlier death, resignation or removal. Any director may resign at any time upon
written notice to the Corporation. Subject to the rights of any holders of
Preferred Stock then outstanding: (i) any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors; and (ii) any
vacancy occurring in the Board of Directors for any cause, and any newly created
directorship resulting from any increase in the authorized number of directors
to be elected by all stockholders having the right to vote as a single class,
may be filled by the stockholders, by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director.
Section 2.3: Regular Meetings. Regular meetings of the Board of
----------- ----------------
Directors may be held at such places, within or without the State of Delaware,
and at such times as the Board of Directors may from time to time determine.
Notice of regular meetings need not be given if the date, times and places
thereof are fixed by resolution of the Board of Directors.
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Section 2.4: Special Meetings. Special meetings of the Board of
----------- ----------------
Directors may be called by the Chairman of the Board, the President or a
majority of the members of the Board of Directors then in office and may be held
at any time, date or place, within or without the State of Delaware, as the
person or persons calling the meeting shall fix. Notice of the time, date and
place of such meeting shall be given, orally or in writing, by the person or
persons calling the meeting to all directors at least four (4) days before the
meeting if the notice is mailed, or at least twenty-four (24) hours before the
meeting if such notice is given by telephone, hand-delivery, telegram, telex,
mailgram, facsimile or similar communication method. Unless otherwise indicated
in the notice, any and all business may be transacted at a special meeting.
Section 2.5: Telephonic Meetings Permitted. Members of the Board of
----------- -----------------------------
Directors, or any committee of the Board, may participate in a meeting of the
Board or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to
conference telephone or similar communications equipment shall constitute
presence in person at such meeting.
Section 2.6: Quorum; Vote Required for Action. At all meetings of
----------- --------------------------------
the Board of Directors a majority of the total number of authorized directors
shall constitute a quorum for the transaction of business. Except as otherwise
provided herein or in the Certificate of Incorporation, or required by law, the
vote of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 2.7: Organization. Meetings of the Board of Directors shall
----------- ------------
be presided over by the Chairman of the Board, or in his or her absence by the
President, or in his or her absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence, the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.8: Written Action by Directors. Any action required or
----------- ---------------------------
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board or
such committee, as the case may be, consent thereto in writing and the writing
or writings are filed with the minutes of proceedings of the Board or committee,
respectively.
Section 2.9: Powers. The Board of Directors may, except as otherwise
------------ ------
required by law or the Certificate of Incorporation, exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation.
Section 2.10: Compensation of Directors. Directors, as such, may
------------ -------------------------
receive, pursuant to a resolution of the Board of Directors, fees and other
compensation for their services as directors, including without limitation their
services as members of committees of the Board of Directors.
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ARTICLE III
COMMITTEES
Section 3.1: Committees. The Board of Directors may, by resolution
----------- ----------
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of the committee, the
member or members thereof present at any meeting of such committee who are not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent provided in a resolution of the Board of Directors, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
------
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors as provided in subsection (a) of
Section 151 of the Delaware General Corporation Law, fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation, or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the Corporation, or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series), adopting an
agreement of merger or consolidation under Sections 251 or 252 of the Delaware
General Corporation Law, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws of the Corporation; and
unless the resolution of the Board of Directors expressly so provides, no such
committee shall have the power or authority to declare a dividend, authorize the
issuance of stock or adopt a certificate of ownership and merger pursuant to
section 253 of the Delaware General Corporation Law.
Section 3.2: Committee Rules. Unless the Board of Directors
----------- ---------------
otherwise provides, each committee designated by the Board may make, alter and
repeal rules for the conduct of its business. In the absence of such rules,
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.
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ARTICLE IV
OFFICERS
Section 4.1: Generally. The officers of the Corporation shall
----------- ---------
consist of a Chief Executive Officer and/or a President, one or more Vice
Presidents, a Secretary, a Treasurer and such other officers, including a
Chairman of the Board of Directors and/or Chief Financial Officer, as may from
time to time be appointed by the Board of Directors. All officers shall be
elected by the Board of Directors; provided, however, that the Board of
-------- -------
Directors may empower the Chief Executive Officer of the Corporation to appoint
officers other than the Chairman of the Board, the Chief Executive Officer, the
President, the Chief Financial Officer or the Treasurer. Each officer shall
hold office until his or her successor is elected and qualified or until his or
her earlier resignation or removal. Any number of offices may be held by the
same person. Any officer may resign at any time upon written notice to the
Corporation. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise may be filled by the Board of Directors.
Section 4.2: Chief Executive Officer. Subject to the control of the
----------- -----------------------
Board of Directors and such supervisory powers, if any, as may be given by the
Board of Directors, the powers and duties of the Chief Executive Officer of the
Corporation are:
(a) To act as the general manager and, subject to the control of the
Board of Directors, to have general supervision, direction and control of the
business and affairs of the Corporation;
(b) To preside at all meetings of the stockholders;
(c) To call meetings of the stockholders to be held at such times and,
subject to the limitations prescribed by law or by these Bylaws, at such places
as he or she shall deem proper; and
(d) To affix the signature of the Corporation to all deeds,
conveyances, mortgages, guarantees, leases, obligations, bonds, certificates and
other papers and instruments in writing which have been authorized by the Board
of Directors or which, in the judgment of the Chief Executive Officer, should be
executed on behalf of the Corporation; to sign certificates for shares of stock
of the Corporation; and, subject to the direction of the Board of Directors, to
have general charge of the property of the Corporation and to supervise and
control all officers, agents and employees of the Corporation.
The President shall be the Chief Executive Officer of the Corporation unless the
Board of Directors shall designate another officer to be the Chief Executive
Officer. If there is no President, and the Board of Directors has not
designated any other officer to be the Chief Executive Officer, then the
Chairman of the Board shall be the Chief Executive Officer.
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<PAGE>
Section 4.3: Chairman of the Board. The Chairman of the Board shall
----------- ---------------------
have the power to preside at all meetings of the Board of Directors and shall
have such other powers and duties as provided in these bylaws and as the Board
of Directors may from time to time prescribe.
Section 4.4: President. The President shall be the Chief Executive
----------- ---------
Officer of the Corporation unless the Board of Directors shall have designated
another officer as the Chief Executive Officer of the Corporation. Subject to
the provisions of these Bylaws and to the direction of the Board of Directors,
and subject to the supervisory powers of the Chief Executive Officer (if the
Chief Executive Officer is an officer other than the President), and subject to
such supervisory powers and authority as may be given by the Board of Directors
to the Chairman of the Board and/or to any other officer, the President shall
have the responsibility for the general management and control of the business
and affairs of the Corporation and the general supervision and direction of all
of the officers, employees and agents of the Corporation (other than the Chief
Executive Officer, if the Chief Executive Officer is an officer other than the
President) and shall perform all duties and have all powers that are commonly
incident to the office of president or that are delegated to the President by
the Board of Directors.
Section 4.5: Vice President. Each Vice President shall have all such
----------- --------------
powers and duties as are commonly incident to the office of Vice President or
that are delegated to him or her by the Board of Directors or the Chief
Executive Officer. A Vice President may be designated by the Board to perform
the duties and exercise the powers of the Chief Executive Officer in the event
of the Chief Executive Officer's absence or disability.
Section 4.6: Chief Financial Officer. Subject to the direction of
----------- -----------------------
the Board of Directors and the President, the Chief Financial Officer shall
perform all duties and have all powers that are commonly incident to the office
of chief financial officer.
Section 4.7: Treasurer. The Treasurer shall have custody of all
------------ ---------
monies and securities of the Corporation. The Treasurer shall make such
disbursements of the funds of the Corporation as are authorized and shall render
from time to time an account of all such transactions. The Treasurer shall also
perform such other duties and have such other powers as are commonly incident to
the office of a treasurer or as the Board of Directors or the President may from
time to time prescribe.
Section 4.8: Secretary. The Secretary shall issue or cause to be
----------- ---------
issued all authorized notices for, and shall keep or cause to be kept, minutes
of all meetings of the stockholders and the Board of Directors. The Secretary
shall have charge of the corporate minute books and similar records and shall
perform such other duties and have such other powers as are commonly incident to
the office of secretary or as the Board of Directors or the President may from
time to time prescribe.
Section 4.9: Delegation of Authority. The Board of Directors may
----------- -----------------------
from time to time delegate the powers or duties of any officer to any other
officers or agents, notwithstanding any provision hereof.
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Section 4.10: Removal. Any officer of the Corporation shall serve
------------ -------
at the pleasure of the Board of Directors and may be removed at any time, with
or without cause, by the Board of Directors. Such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation.
ARTICLE V
STOCK
Section 5.1: Certificates. Every holder of stock shall be entitled
----------- ------------
to have a certificate signed by or in the name of the Corporation by the
Chairman or Vice-Chairman of the Board of Directors, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the Corporation, certifying the number of shares
owned by such stockholder in the Corporation. Any or all of the signatures on
the certificate may be a facsimile.
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance
----------- ------------------------------------------------------
of New Certificates. The Corporation may issue a new certificate of stock in
- -------------------
the place of any certificate previously issued by it that is alleged to have
been lost, stolen or destroyed, and the Corporation may require the owner of the
lost, stolen or destroyed certificate, or such owner's legal representative, to
agree to indemnify the Corporation and/or to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
Section 5.3: Other Regulations. The issue, transfer, conversion and
----------- -----------------
registration of stock certificates shall be governed by such other regulations
as the Board of Directors may establish.
ARTICLE VI
INDEMNIFICATION
Section 6.1: Indemnification of Officers and Directors. Each person
----------- -----------------------------------------
who was or is made a party to, or is threatened to be made a party to, or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that he
----------
or she (or a person of whom he or she is the legal representative) is or was a
director or officer of the Corporation or a Predecessor (as defined below) or is
or was serving at the request of the Corporation or a Predecessor (as defined
below) as a director or officer of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, shall be indemnified and held harmless by the
Corporation to the fullest extent permitted by the Delaware General Corporation
Law against all expenses, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes and penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such
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<PAGE>
person in connection therewith, and such indemnification shall continue as to a
person who has ceased to be a director or officer and shall inure to the benefit
of his or her heirs, executors and administrators; provided, however, that the
-------- -------
Corporation shall indemnify any such person seeking indemnity in connection with
a proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Corporation;
provided, further, that the Corporation shall not be required to indemnify a
- -------- -------
person for amounts paid in settlement of a proceeding unless the Corporation
consents in writing to such a settlement (such consent not to be unreasonably
withheld). As used herein, the term "Predecessor" means Best Internet
-----------
Communications, Inc., a corporation incorporated under the laws of the State of
California on September 21, 1994, and Hiway Technologies, Inc., a corporation
incorporated under the laws of the State of Florida on April 6, 1995.
Section 6.2: Advance of Expenses. The Corporation shall pay all
----------- -------------------
expenses (including attorneys' fees) incurred by such a director or officer in
defending any such proceeding as such expenses are incurred in advance of its
final disposition; provided, however, that if the Delaware General Corporation
-------- -------
Law then so requires, the payment of such expenses incurred by such a director
or officer in advance of the final disposition of such proceeding shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it should be determined
ultimately that such director or officer is not entitled to be indemnified under
this Article VI or otherwise; and provided, further, that the Corporation shall
-------- -------
not be required to advance any expenses to a person against whom the Corporation
directly brings a claim, in a proceeding, alleging that such person has breached
his or her duty of loyalty to the Corporation, committed an act or omission not
in good faith or that involves intentional misconduct or a knowing violation of
law, or derived an improper personal benefit from a transaction.
Section 6.3: Non-Exclusivity of Rights. The rights conferred on any
------------ -------------------------
person in this Article VI shall not be exclusive of any other right that such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders
or disinterested directors, or otherwise. Additionally, nothing in this Article
VI shall limit the ability of the Corporation, in its discretion, to indemnify
or advance expenses to persons whom the Corporation is not obligated to
indemnify or advance expenses pursuant to this Article VI.
Section 6.4: Indemnification Contracts. The Board of Directors is
----------- -------------------------
authorized to cause the Corporation to enter into indemnification contracts with
any director, officer, employee or agent of the Corporation, or any person
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, providing indemnification and
related rights to such person. Such rights may be greater than those provided
in this Article VI.
Section 6.5: Effect of Amendment. Any amendment, repeal or
----------- -------------------
modification of any provision of this Article VI shall be prospective only, and
shall not adversely affect any right or protection conferred on a person
pursuant to this Article VI and existing at the time of such amendment, repeal
or modification.
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ARTICLE VII
NOTICES
Section 7.1: Notice. Except as otherwise specifically provided
----------- ------
herein or required by law, all notices required to be given pursuant to these
Bylaws shall be in writing and may in every instance be effectively given by
hand delivery (including use of a delivery service), by depositing such notice
in the mail, postage prepaid, or by sending such notice by prepaid telegram,
telex, overnight express courier, mailgram or facsimile. Any such notice shall
be addressed to the person to whom notice is to be given at such person's
address as it appears on the records of the Corporation. The notice shall be
deemed given (i) in the case of hand delivery, when received by the person to
whom notice is to be given or by any person accepting such notice on behalf of
such person, (ii) in the case of delivery by mail, upon deposit in the mail,
(iii) in the case of delivery by overnight express courier, on the first
business day after such notice is dispatched, and (iv) in the case of delivery
via telegram, telex, mailgram, or facsimile, when dispatched.
Section 7.2: Waiver of Notice. Whenever notice is required to be
----------- ----------------
given under any provision of these Bylaws, a written waiver of notice, signed by
the person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
ARTICLE VIII
INTERESTED DIRECTORS
Section 8.1: Interested Directors; Quorum. No contract or
----------- ----------------------------
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board or committee thereof that
authorizes the contract or transaction, or solely because his, her or their
votes are counted for such purpose, if: (i) the material facts as to his, her or
their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; (ii) the material facts as to
his, her or
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<PAGE>
their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board of Directors,
a committee thereof or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
ARTICLE IX
MISCELLANEOUS
Section 9.1: Fiscal Year. The fiscal year of the Corporation shall
----------- -----------
be determined by resolution of the Board of Directors.
Section 9.2: Seal. The Board of Directors may provide for a
----------- ----
corporate seal, which shall have the name of the Corporation inscribed thereon
and shall otherwise be in such form as may be approved from time to time by the
Board of Directors.
Section 9.3: Form of Records. Any records maintained by the
----------- ---------------
Corporation in the regular course of its business, including its stock ledger,
books of account and minute books, may be kept on, or be in the form of,
magnetic tape, diskettes, photographs, microphotographs or any other information
storage device, provided that the records so kept can be converted into clearly
--------
legible form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
Section 9.4: Reliance Upon Books and Records. A member of the Board
----------- -------------------------------
of Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of his or her duties, be fully protected in relying in
good faith upon records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of the Corporation's
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 9.5: Certificate of Incorporation Governs. In the event of
----------- ------------------------------------
any conflict between the provisions of the Corporation's Certificate of
Incorporation and Bylaws, the provisions of the Certificate of Incorporation
shall govern.
Section 9.6: Severability. If any provision of these Bylaws shall be
----------- ------------
held to be invalid, illegal, unenforceable or in conflict with the provisions of
the Corporation's Certificate of Incorporation, then such provision shall
nonetheless be enforced to the maximum extent possible consistent with such
holding and the remaining provisions of these Bylaws (including, without
limitation, all portions of any section of these Bylaws containing any such
provision held to be
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<PAGE>
invalid, illegal, unenforceable or in conflict with the Certificate of
Incorporation that are not themselves invalid, illegal, unenforceable or in
conflict with the Certificate of Incorporation) shall remain in full force and
effect.
ARTICLE X
AMENDMENT
Section 10.1: Amendments. Stockholders of the Corporation holding
------------ ----------
a majority of the Corporation's outstanding voting stock shall have the power to
adopt, amend or repeal Bylaws. To the extent provided in the Corporation's
Certificate of Incorporation, the Board of Directors of the Corporation shall
also have the power to adopt, amend or repeal Bylaws of the Corporation, except
insofar as Bylaws adopted by the stockholders shall otherwise provide.
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<PAGE>
CERTIFICATION OF BYLAWS
OF
HIWAY TECHNOLOGIES, INC.
(a Delaware corporation)
KNOW ALL BY THESE PRESENTS:
I, Thomas A. Skornia, certify that I am Secretary of Hiway
Technologies, Inc., a Delaware corporation (the "Company"), that I am duly
-------
authorized to make and deliver this certification and that the attached Bylaws
are a true and correct copy of the Bylaws of the Company in effect as of the
date of this certificate.
Dated: June 5, 1998
/s/ Thomas A. Skornia
-----------------------------
Thomas A. Skornia, Secretary
<PAGE>
EXHIBIT 3.04
BYLAWS
OF
BEST INTERNET COMMUNICATIONS, INC.
ARTICLE I
OFFICES
-------
Section 1.1 PRINCIPAL OFFICES. The board of directors shall fix the
location of the principal executive office of the corporation at any place
within or outside the County of Santa Clara, State of California. If the
principal executive office is located outside this state, and the corporation
has one or more business offices in this state, the board of directors shall
likewise fix and designate a principal business office in the State of
California.
SECTION 1.2 OTHER OFFICES. The board of directors may at any time
establish branch or subordinate offices at any place or places where the
corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
Section 2.1 PLACE OF MEETINGS. Meetings of shareholders shall be at
any place within or outside the State of California designated by the board of
directors. In the absence of any such designation, shareholders' meetings shall
be held at the principal executive office of the corporation.
SECTION 2.2 ANNUAL MEETINGS OF SHAREHOLDERS. The annual meeting of
shareholders shall be held each year on a date and at a time designated by the
board of directors. At each annual meeting directors shall be elected and any
other proper business may be transacted.
SECTION 2.3 SPECIAL MEETINGS. A special meeting of the shareholders
may be called at any time by the board of directors, or by the chairman of the
board, or by the president, or by one or more shareholders holding shares in the
aggregate entitled to cast not less than 10% of the votes at any such meeting.
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If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president, any
vice president or the secretary of the corporation. The officer receiving such
request forthwith shall cause notice to be given to the shareholders entitled to
vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article
II, that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, the person or persons requesting the
meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
SECTION 2.4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of
meetings of shareholders shall be sent or otherwise given in accordance with
Section 2.5 of Article II not less than ten (10) nor more than sixty (60) days
before the date of the meeting being noticed. The notice shall specify the
place, date and hour of the meeting and (i) in the case of a special meeting,
the general nature of the business to be transacted, or (ii) in the case of the
annual meeting those matters which the board of directors, at the time of giving
the notice, intends to present for action by the shareholders. The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees which, at the time of the notice, management intends to
present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California, (ii)
an amendment of the articles of incorporation, pursuant to Section 902 of such
Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of
such Code, (iv) a voluntary dissolution of the corporation, pursuant to Section
1900 of such Code, or (v) a distribution in dissolution other than in accordance
with the rights of outstanding preferred shares, pursuant to Section 2007 of
such Code, the notice shall also state the general nature of such proposal.
SECTION 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of
any meeting of shareholders shall be given either personally or by first-class
mail or telegraphic or other written communication, charges prepaid, addressed
to the shareholder at the address of such shareholder appearing on the books of
the corporation or given by the shareholder to the
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corporation for the purpose of notice. If no such address appears on the
corporation's books or is not given, notice shall be deemed to have been given
if sent by mail or telegram to the corporation's principal executive office, or
if published at least once in a newspaper of general circulation in the county
where this office is located. Notice shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent by telegram or
other means of written communication.
If any notice addressed to a shareholder at the address of such
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at such address, all future notices or reports shall be deemed to have been duly
given without further mailing if the same shall be available to the shareholder
upon written demand of the shareholder at the principal executive office of the
corporation for a period of one year from the date of the giving of such notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the secretary, assistant secretary or
any transfer agent of the corporation giving such notice, and shall be filed and
maintained in the minute book of the corporation.
SECTION 2.6 QUORUM. The presence in person or by proxy of the
holders of a majority of the shares entitled to vote at any meeting of
shareholders shall constitute a quorum for the transaction of business. The
shareholders present at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum.
SECTION 2.7 ADJOURNED MEETING AND NOTICE THEREOF. Any shareholders'
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by the vote of the majority of the shares represented at such
meeting, either in person or by proxy, but in the absence of a quorum, no other
business may be transacted at such meeting, except as provided in Section 2.6 of
Article II.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken, unless a new record date for the adjourned meeting is
fixed, or unless the adjournment is for more than forty-five (45) days from the
date set for the original meeting, in which case the board of directors shall
set a new record date. Notice of any such adjourned meeting
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shall be given to each shareholder of record entitled to vote at the adjourned
meeting in accordance with the provisions of Sections 2.4 and 2.5 of Article II.
At any adjourned meeting the corporation may transact any business which might
have been transacted at the original meeting.
SECTION 2.8 VOTING. The Shareholders entitled to vote at any meeting
of shareholders shall be determined in accordance with the provisions of Section
2.11 of Article II, subject to the provisions of Sections 702 to 704, inclusive,
of the Corporations Code of California (relating to voting shares held by a
fiduciary, in the name of a corporation or in joint ownership). Such vote may
be by voice vote or by ballot; provided, however, that all elections for
directors must be by ballot upon demand by a shareholder at any election and
before the voting begins. Any shareholder entitled to vote on any matter (other
than elections of directors) may vote part of the shares in favor of the
proposal and refrain from voting the remaining shares or vote them against the
proposal, but, if the shareholder fails to specify the number of shares such
shareholder is voting affirmatively, it will be conclusively presumed that the
shareholder's approving vote is with respect to all shares such shareholder is
entitled to vote. If a quorum is present, the affirmative vote of the majority
of the shares represented at the meeting and entitled to vote on any matter
(other than the election of directors) shall be the act to the shareholders,
unless the vote of a greater number or voting by classes is required by the
California General Corporation Law or the articles of incorporation.
At a shareholders' meeting involving the election of directors, no
shareholder shall be entitled to cumulate votes (i.e., cast for any one or more
candidates a number of votes greater than the number of the shareholder's
shares) unless such candidate or candidates' names have been placed in
nomination prior to the voting and a shareholder has given notice at the
meeting, before the voting has begun, of the shareholder's intention to cumulate
votes. If any shareholder has given such notice, then every shareholder
entitled to vote may cumulate such shareholder's votes for candidates in
nomination and give one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of votes to which such
shareholder's shares are entitled, or distribute the shareholder's votes on the
same principle among any or all of the candidates, as the shareholder thinks
fit. The candidates receiving the highest number of votes up to the number of
directors to be elected, shall be elected.
SECTION 2.9 WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
transactions at any meeting of shareholder, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
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entitled to vote, not present in person or by proxy, signs a written waiver of
notice or a consent to a holding of the meeting, or an approval of the minutes
thereof. The waiver of notice or consent need not specify either the business
to be transacted or the purpose of any annual or special meeting of
shareholders, except that if action is taken or proposed to be taken for
approval of any of those matters specified in the second paragraph of Section
2.4 of Article II, the waiver of notice or consent shall state the general
nature of such proposal. All such waivers, consents or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall also constitute a waiver of
notice of such meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
if such objection is expressly made at the meeting.
SECTION 2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Any action which may be taken at any annual or special meeting of shareholders
may be taken without a meeting and without prior notice, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding shares having not less that the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. In the case of election of
directors, such consent shall be effective only if signed by the holders of all
outstanding shares entitled to vote for the election of directors; provided,
however, that a director may be elected at any time to fill a vacancy not filled
by the directors by the written consent of the holders of a majority of the
outstanding shares entitled to vote for the election of directors. All such
consents shall be filed with the secretary of the corporation and shall be
maintained in the corporate records. Any shareholder giving a written consent,
or the shareholder's proxy holders, or a transferee of the shares or a personal
representative of the shareholder or their respective proxy holders, may revoke
the consent by a writing received by the secretary of the corporation prior to
the time that written consents of the number of shares required to authorize the
proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the secretary shall give prompt
notice of the corporate action approved by the shareholders without a meeting.
Such notice shall be given in the manner specified in Section 2.5 of Article II.
In the case of approval of (i) contracts or transaction in which a director has
a direct or indirect financial interest, pursuant to Section 310 of
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the Corporations Code of California, (ii) indemnification of agents of the
corporation, pursuant to Section 317 of such Code, (iii) a reorganization of the
corporation, pursuant to Section 1201 of such Code, and (iv) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, pursuant to Section 2007 of such Code, such notice shall be given at
least ten (10) days before the consummation of any such action authorized by any
such approval.
SECTION 2.11 RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING
CONSENTS. For purposes of determining the shareholders entitled to notice of
any meeting or to vote or entitled to give consent to corporate action without a
meeting, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) days nor less than ten (10) days prior to the date
of any such meeting nor more than sixty (60) days prior to such action without a
meeting, and in such a case only shareholders of record on the date so fixed are
entitled to notice and to vote or to give consent, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date fixed as aforesaid, except as provided in the California General
Corporation Law.
If the board of directors does not so fix a record date:
(a) The record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the
business day next preceding the day on which the meeting is held.
(b) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no
prior action by the board has been taken, shall be the day on which
the first written consent is given, or (ii) when prior action of the
board has been taken, shall be at the close of the business on the day
on which the board adopts the resolution relating thereto, or the
sixtieth (60th) day prior to the date of such other action, whichever
is later.
SECTION 2.12 PROXIES. Every person entitled to vote for directors or
on any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney in fact. A validly
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executed proxy which does not state that it is irrevocable shall continue in
full force and effect unless (i) revoked by the person executing it, prior to
the vote pursuant thereto, by a writing delivered to the corporation stating
that the proxy is revoked or by a subsequent proxy executed by, or attendance at
the meeting and voting in person by, the person executing the proxy; or (ii)
written notice of the death or incapacity of the maker of such proxy is received
by the corporation before the vote pursuant thereto is counted; provided,
however, that no such proxy shall be valid after the expiration of eleven (11)
months from the date of such proxy, unless otherwise provided in the proxy. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 705(e) and (f) of the Corporations Code of
California.
SECTION 2.13 INSPECTORS OF ELECTION. Before any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office to act as inspectors of election at the meeting or its adjournment.
If no inspectors of election are so appointed, the chairman of the meeting may,
and on request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be either
one (l) or three (3). If inspectors are appointed at a meeting on the request
of one or more shareholders or proxies, the holders of a majority of shares or
their proxies present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as inspector fails
to appear or fails or refuses to act, the chairman of the meeting may, and upon
the request of any shareholder or a shareholder's proxy shall, appoint a person
to fill such vacancy.
The duties of these inspectors shall be as follows:
(a) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum
and the authenticity, validity and effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine the result;
(f) Determine when the polls shall close;
(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
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ARTICLE III
DIRECTORS
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SECTION 3.1 POWERS. Subject to the provisions of the California
General Corporation Law and any limitations in the articles of incorporation and
these Bylaw relating to action required to be approved by the shareholders or by
the outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
the board of directors.
Without prejudice to such general powers, but subject to the same
limitations, it is hereby expressly declared that the directors shall have the
power and authority to:
(a) Select and remove all officers, agents, and employees of the
corporation, prescribe such powers and duties for them as may not be
inconsistent with law, with the articles of incorporation or these
bylaws, fix their compensation, and require from them security for
faithful service.
(b) Change the principal executive office or the principal business
office in the State of California from one location to another; cause
the corporation to be qualified to do business in any other state,
territory, dependency, or foreign country and conduct business within
or outside the State of California; designate any place within or
without the State of California for the holding of any shareholders'
meeting, or meetings, including annual meetings; adopt, make and use a
corporate seal, and prescribe the forms of certificates of stock, and
alter the form of such seal and of such certificates from time to time
as in their judgment they may deem best, provided that such forms
shall at all times comply with the provisions of law.
(c) Authorize the issuance of shares of stock of the corporation from
time to time, upon such terms as may be lawful, in consideration of
money paid, labor done or services actually rendered, debts or
securities canceled or tangible or intangible property actually
received.
(d) Borrow money and incur indebtedness for the purposes of the
corporation, and cause to be executed and delivered therefore, in the
corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecation, or other evidences of debt and
securities therefore.
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SECTION 3.2 NUMBER AND QUALIFICATION OF DIRECTORS. The authorized
number of directors shall be any number from 5 to 9 directors until changed by a
duly adopted amendment to the articles of incorporation or by an amendment to
this bylaw adopted by the vote or written consent of holders of a majority of
the outstanding shares entitled to vote; provided, however, that an amendment
reducing the fixed number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of action by written consent, are equal to more than 16-
2/3 % of the outstanding shares entitled to vote. The exact number of directors
shall be fixed, within the limits specified, by amendment of the next sentence
duly adopted either by the Board or the shareholders. The exact number of
directors shall be 7 until changed as provided in the preceding sentence of this
Section 3.2.
SECTION 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors
shall be elected at each annual meeting of the shareholders to hold office until
the next annual meeting. Each director, including a director elected to till a
vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
SECTION 3.4 VACANCIES. Vacancies in the board of directors may be
filled by a majority of the remaining directors, though less than a quorum, or
by a sole remaining director, except that a vacancy created by the removal of a
director by the vote or written consent of the shareholders or by court order
may be filled only by the vote of the majority of the shares entitled to vote
represented at a duly held meeting at which a quorum is present, or by the
written consent of holders of a majority of the outstanding shares entitled to
vote. Each director so elected shall hold office until the next annual meeting
of the shareholders and until a successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to
exist in the case of the death, resignation or removal of any director, or if
the board of directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, or if the authorized number of directors be increased, or if the
shareholders fail at any meeting of shareholders at which any director or
directors are elected, to elect the full authorized number of directors to be
voted for at that meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
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Any director may resign effective upon giving written notice to the
chairman of the board, the president, or the secretary of the board of
directors, unless the notice specifies a later time for the effectiveness of
such resignation. If the resignation of a director is effective at a future
time, the board of directors may elect a successor to take office when the
resignation becomes effective.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of his term of office.
SECTION 3.5 PLACE OF MEETINGS AND TELEPHONIC MEETINGS. Regular
meetings of the board of directors may be held at any place within or without
the State of California that has been designated from time to time by resolution
of the board. In the absence of such resignation, regular meetings shall be
held at the principal executive office of the corporation. Special meetings of
the board shall be held at any place within or without the State of California
that has been designated in the notice of the meeting or, if not stated in the
notice or there is no notice, at the principal executive office of the
corporation. Any meeting, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in such meeting can hear one another, and all such directors shall
be deemed to be present in person at such meeting.
SECTION 3.6 ANNUAL MEETING. Immediately following each annual
meeting of shareholders, the board of directors shall hold a regular meeting for
the purpose of organization, any desired election of officers and the
transaction of other business. Notice of this meeting shall not be required.
SECTION 3.7 OTHER REGULAR MEETINGS. Other regular meetings of the
board of directors shall be held without call sat such time as shall from time
to time be fixed by the board of directors. Such regular meetings may be held
without notice.
SECTION 3.8 SPECIAL MEETINGS. Special meetings of the board of
directors for any purpose or purposes may be called at any time by the chairman
of the board or the president or any vice president or the secretary or any two
directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges pre-paid, addressed to each director at his or her address as
it is shown upon the records of the corporation. In case such notice is mailed,
it shall be deposited in the United States mail at least four (4) days prior to
the time of the holding of the meeting. In case such notice is delivered
personally, or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph
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company at least forty-eight (48) hours prior to the time of holding of the
meeting. Any oral notice given personally or by telephone may be communicated to
either the director or to a person at the office of the director whom the person
giving the notice has reason to believe will promptly communicate it to the
director. The notice need not specify the purpose of the meeting nor the place
if the meeting is to be held at the principal executive office of the
corporation.
SECTION 3.9 QUORUM. A majority of the authorized number of directors
shall constitute a quorum for the transaction of business, except to adjourn as
hereinafter provided. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 310 of the Corporations Code of California (approval of contracts or
transactions in which a director has a direct or indirect material financial
interest), Section 311 of that Code (appointment of committees), and Section
317(e) of that Code (indemnification of directors). A meeting at which a quorum
is initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for such meeting.
SECTION 3.10 WAIVER OF NOTICE. The transactions of any meeting of
the board of directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice if a
quorum be present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding the
meeting or an approval of the minutes thereof. The waiver of notice or consent
need not specify the purpose of the meeting. All such waivers, consents and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Notice of the meeting shall also be deemed given to any
director who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such director.
SECTION 3.11 ADJOURNMENT. A majority of the directors present,
whether or not constituting a quorum, may adjourn any meeting to another time
and place.
SECTION 3.12 NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given, unless the meeting is adjourned
for more than twenty-four hours, in which case notice of such time and place
shall be given prior to the time of the adjourned meeting, in the manner
specified in Section 3.8 of this Article III, to the directors who were not
present at the time of the adjournment.
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SECTION 3.13 ACTION WITHOUT MEETING. Any action required or
permitted to be taken by the board of directors may be taken without a meeting,
if all members of the board shall individually or collectively consent in
writing to such action. Such action by written consent shall have the same
force and effect as a unanimous vote of the board of directs. Such written
consent or consents shall be filed with the minutes of the proceedings of the
board.
SECTION 3.14 FEES AND COMPENSATION OF DIRECTORS. Directors and
members of committees may receive such compensation, if any for their services,
and such reimbursement of expenses, as may be fixed or determined by resolution
of the board of directors. Nothing herein-contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent, employee, or otherwise, and receiving compensation for such
services.
ARTICLE IV
COMMITTEES
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SECTION 4.1 COMMITTEES OF DIRECTORS. The board of directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors, to
serve at the pleasure of the board. The board may designate one or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. Any such committee, to the extent
provided in the resolution of the board, shall have all the authority of the
board, except with respect to:
(a) the approval of any action which, under the General Corporation
Law of California, also requires shareholders' approval or approval of
the outstanding shares;
(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
board or on any committee;
(d) the amendment or repeal of Bylaws or the adoption of new bylaws;
(e) the amendment or repeal of any resolution of the board or
directors which by its express terms is not so amendable or
repealable;
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(f) a distribution to the shareholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the
board of directors; or
(g) the appointment of any other committees of the board of directors
or the members thereof.
SECTION 4.2 MEETINGS AND ACTION OF COMMITTEES. Meetings and action
of committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, Sections 3.5 (place of meetings), 3.7
(regular meetings), 3.8 (special meetings and notice, 3.9 (quorum), 3.10 (waiver
of notice), 3.11 (adjournment), 3.12 (notice of adjournment) and 3.13 (action
without meeting), with such changes in the context of those Bylaws as are
necessary to substitute the committee and its members for the board of directors
and its members, except that the time of regular meetings of committees may be
determined by resolution of the board of directors as well as by resolution of
the committee; special meetings of committees may also be called by resolution
of the board of directors; and notice of special meetings of committees shall
also be given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
ARTICLE V
OFFICERS
--------
SECTION 5.1 OFFICERS. The officers of the corporation shall be a
president, a secretary and a chief financial officer. The corporation may also
have, at the discretion of the board of directors, a chairman of the board, one
or more vice presidents, one or more assistant secretaries, one or more
assistant treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 5.3 of Article V. Any number of offices may be
held by the same person.
SECTION 5.2 ELECTION OF OFFICERS. The officers of the corporation,
except such officers as may be appointed in accordance with the provisions of
Section 5.3 or Section 5.5 of Article V, shall be chosen by the board of
directors, and each shall serve at the pleasure of the board, subject to the
rights, if any, of an officer under any contract of employment.
SECTION 5.3 SUBORDINATE OFFICERS, ETC. The board of directors may
appoint, and may empower the president to appoint, such other officers as the
business of the corporation may require,
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each of whom shall hold office for such period, have such authority and perform
such duties as are provided in the Bylaws or as the board of directors may from
time to time determine.
SECTION 5.4 REMOVAL AND RESIGNATION OF OFFICERS. Subject to the
rights, if any of an officer under any contract of employment, any officer may
be removed, either with or without cause, by the board of directors, at any
regular or special meeting thereof, or, except in case of an officer chosen by
the board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective. Any such resignation is without prejudice to the rights, if
any, of the corporation under any contract to which the officer is a party.
SECTION 5.5 VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these Bylaws for regular appointments to such
office.
SECTION 5.6 CHAIRMAN OF THE BOARD. The chairman of the board, if
such an officer be elected, shall, if present, preside at all meetings of the
board of directors and exercise and perform such other powers and duties as may
be from time to time assigned to him by the board of directors or prescribed by
the bylaws. If there is no president, the chairman of the board shall in
addition be the chief executive officer of the corporation and shall have the
powers and duties prescribed in Section 5.7 of Article V.
SECTION 5.7 PRESIDENT. Subject to such supervisory powers, if any,
as may be give by the board of directors to the chairman of the board, if there
be such an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction and control of the business and the officers of
the corporation. He shall preside at all meetings of the shareholders and, in
the absence of the chairman of the board, or if there be none, at all meetings
of the board of directors. He shall have the general powers and duties of
management usually vested in the office of president of a corporation and shall
have such other powers and duties as may be prescribed by the board of directors
or the bylaws.
14
<PAGE>
SECTION 5.8 VICE PRESIDENTS. In the absence or disability of the
president, the vice presidents, if any, in order of their rank as fixed by the
board of directors or, if not ranked, a vice president designated by the board
of directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors or the bylaws, the president or the chairman of the board.
SECTION 5.9 SECRETARY. The secretary shall keep or cause to be kept,
at the principal executive office or such other place as the board of directors
may order, a book of minutes of all meetings and actions of directors,
committees of directors and shareholders, with the time and place of holding,
whether regular or special, and, if special, how authorized, the notice thereof
given, the names of those present at directors' and committee meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the board of directors required by the Bylaws or by
law to be given, and he shall keep the seal of the corporation, if one be
adopted, in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or by the bylaws.
SECTION 5.10 CHIEF FINANCIAL OFFICER. The chief financial officer
shall keep and maintain, or cause to be kept and maintained, adequate and
correct books and records of accounts of the properties and business
transactions of the corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, retained earnings and shares.
The books of account shall at all reasonable times be open to inspection by any
director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositaries as may be designated by the board of directors. He shall disburse
the funds of the corporation as may be ordered by the board of directors, shall
render to the president
15
<PAGE>
and directors, whenever they request it, an account of all of his transactions
as chief financial officer and of the financial condition of the corporation,
and shall have other powers and perform such other duties as may be prescribed
by the board of directors or by the bylaws.
SECTION 5.11 REIMBURSEMENT OF CORPORATION. Any payments made to an
officer of the corporation such as a salary, commission, bonus, interest, or
rent, or entertainment expense incurred by him, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be reimbursed by such officer to the corporation to the full extent of such
disallowance. It shall be the duty of the board to enforce payment of each
amount disallowed. In lieu of payment by the officer, subject to the
determination of the board, proportionate amounts may be withheld from his
future compensation payments until the amount owed to the corporation has been
recovered.
ARTICLE IV
INDEMNIFICATION OF DIRECTORS, OFFICERS EMPLOYEES
------------------------------------------------
AND OTHER AGENTS
----------------
SECTION 6.1 INDEMNIFICATION. The corporation shall, to the maximum
extent permitted by the General Corporation Law of California, indemnify each of
its directors and officers against expenses, judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with any proceeding
arising by reason of the fact any such person is or was a director or officer of
the corporation and shall advance to such director or officer expenses incurred
in defending any such proceeding to the maximum extent permitted by such law.
For purposes of this section, a "director or "officer" of the corporation
includes any person who is or was a director or officer of the corporation, or
is or was serving at the request of the corporation as a director or officer of
another corporation, or other enterprise, or was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation. The board of
directors may in its discretion provide by resolution for such indemnification
of, or advance of expenses to, other agents of the corporation, and likewise may
refuse to provide for such indemnification or advance of expenses except to the
extent such indemnification is mandatory under the California General
Corporation Law.
16
<PAGE>
ARTICLE VII
RECORDS AND REPORTS
-------------------
SECTION 7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER. The
corporation shall keep at its principal executive office, or at the office of
its transfer agent or registrar, if either be appointed and as determined by
resolution of the board of directors, a record of its shareholders, giving the
names and addresses of all shareholders and the number and class of shares held
by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of shareholders' names and
addresses and shareholdings during usual business hours upon five days prior
written demand upon the corporation, and/or (ii) obtain from the transfer agent
of the corporation, upon written demand and upon the tender of such transfer
agent's usual charges for such list, a list of the shareholders' names and
addresses, who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which such list has been
compiled or as of a date specified by the shareholder subsequent to the date of
demand. Such list shall be made available by the transfer agent on or before
the later of five (5) days after the demand is received or the date specified
therein as the date as of which the list is to be compiled. The record of
shareholders shall also be open to inspection upon the written demand of any
shareholder or holder of a voting trust certificate, at any time during usual
business hours, for a purpose reasonably related to such holder's interests as a
shareholder or as the holder of a voting trust certificate. Any inspection and
copying under this Section may be made in person or by an agent or attorney of
the shareholder or holder of a voting trust certificate making such demand.
SECTION 7.2 MAINTENANCE AND INSPECTION OF BYLAWS. The corporation
shall keep at its principal executive office, or if its principal executive
office is not in the State of California, at its principal business office in
this state, the original or a copy of the Bylaws as amended to date, which shall
be open to inspection by the shareholders at all reasonable times during office
hours. If the principal executive office of the corporation is outside this
state and the corporation has no principal business office in this state, the
Secretary shall, upon the written request of any shareholder, furnish to such
shareholder a copy of the Bylaws as amended to date.
SECTION 7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.
The accounting books and records and minutes of proceedings of the shareholders
and the board of directors and any
17
<PAGE>
committee or committees of the board of directors shall be kept at such place or
places designated by the board of directors, or, in the absence of such
designation, at the principal executive office of the corporation. The minutes
shall be kept in written form and the accounting books and records shall be kept
either in written form or in any other form capable of being converted into
written form. Such minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate, at any reasonable time during usual business hours, for a
purpose reasonably related to such holder's interests as a shareholder or as the
holder of a voting trust certificate. Such inspection may be made in person or
by an agent or attorney, and shall include the right to copy and make extracts.
The foregoing rights of inspection shall extend to the records of each
subsidiary of the corporation.
SECTION 7.4 INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the corporation and each
of its subsidiary corporation. This inspection by a director may be made in
person or by an agent or attorney and the right of inspection includes the right
to copy and make extracts of documents.
SECTION 7.5 ANNUAL REPORT TO SHAREHOLDERS. The annual report to
shareholders referred to in Section 1501 of the General Corporation Law is
expressly dispensed with, but nothing herein shall be interpreted as prohibiting
the board of directors from issuing annual or other periodic reports to the
shareholders of the corporation as they deem appropriate.
SECTION 7.6 FINANCIAL STATEMENTS. A copy of any annual financial
statement and any income statement of the corporation for each quarterly period
of each fiscal year, and any accompanying balance sheet of the corporation as of
the end of each such period, that has been prepared by the corporation shall be
kept on file in the principal executive office of the corporation for twelve
(12) months, and each such statement shall be exhibited at all reasonable times
to any shareholder demanding an examination of any such statement or a copy
shall be mailed to any such shareholder.
If no annual report for the last fiscal year has been sent to
shareholders, on written request of any shareholder made more than 120 days
after the close of the fiscal year, the corporation shall deliver or mail to the
shareholder, within 30 days after receipt of the request, a balance sheet as of
the end of that fiscal year and an income statement and statement of changes in
financial position for that fiscal year.
If a shareholder or shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the
18
<PAGE>
corporation make a written request to the corporation for an income statement of
the corporation for the three-month, six-month or nine-month period of the then
current fiscal year ended more than thirty (30) days prior to the date of the
request, and a balance sheet of the corporation as of the end of such period,
the chief financial officer shall cause such statement to be prepared, if not
already prepared, and shall deliver personally or mail such statement or
statements to the person making the request within thirty (30) days after the
receipt of such request. If the corporation has not sent to the shareholders its
annual report for the last fiscal year, this report shall likewise be delivered
or mailed to such shareholder or shareholder within thirty (30) days after such
request.
A copy of the statements and balance sheets prepared pursuant to this
section shall be kept on file in the principal office of the corporation for 12
months and shall be exhibited at all reasonable times to any shareholder
demanding an examination of these documents, or a copy shall be mailed to the
shareholder.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report thereon, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that such financial statements were prepared without
audit from the books and records of the corporation.
SECTION 7.7 ANNUAL STATEMENT OF GENERAL INFORMATION. The corporation
shall file annually with the Secretary of State of the State of California, on
the prescribed form, a statement setting forth the authorized number of
directors, the names and complete business or residence addresses of all
incumbent directors. The names and complete business or residence addresses of
the chief executive officer, secretary and chief financial officer, the street
address of its principal executive office or principal business office in this
state and the general type of business constituting the principal business
activity of the corporation, together with a designation of the agent of the
corporation for the purpose of service of process, all in compliance with
Section 1502 of the Corporation Code of California.
ARTICLE VIII
GENERAL CORPORATE MATTERS
-------------------------
SECTION 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.
For purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than action by
19
<PAGE>
shareholders by written consent without a meeting), the board of directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
prior to any such action, and in such case only shareholders of record on the
date so fixed are entitled to receive the dividend, distribution or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any share on the books of the corporation after the record date
fixed as aforesaid, except as otherwise provided in the California General
Corporation Law.
If the board of directors does not so fix a record date, the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the resolution relating thereto,
or the sixtieth (60th) day prior to the date of such action, whichever is later.
SECTION 8.2 CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks,
drafts or other orders for payment of money, notes or other evidences of
indebtedness, issued in the name of or payable to the corporation, shall be
signed or endorsed by such person or persons and in such manner as, from time to
time, shall be determined by resolution of the board of directors.
SECTION 8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
board of directors, except as otherwise provided in these bylaws, may authorize
any officer or officers, agent or agents, to enter into any contract or execute
any instruments in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances; and, unless so
authorized or ratified by the board of directors or within the agency power of
an officer, no officer, agent or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or for any amount.
SECTION 8.4 CERTIFICATES FOR SHARES. A certificate or certificates
for shares of the capital stock of the corporation shall be issued to each
shareholder when any such shares are fully paid, and the board of directors may
authorize the issuance of certificates or shares as partly paid provided that
such certificates shall state the amount of the consideration to be paid
therefore and the amount paid thereon. All certificates shall be signed in the
name of the corporation by the chairman of the board or vice chairman of the
board or the president or a vice president and by the chief financial officer or
an assistant treasurer or the secretary or any assistant secretary, certifying
the number of shares and the class or series of shares owned by the shareholder.
Any or all of the signatures on the certificates may be a facsimile. In case
any officer, transfer agent or registrar who has signed or whose facsimiles
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by
20
<PAGE>
the corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
SECTION 8.5 LOST CERTIFICATES. Except as hereinafter in this Section
provided, no new certificate for shares shall be issued in lieu of an old
certificate unless the latter is surrendered to the corporation and canceled at
the same time. The board of directors may in case any share certificate or
certificate for any other security is lost, stolen or destroyed, authorize the
issuance of a new certificate in lieu thereof, upon such terms and conditions as
the board may require, including provision for indemnification of the
corporation secured by a bond or other adequate security sufficient to protect
the corporation against any claim that may be made against it, including any
expense or liability on account of the alleged loss, theft or destruction of
such certificate or the issuance of such new certificate.
SECTION 8.6 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
chairman of the board, the president, or any vice president, or any other person
authorized by resolution of the board of directors or by any of the foregoing
designated officers, is authorized to vote on behalf of the corporation any and
all shares of any other corporation or corporations, foreign or domestic,
standing in the name of the corporation. The authority herein granted to said
officers to vote or represent on behalf of the corporation any and all shares
held by the corporation in any other corporation or corporations may be exercise
by any such officer in person or by any person authorized to do so by proxy duly
executed by said officer.
SECTION 8.7 CONSTRUCTION AND DEFINITIONS. Unless the context
requires otherwise, the general provisions, rules of construction, and
definitions in the California General Corporation Law shall govern the
construction of these bylaws. Without limiting the generality of the foregoing,
the singular number includes the plural, the plural number includes the
singular, and the term "person" includes both a corporation and a natural
person.
ARTICLE IX
AMENDMENTS
----------
SECTION 9.1 AMENDMENTS BY SHAREHOLDERS. No bylaw may be amended or
repealed, and no new bylaw may be adopted, except by approval of a majority of
the outstanding shares entitled to vote; provided, however, that if the articles
of incorporation of the corporation set forth the number of authorized directors
of the corporation, the authorized number of directors may be changed only by an
amendment of the articles of incorporation.
21
<PAGE>
CERTIFICATE OF INCORPORATOR
I, the undersigned, do hereby certify;
(1) That I am the duly elected and acting Incorporator of Best
Internet Communications, Inc., a California Corporation; and
(2) That these Bylaws consisting of 22 pages constitute the Bylaws of
said corporation as duly adopted by the Incorporator on November 3, 1994.
IN WITNESS WHEREOF, I have executed this Certificate as of this
3 day of November, 1994.
- - --------
/s/ Cecilia E. Cosca
--------------------
Cecilia E. Cosca, Esq.
Incorporator
22
<PAGE>
EXHIBIT 4.01
===============================================================================
COMMON STOCK [LOGO OF HIWAY TECHNOLOGIES] COMMON STOCK
NUMBER SHARES
HT
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR CERTAIN
IN NEW YORK, NY OR RIDGEFIELD PARK, NJ DEFINITIONS AND A STATEMENT
AS TO THE RIGHTS,
PREFERENCES, PRIVILEGES AND
RESTRICTIONS ON SHARES
CUSIP 433664 10 9
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK,
PAR VALUE OF $0.001 PER SHARE, OF
HIWAY TECHNOLOGIES, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ Thomas A. Skornia [CORPORATE SEAL /s/ Scott H. Adams
OF HIWAY TECHNOLOGIES]
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
================================================================================
<PAGE>
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or right as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, and
the number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge
from the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-.........Custodian.........
TEN ENT - as tenants by the (Cust) (Minor)
entireties under Uniform Gifts to
JP TEN - as joint tenants with Minors Act..................
right of survivorship (State)
and not as tenants in UNIF TRF MIN ACT- .....Custodian (until age..)
common (Cust)
......under Uniform Transfer
(Minor)
to Minors Act...............
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________________________ hereby sell(s), assign(s)
and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
_____________________________
_____________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate,
and do hereby irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated ____________________________
__________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By_________________________________
THE SIGNATURE(S) MUST BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 10.01
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE
THEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY JURISDICTION,
AND MUST BE HELD INDEFINITELY UNLESS THEY ARE TRANSFERRED PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND IN COMPLIANCE
WITH ALL APPLICABLE SECURITIES LAWS, OR AFTER RECEIPT OF AN OPINION OF
COUNSEL, IN FORM AND SUBSTANCE SATISFACTORY TO HIWAY TECHNOLOGIES,
INC.,, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED AND THE
TRANSFER DOES NOT VIOLATE ANY APPLICABLE SECURITIES LAW.
VOID AFTER DECEMBER 31, 2002
WARRANT TO PURCHASE COMMON STOCK OF
HIWAY TECHNOLOGIES, INC.
REGISTERED HOLDER: ARTHUR L. CAHOON
--------
NO. OF SHARES FOR WHICH EXERCISABLE: 280,409
-------
WARRANT PRICE: $11.50 PER SHARE,
SUBJECT TO ADJUSTMENT AS PROVIDE HEREIN
HIWAY TECHNOLOGIES, INC., a Florida corporation (hereinafter called the
"Company"), in connection with the transactions contemplated by separate
agreements among the Company and various purchasers with respect to the purchase
of certain warrants, for value received hereby certifies that the registered
holder named above or registered assigns (the "Holder") has the right at any
time after the date hereof and prior to the close of business on December 31,
2002, at which date this Warrant expires, to purchase the number of fully paid
and non-assessable share of Common Stock, par value $.01 per share. of the
Company (hereinafter called "Common Stock") at the price set forth herein, all
as provided herein and upon compliance with and subject to the conditions set
forth herein.
<PAGE>
ARTICLE 1
Transfer
--------
Section 1.01. Transfer Books. The Company shall maintain books for the
--------------
transfer and registration of this Warrant.
Section 1.02. Transfer. The Company, from time to time, shall register the
--------
transfer of this Warrant in the books to be maintained by the Company for that
purpose upon surrender at the principal office of the Company of this Warrant
properly endorsed or accompanied by appropriate instruments of transfer and
written instructions for transfer. Upon any such transfer, a new Warrant shall
be issued to the transferee and the surrendered Warrant shall be canceled by the
Company. The Company may require the payment of a sum sufficient to cover any
tax or governmental charge that may be imposed in connection with any such
transfer.
Section 1.05. Transfer Restrictions. This Warrant, and except as set forth
---------------------
in Article V hereof, the Common Stock underlying this Warrant, will not be
registered under the Securities Act of 1933, as amended (the "1933 Act"), or any
securities act of any state or other jurisdiction, in reliance on registration
exemptions under such statutes for private offerings. This Warrant or any of the
underlying shares of Common Stock may not be sold or otherwise transferred
except in accordance with the 1933 Act and all other applicable securities laws,
and prior to any transfer (other than pursuant to an effective registration
statement under the 1933 Act and otherwise in compliance with applicable law)
the holder must furnish to the Company a written opinion of counsel, in form and
substance satisfactory to the Company, to the effect that registration under the
1933 Act is not required and that all requisite action has been taken under all
applicable securities laws in connection with the proposed transfer.
ARTICLE II
Number of Shares; Warrant Price; Duration;
-----------------------------------------
and Exercise of Warrant
-----------------------
Section 2.01. Number of Shares; Warrant Price; and Duration. This Warrant
---------------------------------------------
entitles the registered holder thereof, subject to the provisions hereof, to
purchase from the Company at any time after the date hereof and before the close
of business on December 31, 2002, the number of shares of Common Stock shown
above, at a price of $11.50 per share, subject to adjustment as provided in
Article III hereof, payable in full at the time of purchase. the term "Warrant
Price" as used herein refers to the foregoing price per share in effect at any
time.
Section 2.02. Exercise. (a) This Warrant may be exercised, in whole or in
--------
part, by surrendering this Warrant, at the principal office of the Company, with
the Election to Exercise form set forth at the end hereof duly executed, and by
paying in full, the Warrant Price for each share of Common Stock as to which
this Warrant is exercised and any applicable taxes, other than taxes that the
Company is required to pay hereunder. Such payment may be (i) in cash or
2
<PAGE>
by bank check or (ii) by transfer of all or a portion of a Note or Notes duly
endorsed by, or accompanied by appropriate instruments of transfer duly executed
by, the registered holder or by his duly authorized attorney, valued at the
principal amount thereof and accrued and unpaid interest thereon (other than
unpaid interest not payable until the Due Date (as defined in the Notes), with
any excess of the Warrant Price over such value paid in cash or by bank check.
(b) As soon as practicable after the exercise of this Warrant, the Company
shall cause to be issued to or upon the order of the holder of this Warrant a
certificate or certificates for the number of full shares of Common Stock to
which he is entitled, registered in such name or names as may be directed by
him.
(c) Anything contained herein to the contrary notwithstanding, the Company
shall not be required to issue any fraction of a share in connection with the
exercise of this Warrant, but in any case where the holder hereof would, except
for the provisions of this Section 2.03, be entitled under the terms of this
Warrant to receive a fraction of a share upon the exercise of hereof, the
Company shall, upon the exercise of this Warrant and receipt of the Warrant
Price, issue a certificate for the largest number of full shares of Common Stock
then called for hereby and pay a sum in cash equal to the market value of such
fraction of a share (based upon the closing market price of the Common Stock on
the principal stock exchange on which it is listed (or, if not listed on any
stock exchange, the last sale price on the NASDAQ National Market System, or if
not listed or admitted to trading on such system, the closing bid price in the
over-the-counter market) on the day preceding such exercise). The Warrantholder
by his acceptance of this Warrant expressly waives his right to receive any
fraction of a share.
(d) All shares of Common Stock issued upon the exercise of this Warrant
shall be validly issued, fully paid and non-assessable, and the Company shall
pay all taxes in respect of the issue thereof. The Company shall not be
required, however, to pay any tax imposed in connection with any transfer
involved in the issuance of a certificate for shares of Common Stock or any
other securities in any name other than that of the holder of this Warrant; and
in such case the Company shall not be required to issue or deliver any such
certificate until such tax shall have been paid.
(e) Each person in whose name any such certificate for shares of Common
Stock is issued shall for all purposes be deemed to have become the holder of
record of such shares on the date on which this Warrant was surrendered and
payment of the purchase price and any applicable taxes was made, irrespective of
the date of delivery of such certificate, except that, if the date of such
surrender and payment is a date when the stock transfer books of the Company are
closed, such person shall be deemed to have become the holder of such shares at
the close of business on the next succeeding date on which the stock transfer
books are open.
ARTICLE III
Adjustment of Shares of Common Stock Purchasable
------------------------------------------------
and Warrant Price
-----------------
3
<PAGE>
Section 3.01. Adjustment of Warrant Price. The Warrant Price specified in
---------------------------
Section 2.01 hereof shall be subject to adjustment from time to time as follows:
(a) In case the Company shall (i) pay a dividend on Common Stock in
Common Stock, (ii) subdivide its outstanding shares of Common Stock or
(iii) combine its outstanding shares of Common Stock into a smaller number
of shares, the Warrant Price in effect immediately prior thereto shall be
adjusted proportionately so that the adjusted Warrant Price will bear the
same relation to the Warrant Price in effect immediately prior to any such
event as the total number of shares of Common Stock outstanding immediately
prior to any such event shall bear to the total number of shares of Common
Stock outstanding immediately after any such event. An adjustment made
pursuant to this Section 3.01(a) shall become effective retroactively
immediately after the record date in the case of a dividend and shall
become effective immediately after the effective date in the case of a
subdivision or combination.
(b) In case the Company shall issue rights or warrants to all holders
of its Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the current Warrant Price at
the record date mentioned below, the Warrant Price shall be adjusted so
that the same shall equal the price determined by multiplying the Warrant
Price in effect immediately prior thereto by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding on the
record date mentioned below plus the number of additional shares of Common
Stock which the aggregate offering price of the total number of shares of
Common Stock so offered would purchase at such current Warrant Price, and
of which the denominator shall be the number of shares of Common Stock
offered for subscription or purchase. Such adjustment shall become
effective retroactively immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
(c) In case the Company shall distribute to all holders of its Common
Stock shares of its capital stock (other than Common Stock), evidences of
its indebtedness or assets (excluding cash dividends or distributions) or
rights or warrants to subscribe or purchase such shares, evidences of
indebtedness or assets (excluding those referred to in Subdivision (b)
above), then in each such case the Warrant Price in effect thereafter shall
be determined by multiplying the Warrant Price in effect immediately prior
thereto by a fraction, of which the numerator shall be the total number of
outstanding shares of Common Stock multiplied by the Warrant Price on the
record date mentioned below, less the fair market value (as determined by
the Board of Directors, whose determination shall be conclusive, and
described in a statement filed with the Company), of the capital stock,
assets or evidences of indebtedness so distributed or of such rights or
warrants, and of which the denominator shall be the total number of
outstanding shares of Common Stock multiplied by such current Warrant
Price. Such adjustment shall be made whenever any such distribution is
made, and shall become effective retroactively
4
<PAGE>
immediately after the record date for the determination of stockholders entitled
to receive such distribution.
(d) In case the Company shall issue or sell any Additional Shares of Common
Stock (as defined below in this Subdivision (d)), Convertible Securities (as
defined below in this Subdivision (d)), warrants or other rights to subscribe
for or purchase any Additional Shares of Common Stock or Convertible Securities,
whether or not the right to exercise, exchange or convert thereunder is
immediately exercisable, and the consideration per share for which Additional
Shares of Common Stock is issued or may at any time thereafter be issuable
pursuant to such warrants or other rights or pursuant to the terms of such
Convertible Securities is less than the current Warrant Price at the time of the
issuance or sale, the Warrant Price shall be adjusted so that the same shall
equal the price determined by multiplying the Warrant Price in effect
immediately prior thereto by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding immediately prior thereto plus the
quotient obtained by dividing the aggregate minimum amount of consideration
received or receivable for such Additional Shares of Common Stock by the then
current Warrant Price and of which the denominator shall be the number of shares
of Common Stock outstanding immediately prior thereto plus the number of
Additional Shares of Common Stock issued or issuable.
For the purposes of this Subdivision (d), the date of which the current
Warrant Price shall be computed shall be the earliest of the date on which the
Company shall actually issue, or the date the Company shall enter into a firm
contract for the issuance of, such Additional shares of Common Stock,
Convertible Securities or warrants or other rights to subscribe for or purchase
any Additional Shares of Common Stock or Convertible Securities. No adjustment
of the Warrant Price shall be made pursuant to this Subdivision (d) upon the
issuance of any Convertible Securities that are issued pursuant to the exercise
of any warrants or other rights therefor if any such adjustment shall previously
have been made upon the issuance of any such warrants or rights.
The term "Convertible Securities" as used herein shall mean evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable, with or with payment of additional consideration in cash or
property, for Additional Shares of Common Stock, either immediately or upon
arrival of a specified date or the happening of a specified event, other than
Excluded Securities. The term "Additional Shares of Common Stock" as used herein
shall mean all shares of Common Stock issued by the Company after the Closing
Date other than Excluded Securities. The term "Excluded Securities" shall mean
option and warrant agreements outstanding on December 10, 1997 to purchase
430,409 shares of common stock of the Company, up to 200,000 option and warrant
agreements which may be issued by the Company after December 10, 1997 to
employees, consultants and other service providers of the Company, option or
warrant agreements or common stock which may be issued by the Company after
December 10,1997 in connection with any merger of another
5
<PAGE>
corporation and the Company permitted hereunder and common stock of the Company
issued by the Company upon exercise of the foregoing option and warrant
agreements.
(e) If at any time after any adjustment shall have made pursuant to
Subdivision (d) hereof,
(l) any of such warrants or rights or the right of conversion or exchange
in such Convertible Securities shall expire unexercised, and/or
(2) the consideration per share for which Additional Shares of Common
Stock or Convertible Securities are issuable pursuant to such warrants
or rights or the terms of such Convertible Securities shall increase
solely by virtue of provisions contained therein for an automatic
increase in such consideration upon the arrival of a specified date
or the happening of a specified event,
the Warrant Price shall immediately be readjusted pursuant to the terms of
Subdivision (d) hereof.
(f) No adjustment of the Warrant Price shall be made if the amount of such
adjustment shall be less than $.01 per share, but in such case any adjustment
that would otherwise be required then to be made shall be carried forward and
shall be made at the time of and together with the next subsequent adjustment,
which, together with any adjustment so carried, forward, shall amount to not
less than $.01 per share. In case the Company shall at any time issue Common
Stock by way of dividend on any stock of any Company or subdivide or combine the
outstanding shares of the Common Stock, said amount of $.01 per share (as
theretofore increased or decreased, if the said amount shall have been adjusted
in accordance with the provisions of this subparagraph) shall forthwith be
proportionately increased in the case of a combination or decreased in the case
of such a subdivision or stock dividend so as appropriately to reflect the same.
As used in this Section, "Common Stock" shall include any class of the Company's
capital stock, now or hereafter authorized, having the right to participate in
the distribution of either earnings or assets of the Company without limitation
as to amount or percentage.
Section 3.02. Adjustment of Number of Shares. Upon each adjustment of
------------------------------
the Warrant Price pursuant to Section 3.01 hereof, the number of shares of
Common Stock purchasable upon exercise of this Warrant shall be adjusted to the
number of shares of Common Stock, calculated to the nearest one hundredth of a
share, obtained by multiplying the number of shares of Common Stock purchasable
immediately prior to such adjustment upon the exercise of this Warrant by the
Warrant Price in effect prior to such adjustment and dividing the product so
obtained by the new Warrant Price.
Section 3.03 Reorganization. In case of any capital reorganization of
--------------
the Company, or of any reclassification of the Common Stock, or in case of the
consolidation of the Company
6
<PAGE>
with or the merger of the Company into any other corporation or entity (other
than a consolidation or merger in which the Company is the continuing entity) or
of the sale of the properties and assets of the Company as, or substantially as,
and entirety to any other entity, this Warrant shall after such capital
reorganization, reclassification, consolidation, merger or sale be exercisable,
upon the terms and conditions specified in this Agreement, for the number of
shares of stock or other securities or property of the entity resulting from
such consolidation or surviving such merger or to which such sale shall be made,
or any other entity, as the case may be, which the holders of Common Stock
issuable (at the time of such capital reorganization, reclassification,
consolidation, merger or sale) upon exercise of this Warrant would have been
entitled to receive upon such capital reorganization, reclassification,
consolidation, merger or sale if such exercise had taken place. The Company
shall not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor entity (if other than
the Company) resulting from such consolidation or merger, or the entity
purchasing such assets and any other entity the shares of stock or other
securities or property of which are receivable thereupon by the holder of this
Warrant, shall expressly assume, by written instrument executed, delivered and
satisfactory in form to the Company, (i) the obligation to deliver to the
holders of this Warrant such shares of stock, securities or assets, as, in
accordance with the foregoing provisions, such holder may be entitled to
purchase and (ii) all other obligations under this Warrant.
Section 3.04. Certificate. Whenever the Warrant Price is adjusted as
-----------
herein provided:
(a) The Company shall compute the adjusted Warrant Price in
accordance with Section 3.01 hereof and shall prepare a certificate signed
by its President or a Vice President and its principal accounting officer
setting forth the adjusted Warrant Price and showing in reasonable detail
the method of calculation of such adjustment and the facts requiring the
adjustment and upon which such calculation is based; and
(b) Such certificate shall be sent to the holder of this
Warrant.
Section 3.05. Notice of Certain Events. In case at any time after the date
------------------------
of this Agreement:
(a) the Company shall declare a dividend (or any other
distribution) on its shares of Common Stock payable otherwise than in cash
out of its earned surplus; or
(b) the Company shall authorize the granting to the holders of
its shares of Common Stock rights to subscribe for or purchase any shares
of capital stock of any class or of any other rights: or
(c) the Company shall authorize any reclassification of the
shares of its Common Stock (other than a subdivision or combination of its
outstanding shares of Common Stock); or any consolidation or merger to
which it is a party and for which
7
<PAGE>
approval of any shareholders of the Company is required, or the sale or
transfer of all or substantially all of its assets; or
(d) events shall have occurred resulting in the voluntary or
involuntary dissolution, liquidation or winding up of the Company,
then the Company shall send to the holder of this Warrant at least 20 days (or
10 days in any case specified in clause (a) or (b) above) prior to the
applicable record date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution or
rights, or, if a record is not to be taken, the date as of which the holders of
shares of Common Stock or record to be entitled to such dividend, distribution
or rights are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected that
holders of shares of Common Stock of record shall be entitled to exchange their
shares for securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up.
Failure to give any such notice or any defect therein shall not affect the
validity of the proceeding referred to in clauses (a), (b), (c) and (d) above.
Section 3.06. Changes to Certificates. The form of this Warrant need not be
-----------------------
changed because of any change in the Warrant Price pursuant to this Article, and
any replacement Warrant issued after such change may state the same Warrant
Price and the same number of shares of Common Stock as are stated in this
Warrant.
Section 3.07. No Entitlement to Dividends. No registered holder of this
---------------------------
Warrant shall, upon the exercise thereof, be entitled to any dividends that may
have accrued with respect to shares of Common Stock specified in this Warrant
prior to the date of the purchase thereof.
Section 3.08. Certain Rules of Computation. For the purposes of any
----------------------------
computation under Section 3.01 hereof respecting consideration received, the
following rules shall apply:
(a) in the case of the issuance of shares of Additional Shares of
Common Stock or Convertible Securities for cash, the consideration shall be
the amount of such cash, excluding the amount of any accrued interest or
dividends, provided that in no case shall any deduction be made for any
commission, discounts or other expenses incurred by the Company for any
underwriting of the issue or otherwise in connection therewith;
(b) in the case of the issuance of Additional Shares of Common
Stock or Convertible Securities for a consideration in whole or in part
other than cash, the consideration other than cash shall be deemed to be
the Current Appraised Value thereof as of the date of issuance, provided
that in no case shall any deduction be made for any commissions, discounts
or other expenses incurred by
8
<PAGE>
the Company for any underwriting of the issue or otherwise in connection
therewith;
(c) in the case of the issuance of any rights to acquire Additional Shares
of Common Stock, including without limitation, options or warrants, or of any
Convertible Securities, the consideration received therefor shall be deemed to
be the consideration, if any, received by the Company for the issuance of such
rights or Convertible Securities plus the consideration, if any, to be received
by the Company upon each exercise, conversion or exchange thereof (the
consideration in each case to be determined in the same manner as provided in
subdivisions (a) and (b) of this Section 3.08;
(d) in the case of Additional Shares of Common Stock or Convertible
Securities or any warrants or other rights to subscribe for or purchase
Additional Shares of Common Stock or Convertible Securities for property other
than cash or in connection with any merger in which the Company issues any
securities, the amount of consideration therefor shall be deemed to be the fair
market value of such property or portion of the assets and business of the
nonsurviving corporation, in either case as the Board of Directors in good faith
shall determine to be attributable to such Additional Shares of Common Stock,
Convertible Securities, warrants or other rights, as the case may be; and
(e) in case of the issuance at any time of any Additional Shares of
Common Stock or Convertible Securities in payment or satisfaction of any
dividends upon any class of stock other than Common Stock, the Company shall be
deemed to have received for such Additional Shares of Company Stock or
Convertible Securities a consideration equal to the amount of such dividend so
paid or satisfied.
ARTICLE IV
Other Provisions Relating to Rights of Holders of this Warrant
--------------------------------------------------------------
Section 4.01. No Rights as Shareholder. This Warrant does not entitle the
------------------------
holder hereof to any rights of a shareholder of the Company.
Section 4.02. Lost Warrant, etc. If this Warrant is lost, stolen,
------------------
mutilated or destroyed, the Company may, upon receipt of a proper affidavit (and
surrender of any mutilated Warrant Certificate) and bond of indemnity in form
and amount and with corporate surety satisfactory to the Company in each
instance protecting the Company, issue a new Warrant of like tenor and date. Any
such new Warrant shall constitute an original contractual obligation of the
Company, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant Certificate shall be at any time enforceable by anyone.
9
<PAGE>
Section 4.03. Authorized Shares. (1) The Company shall at all times have
-----------------
authorized the issuance of a number of shares of Common Stock sufficient to
permit the exercise in full of this Warrant and shall have available a
sufficient number of certificates therefor.
(2) Upon the issuance of any shares of Common Stock in connection with any
exercise of this Warrant, the Company shall secure the listing of such shares of
Common Stock upon any securities exchange where shares of Common Stock are then
listed.
(3) If the taking of any action would cause an adjustment in the Warrant
Price so that the exercise of this Warrant while such Warrant Price is in effect
would cause shares to be issued at a price below their then par value, the
Company will take such action as may, in the opinion of its counsel, be
necessary in order that it may validly and legally issue fully paid and non-
assessable shares of Common Stock upon the exercise of this Warrant.
ARTICLE V
Registration Rights
-------------------
Section 5.01. Definitions. As used in this Article V, the following
-----------
capitalized terms shall have the meanings herein ascribed to them below:
Exchange Act: The Securities Exchange Act of 1934, as amended.
------------
Stockholders: The persons or entities, their affiliates and
------------
associates (as such terms are defined in the rules and regulations under
the Exchange Act) and each of their successors, assigns and transferees
that, in each case, are holders of record of Common Stock issued pursuant
to Warrants issued under the Subscription Agreements ("Subscription
Warrants").
Registrable Common Shares. Any Common Stock issued to Stockholders
-------------------------
pursuant to Subscription Warrants. As to any particular Registrable Common
Shares, such securities shall cease to be Registrable Common Shares when:
(i) a registration statement with respect to the sale of such securities
shall have become effective under the 1933 Act and such securities shall
have been disposed of in accordance with such registration statement, (ii)
the full number of such shares shall be eligible to be sold pursuant to
Rule 144 (or any successor provision) under the 1933 Act in a three-month
period or (iii) they shall have ceased to be outstanding.
Registration Expenses: Any and all expenses incident to the
---------------------
registration of any Registrable Common Shares pursuant to this Agreement,
including without limitation, (i) all Commission and stock exchange or
National Association of Securities Dealers, Inc. registration and filing
fees, (ii) all fees and expenses of complying with state securities or blue
sky laws (including reasonable fees and
10
<PAGE>
disbursements of counsel for the underwriters, if any, in connection with
blue sky qualifications of any Registrable Common Shares), (iii) all
printing, messenger and delivery expenses, (iv) the reasonable fees and
disbursements of counsel for Hiway and of Hiway's independent public
accountants, including the expenses of any special audits and/or "cold
comfort" letters required by or incident to such registration (but not the
expenses of counsel and accountants, if any, retained by the Stockholders),
and (v) any fees and disbursements of underwriters customarily paid by
issuers or sellers of securities and the reasonable fees and expenses of
any special experts retained in connection with the registration, but
excluding underwriting discounts and commissions and transfer taxes, if
any.
Section 5.02 Registration.
------------
(a) Incidental Registration. If Hiway at any time proposes to register any
-----------------------
of its securities under the 1993 Act (other than on Form S-8 or Form S-4 or any
successor or similar forms), whether or not for sale for its own account, it
will each such time promptly given written notice to all Stockholders who hold
of record any Registrable Common Shares of its intention to do so. Upon the
written request of any such Stockholder made within 15 days after the receipt of
such notice (which request shall specify the Registrable Common Shares intended
to be disposed of by such Stockholder and the intended method of distribution
thereof) Hiway will use its best efforts to effect the registration under the
1933 Act of all Registrable Common Shares that Hiway has been so requested to
register by the Stockholders thereof to the extent requisite to permit the
disposition of the Registrable Common Shares so to be registered in accordance
with the intended methods of distribution thereof specified in such requests;
provided, that (i) if, at any time after giving written notice of its intention
- -------- ----
to register any securities and prior to the effective date of the registration
statement filed in connection with such registration, Hiway shall determine for
any reason not to register such securities, Hiway may, at its election, be
relieved of its obligation to register any Registrable Common Shares in
connection with such registration, and (ii) in case of a determination by Hiway
to delay registration of its equity securities, Hiway shall be permitted to
delay the registration of such Registrable Common Shares for the same period as
the delay in registering such other equity securities.
(b) Shelf Registration. At any time after the first anniversary of the
------------------
date of effectiveness of the registration of Common Stock under the Exchange
Act, upon the written request of one or more Stockholders, requesting that the
Company effect the registration under the Securities Act of all or part of such
Stockholders' Registrable Common Shares and specifying the intended method of
disposition thereof, the Company will promptly give written notice of such
requested registration to all registered holders of Registrable Common Share,
and thereupon the Company will use its best efforts to effect the registration
under the Securities Act of the Registrable Common Shares which the Company has
been requested to register by Stockholders; provided that the Company shall not
--------
be required to effect more than one registration pursuant to this Section
5.02(b) and shall not be required to effect a registration pursuant to this
Section 5.02(b) other than in accordance with Rule 415 on Form S-3 (or any
successor form).
11
<PAGE>
(c) Expenses. Hiway shall pay all Registration Expenses in connection
--------
with the registrations of Registrable Common Shares requested pursuant to this
Section 5.02; provided that each Stockholder shall pay all underwriting
--------
discounts and commissions and transfer taxes, if any, relating to, and fees and
expenses of such Stockholder's counsel and accountants in connection with, the
sale or disposition of such Stockholder's Registrable Common Shares pursuant to
a registration statement effected pursuant to this Section 5.02.
(d) Priority in Incidental Registrations. If the managing underwriter for
------------------------------------
a registration pursuant to this Section 5.02 that involves an underwritten
offering shall advise Hiway in writing that, in its opinion, the inclusion in
such registration of the securities proposed to be included in such registration
by Hiway for its own account, plus the number of Registrable Common Shares
----
requested to be included in such registration by the Stockholders, plus the
----
securities requested to be included by securityholders (other than the
Stockholders) would materially adversely effect the ability of Hiway with
respect to securities to be disposed of for its own account to dispose of their
securities in an orderly manner in such offering within a price range acceptable
to Hiway. Hiway shall include (i) first, all the securities which Hiway proposes
to register for its own account or which are proposed to be registered pursuant
to demand registration rights, (ii) second, to the extent that their inclusion
would not have a material adverse effect in the manner described above, the
number of Registrable Common Shares and other equity securities and the
principal amount of debt securities requested to be included by the Stockholders
and other securityholders allocated pro rata among all requesting Stockholders
and such other securityholders on the basis of the relative number of
Registrable Common Shares and equity securities and the principal amount of such
debt securities requested to be included in such registration.
Section 5.03 Registration Procedures. If and whenever Hiway is required
-----------------------
to use its best efforts to effect or cause the registration of any Registrable
Common Shares under the 1933 Act under this Agreement, Hiway will, as soon as
practicable:
(a) promptly prepare and file with the Commission the requisite
registration statement with respect to such Registrable Common Shares and use
its best efforts to cause such registration statement to become and remain
effective, furnish to Stockholders of the Registrable Common Shares covered by
such registration statement and the underwriters, if, any, copies of all such
documents filed; provided that Hiway may discontinue any registration of its
--------
securities which is being effected pursuant to Section 5.02 hereof at any time
prior to the effective date of the registration statement relating thereto;
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for such
period (which in the case of an incidental registration under Section 5.02(b)
hereof shall not exceed 120 days) as any seller of such Registrable Common
Shares shall request and to comply with the provisions of the 1933 Act
12
<PAGE>
with respect to the sale or other disposition of all securities covered by such
registration statement during such period;
(c) furnish without charge to each seller of such Registrable Common
Shares and each underwriter, if any, of the securities being sold by such seller
such number of copies of such registration statement and of each amendment and
supplement thereto (in each case including all exhibits), such number of copies
of the prospectus included in such registration statement (including each
preliminary prospectus and summary prospectus), in conformity with the
requirements of the 1933 Act, and such other documents as such seller and
underwriter may request in order to facilitate the public sale of the
Registrable Common Shares owned by such Seller;
(d) use its best efforts to register or qualify such Registrable Common
Shares covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as any seller of the securities being sold
by such seller and each underwriter, if any, shall reasonably request, and do
any and all other acts and things which may be necessary or advisable to enable
such seller and each underwriter, if any, to consummate the disposition in such
jurisdictions of such Registrable Common Shares owned by such seller; provided,
--------
that Hiway shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it would not but
for the requirements for this clause (d) be obligated to be qualified, to
subject itself to taxation in any such jurisdiction, to consent itself to
taxation in any such jurisdiction or to consent to general service of process in
any such jurisdiction;
(e) notify each seller of any such Registrable Common Shares covered by
such registration statement, at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act, of Hiway becoming aware that the
prospectus, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, and at the request of any such seller
promptly prepare and furnish to such seller a reasonable number of copies of a
prospectus supplemented or amended so that, as thereafter delivered to the
purchasers of such Registrable Common Shares, such prospectus shall not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
(f) otherwise comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least twelve
months, but no more than eighteen months, beginning with the first day of
Hiway's first calendar quarter after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the 1933 Act and Rule 158 thereunder;
13
<PAGE>
(g) make available for inspection by any seller of such Registrable Common
Shares covered by such registration statement and by any attorney, accountant or
other agent retained by any such seller all pertinent financial and other
records, pertinent corporate documents and properties of Hiway and its
subsidiaries, and cause all of Hiway's officers, directors and employees to
supply all information reasonably requested by any such seller, attorney,
accountant or agent in connection with such registration statement;
(h) notify the selling Stockholders and the managing underwriter, if any,
promptly, and (if requested by any such person) confirm such advice in writing
(1) of the filing of a prospectus or any prospectus supplement or post-effective
amendment, and, with respect to a registration statement or amendment thereto of
the effectiveness thereof, (2) of any request by the Commission for amendments
or supplements to a registration statement or related prospectus or for
additional information, (3) of the issuance by the Commission of any stop order
suspending the effectiveness of a registration statement or the initiation of
any proceeding for that purpose, (4) of the receipt by Hiway of any notification
with respect to the suspension of the qualification of any of the Registrable
Common Shares for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose and (5) of the happening of any event that makes
any statement made in the registration statement, the prospectus or any document
incorporated therein by reference untrue or which that the making of any changes
in the registration statement or prospectus so that they will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading;
(i) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a registration statement at the earliest
possible moment;
(j) if reasonably requested by any Stockholder or the managing
underwriter, immediately incorporate in a prospectus supplement or amendment
such information as the managing underwriter or such Stockholder reasonbly
request to be included therein in order to comply with applicable law relating
to such sale of Registrabl e Common Shares, including without limitation,
information with respect to the amount of Registrable Common Shares being sold
to underwriters, the purchase price being paid therefor by underwriters and with
respect to any other terms of the underwritten (or best efforts underwritten)
offering of the Registrable Common Shares to be sold in such offering; and make
all required filings of such prospectus supplement or amendment as soon as
notified of the matters to be incorporated in such prospectus supplement or
amendment;
(k) use its best efforts to cause all Registrable Common Shares covered by
the registration statements to be listed on each securities exchange, if any, on
which similar securities issued by Hiway are then listed; and
(l) provide a CUSIP number for all Registrable Common Shares, not later
than the effective date of the applicable registration statement.
14
<PAGE>
Hiway may require each seller of Registrable Common Shares as to which any
registration is being effected to furnish Hiway such information regarding such
seller and the distribution of such securities as Hiway may from time to time
reasonably request.
In the event Hiway shall give any notice pursuant to subsection (e) of this
Section 5.03, the period set forth in subsection (b) of this Section 5.03 shall
be extended by the number of days during the period from and including the date
of the giving of such notice pursuant to subsection (e) of this Section 5.03 to
and including the date when each seller of Registrable common shares covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by subsection (e) of this 5.03.
Section 5.04 Indemnification
---------------
(a) Indemnification by Hiway. In the event of any registration of any
------------------------
securities of Hiway under the 1933 Act pursuant to Section 5.02 hereof, Hiway
will indemnify and hold harmless, to the extent permitted by law, the seller of
any Registrable Common Shares covered by such registration statement and its
directors and officers, each other person, if any, who participates as an
underwriter in the offering or sale of such securities and each other person, if
any, who controls such seller or any such underwriter within the meaning of the
1933 Act, against any and all losses, claims, damages or liabilities, joint or
several, and expenses (including any amounts paid in any settlement effected
with Hiway's consent) to which such seller, any such director or officer or any
such underwriter or controlling person may become subject under the 1933 Act,
the Exchange Act, common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof arise out
of or are based upon (a) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement under which such
securities were registered under the 1933 Act or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (b) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, together with the documents incorporated by reference
therein (as amended or supplemented if Hiway shall have filed with the
Commission any amendment thereof or supplement thereto), if used prior to the
effective date of such registration statement, or contained in the prospectus,
together with the documents incorporated by reference therein (as amended or
supplemented if Hiway shall have filed with the Commission any amendment thereof
or supplement thereto), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading or (c) any violation by Hiway of any federal, state or
common law rule or regulation applicable to Hiway and relating to action
required of or inaction by Hiway in connection with any such registration, and
Hiway will reimburse such seller and each such director, officer, underwriter
and controlling person for any legal or any other expenses reasonably incurred
by any of them in connection with investigating or defending any such loss,
claim, liability, action or proceeding; provided, that Hiway shall not be liable
--------
to any such seller or any such director, officer underwriter or controlling
person in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof or expense
15
<PAGE>
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement or amendment
thereof or supplement thereto or in any such preliminary or final prospectus in
reliance upon and in conformity with information furnished in writing to Hiway
by or on behalf of such seller or any director or officer of such seller,
underwriter or controlling person of such seller, for use specifically in the
preparation thereof; and provided further, that Hiway will not be liable to any
-------- -------
person who participates as an underwriter in the offering or sale of Registrable
Common Shares or any other person, if any, who controls such underwriter within
the meaning of the 1933 Act, under the indemnity agreement in this Section
5.04(a) with respect to any preliminary prospectus or the final prospectus or
the final prospectus as amended or supplemented as the case may be, to the
extent that any such loss, claim, damage or liability of such underwriter or
controlling Person results from the fact that such underwriter sold Registrable
Common Shares to a person to whom there was not sent or given at or prior to the
written confirmation of such sale, a copy of the final prospectus as then
amended or supplemented, whichever is most recent, if Hiway has previously
furnished copies thereof to such underwriter and such final prospectus, as then
amended or supplemented, has corrected such misstatement or omission. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such seller or any director, officer, underwriter or
controlling person and shall survive the transfer of such securities by such
seller.
(b) Indemnification by the Stockholders. Hiway may require, as a condition
-----------------------------------
to including any Registrable Common Shares in any registration statement filed
in accordance with Section 5.02 hereof, that Hiway shall have received an
undertaking reasonably satisfactory to it from the prospective seller of such
Registrable Common Shares and any underwriter to indemnify and hold harmless (in
the same manner and to the same extent as set forth in subsection (a) of this
Section 5.04) Hiway and its directors and officers and each person controlling
Hiway within the meaning of the 1933 Act and all other prospective sellers of
securities of Hiway and their directors, officers and respective controlling
persons with respect to (i) any statement or alleged statement in or omission or
alleged omission from such registration statement, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to Hiway or
its representatives by or on behalf of such seller or any underwriter
specifically for use in the preparation of such registration statement,
preliminary, final or summary prospectus or amendment or supplement, or a
document incorporated by reference into any of the foregoing and (ii) the sale
by the prospective seller of such Registrable Common Shares to a person to whom
there was not sent or given, at or prior to the written confirmation of such
sale, a copy of the final prospectus as then amended or supplemented, whichever
is most recent, if Hiway has previously furnished copies thereof to such seller
and such final prospectus, as amended or supplemented, has corrected any
misstatement or omission. Such indemnity shall in full force and effect
regardless of any investigation made by or on behalf of Hiway or any of the
prospective sellers or any of their respective directors, officers or
controlling persons and shall survive the transfer of such securities of such
seller.
16
<PAGE>
(c) Notices of Claims, Etc. As soon as possible after the receipt by an
----------------------
indemnified party hereunder of written notice of the commencement of any action
or proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 5.04, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, give notice to the
latter of the commencement of such action; provided, that the failure of any
--------
indemnified party to give such notice shall not relieve the indemnifying party
of its obligations under this Section 5.04, except to the extent that the
indemnifying party is actually prejudiced by such failure. If any such claim or
action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and jointly with any other similarly notified indemnifying
party to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party; provided, that the indemnifying party shall not be entitled
--------
to so participate or so assume the defense if, in the indemnified party's
reasonable judgment, a conflict of interest between the indemnified party and
the indemnifying party exists with respect to such claim. After notice from the
indemnifying party to such indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 5.04 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof; provided, that the Stockholders and their respective officers,
--------
directors and controlling persons or Hiway and its officers, directors and
controlling persons, as the case may be, shall have the right to employ one
counsel to represent such indemnified parties if, in such indemnified parties'
reasonable judgment, a conflict of interest between the indemnified parties and
the indemnifying parties exists in respect to such claim, and in that event the
reasonable fees and expenses of such separate counsel shall be paid by the
indemnifying party. In the event that the indemnifying party fails to elect to
assume the defense of such claim or action, the Stockholders and their
respective officers, directors and controlling persons or Hiway and its
officers, directors and controlling person, as the case may be, shall have the
right to employ one counsel (together with appropriate local counsel) to
represent such indemnified parties and, in that event, the reasonable fees and
expenses of such separate counsel shall be paid by the indemnifying party. No
indemnifying party will consent to entry of any judgment or enter into any
settlement that does not include as term thereof the giving by the claimant or
plaintiff to such indemnified party of an unconditional release from all
liability in respect of such claim or litigation.
(d) Other Indemnification. Indemnification similar to that specified in
----------------------
the preceding subsections of this Section 5.04 (with appropriate modifications)
shall be given by Hiway and each Stockholder with respect to any required
registration or other qualifications of securities under any state securities or
blue sky laws.
Section 5.05 Contribution. If the indemnification provided for in
------------
Section 5.04 hereof is unavailable or insufficient to hold harmless a party
indemnified under Section 5.04(a) or 5.04(b) hereof, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of the losses, claims, damages or liabilities referred to in Section
5.04(a) or 5.04(b) hereof in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and the indemnified
party on the other in connection
17
<PAGE>
with statements or omissions or actions that resulted in such losses, claims,
damages or liabilities, as well as any other relevant equitable considerations.
The relative fault shall be determined by reference, among other things, to
whether any untrue or alleged untrue statement of a material fact or the
omission or alleged omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The parties
hereto agree that it would not be just and equitable if contributions pursuant
to this Section 5.05 were to be determined by pro rata allocation or by any
other method of allocation that does not take account of the equitable
considerations referred to in the first two sentences of this Section 5.05. The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities referred to in the first two sentences of this Section 5.05 shall
be deemed to include legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim (which shall be limited as provided in Section 5.04(c) hereof if the
indemnifying party has assumed the defense of any such action in accordance with
the provisions thereof that is the subject to this Section 5.05. No person
guilty of fraudulent misrepresentation (within the meaning of Section 10(f) of
the 1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Promptly after receipt by an
indemnified party under this Section 5.05 of notice of the commencement of any
action against such party in respect of which a claim for contribution may be
made against an indemnifying party under this Section 5.05, such indemnified
party shall notify the indemnifying party in writing of the commencement thereof
if the notice specified in Section 5.04(c) hereof has not been given with
respect to such action; provided, that the omission so to notify the
--------
indemnifying party shall not relieve the indemnifying party otherwise under this
Section 5.05, except to the extent that the indemnifying party is actually
prejudiced by such failure. Notwithstanding anything in this Section 5.05 to the
contrary, no indemnifying party (other than Hiway) shall be required pursuant to
this Section 5.05 to contribute any amount in excess of the proceeds received by
such indemnifying party from the sale of Registrable Common Shares in the
offering to which the losses, claims, damages or liabilities of the indemnified
parties relate.
Section 5.06 Miscellaneous.
-------------
(a) Amendments and Waivers. This Article V may be amended, and Hiway may
----------------------
take any action herein prohibited or omit to perform any act herein required to
be performed by it, if Hiway shall have obtained the written consent to such
amendment, action or omission to act of Stockholders holding at least a majority
of the then outstanding Registrable Common Shares. Stockholders shall be bound
from and after the date of any such consent, whether or not the certificates
representing such Registrable Common Shares shall have been marked to indicate
such consent or whether notice of such consent was given to all stockholders.
(b) Successors, Assigns and Transferees. This Article V shall be binding
-----------------------------------
upon and shall inure to the benefit of the parties hereto and their respective
successors, assigns and transferees.
18
<PAGE>
(c) Recapitalization, Exchanges, Etc. Affecting Registrable Common Shares.
---------------------------------------------------------------------
The provisions of this Article V shall apply to the full extent set forth herein
with respect to the Registrable Common Shares and to any and all shares of
capital stock of Hiway or any successor or assign of Hiway (whether by merger,
consolidation, sale of assets or otherwise) that may be issued in respect of, in
exchange for, or in substitution of the Registrable Common Shares, by reason of
any stock dividend, stock split, reverse stock split, combination,
recapitalization, reclassification, merger or consolidation.
ARTICLE VI
Miscellaneous
-------------
Section 6.01. Taxes and Charges. The Company will from time to time
-----------------
promptly pay all taxes and charges that may be imposed upon the Company in
respect of the issuance or delivery of shares of Common Stock upon the exercise
of this Warrant, but the Company shall not be obligated to pay any transfer
taxes in respect of this Warrant or such shares.
Section 6.02. Assigns. All the covenants and provisions of this Warrant
-------
by or for the benefit of the Company or the holder of this Warrant shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 6.03. Notices. All notices, consents and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given, when
delivered personally or three days after having been sent by certified mail
return receipt requested, postage prepaid, or upon transmission by telex,
telecopy, facsimile or similar electronic medium to the parties at the addresses
set forth in the Investment Agreement (or at such other address for a party as
shall be specified by like notice).
Section 6.04. Governing Law. The validity, interpretation and performance
-------------
of this Warrant shall be governed by the laws of the State of Florida.
Section 6.05. Third Parties. Nothing in this Warrant expressed and nothing
-------------
that may be implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than the
parties hereto and the holders of this Warrant any right, remedy or claim
hereunder or by reason of any covenant, condition, stipulation, promise or
agreement hereof, and all covenants, conditions, stipulations, promises and
agreements in this Warrant shall be for the sole and exclusive benefit of the
parties hereto and their successors and of the holders of this Warrant.
Section 6.06. Warrantholders. The Company may deem and treat the person in
-------------
whose name this Warrant is registered as the absolute owner for all purposes
whatever (notwithstanding any notation of ownership or other writing thereon
made by anyone other than the Company) and the Company shall not be affected by
any notice to the contrary. The terms
19
<PAGE>
"Warrantholder" and holder of this Warrant and all other similar terms used
herein shall mean such person in whose name this Warrant is registered on the
books of the Company.
Section 6.07. Headings. The Article and Section headings herein are for
--------
convenience only and are not a part of this Warrant and shall not affect the
interpretation thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its President and attested by its Secretary.
Dated:___________, 199__
HIWAY TECHNOLOGIES, INC.
By [SIGNATURE ILLEGIBLE]^^
-----------------------
President
Attest:
[SIGNATURE ILLEGIBLE]^^
-----------------------
Secretary
20
<PAGE>
ELECTION TO EXERCISE
TO HIWAY TECHNOLOGIES, INC.:
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by this Warrant for, and to purchase thereunder, _______shares of
Common Stock, as provided for therein, and tenders herewith payment of the
purchase price in full in the form of [cash or a bank check in the amount of
$_____.][$_______ principal amount of the Note and cash or a bank check in the
amount of $______] (delete one).
Please issue a certificate or certificates for such shares of Common Stock
in the name of, and pay any cash for any fractional shares to:
Name___________________INSERT SOCIAL
SECURITY OR (Please Print Name and Address)
OTHER IDENTIFYING NUMBER
_________________ Signature ___________________
_________________ Address _______________________
NOTE: The above signature should
correspond exactly with the name on
the face of this Warrant or with
the name of assignee appearing in
the assignment form below.
ASSIGNMENT
For value received, _________________________hereby sells, assigns and
transfers unto ________________________ the within Warrant, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ______________________ attorney, to transfer said Warrant on the books
of the within-named Company, with full power of substitution in the premises.
Dated: ____________, ____
_________________________
NOTE: The above signature should correspond
exactly with the name on the face of
this Warrant.
<PAGE>
EXHIBIT 10.03
STOCK OPTION PLAN
OF
HIWAY TECHNOLOGIES, INC.
Preamble. The Board of Directors of HIWAY TECHNOLOGIES, INC. (the "Company") has
- --------
adopted this Stock Option Plan effective January 1, 1997. It was approved by the
Class A Shareholders of the Company on June 3, 1997.
1. Purpose.
-------
The purpose of this Stock Option Plan (the "Plan") is to (a) give officers,
executive personnel, selected consultants and employees (collectively, "Key
Persons") of the Company an opportunity to acquire shares of the Class B Common
Stock of the Company, $.01 par value (the "Class B Common Stock"), (b) provide
an incentive for Key Persons to continue to promote the best interests of the
Company, (c) enhance the long-term performance of the Company, and (d) provide
an incentive for Key persons to join or to remain employees of the Company.
2. Administration.
--------------
(a) Board of Directors. The Plan shall be administered by the Board of
------------------
Directors of the Company (the "Board"), which, to the extent it determines, may
delegate its powers to administer the Plan (other than its powers under Section
11(c)) to a committee of directors (the "Committee") appointed by the Board and
composed of not less than two members of the Board. If the Board appoints a
Committee, references to the Board (except in Section 11(c)) shall be deemed to
refer to the Committee. No member of the Board may exercise discretion with
respect to, or participate in, the administration of the Plan if at any time
while serving on the Committee or within one year prior to the exercise of the
discretion or participation, the director received stock, stock options or stock
appreciation rights pursuant to the Plan or any other plan of the Company or any
of the Company entitling the participants to acquire stock, stock options or
stock appreciation rights of the Company or of any of the Company.
(b) Powers. Within the limits of the express provisions of the Plan, the
------
Board shall determine: (i) the Key Persons to whom awards shall be granted, (ii)
the time or times at which awards shall be granted, (iii) the form and amount of
the awards, and (iv) the limitations, restrictions and conditions applicable to
each award. In making its determinations, the Board may take into account the
nature of the services rendered and the present and potential contributions to
the success of the Company and such other factors as the Board in its discretion
deems relevant.
(c) Interpretations. Subject to the express provisions of the Plan, the
---------------
Board may interpret the Plan, prescribe, amend and rescind rules and regulations
relating to it, determine the terms and provisions of the awards and make all
other determinations it deems necessary or advisable for the administration of
the Plan.
<PAGE>
(d) Determination. The determinations of the Board on all matters
-------------
regarding the Plan shall be conclusive. A member of the Board shall only be
liable for an action taken or determination made in bad faith.
(e) Non-uniform Determinations. The Board's determinations under the Plan,
--------------------------
including determinations as to the persons to receive awards, the terms and
provisions of each award and the agreements evidencing the awards, need not be
uniform and may be made by it selectively among persons who receive or are
eligible to receive awards under the Plan, whether or not such persons are
similarly situated.
3. Awards Under the Plan.
---------------------
(a) Type of Award. Awards under the Plan may be granted in the following
-------------
forms: (i) Incentive Stock Options ("ISOs") within the meaning of Section 422 of
the Internal Revenue Code, as described in Section 4, or (ii) Non-Qualified
Stock Options. (ISOs and Non-Qualified Stock Options are collectively referred
to as "Stock Options.")
(b) Maximum Limitations. The aggregate number of shares of Class B Common
-------------------
Stock available for grant under the Plan is 500,000 representing approximately
9% of the currently outstanding equity interests in the Company, subject to
adjustment pursuant to Section 7. Shares of Class B Common Stock issued pursuant
to the Plan may be either authorized but unissued shares or shares now or
hereafter held in the treasury of the Company. If, prior to the end of the
period during which Stock Options may be granted under the Plan, any Stock
Option under the Plan expires unexercised or is terminated, surrendered or
canceled without being exercised in whole or in part for any reason, the number
of shares previously subject to that Stock Option (or the unexercised,
terminated, forfeited or unearned portion of it) shall be added to the remaining
number of shares of Class B Common Stock available for grant as a Stock Option
under the Plan, including a grant to a former holder of the Stock Option, upon
such terms and conditions as the Board shall determine, which terms may be more
or less favorable than those applicable to the former Stock Option.
4. Stock Options Conditions.
------------------------
Stock Options may be granted under the Plan for the purchase of shares of
Class B Common Stock. Stock Options shall be in such form and upon such terms
and conditions as the Board shall from time to time determine, subject to the
following:
(a) Option Price. The option price (the "Option Price") of each Stock
------------
Option to purchase Class B Common Stock shall be determined by the Board, but
the Option Price for each ISO shall not be less than 100% of the Fair Market
Value (as defined in Section 1l(i)) of the Class B Common Stock subject to the
ISO on the date of grant. If the optionee, at the time an ISO is granted to the
optionee, owns more than 10% of the total combined voting power of all classes
of the stock of the Company or of a parent or subsidiary (a "10% Stockholder"),
the Option Price of each ISO to purchase Class B Common Stock granted to the 10%
Stockholder shall not be less than
2
<PAGE>
110% of the Fair Market Value of the Class B Common Stock subject to the ISO on
the date of grant.
(b) Term of Options. No Stock Option shall be exercisable after the
---------------
date ten years and one day after the date the Stock Option is granted. No ISO
granted to a 10% Stockholder shall be exercisable after the date five years and
one day after the date the ISO is granted.
(c) Exercisability of Options. Stock Options shall become
-------------------------
exercisable at rates per year of the Stock Options granted to each grantee as
determined by the Board or the Committee as the case may be. The number of Stock
Options that may become exercisable per year for each Key Person may not exceed
$100,000 divided by the Option Price.
(d) Conditions of Grant. As a condition to the grant of a Stock
-------------------
Option, the Board may require a Key Person who receives a Stock Option to enter
into one or more of the following agreements with the Company on or prior to the
date of grant of the Option (or, with respect to the Class B Shareholders'
Agreement, upon exercise of a Stock Option):
(i) Confidentiality and Non-Competition Agreement with the
Company which shall remain effective during the Key Person's employment and for
two years after the termination of employment of an employee/recipient or such
other date as the Board determines for other recipients. The covenant shall
contain terms and conditions specified by the Board;
(ii) The Class B Shareholders' Agreement effective January 1,
1997 (the Class B "Shareholders' Agreement") among the Company, the persons
named as parties to the Class B Shareholders' Agreement and the persons set
forth in Schedule A to the Class B Shareholders' Agreement.
(iii) An Incentive Stock Option Agreement or a Non-Qualified
Stock Option Agreement, as the case may be, in a form prescribed by the Company,
reflecting the terms and conditions of the grant of the Stock Options.
If the Key Person fails to enter into any of the agreements requested by the
Board, no Stock Options shall be granted to the Key Person, and the number of
shares of Class B Common Stock that would have been subject to the Stock Option
shall be added to the remaining shares of Class B Common Stock available for
grant as Stock Options under the Plan.
5. Provisions Applicable to Stock Options.
--------------------------------------
(a) Exercise. Stock Options shall be subject to terms and conditions, be
--------
exercisable at such time or times, and be evidenced by the a Stock Option
Agreement as the Board shall determine. These determinations shall not be
inconsistent with other provisions of the Plan.
3
<PAGE>
(b) Manner of Exercise of Options and Payment for Common Stock. Stock
----------------------------------------------------------
Options may be exercised by an optionee by giving written notice to the
Secretary of the Company stating the number of shares of Class B Common Stock
with respect to which the Stock Option is being exercised and tendering the
Option Price for the shares. Payment for the Class B Common Stock issuable shall
be made in full in cash or by certified check or, if the Board agrees, fully or
partially in shares of Class B Common Stock of the Company. If the Option Price
is paid wholly in shares, the number of shares of Class B Common Stock required
to be delivered to the Company to pay for the shares of Class B Common Stock
being acquired by the exercise of the Stock Option shall be determined by (1)
multiplying the Option Price per share by the number of shares for which the
Stock Option is being exercised and (2) dividing the product by the Fair Market
Value per share of the Class B Common Stock on the date of exercise. As soon as
reasonably practicable after the exercise, a certificate representing shares of
Class B Common Stock purchased, registered in the name of the optionee, shall be
delivered to the optionee.
6. Transferability.
---------------
No Stock Option may be transferred, assigned, pledged or hypothecated
(whether by operation of law or otherwise), except as provided by will or the
applicable laws of descent or distribution, and no Stock Option shall be subject
to execution, attachment or similar process. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of a Stock Option, or levy of
attachment or similar process upon a Stock Option not specifically permitted in
this Plan shall be null and void and without effect. A Stock Option may only be
exercised by a Key Person during his or her lifetime, or pursuant to Section
10(c) by his or her estate or the person who acquires the right to exercise the
Stock Option upon his or her death by bequest or inheritance.
7. Adjustment Provisions.
---------------------
The aggregate number of shares of Class B Common Stock with respect to which
Stock Options may be granted, the aggregate number of shares of Class B Common
Stock subject to each outstanding Stock Option, and the Option Price per share
of each Stock Option may all be appropriately adjusted as the Board may
determine for any increase or decrease in the number of shares of issued Class B
Common Stock resulting from a subdivision or consolidation of shares, whether
through reorganization, recapitalization, stock split, stock distribution or
combination of shares, or the payment of a share dividend or other increase or
decrease in the number of shares outstanding effected without receipt of
consideration by the Company. Adjustments under this Section shall be made
according to the sole discretion of the Board, and its decisions shall be
binding and conclusive.
8. Dissolution, Merger and Consolidation.
-------------------------------------
If all unexercised Stock Options will terminate as of the effective date
(the "Termination Effective Date") of a merger or other transaction in which the
Company is not the survivor or on the dissolution of the Company (a "Company
Terminating Event"), all Stock Options shall expire as of
4
<PAGE>
the Termination Effective Date. The Board shall give written notice of this
event to each optionee at least 30 days prior to the Termination Effective Date.
During the period from receipt of this notice to the Termination Effective
Date, each optionee shall have a right to exercise all unexercised Stock Options
without regard to installment exercise limitations, but subject to the $100,000
per year limitations contained in Section 4(c). Unless sooner expired pursuant
to Section 10(b) or (c), each Stock Option shall be exercisable after receipt of
the written notice and prior to the Termination Effective Date.
9. Plan Effective Date and Conditions Subsequent to Effective Date.
---------------------------------------------------------------
The Plan became effective as of January 1, 1997. No grant or award shall be
made under the Plan after December 31, 2006. The Plan and all Stock Options
granted under the Plan prior to December 31, 2006 shall remain in effect and be
subject to adjustment and amendment until the Stock Options have been satisfied
or terminated in accordance with the terms of the respective grants, awards and
related agreements.
10. Termination of Stock Options.
----------------------------
(a) Each Stock Option shall, unless sooner expired pursuant to Section
10(b) or (c), expire on the first to occur of (1) the date one day after the
tenth anniversary of the date of its grant or (2) the expiration date set forth
in the applicable Stock Option Agreement.
(b) In the case of an employee of the Company, all Stock Options granted
to the employee shall expire on the first to occur of the applicable date set
forth in paragraph (a) above and the date on which the employment of the
employee with the Enterprise terminates for any reason other than death or
disability. Upon receipt of notice of termination of employment, whether written
or oral, an optionee/employee shall not thereafter have the right to exercise
any Stock Options. The Board, in its sole discretion, by written notice given to
a former employee, may permit the former employee to exercise Stock Options
during a period following his or her termination of employment, which period
shall not exceed 90 days. In no event, however, may the Board permit a former
employee to exercise a Stock Option after the expiration date contained in the
Stock Option Agreement evidencing the Stock Option. If the Board permits a
former employee to exercise Stock Options during a period following his or her
termination of employment pursuant to the preceding provisions, the Stock
Options shall, to the extent unexercised, expire on the date that the former
employee violates (as determined solely by the Board) any confidentiality
agreement or covenant not to compete in effect between the Company and the
former employee.
(c) If the employment of an employee with the Company terminates by reason
of disability (as determined by the Board consistent with Section 422 of the
Internal Revenue Code), the employee's Stock Options shall expire on the first
to occur of the date set forth in Section 10(a) or one year after the
termination of employment. If an employee dies while employed with the Company
or dies within three months (or one year if the employee is disabled) after the
termination
5
<PAGE>
of employment, the employee's Stock Options shall expire on the first to occur
of the date set forth in Section 10(a) or one year after the date of the
employee's death.
11. Miscellaneous.
-------------
(a) Local and other Requirements. The obligation of the Company to sell
----------------------------
and deliver Class B Common Stock under the Plan shall be subject to all
applicable laws, regulations, rules and approvals, including the Securities Act
of 1933, as amended. Certificates for shares of Class B Common Stock issued upon
the exercise of Stock Options may bear a restrictive legend if the Board deems
it appropriate.
(b) No Obligation to Exercise Options. The granting of a Stock Option
---------------------------------
shall impose no obligation upon an optionee to exercise the Stock Option.
(c) Termination and Amendment of Plan. The Board, without further action
---------------------------------
on the part of the Shareholders of the Company, may from time to time alter,
amend or suspend the Plan or any Stock Option granted under the Plan or may at
any time terminate the Plan, except that, unless approved by the Shareholders in
accordance with Section 9, the Board may not (except to the extent provided in
Section 7): (i) change the total number of shares of Class B Common Stock
available for grant under the Plan; (ii) extend the duration of the Plan; (iii)
increase the maximum term of Stock Options; or (iv) change the class of persons
eligible to be granted Stock Options under the Plan. No action taken by the
Board under this Section may materially and adversely affect any outstanding
Stock Option without the consent of the holder.
(d) Application of Funds. The proceeds received by the Company from the
--------------------
sale of Class B Common Stock pursuant to the exercise of Stock Options will be
used for general corporate purposes.
(e) Withholding Taxes. Upon the exercise of a Stock Option, the Company
-----------------
shall have the right to require the optionee to remit to the Company an amount
sufficient to satisfy all federal, state and local withholding tax requirements
prior to the delivery of the certificate or certificates for shares of Class B
Common Stock. In lieu thereof, the Company shall have the right to retain, or
sell to other persons without notice to the optionee, a sufficient number of
shares of Class B Common Stock to cover the amount required to be withheld.
Under the Plan, whenever payments are to be made by the Company in cash or by
check, these payments shall be net of all amounts needed to satisfy all federal,
state and local withholding tax requirements.
(f) Right to Terminate Employment. Nothing in the Plan or any agreement
-----------------------------
entered into pursuant to the Plan shall confer on any Key Person or other
optionee the right to continue in the employ of the Company or affect any right
that the Company may have to terminate the employment of the Key Person or other
optionee.
6
<PAGE>
(g) Rights as a Stockholder. No optionee shall have any right or
-----------------------
privileges as a Shareholder unless and until certificates for shares of Class B
Common Stock are issued to that person.
(h) Leaves of Absence and Disability. The Board shall be entitled to make
--------------------------------
such rules, regulations and determinations as it deems appropriate under the
Plan in respect of any leave of absence taken by or disability of any
employee/optionee. Without limiting the generality of the foregoing, the Board
shall be entitled to determine (i) whether or not any such leaves of absence
shall constitute a termination of employment within the meaning of the Plan, and
(ii) the impact, if any, of any such leave of absence on awards under the Plan
already made to any employee/optionee who takes such leave of absence.
(i) Fair Market Value. Whenever the Fair Market Value of Class B Common
-----------------
Stock is to be determined under the Plan as of a given date, the Fair Market
Value shall be:
(i) If the Class B Common Stock is traded on the over-the-counter
market, the mean between the bid and the asked price for the Class B Common
Stock at the close of trading for such date;
(ii) If the Class B Common Stock is listed on a national securities
exchange, or is traded on the NASDAQ National Market System or the NASDAQ Small
Cap Market, the closing price of the Class B Common Stock on the Composite Tape
or as otherwise officially reported for such date; and
(iii) If the Class B Common Stock is not traded on the over-the-
counter market, the NASDAQ National Market System, the NASDAQ Small Cap Market
or listed on a national securities exchange, the value that the Board, in good
faith, determines.
(j) Notices. Every direction, revocation or notice authorized or required
-------
by the Plan shall be deemed delivered to the Company (a) on the date it is
personally delivered to the Secretary of the Company at its principal executive
offices or (b) three business days after it is sent by registered or certified
mall, postage prepaid, addressed to the Secretary at these offices; and shall be
deemed delivered to an optionee (a) on the date it is personally delivered to
the optionee or (b) three business days after it is sent by registered or
certified mail, postage prepaid, addressed to the optionee at the last address
shown for the optionee on the records of the Company.
(k) Applicable Law. All questions pertaining to the validity, construction
--------------
and administration of the Plan and Stock Options shall be determined in
conformity with the laws of the State of Florida.
(l) Elimination of Fractional Shares. If any provision of the Plan
--------------------------------
requires a computation of the number of shares of Class B Common Stock subject
to a Stock Option and the number computed is not a whole number, the number
shall be rounded down to the next whole number.
7
<PAGE>
(m) Shareholders' Agreement. If the Committee makes the execution of a
-----------------------
Shareholders' Agreement a condition to the grant of an Option or a condition to
the exercise of a Stock Option by an optionee, the Company shall be under no
obligation to sell or deliver Class B Common Stock under the Plan to an optionee
unless the optionee executes the Class B Shareholders' Agreement. The Company
shall furnish a copy of the required Class B Shareholders' Agreement to each
optionee required to execute the Class B Shareholders' Agreement prior to the
time that execution is required.
This Plan was effective as of the approval of the Company's Shareholders
owning more than 60% of the Company's outstanding Class A Common Stock.
HIWAY TECHNOLOGIES, INC.
By: /s/ Scott H. Adams
--------------------------
Scott H. Adams, President
8
<PAGE>
EXHIBIT 10.04
STOCK OPTION PLAN
1. Purpose of the Plan. Under this Stock Option Plan ("the Plan") of
-------------------
BEST INTERNET COMMUNICATIONS, INC., a California corporation (the "Company"),
options may be granted to eligible employees, directors and consultants to
purchase shares of the Company's capital stock. The Plan is designed to enable
the Company and its parent or subsidiary companies to attract, retain and
motivate its employees, directors and consultants by providing for or increasing
the proprietary interests of such persons in the Company. Options granted under
this Plan may, in the discretion of the Company's Board of Directors, be either
"incentive stock options" under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or "nonstatutory stock options" which do not so
qualify.
2. Stock Subject to Plan. The maximum number of shares of stock for
---------------------
which options granted hereunder may be exercised shall be 200,000 shares of
common stock without par value, subject to the adjustments provided in Section
6. Shares of stock subject to the unexercised portions of any options granted
under this Plan which expire or terminate or are canceled may again be subject
to options under the Plan.
3. Eligible Persons. The employees eligible to be considered for the
----------------
grant of options hereunder are any persons regularly employed by the Company or
its parent or subsidiaries on a full-time, salaried basis. Directors and
consultants of the Company or its parent or subsidiaries are eligible for grant
of options hereunder.
4. Minimum Exercise Price. The exercise price for each option granted
----------------------
hereunder is determined by the Board of Directors and may not be less than 85%,
in the case of nonstatutory stock options, and 100%, in the case of incentive
stock options, of the fair market value of the stock at the date of the grant of
the option, as determined by the Board. In the case of any incentive stock
option granted to an employee who, immediately before the grant of such option,
owns stock representing more than ten (10%)
1
<PAGE>
of the total combined voting power of all classes of stock of the Company or its
parent or subsidiaries, the per share purchase price must be at least 110% of
the fair market value of the Company's Common Stock determined by the Board.
5. Nontransferability. Any option granted under this Plan shall by its
------------------
terms be nontransferable by the optionee, other than by will or the laws of
descent and distribution, and is exercisable during the optionee's lifetime only
by him or by his guardian or legal representative.
6. Adjustments. If the outstanding shares of stock of the class then
-----------
subject to this Plan are increased or decreased, or are changed into or
exchanged for a different number or kind of shares or securities, as a result of
one or more reorganizations, recapitalizations, stock splits, reverse stock
splits, stock dividends or the like, appropriate adjustments shall be made in
the number and/or kind of shares or securities for which options may thereafter
be granted under this Plan and for which options then outstanding under this
Plan may thereafter be exercised. Any such adjustment in outstanding options
shall be made without changing the aggregate exercise price applicable to the
unexercised portions of such options.
7. Maximum Option Term. No option granted under this Plan may be
-------------------
exercised in whole or in part more than ten years after its date of grant.
8. Plan Duration. Options may not be granted under this Plan more than
-------------
ten years after the date of the adoption of this Plan, or of shareholder
approval thereof, whichever is earlier.
9. Payment. Payment for stock purchased upon any exercise of an option
-------
granted under this Plan shall be made in full in cash concurrently with such
exercise.
10. Administration. The Plan shall be administered by the Company's
--------------
board of directors (the "Board") or, at the discretion of the Board, by a
committee (the "Committee") of not less than two members of the Board each of
whom shall not at any time within one year prior to his service as an
administrator of the Plan, or during such service, have received a grant or
award of
2
<PAGE>
equity securities pursuant to the Plan or any other Plan of the Company or any
of its affiliates.
The interpretation and construction by the Committee of any term or
provision of the Plan or of any option granted under it shall be final, unless
otherwise determined by the Board, in which event such determination by the
Board shall be final. The Committee may from time to time adopt rules and
regulations for carrying out this Plan and, subject to the provisions of this
Plan, may prescribe the form or forms of the instruments evidencing any option
granted under this Plan.
Subject to the provisions of this Plan, the Board or, by its
delegation, the Committee, shall have full and final authority in its discretion
to select the employees to be granted options, to grant such options and to
determine the number of shares to be subject thereto, the exercise prices, the
terms of exercise (including, without limitation, restrictions on exercise),
expiration dates and other pertinent provisions thereof. In the event of any
restriction requiring that all or any portion of an option granted hereunder not
be exercisable until a specific time period has passed, the optionee shall be
given the right to exercise at the rate of at least 20% per year over 5 years
from the date the option is granted.
Each option shall be evidenced by a written stock option agreement
between the Company and the optionee consistent with the terms of this Plan.
Subject to the terms and conditions and within the limitations of the Plan, the
Committee or the Board may modify, extend or renew outstanding options (to the
extent not theretofore exercised) and authorize the granting of new options in
substitution therefore (to the extent not theretofore exercised).
11. Corporate Reorganizations. Upon the dissolution or liquidation of
-------------------------
the Company, or upon a reorganization, merger or consolidation of the Company as
a result of which the outstanding securities of the class then subject to
options hereunder are changed into or exchanged for cash or property or
securities not of the Company's issue, or any combination thereof, or upon a
sale of substantially all the property of the Company to, or the acquisition of
stock of the Company then outstanding by; another corporation or person, the
Plan shall terminate, and all options theretofore granted hereunder shall
terminate, unless provision be
3
<PAGE>
made in writing in connection with such transaction for the continuance of the
Plan and/or for the assumption of options theretofore granted, or the
substitution for such options of options covering the stock of a successor
employer corporation, or a parent or a subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices, in which event the
Plan and options theretofore granted shall continue in the manner and under the
terms so provided. If the Plan and unexercised options shall terminate pursuant
to the foregoing sentence, all persons entitled to exercise any unexercised
portions of options then outstanding shall have the right, at such time prior to
the consummation of the transaction causing such termination as the Company
shall designate, to exercise the unexercised portions of their options,
including the portions thereof which would, but for this paragraph entitled
"Corporate Reorganizations," not yet be exercisable. The instrument evidencing
any option may also provide for such acceleration of otherwise unexercisable
portions of the option upon other specified events or occurrences, such as
involuntary termination of the option holder's employment following certain
changes in the control of the Company.
12. Restricted Stock. If the instrument evidencing the option so
----------------
provides, shares of stock issued on exercise of an option granted under this
Plan may upon issuance be subject to the following restrictions (and, as used
herein, "restricted stock" means shares issued on exercise of options granted
under this Plan which are still subject to restrictions imposed under this
Section 12 that have not yet expired or terminated):
(a) shares of restricted stock may not be sold or otherwise
transferred or hypothecated;
(b) if the employment of the holder of shares of restricted stock with
the Company or a subsidiary is terminated for any reason other than his death,
normal or early retirement in accordance with his employer's established
retirement policies or practices, or total disability, the Company (or any
subsidiary designated by it) shall have the option for sixty (60} days after
such termination of employment to purchase for cash all or any part of his
restricted stock, for cash or cancellation of purchase money indebtedness, at
either: (i) the higher of the original purchase price or fair market value on
the date of termination of
4
<PAGE>
employment; or (ii) the original purchase price, provided that (1) the right to
repurchase at the original purchase price shall lapse at the rate of at least
20% per year over 5 years from the date the option is granted (without respect
to the date the option was exercised or became exercisable), and (2) if the
right is assignable, the assignee must pay the issuer upon assignment of the
right (unless the assignee is a 100% owned subsidiary of Company or is the
parent and owner of 100% of Company) cash equal to the difference between the
original price and fair market value if the original purchase price is less than
fair market value; or
(c) as to the shares of stock affected thereby, any additional
restrictions that may be imposed on particular shares of specified stock as
specified in the instrument evidencing the option.
The restrictions imposed under this Section 12 shall apply as well to
all shares of other securities issued in respect of restricted stock in
connection with any stock split, reverse stock split, stock dividend,
recapitalization, reclassification, spin-off, merger, consolidation or
reorganization, but such restrictions shall expire or terminate at such time or
times as shall be specified therefor in the instrument evidencing the option
which provides for the restrictions.
13. Financial Assistance. The Company is vested with authority under
--------------------
this Plan to assist any person to whom an option is granted hereunder (including
any director or consultant of the Company or its parent or subsidiaries) in the
payment of the purchase price payable on exercise of that option, by lending the
amount of such purchase price to such person on such terms and at such rates of
interest and upon such security (or unsecured) as shall have been authorized by
or under authority of the Board.
14. Amendment and Termination. The Board may alter, amend, suspend or
-------------------------
terminate this Plan, provided that no such action shall deprive an optionee,
without his consent, of any option granted to the optionee pursuant to this Plan
or of any of his rights under such option. Except as herein provide, no such
action of the Board, unless taken with the approval of the shareholders of the
Company, may:
5
<PAGE>
(a) increase the maximum number of shares for which options granted
under this Plan may be exercised;
(b) reduce the minimum permissible exercise price;
(c) extend the ten-year duration of this Plan set forth herein; or
(d) alter the class of employees eligible to receive options under
the Plan.
15. Approval of Stockholders. The Plan shall take effect when
------------------------
approved by the Board subject to approval by the holders of a majority of the
outstanding shares of Common Stock of the Company not later than one year after
approval by the Board.
16. Securities Laws Compliance. Notwithstanding anything contained
--------------------------
herein, the Company shall not be obligated to grant any option under this Plan,
or to sell or issue any share pursuant to any option agreement executed pursuant
to the Plan, unless the grant or sale is effectively registered or exempt from
registration under the Securities Act of 1933, as amended, and is qualified or
exempt from qualification under the California Corporate Securities Law of 1968,
as amended.
As adopted by the Board of Directors on _________, 19__.
BEST INTERNET COMMUNICATIONS, INC.
A California Corporation
BY: ______________________________
Michael Schwartz, President
6
<PAGE>
EXHIBIT 10.06
HIWAY TECHNOLOGIES, INC.
1998 EQUITY INCENTIVE PLAN
As Adopted March 26, 1998 and
Amended and Restated June 18, 1998 and July 16, 1998
1. PURPOSE. The purpose of this Plan is to provide incentives to
-------
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
--------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 18,
--------------------------
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 2,000,000 Shares. In addition, subject to
Sections 2.2 and 18, Shares that are subject to: (a) issuance upon exercise of
an Option but cease to be subject to such Option for any reason other than
exercise of such Option; (b) an Award granted hereunder but are forfeited or are
repurchased by the Company at the original issue price; and (c) an Award that
otherwise terminates without Shares being issued, will again be available for
grant and issuance in connection with future Awards under this Plan. On each
January 1 during the term of the Plan, the aggregate number of Shares reserved
and available for grant and issuance pursuant to this Plan will be increased
automatically by a number of Shares equal to two and one-half percent (2-1/2%)
of the total outstanding shares of the Company as of the immediately preceding
December 31. The total number of Shares issued under the Plan upon exercise of
ISOs will in no event exceed 10,000,000 Shares (adjusted in proportion to any
adjustment under Section 2.2 below) over the term of the Plan. At all times the
Company shall reserve and keep available a sufficient number of Shares as shall
be required to satisfy the requirements of all outstanding Options granted under
this Plan and all other outstanding but unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of outstanding
--------------------
shares is changed by a stock dividend, recapitalization, stock split, reverse
stock split, subdivision, combination, reclassification or similar change in the
capital structure of the Company without consideration, then (a) the number of
Shares reserved for issuance under this Plan, (b) the Exercise Prices of and
number of Shares subject to outstanding Options, and (c) the number of Shares
subject to other outstanding Awards will be proportionately adjusted, subject to
any required action by the Board or the stockholders of the Company and
compliance with applicable securities laws; provided, however, that fractions of
-------- -------
a Share will not be issued but will either be replaced by a cash payment equal
to the Fair Market Value of such fraction of a Share or will be rounded up to
the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted
-----------
only to employees (including officers and directors who are also employees) of
the Company or of a Parent or Subsidiary of the Company. All other Awards may
be granted to employees, officers, directors, consultants, independent
contractors and advisors of the Company or any Parent or Subsidiary of the
Company; provided such consultants, contractors and advisors render bona fide
--------
services not in connection with the offer and sale of securities in a capital-
raising transaction. No person will be eligible to receive more than 2,000,000
Shares in any calendar year under this Plan pursuant to the grant of Awards
hereunder, other than new employees of the Company or of a Parent or Subsidiary
of the Company (including new employees who are also officers and directors of
the Company or any Parent or Subsidiary of the Company), who are eligible to
receive up to a maximum of 3,000,000 Shares in the calendar year in which they
commence their employment. A person may be granted more than one Award under
this Plan.
<PAGE>
Hiway Technologies, Inc.
1998 Equity Incentive Plan
4. ADMINISTRATION.
--------------
4.1 Committee Authority. This Plan will be administered by the
-------------------
Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to
Awards;
(f) determine whether Awards will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or any other incentive or
compensation plan of the Company or any Parent or Subsidiary of
the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Any determination made by the
--------------------
Committee with respect to any Award will be made in its sole discretion at the
time of grant of the Award or, unless in contravention of any express term of
this Plan or Award, at any later time, and such determination will be final and
binding on the Company and on all persons having an interest in any Award under
this Plan. The Committee may delegate to one or more officers of the Company
the authority to grant an Award under this Plan to Participants who are not
Insiders of the Company.
5. OPTIONS. The Committee may grant Options to eligible persons and
-------
will determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOS"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this
--------------------
Plan will be evidenced by an Award Agreement which will expressly identify the
Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form
and contain such provisions (which need not be the same for each Participant) as
the Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
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<PAGE>
Hiway Technologies, Inc.
1998 Equity Incentive Plan
5.2 Date of Grant. The date of grant of an Option will be the
-------------
date on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options may be exercisable within the times
---------------
or upon the events determined by the Committee as set forth in the Stock Option
Agreement governing such Option; provided, however, that no Option will be
-------- -------
exercisable after the expiration of ten (10) years from the date the Option is
granted; and provided further that no ISO granted to a person who directly or by
-------- -------
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Parent or Subsidiary of the
Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration of
five (5) years from the date the ISO is granted. The Committee also may provide
for Options to become exercisable at one time or from time to time, periodically
or otherwise, in such number of Shares or percentage of Shares as the Committee
determines.
5.4 Exercise Price. The Exercise Price of an Option will be
--------------
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO
granted to a Ten Percent Stockholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only by
------------------
delivery to the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth
-----------
in the Stock Option Agreement, exercise of an Option will always be subject to
the following:
(a) If the Participant is Terminated for any reason except death or
Disability, then the Participant may exercise such Participant's
Options only to the extent that such Options would have been
exercisable upon the Termination Date no later than three (3)
months after the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be determined by the
Committee, with any exercise beyond three (3) months after the
Termination Date deemed to be an NQSO), but in any event, no
later than the expiration date of the Options.
(b) If the Participant is Terminated because of Participant's death
or Disability (or the Participant dies within three (3) months
after a Termination other than for Cause or because of
Participant's Disability), then Participant's Options may be
exercised only to the extent that such Options would have been
exercisable by Participant on the Termination Date and must be
exercised by Participant (or Participant's legal representative
or authorized assignee) no later than twelve (12) months after
the Termination Date (or such shorter or longer time period not
exceeding five (5) years as may be determined by the Committee,
with any such exercise beyond (a) three (3) months after the
Termination Date when the Termination is for any reason other
than the Participant's death or Disability, or (b) twelve (12)
months after the Termination Date when the Termination is for
Participant's death or Disability, deemed to be an NQSO), but in
any event no later than the expiration date of the Options.
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<PAGE>
Hiway Technologies, Inc.
1998 Equity Incentive Plan
(c) Notwithstanding the provisions in paragraph 5.6(a) above, if a
Participant is terminated for Cause, neither the Participant, the
Participant's estate nor such other person who may then hold the
Option shall be entitled to exercise any Option with respect to
any Shares whatsoever, after termination of service, whether or
not after termination of service the Participant may receive
payment from the Company or Subsidiary for vacation pay, for
services rendered prior to termination, for services rendered for
the day on which termination occurs, for salary in lieu of
notice, or for any other benefits. In making such determination,
the Board shall give the Participant an opportunity to present to
the Board evidence on his behalf. For the purpose of this
paragraph, termination of service shall be deemed to occur on the
date when the Company dispatches notice or advice to the
Participant that his service is terminated.
5.7 Limitations on Exercise. The Committee may specify a
-----------------------
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Limitations on ISO. The aggregate Fair Market Value
------------------
(determined as of the date of grant) of Shares with respect to which ISO are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company, Parent
or Subsidiary of the Company) will not exceed $100,000. If the Fair Market
Value of Shares on the date of grant with respect to which ISO are exercisable
for the first time by a Participant during any calendar year exceeds $100,000,
then the Options for the first $100,000 worth of Shares to become exercisable in
such calendar year will be ISO and the Options for the amount in excess of
$100,000 that become exercisable in that calendar year will be NQSOs. In the
event that the Code or the regulations promulgated thereunder are amended after
the Effective Date of this Plan to provide for a different limit on the Fair
Market Value of Shares permitted to be subject to ISO, such different limit will
be automatically incorporated herein and will apply to any Options granted after
the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may
----------------------------------
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
-------- -------
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in
-------------------
this Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
----------------
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "PURCHASE PRICE"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a
------------------------------
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
full payment for the Shares to the Company within thirty (30) days from the date
the Restricted Stock Purchase Agree-
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Hiway Technologies, Inc.
1998 Equity Incentive Plan
ment is delivered to the person. If such person does not execute and deliver the
Restricted Stock Purchase Agreement along with full payment for the Shares to
the Company within thirty (30) days, then the offer will terminate, unless
otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant
--------------
to a Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case the Purchase Price will be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8
of this Plan.
6.3 Terms of Restricted Stock Awards. Restricted Stock Awards
--------------------------------
shall be subject to such restrictions as the Committee may impose. These
restrictions may be based upon completion of a specified number of years of
service with the Company or upon completion of the performance goals as set out
in advance in the Participant's individual Restricted Stock Purchase Agreement.
Restricted Stock Awards may vary from Participant to Participant and between
groups of Participants. Prior to the grant of a Restricted Stock Award, the
Committee shall: (a) determine the nature, length and starting date of any
Performance Period for the Restricted Stock Award; (b) select from among the
Performance Factors to be used to measure performance goals, if any; and (c)
determine the number of Shares that may be awarded to the Participant. Prior to
the payment of any Restricted Stock Award, the Committee shall determine the
extent to which such Restricted Stock Award has been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Restricted Stock Awards that are subject to different Performance Periods and
having different performance goals and other criteria.
6.4 Termination During Performance Period. If a Participant is
-------------------------------------
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.
7. STOCK BONUSES.
-------------
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares
-----------------------
(which may consist of Restricted Stock) for services rendered to the Company or
any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past
services already rendered to the Company, or any Parent or Subsidiary of the
Company pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will
be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS
AGREEMENT") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine.
7.2 Terms of Stock Bonuses. The Committee will determine the
----------------------
number of Shares to be awarded to the Participant. If the Stock Bonus is being
earned upon the satisfaction of performance goals pursuant to a Performance
Stock Bonus Agreement, then the Committee will: (a) determine the nature,
length and starting date of any Performance Period for each Stock Bonus; (b)
select from among the Performance Factors to be used to measure the performance,
if any; and (c) determine the number of Shares that may be awarded to the
Participant. Prior to the payment of any Stock Bonus, the Committee shall
determine the extent to which such Stock Bonuses have been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Stock Bonuses that are subject to different Performance Periods and different
performance goals and other criteria. The number of Shares may be fixed or may
vary in accordance with such performance goals and criteria as may be determined
by the Committee. The Committee may adjust the performance goals applicable to
the Stock Bonuses to take into account changes in law and accounting or tax
rules
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1998 Equity Incentive Plan
and to make such adjustments as the Committee deems necessary or appropriate to
reflect the impact of extraordinary or unusual items, events or circumstances to
avoid windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus may be
---------------
paid currently or on a deferred basis with such interest or dividend equivalent,
if any, as the Committee may determine. Payment may be made in the form of cash
or whole Shares or a combination thereof, either in a lump sum payment or in
installments, all as the Committee will determine.
8. PAYMENT FOR SHARE PURCHASES.
---------------------------
8.1 Payment. Payment for Shares purchased pursuant to this Plan
-------
may be made in cash (by check) or, where expressly approved for the Participant
by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note
has been fully paid with respect to such shares); or (2) were
obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such terms as
may be approved by the Committee and bearing interest at a rate s
ufficient to avoid imputation of income under Sections 483 and
1274 of the Code; provided, however, that Participants who are
-------- -------
not employees or directors of the Company will not be entitled to
purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant for
services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the Participant
and a broker-dealer that is a member of the National
Association of Securities Dealers (an "NASD DEALER") whereby
the Participant irrevocably elects to exercise the Option
and to sell a portion of the Shares so purchased to pay for
the Exercise Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the Exercise
Price directly to the Company; or
(2) through a "margin" commitment from the Participant and a
NASD Dealer whereby the Participant irrevocably elects to
exercise the Option and to pledge the Shares so purchased to
the NASD Dealer in a margin account as security for a loan
from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt
of such Shares to forward the Exercise Price directly to the
Company; or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant pay
---------------
for Shares purchased under this Plan by authorizing a guarantee by the Company
of a third-party loan to the Participant.
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1998 Equity Incentive Plan
9. WITHHOLDING TAXES.
-----------------
9.1 Withholding Generally. Whenever Shares are to be issued in
---------------------
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Awards are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 Stock Withholding. When, under applicable tax laws, a
-----------------
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee
10. PRIVILEGES OF STOCK OWNERSHIP.
-----------------------------
10.1 Voting and Dividends. No Participant will have any of the
--------------------
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
--------
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
-------- -------
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's Purchase Price or Exercise Price pursuant
to Section 12.
10.2 Financial Statements. The Company will provide financial
--------------------
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
-------- -------
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under this Plan, and any interest
---------------
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as determined by the Committee and
set forth in the Award Agreement with respect to Awards that are not ISOs.
During the lifetime of the Participant an Award will be exercisable only by the
Participant, and any elections with respect to an Award may be made only by the
Participant unless otherwise determined by the Committee and set forth in the
Award Agreement with respect to Awards that are not ISOs.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase a portion of or all Unvested Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at the Participant's Exercise Price or Purchase Price, as the case
may be.
13. CERTIFICATES. All certificates for Shares or other securities
------------
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or
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Hiway Technologies, Inc.
1998 Equity Incentive Plan
advisable, including restrictions under any applicable federal, state or foreign
securities law, or any rules, regulations and other requirements of the SEC or
any stock exchange or automated quotation system upon which the Shares may be
listed or quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
------------------------
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
-------- -------
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
-----------------------------
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not
----------------------------------------------
be effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to: (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable; and/or (b) completion of any registration or other qualification
of such Shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company will be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
will have no liability for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award
-----------------------
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent or Subsidiary of the Company or limit in any way
the right of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. CORPORATE TRANSACTIONS.
----------------------
18.1 Assumption or Replacement of Awards by Successor. In the
------------------------------------------------
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to
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Hiway Technologies, Inc.
1998 Equity Incentive Plan
such merger (other than any stockholder that merges, or which owns or controls
another corporation that merges, with the Company in such merger) cease to own
their shares or other equity interest in the Company, (d) the sale of
substantially all of the assets of the Company, or (e) the acquisition, sale, or
transfer of more than 50% of the outstanding shares of the Company by tender
offer or similar transaction, any or all outstanding Awards may be assumed,
converted or replaced by the successor corporation (if any), which assumption,
conversion or replacement will be binding on all Participants. In the
alternative, the successor corporation may substitute equivalent Awards or
provide substantially similar consideration to Participants as was provided to
stockholders (after taking into account the existing provisions of the Awards).
The successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant. In the
event such successor corporation (if any) refuses to assume or substitute
Awards, as provided above, pursuant to a transaction described in this
Subsection 18.1, such Awards will expire on such transaction at such time and on
such conditions as the Committee will determine; provided, however, that the
-------- -------
Committee may, in its sole discretion, provide that the vesting of any or all
Awards granted pursuant to this Plan will accelerate. If the Committee
exercises such discretion with respect to Options, such Options will become
exercisable in full prior to the consummation of such event at such time and on
such conditions as the Committee determines, and if such Options are not
exercised prior to the consummation of the corporate transaction, they shall
terminate at such time as determined by the Committee.
18.2 Other Treatment of Awards. Subject to any greater rights
-------------------------
granted to Participants under the foregoing provisions of this Section 18, in
the event of the occurrence of any transaction described in Section 18.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, or sale of assets.
18.3 Assumption of Awards by the Company. The Company, from time
-----------------------------------
to time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of Shares issuable
------
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become
---------------------------------
effective on the date on which the registration statement filed by the Company
with the SEC under the Securities Act registering the initial public offering of
the Company's Common Stock is declared effective by the SEC (the "EFFECTIVE
DATE"). This Plan shall be approved by the stockholders of the Company
(excluding Shares issued pursuant to this Plan), consistent with applicable
laws, within twelve (12) months before or after the date this Plan is adopted by
the Board. Upon the Effective Date, the Committee may grant Awards pursuant to
this Plan; provided, however, that: (a) no Option may be exercised prior to
-------- -------
initial stockholder approval of this Plan; (b) no Option granted pursuant to an
increase in the number of Shares subject to this Plan approved by the Board will
be exercised prior to the time such increase has been approved by the
stockholders of the Company; (c) in the event that initial stockholder approval
is not obtained within the time period provided herein, all Awards granted
hereunder shall be cancelled, any Shares issued pursuant to any Awards shall be
cancelled and any purchase of Shares issued hereunder shall be rescinded; and
(d) in the event that stockholder approval of such increase is not obtained
within the time period provided herein, all Awards granted pursuant to such
increase will be cancelled, any Shares issued pursuant to any Award granted
pursuant to such increase will be cancelled, and any purchase of Shares pursuant
to such increase will be rescinded.
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Hiway Technologies, Inc.
1998 Equity Incentive Plan
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
--------------------------
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval. This Plan
and all agreements thereunder shall be governed by and construed in accordance
with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
--------------------------------
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
-------- -------
of the stockholders of the Company, amend this Plan in any manner that requires
such stockholder approval.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by
--------------------------
the Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will have
-----------
the following meanings:
"AWARD" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means the commission of an act of theft, embezzlement,
fraud, dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee of the Board.
"COMPANY" means Hiway Technologies, Inc. or any successor
corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXERCISE PRICE" means the price at which a holder of an Option
may purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share
of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities
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Hiway Technologies, Inc.
1998 Equity Incentive Plan
exchange on which the Common Stock is listed or admitted to
trading as reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The Wall
--------
Street Journal;
--------------
(d) in the case of an Award made on the Effective Date, the price per
share at which shares of the Company's Common Stock are initially
offered for sale to the public by the Company's underwriters in
the initial public offering of the Company's Common Stock
pursuant to a registration statement filed with the SEC under the
Securities Act; or
(d) if none of the foregoing is applicable, by the Committee in good
faith.
"INSIDER" means an officer or director of the Company or any
other person whose transactions in the Company's Common Stock are subject to
Section 16 of the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant
to Section 5.
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this
Plan.
"PERFORMANCE FACTORS" means the factors selected by the Committee
from among the following measures to determine whether the performance goals
established by the Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or
earnings before income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total stockholder return and/or total stockholder return
growth;
(g) Return on equity;
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
(k) Individual confidential business objectives.
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Hiway Technologies, Inc.
1998 Equity Incentive Plan
"PERFORMANCE PERIOD" means the period of service determined by
the Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"PLAN" means this Hiway Technologies, Inc. 1998 Equity Incentive
Plan, as amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to
Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of
Shares, pursuant to Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan
with respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of absence
approved by the Committee, provided, that such leave is for a period of not more
than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
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<PAGE>
EXHIBIT 10.07
HIWAY TECHNOLOGIES, INC.
1998 DIRECTORS STOCK OPTION PLAN
As Adopted June 18, 1998
1. PURPOSE. This 1998 Directors Stock Option Plan (this "PLAN") is
established to provide equity incentives for certain nonemployee members of the
Board of Directors of Hiway Technologies, Inc. (the "COMPANY"), who are
described in Section 6.1 below, by granting such persons options to purchase
shares of stock of the Company.
2. ADOPTION AND STOCKHOLDER APPROVAL. After this Plan is adopted by the
Board of Directors of the Company (the "BOARD"), this Plan will become effective
on the time and date (the "EFFECTIVE DATE") on which the registration statement
filed by the Company with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), to register the
initial public offering of the Company's Common Stock is declared effective by
the SEC. This Plan shall be approved by the stockholders of the Company,
consistent with applicable laws, within twelve (12) months after the date this
Plan is adopted by the Board.
3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan shall be
non-qualified stock options ("NQSOS"). The shares of stock that may be
purchased upon exercise of Options granted under this Plan (the "SHARES") are
shares of the Common Stock of the Company.
4. NUMBER OF SHARES. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan (the "MAXIMUM NUMBER") is 300,000
Shares, subject to adjustment as provided in this Plan. If any Option is
terminated for any reason without being exercised in whole or in part, the
Shares thereby released from such Option shall be available for purchase under
other Options subsequently granted under this Plan. At all times during the
term of this Plan, the Company shall reserve and keep available such number of
Shares as shall be required to satisfy the requirements of outstanding Options
granted under this Plan; provided, however that if the aggregate number of
Shares subject to outstanding Options granted under this Plan plus the aggregate
number of Shares previously issued by the Company pursuant to the exercise of
Options granted under this Plan equals or exceeds the Maximum Number, then
notwithstanding anything herein to the contrary, no further Options may be
granted under this Plan until the Maximum Number is increased or the aggregate
number of Shares subject to outstanding Options granted under this Plan plus the
aggregate number of Shares previously issued by the Company pursuant to the
exercise of Options granted under this Plan is less than the Maximum Number.
5. ADMINISTRATION. This Plan shall be administered by the Board or
by a committee of not less than two members of the Board appointed to administer
this Plan (the "COMMITTEE"). As used in this Plan, references to the Committee
shall mean either such Committee or the Board if no Committee has been
established. The interpretation by the Committee of any of the provisions of
this Plan or any Option granted under this Plan shall be final and binding upon
the Company and all persons having an interest in any Option or any Shares
purchased pursuant to an Option.
6. ELIGIBILITY AND AWARD FORMULA.
6.1 Eligibility. Options shall be granted only to directors of the
-----------
Company who are not employees of the Company or any Parent, Subsidiary or
Affiliate of the Company, as those terms are defined in Section 17 below (each
such person referred to as an "OPTIONEE").
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Hiway Technologies, Inc.
1998 Directors Stock Options Plan
6.2 Initial Grant. Each Optionee who first becomes a member of the
-------------
Board on or after the Effective Date will automatically be granted an Option for
20,000 Shares (an "INITIAL GRANT") on the later of the Effective Date or on the
date such Optionee becomes a member of the Board.
6.3 Succeeding Grants. On each annual anniversary of an Optionee's
-----------------
Initial Grant, or, if an Optionee was ineligible for an Initial Grant, on each
anniversary of the Effective Date, each Optionee will automatically be granted
an Option for 10,000 Shares (a "SUCCEEDING GRANT"), provided the Optionee is a
member of the Board on such anniversary date and has served continuously as a
member of the Board since the date of such Optionee's Initial Grant or since
the Effective Date, whichever applies.
7. TERMS AND CONDITIONS OF OPTIONS. Subject to the following
and to Section 6 above:
7.1 Form of Option Grant. Each Option granted under this Plan shall
--------------------
be evidenced by a written Stock Option Grant ("GRANT") in such form (which need
not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
7.2 Vesting. The date an Optionee receives an Initial Grant or a
-------
Succeeding Grant is referred to in this Plan as the "START DATE" for such
Option.
(a) Initial Grants. Each Initial Grant will vest as to twelve
--------------
percent (12%) of the Shares on the six-month anniversary of the Start Date for
such Initial Grant, and as to 2.096% of the Shares on each subsequent monthly
anniversary of the Start Date, so long as the Optionee continuously remains a
director or a consultant of the Company.
(b) Succeeding Grants. Each Succeeding Grant will vest as to
-----------------
twelve and one-half percent (12.5%) of the Shares on the six-month anniversary
of the Start Date for such Succeeding Grant, and as to 2.0833333% of the
Shares on each subsequent monthly anniversary of the Start Date, so long as
the Optionee continuously remains a director or a consultant of the Company.
7.3 Exercise Price. The exercise price of an Option shall be the
--------------
Fair Market Value (as defined in Section 17.4) of the Shares, at the time that
the Option is granted.
7.4 Termination of Option. Except as provided below in this Section,
---------------------
each Option shall expire ten (10) years after its Start Date (the "EXPIRATION
DATE"). The Option shall cease to vest when the Optionee ceases to be a member
of the Board or a consultant of the Company. The date on which the Optionee
ceases to be a member of the Board or a consultant of the Company shall be
referred to as the "TERMINATION DATE". An Option may be exercised after the
Termination Date only as set forth below:
(a) Termination Generally. If the Optionee ceases to be a
---------------------
member of the Board or a consultant of the Company for any reason except death
of the Optionee or disability of the Optionee (whether temporary or permanent,
partial or total, as determined by the Committee), then each Option then held by
such Optionee, to the extent (and only to the extent) that it would have been
exercisable by the Optionee on the Termination Date, may be exercised by the
Optionee no later than seven (7) months after the Termination Date, but in no
event later than the Expiration Date.
(b) Death or Disability. If the Optionee ceases to be a member
-------------------
of the Board or a consultant of the Company because of the death of the Optionee
or the disability of the Optionee (whether temporary or permanent, partial or
total, as determined by the Committee), then each Option then held by such
Optionee to the extent (and only to the extent) that it would have been
exercisable by the Optionee on the Termination Date, may be exercised by the
Optionee (or the Optionee's legal representative) no later than twelve (12)
months after the Termination Date, but in no event later than the Expiration
Date.
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Hiway Technologies, Inc.
1998 Directors Stock Option Plan
8. EXERCISE OF OPTIONS.
8.1 Exercise Period. Subject to the provisions of Section 8.5
---------------
below, Options shall be exercisable as they vest.
8.2 Notice. Options may be exercised only by delivery to the Company
------
of an exercise agreement in a form approved by the Committee stating the number
of Shares being purchased, the restrictions imposed on the Shares and such
representations and agreements regarding the Optionee's investment intent and
access to information as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.
8.3 Payment. Payment for the Shares purchased upon exercise of an
-------
Option may be made (a) in cash or by check; (b) by surrender of shares of Common
Stock of the Company that have been owned by the Optionee for more than six (6)
months (and which have been paid for within the meaning of SEC Rule 144 and, if
such shares were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares) or were obtained by the
Optionee in the open public market, having a Fair Market Value equal to the
exercise price of the Option; (c) by waiver of compensation due or accrued to
the Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD DEALER") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
exercise price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the exercise price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the exercise price directly to the
Company; or (f) by any combination of the foregoing.
8.4 Withholding Taxes. Prior to issuance of the Shares upon exercise
-----------------
of an Option, the Optionee shall pay or make adequate provision for any federal
or state withholding obligations of the Company, if applicable.
8.5 Limitations on Exercise. Notwithstanding the exercise periods
-----------------------
set forth in the Grant, exercise of an Option shall always be subject to the
following limitations:
(a) An Option shall not be exercisable unless such exercise is
in compliance with the Securities Act and all applicable state securities laws,
as they are in effect on the date of exercise.
(b) The Committee may specify a reasonable minimum number of
Shares that may be purchased upon any exercise of an Option, provided that such
minimum number will not prevent the Optionee from exercising the full number of
Shares as to which the Option is then exercisable.
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, an Option shall be exercisable only by the Optionee or by the
Optionee's guardian or legal representative, unless otherwise determined by the
Committee. No Option may be sold, pledged, assigned, hypothecated, transferred
or disposed of in any manner other than by will or by the laws of descent and
distribution, unless otherwise determined by the Committee.
10. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a stockholder with respect to any Shares subject to an Option until
the Option has been validly exercised. No adjustment shall be made for
dividends or distributions or other rights for which the record date is prior to
the date of exercise, except as provided in this Plan. The Company shall
provide to each Optionee a copy of the annual financial statements of the
Company at such time after the close of each fiscal year of the Company as they
are released by the Company to its stockholders.
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Hiway Technologies, Inc.
1998 Directors Stock Option Plan
11. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price per share of such outstanding
Options shall be proportionately adjusted, subject to any required action by the
Board or stockholders of the Company and compliance with applicable securities
laws; provided, however, that no fractional shares shall be issued upon exercise
of any Option and any resulting fractions of a Share shall be rounded up to the
nearest whole Share.
12. NO OBLIGATION TO CONTINUE AS DIRECTOR. Nothing in this Plan or any
Option granted under this Plan shall confer on any Optionee any right to
continue as a director of the Company.
13. COMPLIANCE WITH LAWS. The grant of Options and the issuance of Shares
upon exercise of any Options shall be subject to and conditioned upon compliance
with all applicable requirements of law, including without limitation compliance
with the Securities Act, compliance with all other applicable state securities
laws and compliance with the requirements of any stock exchange or national
market system on which the Shares may be listed. The Company shall be under no
obligation to register the Shares with the SEC or to effect compliance with the
registration or qualification requirement of any state securities laws, stock
exchange or national market system.
14. ACCELERATION OF OPTIONS ON CERTAIN CORPORATE TRANSACTIONS. In the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Options granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption, conversion or
replacement will be binding on all Optionees), (c) a merger in which the Company
is the surviving corporation but after which the stockholders of the Company
(other than any stockholder which merges (or which owns or controls another
corporation which merges) with the Company in such merger) cease to own their
shares or other equity interests in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, the vesting of all options granted pursuant to this Plan
will accelerate and the options will become exercisable in full prior to the
consummation of such event at such times and on such conditions as the Committee
determines, and must be exercised, if at all, within six months of the
consummation of said event. Any options not exercised within such six-month
period shall expire.
15. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate
or amend this Plan or any outstanding option, provided that the Board may not
terminate or amend the terms of any outstanding option without the consent of
the Optionee. In any case, no amendment of this Plan may adversely affect any
then outstanding Options or any unexercised portions thereof without the written
consent of the Optionee.
16. TERM OF PLAN. Options may be granted pursuant to this Plan from time
to time within a period of ten (10) years from the Effective Date.
17. CERTAIN DEFINITIONS. As used in this Plan, the following terms shall
have the following meanings:
17.1 "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
17.2 "SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
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Hiway Technologies, Inc.
1998 Directors Stock Option Plan
17.3 "AFFILIATE" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
17.4 "FAIR MARKET VALUE" means, as of any date, the value of a share
of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The
---
Wall Street Journal;
-------------------
(d) in the case of an Option granted on the Effective Date, the
price per share at which shares of the Company's Common Stock
are initially offered for sale to the public by the Company's
underwriters in the initial public offering of the Company's
Common Stock pursuant to a registration statement filed with the
SEC under the Securities Act; or
(e) if none of the foregoing is applicable, by the Committee in
good faith.
-5-
<PAGE>
EXHIBIT 10.08
HIWAY TECHNOLOGIES, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
As Adopted June 18, 1998
1. ESTABLISHMENT OF PLAN. Hiway Technologies, Inc. (the "COMPANY")
proposes to grant options for purchase of the Company's Common Stock to
eligible employees of the Company and its Participating Subsidiaries (as
hereinafter defined) pursuant to this Employee Stock Purchase Plan (this
"PLAN"). For purposes of this Plan, "PARENT CORPORATION" and "SUBSIDIARY"
(collectively, "SUBSIDIARIES") shall have the same meanings as "parent
corporation" and "subsidiary corporation" in Sections 424(e) and 424(f),
respectively, of the Internal Revenue Code of 1986, as amended (the "CODE").
"PARTICIPATING SUBSIDIARIES" are Parent Corporations or Subsidiaries that the
Board of Directors of the Company (the "BOARD") designates from time to time as
corporations that shall participate in this Plan. The Company intends this Plan
to qualify as an "employee stock purchase plan" under Section 423 of the Code
(including any amendments to or replacements of such Section), and this Plan
shall be so construed. Any term not expressly defined in this Plan but defined
for purposes of Section 423 of the Code shall have the same definition herein.
A total of 500,000 shares of the Company's Common Stock is reserved for
issuance under this Plan. In addition, on each January 1, the aggregate number
of shares of the Company's Common Stock reserved for issuance under the Plan
shall be increased automatically by a number of shares equal to one percent (1%)
of the total outstanding shares of the Company as of the immediately preceding
December 31; provided, however, that such increase shall in no event exceed
1,000,000 shares per year. Such number shall be subject to adjustments effected
in accordance with Section 14 of this Plan.
2. PURPOSE. The purpose of this Plan is to provide eligible employees of
the Company and Participating Subsidiaries with a convenient means of acquiring
an equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.
3. ADMINISTRATION. This Plan shall be administered by the Compensation
Committee of the Board (the "COMMITTEE"). Subject to the provisions of this
Plan and the limitations of Section 423 of the Code or any successor provision
in the Code, all questions of interpretation or application of this Plan shall
be determined by the Committee and its decisions shall be final and binding upon
all participants. Members of the Committee shall receive no compensation for
their services in connection with the administration of this Plan, other than
standard fees as established from time to time by the Board for services
rendered by Board members serving on Board committees. All expenses incurred in
connection with the administration of this Plan shall be paid by the Company.
4. Eligibility. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are not employed by the Company or a Participating
Subsidiary (10) days before the beginning of such Offering Period, except that
employees who are employed on the Effective Date of the Registration Statement
filed by the Company with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended (the "SECURITIES ACT") registering the
initial public offering of the Company's Common Stock shall be eligible to
participate in the first Offering Period under the Plan;
(b) employees who are customarily employed for twenty (20) hours or less
per week;
(c) employees who are customarily employed for five (5) months or less
in a calendar year;
(d) employees who, together with any other person whose stock would be
attributed to such employee pursuant to Section 424(d) of the Code, own stock or
hold options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Participating Subsidiaries or who, as a result of being granted an option
under this Plan with respect to such Offering Period,
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Hiway Technologies, Inc.
1998 Employee Stock Purchase Plan
would own stock or hold options to purchase stock possessing five percent (5%)
or more of the total combined voting power or value of all classes of stock of
the Company or any of its Participating Subsidiaries; and
(e) individuals who provide services to the Company or any of its
Participating Subsidiaries as independent contractors who are reclassified as
common law employees for any reason except for federal income and employment tax
------ ---
purposes.
5. OFFERING DATES. The offering periods of this Plan (each, an "OFFERING
PERIOD") shall be of six (6) months duration commencing on February 25 and
August 25 of each year and ending on August 24 and February 24 of each year;
provided, however, that notwithstanding the foregoing, the first such Offering
- -------- -------
Period shall commence on the first business day on which price quotations for
the Company's Common Stock are available on the Nasdaq National Market (the
"FIRST OFFERING DATE") and shall end on February 24, 1999. Each Offering Period
shall consist of one (1) six-month purchase period (a "PURCHASE PERIOD") during
which payroll deductions of the participants are accumulated under this Plan.
The first business day of each Offering Period is referred to as the "OFFERING
DATE". The last business day of each Purchase Period is referred to as the
"PURCHASE DATE". The Committee shall have the power to change the duration of
Offering Periods with respect to offerings without stockholder approval if such
change is announced at least fifteen (15) days prior to the scheduled beginning
of the first Offering Period to be affected.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become participants
in an Offering Period under this Plan on the first Offering Date after
satisfying the eligibility requirements by delivering a subscription agreement
to the Company's treasury department (the "TREASURY DEPARTMENT") not later than
five (5) days before such Offering Date. Notwithstanding the foregoing, the
Committee may set a later time for filing the subscription agreement authorizing
payroll deductions for all eligible employees with respect to a given Offering
Period. An eligible employee who does not deliver a subscription agreement to
the Treasury Department by such date after becoming eligible to participate in
such Offering Period shall not participate in that Offering Period or any
subsequent Offering Period unless such employee enrolls in this Plan by filing a
subscription agreement with the Treasury Department not later than five (5) days
preceding a subsequent Offering Date. Once an employee becomes a participant in
an Offering Period, such employee will automatically participate in the Offering
Period commencing immediately following the last day of the prior Offering
Period unless the employee withdraws or is deemed to withdraw from this Plan or
terminates further participation in the Offering Period as set forth in Section
11 below. Such participant is not required to file any additional subscription
agreement in order to continue participation in this Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i) eighty-
five percent (85%) of the fair market value of a share of the Company's Common
Stock on the Offering Date (but in no event less than the par value of a share
of the Company's Common Stock), or (ii) eighty-five percent (85%) of the fair
market value of a share of the Company's Common Stock on the Purchase Date (but
in no event less than the par value of a share of the Company's Common Stock),
provided, however, that the number of shares of the Company's Common Stock
- -------- -------
subject to any option granted pursuant to this Plan shall not exceed the lesser
of (x) the maximum number of shares set by the Committee pursuant to Section
10(c) below with respect to the applicable Purchase Date, or (y) the maximum
number of shares which may be purchased pursuant to Section 10(b) below with
respect to the applicable Purchase Date. The fair market value of a share of
the Company's Common Stock shall be determined as provided in Section 8 below.
8. PURCHASE PRICE. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date.
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Hiway Technologies, Inc.
1998 Employee Stock Purchase Plan
For purposes of this Plan, the term "FAIR MARKET VALUE" means, as of any
date, the value of a share of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National Market,
its closing price on the Nasdaq National Market on the date of
determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The Wall
--------
Street Journal; or
--------------
(d) if none of the foregoing is applicable, by the Board in good
faith, which in the case of the First Offering Date will be the
price per share at which shares of the Company's Common Stock are
initially offered for sale to the public by the Company's
underwriters in the initial public offering of the Company's
Common Stock pursuant to a registration statement filed with the
SEC under the Securities Act.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF
SHARES.
(a) The purchase price of the shares is accumulated by regular payroll
deductions made during each Offering Period. The deductions are made as a
percentage of the participant's compensation in one percent (1%) increments not
less than two percent (2%), nor greater than ten percent (10%) or such lower
limit set by the Committee. Compensation shall mean all W-2 compensation,
including, but not limited to, base salary, wages, commissions, overtime, shift
premiums and bonuses, plus draws against commissions, provided however, that for
purposes of determining a participant's compensation, any election by such
participant to reduce his or her regular cash remuneration under Sections 125 or
401(k) of the Code shall be treated as if the participant did not make such
election. Payroll deductions shall commence on the first payday of the Offering
Period and shall continue to the end of the Offering Period unless sooner
altered or terminated as provided in this Plan.
(b) A participant may decrease or increase the rate of payroll
deductions during an Offering Period by filing with the Treasury Department a
new authorization for payroll deductions, in which case the new rate shall
become effective for the next payroll period commencing more than fifteen (15)
days after the Treasury Department's receipt of the authorization and shall
continue for the remainder of the Offering Period unless changed as described
below. Such change in the rate of payroll deductions may be made at any time
during an Offering Period, but not more than one (1) change may be made
effective during any Purchase Period. A participant may increase or decrease
the rate of payroll deductions for any subsequent Offering Period by filing with
the Treasury Department a new authorization for payroll deductions not later
than fifteen (15) days before the beginning of such Offering Period.
(c) A participant may reduce his or her payroll deduction percentage to
zero during an Offering Period by filing with the Treasury Department a request
for cessation of payroll deductions. Such reduction shall be effective
beginning with the next payroll period commencing more than fifteen (15) days
after the Treasury Department's receipt of the request and no further payroll
deductions will be made for the duration of the Offering Period. Payroll
deductions credited to the participant's account prior to the effective date of
the request shall be used to purchase shares of Common Stock of the Company in
accordance with Section (e) below. A participant may not resume making payroll
deductions during the Offering Period in which he or she reduced his or her
payroll deductions to zero.
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Hiway Technologies, Inc.
1998 Employee Stock Purchase Plan
(d) All payroll deductions made for a participant are credited to his or
her account under this Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
(e) On each Purchase Date, so long as this Plan remains in effect and
provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under this Plan and have all
payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall apply
the funds then in the participant's account to the purchase of whole shares of
Common Stock reserved under the option granted to such participant with respect
to the Offering Period to the extent that such option is exercisable on the
Purchase Date. The purchase price per share shall be as specified in Section 8
of this Plan. Any cash remaining in a participant's account after such purchase
of shares shall be refunded to such participant in cash, without interest;
provided, however that any amount remaining in such participant's account on a
Purchase Date which is less than the amount necessary to purchase a full share
of Common Stock of the Company shall be carried forward, without interest, into
the next Purchase Period or Offering Period, as the case may be. In the event
that this Plan has been oversubscribed, all funds not used to purchase shares on
the Purchase Date shall be returned to the participant, without interest. No
Common Stock shall be purchased on a Purchase Date on behalf of any employee
whose participation in this Plan has terminated prior to such Purchase Date.
(f) As promptly as practicable after the Purchase Date, the Company
shall issue shares for the participant's benefit representing the shares
purchased upon exercise of his or her option.
(g) During a participant's lifetime, his or her option to purchase
shares hereunder is exercisable only by him or her. The participant will have
no interest or voting right in shares covered by his or her option until such
option has been exercised.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No participant shall be entitled to purchase stock under this Plan
at a rate which, when aggregated with his or her rights to purchase stock under
all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan. The Company shall automatically suspend
the payroll deductions of any participant as necessary to enforce such limit
provided that when the Company automatically resumes such payroll deductions,
the Company must apply the rate in effect immediately prior to such suspension.
(b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date as the denominator may
be purchased by a participant on any single Purchase Date.
(c) No participant shall be entitled to purchase more than the Maximum
Share Amount (as defined below) on any single Purchase Date. Not less than
thirty (30) days prior to the commencement of any Offering Period, the Committee
may, in its sole discretion, set a maximum number of shares which may be
purchased by any employee at any single Purchase Date (hereinafter the "MAXIMUM
SHARE AMOUNT"). Until otherwise determined by the Committee, there shall be no
Maximum Share Amount. In no event shall the Maximum Share Amount exceed the
amounts permitted under Section 10(b) above. If a new Maximum Share Amount is
set, then all participants must be notified of such Maximum Share Amount prior
to the commencement of the next Offering Period. The Maximum Share Amount shall
continue to apply with respect to all succeeding Purchase Dates and Offering
Periods unless revised by the Committee as set forth above.
(d) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then available
for issuance under this Plan, then the Company will make a pro rata allocation
of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Com-
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Hiway Technologies, Inc.
1998 Employee Stock Purchase Plan
mittee shall determine to be equitable. In such event, the Company shall give
written notice of such reduction of the number of shares to be purchased under a
participant's option to each participant affected.
(e) Any payroll deductions accumulated in a participant's account which
are not used to purchase stock due to the limitations in this Section 10 shall
be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under this
Plan by signing and delivering to the Treasury Department a written notice to
that effect on a form provided for such purpose. Such withdrawal may be elected
at any time at least fifteen (15) days prior to the end of an Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll deductions
shall be returned to the withdrawn participant, without interest, and his or her
interest in this Plan shall terminate. In the event a participant voluntarily
elects to withdraw from this Plan, he or she may not resume his or her
participation in this Plan during the same Offering Period, but he or she may
participate in any Offering Period under this Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth in Section 6 above for initial
participation in this Plan.
(c) If the Fair Market Value on the first day of the current Offering
Period in which a participant is enrolled is higher than the Fair Market Value
on the first day of any subsequent Offering Period, the Company will
automatically enroll such participant in the subsequent Offering Period. Any
funds accumulated in a participant's account prior to the first day of such
subsequent Offering Period will be applied to the purchase of shares on the
Purchase Date immediately prior to the first day of such subsequent Offering
Period. A participant does not need to file any forms with the Company to
automatically be enrolled in the subsequent Offering Period.
12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment
for any reason, including retirement, death or the failure of a participant to
remain an eligible employee of the Company or of a Participating Subsidiary,
immediately terminates his or her participation in this Plan. In such event,
the payroll deductions credited to the participant's account will be returned to
him or her or, in the case of his or her death, to his or her legal
representative, without interest. For purposes of this Section 12, an employee
will not be deemed to have terminated employment or failed to remain in the
continuous employ of the Company or of a Participating Subsidiary in the case of
sick leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than ninety (90) days or
- --------
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall deliver to the participant all payroll deductions credited to such
participant's account. No interest shall accrue on the payroll deductions of a
participant in this Plan.
14. CAPITAL CHANGES. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "RESERVES"), as well as the
price per share of Common Stock covered by each option under this Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of any
consideration by the Company; provided, however, that conversion of any
-------- -------
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the
Committee, whose determination shall be final, binding and conclusive. Except
as expressly provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
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Hiway Technologies, Inc.
1998 Employee Stock Purchase Plan
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Committee. The Committee may,
in the exercise of its sole discretion in such instances, declare that this Plan
shall terminate as of a date fixed by the Committee and give each participant
the right to purchase shares under this Plan prior to such termination. In the
event of (i) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders of
the Company or their relative stock holdings and the options under this Plan are
assumed, converted or replaced by the successor corporation, which assumption
will be binding on all participants), (ii) a merger in which the Company is the
surviving corporation but after which the stockholders of the Company
immediately prior to such merger (other than any stockholder that merges, or
which owns or controls another corporation that merges, with the Company in such
merger) cease to own their shares or other equity interest in the Company, (iii)
the sale of all or substantially all of the assets of the Company or (iv) the
acquisition, sale, or transfer of more than 50% of the outstanding shares of the
Company by tender offer or similar transaction, the Plan will continue for the
duration of all Offering Periods which began prior to the transaction and shares
will be purchased based on the Fair Market Value of the surviving corporation's
stock on each Purchase Date (taking into account the exchange ratio where
necessary).
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 below) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. REPORTS. Individual accounts will be maintained for each participant
in this Plan. Each participant shall receive promptly after the end of each
Purchase Period a report of his or her account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share price
thereof and the remaining cash balance, if any, carried forward to the next
Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company in
writing if the participant disposes of any of the shares purchased in any
Offering Period pursuant to this Plan if such disposition occurs within two (2)
years from the Offering Date or within one (1) year from the Purchase Date on
which such shares were purchased (the "NOTICE PERIOD"). The Company may, at any
time during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to this Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant of
any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee's
employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal
rights and privileges with respect to this Plan so that this Plan qualifies as
an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company, the Committee
or the Board, be reformed to comply with the requirements of Section 423. This
Section 19 shall take precedence over all other provisions in this Plan.
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Hiway Technologies, Inc.
1998 Employee Stock Purchase Plan
20. NOTICES. All notices or other communications by a participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the Board,
this Plan will become effective on the First Offering Date (as defined above).
This Plan shall be approved by the stockholders of the Company, in any manner
permitted by applicable corporate law, within twelve (12) months before or after
the date this Plan is adopted by the Board. No purchase of shares pursuant to
this Plan shall occur prior to such stockholder approval. This Plan shall
continue until the earlier to occur of (a) termination of this Plan by the Board
(which termination may be effected by the Board at any time), (b) issuance of
all of the shares of Common Stock reserved for issuance under this Plan, or (c)
ten (10) years from the adoption of this Plan by the Board.
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
this Plan in the event of such participant's death subsequent to the end of an
Purchase Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under this Plan in the event
of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under this Plan who is living
at the time of such participant's death, the Company shall deliver such shares
or cash to the executor or administrator of the estate of the participant, or if
no such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange or automated quotation system upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
24. APPLICABLE LAW. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant. Notwithstanding the foregoing,
the Board may suspend or terminate any Purchase Period or Offering Period if the
accounting standards in effect on the date this Plan is adopted by the Board
change in any way. Such determination shall be made by the Board at its sole
discretion. No amendment shall be made without approval of the stockholders of
the Company obtained in accordance with Section 21 above within twelve (12)
months of the adoption of such amendment (or earlier if required by Section 21)
if such amendment would:
(a) increase the number of shares that may be issued under this Plan;
or
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.
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<PAGE>
EXHIBIT 10.09
HIWAY TECHNOLOGIES, INC.
INDEMNITY AGREEMENT
This Indemnity Agreement (this "Agreement"), dated as of _____________,
---------
1998, is made by and between Hiway Technologies, Inc., a Delaware corporation
(the "Company"), and _________________, a director and/or officer of the Company
-------
(the "Indemnitee").
----------
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations unless
they are protected by comprehensive liability insurance and/or indemnification,
due to increased exposure to litigation costs and risks resulting from their
service to such corporations, and due to the fact that the exposure frequently
bears no reasonable relationship to the compensation of such directors and
officers;
B. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
-----
talented and experienced individuals to serve as officers and directors of the
Company, and to encourage such individuals to take the business risks necessary
for the success of the Company, it is necessary for the Company contractually to
indemnify officers and directors and to assume for itself maximum liability for
expenses and damages in connection with claims against such officers and
directors in connection with their service to the Company;
C. Section 145 of the General Corporation Law of Delaware, under which the
Company is organized ("Section 145"), empowers the Company to indemnify by
-----------
agreement its officers, directors, employees and agents, and persons who serve,
at the request of the Company, as directors, officers, employees or agents of
other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive; and
D. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company free from undue
concern for claims for damages arising out of or related to such services to the
Company.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS.
-----------
1.1 Agent. For the purposes of this Agreement, "agent" of the Company
----- -----
means any person who is or was a director or officer of the Company or a
subsidiary of the Company; or is or was serving at the request of, for the
convenience of, or to represent the interest of the Company or a subsidiary of
the Company as a director or officer of another foreign
<PAGE>
Hiway Technologies, Inc.
Indemnity Agreement
or domestic corporation, partnership, joint venture, trust or other enterprise
or an affiliate of the Company; or was a director or officer of a foreign or
domestic corporation which was a predecessor corporation of the Company,
including, without limitation, Best Internet Communications, Inc., a California
corporation, and Hiway Technologies, Inc., a Florida corporation, or was a
director or officer of another enterprise or affiliate of the Company at the
request of, for the convenience of, or to represent the interests of such
predecessor corporation. The term "enterprise" includes any employee benefit
----------
plan of the Company, its subsidiaries, affiliates and predecessor corporations.
1.2 Expenses. For purposes of this Agreement, "expenses" includes all
-------- --------
direct and indirect costs of any type or nature whatsoever (including, without
limitation, all attorneys' fees and related disbursements and other out-of-
pocket costs) actually and reasonably incurred by the Indemnitee in connection
with the investigation, defense or appeal of a proceeding or establishing or
enforcing a right to indemnification or advancement of expenses under this
Agreement, Section 145 or otherwise; provided, however, that expenses shall not
-------- -------
include any judgments, fines, ERISA excise taxes or penalties or amounts paid in
settlement of a proceeding.
1.3 Proceeding. For the purposes of this Agreement, "proceeding"
---------- ----------
means any threatened, pending or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever.
1.4 Subsidiary. For purposes of this Agreement, "subsidiary" means
---------- ----------
any corporation of which more than 50% of the outstanding voting securities is
owned directly or indirectly by the Company, by the Company and one or more of
its subsidiaries or by one or more of the Company's subsidiaries.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue to
------------------
serve as an agent of the Company, at the will of the Company (or under separate
agreement, if such agreement exists), in the capacity the Indemnitee currently
serves as an agent of the Company, faithfully and to the best of his ability, so
long as he is duly appointed or elected and qualified in accordance with the
applicable provisions of the charter documents of the Company or any subsidiary
of the Company; provided, however, that the Indemnitee may at any time and for
-------- -------
any reason resign from such position (subject to any contractual obligation that
the Indemnitee may have assumed apart from this Agreement), and the Company or
any subsidiary shall have no obligation under this Agreement to continue the
Indemnitee in any such position.
3. DIRECTORS' AND OFFICERS' INSURANCE. The Company shall, to the extent
----------------------------------
that the Board determines it to be economically reasonable, maintain a policy of
directors' and officers' liability insurance ("D&O Insurance"), on such terms
-------------
and conditions as may be approved by the Board.
4. MANDATORY INDEMNIFICATION. Subject to Section 9 below, the Company
-------------------------
shall indemnify the Indemnitee:
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Hiway Technologies, Inc.
Indemnity Agreement
4.1 Third Party Actions. If the Indemnitee is a person who was or is
-------------------
a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
or penalties and amounts paid in settlement) actually and reasonably incurred by
him in connection with the investigation, defense, settlement or appeal of such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; and
4.2 Derivative Actions. If the Indemnitee is a person who was or is a
------------------
party or is threatened to be made a party to any proceeding by or in the right
of the Company to procure a judgment in its favor by reason of the fact that he
is or was an agent of the Company, or by reason of anything done or not done by
him in any such capacity, against any amounts paid in settlement of any such
proceeding and all expenses actually and reasonably incurred by him in
connection with the investigation, defense, settlement or appeal of such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Company; except that no
------
indemnification under this subsection shall be made in respect of any claim,
issue or matter as to which such person shall have been finally adjudged to be
liable to the Company by a court of competent jurisdiction due to willful
misconduct of a culpable nature in the performance of his duty to the Company,
unless and only to the extent that the Court of Chancery or the court in which
such proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such amounts which the
Court of Chancery or such other court shall deem proper; and
4.3 Exception for Amounts Covered by Insurance. Notwithstanding the
------------------------------------------
foregoing, the Company shall not be obligated to indemnify the Indemnitee for
expenses or liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) to the extent such have been paid directly to the Indemnitee by D&O
Insurance.
5. PARTIAL INDEMNIFICATION AND CONTRIBUTION.
----------------------------------------
5.1 Partial Indemnification. If the Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding but is not entitled, however, to indemnification for all
of the total amount thereof, then the Company shall nevertheless indemnify the
Indemnitee for such total amount except as to the portion thereof to which the
Indemnitee is not entitled to indemnification.
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Hiway Technologies, Inc.
Indemnity Agreement
5.2 Contribution. If the Indemnitee is not entitled to the
------------
indemnification provided in Section 4 for any reason other than the statutory
limitations set forth in the Delaware General Corporation Law, then in respect
of any threatened, pending or completed proceeding in which the Company is
jointly liable with the Indemnitee (or would be if joined in such proceeding),
the Company shall contribute to the amount of expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred and paid or payable by the Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and the Indemnitee on the other hand from the transaction from which
such proceeding arose and (ii) the relative fault of the Company on the one hand
and of the Indemnitee on the other hand in connection with the events which
resulted in such expenses, judgments, fines or settlement amounts, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of the Indemnitee on the other hand shall be determined by
reference to, among other things, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent the circumstances
resulting in such expenses, judgments, fines or settlement amounts. The Company
agrees that it would not be just and equitable if contribution pursuant to this
Section 5 were determined by pro rata allocation or any other method of
allocation which does not take account of the foregoing equitable
considerations.
6. MANDATORY ADVANCEMENT OF EXPENSES.
---------------------------------
6.1 Advancement. Subject to Section 9 below, the Company shall
-----------
advance all expenses incurred by the Indemnitee in connection with the
investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the fact
that the Indemnitee is or was an agent of the Company or by reason of anything
done or not done by him in any such capacity. The Indemnitee hereby undertakes
to promptly repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that the Indemnitee is not entitled to be
indemnified by the Company under the provisions of this Agreement, the
Certificate of Incorporation or Bylaws of the Company, the General Corporation
Law of Delaware or otherwise. The advances to be made hereunder shall be paid by
the Company to the Indemnitee within thirty (30) days following delivery of a
written request therefor by the Indemnitee to the Company.
6.2 Exception. Notwithstanding the foregoing provisions of this
---------
Section 6, the Company shall not be obligated to advance any expenses to the
Indemnitee arising from a lawsuit filed directly by the Company against the
Indemnitee if an absolute majority of the members of the Board reasonably
determines in good faith, within thirty (30) days of the Indemnitee's request to
be advanced expenses, that the facts known to them at the time such
determination is made demonstrate clearly and convincingly that the Indemnitee
acted in bad faith. If such a determination is made, the Indemnitee may have
such decision reviewed by another forum, in the manner set forth in Sections
8.3, 8.4 and 8.5 hereof, with all references therein to "indemnification" being
deemed to refer to "advancement of expenses," and the burden of proof shall be
on the Company to demonstrate clearly and convincingly that, based on the facts
known at the time, the Indemnitee acted in bad faith. The Company may not avail
itself of this Section 6.2 as to a given lawsuit if, at any time after the
occurrence of the activities or
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<PAGE>
Hiway Technologies, Inc.
Indemnity Agreement
omissions that are the primary focus of the lawsuit, the Company has undergone a
change in control. For this purpose, a change in control shall mean a given
person or group of affiliated persons or groups increasing their beneficial
ownership interest in the Company by at least twenty (20) percentage points
without advance Board approval.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
-------------------------------------------
7.1 Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
7.2 If, at the time of the receipt of a notice of the commencement of
a proceeding pursuant to Section 7.1 hereof, the Company has D&O Insurance in
effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such D&O Insurance policies.
7.3 In the event the Company shall be obligated to advance the
expenses for any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee (which approval shall not be unreasonably withheld),
upon the delivery to the Indemnitee of written notice of its election to do so.
After delivery of such notice, approval of such counsel by the Indemnitee and
the retention of such counsel by the Company, the Company will not be liable to
the Indemnitee under this Agreement for any fees of counsel subsequently
incurred by the Indemnitee with respect to the same proceeding, provided that:
--------
(a) the Indemnitee shall have the right to employ his own counsel in any such
proceeding at the Indemnitee's expense; (b) the Indemnitee shall have the right
to employ his own counsel in connection with any such proceeding, at the expense
of the Company, if such counsel serves in a review, observer, advice and
counseling capacity and does not otherwise materially control or participate in
the defense of such proceeding; and (c) if (i) the employment of counsel by the
Indemnitee has been previously authorized by the Company, (ii) the Indemnitee
shall have reasonably concluded that there may be a conflict of interest between
the Company and the Indemnitee in the conduct of any such defense or (iii) the
Company shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of the Indemnitee's counsel shall be at
the expense of the Company.
8. DETERMINATION OF RIGHT TO INDEMNIFICATION.
-----------------------------------------
8.1 To the extent the Indemnitee has been successful on the merits or
otherwise in defense of any proceeding referred to in Section 4.1 or 4.2 of this
Agreement or in the defense of any claim, issue or matter described therein, the
Company shall indemnify the Indemnitee against expenses actually and reasonably
incurred by him in connection with the
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<PAGE>
Hiway Technologies, Inc.
Indemnity Agreement
investigation, defense or appeal of such proceeding, or such claim, issue or
matter, as the case may be.
8.2 In the event that Section 8.1 is inapplicable, or does not apply
to the entire proceeding, the Company shall nonetheless indemnify the Indemnitee
unless the Company shall prove by clear and convincing evidence to a forum
listed in Section 8.3 below that the Indemnitee has not met the applicable
standard of conduct required to entitle the Indemnitee to such indemnification.
8.3 The Indemnitee shall be entitled to select the forum in which the
validity of the Company's claim under Section 8.2 hereof that the Indemnitee is
not entitled to indemnification will be heard from among the following, except
------
that the Indemnitee can select a forum consisting of the stockholders of the
Company only with the approval of the Company:
(a) A quorum of the Board consisting of directors who are not
parties to the proceeding for which indemnification is being sought;
(b) The stockholders of the Company;
(c) Legal counsel mutually agreed upon by the Indemnitee and the
Board, which counsel shall make such determination in a written opinion;
(d) A panel of three arbitrators, one of whom is selected by the
Company, another of whom is selected by the Indemnitee and the last of whom is
selected by the first two arbitrators so selected; or
(e) The Court of Chancery of Delaware or other court having
jurisdiction of subject matter and the parties.
8.4 As soon as practicable, and in no event later than thirty (30)
days after the forum has been selected pursuant to Section 8.3 above, the
Company shall, at its own expense, submit to the selected forum its claim that
the Indemnitee is not entitled to indemnification, and the Company shall act in
the utmost good faith to assure the Indemnitee a complete opportunity to defend
against such claim.
8.5 If the forum selected in accordance with Section 8.3 hereof is
not a court, then after the final decision of such forum is rendered, the
Company or the Indemnitee shall have the right to apply to the Court of Chancery
of Delaware, the court in which the proceeding giving rise to the Indemnitee's
claim for indemnification is or was pending or any other court of competent
jurisdiction, for the purpose of appealing the decision of such forum, provided
--------
that such right is executed within sixty (60) days after the final decision of
such forum is rendered. If the forum selected in accordance with Section 8.3
hereof is a court, then the rights of the Company or the Indemnitee to appeal
any decision of such court shall be governed by the applicable laws and rules
governing appeals of the decision of such court.
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Hiway Technologies, Inc.
Indemnity Agreement
8.6 Notwithstanding any other provision in this Agreement to the
contrary, the Company shall indemnify the Indemnitee against all expenses
incurred by the Indemnitee in connection with any hearing or proceeding under
this Section 8 involving the Indemnitee and against all expenses incurred by the
Indemnitee in connection with any other proceeding between the Company and the
Indemnitee involving the interpretation or enforcement of the rights of the
Indemnitee under this Agreement unless a court of competent jurisdiction finds
that each of the material claims and/or defenses of the Indemnitee in any such
proceeding was frivolous or not made in good faith.
9. EXCEPTIONS. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
9.1 Claims Initiated by Indemnitee. To indemnify or advance
------------------------------
expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, except with
------
respect to proceedings specifically authorized by the Board or brought to
establish or enforce a right to indemnification and/or advancement of expenses
arising under this Agreement, the charter documents of the Company or any
subsidiary or any statute or law or otherwise, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board finds it to be appropriate; or
9.2 Unauthorized Settlements. To indemnify the Indemnitee hereunder
------------------------
for any amounts paid in settlement of a proceeding unless the Company consents
in advance in writing to such settlement, which consent shall not be
unreasonably withheld; or
9.3 Securities Law Actions. To indemnify the Indemnitee on account
----------------------
of any suit in which judgment is rendered against the Indemnitee for an
accounting of profits made from the purchase or sale by the Indemnitee of
securities of the Company pursuant to the provisions of Section l6(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law; or
9.4 Unlawful Indemnification. To indemnify the Indemnitee if a final
------------------------
decision by a court having jurisdiction in the matter shall determine that such
indemnification is not lawful. In this respect, the Company and the Indemnitee
have been advised that the Securities and Exchange Commission takes the position
that indemnification for liabilities arising under the federal securities laws
is against public policy and is, therefore, unenforceable and that claims for
indemnification should be submitted to appropriate courts for adjudication.
10. NON-EXCLUSIVITY. The provisions for indemnification and advancement
---------------
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's Certificate of Incorporation or Bylaws, the vote of the Company's
stockholders or disinterested directors, other agreements or otherwise, both as
to action in the Indemnitee's official capacity and to action in another
capacity while occupying his position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.
-7-
<PAGE>
Hiway Technologies, Inc.
Indemnity Agreement
11. GENERAL PROVISIONS
------------------
11.1 Interpretation of Agreement. It is understood that the parties
---------------------------
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification and advancement of expenses to the Indemnitee to the fullest
extent now or hereafter permitted by law, except as expressly limited herein.
11.2 Severability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
then: (a) the validity, legality and enforceability of the remaining provisions
of this Agreement (including, without limitation, all portions of any paragraphs
of this Agreement containing any such provision held to be invalid, illegal or
unenforceable that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 11.1 hereof.
11.3 Modification and Waiver. No supplement, modification or
-----------------------
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver.
11.4 Subrogation. In the event of full payment under this
-----------
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of the Indemnitee, who shall execute all documents
required and shall do all acts that may be necessary or desirable to secure such
rights and to enable the Company effectively to bring suit to enforce such
rights.
11.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts, which shall together constitute one agreement.
11.6 Successors and Assigns. The terms of this Agreement shall
----------------------
bind, and shall inure to the benefit of, the successors and assigns of the
parties hereto.
11.7 Notice. All notices, requests, demands and other communications
------
under this Agreement shall be in writing and shall be deemed duly given: (a) if
delivered by hand and receipted for by the party addressee; or (b) if mailed by
certified or registered mail, with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on
the signature page of this Agreement or as subsequently modified by written
notice.
-8-
<PAGE>
Hiway Technologies, Inc.
Indemnity Agreement
11.8 Governing Law. This Agreement shall be governed exclusively by
-------------
and construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
11.9 Consent to Jurisdiction. The Company and the Indemnitee each
-----------------------
hereby irrevocably consent to the jurisdiction of the courts of the State of
Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement.
11.10 Attorneys' Fees. In the event Indemnitee is required to bring
---------------
any action to enforce rights under this Agreement (including, without
limitation, the expenses of any Proceeding described in Section 3), the
Indemnitee shall be entitled to all reasonable fees and expenses in bringing and
pursuing such action, unless a court of competent jurisdiction finds each of the
material claims of the Indemnitee in any such action was frivolous and not made
in good faith.
-9-
<PAGE>
Hiway Technologies, Inc.
Indemnity Agreement
IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity
Agreement effective as of the date first written above.
HIWAY TECHNOLOGIES, INC., INDEMNITEE:
a Delaware Corporation
By: By:
------------------------------------ -----------------------------------
Title:
---------------------------------
Address: Address:
------------------------------- ------------------------------
------------------------------- ------------------------------
-10-
<PAGE>
EXHIBIT 10.12
AMENDED AND RESTATED
KEY EMPLOYEE AGREEMENT
This AMENDED AND RESTATED KEY EMPLOYEE AGREEMENT (hereinafter referred to
as the "Agreement") is made and entered into as of this ___ day of
February, 1997 and replaces a prior Agreement dated as of the 3rd day of
December 9, 1996, by and between Best Internet Communications, Inc., a
California corporation (hereinafter referred to as the "Company") and
Robert Tomasi (hereinafter referred to as the "Executive").
WHEREAS, the Company is in the business of providing communications
services to an international computer network and related products and
services to the public;
WHEREAS, the Executive possesses unique technical and operational skills
which are valuable to the business and financial prospects of the Company;
WHEREAS, in light of the foregoing, the Company desires to employ the
Executive as Chief Operating Officer and the Executive desires to accept
such employment;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the Company and the Executive agree as follows:
1. Duties. The Company hereby employs the Executive to serve as Chief
------
Operating Officer and report to the CEO. Duties will include the Provisioning,
management, and 24x7x365 monitoring of the Company's Internet network, POP
network telecommunications network; provisioning, management and 24x7x365
monitoring of computer server systems; provisioning and management of
information systems; management of certain sales and customer service,
operations and technical support for individual and SOHC Accounts, plus other
duties as necessary or assigned. Responsibilities shall include, but not be
limited to, developing staffing needs, recruiting, hiring, development of and
management of personnel, and creating and managing departmental operating and
capital budgets.
-1-
<PAGE>
2. Term of Employment. The Company hereby agrees to employ Executive and
------------------
Executive agrees to accept employment upon the terms and conditions set forth
herein, commencing on December 2nd, 1996, and shall continue unless and until
terminated by the Company or by the Executive pursuant to Paragraph 12 below.
3. Salary. Executive shall be entitled to receive from the Company a starting
------
base salary of $3,846.15 per week, which if annualized is $200,000. Salary is
calculated from the date of the Executive's commencement of employment, pursuant
to Paragraph 2 above. The base salary shall be paid Executive in installments
every other week and shall be reviewed annually by the CEO. Executive
acknowledges and agrees that the base salary, along with the expense
reimbursements described in Paragraph 8 below, includes any and all compensation
for any services Executive performed for the Company prior to the date of
employment commenced pursuant to Paragraph 2 above.
4. Signing Bonus. Company will pay Executive a one-time bonus of twenty-five
-------------
thousand ($25,000) upon the commencement of his employment.
5. Stock Options. In addition to the Executive's salary described in Paragraph
-------------
3 above, and subject to Board approval, the Executive shall receive incentive
stock options at a striking price of 75 cents per share which shall vest in the
following amounts according to the following schedule: (i) options to purchase
66,667 common shares, vesting effective upon his first day of employment,
December 3, 1996 and (ii) options to purchase 250,000 common shares over a
forty-eight (48) month period, commencing on December 3rd, 1996. The 250,000
options shall be subject to the terms and conditions of the Stock Option
Agreement and the Company's Stock Option Plan, which state, in part, that an
employee must be employed by the Company for at least six (6) months before
vesting of the first six months worth of options; thereafter, options shall vest
pro rata each month. In the event of the closing of an Initial Public Offering
or the transfer of ownership of 51% or more of the Company, for other than
passive funding purposes, all of such options as have been granted to the
Executive as of the date of the transaction shall be fully vested.
-2-
<PAGE>
6. Extent of Services. Executive shall devote his time, attention and energies
------------------
to the business of the Company and shall not during the term of this Agreement
be engaged (whether or not during normal business hours) in any other business
or professional activity, whether or not such activity is pursued for gain,
profit or other pecuniary advantage, but this shall not be construed as
preventing the Executive from (a) investing personal assets in businesses which
do not compete with the Company in such form or manner as will not require any
services on the part of the Executive and in which the Executive's participation
is solely that of an investor; (b) purchasing securities in any corporation
whose securities are regularly traded, provided that such purchase shall not
result in the Executive's collectively owning beneficially at any time five
percent (5%) or more of the equity securities of a corporation engaged in a
business competitive to that of the Company; and (c) participating in
conferences, preparing or publishing papers or books or teaching, so long as the
CEO approves of such activities prior to the Executive engaging in them.
7. Vacations and Leave. Executive shall be entitled to vacation and other
-------------------
leave in accordance with normal Company policy applicable to management
employees. Vacations shall be taken at such time or times as Executive and
the Chief Executive Officer shall mutually agree.
8. Expense Reimbursement. Upon presentation of supporting documentation and
---------------------
consistent with the Company policy, the Company will reimburse the Executive for
any reasonable and necessary business expenses incurred by the Executive in
connection with the business of the Company. The parties acknowledge that
Executive may incur certain business-related expenses which the Company will not
reimburse but which nonetheless further the business interests of the Company
and the Executive's professional interest.
9. Other Benefits. In addition to the benefits specifically described herein,
--------------
during the term of the Agreement, Executive and his spouse, children and/or
other dependents shall be entitled to receive all other benefits of the
employment generally made available to other members of the Company's management
and their families, including, without limitation, benefits as a result of any
present or future medical insurance, disability insurance, life insurance,
retirement or pension plans. It is understood that any 401(k) plan implemented
by the Company will be made available to Executive at
-3-
<PAGE>
the time and upon the same terms as made available to the Company's other
management employees.
10. Taxes. The company may withhold from any amounts payable under this
-----
Agreement such federal, state, or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
11. Termination of Employment. This Agreement may be terminated by either
-------------------------
party, for any reason or no reason, immediately upon ten (10) days written
notice given to the other party. Accordingly, the Executive and the Company
acknowledge and agree that this Agreement and any employment thereunder is to be
considered At-Will EMPLOYMENT. In the event Company elects to terminate the
employment relationship without cause as defined herein, the Executive shall be
paid severance equal to one week of pay for every four weeks of service, with a
minimum of sixteen weeks severance to a maximum of 25 weeks. Termination
pursuant to this Section shall not prejudice any other remedy to which the
terminating party may be entitled at law, in equity, or under this Agreement.
This is the only Agreement concerning termination between the Company and the
Executive, and the parties acknowledge that this Agreement supersedes and
replaces any other written or oral agreement, representation or understanding
between the parties concerning termination and that this Agreement can only be
modified in a writing signed by the Company's CEO. Company shall have "Cause"
to terminate Executive's employment hereunder upon (i) any continued willful
failure by Executive to substantially perform his duties hereunder after demand
for substantial performance is delivered by Company that identifies the manner
in which Company believes Executive has not substantially performed his duties,
or (ii) the engaging by Executive in misconduct which is materially injurious
to Company, monetarily or otherwise.
12. Successors to the Company. Except as otherwise provided herein, this
-------------------------
Agreement shall be binding upon and inure to the benefit of the Company and any
successors of the Company, or any corporation which acquires directly or
indirectly all of the assets of the Company, whether by merger, consolidation,
sale or otherwise, and shall not be otherwise assignable by the Company. This
Agreement is not assignable by the Executive.
-4-
<PAGE>
13. Notice. Any notice to be given under the terms of this Agreement shall be
------
given as follows: Notice to the Company shall be addressed to its CEO at the
Company's principal offices; Notices to the Executive shall be addressed to
Executive's home as last shown on the records of the Company or given by
personal delivery. Notice of a change of address under this section shall have
been duly given when personally delivered or three (3) days after being enclosed
in a properly sealed envelope addressed as aforesaid, and deposited (postage
paid) with the United States Postal Service.
14. Waiver. Neither party's failure to enforce any provision of this Agreement
------
shall be deemed or in any way construed as a waiver of any such provision, nor
prevent that party from thereafter enforcing each and every provision of this
Agreement. The rights granted both parties herein are cumulative and shall not
constitute a waiver of either party's right to assert all other legal remedies
available under the circumstances.
15. Severability. If one or more of the provisions or paragraphs of this
------------
Agreement shall be held to be illegal or otherwise void or invalid, the
remainder of this Agreement shall not be affected and shall remain in full force
and effect.
16. Governing law. This Agreement shall be interpreted under the laws of the
-------------
State of California, without regard to or application of choice of law rules or
principles.
17. Arbitration. In the event any claim or controversy arises under or
-----------
concerning any provision of this Agreement, including the termination provision
(Paragraph 11), the company and Executive hereby agree that such claim or
controversy shall be settled by final, binding arbitration in accordance with
the Employment Dispute Resolution Rules of the American Arbitration Association,
provided, however, that the impartial arbitration shall be chosen as follows: if
the Company and Executive are unable to agree upon an impartial arbitrator
within five (5) days of a request for arbitration, the parties shall request a
panel of five (5) labor and employment arbitrators from the American Arbitration
Association and shall alternatively strike names until a single arbitrator
remains. Arbitration shall occur, if practicable, in Santa Clara County, CA.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Depositions may be taken and other discovery may
be obtained during
-5-
<PAGE>
such arbitration proceedings to the same extent as authorized in civil judicial
proceedings, subject to any limitations placed on discovery by the arbitrator.
The parties shall share equally in the costs of conducting the arbitration and
shall each pay their expenses, but the prevailing party shall be entitled to
recover its reasonable attorneys' fees. Notwithstanding the foregoing, nothing
herein shall preclude or limit the Company from seeking injunctive relief from
a court of competent jurisdiction. Executive acknowledges and agrees that, by
agreeing to this provision, he is agreeing to arbitrate any claim relating to
his employment, whether or not it arises under the terms of this Agreement, that
may arise under federal and state laws including, but not limited to, claims
arising under Title VII, the Age Discrimination in Employment Act, the Americans
with Disabilities Act and the Fair Employment and Housing Act. EXECUTIVE
FURTHER UNDERSTANDS THAT BY AGREEING TO ARBITRATE EMPLOYMENT CLAIMS HE IS
WAIVING HIS RIGHT TO BRING AN ACTION AGAINST THE COMPANY IN A COURT OF LAW,
EITHER STATE OR FEDERAL, AND IS WAIVING HIS RIGHT TO HAVE HIS CLAIMS AND
DAMAGES, IF ANY, DETERMINED BY A JURY.
18. Entire Agreement. This Agreement, any stock option agreements and the
----------------
Employee Proprietary Information Agreement signed by the Executive contain the
entire agreement of the parties and supersede and replace any other Agreement.
Except as provided herein, this Agreement may be modified only by an agreement
in writing signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought. Only the Company's Chief
Executive Officer has the authority to make such modifications of this Agreement
on behalf of the Company.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
COMPANY: EXECUTIVE:
Best Internet
Communications, Inc.
/s/ Jim Zarley /s/ Robert Tomasi
By: ------------------------- ---------------------------
Jim Zarley Robert Tomasi
Chairman, and Chief
Executive Officer
-6-
<PAGE>
EXHIBIT 10.13
November 18, 1997
Robert Tomasi
Best Internet Communications, Inc.
345 E. Middlefield Road
Mountain View, CA 94043
Re: Leave of Absence
Dear Bob:
This letter will formalize our agreement for you to take a six-month unpaid
leave of absence ("LOA") commencing Monday, December 8, 1997 through and
including June 5, 1998, the terms of which will include the following:
1. Best Internet Communications, Inc. ("Best") will for the duration of
the LOA, continue to provide full regular employee benefits per your Amended and
Restated Key Employee Agreement with Best.
2. Your Incentive Stock Options on 187,500 shares of Best Common Stock
unvested at the commencement of your LOA will continue to vest during the LOA
pursuant to Paragraph 5 of your Amended and Restated Key Employee Agreement. The
options, if not exercised within 90 days of the commencement of the LOA, will
become Non-statutory Options per the "Leaves of Absence" paragraph of your
Incentive Stock Option Agreement.
3. During the LOA you will make your best efforts successfully to
complete the principal project in which you are currently engaged for Best.
4. Except as modified by this letter agreement, your Amended and
Restated Key Employee Agreement with Best will remain in full force and effect,
including in particular the termination and "At Will" employment provisions of
paragraph 11 thereof, except for the severance provisions thereof which will be
deleted, and neither you nor
<PAGE>
Robert Tomasi
November 18, 1997
Page 2
Best will be obligated in any way to recommence your employment with Best
following the conclusion of the LOA.
In consideration of the continuing benefits to you described above, you
agree to the following:
1. Settlement and Release.
----------------------
(a) You, for yourself your heirs, executors, administrators,
assigns and successors, fully and forever release and discharge Best (the
"Company"), its predecessors, successors, parents, subsidiaries, and its other
affiliated entities, and all of the current and former officers, directors,
agents, shareholders, employees or assigns of any such entities (referred to
herein collectively as the "Releasees") from any and all liabilities, claims,
demands, contracts, debts, obligations and causes of action of every nature,
kind and description, in law, equity or otherwise, whether known or unknown,
whether liquidated or unliquidated, whether absolute or contingent, which now or
hereafter do or may exist, with respect to any matter arising out of, relating
to or connected with any of the following:
(i) your employment, including employment through the LOA and
any separation from employment which might follow, the
("Separation"), with the Company or with any parent, subsidiary or
affiliate of the Company,
(ii) any termination of your employment or consulting
arrangement, with the Company or with any parent, subsidiary or
affiliate of the Company, and
(iii) any actual or promised compensation or benefit other than
provided herein that may be or that hereafter may become due or owing
to you from the Company or any parent, subsidiary or affiliate of the
Company.
(b) Furthermore, you, for yourself, your heirs, executors,
administrators, assigns and successors, covenant not to sue or otherwise
institute or cause to be instituted or in any way actively participate in or
voluntarily assist in (except at the Company's request) the prosecution of any
legal or administrative proceedings against any of the Releasees with respect to
any matter arising out of or relating to any liabilities, claims, demands,
contracts, debts, obligations and causes of action released under the preceding
sentence.
<PAGE>
Robert Tomasi
November 18, 1997
Page 3
(c) You understand and agree that in consideration of the foregoing,
you are waiving any rights you may have had, now have, or in the future may
have, to pursue any and all remedies available to you in any country, state,
province or other jurisdiction in the world under any employment-related causes
of action, including without limitation:
(i) claims of wrongful discharge, defamation, emotional distress,
breach of contract, breach of the covenant of good faith and fair
dealing; and
(ii) claims under the Age Discrimination in Employment Act of
1967, as amended; Title VII of the 1964 Civil Rights Act, as amended,
the Equal Pay Act of 1963, as amended; California Labor Code Section
1197.5, as amended; the Civil Rights Act of 1866, as amended; and any
other laws and regulations relating to employment discrimination.
(d) Notwithstanding any provision herein to the contrary, this
Release shall not extend to any rights, claims or causes of action currently
unknown to you hereafter arising with respect to your rights regarding future
medical benefits arising under the Consolidated Omnibus Budget Reconciliation
Act of 1985 ("COBRA") or to any rights under this Agreement (such fights under
COBRA and this Agreement described above being referred to herein collectively
as the "Excluded Future Claims").
(e) You expressly waive any right to assert hereafter that any claims,
demands, obligations or causes of action have, through ignorance or oversight,
been omitted from the terms of this Agreement. You specifically intend to
release both your known and unknown claims, and therefore expressly waive the
provision of Section 1542 of the Civil Code of California, which provides as
follows:
"A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor."
or of any other similar statute, law or regulation of any other jurisdiction
that may be applicable hereto.
2. Return of Company Property. You represent and warrant that, to the
--------------------------
best of your knowledge and belief you have returned to the custody of the
Company all tangible property of the Company. In addition, notwithstanding that
foregoing representation and warranty, if you discover that you have retained
any tangible property of the Company, you shall promptly notify the Company
thereof and take reasonable steps in accordance with the company's instructions
to return such property to the Company.
<PAGE>
Robert Tomasi
November 18, 1997
Page 4
3. Nonsolicitation of Best Employee's. You agree that you will not,
----------------------------------
during your LOA, any period of employment with Best and for three (3) years
thereafter, directly or indirectly, solicit or entice any Best employee for
alternative employment of any kind.
4. No Admissions. It is understood and agreed that this Agreement has
-------------
been reached in an effort to prevent future litigation arising from known and
unknown claims and the execution of this Agreement shall not constitute or be
deemed to be an admission that any bona fide claims exist or that any party
hereto has engaged in any wrongdoing whatsoever.
5. Governing Law. This Agreement is entered into in the State of
-------------
California and shall be construed and interpreted in accordance with the laws of
the State of California excluding its choice of law-rules,
6. Confidentiality of this Agreement. You and the Company agree that
---------------------------------
neither of us will, without compulsion of legal process, disclose to others the
terms of this settlement, the amounts referred to in this Agreement, the
circumstances surrounding the LOA and any discontinuance of employment which
might follow or the fact of the payment of benefits, except that you may
disclose them to an attorney, accountants or other professional advisors to whom
the disclosure is necessary to effect the purposes for which you have consulted
such professional advisors and the Company may disclose them to its attorneys,
accountants and other professional advisors and its officers and Board of
Directors.
7. Material Inducements. You understand that the covenants contained in
--------------------
this Agreement, including, without limitations, the covenant of nondisclosure,
are material inducements to the Company for the making of this settlement.
8. No Defamation. Both parties agree to refrain from any false defamation
-------------
of the other.
9. Voluntary and Informed Acceptance. You hereby acknowledge that you
---------------------------------
have read and understand the foregoing Agreement and that you affix your
signature hereto voluntarily and without coercion. You further acknowledge that
you were given the opportunity by the Company to consult with an attorney of
your own choosing concerning the terms and conditions contained in this
Agreement, and that the waivers you have made herein are knowing, conscious and
with full appreciation that you are forever foreclosed from pursuing any of the
rights so waived.
10. Entire Agreement. This Agreement constitutes the entire understanding
----------------
of the parties with respect to the subject matter hereto and supersedes any and
all prior, contemporaneous or subsequent statements, representations, agreements
or understandings, whether oral or written, between the parties with respect
hereto. This
<PAGE>
Robert Tomasi
November 18, 1997
Page 5
Agreement shall inure to the benefit of the executors, administrators, heirs,
successors and assigns of the parties hereto. The terms of this Agreement may
only be modified by a written instrument signed by you and an authorized officer
of the Company.
11. Severability. If any term, clause or provision of this Agreement is
------------
construed to be or adjudged invalid, void or unenforceable, such term, clause or
provision will be construed as severed from this Agreement, and the remaining
terms, clauses and provisions will remain in full force and effect.
12. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered will be deemed to be
an original and all of which taken together will constitute one and the same
instrument.
13. Legal Fees and Costs. In the event of any dispute concerning the
--------------------
terms and conditions of this Agreement which is resolved only by formal dispute
resolution proceedings such as arbitration or litigation, the prevailing party
in such proceeding shall be entitled to the award of reasonable attorney fees
and costs.
14. Acknowledgment of Opportunity to Consider and Consult
-----------------------------------------------------
Counsel; Notice of Seven Day Rescission Period.
----------------------------------------------
(a) You hereby acknowledge that you have read and understand the
foregoing Release and that you affix your signature hereto voluntarily and
without coercion. You further acknowledge that you were given seven (7) days
within which to consider such Release, that you were advised by the Company to
consult with an attorney of your own choosing concerning the waivers continued
in such Release, that you have had the opportunity to do so and that the waivers
you have made herein are knowing, conscious and with full appreciation that you
are forever foreclosed from pursuing any of the rights so waived.
(b) YOU UNDERSTAND THAT FOR A PERIOD OF SEVEN (7) DAYS AFTER SIGNING
THIS AGREEMENT (INCLUDING THE RELEASE AT SECTION 2, ABOVE) YOU HAVE THE RIGHT TO
REVOKE IT AND THAT THIS AGREEMENT (AND SUCH RELEASE) SHALL NOT BECOME EFFECTIVE
OR ENFORCEABLE UNTIL AFTER THOSE SEVEN (7) DAYS.
If you are agreeable to the foregoing, please execute and return the copy
of this letter provided therefor and we will carry out our obligations hereunder
in complete
<PAGE>
Robert Tomasi
November 18, 1997
Page 6
satisfaction of all your interest and claims in Best Internet Communications,
Inc., past, present or future.
Sincerely,
/s/ James R. Zarley
James R. Zarley
Chairman and CEO
AGREED TO:
/s/ Robert Tomasi
- ------------------
Robert Tomasi
<PAGE>
EXHIBIT 10.14
SUBLEASE AGREEMENT
------------------
DATED: June 12, 1997
ARTICLE 1.: FUNDAMENTAL SUBLEASE PROVISIONS.
1.1 PARTIES: Sublessor: SYSOREX INTERNATIONAL, INC.;
A DELAWARE CORPORATION
Sublessee: BEST INTERNET COMMUNICATIONS, INC.;
A CALIFORNIA CORPORATION
1.2 MASTER LEASE: (Article 3): Sublessor, as tenant, is leasing from Master
Lessor (set forth below), as landlord, approximately 13,500 square feet of
leasable area in that certain building located at: 335 East Middlefield Road,
Mountain View, California in the County of Santa Clara, State of California (the
"Premises") on the terms and subject to the conditions of that certain lease
dated February 29, 1988 as amended and revised by the First Amendment dated May
31, 1988; Lease Modification and Extension Agreement last executed on June 18,
1992; Lease Modification and Extension Agreement last executed on November 3,
1993; Third Lease Modification and Extension Agreement last dated December 29,
1994; and Fourth Lease Modification and Extension Agreement dated January 23,
1996 (collectively, the "Master Lease"). A copy of the Master Lease is attached
hereto as EXHIBIT A.
Master Lessor: GOLDEN GATE COMMERCIAL COMPANY;
A CALIFORNIA LIMITED PARTNERSHIP
1.3 SUBLEASE PREMISES: (Article 2): The Sublease Premises constitutes: the
Premises, and contains approximately 8,000 square feet of leasable area, (the
"Sublease Premises"). The Sublease Premises is further described on the drawing
attached hereto as EXHIBIT B.
1.4 SUBLEASE TERM: (Article 4): Approximately twenty (20) calendar months,
beginning on the Commencement Date and ending on the Termination Date described
below, unless commenced later or terminated earlier pursuant to the terms of
this Sublease.
1.5 COMMENCEMENT DATE: (Article 4.1): July 1, 1997
1.6 TERMINATION DATE: (Article 4.1): February 28, 1999
1.7 MINIMUM RENT: (Article 5.2): $110,400/year, or $9,200/month through
2/28/98 and $115,200 and $9,600 respectively through 2/28/99.
1.8 PERMITTED USE: General office, engineering, research and development and
any related lawful purpose in conformity to the Master Lease, municipal zoning
requirements and any CCR's applicable to the development.
1.9 PREPAID RENT: (Article 5.4): $9,200
1.10 SECURITY DEPOSIT: (Article 5.5): $9,200
1.11 ADDRESSES FOR NOTICES: (Article 7):
Master Lessor: Golden Gate Commercial Company
457 East Evelyn Avenue, Suite C
Sunnyvale, CA 94086
Sublessor: Sysorex International, Inc.
335 East Middlefield Road
Mountain View, CA 94043
Sublessee: Best Internet Communications, Inc.
345 East Middlefield Road
Mountain View, CA 94043
Attn: David Buzby, CFO
1.12 SUBLESSEE'S BROKER: (Article 9.4): Steve Lico, Cooper/Brady Corporate Real
Estate Services
1.13 EXHIBITS AND ADDENDA: The following exhibits are made a part of this
Sublease and are incorporated by this reference:
Exhibit A - Master Lease
Exhibit B - Description of Sublease Premises
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Each reference in this Sublease Agreement ("Sublease") to any provision in
Article 1 shall be construed to incorporate all of the terms of each such
provision. In the event of any conflict between this Article 1 and the balance
of the Sublease, the balance of the Sublease shall control.
ARTICLE 2.: SUBLEASE PREMISES.
2.1 SUBLEASE. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the Sublease Term (hereinafter defined), at the
Rent and upon the terms and conditions hereinafter set forth, the Sublease
Premises, and all common areas related thereto; rights of ingress and egress;
rights to use the common parking area adjacent to the building; and any other
necessary easements and rights of way.
2.2 CONDITION OF THE SUBLEASE PREMISES. Sublessee agrees to sublet the Sublease
Premises in its current "as-is" condition, without any obligation of Sublessor
to make any improvements or alterations thereto. Sublessee shall be obligated to
maintain the Sublease Premises as required under paragraph 7 of the Master
Lease, except for those matters for which the Master Lessor is to be responsible
under said paragraph 7 of the Master Lease.
2.3 FURNITURE. As additional consideration for the Minimum and Additional Rent
hereunder, Sublessor shall transfer to Sublessee full use and ownership of
Sublessor's furniture currently in the Sublease Premises, including but not
limited to the cubicle partitions. Upon execution of this Sublease and
Sublessee's payment of the Prepaid Rent and Security Deposit to Sublessor,
Sublessor shall deliver a bill of sale to Sublessee for the subject furniture.
2.4 ALTERATIONS, ADDITIONS, AND IMPROVEMENTS. Sublessee will not make
alterations, additions, or improvements on the Sublease Premises without first
obtaining the written consent of Sublessor and Master Lessor as required under
the Master Lease. All alterations, additions, and improvements that shall be
made shall be at Sublessee's expense, shall become Sublessor's property, except
as required under the Master Lease to become Master Lessor's property, and shall
remain on and be surrendered with the Sublease Premises as a part of the
Sublease Premises at the termination of this Sublease without disturbance,
molestation, or injury, unless the Sublessor or Master Lessor should require it
to be removed under the terms of the Master Lease. Nothing contained in this
paragraph will prevent Sublessee from removing all office machines and equipment
and trade fixtures customarily used in its business.
2.5 LIENS. Sublessee shall keep the Sublease Premises free and clear of liens
arising out of any work performed, materials furnished, or obligations incurred
by Sublessee, including mechanics' liens.
ARTICLE 3.: TERMS OF THE MASTER LEASE.
3.1 SUBLEASE SUBORDINATE. This Sublease is subordinate and subject to all of
the terms and conditions of the Master Lease.
3.2 INCORPORATION BY REFERENCE. The terms, conditions, and respective
obligations of Sublessor and Sublessee under this Sublease shall be the terms
and conditions of the Master Lease except for those provisions of the Master
Lease which are directly contradicted by this Sublease in which event the terms
of this Sublease shall control. Therefore, for the purposes of this Sublease,
wherever in the Master Lease the word "Landlord" is used it shall be deemed to
mean the Sublessor herein and wherever in the Master Lease the word "Tenant" is
used it shall be deemed to mean the Sublessee herein.
3.3 ASSUMPTION OF OBLIGATIONS. To the extent applicable to the Sublease
Premises and Sublessee's use of the common areas, Sublessee hereby expressly
assumes and agrees to perform and discharge, as and when required by the Master
Lease, all debts, duties and obligations to be paid, performed or discharged by
Sublessor under the terms, covenants and conditions of the Master Lease from and
after the Commencement Date, except as specifically set forth to the contrary in
this Sublease. To the extent applicable to the balance of the Premises other
than the Sublease Premises ("Sublessor's Premises"), Sublessor covenants for the
benefit of Sublessee to continue to perform and discharge, as and when required
by the Master Lease, all debts, duties and obligations to be paid, performed or
discharged by Sublessor with respect to the Sublessor's Premises. Further,
Sublessor shall not commit any act or omission during the Sublease Term which
would lead to the termination of the Master Lease by Master Lessor. Sublessee
agrees to perform and observe the covenants, conditions, and terms of the Master
Lease for the Sublease Premises on the part of lessee thereunder to be performed
and observed, except the covenant for the payment of rent reserved in the Master
Lease, and to indemnify Sublessor and Master Lessor against all claims, damages,
and expenses arising out of nonperformance or nonobservance of such covenants,
conditions, and terms.
3.4 MASTER LESSOR'S OBLIGATIONS. If Master Lessor shall fail to perform its
obligations under the Master Lease, Sublessor, upon receipt of written notice
from Sublessee, shall use commercially reasonable efforts to attempt to enforce
the obligations of Master Lessor under the Master Lease.
ARTICLE 4.: SUBLEASE TERM.
4.1 COMMENCEMENT AND TERMINATION DATES. The term of this Sublease ("Sublease
Term") shall be for the period of time commencing on the commencement date
described in Article 1 (the "Commencement Date") and ending on the termination
date described in Article 1 or on such earlier date of termination as provided
herein (the "Termination Date").
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4.2 DELAY IN COMMENCEMENT. If for any reason possession of the Sublease
Premises has not been delivered to Sublessee by the scheduled Commencement Date
or any other date, the Commencement Date shall be delayed until possession of
the Sublease Premises is delivered to Sublessee, but the Termination Date shall
not be extended. If Sublessor is unable to deliver possession of the Sublease
Premises to Sublessee within thirty (30) days after the Commencement Date, then
Sublessee may terminate this Sublease by giving written notice to Sublessor at
any time after that date, and the parties shall have no further liability
thereafter accruing under this Sublease.
4.3 EARLY OCCUPANCY. Sublessor shall permit Sublessee to occupy the Sublease
Premises during portions of June, 1997, prior to the Rental Commencement Date,
upon delivery of insurance certificates to Sublessor, showing that Sublessee has
appropriate insurance as required hereunder, and such occupancy shall be subject
to all of the provisions of this Sublease, except for the payment of Rent and
Additional Rent. Such early occupancy of the Sublease Premises shall not advance
the Termination Date.
ARTICLE 5.: RENT AND ADDITIONAL EXPENSES.
5.1 PAYMENT OF RENT. Rent shall be paid in lawful money of the United States
to Sublessor at the address of Sublessor specified in Article 1 or such other
place as Sublessor may designate in writing. Rent for any partial calendar
months at the beginning or end of the Sublease Term shall be prorated based on a
thirty (30) day month.
5.2 MINIMUM RENT. Sublessee shall pay to Sublessor the sums set forth in
Article 1 hereof as Minimum Rent, on the tenth (10/th/) day of each calendar
month throughout the Sublease Term.
5.3 ADDITIONAL RENT. In addition to Minimum Rent, Sublessee shall pay to
Sublessor, within ten (10) days after receipt of an invoice, Sublessee's pro
rata portion (59.26%) of the amount of real property taxes, maintenance,
insurance, and utilities attributable to the Premises and the related common
areas, and payable by Sublessor to Master Lessor under the Master Lease.
Sublessor shall, at Sublessee's request, obtain Master Lessor's approval for
Sublessor to audit Master Lessor's statement of actual Additional Rent (as
described in Paragraph 4 of the Master Lease).
5.4 PREPAID RENT. Concurrently with Sublessee's execution of this Sublease,
Sublessee shall pay to Sublessor the sum specified in Article 1 as prepaid Rent,
which shall be applied to the installments of Minimum Monthly Rent first coming
due under this Sublease.
5.5 SECURITY DEPOSIT. Upon execution of this Sublease, Sublessee shall
deposit with Sublessor in cash the sum specified in Article 1 hereof as a
"Security Deposit." The Security Deposit shall be held by Sublessor as security
for Sublessee's faithful performance under this Sublease. If Sublessee fails to
pay any Rent as and when due under this Sublease or otherwise fails to perform
its obligations hereunder, then Sublessor may, at its option and without
prejudice to any other remedy which Sublessor may have, apply, use or retain all
or any portion of the Security Deposit toward the payment of delinquent Rent or
for any loss or damage sustained by Sublessor due to such failure by Sublessee.
Sublessee shall upon demand restore the Security Deposit to the original sum
deposited. The Security Deposit shall not bear interest nor shall Sublessor be
required to keep such sum separate from its general funds. To the extent not
otherwise applied by Sublessor as provided herein, the Security Deposit shall be
returned to Sublessee within thirty (30) days after the Termination Date. In the
event of bankruptcy or other debtor-creditor proceedings filed by or against
Sublessee, such Security Deposit shall be deemed to be applied first to the
payment of Rent due Sublessor for the period immediately prior to the filing of
such proceedings.
5.6 HAZARDOUS MATERIALS.
5.6.1 DEFINITIONS. As used herein, the term "Hazardous Material" shall
mean any hazardous or toxic substance, material or waste which is or becomes
regulated by any state, federal, or local government authority, including all of
those materials and substances designated as hazardous or toxic by the
Environmental Protection Agency, the California Water Quality Control Board, the
Department of Labor, the California Department of Industrial Relations, the
Department of Transportation, the Department of Agriculture, the Department of
Health Services or the Food and Drug Agency. Without limiting the generality of
the foregoing, the term "Hazardous Material" shall include (i) any substance,
product, waste or any other material of any nature whatsoever which may give
rise to liability under any statutory or common law theory based on negligence,
trespass, intentional tort, nuisance or strict liability or under any reported
decisions of a state or federal court; (ii) gasoline, diesel fuel, or other
petroleum hydrocarbons; (iii) polychlorinated biphenyls; (iv) asbestos
containing materials; (v) urea formaldehyde foam insulation; and (vi) radon gas.
As used herein, the term "Hazardous Material Law" shall mean any statute, law,
ordinance, or regulation of any governmental body or agency which regulates the
use, storage, generation, discharge, treatment, transportation, release, or
disposal of any Hazardous Material.
5.6.2 SUBLESSEE'S USE. Sublessee shall not use any Hazardous Material
in violation of any applicable Hazardous Material Law. Sublessee shall indemnify
and hold harmless Sublessor with respect to any claims by or through the Master
Lessor with respect to the provisions hereof and any violations by Sublessee of
the provisions of section 50 of the Master Lease.
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ARTICLE 6.: SURRENDER. Upon the expiration or earlier termination of this
Sublease, Sublessee shall surrender the Sublease Premises in the same condition
and repair as the Sublease Premises were delivered to Sublessee on the
Commencement Date, expecting only ordinary wear and tear and damage by fire,
earthquake, act of God or the elements. Sublessee agrees to repair any damage to
the Sublease Premises, or the building of which the Sublease Premises are a
part, caused by or related to the removal of any articles of personal property,
business or trade fixtures, machinery, equipment, cabinetwork, signs, or
furniture.
ARTICLE 7.: NOTICES.
7.1 NOTICE REQUIREMENTS. All notices, demands, consents, and approvals which
may or are required to be given by either party to the other under this Sublease
shall be in writing and may be personally delivered or given or made by
overnight courier such as Federal Express, by facsimile transmission or made by
United States registered or certified mail addressed as shown in Article 1. Any
notice or demand so given shall be deemed to be delivered or made on the date
personal service is effected or, on the next business day if sent by overnight
courier, or the same day as given if sent by facsimile transmission and received
by 5:00 p.m. Pacific time or on the second business day after the same is
deposited in the United States Mail as registered or certified and addressed as
above provided with postage thereon fully prepaid. Either party hereto may
change its address at any time by giving written notice of such change to the
other party in the manner provided herein at least ten (10) calendar days prior
to the date such change is desired to be effective.
7.2 NOTICES FROM MASTER LESSOR. Each party shall provide to the other party a
copy of any notice or demand received from or delivered to Master Lessor within
twenty four (24) hours of receiving or delivering such notice or demand.
ARTICLE 8.: INDEMNITY; WAIVER OR SUBROGATION.
8.1 SUBLESSEE INDEMNITY. Sublessee shall indemnify, defend (with counsel
reasonably satisfactory to Sublessor), protect and hold Sublessor harmless from
and against any and all claims, demands, actions, suits, proceedings,
liabilities, obligations, losses, damages, judgments, costs, penalties, fines,
expenses (including, but not limited to, attorneys', consultants' and expert
witness fees) arising out of, resulting from, or related to (i) any injury or
death to any person or injury or damage to property caused by, arising out of,
or involving (A) Sublessee's use of the Sublease Premises, the conduct of
Sublessee's business therein, or any activity, work or thing done, permitted or
suffered by Sublessee in or about the Sublease Premises, (B) a breach by
Sublessee in the performance in a timely manner of any obligation of Sublessee
to be performed under this Sublease, including the Master Lease, or (C) the
negligence or intentional acts of Sublessee or Sublessee's agents, contractors,
employees, subtenants, licensees, or invitees, or (ii) the storage, use,
generation, discharge, treatment, transportation, release or disposal of
Hazardous Material by Sublessee or its agents, employees, or contractors, in,
on, over, through, from, about, or beneath the Sublease Premises or any nearby
premises. This indemnity shall survive the expiration or earlier termination of
this Sublease.
8.2 SUBLESSOR INDEMNITY. Sublessor shall indemnify, defend (with counsel
reasonably satisfactory to Sublessee), protect and hold Sublessee harmless from
and against any and all claims, demands, actions, suits, proceedings,
liabilities, obligations, losses, damages, judgments, costs, penalties, fines,
expenses (including, but not limited to, attorneys', consultants' and expert
witness fees) arising out of, resulting from, or related to (i) any injury or
death to any person or injury or damage to property caused by, arising out of,
or involving (A) Sublessor's use of the Sublease Premises, the conduct of
Sublessor's business therein, or any activity, work or thing done, permitted or
suffered by Sublessor in or about the Sublease Premises occurring prior to the
Commencement Date, (B) a breach by Sublessor in the performance in a timely
manner of any obligation of Sublessor to be performed under this Sublease,
including the Master Lease, or (C) the negligence or intentional acts of
Sublessor or Sublessor's agents, contractors, employees, subtenants, licensees,
or invitees, or (ii) the storage, use, generation, discharge, treatment,
transportation, release or disposal of Hazardous Material by Sublessor or its
agents, employees, or contractors, in, on, over, through, from, about, or
beneath the Sublease Premises or any nearby premises. This indemnity shall
survive the expiration or earlier termination of this Sublease.
8.3 MUTUAL WAIVER OF SUBROGATION. The parties hereby waive any rights of
recovery each may have against the other in connection with any loss or damage
occasioned to either party's respective property, the Sublease Premises, or its
contents, arising from any risk generally covered by fire and extended coverage
insurance, irrespective of the cause of such fire or casualty. In addition, the
parties each, on behalf of their respective insurance companies, waive any right
of subrogation that such insurance company may have against the other party for
any such loss or damage, provided that such waiver does not invalidate any such
policy. In the event that such waiver would invalidate such policy, the insured
party shall promptly notify the other in writing.
ARTICLE 9.: GENERAL PROVISIONS.
9.1 ACCESS FOR INSPECTION AND REPAIRS. Sublessee shall allow Master Lessor and
Sublessor, and their agents, free access at all reasonable times to the Sublease
Premises for the purpose of inspecting or of making repairs, additions, or
alterations to the Sublease Premises, required of them, if any, or any property
owned by or under the control of Master Lessor or Sublessor.
9.2 PUBLIC LIABILITY INSURANCE. Sublessee agrees to carry liability insurance
insuring both Sublessee and Sublessor, and Master Lessor, against all claims for
personal injury or property damage caused by conditions or activities on the
Sublease Premises in amounts and scope of coverage to be reasonably approved by
Sublessor.
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9.3 ACCESS TO LAVATORY, TELEPHONE ROOM AND POWER ROOM. Sublessee agrees that
Sublessor and its employees and authorized agents will have use of the men's
and women's lavatories situated within the Sublease Premises as well as the
telephone room and the power room situated within the Sublease Premises.
9.4 REPAIRS AND MAINTENANCE. Subject to Master Lessor's obligations under the
Master Lease, Sublessee shall maintain the Sublease Premises in good repair and
tenantable condition during the continuance of this Sublease, except in case of
damage arising from the act or negligence of Sublessor or its agents.
9.5 WAIVER OF ONE BREACH NOT WAIVER OF OTHERS. Waiver of one breach of a
term, condition, or covenant of this Sublease by either party to this Sublease
shall be limited to the particular instance and shall not be construed as a
waiver of past or future breaches of the same or other terms, conditions, or
covenants.
9.6 TERMINATION AND REENTRY BY SUBLESSOR ON SUBLESSEE'S DEFAULT. If Sublessee
abandons or vacates the Sublease Premises or is dispossessed for cause by
Sublessor before the termination of this Sublease, Sublessor may, on giving ten
(10) days' written notice to Sublessee, declare this Sublease forfeited and may
then make reasonable efforts to relet the Sublease Premises. Sublessee shall be
liable to Sublessor for all damages suffered by reason of such forfeiture. Such
damages will include, but shall not be limited to, the following: (1) all actual
damages suffered by Sublessor until the Sublease Premises is relet, including
reasonable expenses incurred in attempting to relet; (2) the difference between
the rent received when the Sublease Premises is relet and the rent reserved
under this Sublease.
Until the Sublease Premises have been relet, Sublessee agrees to pay to
Sublessor, on the same days as the rental payments are due under this Sublease,
the actual damages suffered by Sublessor since the last payment, either rent or
damages, was made. After the Sublease Premises have been relet, Sublessee agrees
to pay to Sublessor, on the last day of each rental period, the difference
between the rent received for the period from reletting and the rent reserved
under this Sublease for the period.
9.7 NO ASSIGNMENT OR SECOND SUBLEASE WITHOUT CONSENT. Sublessee shall not
sell or assign this Sublease or any part of this Sublease, or any interest in
it, or resublet the Sublease Premises in whole or in part without first
obtaining the written consent of Sublessor and Master Lessor. This Sublease will
not be assigned by operation of law. If Sublessor and Master Lessor once give
consent to assignment of this Sublease or of any interest therein, they shall
not thereby be barred from afterwards refusing to consent to any further
assignment. Any attempt to sell, assign, or resublease without written consent
of Sublessor and Master Lessor shall be deemed sufficient grounds for
dispossession and will entitle Sublessor to proceed pursuant to Section 9.6 of
this Sublease if Sublessor so elects.
9.8 FENCED AREA. Sublessor will retain the use of the locked fenced area in
the rear of the building, which is presently used as a parking area for two of
Sublessor's vehicles and houses Sublessor's TV antenna.
9.9 PARKING SPACES. Parking spaces for the building which houses the Sublease
Premises and the Sublessor's Premises shall be used on a first come first serve
basis, with the exception of Mr. Salam Qureishi's space, in the front of the
building, next to the disabled parking space, which shall be reserved for his
use or by such other person as Sublessor shall designate.
9.10 SECURITY SYSTEM. Sublessor shall operate and maintain the present
security system. Sublessee shall advise Sublessor as to the number of security
keys which Sublessee will need.
9.11 MAINTENANCE CONTRACT. The costs of any maintenance contract under section
48 of the Master Lease to be obtained and retained by Sublessor as Lessee
thereunder shall be paid by Sublessor and Sublessee based upon their respective
pro rata shares.
9.12 LATE CHARGE AND INTEREST. The late payment of any Rent will cause
Sublessor to incur additional costs, including the cost to maintain in full
force the Master Lease, administration and collection costs, and processing and
accounting expenses. If Sublessor has not received any installment of Rent
within five (5) days after that amount is due, Sublease will pay five percent
(5%) of the delinquent amount, which is agreed to represent a reasonable
estimate of the cost incurred by Sublessor. In addition, all delinquent amounts
will bear interest from the date the amount was due until paid in full at a rate
per annum ("Applicable Interest Rate") equal to the greater of (a) five percent
(5%) per annum plus the then federal discount rate on advances to member banks
in effect at the Federal Reserve Bank of San Francisco on the 25th day of the
month preceding the date of this Sublease or (b) ten percent (10%). However, in
no event will the Applicable Interest Rate exceed the maximum interest rate
permitted by law that may be charged under these circumstances. Sublessor and
Sublessee recognize that the damage Sublessor will suffer in the event of
Sublessee's failure to pay this amount is difficult to ascertain and that the
late charge and interest are the best estimate of the damage that Sublessor will
suffer. If a late charge becomes payable for any three (3) installments of Rent
within any twelve (12) month period, the Rent will automatically become payable
quarterly in advance.
9.13 SEVERABILITY. If any term or provision of this Sublease shall, to any
extent, be determined by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this Sublease shall not be affected thereby, and
each term and provision of this Sublease shall be valid and enforceable to the
fullest extent permitted by law.
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9.14 ATTORNEYS' FEES; COSTS OF SUIT. If Sublessee or Sublessor shall bring any
action or proceeding for any relief against the other, declaratory or otherwise,
arising out of this Sublease, the prevailing party shall be entitled to recover
its reasonable attorneys' fees and costs.
9.15 WAIVER. No covenant, term or condition or the breach thereof shall be
deemed waived, except by written consent of the party against whom the waiver is
claimed, and any waiver of the breach of any covenant, term or condition shall
not be deemed to be a waiver of any other covenant, term or condition.
9.16 TIME OF ESSENCE. Time is of the essence in this Sublease.
9.17 BROKERAGE COMMISSIONS. The parties represent and warrant to each other that
they have dealt with no brokers, finders, agents or other person in connection
with the transaction contemplated hereby to whom a brokerage or other commission
or fee may be payable, except for the broker named in Article 1 to whom
Sublessee shall pay a commission pursuant to a separate agreement between
Sublessee and Sublessee's Broker. Each party shall indemnify, defend and hold
the other harmless from any claims arising from any breach by the indemnifying
party of the representation and warranty in this Section 9.17.
9.18 BINDING EFFECT. Preparation of this Sublease by Sublessee or Sublessee's
agent and submission of the same to Sublessor shall not be deemed an offer to
lease. This Sublease shall become binding upon Sublessor and Sublessee only when
fully executed by Sublessor and Sublessee and consented to in writing by Master
Lessor.
9.19 ENTIRE AGREEMENT. This instrument, along with any exhibits and addenda
hereto, constitutes the entire agreement between Sublessor and Sublessee
relative to the Sublease Premises. This Sublease may be altered, amended or
revoked only by an instrument in writing signed by both Sublessor and Sublessee.
There are no oral agreements or representations between the parties affecting
this Sublease, and this Sublease supersedes and cancels any and all previous
negotiations, arrangements, brochures, agreements, representations and
understandings, if any, between the parties hereto.
9.20 EXECUTION. This Sublease may be executed in one or more counterparts, each
of which shall be considered an original counterpart, and all of which together
shall constitute one and the same instrument. Each person executing this
Sublease represents that the execution of this Sublease has been duly authorized
by the party on whose behalf the person is executing this Sublease.
9.21 CONSENT OF MASTER LESSOR. This Sublease is subject to the obtaining of the
consent of the Master Lessor pursuant to the terms of the Master Lease. Upon
execution of this Sublease by Sublessee and Sublessor, Sublessor shall submit
this Sublease to the Master Lessor immediately upon its execution pursuant to
paragraph 16 of the Master Lease. If Master Lessor does not consent to this
Sublease within ten (10) business days, following its receipt by the Master
Lessor, then either Sublessor or Sublessee may terminate this Sublease.
Sublessor: Sublessee:
SYSOREX INTERNATIONAL, INC. BEST INTERNET COMMUNICATIONS, INC.
A DELAWARE CORPORATION A CALIFORNIA CORPORATION
By: /s/ A. Salam Qureishi
BY: /s/ JAMES R. ZARLEY
----------------------------- -----------------------------
Title: Chairman Title: CEO/Chairman
-------------------------- --------------------------
Date: 6/13/97 Date: 6/13/97
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EXHIBIT 10.15
LEASE AGREEMENT
THIS LEASE, made this 3rd day of May, 1995 between GOLDEN GATE COMMERCIAL
COMPANY, a California Limited Partnership, hereinafter called Landlord, and BEST
INTERNET COMMUNICATIONS, INC., a California corporation, hereinafter called
Tenant.
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit "A",
attached hereto and incorporated herein by this reference thereto more
particularly described as follows:
All of that certain 15,850+ square foot, one-story building and parking
-
appurtenant thereto located at 345 E. Middlefield Road, Mountain View,
California 94043. Said Premises leased hereunder, is more particularly shown
within the area outlined in Red on Exhibit A attached hereto. The entire
---------
parcel, of which the Premises is a part, is shown within the area outlined in
Green on Exhibit A attached hereto. Subject to Paragraphs 41 and 45, the
---------
Premises is leased on an "as-is" basis, in its present condition, and in the
configuration as shown in Red on Exhibit B attached hereto.
---------
The interior of the building leased hereunder shall be improved by Landlord and
leased by Tenant in the configuration as shown in Red on Exhibit B to be
---------
attached hereto.
The word "Premises" as used throughout this lease is hereby defined to
include the nonexclusive use of landscaped areas, sidewalks and driveways in
front of or adjacent to the Premises, and the nonexclusive use of the area
directly underneath or over such sidewalks and driveways. The gross leasable
area of the Premises shall be measured from outside of exterior walls to outside
of exterior walls, and shall include any atriums, covered entrances or egresses
and covered building loading areas.
Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.
1. USE Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of
general office, light manufacturing, research and development, and storage and
other uses necessary for Tenant to conduct Tenant's business, provided that such
uses shall be in accordance with all applicable governmental laws and
ordinances, and for no other purpose. Tenant shall not do or permit to be done
in or about the Premises nor bring or keep or permit to be brought or kept in or
about the Premises anything which is prohibited by or will in any way increase
the existing rate of (or otherwise affect) fire or any insurance covering the
Premises or any part thereof, or any of its contents, or will cause a
cancellation of any insurance covering the Premises or any part thereof, or any
of its contents. Tenant shall not do or permit to be done anything in, on or
about the Premises which will in any way obstruct or interfere with the rights
of other tenants or occupants of the Premises or neighboring premises or injure
or annoy them, or use or allow the Premises to be used for any improper,
immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or
permit any nuisance in, on or about the Premises. No sale by auction shall be
permitted on the Premises. Tenant shall not place any loads upon the floors,
walls, or ceiling which endanger the structure, or place any harmful fluids or
other materials in the drainage system of the building, or overload existing
electrical or other mechanical systems. No waste materials or refuse shall be
dumped upon or permitted to remain upon any part of the Premises or outside of
the building in which the Premises are a part, except in trash containers placed
inside exterior enclosures designated by Landlord for that purpose or inside of
the building proper where designated by Landlord. No materials, supplies,
equipment, finished products or semi-finished products, raw materials or
articles of any nature shall be stored upon or permitted to remain outside the
Premises. Tenant shall not place anything or allow anything to be placed near
the glass of any window, door partition or wall which may appear unsightly from
outside the Premises. No loudspeaker or other device, system or apparatus which
can be heard outside the Premises shall be used in or at the Premises without
the prior written consent of Landlord. Tenant shall not commit or suffer to be
committed any waste in or upon the Premises. Tenant shall indemnify, defend and
hold Landlord harmless against any loss, expense, damage, reasonable attorneys'
fees, or liability arising out of failure of Tenant to comply with any
applicable law. Tenant shall comply with any covenant, condition, or restriction
("CC&R's") affecting the Premises. The provisions of this paragraph are for the
benefit of Landlord only and shall not be construed to be for the benefit of any
tenant or occupant of the Premises.
2. TERM*
A. The term of this Lease shall be for a period of SEVEN (7) years
(unless sooner terminated as hereinafter provided) and, subject to Paragraphs 2B
and 3, shall commence on the 1st day of June, 1995 and end on the 31st day of
May, 2002.
B. Possession of the Premises shall be deemed tendered and the term of
the Lease shall commence when the first of the following occurs:
(a) One day after a Certificate of Occupancy is granted by the proper
governmental agency, or, if the governmental agency having jurisdiction over the
area in which the Premises are situated does not issue certificates of
occupancy, then the same number of days after certification by Landlord's
architect or contractor that Landlord's construction work has been completed: or
(b) Upon the occupancy of the Premises by any of Tenant's operating
personnel: or
(c) When the Tenant Improvements have been substantially completed
for Tenant's use and occupancy, in accordance and compliance with Exhibit B of
this Lease Agreement: or
(d) As otherwise agreed in writing.
* It is agreed in the event said Lease commences on a date other than the
first day of the month the term of the Lease will be extended to account
for the number of days in the partial month. The Basic Rent during the
resulting partial month will be pro-rated (for the number of days in the
partial month) at the Basic Rent rate scheduled for the projected
commencement date as shown in Paragraph 39.
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3. POSSESSION If Landlord, for any reason whatsoever, cannot deliver possession
of said premises to Tenant at the commencement of the said term, as hereinbefore
specified, this Lease shall not be void or voidable; no obligation of Tenant
shall be affected thereby; nor shall Landlord or Landlord's agents be liable to
Tenant for any loss or damage resulting therefrom; but in that event the
commencement and termination dates of the Lease, and all other dates affected
thereby shall be revised to conform to the date of Landlord's delivery of
possession, as specified in Paragraph 2B, above. The above is, however, subject
to the provision that the period of delay of delivery of the Premises shall not
exceed 50 days from the commencement date herein (except those delays caused by
Acts of God, strikes, war, utilities, governmental bodies, weather, unavailable
materials, and delays beyond Landlord's control shall be excluded in calculating
such period) in which instance Tenant, as its option, may, by written notice to
Landlord, terminate this Lease.
4. RENT
A. Basic Rent. Tenant agrees to pay to Landlord at such place as Landlord may
designate without deduction, offset, prior notice, or demand, and Landlord
agrees to accept as Basic Rent for the leased Premises the total sum of ONE
MILLION TWO HUNDRED FORTY SEVEN THOUSAND THREE HUNDRED EIGHTY FIVE AND NO/100
Dollars ($1,247,385.00) in lawful money of the United States of America, payable
as follows:
SEE PARAGRAPH 39 FOR BASIC RENT SCHEDULE
B. Time for Payment. Full monthly rent is due in advance on the first day of
each calendar month. In the event that the term of this Lease commences on a
date other than the first day of a calendar month, on the date of commencement
of the term hereof Tenant shall pay to Landlord as rent for the period from such
date of commencement to the first day of the next succeeding calendar month that
proportion of the monthly rent hereunder which the number of days between such
date of commencement and the first day of the next succeeding calendar month
bears to thirty (30). In the event that the term of this Lease for any reason
ends on a date other than the last day of a calendar month, on the first day of
the last calendar month of the term hereof Tenant shall pay to Landlord as rent
for the period from said first day of said last calendar month to and including
the last day of the term hereof that proportion of the monthly rent hereunder
which the number of days between said first day of said last calendar month and
the last day of the term hereof bears to thirty (30).
C. Late Charge. Notwithstanding any other provision of this Lease, if Tenant
is in default in the payment of rental as set forth in this Paragraph 4 when
due, or any part thereof, Tenant agrees to pay Landlord, in addition to the
delinquent rental due, a late charge for each rental payment in default ten (10)
days. Said late charge shall equal ten percent (10%) of each rental payment so
in default.
D. Additional Rent. Beginning with the commencement date of the term of this
Lease. Tenant shall pay to Landlord or to Landlord's designated agent in
addition to the Basic Rent and as Additional Rent the following:
(a) All Taxes relating to the Premises as set forth in Paragraph 9, and
(b) All insurance premiums relating to the Premises, as set forth in
Paragraph 12, and
(c) All charges, costs and expenses, which Tenant is required to pay
hereunder, together with all interest and penalties, costs and expenses
including reasonable attorneys fees and legal expenses, that may accrue thereto
in the event of Tenant's failure to pay such amounts, and all damages,
reasonable costs and expenses which Landlord may incur by reason of default of
Tenant or failure on Tenant's part to comply with the terms of this Lease. In
the event of nonpayment by Tenant of Additional Rent, Landlord shall have all
the rights and remedies with respect thereto as Landlord has for nonpayment of
rent.
The Additional Rent due hereunder shall be paid to Landlord or Landlord's
agent (i) within five days for taxes and insurance and within thirty (30) days
for all other Additional Rent items after presentation of invoice from Landlord
or Landlord's agent setting forth such Additional Rent and/or (ii) at the option
of Landlord, Tenant shall pay to Landlord monthly, in advance, Tenant's prorata
share of an amount estimated by Landlord to be Landlord's approximate average
monthly expenditure for such Additional Rent items, which estimated amount shall
be reconciled within 120 days of the end of each calender year or more
frequently if Landlord elects to do so at Landlord's sole and absolute
discretion as compared to Landlord's actual expenditure for said Additional Rent
items, with Tenant paying to Landlord, any amount of actual expenses expended by
Landlord in excess of said estimated amount within thirty (30) days after
delivery by Landlord to Tenant of a written reconciliation identifying the
amount to be paid, or Landlord refunding to Tenant (providing Tenant is not in
default in the performance of any of the terms, covenants and conditions of this
Lease) any amount of estimated payments made by Tenant in excess of Landlord's
actual expenditures for said Additional Rent items. If a net refund is due
Tenant, Landlord shall credit Tenant's account accordingly within thirty (30)
days of said reconciliation.
The respective obligations of Landlord and Tenant under this paragraph shall
survive the expiration or other termination of the term of this Lease, and if
the term hereof shall expire or shall otherwise terminate on a day other than
the last day of a calender year, the actual Additional Rent incurred for the
calendar year in which the term hereof expires or otherwise terminates shall be
determined and settled on the basis of the statement of actual Additional Rent
for such calender year and shall be prorated in the proportion which the number
of days in such calender year preceding such expiration or termination bears to
365.
E. Place of Payment of Rent and Additional Rent. All Basic Rent hereunder and
all payments hereunder for Additional Rent shall be paid to Landlord at the
office of Landlord at 457 East Evelyn Avenue, Suite F, Sunnyvale, CA 94086
or to such other person or to such other place as Landlord may from time to
time designate in writing.
* F. Security Deposit. Concurrently with Tenant's execution of this Lease,
Tenant shall deposit with Landlord the sum of THIRTY SIX THOUSAND FOUR HUNDRED
FIFTY FIVE AND NO/100 Dollars ($36,455.00). Said sum shall be held by Landlord
as a Security Deposit for the faithful performance by Tenant of all the terms,
covenants, and conditions of this Lease to be kept and performed by Tenant
during the term hereof. If Tenant defaults with respect to any provision of this
Lease, including, but not limited to, the provisions relating to the payment of
rent and any of the monetary sums due herewith, Landlord may (but shall not be
required to) use, apply or retain all or any part of this Security Deposit for
the payment of any other amount which Landlord may spend by reason of Tenant's
default or to compensate Landlord for
* $18,277.50 cash due upon execution of Lease.
$18,277.50 Promissory Note due June 1, 1996.
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any other loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of said Deposit is so used or applied, Tenant shall,
within ten (10) days after written demand therefor, deposit cash with Landlord
in the amount sufficient to restore the Security Deposit to its original
amount. Tenant's failure to do so shall be a material breach of this Lease.
Landlord shall not be required to keep this Security Deposit separate from its
general funds, and Tenant shall not be entitled to interest on such Deposit.
If Tenant fully and faithfully performs every provision of this Lease to be
performed by it, the Security Deposit or any balance thereof shall be returned
to Tenant (or at Landlord's option, to the last assignee of Tenant's interest
hereunder) at the expiration of the Lease term and after Tenant has vacated the
Premises. In the event of termination of Landlord's interest in this Lease.
Landlord shall transfer said Deposit to Landlord's successor in interest
whereupon Tenant agrees to release Landlord from liability for the return of
such Deposit or the accounting therefor.
5. ACCEPTANCE AND SURRENDER OF PREMISES Subject to Paragraphs 41, 48 and 50,
and by entry hereunder, Tenant accepts the Premises as being in good and
sanitary order, condition and repair and accepts the building and improvements
included in the Premises in their present condition and without representation
or warranty by Landlord as to the condition of such building or as to the use or
occupancy which may be made thereof. Any exceptions to the foregoing must be
by written agreement executed by Landlord and Tenant. Tenant agrees on the last
day of the Lease term, or on the sooner termination of this Lease, to surrender
the Premises promptly and peaceably to Landlord in good condition and repair
(damage by Acts of God, fire, normal wear and tear excepted), with all interior
wall painted, or cleaned so that they appear freshly painted, and repaired and
replaced, if damaged; all floors cleaned and waxed; all carpets cleaned and
shampooed; all broken, marred or nonconforming accoustical ceiling tiles
replaced; all windows washed; the airconditioning and heating systems serviced
by a reputable and licensed service firm and in good operating condition and
repair; the plumbing and electrical systems and lighting in good order and
repair, including replacement of any burned out or broken light bulbs or
bailasts; the lawn and shrubs in good condition including the replacement of
any dead or damaged plantings; the sidewalk, driveways and parking areas in good
order, condition and repair; together with all alterations, additions, and
improvements which may have been made in, to, or on the Premises (except movable
trade fixtures installed at the expense of Tenant) except that Tenant shall
ascertain from Landlord within thirty (30) days before the end of the term of
this Lease whether Landlord desires to have the Premises or any part or parts
thereof restored to their condition and configuration as when the Premises were
delivered to Tenant and if Landlord shall so desire, then Tenant shall restore
said Premises or such part or parts thereof before the end of this Lease at
Tenant's sole cost and expense. Tenant, on or before the end of the term or
sooner termination of this Lease, shall remove all of Tenant's personal
property and trade fixtures from the Premises, and all property not so removed
on or before the end of the term or sooner termination of this Lease shall be
deemed abandoned by Tenant and title to same shall thereupon pass to Landlord
without compensation to Tenant. Landlord may, upon termination of this Lease,
remove all moveable furniture and equipment so abandoned by Tenant, at Tenant's
sole cost, and repair any damage caused by such removal at Tenant's sole cost.
If the Premises be not surrendered at the end of the term or sooner termination
of this Lease. Tenant shall indemnify Landlord against loss or liability
resulting from the delay by Tenant in so surrendering the Premises including,
without limitation, any claims made by any succeeding tenant founded on such
delay. Nothing contained herein shall be construed as an extension of the term
hereof or as a consent of Landlord to any holding over by Tenant. The voluntary
or other surrender of this Lease or the Premises by Tenant or a mutual
cancellation of this Lease shall not work as a merger and, at the option of
Landlord, shall either terminate all or any existing subleases or subtenancies
or operate as an assignment to Landlord of all or any such subleases or
subtenancies.
6. ALTERNATIONS AND ADDITIONS Tenant shall not make, or suffer to be made,
any alteration or addition to the Premises, or any part thereof, without the
written consent of Landlord first had and obtained by Tenant (such consent not
to be unreasonably withheld), but at the cost of Tenant, and any addition to, or
alteration of, the Premises, except moveable furniture and trade fixtures, shall
at once become a part of the Premises and belong to Landlord. Landlord reserves
the right to approve all contractors and mechanics proposed by Tenant to make
such alterations and additions. Tenant shall retain title to all moveable
furniture and trade fixtures placed in the Premises. All heating, lighting,
electrical, airconditioning, floor to ceiling partitioning, drapery, carpeting,
and floor installations made by Tenant, together with all property that has
become an integral part of the Premises, shall not be deemed trade fixtures.
Tenant agrees that it will not proceed to make such alteration or additions,
without having obtained consent from Landlord to do so, and until five (5) days
from the receipt of such consent, in order that Landlord may post appropriate
notices to avoid any liability to contractors or material suppliers for payment
for Tenant's improvements. Tenant will at all times permit such notices to be
posted and to remain posted until the completion of work. Tenant shall, if
required by Landlord, secure at Tenant's own cost and expense, a completion and
lien indemnity bond, satisfactory to Landlord, for such work. Tenant further
covenants and agrees that any mechanic's lien filed against the Premises for
work claimed to have been done for, or materials claimed to have been furnished
to Tenant, will be discharged by Tenant, by bond or otherwise, within ten (10)
days after the filing thereof, at the cost and expense of Tenant. Any exceptions
to the foregoing must be made in writing and executed by both Landlord and
Tenant. See Paragraph 44
7. TENANT MAINTENANCE Tenant shall, at its sole cost and expense, keep and
maintain the Premises (including appurtenances) and every part thereof in a high
standard of maintenance and repair, or replacement, and in good and sanitary
condition. Tenant's maintenance and repair responsibilities herein referred to
include, but are not limited to, jantorization, all windows (interior and
exterior), window frames, plate glass and glazing (destroyed by accident or act
of third parties), truck doors, plumbing systems (such as water and drain lines,
sinks, toilets, faucets, drains, showers and water fountains), electrical
systems (such as panels, conduits, outlets, lighting fixtures, lamps, bulbs,
tubes and ballasts, heating and airconditioning systems (such as compressors,
fans, air handlers, ducts, mixing boxes, thermostats, time clocks, boilers,
heaters, supply and return grids), structural elements and exterior surfaces of
the building, store fronts, roofs, downspouts, all interior improvements within
the premises including but not limited to wall coverings, window coverings,
carpet, floor coverings, partitioning, ceilings, doors (both interior and
exterior), including closing mechanisms, latches, locks, skylights (if any),
automatic fire extinguishing systems, and elevators and all other interior
improvements of any nature whatsoever, and all exterior improvements including
but not limited to landscaping, sidewalks, driveways, parking lots including
striping and seating, sprinkler systems, lighting, ponds, fountains, waterways,
and drains. Tenant agrees to provide carpet shields under all rolling chairs or
to otherwise be responsible for wear and tear of the carpet caused by such
rolling chairs if such wear and tear exceeds that caused by normal foot traffic
in surrounding areas. Areas of excessive wear shall be replaced at Tenant's sole
expense upon Lease termination. Tenant hereby waives all rights under, and
benefits of, Subsection 1 of Subsection 1932 and Section 1941 and 1942 of the
California Civil Code and under any similar law, statute or ordinance now or
hereafter in effect. In the event any of the above maintenance responsibilities
apply to any other tenant(s) of Landlord where there is common usage with other
tenant(s), such maintenance responsibilities and charges shall be allocated to
the leased Premises by square footage or other equitable basis as calculated and
determined by Landlord. See Paragraph 45.
8. UTILITIES Tenant shall pay promptly, as the same become due, all charges for
water, gas, electricity, telephone, telex and other electronic communication
service, sewer service, waste pick-up and any other utilities, materials or
services furnished directly to or used by Tenant on or about the Premises during
the term of this Lease, including, without limitation, any temporary or
permanent utility surcharge or other exactions whether or not hereinafter
imposed. In the event the above charges apply to any other tenant(s) of Landlord
where there is common usage with other tenant(s), such charges shall be
allocated to the leased Premises by square footage or other equitable basis as
calculated and determined by Landlord.
Landlord shall not be liable for and Tenant shall be entitled to any abatement
or reduction of rent by reason of any interruption or failure of utility
services to the Premises when such interruption or failure is caused by
accident, breakage, repair, strikes, lockouts, or other labor disturbances or
labor disputes of any nature, or by any other cause, similar or dissimilar,
beyond the reasonable control of Landlord.
9. TAXES
A. As Additional Rent and in accordance with Paragraph 4D of the Lease.
Tenant shall pay to Landlord, or if Landlord so directs, directly to the Tax
Collector, all Real Property Taxes relating to the Premises. In the event the
Premises leased hereunder consist of only a portion of the entire tax parcel,
Tenant shall pay to Landlord Tenant's proportionate share of such real estate
taxes allocated to the leased Premises by square footage or other reasonable
basis as calculated and determined by Landlord. If the tax billing pertains 100%
to he leased Premises, and Landlord chooses to have Tenant pay said real estate
taxes directly to the Tax Collector, then in such event it shall be the
responsibility of Tenant to obtain the tax and assessment bills and pay, prior
to delinquency, the applicable real property taxes and assessments pertaining to
the leased Premises, and failure to receive a bill for taxes and/or assessments
shall not provide a basis for cancellation of or nonresponsibility for payment
of penalties for nonpayment or late payment by Tenant. The term "Real Property
Taxes", as used herein, shall mean (i) all taxes, assessments, levies and other
charges of any kind or nature whatsoever, general and special, foreseen and
unforeseen (including all installments of principal and interest required to pay
any general or special assessments for public improvements and any increases
resulting from reassessments caused by any change in ownership of the Premises)
now or hereafter imposed by any governmental or quasi-governmental authority or
special district having the direct or indirect power to tax or levy assessments,
which are levied or assessed against, or with respect to the value, occupancy or
use of, all or any portion of the Premises (as now constructed or as may at any
time hereinafter be constructed, altered, or otherwise changed) or Landlord's
interest therein; any improvements located within the Premises (regardless of
ownership); the fixtures, equipment and other property of Landlord, real or
personal, that are an integral part of any located in the Premises; or parking
areas, public utilities, or energy within the Premises; (ii) all charges, levies
or fees imposed by reason of environmental regulation or other governmental
control of the Premises; and (iii) all costs and fees (including
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reasonable attorneys' fees) incurred by Landlord in reasonably contesting any
Real Property Tax and in negotiating with public authorities as to any Real
Property Tax. If at any time during the term of this Lease the taxation or
assessment of the Premises prevailing as of the commencement date of this Lease
shall be altered so that in lieu of or in addition to any Real Property Tax
described above there shall be levied, assessed or imposed (whether by reason of
a change in the method of taxation or assessment, creation of a new tax or
charge, or any other cause) an alternate or additional tax or charge (i) on the
value, use or occupancy of the Premises or Landlord's interest therein or (ii)
on or measured by the gross receipts income or receipts from the Premises, on
Landlord's business of leasing the Premises, or computed in any manner with
respect to the operation of the Premises, then any such tax or charge, however
designated, shall be included within the meaning of the term "Real Property
Taxes" for purposes of this Lease. If any Real Property Tax is based upon
property or rents unrelated to the Premises, then only that part of such Real
Property Tax that is fairly allocable to the Premises shall be included within
the meaning of the term "Real Property Taxes". Notwithstanding the foregoing,
the term "Real Property Taxes" shall not include estate, inheritance, gift or
franchise taxes of Landlord or the federal or state net income tax imposed on
Landlord's income from all sources. Provided Tenant pays its Real Property Taxes
by the due date, the term "Real Property Taxes" shall exclude any penalties or
interest on said Real Property Taxes that may result if Landlord fails to pay
said Real Property Taxes by the due date.
B. Taxes on Tenant's Property Tenant shall be liable for and shall pay ten
days before delinquency, taxes levied against any personal property or trade
fixtures placed by Tenant in or about the Premises. If any such taxes on
Tenant's personal property or trade fixtures are levied against Landlord or
Landlord's property or if the assessed value of the Premises is increased by the
inclusion therein of a value placed upon such personal property or trade
fixtures of Tenant and if Landlord, after written notice to Tenant, pays the
taxes based on such increased assessment, which Landlord shall have the right to
do regardless of the validity thereof, but only under proper protest if
requested by Tenant. Tenant shall upon demand, as the case may be, repay to
Landlord the taxes so levied against Landlord, or the proportion of such taxes
resulting from such increase in the assessment; provided that in any such event
Tenant shall have the right, in the name of Landlord and with Landlord's full
cooperation to bring suit in any court of competent jurisdiction to recover the
amount of such taxes so paid under protest, and any amount so recovered shall
belong to Tenant.
10. LIABILITY INSURANCE Tenant, at Tenant's expense, agrees to keep in force
during the term of this Lease a policy of commercial general insurance with
combined single limit coverage of not less than Two Million Dollars ($2,000,000)
for bodily injury and property damage occurring in, on or about the Premises,
including parking and landscaped areas. Such insurance shall be primary and
noncontributory as respects any insurance carried by Landlord. The policy or
policies affecting such insurance shall name Landlord as additional insureds,
and shall insure any liability of Landlord, contingent or otherwise, as respects
acts or omissions of Tenant, its agents, employees or invitees or otherwise by
any conduct or transactions of any of said persons in or about or concerning the
Premises, including any failure of Tenant to observe or perform any of its
obligations hereunder; shall be issued by an insurance company admitted to
transact business in the State of California; and shall provide that the
insurance effected thereby shall not be canceled, except upon thirty (30) days'
prior written notice to Landlord. A certificate of insurance of said policy
shall be delivered to Landlord. If, during the term of this Lease, in the
considered opinion of Landlord's Lender, insurance advisor, or counsel, the
amount of insurance described in this Paragraph 10 is not adequate, Tenant
agrees to increase said coverage to such reasonable amount as Landlord's Lender,
insurance advisor, or counsel shall deem adequate.
11. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE
Tenant shall maintain a policy or policies of fire and property damage insurance
in "all risk" form with a sprinkler leakage endorsement insuring the personal
property, inventory, trade fixtures, and leasehold improvements within the
leased Premises for the full replacement value thereof. The proceeds from any
of such policies shall be used for the repair or replacement of such items so
insured.
Tenant shall also maintain a policy or policies of workman's compensation
insurance and any other employee benefit insurance sufficient to comply with all
laws.
12. PROPERTY INSURANCE Landlord shall purchase and keep in force, and as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's
proportionate share (allocated to the leased Premises by square footage or other
equitable basis as calculated and determined by Landlord) of the deductibles on
insurance claims and the cost of, policy or policies of insurance covering loss
or damage to the Premises (executing routine maintenance and repairs and
incidental damage or destruction caused by accidents or vandalism for which
Tenant is responsible under Paragraph 7) in the amount of the full replacement
value thereof, providing protection against those perils included within the
classification of "all risks" insurance and flood and/or earthquake insurance,
if available, plus a policy of rental income insurance in the amount of one
hundred (100%) percent of twelve (12) months Basic Rent, plus sums paid as
Additional Rent. If such insurance cost is increased due to Tenant's use of the
Premises, Tenant agrees to pay to Landlord the full cost of such increase.
Tenant shall have no interest in nor any right to the proceeds of any insurance
procured by Landlord for the Premises.
Landlord and Tenant do each hereby respectively release the other, to the
extent of insurance coverage of the releasing party, from any liability for loss
or damage caused by fire or any of the extended coverage casualties included in
the releasing party's insurance policies, irrespective of the cause of such fire
or casualty; provided, however, that if the insurance policy of either releasing
party prohibits such waiver, then this waiver shall not take effect until
consent to such waiver is obtained. If such waiver is so prohibited, the insured
party affected shall promptly notify the other party thereof.
13. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury to or death of any person or
damage to or destruction of property in or about the Premises by or from any
cause whatsoever, including, without limitation, gas, fire, oil, electricity or
leakage of any character from the roof, waste, basement or other portion of the
Premises but excluding, however, the willful misconduct or negligence of
Landlord, as agents, servants, employees, invitees, or contractors of which
negligence Landlord has knowledge and reasonable time to correct. Except as to
injury to persons or damage to property to the extent arising from the willful
misconduct or the negligence of Landlord, its agents, servants, employees,
invitees, or contractors. Tenant shall hold Landlord harmless from and defend
Landlord against any and all expenses, including reasonable attorneys' fees, in
connection therewith, arising out of any injury to or death of any person or
damage to or destruction of property occurring in, on or about the Premises, or
any part thereof, from any cause whatsoever.
14. COMPLIANCE Tenant, at its sole cost and expense, shall promptly comply
with all laws, statutes, ordinances and governmental rules, regulations or
requirements now or hereafter in effect; with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted; and with
any direction or occupancy certificate issued pursuant to law by any public
officer; provided, however, that no such failure shall be deemed a breach of the
provisions if Tenant, immediately upon notification, commences to remedy or
rectify said failure. The judgment of any court of competent jurisdiction or
the admission of Tenant in any action against Tenant, whether Landlord be a
party thereto or not, that Tenant has violated any such law, statute, ordinance
or governmental rule, regulation, requirement, direction or provision, shall be
conclusive to that fact as between Landlord and Tenant. Tenant shall, at its
sole cost and expense, comply with any and all requirements pertaining to said
Premises, of any insurance organization or company, necessary for the
maintenance of reasonable fire and public liability insurance covering
requirements pertaining to said Premises, of any insurance organization or
company, necessary for the maintenance of reasonable fire and public liability
insurance covering the Premises.
15. LIENS Tenant shall keep the Premises free from any liens arising out of
any work performed, materials furnished or obligation incurred by Tenant. In
the event that Tenant shall not, within ten (10) days following the imposition
of such lien, cause the same to be released of record, Landlord shall have, in
addition to all other remedies provided herein and by law, the right, but no
obligation, to cause the same to be released by such means as it shall deem
proper, including payment of the claim giving rise to such lien. All sums paid
by Landlord for such purpose, and all expenses incurred by it in connection
therewith, shall be payable to Landlord by Tenant on demand with interest at the
prime rate of interest as quoted by the Bank of America.
16. ASSIGNMENT AND SUBLETTING Tenant shall not assign, transfer, or hypothecate
the leasehold estate under this Lease, or any interest therein, and shall not
sublet the Premises, or any part thereof, or any right or privilege appurtenant
thereto, or suffer any other person or entity to occupy or use the Premises, or
any portion thereof, without, in each case, the prior written consent of
Landlord which consent will not be unreasonably withheld. As a condition for
granting this consent to any assignment, transfer, or subletting, Landlord may
require that Tenant agrees to pay to Landlord, as additional rent, fifty percent
(50%) of all rents or additional consideration received by Tenant from its
assignees, transferees, or subtenants in excess of the rent payable by Tenant to
Landlord hereunder in the event the total square footage subleased or assigned
is fifty percent (50%) or more of the Leased Premises: if the total square
footage of the subleased or assigned premises is less than fifty percent (50%)
of the total Premises leased hereunder. Tenant shall be entitled to retain one
hundred percent (100%) of such excess rent (if any). Tenant shall, by thirty
(30) days written notice, advise Landlord of its intent to assign or transfer
Tenant's interest in the Lease or sublet the Premises or any portion thereof for
any part of the term hereof. In the event Tenant is allowed to assign, transfer
or sublet the whole or any part of the Premises, with the prior written
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consent of Landlord, no assignee, transferee or subtenant shall assign or
transfer this Lease, either in whole or in part, or sublet the whole or any part
of the Premises, without also having obtained the prior written consent of
Landlord. A consent of Landlord to one assignment, transfer, hypothecation,
subletting, occupation or use by any other person shall not release Tenant from
any of Tenant's obligations hereunder or be deemed to be a consent to any
subsequent similar or dissimilar assignment, transfer, hypothecation,
subletting, occupation or use by any other person. Any such assignment,
transfer, hypothecation, subletting, occupation or use without such consent
shall be void and shall constitute a breach of this Lease by Tenant and shall,
at the option of Landlord exercised by written notice to Tenant, terminate this
Lease. The leasehold estate under this Lease shall not, nor shall any interest
therein, be assignable for any purpose by operation of law without the written
consent of Landlord which consent shall not be unreasonably withheld. As a
condition to its consent, Landlord may require Tenant to pay all reasonable
expenses in connection with the assignment, and Landlord may require Tenant's
assignee or transferee (or other assignees or transferees) to assume in writing
all of the obligations under this Lease and for Tenant to remain liable to
Landlord under the Lease. See Paragraph 46.
17. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest of
Landlord in the land and buildings in which the demised Premises are located, to
secure a loan from a lender (hereinafter referred to as "Lender") to Landlord.
Tenant shall, at the request of Landlord or Lender, execute in writing an
agreement subordinating its rights under this Lease to the lien of such deed of
trust, or, if so requested, agreeing that the lien of Lender's deed of trust
shall be or remain subject and subordinate to the rights of Tenant under this
Lease. Notwithstanding any such subordination, Tenant's possession under this
Lease shall not be disturbed if Tenant is not in default and so long as Tenant
shall pay all rent and observe and after at least one (1) business days' notice
(except in emergencies) perform all of the provisions set forth in this Lease.
18. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times
have, the right to enter the Premises to inspect them; to perform any services
to be provided by Landlord hereunder; to make repairs or provide any services to
a contiguous tenant(s); to submit the Premises to prospective purchasers,
mortgager or tenants; to post notices of nonresponsibility; and to alter,
improve or repair the Premises or other parts of the building, all without
abatement of rent, and may erect scaffolding and other necessary structures in
or through the Premises where reasonably required by the character of the work
to be performed; provided, however, that the business of Tenant shall be
interfered with to the least extent that is reasonably practical. Any entry to
the Premises by Landlord for the purposes provided for herein shall not under
any circumstances be 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.
19. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option
constitute a breach of this Lease by Tenant. If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Tenant's unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.
Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to the
reasonable satisfaction of Landlord that the trustee or receiver shall cure) any
and all previous defaults under the unexpired Lease and shall compensate
Landlord for all actual pecuriary loss and shall provide adequate assurance of
future performance under said Lease to the reasonable satisfaction of Landlord.
Adequate assurances of future performance, as used herein, includes, but shall
not be limited to: (i) assurance of source and payment of rent, and other
consideration due under this Lease: (ii) assurance that the assumption or
assignment of this Lease will not breach substantially any provision, such as
radius, location, use, or exclusivity provision, in any agreement relating to
the above described Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors or other similar act. Nothing
contained in this Lease shall be construed as giving or granting or creating an
equity in the demised Premises to Tenant. In no event shall the leasehold estate
under this Lease, or any interest therein, be assigned by voluntary or
involuntary bankruptcy proceeding without the prior written consent of Landlord.
In no event shall this Lease or any rights or privileges hereunder be an asset
of Tenant under any bankruptcy, insolvency or reorganization proceedings.
The failure to perform or honor any covenant, condition or representation
made under this Lease shall constitute a default hereunder by Tenant upon
expiration of the appropriate grace period hereinafter provided. Tenant shall
have a period of five (5) days from the date of written notice from Landlord
within which to cure any default in the payment of rental or adjustment thereto.
Tenant shall have a period of thirty (30) days from the date of written notice
from Landlord within which to cure any other default under this Lease; provided,
however, that if the nature of Tenant's failure is such that more than thirty
(30) days is reasonably required to cure the same. Tenant shall not be in
default so long as Tenant commences performance within such thirty (30) day
period and thereafter prosecutes the same to completion. Upon an uncured default
of this Lease by Tenant, Landlord shall have the following rights and remedies
in addition to any other rights or remedies available to Landlord at law or in
equity:
(a) The rights and remedies provided for by California Civil Code Section
1951.2, including but not limited to, recovery of 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 for the same period that Tenant
proves could be reasonably avoided, as computed pursuant to subsection (b) of
said Section 1951.2. Any proof by Tenant under subparagraphs (2) and (3) of
Section 1951.2 of the California Civil Code of the amount of rental loss that
could be reasonably avoided shall be made in the following manner: Landlord
and Tenant shall each select a licensed real estate broker in the business of
renting property of the same type and use as the Premises and in the same
geographic vicinity. Such two real estate brokers shall select a third licensed
real estate broker, and the three licensed real estate brokers so selected shall
determine the amount of the rental loss that could be reasonably avoided from
the balance of the term of this Lease after the time of award. The decision of
the majority of said licensed real estate brokers shall be final and binding
upon the parties hereto.
(b) The rights and remedies provided by California Civil Code Section
which allows Landlord to continue the Lease in effect and to enforce all of its
rights and remedies under this Lease, including the right to recover rent as it
becomes due, for as long as Landlord does not terminate Tenant's right to
possession; acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver upon Landlord's initiative to protect its
interest under this Lease shall not constitute a termination of Tenant's right
to possession.
(c) The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.
(d) To the extent permitted by law the right and power, to enter the
Premises and remove therefrom all persons and property, to store such property
in a public warehouse or elsewhere at the cost of and for the account of Tenant,
and to sell such property and apply such proceeds therefrom pursuant to
applicable California law. Landlord, may from time to time sublet the Premises
or any part thereof for such term or terms (which may extend beyond the term of
this Lease) and at such rent and such other terms as Landlord in its reasonable
sole discretion may deem advisable, with the right to make alterations and
repairs to the Premises. Upon each subletting, (i) Tenant shall be immediately
liable to pay Landlord, in addition to indebtedness other than rent due
hereunder, the reasonable cost of such subletting,including, but not limited
to, reasonable attorneys' fees, and any real estate commissions actually paid,
and the cost of such reasonable alterations and repairs incurred by Landlord and
the amount, if any, by which the rent hereunder for the period of such
subletting (to the extent such period does not exceed the term hereof) exceeds
the amount to be paid as rent for the Premises for such period or (ii) at the
option of Landlord, rents received from such subletting shall be applied first
to payment of indebtness other than rent due hereunder from Tenant to Landlord;
second, to the payment of any costs of such subletting and of such alterations
and repairs; third to payment of rent due and unpaid hereunder, and the residue,
if any, shall be held by Landlord and applied in payment of future rent as the
same becomes due hereunder. If Tenant has been credited with any rent to be
received by such subletting under option (i) and such rent shall not be promptly
paid to Landlord by the subtenant(s), or if such rentals received from such
subletting under option (ii) during any month be less than that 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. No taking
possession of the Premises by Landlord, shall be construed as an election on its
part to terminate this Lease unless a written notice of such intention be given
to Tenant. Notwithstanding any such subletting without termination, Landlord may
at any time hereafter elect to terminate this Lease for such previous breach.
(e) 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 subparagraph d, above.
20. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease (except that Tenant may vacate so long as it pays
rent, provides an on-site security guard during normal business hours from
Monday through Friday, and otherwise performs its obligations hereunder), and if
Tenant shall abandon, vacate or surrender said Premises, or be dispossessed by
the process of law, or otherwise, any personal property belonging to Tenant and
left on the Premises shall be deemed to be abandoned, at the option of Landlord,
except such property as may be mortgaged to Landlord.
21. DESTRUCTION In the event the Premises are destroyed in whole or in part
from any cause, except for routine maintenance and repairs and incidental
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damage and destruction caused from vandalism and accidents for which Tenant is
responsible under Paragraph 7. Landlord may, at its option:
(a) Rebuild or restore the Premises to their condition prior to the damage
or destruction, or
(b) Terminate this Lease, (providing that the Premises is damaged to the
extent of 33 1/3% of the replacement cost).
If Landlord does not give Tenant notice in writing within thirty (30) days
from the destruction of the Premises of its election to either rebuild and
restore them, or to terminate this Lease, Landlord shall be deemed to have
elected to rebuild or restore them, in which event Landlord agrees, at its
expense, promptly to rebuild or restore the Premises to their condition prior to
the damage or destruction. Tenant shall be entitled to a reduction in rent which
within thirty days (30) days from the date of such damage or destruction,
Landlord shall give Tenant written notice of the estimated time required to
repair such damage or destruction. If (i) Landlord initially estimates that the
rebuilding or restoration will exceed 180 days, or (ii) if the damage occurs
during the last 12 months of the: (a) initial Term or (b) extended term (if any)
and the damage cannot be repaired within 30 days, or if (iii) such repair is
being made in the proportion that the area of the Premises rendered untenantable
by such damage bears to the total area of the Premises. If Landlord does not
complete the rebuilding or restoration within one hundred eighty (180) days
following the date of destruction (such period of time to be extended not more
than 90 days for delays caused by the fault or neglect of Tenant or because of
Acts of God, acts of public agencies, labor disputes, strikes, fires, freight
embargos, rainy or stormy weather, inability to obtain materials, supplies or
fuels, acts of contractors or subcontractors, or delay of the contractors or
subcontractors due to such causes or other contingencies beyond the control of
Landlord), then Tenant shall have the right to terminate this Lease by giving
fifteen (15) days prior written notice to Landlord. Notwithstanding anything
herein to the contrary, Landlord's obligation to rebuild or restore shall be
limited to the building and interior improvements constructed by Landlord as
they existed as of the commencement date of the Lease and shall not include
restoration of Tenant's trade fixtures, equipment, merchandise, or any
improvements, alterations or additions made by Tenant to the Premises, which
Tenant shall forthwith replace or fully repair at Tenant's sole cost and
expense provided this Lease is not cancelled according to the provisions above.
Unless this Lease is terminated pursuant to the foregoing provisions, this
Lease shall remain in full force and effect, Tenant hereby expressly waives the
provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of the
California Civil Code.
In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less than 33 1/3% of the replacement
cost thereof, Landlord may elect to terminate this Lease, whether the Premises
be insured or not. See Paragraph 49.
23. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the
Premises or any interest therein, by any owner of the reversion then
constituting Landlord, the transferor shall thereby be released from any further
liability upon any of the terms, convenants or conditions (express or implied)
herein contained in favor of Tenant, and in such event, insofar as such transfer
is concerned. Tenant agrees to look solely to the responsibility of the
successor in interest of such transferor in and to the Premises and this Lease.
This Lease shall not be affected by any such sale or conveyance, and Tenant
agrees to attorn to the successor in interest of such transferor.
24. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord
in the land and buildings in which the leased Premises are located (whether such
interest of Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by the lender or any
third party through judicial foreclosure or by exercise of a power of sale at
private trustee's foreclosure sale. Tenant hereby agrees to attorn to the
purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this Lease. In the event the lien of the deed of trust securing
the loan from a Lender to Landlord is prior and paramount to the Lease, this
Lease shall nonetheless continue in full force and effect for the remainder of
the unexpired term hereof, at the same rental herein reserved and upon all the
other terms, conditions and covenants herein contained.
25. HOLDING OVER Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the leased Premises except as expressly provided
in this Lease. Any holding over after the expiration or other termination of
the term of this Lease, with the consent of Landlord, shall be construed to be a
tenancy from month to month, on the same terms and conditions herein specified
insofar as applicable except that the monthly Basic Rent shall be increased to
an amount equal to one hundred twenty five (125%) percent of the monthly Basic
Rent required during the last month of the Lease term.
26. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten
(10) days prior written notice to Landlord execute, acknowledge and deliver to
Landlord 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 to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults, if any, are claimed. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrancer of the Premises.
Tenant's failure to deliver such statement within such time shall be conclusive
upon Tenant that this Lease is in full force and effect, without modification
except as may be represented by Landlord; that there are no uncured defaults in
Landlord's performance, and that not more than one month's Basic Rent has been
paid in advance.
27. CONSTRUCTION CHANGES It is understood that the description of the Premises
and the location of ductwork, plumbing and other facilities therein are subject
to such minor changes as Landlord or Landlord's architect determines to be
desirable in the course of construction of the Premises, and no such changes
shall affect this Lease or entitle Tenant to any reduction of rent hereunder or
result in any liability of Landlord to Tenant. Landlord does not guarantee the
accuracy of any drawings supplied to Tenant and verification of the accuracy of
such drawings rests with Tenant.
28. RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, required to be paid by
it hereunder or shall fail to perform any other term or covenant hereunder on
its part to be performed, and such failure shall continue for five (5) days
after written notice thereof by Landlord. Landlord, without waiving or releasing
Tenant from any obligation of Tenant hereunder, may, but shall not be obliged
to, make any such payment or perform any such other term or covenant on Tenant's
part to be performed. All sums so paid by Landlord and all necessary costs of
such performance by Landlord together with interest thereon at the rate of the
prime rate of interest per annum as quoted by the Bank of America from the date
of such payment on performance by Landlord, shall be paid (and Tenant covenants
to make such payment) to Landlord on demand by Landlord, and Landlord shall have
(in addition to any other right or remedy of Landlord) the same rights and
remedies in the event of nonpayment by Tenant as in the case of failure by
Tenant in the payment of rent hereunder.
29. ATTORNEYS' FEES
A. Subject to Paragraph 13, in the event that either Landlord or Tenant
should bring suit for the possession of the Premises, for the recovery of any
sum due under this Lease, or because of the breach of any provision of this
Lease, or for any other relief against the other party hereunder, then all costs
and expenses, including reasonable attorneys' fees.
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incurred by the prevailing party therein shall be paid by the other party,
which obligation on the part of the other party shall be deemed to have accrued
on the date of the commencement of such action and shall be enforceable whether
or not the action is prosecuted to judgment.
B. Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant
shall pay to Landlord its costs and expenses incurred in such suit, including a
reasonable attorney's fee.
30. WAIVER The waiver by either party of the other party's failure to perform
or observe any term, convenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a waiver of such term,
convenant or condition or of any subsequent failure of the party failing to
perform or observe the same or any other such term, convenant or condition
therein contained, and no custom or practice which may develop between the
parties hereto during the term hereof shall be deemed a waiver of, or in any way
affect, the right of either party to insist upon performance and observance by
the other party in strict accordance with the terms hereof.
31. NOTICES All notices, demands, requests, advices or designations which may
be or are required to be given by either party to the other hereunder shall be
in writing. All notices, demands, requests, advices or designations by Landlord
to Tenant shall be sufficiently given, made or delivered if personally served on
Tenant by leaving the same at the Premises of if sent by United Stated certified
or registered mail, postage prepaid, addressed to Tenant at the Premises. All
notices, demands, requests, advices or designations by Tenant to Landlord shall
be sent by United States certified or registered mail, postage prepaid,
addressed to Landlord at its offices at 457 East Evelyn Avenue, Sunnyvale, CA
94086. Each notice, request, demand, advice or designation referred to in this
paragraph shall be deemed received on the date of the personal service or
mailing thereof in the manner herein provided, as the case may be.
32. EXAMINATION OF LEASE Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its execution
and delivery by both Landlord and Tenant.
33. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails
to perform obligations required of Landlord within a reasonable time, but in no
event later than (30) days after written notice by Tenant to Landlord and to the
holder of any first mortgage or deed of trust covering the Premises whose name
and address shall have heretofore been furnished to Tenant in writing,
specifying wherein Landlord has failed to perform such obligations; provided,
however, that if the nature of Landlord's obligations is such that more than
(30) days are reasonably required for performance, then Landlord shall not be in
default if Landlord commences performance within such (30) day period and
thereafter diligently prosecutes the same to completion.
34. CORPORATE AUTHORITY If Tenant is a corporation (or a partnership), each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of said corporation (or partnership) in accordance with the
by-laws of said corporation (or partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation (or
partnership) in accordance with its terms. If Tenant is a corporation, Tenant
shall, within (30) days after execution of this Lease, deliver to Landlord a
certified copy of the resolution of the Board of Directors of said corporation
authorizing or ratifying the execution of this Lease.
36. LIMITATION OF LIABILITY In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns convenant and agree that, in
the event of any actual or alleged failure, breach or default hereunder by
Landlord;
(a) the sole and exclusive remedy shall be against Landlord and
Landlord's assets;
(b) no partner of Landlord shall be sued or named as a party in any
suit or action (except as may be necessary to secure jurisdiction of the
partnership);
(c) no service of process shall be made against any partner of
Landlord (except as may be necessary to secure jurisdiction of the partnership);
(d) no partner of Landlord shall be required to answer or otherwise
plead to any service of process;
(e) no judgement will be taken against any partner of Landlord;
(f) any judgement taken against any partner of Landlord may be vacated
and set aside at any time without hearing;
(g) no writ of execution will ever by levied against the assets of any
partner of Landlord;
(h) these convenants and agreements are enforceable both by Landlord
and also by any partner of Landlord.
Tenant agrees that each of the foregoing convenants and agreements shall be
applicable to any convenant or agreement either expressly contained in this
Lease or imposed by statute or at common law.
37. SIGNS No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written consent
of Landlord first had and obtained and Landlord shall have the right to remove
any such sign, placard, picture, advertisement, name or notice without notice to
and at the expense of Tenant. If Tenant is allowed to print or affix or in any
way place a sign in, on, or about the Premises, upon expiration or other sooner
termination of this Lease, Tenant at Tenant's sole cost and expense shall both
remove such sign and repair all damage in such a manner as to restore all
aspects of the appearance of the Premises to the condition prior to the
placement of said sign.
All approved signs or lettering on outside doors shall be printed, painted
affixed or inscribed at the expense of Tenant by a person approved of by
Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall which may appear unsightly from
outside the Premises.
38. MISCELLANEOUS AND GENERAL PROVISIONS
A. Use of Building Name. Tenant shall not, without the written consent of
Landlord, use the name of the building for any purpose other than as the address
of the business conducted by Tenant in the Premises.
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B. Choice of Law; Severability. This Lease shall in all respects be governed by
and construed in accordance with the laws of the State of California. If any
provision of this Lease shall be invalid, unenforceable or ineffective for any
reason whatsoever, all other provisions hereof shall be and remain in full force
and effect.
C. Definition of Terms. The term "Premises" includes the space leased hereby
and any improvements now or hereafter installed therein or attached thereto. The
term "Landlord" or any pronoun used in place thereof includes the plural as well
as the singular and the successors and assigns of Landlord. The term "Tenant" or
any pronoun used in place thereof includes the plural as well as the singular
and individuals, firms, associations, partnerships and corporations, and their
and each of their respective heirs, executors, administrators, successors and
permitted assigns according to the context hereof, and the provisions of this
Lease shall inure to the benefit of and bind such heirs, executors,
administrators, successors and permitted assigns.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used in
any gender include other genders. If there be more than one Tenant the
obligations of Tenant hereunder are joint and several. The paragraph headings of
this Lease are for convenance of reference only and shall have no effect upon
the construction or interpretation of any provision hereof.
D. Time of Essence. Time is of the essence of this Lease and of each and all of
its provisions.
E. Quitclaim. At the expiration or earlier termination of this Lease, Tenant
shall execute, acknowledge and deliver to Landlord, within ten (10) days after
written demand from Landlord and Tenant, any quitclaim deed or other document
required by any reputable title company, licensed to operate in the State of
California, to remove the cloud or encumbrance created by this Lease from the
real property of which Tenant's Premises are a part.
F. Incorporation of Prior Agreements; Amendments. This instrument along with
any exhibits and attachments hereto constitutes the entire agreement between
Landlord and Tenant relative to the Premises and this agreement and the exhibits
and attachments may be altered, amended or revoked only by an instrument in
writing signed by both Landlord and Tenant. Landlord and Tenant agree hereby
that and error or contemporaneous oral agreements between and among themselves
and their agents or representatives relative to the leasing of the Premises are
merged in or revoked by this agreement.
G. Recording. Neither Landlord nor Tenant shall record this Lease or a short
form memorandum hereof without the consent of the other.
H. Amendments for Financing. Tenant further agrees to execute any amendments
required by a lender to enable Landlord to obtain financing, so long as Tenant's
rights hereunder are not substantially affected.
I. Additional Paragraphs. Paragraphs 39 through 50 are added hereto and are
included as a part of this lease.
J. Clauses, Plats and Riders. Clauses, plats and riders, if any, signed by
Landlord and Tenant and endorsed on or affixed to this Lease are a part hereof.
K. Diminution of Light, Air or View. Tenant covenants and agrees that no
diminution or shutting off of light, air or view by any structure which may be
hereafter erected (whether or not by Landlord) shall in any way affect his
Lease, entitle Tenant to any reduction of rent hereunder or result in any
liability of Landlord to Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Lease
as of the day and year last written below.
LANDLORD: TENANT:
GOLDEN GATE COMMERCIAL COMPANY BEST INTERNET COMMUNICATIONS, INC.,
a California Limited Partnership a California corporation
By /s/ Mark C. Davis By /s/ Michael Schwartz
--------------------------------- -----------------------------------
Mark C. Davis, General Partner
Dated: 5/18/95 Title President and Chairman
----------------------------- -------------------------------
By /s/ Michael R. Brand Type or Print Name Michael Schwartz
-------------------------------- ------------------
Michael R. Brand, General Partner
Dated: 5/19/95 Dated: 5/18/95
----------------------------- -------------------------------
Landlord represents the parties signing this Lease are authorized to do so on
behalf of Golden Gate Commercial Company.
Initials: /s/ MS
-----------------------------
Initials: /s/ MCD MRB
-----------------------------
PAGE 8 OF 8
<PAGE>
Paragraphs 39 through 50 to Lease Agreement Dated May 3, 1995, By and Between
Golden Gate Commerical Company, as Landlord, and BEST INTERNET COMMUNICATIONS,
INC., a California corporation, as Tenant for 15.850+ Square Feet of Space
-
Located at 345 E. Middlefield Road, Mountain View, California.
39. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate
----------
sum of ONE MILLION TWO HUNDRED FORTY SEVEN THOUSAND THREE HUNDRED EIGHTY FIVE
AND NO/100 DOLLARS ($1,247,385.00), shall be payable as follows:
On June 1, 1995, the sum of SIX THOUSAND EIGHT HUNDRED AND NO/100
DOLLARS ($6,800.00) shall be due, and a like sum due on the first day of each
month thereafter through and including February 1, 1996.
On March 1, 1996, the sum of EIGHT THOUSAND FIVE HUNDRED AND NO/100 DOLLARS
($8,500.00) shall be due, and a like sum due on the first day of each month
thereafter, through and including May 1, 1996.
On June 1, 1996, the sum of ELEVEN THOUSAND TWO HUNDRED FIFTY AND NO/100
DOLLARS ($11,250.00) shall be due, and a like sum due on the first day of each
month thereafter, through and including August 1, 1996.
On September 1, 1996, the sum of FOURTEEN THOUSAND TWO HUNDRED SIXTY FIVE
AND NO/100 DOLLARS ($14,265.00) shall be due, and a like sum due on the first
day of each month thereafter, through and including May 1, 1997.
On June 1, 1997, the sum of FIFTEEN THOUSAND FIFTY SEVEN AND 50/100 DOLLARS
($15,057.50) shall be due, and a like sum due on the first day of each month
thereafter, through and including May 1, 1998.
On June 1, 1998, the sum of FIFTEEN THOUSAND EIGHT HUNDRED FIFTY AND NO/100
DOLLARS ($15,850.00) shall be due, and a like sum on the first day of each month
thereafter, through and including May 1, 1999.
On June 1, 1999, the sum of SIXTEEN THOUSAND SIX HUNDRED FORTY TWO AND
50/100 DOLLARS ($16,642.50) shall be due, and a like sum due on the first day of
each month thereafter, through and including May 1, 2000.
On June 1, 2000, the sum of SEVENTEEN THOUSAND FOUR HUNDRED THIRTY FIVE AND
NO/100 DOLLARS ($17,435.00) shall be due, and a like sum due on the first day of
each month thereafter, through and including May 1, 2001.
On June 1, 2001, the sum of EIGHTEEN THOUSAND TWO HUNDRED TWENTY SEVEN AND
50/100 DOLLARS ($18,227.50) shall be due, and a like sum due on the first day of
each month thereafter, through and including May 1, 2002; or until the entire
aggregate sum of ONE MILLION TWO HUNDRED FORTY SEVEN THOUSAND THREE HUNDRED
EIGHTY FIVE AND NO/100 DOLLARS ($1,247,385.00) has been paid.
40. EARLY ENTRY: Notwithstanding anything to the contrary in Paragraphs 2B and
-----------
2C, Tenant and its agents and contractors shall be permitted to enter the
Premises prior to the Commencement Date for the purpose of installing at
Tenant's sole cost and expense, Tenant's trade fixtures and equipment, telephone
equipment, security systems and cabling for computers. Such entry shall be
subject to all of the terms and conditions of this Lease, except that Tenant
shall not be required to pay any Rent on account thereof. Any entry or
installation work by Tenant and its agents in the Premises pursuant to this
Paragraph 40 shall (i) be undertaken at Tenant's sole risk, (ii) not interfere
---------
with or delay Landlord's work in the Premises (if any), and (iii) not be deemed
occupancy or possession of the Premises for purposes of the Lease. Tenant shall
indemnify, defend, and hold Landlord harmless from any and all loss, damage,
liability, expense (including reasonable attorney's fees), claim or demand of
whatsoever character, direct or consequential, including, but without limiting
thereby the generality of the foregoing, injury to or death of persons and
damage to or loss of property arising out of the exercise by Tenant of any early
entry right granted hereunder. In the event Tenant's work in said Premises
delays the completion of the interior improvements to be provided by Landlord,
if any, or in the event Tenant has not completed construction of it's interior
improvements by the scheduled
Page 9
Initial: /s/ MS MCD MRB
---------------------
<PAGE>
Commencement Date, it is agreed between the parties that this Lease will
commence on the scheduled Commencement Date of June 1, 1995 regardless of the
construction status of said interior improvements completed or to be completed
by Tenant or Landlord.
41. "AS-IS" BASIS: Subject only to the terms of Paragraphs 45, 48 and 50 below
------------
and to Landlord making the improvements shown on Exhibit B to be attached
---------
hereto, it is hereby agreed that the Premises leased hereunder is leased
strictly on an "as-is" basis and in its present condition, and in the
configuration as shown on Exhibit B to be attached hereto, and by reference made
---------
a part hereof. It is specifically agreed between the parties that after Landlord
makes the interior improvements as shown on Exhibit B, Landlord shall not be
---------
required to make, nor be responsible for any cost, in connection with any
repair, restoration, and/or improvement to the Premises in order for this Lease
to commence, or thereafter, throughout the Term of this Lease (except as noted
in Paragraphs 45, 48 and 50 below). Landlord makes no warranty or representation
of any kind or nature whatsoever as to the condition or repair of the Premises,
nor as to the use or occupancy which may be made thereof.
42. CONSENT: Whenever the consent of one party to the other is required
-------
hereunder, such consent shall not be unreasonably withheld.
43. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to
-------------------
the existence or use of "Hazardous Materials" (as defined herein) on, in, under
or about the Premises and real property located beneath said Premises
(hereinafter collectively referred to as the "Property"):
As used herein, the term "Hazardous Materials" shall mean any hazardous or toxic
substance, material or waste which is or becomes subject to or regulated by any
local governmental authority, the State of California, or the United States
Government. The term "Hazardous Materials" includes, without limitation any
material or hazardous substance which is (i) listed under Article 9 or defined
as "hazardous" or "extremely hazardous" pursuant to Article 11 of Title 22 of
the California Administrative Code, Division 4, Chapter 30, (ii) listed or
defined as a "hazardous waste" pursuant to the Federal Resource Conservation and
Recovery Act, Section 42 U.S.C. Section 6901 et. seq., (iii) listed or defined
as a "hazardous substance" pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et. seq. (42 U.S.C.
Section 9601), (iv) petroleum or any derivative of petroleum, or (v) asbestos.
Subject to the terms of this Paragraph 43, Tenant shall have no obligation to
"clean up", reimburse, release, indemnify, or defend Landlord with respect to
any Hazardous Materials or wastes which Tenant (prior to and during the term of
the Lease) or other parties on the Property, (during the term of this Lease) did
not store, dispose, or transport in, use, or cause to be on the Property in
violation of applicable law.
Tenant shall be 100 percent liable and responsible for, (i) any and all
"investigation and cleanup" of said Hazardous Materials contamination which
Tenant, its agents, employees, contractors, invitees or its future subtenants
and/or assignees (if any), or other parties on the Property, does store,
dispose, or transport in, use or cause to be on the Property, and (ii) any
claims, including third party claims, resulting from such Hazardous Materials
contamination. Tenant shall indemnify Landlord and hold Landlord harmless from
any liabilities, demands, cost, expenses and damages, including, without
limitation, attorney fees incurred as a result of any claims resulting from such
Hazardous Materials contamination.
Subject to the entire provisions of this paragraph 43, and provided Tenant, its
agents, employees, contractors, invitees or its future subtenants and/or
assignees (if any), does not store, dispose, or transport in, use, or cause to
be on or about the Property or the real property on which the Property is
located (during the Term of this Lease) any form of Hazardous Materials (except
for standard office products that are used and disposed of in accordance with
applicable ordinances, rules and/or regulations), Landlord agrees to be 100
percent liable and responsible for, and shall indemnify Tenant from the cost of
Hazardous Materials claims from third parties not related to Tenant and for the
clean up of any Hazardous Materials contamination not related to Tenant (and not
caused by Tenant or Tenant's activities prior to, during and after Tenant's
occupancy of said property), or which Tenant's agents, employees, contractors,
invitees or its future subtenants and/or assignees (if any), does not store,
dispose, or transport in, use, or cause to be on or about the Property or the
real Property on which the property is located (during the
Page 10 INITIAL: /s/ MS
-------------
/s/ MCD MRB
-------------
<PAGE>
Term of this Lease), provided however, Landlord will not be responsible for any
disruption to Tenant's business as a result of any such cleanup.
Tenant also agrees not to use or dispose of any Hazardous Materials on the
Property without first obtaining Landlord's written consent. Tenant agrees to
complete compliance with governmental regulations regarding the use or removal
or remediation of Hazardous Materials used, stored, disposed of, transported or
caused to be on the Property as stated above, and prior to the termination of
said Lease Tenant agrees to follow the proper closure procedures and will obtain
a clearance from the local fire department and/or the appropriate governing
agency. If Tenant uses Hazardous Materials, Tenant also agrees to install, at
Tenant's expense, such Hazardous Materials monitoring devices as Landlord deems
reasonably necessary. It is agreed that the Tenant's responsibilities related to
Hazardous Materials will survive the termination date of the Lease and that
Landlord may obtain specific performance of Tenant's responsibilities under this
Paragraph 43.
44. ALTERATIONS MADE BY TENANT: The provisions of this Paragraph 44 shall
--------------------------
modify Paragraphs 8 and 9 of the Lease, as follows:
At all times during the Term of this Lease, Tenant shall have the right to
install and remove trade fixtures which are installed and paid for by Tenant, so
long as Tenant immediately repairs all damage caused by the installation thereof
and returns the Premises to the condition existing prior to the installation of
such trade fixtures and repairs and restores any so-called "donuts" or gaps in
the roof and/or floor (including floor structure, subfloor and appropriate floor
covering for said area) and/or floor tiles and/or ceiling tiles and lighting
resulting from the removal of said trade fixtures.
45. MAINTENANCE OF THE PREMISES:
---------------------------
A. Maintenance. In addition to, and notwithstanding anything to the
-----------
contrary in Paragraph 7, Landlord shall maintain the structural shell,
foundation, and roof structure (but not the interior improvements, roof
membrane, or glazing) of the building leased hereunder at Landlord's cost and
expense provided Tenant has not caused such damage, in which event Tenant shall
be responsible for 100 percent of any such costs for repair or damage so caused
by the Tenant. Notwithstanding the foregoing, a crack in the foundation, or
exterior walls that does not endanger the structural integrity of the building,
or which is not life-threatening, shall not be considered material, nor shall
Landlord be responsible for repair of same.
B. Replacement of HVAC And/Or Roof Membrane: Nothwithstanding anything to
----------------------------------------
the contrary in Paragraph 7 or Paragraph 45A, in the event the HVAC system
and/or the entire roof membrane has to be replaced during the Lease Term, Tenant
shall not be responsible for the cost to replace said HVAC system and/or entire
roof membrane, provided Tenant has not caused such damage, in which event Tenant
shall be responsible for one hundred percent (100%) of any such costs to replace
the HVAC system and/or entire roof membrane so caused by Tenant. If the HVAC
system and/or the entire roof membrane is replaced during the Lease Term
pursuant to this Paragraph 45B, Tenant shall be responsible for one hundred
percent (100%) of the cost of any subsequent replacement (of the item or items
previously replaced by Landlord) throughout the remaining Term of the Lease.
C. Repairs to the Parking Lot. Notwithstanding anything to the contrary
--------------------------
in Paragraph 7, within the first three (3) months of the Lease Term, Landlord
shall, at its expense, have: (i) any necessary repairs, as reasonably determined
by Landlord, made to the asphalt parking lot, (ii) the parking lot resealed, and
(iii) the parking lot restriped to the same configuration that currently exists
in the parking lot. Tenant shall be one hundred percent (100%) responsible for
the maintenance, repairs, sealing and restriping thereafter, throughout the Term
of the Lease.
46. ASSIGNMENT AND SUBLETTING CONTINUED: In addition to and notwithstanding
-----------------------------------
anything to the contrary in Paragraph 16 of this Lease, Tenant shall be entitled
to assign or sublet without Landlord's consent (but shall still give Landlord
notice thereof) to: (i) any parent or subsidiary corporation, or corporation
with which Tenant merges or consolidates, or (ii) any third party or entity to
whom Tenant sells all or substantially all of its assets; provided, that the net
worth of the resulting or acquiring corporation has a net worth after the
merger, consolidation or acquisition equal to or greater than the net worth of
Tenant at the time
Page 11 Initial: /s/ MS
----------------------------
/s/ MCD MRB
----------------------------
<PAGE>
of such merger, consolidation or acquisition. No such assignment or subletting
will release the Tenant from its liability and responsibility under this Lease
to the extent Tenant continues in existence following such transaction.
47. FIRST RIGHT OF REFUSAL: Provided Tenant is not in default (pursuant to
----------------------
Paragraph 19 of the Lease. i.e., Tenant has received notice and any applicable
-----
cure period has expired without cure) of any of the terms, covenants, and
conditions of this Lease Agreement, Tenant, during the Term of this Lease and
subject to the provisions hereinafter contained, shall have a First Right of
Refusal to lease approximately 14,400 square feet of space in the configuration
as shown in Blue on the attached Exhibit C, consisting of the building located
---------
at 335 E. Middlefield Road, Mountain View, which building is adjacent to the
building Leased hereunder (hereinafter referred to as ("First Right Space") upon
the following terms and conditions:
A. It is understood that said First Right Space, as of the date of this
Lease, is leased to Sysorex International ("Sysorex"). Landlord agrees that in
the event said First Right Space is vacated by Sysorex, or any successor in
interest to the Sysorex lease (and/or said First Right Space becomes available
for lease to a third party), Landlord shall, prior to executing a lease
agreement with a third party for said First Right Space, offer said First Right
Space to Tenant and advise Tenant of the Basic Rental on the First Right Space
required for said First Right Space (notwithstanding anything to the contrary,
in no event shall Tenant's Basic Rent be less than the Basic Rent scheduled
under this Lease), with all other terms, covenants, and conditions between
Landlord and Tenant, as outlined in this Lease Agreement dated May 3, 1995,
remaining in full force and effect. Tenant shall have five (5) business days
after receipt of said notice from Landlord, of Landlord's opportunity in which
to lease said space to a third party, to accept said Rental and terms and
conditions in writing. In the event Tenant rejects or fails to accept said
Rental and terms and conditions and fails to execute lease documentation for
said First Right Space at the Rental so presented by Landlord within said five
(5) business day period, Tenant shall no further First Right of Refusal and
Landlord shall be free to execute a Lease with a third party without further
obligation to Tenant with respect to said First Right Space, and this Lease
Agreement shall continue in full force and effect for the full remaining term
hereof, absent of this Paragraph 47.
B. The First Right of Refusal of Tenant under this Paragraph 47 is granted
for Tenant's personal benefit and may not be assigned or transferred by Tenant,
except to a parent corporation, subsidiary corporation, or corporation with
which Tenant merges or consolidates or to whom Tenant sells all or
substantially all of its assets as provided for in Paragraph 46. In the event
that Landlord consents to a sublease or assignment under Paragraph 16 for twenty
five percent (25%) or more of the Leased Premises, the First Right granted
herein shall be void and of no force and effect, whether or not Tenant shall
have purported to exercise such First Right option prior to such assignment or
sublease, except an assignment or sublease to a parent corporation, subsidiary
corporation, or corporation with which Tenant merges or consolidates or to whom
Tenant sells all or substantially all of its assets.
48. PUNCH LIST: In addition to and notwithstanding anything to the contrary in
----------
Paragraphs 8 and 41 of this Lease, Tenant shall have sixty (60) days after the
Commencement Date to provide Landlord with a written "punch list" pertaining to
defects in the Building and in the interior improvements constructed by Landlord
for Tenant. Landlord shall have sixty (60) days thereafter (or longer if
necessary, provided Landlord is diligently pursuing the completion of the same)
to complete the "punch list" items without the Commencement Date of the Lease
and Tenant's obligation to pay Rental thereunder being affected. Notwithstanding
the foregoing, a crack in the foundation, or exterior walls that does not
endanger the structural integrity of the building, or which is not life-
threatening, shall not be considered material, nor shall Landlord be responsible
for repair of same. This Paragraph shall be of no force and effect if Tenant
shall fail to give any such notice to Landlord within sixty (60) days after the
Lease Commencement Date.
49. EMINENT DOMAIN: If all or any part of the Premises shall be taken by any
--------------
public or quasi-public authority under the power of eminent domain or conveyance
in lieu thereof, this Lease shall terminate as to any portion of the Premises so
taken or conveyed on the date when title vests in the condemnor, and Landlord
shall be entitled to any and all payment, income, rent, award, or any interest
therein whatsoever which may be paid or made in connection with such taking or
conveyance, and Tenant shall have no claim against Landlord or otherwise for
Page 12 Initial: /s/ MS
----------------------------
/s/ MCD MRB
----------------------------
<PAGE>
the value of any unexpired Term of this Lease. Notwithstanding the foregoing
sentence, any compensation specifically awarded Tenant for loss of business,
Tenant's personal property, moving cost or loss of goodwill, shall be and remain
the property of Tenant.
If any action or proceeding is commenced for such taking of the Premises or
any part thereof, or if Landlord is advised in writing by any entity or body
having the right or power of condemnation of its intention to condemn the
Premises or any portion thereof, Landlord shall notify Tenant in writing of such
condemnation and/or taking within sixty (60) days of receipt of said notice,
and Landlord shall have the right to terminate this Lease by giving Tenant
written notice thereof within sixty (60) days of the date of receipt of said
written advice, or commencement of said action or proceeding, or taking
conveyance, which termination shall take place as of the first to occur of sixty
(60) days following Landlord's notice to Tenant or the date on which title to
the Premises shall vest in the condemnor.
In the event of such a partial taking or conveyance of the Premises, if the
portion of the Premises taken or conveyed is so substantial that the Tenant can
no longer reasonably conduct its business, Tenant shall have the privilege of
terminating this Lease within thirty (30) days from the date it receives notice
from Landlord of such taking by giving written notice to Landlord of its
intention so to do, and this Lease shall terminate on the day immediately prior
to the conveyance of the Premises so taken.
If a portion of the Premises be taken by condemnation or conveyance in lieu
thereof and neither Landlord nor Tenant shall terminate this Lease as provided
herein, this Lease shall continue in full force and effect as to the part of the
Premises not so taken or conveyed, and the Rent herein shall be apportioned as
of the date of such taking or conveyance so that thereafter the Rent to be paid
by Tenant shall be in the ratio that the area of the portion of the Premises not
so taken or conveyed bears to the total area of the Premises prior to such
taking.
50. COMPLIANCE CONTINUED: Any non-conformance of the improvements installed and
--------------------
paid for by Landlord as set forth on Exhibit B, required to be corrected by the
---------
governing agency, shall be corrected at the cost and expense of Landlord if
such non-conformance exists as of the Commencement Date of the Lease and further
provided that such governing agency's requirement to correct the non-conformance
is not initiated as a result of: (i) any future improvements made by or for
Tenant: or (ii) any permit request made to a governing agency by or for Tenant.
Any non-conformance of the Premises occurring after the Commencement Date of
this Lease Agreement shall be the responsibility of Tenant to correct at
Tenant's cost and expense.
Page 13 Initial: /s/ MS
----------------------------
/s/ MCD MRB
<PAGE>
EXHIBIT 10.16
Lease
between
Blue Lake, Ltd.
and
HIWAY TECHNOLOGIES, INC.
Dated September 23, 1997
<PAGE>
INDEX TO
BLUE LAKE CORPORATE CENTER
STANDARD LEASE
<TABLE>
<CAPTION>
LEASE Page No.
--------
<S> <C>
BASIC LEASE INFORMATION RIDER ....................................................................... I
1. PREMISES; BUILDING; AND COMMON AREAS............................................................ 1
2. LEASE TERM; LEASE DATE.......................................................................... 1
3. RENT............................................................................................ 1
4. SECURITY DEPOSIT; SECURITY INTEREST............................................................. 3
5. USE............................................................................................. 4
6. ACCEPTANCE OF PREMISES; LANDLORD'S WORK......................................................... 4
7. PARKING......................................................................................... 5
8. BUILDING SERVICES............................................................................... 5
10. REPAIRS, MAINTENANCE AND UTILITIES.............................................................. 7
11. TENANT'S ALTERATIONS............................................................................ 8
12. LANDLORD'S ADDITIONS AND ALTERATIONS............................................................ 8
13. ASSIGNMENT AND SUBLETTING....................................................................... 9
14. TENANT'S INSURANCE COVERAGE..................................................................... 10
15. LANDLORD'S INSURANCE COVERAGE................................................................... 10
16. WAIVER OF RIGHT OF RECOVERY..................................................................... 11
17. DAMAGE OR DESTRUCTION BY CASUALTY............................................................... 11
18. CONDEMNATION AND EMINENT DOMAIN................................................................. 11
19. LIMITATION OF LANDLORD'S LIABILITY; INDEMNIFICATION............................................. 12
20. RELOCATION OF TENANT............................................................................ 12
21. COMPLIANCE WITH LAWS AND PROCEDURES............................................................. 12
22. RIGHT OF ENTRY.................................................................................. 13
23. DEFAULT......................................................................................... 13
24. LANDLORD'S REMEDIES FOR TENANT'S DEFAULT........................................................ 14
25. LANDLORD'S RIGHT TO PERFORM FOR TENANT'S ACCOUNT................................................ 14
26. LIENS........................................................................................... 14
27. NOTICES......................................................................................... 14
28. MORTGAGE; ESTOPPEL CERTIFICATE; SUBORDINATION .................................................. 14
29. ATTORNMENT AND MORTGAGEE'S REQUEST.............................................................. 15
30. TRANSFER BY LANDLORD............................................................................ 15
31. SURRENDER OF PREMISES; HOLDING OVER............................................................. 15
32. NO WAIVER; CUMULATIVE REMEDIES.................................................................. 16
33. WAIVER.......................................................................................... 16
34. CONSENTS AND APPROVALS.......................................................................... 16
35. RULES AND REGULATIONS........................................................................... 16
36. SUCCESSORS AND ASSIGNS.......................................................................... 16
37. QUIET ENJOYMENT................................................................................. 16
38. ENTIRE AGREEMENT................................................................................ 17
39. HAZARDOUS MATERIALS............................................................................. 17
40. BANKRUPTCY PROVISIONS........................................................................... 18
41. FIRE PREVENTION SYSTEMS......................................................................... 19
42. MISCELLANEOUS................................................................................... 19
43. DELIVERY OF GUARANTY............................................................................ 20
44. CONFIDENTIALITY................................................................................. 20
45. SIGNAGE/ENTRY WAY FEATURE....................................................................... 21
46. CARPOOLING, MASS TRANSIT AND TRAFFIC CONTROL.................................................... 21
47. UTILITY PROVIDERS............................................................................... 21
48. ASSOCIATION..................................................................................... 21
49. VENDING MACHINES................................................................................ 21
</TABLE>
<PAGE>
EXHIBIT(S)
Exhibit "A" Floor Plan
Exhibit "B" Work Letter
Exhibit "C" Rules and Regulations
<PAGE>
Basic Lease Information Rider
Blue Lake Corporate Center
Standard Lease
PREAMBLE Date of Lease: September 23, 1997
PREAMBLE Landlord: BLUE LAKE, LTD., a Florida limited partnership.
PREAMBLE Tenant: HIWAY TECHNOLOGIES, INC., a Florida corporation. Landlord
acknowledges that Rapidsite, Inc., a Florida corporation, which is a
wholly owned subsidiary of the Tenant, will occupy the Premises with
Tenant.
SECTION 1 Premises: _____________________________________, being a portion of
Northeast Quadrant of Building 12, as shown on EXHIBIT "A", of Blue
Lake Corporate Center, 1000 Yamato Road, Boca Raton, Florida 33431.
SECTION 1 Net Rentable Area of Premises: approximately 44,000 usable square
feet, multiplied by an add-on factor of fifteen (15%) percent, which
equates, prior to possible subsequent enlargement of the usable
square footage as hereinafter provided, to approximately 50,600
rentable square feet. The Net Rentable Area set forth above is
stipulated and agreed by the parties; provided, however, that within
ten (10) days after substantial completion of the Improvements to
the Premises, either Landlord or Tenant shall be entitled to have
the Premises measured in accordance with BOMA Standards (ANSI Z65.1-
1996). Following such measurement, if it is determined that in fact
the Premises contain other than the Net Rentable Area set forth
above, Base Rent, Tenant's Share, and any other provision which is
based on the amount of square footage leased by Tenant shall be
ratably modified. The Net Rentable Area of the Premises leased by
the Tenant shall be hereinafter enlarged, as applicable, to include
the square footage of restrooms, electrical and mechanical rooms and
space on which the Tenant places generators and fuel tanks or to
which Tenant has been granted exclusive use, all as further
identified and reflected on Exhibit "A" attached hereto which is
subject to further modification in the event additional square
footage is allocated to Tenant. In the event that additional square
footage is allocated to Tenant, such square footage shall be
multiplied by the add-on factor of 15% in each instance. The parties
hereto agree to execute an Addendum reflecting any increase in the
usable square footage of the Premises for Tenant's utilization of
restrooms, mechanical rooms, electrical rooms and generator space.
SECTION 2 Commencement Date: The Commencement Date of this Lease shall be the
date of execution date of this Lease. Upon execution of this Lease
and all addenda thereto, and the delivery of appropriate lien
waivers and insurance certificates by Landlord and Tenant, Tenant
shall be provided access to the Premises by Landlord in order to
prepare the Premises for their use as provided hereunder. However,
the Tenant's obligation to make rent payments shall initiate on
February 1, 1998 which is, from time-to-time hereinafter referred to
as the "Rent Commencement Date." The delivery of the Premises to the
Tenant prior to February 1, 1998 shall not, however, constitute a
change of the Rent Commencement Date of February 1, 1998. In
addition, Landlord will be provided such access as needed for
purposes of erecting demising walls and installation of separate
meters.
SECTION 2 Expiration Date: Seven (7) years following the Rent Commencement
Date of February 1, 1998; being January 31, 2005.
SECTION 2 Lease Term: Seven (7) years
SECTION 3 Base Rent in the First Lease Year shall be Seven and No/100ths
Dollars ($7.00) per square foot of Rentable Area or Three Hundred
Fifty Four Thousand Two Hundred and 00/100 Dollars ($354,200.00) per
annum (based upon the stipulated approximate Rentable Area set forth
above, subject; however, to adjustment in the instance of a change
in the Rentable Square Footage as provided in Section 1 above) per
year, payable monthly, in advance, without deduction or offset, on
the first day of each calendar month together with applicable sales
tax and applicable local taxes, in equal installments of Twenty Nine
Thousand Five Hundred Sixteen and 66/100ths Dollars ($29,516.66)
(subject, however, to adjustment in the instance of a change in the
Rentable Square Footage as provided in Section 1 above) each
together with applicable sales tax and applicable local taxes,
beginning on the Commencement Date, EXCEPT THAT SO LONG AS TENANT
FULLY COMPLIES WITH ALL TERMS OF THIS LEASE FOR THE ENTIRE TERM
THEREOF, LANDLORD WILL DEFER AND THEN WAIVE BASE RENT FOR THE PERIOD
OF TWELVE (12) MONTHS FROM THE COMMENCEMENT DATE ("RENT DEFERRAL").
Notwithstanding the foregoing, the first payment of Base Rent due
hereunder shall be paid by Tenant on the earliest date on which this
Lease has been signed by Landlord and Tenant. Each year commencing
on the Commencement Date (or commencing on the first day of the
first month following the Commencement Date if the Commencement Date
is other than the first day of the month, in which event the First
Lease Year shall include the period between the Commencement Date
and the first month thereafter) or anniversary thereof is hereafter
referred to as a "Lease Year."
Base Year Overhead Rent shall be Four and 50/100ths Dollars ($4.50)
per square foot of Rentable Area or Two Hundred Twenty Seven
Thousand Seven Hundred and 00/100ths Dollars ($227,700.00) per annum
(based upon the stipulated approximate Rentable Area set forth
above, subject, however, to adjustment in the instance of a change
in the rentable square footage as provided in Section 1 above) per
year, payable monthly, in advance, without deduction or offset, on
the first day of each calendar month together with applicable sales
tax and applicable local taxes, in equal installments of Eighteen
Thousand Nine Hundred Seventy Five and
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BLUE LAKE STANDARD LEASE
<PAGE>
No/100ths Dollars ($18,975.00), subject, however, to adjustment in
the instance of a change in the Rentable Square Footage as provided
in Section 1 above, each together with applicable sales tax and
applicable local taxes, beginning on the Commencement Date.
Increases in "Controllable" Operating Expenses are subject to year-
to-year maximum increases as more specifically provided in Paragraph
3B of this Lease. However, notwithstanding the foregoing, provided
that so long as Tenant fully complies with all terms of this Lease
for the entire Term thereof, Landlord will defer and then waive Base
Overhead Rent in months one (1) through twenty-four (24), inclusive,
as to 10,350 Rentable Square Feet and Base Overhead Rent shall, in
months one (1) through twenty-four (24), be paid only on 40,250,
subject, however, to adjustment in the instance of a change in the
Rentable Square Footage as provided in Section 1 above, Rentable
Square Feet or One Hundred Eighty One Thousand One Hundred Twenty
Five and 00/100ths Dollars ($181,125.00) per annum, subject,
however, to adjustment in the instance of a change in the Rentable
Square Footage as provided in Section 1 above, payable monthly, in
advance without deduction or offset, on the first day of each
calendar month together with applicable sales tax and applicable
local taxes, in equal installments of Fifteen Thousand Ninety Three
and 75/100ths Dollars ($15,093.75), subject, however, to adjustment
in the instance of a change in the Rentable Square Footage as
provided in Section 1 above, each together with applicable sales tax
and applicable local taxes, beginning on the first day of the First
Lease Year.
Base Year Rent in the Second Lease Year shall be Seven and No/100ths
Dollars ($7.00) per square foot of Rentable Area or Three Hundred
Fifty Four Thousand Two Hundred and 00/100 Dollars ($354,200.00) per
annum (based upon the approximated Rentable Area set forth above,
subject, however, to adjustment in the instance of a change in the
Rentable Square Footage as provided in Section 1 above ) per year,
payable monthly, in advance, without deduction or offset, on the
first day of each calendar month together with applicable sales tax
and applicable local taxes, in equal installments of Twenty Nine
Thousand Five Hundred Sixteen and 66/100ths Dollars ($29,516.66),
subject, however, to adjustment in the instance of a change in the
Rentable Square Footage as provided in Section 1 above, each
together with applicable sales tax and applicable local taxes,
beginning on the first day of the Second Lease Year. However,
notwithstanding the foregoing, provided that so long as Tenant fully
complies with all terms of this Lease for the entire Term hereof,
Landlord will defer and then waive Base Rent during the Second Lease
Year as to 15,600 Rentable Square Feet, and Base Rent shall be
applied against only 35,000 Rentable Square Feet, subject, however,
to adjustment in the instance of a change in the Rentable Square
Footage as provided in Section 1 above, so as to provide that in the
Second Lease Year, based upon the foregoing accommodation, the
annual Base Rent during the Second Lease Year shall be the sum of
Two Hundred Forty Five Thousand and No/100ths Dollars ($245,000.00)
per year payable monthly in advance, without deduction or offset,
subject, however, to adjustment in the instance of a change in the
Rentable Square Footage as provided in Section 1 above, on the first
day of each calendar month together with applicable sales tax and
applicable local taxes, in equal installments of Twenty Thousand
Four Hundred Sixteen and 66/100ths Dollars ($20,416.66), subject,
however, to adjustment in the instance of a change in the Rentable
Square Footage as provided in Section 1 above, each together with
applicable sales tax and applicable local taxes, beginning on the
Second Lease Year.
Base Rent in the Third Lease Year shall be Seven and 35/100ths
Dollars ($7.35) per square foot of Rentable Area or Three Hundred
Seventy One Thousand Nine Hundred Ten and 00/100ths Dollars
($371,910.00) per annum (based upon the stipulated approximate
Rentable Area set forth above, subject, however, to adjustment in
the instance of a change in the Rentable Square Footage as provided
in Section 1 above) per year, payable monthly, in advance, without
deduction or offset, on the first day of each calendar month
together with applicable sales tax and applicable local taxes, in
equal installments of Thirty Thousand Nine Hundred Ninety Two and
50/100 Dollars ($30,992.50), subject, however, to adjustment in the
instance of a change in the Rentable Square Footage as provided in
Section 1 above, each together with applicable sales tax and
applicable local taxes, beginning on the Third Lease Year.
Base Rent in the Fourth Lease Year shall be Seven and 72/100ths
Dollars ($7.72) per square foot of Rentable Area or Three Hundred
Ninety Thousand Six Hundred Thirty Two and 50/100ths Dollars
($390,632.50) per annum (based upon the stipulated approximate
Rentable Area set forth above, subject, however, to adjustment in
the instance of a change in the Rentable Square Footage as provided
in Section 1 above) per year, payable monthly, in advance, without
deduction or offset, on the first day of each calendar month
together with applicable sales tax and applicable local taxes, in
equal installments of Thirty Two Thousand Five Hundred Fifty Two and
67/100 Dollars ($32,552.67), subject, however, to adjustment in the
instance of a change in the Rentable Square Footage as provided in
Section 1 above, each together with applicable sales tax and
applicable local taxes, beginning on the first day of the Fourth
Lease Year.
Base Rent in the Fifth Lease Year shall be Eight and 11/100ths
Dollars ($8.11) per square foot of Rentable Area or Four Hundred Ten
Thousand Three Hundred Sixty Six and 06/100ths Dollars ($410,366.00)
per annum (based upon the stipulated approximate Rentable Area set
forth above, subject, however, to adjustment in the instance of a
change in the Rentable Square Footage as provided in Section 1
above) per year, payable monthly, in advance, without deduction or
offset, on the first day of each calendar month together with
applicable sales tax and applicable local taxes, in equal
installments of Thirty Four Thousand One Hundred Ninety Seven and
17/100ths Dollars ($34,197.17), subject, however, to adjustment in
the instance of a change in the Rentable Square Footage as provided
in Section 1 above, each together with applicable sales tax and
applicable local taxes, beginning on the first day of the Fifth
Lease Year.
Base Rent in the Sixth Lease Year shall be Eight and 52/100ths
Dollars ($8.52) per square foot of Rentable Area or Four Hundred
Thirty Thousand One Hundred Twelve and 00/100ths Dollars
($431,112.00) per annum (based upon the stipulated approximate
Rentable Area set forth above, subject, however, to adjustment in
the instance of a change in the rentable square footage as provided
in Section 1 above) per year, payable monthly,
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BLUE LAKE STANDARD LEASE
<PAGE>
in advance, without deduction or offset, on the first day of each
calendar month together with applicable sales tax and applicable
local taxes, in equal installments of Thirty Five Thousand Nine
Hundred Twenty Six and 00/100ths Dollars ($35,926.00), subject,
however, to adjustment in the instance of a change in the Rentable
Square Footage as provided in Section 1 above, each together with
applicable sales tax and applicable local taxes, beginning on the
first day of the Sixth Lease Year.
Base Rent in the Seventh Lease Year shall be Eight and 95/100ths
Dollars ($8.95) per square foot of Rentable Area or Four Hundred
Fifty Two Thousand Eight Hundred Seventy and 00/100ths Dollars
($452,870.00) per annum (based upon the stipulated approximate
Rentable Area set forth above, subject, however, to adjustment in
the instance of a change in the rentable square footage as provided
in Section 1 above) per year, payable monthly, in advance, without
deduction or offset, on the first day of each calendar month
together with applicable sales tax and applicable local taxes, in
equal installments of Thirty Seven Thousand Seven Hundred Thirty
Nine and 17/100ths Dollars ($37,739.17), subject, however, to
adjustment in the instance of a change in the Rentable Square
Footage as provided in Section 1 above, each together with
applicable sales tax and applicable local taxes, beginning on the
first day of the Seventh Lease Year.
SECTION 3 Tenant's Share: 2.8375%. Landlord and Tenant acknowledge that
Tenant's Share has been obtained by taking the Net Rentable Area of
the Premises and dividing such number by 1,783,240 square feet, and
multiplying such quotient by 100. In the event Tenant's Share is
changed during a calendar year by reason of a change in the Net
Rentable Area of the Premises, Tenant's Share shall thereafter mean
the result obtained by dividing the new Net Rentable Area of the
Premises by 1,783,240 and multiplying such quotient by 100.
Section 4 Security Deposit Received: Waived, based on financial information
provided by Tenant
Date Received: N/A
Prepaid First Month's Rent: $ As provided in Lease.
--------------------
Prepaid First Month's Overhead Rent (together with Florida sales tax
computed at 6%): $15,999.38
Prepaid Last Month's Rent: WAIVED
SECTION 5 Use of Premises: Corporate headquarters, administrative offices and
data center.
Tenant's Address for Notices Prior to Commencement Date:
HIWAY TECHNOLOGIES, INC.
6401 Congress Avenue, Suite 110
Boca Raton, Florida 33487
Tenant's Address for Notices After Commencement Date:
HIWAY TECHNOLOGIES, INC.
As provided above
-------------------------
-------------------------
Boca Raton, Florida 33431
Tenant
The Premises
Landlord's Address for Notices:
c/o Blue Lake, Ltd.
1800 Corporate Boulevard, Suite 300
Boca Raton, Florida 33431
Attn: Mr. Michael D. Masanoff
With copies to:
Mandel, Simowitz, Weisman, Kirschner & Diaz, P.A.
2101 Corporate Boulevard, N.W., Suite 300
Boca Raton, Florida 33431
Attn: Mitchell B. Kirschner, Esquire
SECTION 15 Amount of General Comprehensive Liability Insurance: $1,000,000.00
per occurrence - $3,000,000.00 in the aggregate, together with an
environmental pollution policy in the sum of not less than
$3,000,000.00, to be delivered to the Landlord in the event the
Tenant elects to place fuel storage tanks on or about the Premises.
SECTION 39 Tenant's Real Estate Broker: CB Commercial Real Estate Group, Inc.,
Attn: Jeffrey M. Kelly
Landlord's Real Estate Broker: Blue Lake Realty, Inc.
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BLUE LAKE STANDARD LEASE
<PAGE>
SECTION 40 Guarantor(s): None
WORK LETTER:
PARAGRAPH 1.7 Tenant's Construction Agent: Scott Adams
Certain of the information relating to the Lease, including many of
the principal economic terms, are set forth in the foregoing Basic Lease
Information Rider (the "BLI Rider"). The BLI Rider and the Lease are, by this
reference, hereby incorporated into one another. In the event of any direct
conflict between the terms of the BLI Rider and the terms of the Lease, the BLI
Rider shall control. Where the Lease simply supplements the BLI Rider and does
not conflict directly therewith, the Lease shall control.
THIS SPACE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW
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BLUE LAKE STANDARD LEASE
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have signed this BLI Rider as
of this 23 day of September, 1997.
--
WITNESSES: "TENANT"
/s/ Colleen Spinelli HIWAY TECHNOLOGIES, INC.
- ----------------------------- a Florida corporation
/s/ Jason R. Carres
- -----------------------------
(As to Tenant) By: /s/ Scott H. Adams
------------------------
Scott Adams, President
WITNESSES: "LANDLORD"
/s/ Colleen Spinelli BLUE LAKE, LTD., a Florida limited
- ----------------------------- partnership
/s/ Jason R. Carres
- ----------------------------- By: Blue Lake, Inc., a Florida
corporation, its sole general partner
By: /s/ Michael D. Masanoff E.V.P.
-------------------------------
Its Executive Vice President
PAGE V
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BLUE LAKE STANDARD LEASE
<PAGE>
Blue Lake Corporate Center
Standard Lease
This Lease ("Lease") is made as of the 23 day of September, 1997, by and
between BLUE LAKE, LTD., a Florida limited partnership ("Landlord") and HIWAY
TECHNOLOGIES, INC. a Florida corporation, ("Tenant").
W I T N E S S E T H:
1. PREMISES; BUILDING; AND COMMON AREAS PREMISES; BUILDING; AND COMMON
AREAS
Landlord leases to Tenant and Tenant leases from Landlord the Premises
described in the Basic Lease Information Rider (the "BLI Rider") attached to the
front of this Lease and incorporated into this Lease by this reference, and as
more particularly shown on the floor plan attached hereto as Exhibit "A" and by
this reference incorporated herein ("Premises") . The parties hereby agree that
the Premises contain the number of Net Rentable Area set forth in the BLI Rider.
The Premises constitute a portion of the office building campus, including
parking spaces, driveways, walkways, drainage systems, utility systems,
greenspace areas, and other elements of the Blue Lake Corporate Center
(collectively the "Building"). In addition to the Premises, Tenant has the right
to use, in common with others, the lobby, public entrances, public stairways,
public areas and public elevators of the Building (the "Common Areas"). The
Common Areas serving the Building, will at all times be subject to Landlord's
exclusive control and management in accordance with the terms and provisions of
this Lease.
2. LEASE TERM; LEASE DATE
A. General. The lease term ("Lease Term") is for the period of time
set forth in the BLI Rider, commencing on the Lease commencement date set forth
in the BLI Rider ("Commencement Date") and ending on the Lease expiration date
set forth in the BLI Rider ("Expiration Date"). Tenant's obligation to pay all
rent, including Base Rent, Overhead Rent and Additional Rent, (collectively,
"Rent"), as such terms are hereafter defined, will commence on the Commencement
Date.
B. RENEWAL OPTION. LANDLORD GRANTS TO TENANT AN OPTION (THE
"OPTION") TO EXTEND THE TERM OF THIS LEASE FOR ONE ADDITIONAL PERIOD OF FIVE (5)
YEARS (THE "RENEWAL TERM") UNDER THE TERMS SET FORTH BELOW. TENANT SHALL NOT BE
ENTITLED TO EXERCISE THE OPTION UNLESS EACH OF THE FOLLOWING CONDITIONS SHALL BE
FULLY SATISFIED AT THE TIME OF ITS EXERCISE: (i) THE LEASE SHALL BE IN FULL
FORCE AND EFFECT; (ii) THE SAME ENTITY ORIGINALLY NAMED IN THIS LEASE SHALL BE
IN POSSESSION OF THE ENTIRE PREMISES, NOTWITHSTANDING AN AMENDMENT TO THE
ENTITY'S NAME AS REFLECTED IN ARTICLES OF AMENDMENT FILED WITH THE FLORIDA
SECRETARY OF STATE; AND (iii) TENANT SHALL NOT THEN BE IN DEFAULT UNDER ANY OF
THE MATERIAL TERMS, PROVISIONS, COVENANTS OR CONDITIONS OF THE LEASE. IN ORDER
TO EXERCISE THE OPTION, TENANT MUST FIRST MAKE WRITTEN DEMAND UPON LANDLORD NOT
LESS THAN SIX (6) MONTHS PRIOR TO THE EXPIRATION DATE OF THE INITIAL LEASE TERM
OR THE RENEWAL TERM FOR DELIVERY OF LANDLORD'S DETERMINATION OF MARKET RENT, AS
DEFINED BELOW. BASE RENT FOR THE RENEWAL TERM SHALL BE EQUAL TO THEN MARKET
RENT, AS DETERMINED IN ACCORDANCE WITH THIS SECTION ("MARKET RENT"). WITHIN
THIRTY (30) DAYS FOLLOWING ITS RECEIPT OF TENANT'S DEMAND, LANDLORD SHALL ADVISE
TENANT OF MARKET RENT FOR EACH YEAR OF THE RENEWAL TERM. MARKET RENT (INCLUDING
ESCALATIONS FOR SUCCESSIVE YEARS OF THE RENEWAL TERM) SHALL BE DETERMINED BY
LANDLORD IN ITS REASONABLE JUDGMENT. NOTWITHSTANDING ANYTHING HEREIN TO THE
CONTRARY, THE BASE YEAR (DEFINED BELOW) FOR THE PERTINENT RENEWAL TERM SHALL BE
THE FIRST YEAR OF THE RENEWAL TERM. LANDLORD'S DETERMINATION SHALL BE BASED, AS
LANDLORD REASONABLY DEEMS APPROPRIATE, UPON THEN CURRENT AND PROJECTED RENTS FOR
SPACE IN THE BUILDING, ADJUSTED FOR ANY SPECIAL CONDITIONS APPLICABLE TO SUCH
SPACE AND LEASES, FOR LOCATION, LENGTH OF TERM, AMOUNT OF SPACE AND OTHER
FACTORS LANDLORD DEEMS RELEVANT IN COMPUTING RENTS FOR SPACE IN THE BUILDING,
INCLUDING ADJUSTMENTS FOR ANTICIPATED INFLATION. IF TENANT DISPUTES LANDLORD'S
DETERMINATION OF MARKET RENT, LANDLORD SHALL DISCLOSE TO TENANT ALL OF THE DATA,
FACTORS AND OTHER INFORMATION UPON WHICH LANDLORD'S DETERMINATION WAS BASED, AND
LANDLORD SHALL IN GOOD FAITH NEGOTIATE WITH TENANT IN ORDER TO ARRIVE AT A
MARKET RENT WHICH IS ACCEPTABLE TO BOTH OF THEM. ANY AGREEMENT OF LANDLORD AND
TENANT REGARDING THE AMOUNT OF MARKET RENT SHALL BE IN WRITING SIGNED BY THEM
WITHIN THIRTY (30) DAYS AFTER THE DATE TENANT WAS FIRST ADVISED BY LANDLORD OF
ITS INITIAL DETERMINATION OF MARKET RENT, IN WHICH EVENT TENANT SHALL BE DEEMED
TO HAVE EXERCISED THE OPTION. IF LANDLORD AND TENANT ARE UNABLE TO AGREE UPON
MARKET RENT IN WRITING WITHIN SUCH THIRTY (30) DAY PERIOD, TENANT MAY
NEVERTHELESS EXERCISE ITS OPTION BY NOTIFYING LANDLORD, WITHIN 30 DAYS FROM THE
DATE ON WHICH TENANT WAS FIRST ADVISED BY LANDLORD OF ITS INITIAL DETERMINATION
OF MARKET RENT, THAT TENANT HAS ELECTED TO EXERCISE THE OPTION AT THE MARKET
RENT DETERMINED BY LANDLORD SUBJECT TO A RESERVATION OF TENANT'S RIGHT TO
ARBITRATE LANDLORD'S DETERMINATION OF MARKET RENT IN ACCORDANCE WITH THIS
SECTION. IF TENANT EXERCISES THE OPTION AS PROVIDED, THE TERMINATION DATE OF THE
LEASE SHALL BE EXTENDED FOR A PERIOD OF FIVE (5) YEARS AND BASE RENT SHALL BE
ADJUSTED TO MARKET RENT. IF TENANT SHALL FAIL TO TIMELY EXERCISE THE OPTION AS
PROVIDED, TENANT SHALL BE DEEMED TO HAVE WAIVED ITS RIGHT TO EXERCISE THE OPTION
AND TO OCCUPY THE PREMISES BEYOND THE INITIAL TERM OF THE LEASE. IF THE PARTIES
CANNOT AGREE IN WRITING ON MARKET RENT AND TENANT TIMELY EXERCISES THE OPTION,
THEN WITHIN THIRTY (30) DAYS AFTER TENANT'S EXERCISE OF THE OPTION, TENANT AND
LANDLORD SHALL EACH SELECT A LICENSED REAL ESTATE BROKER WITH AT LEAST TEN (10)
YEARS SUBSTANTIAL COMMERCIAL LEASING EXPERTISE PARTICULARLY IN THE THIS AREA OF
PALM BEACH COUNTY, FLORIDA AND NOTIFY THE OTHER PARTY OF SUCH SELECTION, AND THE
SELECTED BROKERS SHALL IN TURN SELECT A SIMILAR THIRD BROKER WHO WILL DETERMINE
MARKET RENT. IF THE BROKERS ARE UNABLE TO AGREE ON A THIRD BROKER WITHIN SIXTY
(60) DAYS AFTER TENANT'S EXERCISE OF THE OPTION, MARKET RENT SHALL BE DETERMINED
BY SUIT FOR DECLARATORY RELIEF. THE COST OF THE THIRD BROKER AND ANY COURT COSTS
SHALL BE SHARED EQUALLY BY THE PARTIES. IF EITHER PARTY FAILS TO TIMELY SELECT A
BROKER AND NOTIFY THE OTHER PARTY OF SUCH SELECTION, THE OTHER PARTY'S TIMELY
SELECTED BROKER SHALL UNILATERALLY DETERMINE MARKET RENT. IF TENANT ELECTS TO
EXERCISE THE OPTION SUBJECT TO ITS RESERVATION TO CONTEST MARKET RENT, TENANT
SHALL NONETHELESS ON THE COMMENCEMENT OF THE RENEWAL TERM BEGIN PAYING BASE RENT
AT THE MARKET RATE DETERMINED BY LANDLORD. IF MARKET RENT IS ULTIMATELY
DETERMINED TO BE OTHER THAN THE AMOUNT INITIALLY DETERMINED BY LANDLORD, THE
NEXT DUE PAYMENT OR PAYMENTS OF RENT SHALL BE APPROPRIATELY ADJUSTED TO REFLECT
SUCH OVERPAYMENT OR UNDERPAYMENT RETROACTIVE TO COMMENCEMENT OF THE RENEWAL
TERM.]
3. RENT
A. Base Rent. During the Lease Term, Tenant will pay as the base
rent for the Premises ("Base Rent") the amounts set forth in the BLI Rider, with
same being payable without demand, setoff or deduction, in advance, on or before
the
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BLUE LAKE STANDARD LEASE
<PAGE>
first day of each month, in equal monthly installments of the amounts set forth
in the BLI Rider plus applicable sales and other such taxes as are now or later
enacted. All payments of Base Rent, Overhead Rent, Security Deposits, and any
other sums due from Tenant under this Lease shall be made by Federal wire
transfer to such account as may be designated (or re-designated from time to
time) by Landlord's written notice.
B. Overhead Rent. Beginning on the Commencement Date, Tenant shall
pay Tenant's Share, as defined in the BLI Rider, of (i) the total amount of the
annual Operating Expenses (as hereafter defined) and (ii) the total amount of
Taxes (as hereafter defined). As used herein, "Overhead Rent" means the total of
Tenant's allocated Share of Operating Expenses and Taxes. The Overhead Rent for
the Base Year shall be set at Four and 50/100ths Dollars ($4.50) per square foot
of Rentable Area ("Base Year Overhead Rent"). In no event shall the Overhead
Rent to be paid by Tenant in any calendar year be less than the Base Year
Overhead Rent. However, in no event shall the Tenant's Share of the Controllable
Operating Expenses be increased more than ten (10%) percent from that charged to
the Tenant as part of Overhead Rent for the immediately preceding calendar year.
Increases in Operating Expenses that are not deemed controllable as defined
hereunder shall not be limited by the foregoing sentence. Controllable Operating
Expenses do not include (i) Taxes, (ii) utility charges and fees (including but
not limited to water, sewer, electrical, telephone, chilled water and heating,
ventilating and air conditioning charges, cable communications and the like),
(iii) service, vendor and other third-party contracts, including but not limited
to maintenance, landscaping, security and similar contracts, and (iv) premiums
for insurance. Prior to each subsequent calendar year, beginning with the
calendar year immediately following the Base Year, Landlord shall, in advance,
reasonably estimate for each such calendar year the total amount of the Overhead
Rent. In no event shall the Overhead Rent to be paid by the Tenant in any
calendar year be less than the Base Year Overhead Rent. One-twelfth (1/12) of
the estimated Overhead Rent shall be payable monthly, along with the monthly
payment of the Base Rent. On or before March 31 following a calendar year for
which Overhead Rent is payable hereunder, Landlord shall use reasonable efforts
to provide Tenant with a reconciliation statement showing the amount of the
actual components of Overhead Rent for the previous calendar year. If the
reconciliation statement reflects an underpayment in either component of
Overhead Rent, Landlord shall also deliver to Tenant an invoice which Tenant
shall pay within thirty (30) days following receipt of such invoice or with the
due date of its next monthly payment of Rent, whichever shall first occur. If
the reconciliation statement reflects an overpayment in either component of
Overhead Rent, Tenant shall be entitled to either, at Landlord's option, a
credit against the next payment(s) of Rent in an amount equal to the
overpayment, or a refund check from Landlord for such overpayment. For a period
of thirty (30) days after receipt of the reconciliation statement, Tenant shall
have the right, upon reasonable advance notice, to visit Landlord's office in
the Building during Business Hours, as hereafter defined, to inspect its books
and records concerning the Overhead Rent, and within such thirty (30) day period
to deliver any specific written objections to Landlord with respect to any
actual overpayment. If Tenant fails to deliver a specific written objection
within such thirty (30) day period, Tenant shall have waived Tenant's right to
object to or make any claim for return of any overpayment and shall have waived
its right to perform any further inspection of the Landlord's book and records.
When calculating annual Taxes, such calculation shall, with respect to ad
valorem taxes, be calculated with reference to the gross amount set forth in the
official tax bill issued by the appropriate taxing authorities, irrespective of
the amount actually paid by Landlord for such calendar year in light of a
protest or dispute over the amount of such Taxes. In the event the Taxes for any
calendar year are in fact contested by Landlord, however, ultimately the amount
payable for that calendar year shall be the amount found to be payable in a
final determination, whether such final determination is in the form of a
pronouncement from the appropriate tribunal or a settlement, together with
attorneys' fees and costs, appraisal costs and other fees and costs incurred by
the Landlord in protesting or contesting the amount of such Taxes. The delivery
of the aforedescribed projection statement after January 1 and/or the
reconciliation after March 31 shall not be deemed a waiver of any of Landlord's
rights to collect monies and/or a waiver of any of the duties and obligations of
Tenant as described in this section or as provided elsewhere in the Lease. As
used in this paragraph 3., the following terms shall have the following
meanings:
(1) The term "Operating Expenses" shall mean (i) any and all
costs of ownership, management, operation, repair and maintenance of the
Building, including, without limitation, wages, salaries, professionals' fees,
taxes, insurance, benefits and other payroll burdens of all employees, Building
Management fee, Common Area janitorial, maintenance, guard and other services,
building management office rent or rental value, power, fuel, water, waste
disposal, chilled water and hearing, ventilating and air conditioning charges,
landscaping care, lighting, garbage removal, window cleaning, system
maintenance, parking area care, fees and assessments paid to or on behalf of the
"Association" (as later defined herein), and any and all other utilities not
separately metered for the Premises or a portion thereof, materials, supplies,
maintenance, repairs, insurance applicable to the Building and Landlord's
personal property and depreciation on personal property, and (ii) the cost
(amortized over such reasonable period as Landlord shall determine together with
interest at the rate of fifteen percent (15%) per annum on the unamortized
balance) of any capital improvements made to the Building by Landlord after the
date of this Lease that reduce Operating Expenses or made to the Building by
Landlord after the date of this Lease that are required under any governmental
law or regulation; provided, however, that Operating Expenses shall not include
real property taxes, depreciation on the Building other than depreciation on
carpeting and wallcovering in public corridors and Common Areas, costs of
tenants' improvements, real estate broker's commissions, interest and capital
items other than those referred to in subsection (ii) above. Landlord shall
maintain accounting books and records in accordance with sound accounting
principles. In determining the amount of Operating Expenses for any calendar
year, (i) if less than one-hundred percent (100%) of the Building shall have
been occupied by tenants and fully used by them, Operating Expenses shall be
increased to an amount equal to the like operating expenses which would normally
be expected to be incurred had such occupancy been one-hundred percent (100%)
and had such full utilization been made during the entire period or (ii) if
Landlord is not furnishing particular work or services (the cost of which if
performed by Landlord would constitute an Operating Expense) to a tenant who has
undertaken to perform such work or service in lieu of the performance thereof by
Landlord, Operating Expenses shall be deemed to be increased by an amount equal
to the additional expense which would reasonably have been incurred during such
period by Landlord had Landlord furnished such work or service to such tenant.
Landlord hereby agrees to deduct each calendar year from the amount of the
Operating Expenses the total amount of any and all sums, amounts or charges paid
by Tenant or other tenants of the Building directly to Landlord or its agent for
specific tenant requested services or specific utility charges, if applicable.
(2) The term "Taxes" shall mean the gross amount of all
impositions, taxes, assessments (special or otherwise), water and sewer
assessments and other governmental liens or charges of any and every kind,
nature and sort whatsoever, ordinary and extraordinary, foreseen and unforeseen,
and substitutes therefor, including all taxes whatsoever (except for taxes for
the following categories which shall be excluded from the definition of Taxes:
any inheritance, estate, succession, transfer or gift taxes imposed upon
Landlord or any income taxes specifically payable by Landlord as a separate tax-
paying entity without regard to Landlord's income source as arising from or out
PAGE 2
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<PAGE>
of the Building and/or the land on which it is located) attributable in any
manner to the Building, the land on which the Building is located or the rents
(however the term may be defined) receivable therefrom, or any part thereof, or
any use thereon, or any facility located therein or used in conjunction
therewith or any charge or other amount required to be paid to any governmental
authority, whether or not any of the foregoing shall be designated "real estate
tax", "sales tax", "rental tax", "excise tax", "business tax", or designated in
any other manner.
Tenant hereby agrees that the Overhead Rent from time to time computed by
Landlord shall be final and binding for all purposes of this Lease unless,
within thirty (30) days after Landlord provides Tenant with written notice of
the amount thereof, Tenant provides Landlord with written notice (i) disputing
the mathematical accuracy of such amount (the "Disputed Amount"), (ii)
designating an attorney or accountant, reasonably acceptable to Landlord, and
appointed by Tenant, at its sole cost and expense, to review the mathematical
accuracy of the Disputed Amount with Landlord and/or its designated
representatives and (iii) confirming that the Disputed Amount shall not be
subject to adjustment, and agreeing to pay all of Landlord's costs and expenses
in connection with such review, including attorneys' fees and accountants' fees,
unless as a result thereof the Disputed Amount is demonstrated to reflect a
mathematical error in excess of five percent (5%) of the amount actually due
from Tenant. Landlord hereby agrees, in the event it receives such notice from
Tenant, to cooperate in promptly completing such review and promptly refunding
any portion of the Disputed Amount which exceeds the amount actually due from
Tenant. Tenant shall have no right to audit Overhead Rent unless such is in
excess of Base Year Overhead Rent. Such an audit shall be at Tenant's expense,
at any time within ninety (90) days after Landlord's annual statement is
delivered to Tenant for such calendar year, provided, that Tenant shall give
Landlord not less than thirty (30) days prior written notice of any such audit
AND SIGN A CONFIDENTIAL NON-DISCLOSURE AGREEMENT PRIOR TO THE AUDIT.
C. Late Charge. Except as specifically provided in this subsection
C, Tenant covenants and agrees to pay a late charge in the amount of Five (5.0%)
percent of any payment of Rent not received by Landlord on or before the date
when same is due. Tenant shall also pay Landlord interest at a rate equal to
eighteen percent (18%) per annum accruing on any Rent(s) outstanding. Tenant
shall pay Landlord any such late charge(s) or interest within five (5) days
after Landlord notifies Tenant of same. However, notwithstanding the foregoing,
Tenant shall not be required to pay the late charge for the first two (2) late
payments in any twelve (12) month period during the Lease Term provided that the
Tenant shall cause any late payments to be delivered to the Landlord within two
(2) business days after Tenant's receipt of notice from Landlord that Landlord
has not received same.
D. Definition of Rent. The term "Rent" shall refer collectively to
Base Rent, Overhead Rent and Additional Rent. The term "Additional Rent" is
sometimes used herein to refer to any and all other sums payable by Tenant
hereunder, including, but not limited to, parking charges and sums payable on
account of default by Tenant. All Rent shall be paid by Tenant without offset,
demand or other credit, and shall be payable only in lawful money of the United
States of America which shall be legal tender in payment of all debts and dues,
public and private, at the time of payment. All sums payable by Tenant
hereunder by check shall be obtained against a financial institution located in
the United States of America. The Rent shall be paid by Tenant at the Building
management office located in the Building or elsewhere as designated by Landlord
in writing to Tenant. Any Rent payable for a portion of a month shall be
prorated based upon the number of days in the applicable calendar month.
E. Rent Taxes. In addition to Base Rent and Overhead Rent, Tenant
shall and hereby agrees to pay to Landlord each month a sum equal to any sales
tax, tax on rentals and any other similar charges now existing or hereafter
imposed, based upon the privilege of leasing the space leased hereunder or based
upon the amount of rent collected therefor.
F. Commencement other than First Day. If Tenant's possession of the
Premises commences on any day other than the first day of the month, Tenant
shall occupy the Premises under the terms of this Lease and the pro rata portion
of the Rent shall be paid by Tenant; provided, however, that in such an event
the Commencement Date, for the purposes of this Lease, shall be deemed to be the
first day of the month immediately following the month in which possession is
given.
G. Overhead Rent after Expiration Date. Overhead Rent for the final
months of this Lease is due and payable even though it may not be calculated
until subsequent to the Expiration Date of the Lease. Tenant expressly agrees
that Landlord, at Landlord's sole discretion, may apply the Security Deposit, as
defined in the BLI Rider, in full or partial satisfaction of any Overhead Rent
due for the final months of this Lease. If said Security Deposit is greater
than the amount of any such Overhead Rent and there are no other sums or amounts
owed Landlord by Tenant by reason of any other terms, provisions, covenants or
conditions of this Lease, then Landlord shall refund the balance of said
Security Deposit to Tenant as provided herein. Nothing herein contained shall
be construed to relieve Tenant, or imply that Tenant is relieved, of the
liability for or the obligation to pay any Overhead Rent due for the final
months of this Lease by reason of the provisions of this paragraph, nor shall
Landlord be required first to apply said Security Deposit to such Overhead Rent
if there are any other sums or amounts owed Landlord by Tenant by reason of any
other terms, provisions, covenants or conditions of this Lease.
4. SECURITY DEPOSIT; SECURITY INTEREST
A. Security Deposit. No Security Deposit is initially required by
the Landlord to be funded by the Tenant in consideration and reliance of
financial documentation submitted by the Tenant. If a Security Deposit is
later required to be provided by Tenant, such will be retained by Landlord as
security for the payment by Tenant of the Rent and Additional Rent and for the
faithful performance by Tenant of all the other terms and conditions of this
Lease. In the event Tenant fails to faithfully perform the terms and conditions
of this Lease, Landlord, at Landlord's option, may at any time apply the
Security Deposit or any part thereof toward the payment of the Rent and/or
Additional Rent and/or toward the performance of Tenant's obligations under this
Lease; in such event, within five (5) days after notice, Tenant will deposit
with Landlord funds sufficient to restore the Security Deposit to its original
amount. The Security Deposit is not liquidated damages. Landlord will return
the unused portion of the Security Deposit to Tenant within sixty (60) days
after the Expiration Date if Tenant is not in violation of any of the provisions
of this Lease. Landlord may (but is not obligated to) exhaust any or all rights
and remedies against Tenant before resorting to the Security Deposit. Landlord
will not be required to pay Tenant any interest on the Security Deposit nor hold
same in a separate account. If Landlord sells or otherwise conveys the
Building, Landlord will deliver the Security Deposit or the unapplied portion
thereof to the new owner. Tenant agrees that if Landlord turns over the
Security Deposit or the unapplied portion thereof to the new owner Tenant will
look to the new owner only and not to Landlord for its return upon expiration of
the Lease Term. If Tenant assigns this Lease with the consent of Landlord, the
Security Deposit will remain with Landlord for the benefit of the new tenant and
will be returned to such tenant upon the same conditions as would have entitled
Tenant to its return.
B. Security Interest. In addition to any statutory lien granted to
landlords under the laws of Florida, Landlord shall have, at all times, and
Tenant hereby grants and
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agrees to grant Landlord a valid security interest to secure payment of all Base
Rent, Overhead Rent and Additional Rent and all other sums payable under this
Lease as Rent becoming due hereunder from Tenant, and to secure payment of any
damages or loss which Landlord may suffer by reason of the breach by Tenant of
any covenant, agreement or condition contained herein, upon all goods,
equipment, fixtures, furniture, improvements, inventory, chattel, and other
personal property of Tenant presently, or which may hereafter be situated within
the Premises whether now owned or hereafter acquired, and all proceeds
therefrom, including, without limitation, insurance proceeds (collectively
"Personal Property"), and such Personal Property shall not, during any period a
default exists, be removed from the Premises without the prior consent of
Landlord, which consent may be withheld in Landlord's sole discretion, until all
arrearages in Rent, as well as any and all other sums of money then due to
Landlord hereunder, shall first have been paid and discharged and all the
covenants, agreements and conditions hereof have been fully complied with and
performed by Tenant. In the event of a default by Tenant hereunder, Landlord
may, in addition to any other remedies provided elsewhere herein or allowed by
law, all of which are cumulative, enter upon the Premises and take possession of
any and all Personal Property of Tenant situated within the Premises, without
liability for trespass or conversion, and sell the same at public or private
sale, with or without having such property at the sale, after giving Tenant
reasonable notice of the time and place of any public sale or of the time after
which any private sale is to be made, at which sale the Landlord or its assigns
may purchase such Personal Property unless otherwise prohibited by law. Unless
otherwise provided by law, and without intending to exclude any other manner of
giving Tenant reasonable notice, the requirement of reasonable notice shall be
met if such notice is given in the manner prescribed in this Lease at least five
(5) days before the time of sale. The proceeds from any such disposition, less
any and all expenses connected with the taking of possession, holding and
selling of the Personal Property (including, without limitation, reasonable
attorneys' fees and legal expenses) shall be applied as a credit against the
indebtedness secured by the security interest granted in this Section. Any
surplus shall be paid to Tenant or as otherwise required by law, and Tenant
shall pay any deficiencies forthwith. Contemporaneous with the execution of this
Lease, and, at any other time during the Lease Term if requested by Landlord,
Tenant shall execute and deliver to Landlord Uniform Commercial Code financing
statements in sufficient form so that when properly filed, the security interest
hereby given shall thereupon be perfected. If requested hereafter by Landlord,
Tenant shall also execute and deliver to Landlord Uniform Commercial Code
financing statement change instruments in sufficient form to reflect any proper
amendment or modification in or extension of the aforesaid contract lien and
security interest hereby granted. Landlord shall, in addition to all of its
rights hereunder, also have all of the rights and remedies of a secured party
under the Uniform Commercial Code as applicable in Florida.
5. USE
A. General. Tenant will use and occupy the Premises solely for the
operation of the business set forth in the BLI Rider and for no other use
whatsoever. Tenant acknowledges that its type of business, as above specified,
is a material consideration for Landlord's execution of this Lease. Tenant will
not commit waste upon the Premises nor suffer or permit the Premises or any part
of them to be used in any manner, or suffer or permit anything to be done in or
brought into or kept in the Premises or the Building, which would: (i) violate
any law or requirement of public authorities, (ii) cause injury to the Building
or any part thereof, (iii) annoy or offend other tenants or their patrons or
interfere with the normal operations of HVAC, plumbing or other mechanical or
electrical systems of the Building or the elevators installed therein, (iv)
constitute a public or private nuisance, or (v) alter the appearance of the
exterior of the Building or of any portion of the interior other than the
Premises pursuant to the provisions of this Lease. Tenant agrees and
acknowledges that Tenant shall be responsible for obtaining, and for any and all
costs of obtaining, any special amendments to the certificate of occupancy for
the Premises and/or the Building and any other governmental permits,
authorizations or consents required solely on account of Tenant's use of the
Premises.
B. Prohibited Uses. Notwithstanding anything to the contrary in this
Lease or the BLI Rider, including but not limited to, the "Use of Premises"
Section of the BLI Rider, Tenant hereby represents, warrants and agrees that
Tenant's business is not and shall not be, and that Tenant shall not use the
Premises or any part thereof, or permit the Premises or any part thereof to be
used, [(i) FOR THE BUSINESS OF PHOTOGRAPHIC, MULTILITH OR MULTIGRAPH
REPRODUCTIONS OR OFFSET PRINTING; (ii) FOR A RETAIL BANKING, TRUST COMPANY,
DEPOSITORY, GUARANTEE OR SAFE DEPOSIT BUSINESS OPEN TO THE GENERAL PUBLIC, OR
INDOOR AUTOMATED TELLER MACHINES, (iii) AS A SAVINGS BANK, A SAVINGS AND LOAN
COMPANY OPEN TO THE GENERAL PUBLIC, (iv) FOR THE SALE TO THE GENERAL PUBLIC OF
TRAVELERS CHECKS, MONEY ORDERS, DRAFTS, FOREIGN EXCHANGE OR LETTERS OF CREDIT OR
FOR THE RECEIPT OF MONEY FOR TRANSMISSION, (v) AS A STOCK BROKER'S OR DEALER'S
OFFICE OR FOR THE UNDERWRITING OR SALE OF SECURITIES OPEN TO THE GENERAL PUBLIC,
(vi) AS A RESTAURANT, CAFETERIA, BAR, OR AN ESTABLISHMENT FOR THE SALE OF
CONFECTIONERY, SODA, BEVERAGES, SANDWICHES, ICE CREAM OR BAKED GOODS OR FOR THE
PREPARATION, DISPENSING OR CONSUMPTION OF FOOD OR BEVERAGES IN ANY MANNER
WHATSOEVER, (vii) AS A NEWS OR CIGAR STAND, (viii) AS AN EMPLOYMENT AGENCY,
LABOR UNION OFFICE, PHYSICIAN'S OR DENTIST'S OFFICE, DANCE OR MUSIC STUDIO,
SCHOOL (EXCEPT FOR THE TRAINING OF EMPLOYEES OF TENANT), (ix) AS A BARBER SHOP
OR BEAUTY SALON, (x) FOR THE BUSINESS OF (A) OPERATING A SHARED OFFICE FACILITY,
THAT IS, A BUSINESS WHICH SUBLEASES SPACE AND/OR OFFERS CENTRALIZED SERVICES TO
SUBTENANTS OR CUSTOMERS ON A SHARED BASIS, SUCH AS SECRETARIAL, RECEPTIONIST,
TELEPHONE, ETC., OR (B) FOR A FEE TO PERSONS INSIDE OR OUTSIDE OF THE BUILDING,
PROVIDING AS A SERVICE WORD PROCESSING, SECRETARIAL, VIDEO CONFERENCING,
CONFERENCE SERVICES, TELEPHONE ANSWERING, RECEPTIONIST OR MAIL RECEIPT SERVICES,
(xi) FOR ANY SERVICES OR USES TO THE GENERAL PUBLIC TO BE CONDUCTED ON THE
PREMISES, (xii) AMATEUR RECREATIONAL USES OR MOVIE THEATERS, (xiii) RETAIL
SALES, INCLUDING BUT NOT LIMITED TO DRUG STORES OR FLORISTS, OR (xiv)
WAREHOUSING, SHOWROOM AND WHOLESALE USES. Nothing in this Section shall preclude
Tenant from using any part of the Premises for photographic, multilith or
multigraph reproductions to the extent that such uses are incidental to Tenant's
own business or activities.
6. ACCEPTANCE OF PREMISES; LANDLORD'S WORK. ACCEPTANCE OF PREMISES;
LANDLORD'S WORK
Tenant has examined the Premises and accepts delivery of the Premises
in an "As-Is" condition. However, notwithstanding the foregoing, the Landlord
shall, prior to occupancy by Tenant, and at Landlord's cost, erect demising
walls and confirm to Tenant that mechanical service, electrical service,
plumbing service are available to the Premises and that the roof and structure
of the Premises are in good working order and exhibit no signs of any material
defects. In addition thereto, the Landlord shall allow Tenant to utilize,
without expense to Tenant, except for the costs incurred by Tenant in relocating
the items to follow, as applicable, to the Premises from their situs at the
Project, the following: (a) sufficient raised flooring to accommodate a 10,000
square foot raised floor computer floor, and (b) four (4) Liebert air handling
units. Notwithstanding the foregoing, the Tenant hereby acknowledges that the
items contained in subparagraphs (a) and (b) shall remain the property of the
Landlord and, at the termination of this Lease, be returned to the Landlord in
working condition, normal wear and tear excepted. All existing ceiling system
and demountable partitions are to remain in the Premises at the time of the
delivery of the Premises and may be utilized by Tenant without charge.
Improvements, if any, to be made to the Premises by Tenant shall be made in
accordance with the Work Letter. Landlord's
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published list of pre-approved general contractors for The Blue Lake Project
shall have the exclusive right to bid for Tenant's construction contracts.
Improvements, if any, to be made to the Premises by Landlord are specifically
set forth in the Work Letter and there are no others. All leasehold improvements
(as distinguished from trade fixtures and apparatus) installed in the Premises
at any time, whether by or on behalf of Tenant or by or on behalf of Landlord,
shall not be removed from the Premises at any time, unless such removal is
consented to in advance by Landlord; and at the expiration of this Lease (either
on the Termination Date or upon such earlier termination as provided in this
Lease), all such leasehold improvements shall be deemed to be part of the
Premises, shall not be removed by Tenant when it vacates the Premises, and title
thereto shall vest solely in Landlord without payment of any nature to Tenant.
All trade fixtures and apparatus (as distinguished from leasehold improvements)
owned by Tenant and installed in the Premises shall remain the property of
Tenant and shall be removable at any time, including upon the expiration of the
Term; provided Tenant shall not at such time be in default of any terms or
covenants of this Lease, and provided further, that Tenant shall repair any
damage to the Premises caused by the removal of said trade fixtures and
apparatus and shall restore the Premises to substantially the same condition as
existed prior to the installation of said trade fixtures and apparatus. The
taking of possession by Tenant (or any permitted assignee or subtenant of
Tenant) of all or any portion of the Premises for the conduct of business will
be deemed conclusive evidence that Tenant has found the Premises, and all of
their fixtures and equipment, acceptable.
7. PARKING. PARKING
A. Reservations. Landlord has and reserves the right to alter the
methods used to control parking and the right to establish such controls and
rules and regulations (such as parking stickers to be affixed to vehicles)
regarding parking that Landlord may deem desirable. Without liability, Landlord
will have the right to tow or otherwise remove vehicles improperly parked,
blocking ingress or egress lanes, or violating parking rules, at the expense of
the offending tenant and/or owner of the vehicle. Tenant shall be afforded, on
a non-exclusive basis, the use of five (5) parking spaces for each one thousand
(1,000) square feet of Usable Square Feet leased, as located in the area shown
in Exhibit "A-1".
B. Conditions. Except as specifically provided in Paragraph 7(A)
above, Tenant's right to use, and its right to permit its principals and guests
to use, the parking facilities pursuant to this Lease are subject to the
following conditions: (i) Landlord has made no representations or warranties
with respect to the parking area, the number of spaces located therein or access
thereto; (ii) Landlord reserves the right to reduce the number of spaces in the
parking area by not more than ten percent (10%) of the then number of parking
area spaces in the parking area and/or change access thereto; and none of the
foregoing shall entitle Tenant to any claim against Landlord or to any abatement
of Rent (or any part thereof); (iii) Landlord has no obligation to provide a
parking lot attendant and Landlord shall have no liability on account of any
loss or damage to any vehicle or the contents thereof, Tenant hereby agreeing to
bear the risk of loss for same; (iv) Tenant, its agents, employees and invitees,
shall park their automobiles and other vehicles only where and as designated
from time to time by Landlord within the parking area; and (v) if and when so
requested by Landlord, Tenant shall furnish Landlord with the license numbers of
any vehicles of Tenant, its agents and employees.
8. BUILDING SERVICES.
A. General. In general, the services set forth below will be
provided by Landlord at a service level set, defined and regulated by Landlord
consistent with office buildings of similar quality to and in the same immediate
geographic area as the Building. During the Lease Term, the regular business
hours ("Business Hours") of the Building will be 8:00 a.m. to 6:00 p.m., Monday
through Friday, except holidays generally recognized by state and federal
governments or as may be shortened in accordance with applicable policies or
regulations adopted by any utility company servicing the Building or government.
Landlord reserves the right to increase the Business Hours. However,
notwithstanding the foregoing, in consideration of the nature of the Tenant's
business, the Landlord acknowledges that the regular Business Hours of the
Premises, as defined above, will be 7:00 a.m. to 7:00 p.m. The Building will
be accessible to Tenant, its subtenants, agents, servants, employees,
contractors, invitees or licensees (collectively, "Tenant's Agents") twenty-four
hours per day, seven days per week except in the case of temporary closure due
to emergencies, repairs, casualty, governmental or quasi-governmental
requirements or as Landlord reasonably deems necessary in order to prevent
damage or injury to person or property.
(1) Electricity:
(a) Landlord shall, as the exclusive party authorized to
contract with providers of electrical utility services for the Project, install
separate metering to the Premises, for electrical usage, excluding HVAC, except
as otherwise provided in Paragraph 3B herein. During the Lease Term, the
Premises shall be separately metered for electrical power. The Tenant
acknowledges that the Building's Standard mechanical and electrical systems are
designed to accommodate standard loads generated by lights and office equipment.
Tenant will not, without written consent of Landlord, use any apparatus or
device in the Premises which will, in any way, increase the amount of the
standard electricity load consumption of the Premises; nor connect with electric
current except through existing electrical outlets in the Premises. If Tenant
shall require electric current in excess of the standard for the use of the
Premises as general office space, Tenant is hereby granted the option, at its
sole cost and provided Tenant reimburses Landlord for any costs incurred, to
contract with Florida Power & Light, to have installed in the electric room
adjacent to the Tenant's Premises or such other reasonably designated situs in
the Building (which space shall thereupon be exclusively utilized by Tenant and
which shall be included in the Net Rentable Square Footage allocated to Tenant)
a transformer or other instrumentality so as avail the Premises of 2,400 amps of
480 volt 3 Phase Electrical Service to the Premises, which use shall be
exclusive to the Tenant from said source. For purposes of security, Landlord
shall provide Tenant, at its request, and at Tenant's cost, the exclusive use of
the electrical room where the electrical power for the Premises is located.
Tenant shall be solely responsible at Tenant's cost for maintaining and
repairing the electrical room utilized by it in accordance with reasonable
standards prescribed by the Landlord. The parties shall attach hereto a
certification reflecting the amperage available to the Premises.
(b) Tenant acknowledges that Tenant's intended use of the
Premises excludes material use of the Premises beyond Business Hours. Material
use shall be deemed to mean the operation of an additional "shift", either full
or part time, or use of the Premises after Business Hours in any way that may
preclude or interfere with the providing of janitorial services to the Premises.
In the event Tenant's use of the Premises requires more electrical power than
set forth above, whether by intensity of use, load or type of equipment, Tenant
may then be billed for such additional use and such billings will be billed to
Tenant as Additional Rent. Landlord will utilize Landlord's customary method of
billing Tenant for excess electrical power consumption. At Landlord's option,
Landlord, at Tenant's expense, may have an engineer estimate Tenant's usage, and
bill Tenant at standard utility rates for the excess usage or install a submeter
for the purposes of
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monitoring Tenant's excess power consumption. Landlord and Tenant agree that
Landlord's implementation of the electrical monitoring and billing procedures
set forth herein shall in no way be construed so as to deem Landlord a private
or public utility company.
(c) Subject to the limitations and restrictions herein contained,
Tenant may install a generator for back-up electricity service together with
ancillary and reasonably related equipment at or on an interior portion of the
Building, to the extent practical, or an exterior location on the grounds of the
Project. The emplacement of a generator, whether within the interior of the
Building or upon the exterior of the Project, shall be within strict
prescriptions and subject to the approval of the Landlord (which approval shall
not be unreasonably withheld) and the City of Boca Raton or such other agencies
having jurisdiction. The Tenant shall be responsible for all costs incurred by
the Tenant, or the Landlord, in the administrative overseeing of the emplacement
of the generator and licensing of the generator, fuel tanks and other
components. Approval for the emplacement of the generator shall likewise be
subject to the approval of the Landlord (which approval shall not be
unreasonably withheld) and the City of Boca Raton, or other agencies having
jurisdiction, for matters relating to the aesthetic screening of the generator,
noise abatement and fuel tank placement, fuel storage and maintenance. Tenant
shall be charged, as Additional Rent, any costs incurred by the Landlord if, at
Landlord's option, Landlord shall elect to repair, or maintain the generator and
fuel tanks in the absence of the Tenant's failure to repair and maintain the
generator, fuel tanks and other ancillary equipment. The Tenant shall deliver to
the Landlord an insurance policy naming the Landlord as loss/payee as to any
claim or damages caused by the generator or fuel tanks, all of which insurance
shall conform with the provisions of Paragraph 14 herein. The Tenant shall fully
comply with the provisions of Paragraph 39 in complying with all Hazardous
Substance laws relating, but not limited, to the placement and operation of the
generator, fuel tanks, together with fuel handling and discharge. The
installation of the generator shall be, at the election of the Landlord,
accomplished by a contractor designated by the Landlord, the sole expense of
which shall be borne by the Tenant who shall contract for same in conformance
with the provisions of Article 26 of this Lease. The Tenant acknowledges advice
of the Landlord that the Landlord may, during the term of the Lease, designate a
centralized location for all generators serving tenants in the Building or the
Project, or, alternatively, the Landlord may contract or cause the Tenant to
contract with Florida Power & Light, or an affiliate thereof, for the providing
of generators to tenants of the Building or the Project. In the event that the
Landlord shall designate a specified or centralized location for the relocation
of the generator or, alternatively, require that any tenants requesting service
by back-up generators utilize a contracted-for-generator from Florida Power &
Light or such other supplier as the Landlord shall designate, the Tenant's
generator shall be relocated or the Tenant shall utilize the designated
generator source. The cost to relocate the Tenant's generator or to connect the
Tenant to a designated generator shall be borne by the Landlord, provided,
however, that Landlord shall receive the benefit of any savings incurred thereby
such as, but not limited to, the Tenant's sale of the previously used generator.
(d) Landlord reserves the right, after Business Hours, to turn
off all unnecessary lighting in the unoccupied areas of the Building and the
Premises to minimize the energy consumption of the Building in both the Common
Areas and the Premises.
(2) HVAC Services:
Landlord agrees to provide, during Business Hours, heating,
ventilating, chilled water and air conditioning services for the purposes of
comfort control. Landlord and Tenant agree that Landlord's HVAC system is not
designed nor required to cool machinery and equipment. Tenant shall not re-
direct, or in any manner modify, the HVAC duct distribution to accommodate
Tenant's build-out unless any such modifications are first approved in writing
by the Landlord, which modifications shall be designed only by an engineer pre-
approved by the Landlord. If Tenant requires additional HVAC services for
comfort control at times other than during Business Hours which, for purposes of
this Lease, are 7:00 A.M. through 7:00 P.M., Monday through Saturday
(inclusive), Landlord will bill Tenant as Additional Rent for the number of
hours used at Landlord's then standard prevailing rate for after-hours use of
HVAC services. At the execution of this Lease, the standard prevailing rate for
after-hours use of HVAC services is the greater of (i) .0006 per square foot per
-------
hour, or (ii) $30.00 per hour. This rate will be subject to increase during the
Lease Term based upon operational costs and expenses, including wear and tear on
the system and its components. The HVAC air distribution system and control
system will remain under the control of Landlord, who will regulate the systems'
setting and adjustment. At Landlord's option, Landlord may secure HVAC controls
(thermostats) in lockable metal boxes to regulate the efficiency and use of the
system. In the event that heat generating machines or equipment are used in the
Premises which affect the temperature otherwise maintained by the air
conditioning system, whether during regular business hours or during non-regular
business hours, Landlord reserves the right to separately meter, and bill as
Additional Rent, HVAC service to the Premises which metering shall include
related electric, power and chilled water services to the Premises. If Tenant
requires additional HVAC services for comfort control at times during or other
than during Business Hours, or in capacities beyond the Building Standard,
Tenant may, at its election, install an independent air-to-air unit to be
installed at Tenant's sole cost and expense in any portion of the Premises in
which Tenant requires air conditioning in excess of the standard consumption or
on a twenty-four (24) hour basis. Tenant shall submit all plans for any such
installation with the Landlord, who shall not unreasonably withhold approval of
any such plans, as well as to the City of Boca Raton or any other authority
having jurisdiction relating to said installation. The Tenant shall deliver a
mechanic's lien waiver from all materialmen, laborers or other potential lienors
pursuant to F.S. Chapter 713 and Paragraph 26(A) of this Lease. The HVAC air
distribution system, water chilling system, and the respective controlling
systems therefor, will remain under the control of Landlord, who will regulate
the system's setting and adjustment. At Landlord's option, Landlord may secure
HVAC controls (thermostats) in lockable metal boxes to regulate the efficiency
and use of the system. The Landlord may, at its option during the term of this
Lease, contract with FPL Services, or such other provider of chilled-water
distribution system sources as the Landlord may elect.
(3) Water and Sewer:
Landlord agrees to provide municipally supplied cold water and
sewer services to the Common Areas for lavatory purposes.
(4) Elevator Service:
If applicable, Landlord will provide elevator service during
Business Hours and, at Landlord's sole discretion, Landlord may provide
restricted elevator service during non-Business Hours.
B. Interruption of Services. It is understood and agreed that
Landlord does not warrant that any of the services referred to above, or any
other services which Landlord may supply, will be free from interruption.
Tenant acknowledges that any one or more of such services may be suspended by
reason of accident or repairs, alterations or improvements necessary to be made,
or by strikes or lockouts, or
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by reason of operation of law, or other causes beyond the control of Landlord.
No such interruption or discontinuance of service will be deemed an eviction or
a disturbance of Tenant's use and possession of the Premises or any part
thereof, or render Landlord liable to Tenant for damages or abatement of Rent or
relieve Tenant from the responsibility of performing any of Tenant's obligations
under this Lease.
C. Fiber Optics. Tenant may contract with BellSouth, which has
been provided exclusive access through the underlying property by Landlord for
telecommunication service wiring and installation and which has been designated
by the Landlord as the vendor of choice at the Blue Lake Project, for voice and
data telecommunication wiring and services, and installing any telecommunication
products and, specifically, dual access points for Tenant's fiber optic lines,
at Tenant's sole expense. To the extent that such installation requires the
digging of a trench through the Property in order to gain dual access points,
the Tenant shall provide the Landlord with plans and schematics for the
referenced installation which plans and schematics shall be subject to the
reasonable satisfaction of the Landlord and which installation shall be further
subject to the approval, as necessary, of the City of Boca Raton or other
agencies having jurisdiction thereon.
9. SECURITY
With respect to security for the Building and the parking lot,
Landlord and Tenant hereby agree as follows: Security of the Premises is the
sole responsibility of the Tenant and that the Landlord has no liability for
breach of security to the Premises. Tenant may at Tenant's expense install a
security system to the Premises; provided, however, that Tenant, in addition to
access otherwise required hereunder, will provide Landlord adequate access to
the Premises in case of emergencies particularly regarding Premises that contain
fire sprinkler risers and equipment. All repairs required to the Premises
caused by security breaches are] the responsibility of the Tenant, however,
Landlord may elect to effect such repairs, if appropriate to insure continued
security, protection of property, or safety of life. The cost of such repairs
shall be Additional Rent.
A. Tenant's Responsibility. Tenant shall: (1) abide by all policies,
procedures and rules and regulations for use of the access system, (2) report
promptly the loss or theft of all keys which would permit unauthorized entrance
to the Premises, Building or parking lot, (3) report to Landlord the employment
or discharge of employees and their vehicle's make, model, and license number,
(4) promptly report to Landlord door-to-door solicitation or other unauthorized
activity in the Building or parking lot, and (5) promptly inform the Landlord's
security contractor in the event of a break-in or other emergency. In addition,
Tenant may, at its option and sole cost and expense, install its own interior
security system pursuant to plans to be submitted to Landlord for Landlord's
approval, which approval shall not be unreasonably withheld. The Tenant shall
deliver mechanic's lien releases prior to the initiation of the work.
B. Interruption of Security. Tenant acknowledges that the above
security provisions may be suspended or modified at Landlord's sole discretion
or as a result of causes beyond the reasonable control of Landlord. No such
interruption, discontinuance or modification of security service will constitute
an eviction, constructive eviction, or a disturbance of Tenant's use and
possession of the Premises, and further, no interruption, discontinuance or
modification of security service will render Landlord liable to Tenant or third-
parties for damages, abatement of Rent, or otherwise, or relieve Tenant of the
responsibility of performing Tenant's obligations under this Lease.
C. Hurricane Shutters. Tenant may, at Tenant sole cost and
expense, install protective hurricane shutters on the interior of the windows of
the Premises. Any such installation of hurricane shutters shall be subject to
the prior approval of the Landlord, which approval shall not be unreasonably
withheld, as to size, color, type of shutter and mode of attachment. The Tenant
must also receive the approval of the City of Boca Raton, Florida prior to the
installation of hurricane shutters. The Tenant shall reimburse Landlord for all
reasonable and verifiable costs incurred by the Landlord in reviewing the plans
of the Tenant and providing written approval for the installation of the
hurricane shutters, unless approved by Landlord as part of the original
construction documents. The Tenant agrees not to employ the hurricane shutters
except in instances where hurricane warnings have been issued and are
outstanding and for one (1) business day thereafter.
10. REPAIRS, MAINTENANCE AND UTILITIES
A. Landlord's Responsibilities. During the Lease Term, Landlord
shall define, set, and maintain the level of repairs and maintenance for the
Building, the Common Areas, and all other areas serving the Building, in a
manner comparable to office buildings of similar quality to and in the immediate
geographic area of the Building. Landlord's responsibilities with respect to
this paragraph are as follows: (1) the structural and roof systems of the
Building and parking lot, (2) the Building standard electrical and mechanical
systems, (3) the primary water and sewer systems of the Building, (4) the
Building Common Areas and the common area furniture, fixtures, and equipment,
(5) the landscaped areas in and about the Building, (6) the parking lot, and (7)
replacement of Building standard fluorescent light bulbs in the Common Areas.
B. Tenant's Responsibilities. During the Lease Term, Tenant will
repair and maintain the following at Tenant's expense:
(1) The interior portion of the demising walls, the interior
partition walls of the Premises and their wall-covering, and the entry door to
the Premises.
(2) The electrical, plumbing, HVAC and mechanical systems which
have been installed by either Landlord or Tenant, for the exclusive use and
benefit of Tenant, whether installed in the interior of the Building or exterior
grounds of the Building.. The following examples are for clarification and are
not all inclusive: (a) electrical services for computers or similar items, (b)
projection room equipment such as dimmers, curtains, or similar items, (c) water
closet plumbing, kitchen plumbing or similar items, (d) HVAC for other than
comfort cooling in the Premises, and (e) other similar systems and related
items, (f) plumbing, plumbing fixtures and related equipment, (f) heating,
ventilating and air conditioning equipment, (g) security systems for the
Premises, (h) telephone system for the Premises, (i) fire sprinkler alterations
made exclusively for the Premises and under the Tenant's control, and (j) all
fire extinguishers, including inspection of same. Notwithstanding anything
herein to the contrary, any and all mechanical and electrical systems serving
the Premises (including without limitation compressors, feeds, meters, conduit
and related equipment and facilities) shall be maintained by Tenant at its
expense regardless whether the same are located outside of the Premises.
(3) Except for the janitorial services to be provided by
Landlord, if any, as set forth in this Lease, the repair and maintenance of the
floor covering of the Premises, including carpeting, VAT flooring, ceramic
tiles, marble, wood flooring, or similar coverings, shall be performed by
Tenant.
(4) The removal and clean-up of any environmentally hazardous
situation caused by Tenant or tenant's agents in a manner satisfactory to
Landlord and in
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compliance with the rules, regulations, ordinances, statutes, laws, and codes of
any local, state or federal government or quasi-governmental authority.
(5) All cabinets and millwork (regardless of ownership) so long
as said cabinets and millwork are for the exclusive use and benefit of Tenant.
(6) All other personal property, improvements or fixtures,
except any of same expressly designated in this Lease as those which Landlord
shall maintain. Those items to be repaired and maintained by Tenant include, but
are not limited to, the following: (a) ceiling tiles and ceiling grid, (b)
molding or other woodwork and paneling, (c) light fixtures and bulbs, (d)
draperies, blinds or wallhangings, (e) glass partition walls, (f) water closets
and kitchen areas, (g) doors and locksets, and (h) vaults, safes, or secured
areas. For the aforesaid items, Landlord may elect, with Tenant's approval
(which approval will not be unreasonably withheld) to maintain and repair same
at Tenant's expense and Tenant will be billed for same as Additional Rent.
C. Repairs and Maintenance; Miscellaneous. Notwithstanding anything
to the contrary in this Lease, Landlord shall have no responsibility to repair
or maintain the Building, any of its components, the Common Areas, the Premises,
or any fixture, improvement, trade fixture, or any item of personal property
contained in the Building, the Common Areas, and/or the Premises if such repairs
or maintenance are required because of the occurrence of any of the following:
(i) the acts, misuse, improper conduct, omission or neglect of Tenant or
Tenant's Agents, or (ii) the conduct of business in the Premises. Should
Landlord elect to make repairs or maintenance occasioned by the occurrence of
any of the foregoing, Tenant shall pay as Additional Rent all such costs and
expenses incurred by Landlord. Landlord shall have the right to approve in
advance all work, repair, maintenance or otherwise, to be performed under this
Lease by Tenant and all of Tenant's repairmen, contractors, subcontractors and
suppliers performing work or supplying materials. Tenant shall be responsible
for all permits, inspections and certificates for accomplishing the above.
Tenant shall obtain lien waivers for all work done in or to the Premises.
11. TENANT'S ALTERATIONS
A. General. During the Lease Term, Tenant will make no alterations,
additions or improvements in or to the Premises or the Building, of any kind or
nature, including, but not limited to, alterations, additions or improvements
in, to, or on, telephone or computer installations (any and all of such
alterations, additions or improvements other than those set forth in the work
letter attached hereto are collectively referred to in this Lease as the
"Alteration(s)"), without the prior written consent of Landlord, which consent
shall not be unreasonably withheld. Tenant shall submit to Landlord detailed
drawings and plans of the proposed alterations at the time Landlord's consent is
sought. Should Landlord consent to any proposed Alterations by Tenant, such
consent will be conditioned upon Tenant's agreement to comply with all
requirements established by Landlord, including safety requirements and the
matters referenced in Section 22 of this Lease. As stated herein, all
Alterations made hereunder will become Landlord's property when incorporated
into or affixed to the Building. However, at Landlord's option Landlord may, at
the expiration of the Lease Term, require Tenant, at Tenant's expense, to remove
Alterations made by or on behalf of Tenant and to restore the Premises to their
original condition.
B. Alteration Fee
(1) Tenant shall pay to Landlord as Additional Rent (or to its
nominee or designated contractor, as Landlord may direct) in connection with all
Alterations a fee (the "Alteration Fee") for overhead and administrative costs
in connection with each such Alteration, for Landlord's review and approval of
all plans and specifications for such Alteration, for Landlord's construction
coordination and monitoring of such Alteration, and for all other reasonable
costs and expenses incurred by Landlord as a result of or in connection with
each such Alteration, a fee equal to three and one-half percent (3.5%) of the
total construction cost of each such Alteration; provided, however, Tenant shall
receive a one-time waiver of the Alteration Fee in the amount of $875.00. There
shall be excluded from the computation of the construction cost of each
Alteration the cost of furniture, removable furnishings, draperies, office
equipment, painting, carpeting, removable cabinetry, items of special decoration
and telephone installation and engineer's, architects', space planners' and
other professionals' fees.
(2) Prior to making any Alteration, Tenant shall submit to
Landlord a statement of Tenant's independent architect, if one is employed, or
Tenant's contractor, estimating the total cost of such Alteration and the
estimated time required to complete such Alteration. The Alteration Fee shall be
calculated on the basis of such estimate and paid in equal monthly installments
during the course of the performance of the Alteration, together with the
monthly installments of Base Rent thereafter coming due. Within ten business
days after completion of the Alteration, Tenant shall pay to Landlord the entire
balance of the Alteration Fee if not theretofore paid in full.
(3) Within ten business days after completion of any Alteration,
Tenant shall submit to Landlord a statement of Tenant's independent architect,
if one is employed, or Tenant's contractor, certifying the total cost of such
Alteration. The Alteration Fee shall be adjusted, if necessary, based on the
certification. If the Alteration Fee, as adjusted, shall be greater than the
amount theretofore paid to Landlord by Tenant on account of such Alteration Fee,
Tenant shall pay such deficiency simultaneously with the delivery to Landlord of
the certification, which deficiency shall bear interest at the annual rate (the
"Applicable Rate") equal to two percent (2%) in excess of the publicly announced
prime (or corporate base) rate of interest then in effect at Citibank, N.A. (or
its successors) until paid if not paid within the time required for the payment
thereof. If such Alteration Fee, as adjusted, is less than the amount
theretofore paid to Landlord by Tenant on account of such Alteration Fee,
Landlord, within 30 days after Landlord's receipt of the certification, shall
pay to Tenant the amount of such overpayment. If Landlord shall dispute the
statement certifying the total costs of such Alteration, Landlord shall have the
right, within 30 days after receipt of the certification, to employ an
independent certified public accountant to review Tenant's books and records
relating to such Alteration. The determination of such accountant shall be
conclusively binding upon the parties, and, if necessary, the Alteration Fee
shall be adjusted accordingly based upon such determination. If such
determination shall reveal that the Alteration Fee paid on account of such
Alteration shall have been understated by more than five percent (5%), then
Tenant shall pay the fees of the accountant in connection with such review, and
the payment to be made to Landlord as a result of such understatement shall bear
interest at the Applicable Rate. Any adjustment in the Alteration Fee, together
with interest thereon at the Applicable Rate, as well as any payment of the fees
of such accountant, shall be paid by Tenant to Landlord as additional rent
within ten business days after such accountant's determination.
12. LANDLORD'S ADDITIONS AND ALTERATIONS
Landlord has the right to make changes in and about the Building and
parking areas, including, but not limited to, signs, entrances, address or name
of Building. Such changes may include, but not be limited to, rehabilitation,
redecoration, refurbishment and refixturing of the Building and expansion of or
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structural changes to the Building. The right of Tenant to quiet enjoyment and
peaceful possession given under the Lease will not be deemed breached or
interfered with by reason of Landlord's actions pursuant to this paragraph so
long as such actions do not materially deprive Tenant of its use and enjoyment
of the Premises.
13. ASSIGNMENT AND SUBLETTING
A. Landlord's Consent Required. Except as provided below with
respect to assignment of this Lease following Tenant's bankruptcy, Tenant will
not effect a transfer without first obtaining the consent of Landlord, which
consent Landlord shall not unreasonably withhold provided that all of the
requirements of paragraph B. of this Section 13 are satisfied. As used in this
Section 13, any of the following shall be deemed to be a transfer: assignment
of this Lease, in whole or in part; sublet of all or any part of the Premises;
any license allowing anyone other than Tenant to use or occupy all or any part
of the Premises; a pledge or encumbrance by mortgage or other instrument of
Tenant's interest in this Lease; any transfer of corporate shares as described
in paragraph C. of this Section 13; or any transfer of partnership interest as
described in paragraph D. of this Section 13. Notwithstanding the foregoing,
(i) Landlord's consent shall not be required for the occupancy right or sublease
of space within the Premises to Rapidsite, Inc., the wholly-owned subsidiary of
the Tenant, provided; however, that Tenant shall provide Landlord with a true
copy of any that occupancy agreement or sublease upon execution of same and (ii)
Tenant shall not be required to pay Landlord a Transfer Fee in connection with
such occupancy or sublease. Consent by Landlord to any transfer shall not
constitute a waiver of the requirement for such consent to any subsequent
transfer. In lieu of approving any transfer, Landlord may elect to terminate
this Lease as to the portion of the Premises affected by such transfer (together
with such additional portion of the Premises needed by Landlord to render the
terminated portion marketable) by giving Tenant notice of such election, in
which event this Lease and the rights and obligations of the parties hereunder
shall cease as of a date set forth in such notice which date shall not be less
than sixty (60) days after the date of such notice. If any improvements and
expenditures are needed to the space so recaptured by Landlord to separate it
from the remaining Premises, Tenant shall pay all cost to recapture the space.
In the event of any such termination, all Rent (other than any Additional Rent
due Landlord by reason of Tenant's failure to perform any of its obligations
hereunder) shall be adjusted as of the date of such termination.
B. Conditions for Transfer Approval. The parties recognize that this
Lease and the Premises are unique, and that the nature and character of the
operations within and management of the Premises are important to the success of
the Building. Accordingly, Landlord shall be entitled to arbitrarily withhold
its consent to any transfer, unless all of the following conditions are
satisfied, in which event, Landlord agrees that it shall not unreasonably
withhold its consent to the transfer in question:
(1) In Landlord's reasonable judgment, the proposed assignee or
subtenant or occupant is engaged in a business or activity, which (a) is in
keeping with the then standards of the Building and zoning requirements, (b) is
limited to the use of the Premises as set forth in the BLI Rider, and (c) will
not violate any negative covenant as to use contained in any other lease of
office space in the Building;
(2) The proposed assignee or subtenant or occupant is a reputable
person of good character and with financial worth equal to or greater than (as
Landlord shall determine) that of Tenant, and Landlord has been furnished with
reasonable proof thereof;
(3) The form of the proposed sublease or instrument of assignment
or occupancy shall be reasonably satisfactory to Landlord, and shall comply with
the applicable provisions of this Paragraph;
(4) There shall not be more than a total of two (2) occupants of
the Premises; and
(5) The proposed subtenant or assignee or occupant shall not be
entitled, directly or indirectly, to diplomatic or sovereign immunity and shall
be subject to the service of process in, and the jurisdiction of the courts of
the State of Florida.
(6) Such transferee shall assume in writing, in a form acceptable
to Landlord, all of Tenant's obligations hereunder and Tenant shall provide
Landlord with a copy of such assumption/ transfer document;
(7) Tenant shall pay to Landlord a transfer fee, reimbursing the
Landlord for Landlord's reasonable and verified out-of-pocket expenditures
related to the transfer not to exceed, however, the sum of Five Thousand Dollars
($5,000.00) prior to the effective date of the transfer in order to reimburse
Landlord for all of its internal costs and expenses incurred with respect to the
transfer, including, without limitation, costs incurred in connection with the
review of financial materials, meetings with representative of transferor and/or
transferee and preparation, review, approval and execution of the required
transfer documentation, and, in addition, Tenant shall reimburse Landlord for
any out-of-pocket costs and expenses incurred with respect to such transfer;
(8) As of the effective date of the transfer and continuing
throughout the remainder of the Term, the Base Rent shall not be less than the
Base Rent set forth in the BLI Rider;
(9) Tenant to which the Premises were initially leased shall
continue to remain liable under this Lease for the performance of all terms,
including but not limited to, payment of Rental due under this Lease;
(10) It being acknowledged that as of the date of this Lease the
Landlord has waived a guaranty, however, if during the term of this Lease a
guaranty is delivered by or on behalf of the Tenant, Tenant's guarantor shall
continue to remain liable under the terms of the Guaranty of this Lease and, if
Landlord deems it necessary, such guarantor shall execute such documents
necessary to insure the continuation of its guaranty;
(11) Each of Landlord's Mortgagees shall have consented in
writing to such transfer.
(12) Tenant shall give notice of a requested transfer to Landlord,
which notice shall be accompanied by (a) a conformed or photostatic copy of the
proposed assignment or sublease, the effective or commencement date of which
shall be at least 60 days after the giving of such notice, (b) a statement
setting forth in reasonable detail the identity of the proposed assignee or
subtenant, the nature of its business and its proposed use of the Premises, (c)
current financial information with respect to the proposed assignee or
subtenant, including, without limitation, its most recent financial report and
(d) such other information as Landlord may reasonably request.
C. Transfer of Corporate Shares. If Tenant is a corporation other
than a corporation the outstanding voting stock of which is listed on a
"national securities exchange," as defined in the Securities Exchange Act of
1934) and if at any time after execution of this Lease any part or all of the
corporate shares shall be transferred by sale, assignment, bequest, inheritance,
operation of law or other disposition (including, but
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not limited to, such a transfer to or by a receiver or trustee in federal or
state bankruptcy, insolvency, or other proceedings) so as to result in a change
in the present control of said corporation by the person(s) now owning a
majority of said corporate shares, a transfer shall be deemed to have occurred.
Tenant shall give Landlord notice that such transfer is imminent at least
fifteen (15) days prior to the date of such transfer. If any such transfer is
made (and regardless of whether Tenant has given notice of same), Landlord may
elect to terminate this Lease at any time thereafter by giving Tenant notice of
such election, in which event this Lease and the rights and obligations of the
parties hereunder shall cease as of a date set forth in such notice which date
shall not be less than sixty (60) days after the date of such notice. In the
event of any such termination, all Rent (other than any Additional Rent due
Landlord by reason of Tenant's failure to perform any of its obligations
hereunder) shall be adjusted as of the date of such termination.
D. Transfer of Partnership Interests. If Tenant is a general or
limited partnership and if at any time after execution of this Lease any part or
all of the interests in the capital or profits of such partnership or any voting
or other interests therein shall be transferred by sale, assignment, bequest,
inheritance, operation of law or other disposition (including, but not limited
to, such a transfer to or by a receiver or trustee in federal or state
bankruptcy, insolvency or other proceedings, and also including, but not limited
to, any adjustment in such partnership interests) so as to result in a change in
the present control of said partnership by the person or persons now having
control of same, a transfer shall be deemed to have occurred. Tenant shall give
Landlord notice that such transfer is imminent at least fifteen (15) days prior
to the date of such transfer. If any such transfer is made (and regardless of
whether Tenant has given notice of same), Landlord may elect to terminate this
Lease at any time thereafter by giving Tenant notice of such election, in which
event this Lease and the rights and obligations of the parties hereunder shall
cease as of a date set forth in such notice which date shall be not less than
sixty (60) days after the date of such notice. In the event of any such
termination, all Rent (other than any Additional Rent due Landlord by reason of
Tenant's failure to perform any of its obligations hereunder) shall be adjusted
as of the date of such termination.
E. Acceptance of Rent from Transferee. The acceptance by Landlord of
the payment of Rent following any assignment or other transfer prohibited by
this Article shall not be deemed to be a consent by Landlord to any such
assignment or other transfer nor shall the same be deemed to be a waiver of any
right or remedy of Landlord hereunder.
F. Additional Provisions Respecting Transfers. Without limiting
Landlord's right to withhold its consent to any transfer by Tenant, and
regardless of whether Landlord shall have consented to any such transfer,
neither Tenant nor any other person having an interest in the possession, use or
occupancy of the Premises or any part thereof shall enter into any lease,
sublease, license, concession, assignment or other transfer or agreement for
possession, use or occupancy of all or any portion of the Premises, which
provides for rental or other payment for such use, occupancy or utilization
based, in whole or in part, on the net income or profits derived by any person
or entity from the space so leased, used or occupied, and any such purported
lease, sublease, license, concession, assignment or other transfer or agreement
shall be absolutely void and ineffective as a conveyance of any right or
interest in the possession, use or occupancy of all or any part of the Premises.
There shall be no deduction from the rental payable under any sublease or other
transfer from the amount thereof passed on to any person or entity, for any
expenses or costs related in any way to the subleasing or transfer of such
place.
If Landlord shall consent to any Transfer, Tenant shall in consideration
therefor, pay to Landlord as Additional Rent an amount equal to seventy-five
(75%) percent of the Transfer Consideration, or Landlord may elect to recapture
the Transferred portion of the Premises and terminate this Lease with respect to
that portion only. For purposes of this paragraph, the term Transfer
Consideration shall mean in any Lease Year (i) any rents, additional charges or
other consideration payable to Tenant by the transferee of the Transfer which is
in excess of the Base Rent and Overhead Rent accruing during such Lease Year,
(ii) all sums paid for the sale or rental of Tenant's fixtures, leasehold
improvements, equipment, furniture or other personal property in excess of the
fair market sale or rental value thereof as of the date of the Transfer and
(iii) all sums paid for services provided by Tenant to the transferee
(including, without limitation, secretarial, word processing, receptionist,
conference rooms, and library) in excess of the fair market value of such
services. Landlord shall have the right to audit Tenant's books and records
upon reasonable notice to determine the amount of Transfer Consideration payable
to Landlord. In the event such audit reveals an understatement of Transfer
Consideration in excess of five percent (5%) of the actual Transfer
Consideration due Landlord, Tenant shall pay for the cost of such audit within
ten (10) days after Landlord's written demand for same.
14. TENANT'S INSURANCE COVERAGE
A. General. Tenant agrees that, at all times during the Lease Term
(as well as prior and subsequent thereto if Tenant or any of Tenant's Agents
should then use or occupy any portion of the Premises), it will keep in force,
with an insurance company licensed to do business in the State of Florida, and
at least A+IX-rated in the most current edition of Best's Insurance Reports and
acceptable to Landlord, (i) without deductible in excess of $5,000.00,
comprehensive general liability insurance, including coverage for bodily injury
and death, property damage and personal injury and contractual liability as
referred to below, in the amount of not less than the amount set forth in the
BLI Rider, combined single limit per occurrence for injury (or death) and
damages to property, (ii) with deductible of not more than Five Thousand Dollars
($5,000.00), insurance on an "All Risk or Physical Loss" basis, including
sprinkler leakage, vandalism, malicious mischief, fire and extended coverage,
covering all improvements to the Premises, fixtures, furnishings, removable
floor coverings, equipment, signs and all other decoration or stock in trade, in
the amounts of not less than the full replacement value thereof, and (iii)
workmen's compensation and employer's liability insurance, if required by
statute. Such policies will: (i) include Landlord and such other parties as
Landlord may reasonably designate as additional insured's, (ii) be considered
primary insurance, (iii) include within the terms of the policy or by
contractual liability endorsement coverage insuring Tenant's indemnity
obligations under paragraph 19, and (v) provide that it may not be canceled or
changed without at least thirty (30) days prior written notice from the company
providing such insurance to each party insured thereunder. Tenant will also
maintain throughout the Lease Term worker's compensation insurance with not less
than the maximum statutory limits of coverage.
B. Evidence. The insurance coverages to be provided by Tenant will
be for a period of not less than one year. At least thirty (30) days prior to
the Commencement Date, Tenant will deliver to Landlord original certificates of
all such paid-up insurance; thereafter, at least thirty (30) days prior to the
expiration of any policy Tenant will deliver to Landlord such original
certificates as will evidence a paid-up renewal or new policy to take the place
of the one expiring.
15. LANDLORD'S INSURANCE COVERAGE
A. General. Landlord will at all times during the Lease Term
maintain a policy or policies of insurance insuring the Building against loss or
damage by fire, explosion or
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other hazards and contingencies typically covered by insurance for an amount
acceptable to the mortgagees encumbering the Building. Landlord reserves the
right to self insure in lieu of maintaining such policies.
B. Tenant's Acts. Tenant will not do or permit anything to be done
upon or bring or keep or permit anything to be brought or kept upon the Premises
which will increase Landlord's rate of insurance on the Building. If by reason
of the failure of Tenant to comply with the terms of this Lease, or by reason of
Tenant's occupancy (even though permitted or contemplated by this Lease), the
insurance rate shall at any time be higher than it would otherwise be, Tenant
will reimburse Landlord for that part of all insurance premiums charged because
of such violation or occupancy by Tenant. Tenant agrees to comply with any
requests or recommendation made by Landlord's insurance underwriter inspectors.
16. WAIVER OF RIGHT OF RECOVERY
A. General. Except as provided in Section 39, neither Landlord nor
Tenant shall be liable to the other for any damage to any building, structure or
other tangible property, or any resulting loss of income, or losses under
worker's compensation laws and benefits, even though such loss or damage might
have been occasioned by the negligence of such party, its agents or employees.
The provisions of this Section shall not limit the indemnification for liability
to third parties pursuant to Section 19. As used in this Section 16.A.,
"damage" refers to any loss, destruction or other damage.
B. Exclusions. Tenant acknowledges that Landlord will not carry
insurance on improvements, furniture, furnishings, trade fixtures, equipment
installed in or made to the Premises by or for Tenant, and Tenant agrees that
Tenant, and not Landlord, will be obligated to promptly repair any damage
thereto or replace the same.
17. DAMAGE OR DESTRUCTION BY CASUALTY
A. Absolute Right to Terminate. If by fire or other casualty the
Premises are damaged or destroyed to the extent of twenty five-percent (25%) or
more of the insurable value thereof, or the Building is damaged or destroyed to
the extent of twenty-five per cent (25%) or more of the insurable value thereof,
Landlord will have the option of terminating this Lease or any renewal thereof
by serving written notice upon Tenant within one hundred and eighty (180) days
from the date of the casualty and any prepaid Rent or Additional Rent will be
prorated as of the date of destruction and the unearned portion of such Rent
will be refunded to Tenant without interest.
B. Qualified Right to Terminate. If by fire or other casualty either
the Premises or the Building is damaged or destroyed to the extent of less than
twenty-five per cent (25%) but more than ten percent (10%) of the insurable
value of the Premises or the Building (as applicable) (or the Premises or
Building are damaged to a lesser degree but Section 17C does not apply because
of the number of years remaining in the Lease Term), then Landlord may, so long
as it treats Tenant and similarly situated tenants in a nondiscriminatory
manner, either terminate this Lease by serving written notice upon Tenant within
one hundred and eighty (180) days of the date of destruction or Landlord may
restore the Premises.
C. Obligation to Restore. If by fire or other casualty either the
Premises or the Building is destroyed or damaged, but only to the extent of ten
percent (10%) or less of the insurable value of the Premises or the Building (as
applicable), and, also, the unexpired Lease Term, including any previously
exercised renewal option, is more than two (2) years, then Landlord will restore
the Premises.
D. Rent Adjustments. In the event of restoration by Landlord, all
Base Rent and Additional Rent paid in advance shall be apportioned as of the
date of damage or destruction and all such Base Rent and Additional Rent as
above described thereafter accruing shall be equitably and proportionately
adjusted according to the nature and extent of the destruction or damage,
pending substantial completion of rebuilding, restoration or repair. In the
event the destruction or damage is so extensive as to make it unfeasible for
Tenant to conduct any of Tenant's business in the Premises, Rent and Additional
Rent under this Lease will be abated until the Premises are substantially
restored by Landlord or until Tenant resumes use and occupancy of the Premises,
whichever shall first occur. In lieu of abating Rent and Additional Rent as
provided above, Landlord shall have the right to temporarily or permanently
relocate Tenant to other space. Landlord will not be liable for any damage to
or any inconvenience or interruption of business of Tenant or any of Tenant's
Agents occasioned by fire or other casualty.
E. Qualifications. Said restoration, rebuilding or repairing will
exist and will be at Landlord's sole cost and expense, subject to the
availability of applicable insurance proceeds. Landlord shall have no duty to
restore, rebuild or replace Tenant's personal property and trade fixtures.
Notwithstanding anything to the contrary in this Lease, including, but not
limited to this Section 17A, Landlord's obligation(s) to repair, rebuild or
restore the Building or the Premises shall exist (i) only to the extent of
insurance proceeds received by Landlord in connection with the condition or
event which gave rise to Landlord's obligation to repair, rebuild or restore
and/or (ii) only so long as the area unaffected by the casualty may, as
determined by Landlord using reasonable business judgment, be restored as a
profitable, self functioning unit.
18. CONDEMNATION AND EMINENT DOMAIN
A. Absolute Right to Terminate. If all or a material part of the
Premises or the Building or the parking spaces is taken for any public or quasi-
public use under any governmental law, ordinance or regulation or by right of
eminent domain or by purchase in lieu thereof, and the taking would prevent or
materially interfere with the use of the Premises for the purpose for which they
are then being used, this Lease will terminate and the Rent and Additional Rent
will be abated during the unexpired portion of this Lease effective on the date
physical possession is taken by the condemning authority. Tenant will have no
claim to the condemnation award.
B. Obligation to Restore. In the event an immaterial part of the
Premises or the Building or the parking spaces is taken for any public or quasi-
public use under any governmental law, ordinance or regulation, or by right of
eminent domain or by purchase in lieu thereof, and this Lease is not terminated
as provided in subsection A above, then Landlord shall, subject to the remaining
provisions of this Section, at Landlord's expense, restore the Premises to the
extent necessary to make them reasonably tenantable. The Rent and Additional
Rent payable under this Lease during the unexpired portion of the Lease Term
shall be adjusted to such an extent as may be fair and reasonable under the
circumstances. Tenant shall have no claim to the condemnation award with
respect to the leasehold estate but, in a subsequent, separate proceeding, may
make a separate claim for trade fixtures installed in the Premises by and at the
expense of Tenant and Tenant's moving expense. In no event will Tenant have any
claim for the value of the unexpired Lease Term.
C. Qualifications. Notwithstanding the foregoing, Landlord's
obligation to restore exists (i) only if and/or to the extent, that the
condemnation or similar award received by Landlord is sufficient to compensate
Landlord for its loss and its restoration costs and/or (ii) the area unaffected
by the
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condemnation or similar proceeding may, as determined by Landlord's reasonable
business judgment, be restored as a profitable, and self functioning unit.
19. LIMITATION OF LANDLORD'S LIABILITY; INDEMNIFICATION
A. Personal Property. All personal property placed or moved into the
Building will be at the sole risk of Tenant or other owner. Landlord will not
be liable to Tenant or others for any damage to person or property arising from
environmental concerns, as hereafter defined, theft, vandalism, HVAC
malfunction, the bursting or leaking of water pipes, any act or omission of any
cotenant or occupant of the Building or of any other person, or otherwise.
B. Limitations. Notwithstanding any contrary provision of this
Lease: (i) Tenant will look solely (to the extent insurance coverage is not
applicable or available) to the interest of Landlord (or its successor as
Landlord hereunder) in the Premises for the satisfaction of any judgment or
other judicial process requiring the payment of money as a result of any
negligence or breach of this Lease by Landlord or its successor or of Landlord's
managing agent (including any beneficial owners, partners, corporations and/or
others affiliated or in any way related to Landlord or such successor or
managing agent) and Landlord has no personal liability hereunder of any kind,
and (ii) Tenant's sole right and remedy in any action or proceeding concerning
Landlord's reasonableness (where the same is required under this Lease) will be
an action for declaratory judgment and/or specific performance.
C. Indemnity. Tenant agrees to indemnify, defend and hold harmless
Landlord and its agents from and against all claims, causes of actions,
liabilities, judgments, damages, losses, costs and expenses, including
reasonable attorneys' fees and costs, including appellate proceedings and
bankruptcy proceedings, incurred or suffered by Landlord and arising from or in
any way connected with the Premises or the use thereof or any acts, omissions,
neglect or fault of Tenant or any of Tenant's Agents, including, but not limited
to, any breach of this Lease or any death, personal injury or property damage
occurring in or about the Premises or the Building or arising from Environmental
concerns, as hereafter defined. Tenant will reimburse Landlord upon request for
all costs incurred by Landlord in the interpretation and enforcement of any
provisions of this Lease and/or the collection of any sums due to Landlord under
this Lease, including collection of agency fees, and reasonable attorneys' fees
and costs, regardless of whether litigation is commenced, and through all
appellate actions and proceedings, including bankruptcy proceedings, if
litigation is commenced. The foregoing claims, causes of actions, liabilities,
judgments, damages, losses, costs and expenses shall include but not be limited
to any of same arising from Tenant's failure to comply with any of the
requirements of Americans with Disabilities Act ("ADA") or Florida Accessibility
Code ("FAC") within the Premises.
20. RELOCATION OF TENANT
A. General. Recognizing that the Building is large and the needs of
tenants as to space may vary from time to time, and in order for Landlord to
accommodate Tenant and prospective tenants, Landlord expressly reserves the
right, prior to and/or during the Lease Term, at Landlord's sole expense, to
move Tenant from the Premises and relocate Tenant in other space of Landlord's
choosing of approximately the same dimensions and size within the Building (or
additions to the Building or new construction related to the Building or the
campus in which Building is located), which other space will be decorated by
Landlord at its expense. Landlord shall, in exercising its right to relocate the
Tenant, make said decision in full consideration and deference to the nature of
Tenant's business which business operates on a twenty-four (24) hour basis,
seven (7) days per week. Landlord acknowledges that because of the nature of
Tenant's business it is in, it is of the utmost important that Tenant be on-line
100% of the time and if not, Tenant would sustain substantial and detrimental
losses. Accordingly, if the Landlord elects to relocate the Tenant, as
provided in this Article 20, the Landlord shall, at its expenses, cooperate
with the Tenant in effectuating a plan or program so as to ensure that the
business of the Tenant will not be interrupted during the course of the
relocation. Landlord may use decorations and materials from the existing
Premises, or other materials, so that the space in which Tenant is relocated
will be comparable in its interior design and decoration to the space from which
Tenant is removed.
B. No Interference. During the relocation period Landlord will use
reasonable efforts not to unduly interfere with Tenant's business activities and
Landlord agrees to substantially complete the relocation within a reasonable
time under all then existing circumstances.
C. Premises. This Lease and each of its terms and conditions will
remain in full force and effect and be applicable to any such new space and such
new space will be deemed to be the Premises demised hereunder; upon request
Tenant will execute such documents which may be requested to evidence,
acknowledge and confirm the relocation (but it will be effective even in the
absence of such confirmation).
D. Costs. Landlord's obligation for expenses of removal and
relocation will be the actual cost of relocating and decorating Tenant's new
space, and Tenant agrees that Landlord's exercise of its election to remove and
relocate Tenant will not release Tenant in whole or in part from its obligations
hereunder for the full Lease Term. No rights granted in this Lease to Tenant,
including the right of peaceful possession and quiet enjoyment, will be deemed
breached or interfered with by reason of Landlord's exercise of the relocation
right reserved herein.
E. Notice. If Landlord exercises its relocation right under this
paragraph, (i) Tenant will be given ninety (90) days prior notice in writing and
(ii) Landlord will reimburse Tenant for the reasonable cost of telephone
relocation necessitated by the exercise of said right of relocation.
21. COMPLIANCE WITH LAWS AND PROCEDURES
A. Compliance. Tenant, at its sole cost, will promptly comply with
all applicable laws, guidelines, rules, regulations and requirements, whether of
federal, state, or local origin, applicable to the Premises and the Building,
including, but not limited to, the Americans with Disabilities Act, 42 U.S.C.
(S) 12101 et seq, the FAC, and those for the correction, prevention and
abatement of nuisance, unsafe conditions, or other grievances arising from or
pertaining to the use or occupancy of the Premises. Tenant acknowledges that
(i) the Premises and the parking facilities may contain potentially hazardous
substances, including, but not limited to, asbestos containing materials, radon
gas, mineral fibers, and other like materials (all of such materials are
referred to herein as "Environmental Concerns") and (ii) Tenant has been advised
that the Premises and the Building do contain asbestos containing materials.
Accordingly, Tenant agrees that Tenant and Tenant's Agents shall comply with all
operation and maintenance programs and guidelines implemented or promulgated
from time to time by Landlord or its consultants, including, but not limited to,
those matters set forth in subsections B and C below, in order to reduce the
risk to Tenant, Tenant's Agents or any other tenants of the Building of injury
from Environmental Concerns. Tenant at its sole cost and expense shall be
solely responsible for taking any and all measures which are required to comply
with the requirements of the ADA and the FAC within the Premises. Any
Alterations to the Premises made by or on behalf of Tenant for the purpose of
complying with the
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ADA and FAC or which otherwise require compliance with the ADA and FAC shall be
done in accordance with this Lease; provided, that Landlord's consent to such
Alterations shall not constitute either Landlord's assumption, in whole or in
part, of Tenant's responsibility for compliance with the ADA and FAC, or
representation or confirmation by Landlord that such Alterations comply with the
provisions of the ADA and FAC.
B. Notice Prior to Work. Tenant shall provide thirty (30) days
notice to Landlord prior to the performance by Tenant, Tenant's Agents or
contractors of any repairs, renovation and/or major structural or mechanical
systems maintenance, to the Premises. Such notice shall include a detailed
description of the work contemplated. Tenant shall not perform, or cause to be
performed, any such repair, renovation and/or maintenance without the written
consent of Landlord, and, if such consent is granted, the repair, renovation
and/or maintenance must be performed in accordance with the terms of Landlord's
consent.
C. Indemnification. Tenant shall indemnify, defend, and hold
harmless Landlord from and against any and all claims or liability arising from
the performance of the repair, renovation, and/or maintenance described above.
This indemnity shall include, but not be limited to, claims or liabilities
asserted against Landlord based upon negligence, strict liability or other
liability by operation of law to any third party or government entity, and all
costs, attorney's fees, expenses, and liabilities incurred by Landlord in the
defense of any such claim. Landlord shall defend any such claim at Tenant's
expense by counsel selected by Landlord. Furthermore, as a material part of the
consideration to Landlord for the entering into of this Lease, Tenant assumes
all risk of damages to property or injury to persons in, upon, or about the
Premises arising from any act or omission of Tenant, Tenant's Agents, employees,
contractors, and invitees, resulting in the release or threatened release of
friable asbestos, or causing nonfriable asbestos to become friable. Tenant
agrees to bear the expense of whatever preventive or abatement measures are
required by Landlord's consent with respect to friable asbestos or any other
material. Further, Tenant shall be liable for the entire cost of abating and
remediating any such release or threatened release, and Tenant shall indemnify,
defend, and hold harmless Landlord from and against any and all claims or
liability arising therefrom.
D. Radon. In accordance with Florida Law, the following disclosure
is hereby made:
RADON GAS: Radon is a naturally occurring radioactive gas that, when it
has accumulated in a building in sufficient quantities, may present health
risk to persons who are exposed to it over time. Levels of radon that
exceed Federal and State Guidelines have been found in buildings in
Florida. Additional information regarding radon and radon testing may be
obtained from your county public health unit.
22. RIGHT OF ENTRY
Landlord and its agents will have the right to enter the Premises
during all reasonable hours to make necessary repairs to the Premises. In the
event of an emergency, Landlord or its agents may enter the Premises at any
time, without notice, to appraise and correct the emergency condition. Said
right of entry will, after reasonable notice, likewise exist for the purpose of
removing placards, signs, fixtures, alterations, or additions which do not
conform to this Lease. Landlord or its agents will have the right to exhibit
the Premises at any time, upon reasonable prior notice to Tenant, to
prospective tenants within one hundred and twenty days (120) before the
Expiration Date of the Lease.
23. DEFAULT
A. Events of Default By Tenant. If (1) Tenant vacates, abandons or
surrenders all or any part of the Premises prior to the Expiration Date, or (2)
Tenant fails to fulfill any of the terms or conditions of this Lease or any
other lease heretofore made by Tenant for space in the Building or (3) the
appointment of a trustee or a receiver to take possession of all or
substantially all of Tenant's assets occurs, or if the attachment, execution or
other judicial seizure of all or substantially all of Tenant's assets located at
the Premises, or of Tenant's interest in this Lease, occurs, or (4) Tenant or
any of its successors or assigns or any guarantor of this Lease ("Guarantor")
should file any voluntary petition in bankruptcy, reorganization or arrangement,
or an assignment for the benefit of creditors or for similar relief under any
present or future statute, law or regulation relating to relief of debtors, or
(5) Tenant or any of its successors or assigns or any Guarantor should be
adjudicated bankrupt or have an involuntary petition in bankruptcy,
reorganization or arrangement filed against it, or (6) Tenant shall permit,
allow or suffer to exist any lien, judgment, writ, assessment, charge,
attachment or execution upon Landlord's or Tenant's interest in this Lease or to
the Premises, and/or the fixtures, improvements and furnishings located thereon,
or (7) Tenant's net worth decreases by more than ten (10%) percent from that as
existed at the Effective Date hereof (based on Tenant's 1996 financial
statement) or other material adverse change occurs in Tenant's financial
condition; and Tenant shall not have cured such default and restored Tenant to
the required condition within thirty (30) days of written notice from the
Landlord, then Tenant shall be in default hereunder.
B. Tenant's Grace Periods. If (1) Tenant fails to pay Rent or
Additional Rent on the date due or (2) Tenant fails to cure any other default
within twenty (20) days after notice from Landlord specifying the nature of such
default (unless such default is of a nature that it cannot be completely cured
within said twenty (20) day period and steps have been diligently commenced to
cure or remedy it within such twenty (20) day period and are thereafter pursued
with reasonable diligence and in good faith), then Landlord shall have such
remedies as are provided under this Lease and/or under the laws of the State of
Florida.
C. Repeated Late Payment. Regardless of the number of times of
Landlord's prior acceptance of late payments and/or late charges, (i) if
Landlord notifies Tenant twice in any 12-month period that Base Rent or any
Additional Rent has not been paid when due, then any other late payment within
such 12-month period shall automatically constitute a default hereunder and (ii)
the mere acceptance by Landlord of late payments in the past shall not,
regardless of any applicable laws to the contrary, thereafter be deemed to waive
Landlord's right to strictly enforce this Lease, including Tenant's obligation
to make payment of Rent on the exact day same is due, against Tenant.
D. Landlord's Default. If Tenant asserts that Landlord has failed to
meet any of its obligations under this Lease, Tenant shall provide written
notice ("Notice of Default") to Landlord specifying the alleged failure to
perform, and Tenant shall send by certified mail, return receipt requested, a
copy of such Notice of Default to any and all mortgage holders, provided that
Tenant has been previously advised of the address(es) of such mortgage
holder(s). Landlord shall have a thirty (30) day period after receipt of the
Notice of Default in which to commence curing any non-performance by Landlord,
and Landlord shall have as much time thereafter to complete such cure as is
necessary so long as Landlord's cure efforts are diligent and continuous. If
Landlord has not begun the cure within thirty (30) days of receipt of the Notice
of Default, or Landlord does not thereafter diligently and continuously attempt
to cure, then Landlord shall be in default under this Lease. If Landlord is in
default under this Lease, then the mortgage holder(s) shall have an additional
thirty (30) days, after receipt of a second written notice from Tenant, within
which to cure such default or, if such
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default cannot be cured within that time, then such additional time as may be
necessary so long as their efforts are diligent and continuous.
24. LANDLORD'S REMEDIES FOR TENANT'S DEFAULT
A. Landlord's Options. If Tenant is in default of this Lease,
Landlord may, at its option, in addition to such other remedies as may be
available under Florida law:
(1) terminate this Lease and Tenant's right of possession; or
(2) terminate Tenant's right to possession but not the Lease
and/or proceed in accordance with any and all provisions of paragraph B below.
B. Landlord's Remedies.
(1) Landlord may without further notice reenter the Premises
either by force or otherwise and dispossess Tenant by summary proceedings or
otherwise, as well as the legal representative(s) of Tenant and/or other
occupant(s) of the Premises, and remove their effects and hold the Premises as
if this Lease had not been made, and Tenant hereby waives the service of notice
of intention to re-enter or to institute legal proceedings to that end; and/or
at Landlord's option,
(2) All Rent and all Additional Rent for the balance of the Term
will, at the election of Landlord, be accelerated and the present worth of same
for the balance of the Lease Term, net of amounts actually collected by
Landlord, shall become immediately due thereupon and be paid, together with all
expenses of every nature which Landlord may incur such as (by way of
illustration and not limitation) those for attorneys' fees, brokerage,
advertising, and refurbishing the Premises in good order or preparing them for
re-rental. For purposes of this clause (2), "present worth" shall be computed
by discounting such amount to present worth at a discount rate equal to one
percentage point above the discount rate then in effect at the Federal Reserve
Bank nearest to the location of the Building; and/or at Landlord's option,
(3) Landlord may re-let the Premises or any part thereof, either
in the name of Landlord or otherwise, for a term or terms which may at
Landlord's option be less than or exceed the period which would otherwise have
constituted the balance of the Lease Term, and may grant concessions or free
rent or charge a higher rental than that reserved in this Lease; and/or at
Landlord's option,
(4) Tenant or its legal representative(s) will also pay to
Landlord as liquidated damages any deficiency between the Rent and all
Additional Rent hereby reserved and/or agreed to be paid and the net amount, if
any, of the rents collected on account of the lease or leases of the Premises
for each month of the period which would otherwise have constituted the balance
of the Lease Term.
25. LANDLORD'S RIGHT TO PERFORM FOR TENANT'S ACCOUNT
If Tenant fails to observe or perform any term or condition of this
Lease within the grace period, if any, applicable thereto, then Landlord may
immediately or at any time thereafter perform the same for the account of
Tenant. If Landlord makes any expenditure or incurs any obligation for the
payment of money in connection with such performance for Tenant's account
(including reasonable attorneys' fees and costs in instituting, prosecuting
and/or defending any action or proceeding through appeal), the sums paid or
obligations incurred, with interest at eighteen percent (18%) per annum, will be
paid by Tenant to Landlord within ten (10) days after rendition of a bill or
statement to Tenant. In the event Tenant in the performance or non-performance
of any term or condition of this Lease should cause an emergency situation to
occur or arise within the Premises or in the Building, Landlord will have all
rights set forth in this paragraph immediately without the necessity of
providing Tenant any advance notice.
26. LIENS
A. General. In accordance with the applicable provisions of the
Florida Construction Lien Act and specifically Florida Statutes, Section 713.10,
no interest of Landlord whether personally or in the Premises, or in the
underlying land or Building of which the Premises are a part or the leasehold
interest aforesaid shall be subject to liens for improvements made by Tenant or
caused to be made by Tenant hereunder. Further, Tenant acknowledges that
Tenant, with respect to improvements or alterations made by Tenant or caused to
be made by Tenant hereunder, shall promptly notify the contractor making such
improvements to the Premises of this provision exculpating Landlord's liability
for such liens.
B. Default. Notwithstanding the foregoing, if any construction lien
or other lien, attachment, judgment, execution, writ, charge or encumbrance is
filed against the Building or the Premises or this leasehold, or any
alterations, fixtures or improvements therein or thereto, as a result of any
work action or inaction done by or at the direction of Tenant or any of Tenant's
Agents, Tenant will discharge same of record within ten (10) days after the
filing thereof, failing which Tenant will be in default under this Lease.
Further, in the event, that the Tenant shall fail to discharge same of record
within twenty (20) days after the filing thereof, without waiving Tenant's
default, Landlord, in addition to all other available rights and remedies,
without further notice, may discharge the same of record by payment, bonding or
otherwise, as Landlord may elect, and upon request Tenant will reimburse
Landlord for all costs and expenses so incurred by Landlord plus interest
thereon at the rate of eighteen percent (18%) per annum, together with an
administrative fee of $2,500.00.
27. NOTICES
Notices to Tenant under this Lease will be addressed to Tenant and
mailed or delivered to the address set forth for Tenant in the BLI Rider.
Notices to Landlord under this Lease (as well as the required copies thereof)
will be addressed to Landlord (and its agents) and mailed or delivered to the
address set forth in the BLI Rider. Notices will be personally delivered or
given by registered or certified mail, return receipt requested. As used herein,
personal delivery includes delivery by overnight courier. Notices delivered
personally will be deemed to have been given as of the date of delivery and
notices given by mail will be deemed to have been given forty-eight (48) hours
after the time said properly addressed notice is placed in the mail. Each party
may change its address from time to time by written notice given to the other as
specified above.
28. MORTGAGE; ESTOPPEL CERTIFICATE; SUBORDINATION
Landlord has the unrestricted right to convey, mortgage and refinance
the Building, or any part thereof. Tenant agrees, within seven (7) days after
notice, to execute and deliver to Landlord or its mortgagee or designee such
instruments as Landlord or its mortgagee may require, certifying the amount of
the Security Deposit and whether this Lease is in full force and effect, and
listing any modifications. This estoppel certificate is intended to be for the
benefit of Landlord, any purchaser or mortgagee of Landlord, or any purchaser or
assignee of Landlord's mortgage. The estoppel certificate will also contain
such other information as Landlord or its designee may request. This Lease is
and at all times will be subject and subordinate to all
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present and future mortgages or ground leases which may affect the Building
and/or the parking lot, and to all recastings, renewals, modifications,
consolidations, replacements, and extensions of any such mortgage(s), and to all
increases and voluntary and involuntary advances made thereunder. The foregoing
will be self-operative and no further instrument of subordination will be
required. In the event that the holder ("Lender") of any encumbrance
("Mortgage") on the Building or any other person acquires title to the Building
pursuant to the exercise of any remedy provided for in the Mortgage or by reason
of the acceptance of a deed in lieu of foreclosure (the Lender, any other such
person and their participants, successors and assigns being referred to herein
as the "Purchaser"), Tenant covenants and agrees to attorn to and recognize and
be bound to Purchaser as its new Landlord, and except as provided below, this
Lease shall continue in full force and effect as a direct Lease between Tenant
and Purchaser, except that, notwithstanding anything to the contrary herein or
in the Lease, the provisions of the Mortgage will govern with respect to the
disposition of proceeds of insurance policies or condemnation or eminent domain
awards. So long as the Lease is in full force and effect and Tenant is not in
default under any provision of this Lease, and no event has occurred that has
continued to exist for a period of time (after notice, if any, required by this
Lease) as would entitle Landlord to terminate this Lease or would cause without
further action by Landlord, the termination of this Lease or would entitle
Landlord to dispossess the Tenant thereunder:
A. The right of possession of Tenant to the Premises shall not be
terminated or disturbed by any steps or proceedings taken by Lender in the
exercise of any of its rights under the Mortgage or the indebtedness secured
thereby;
B. This Lease shall not be terminated or affected by said exercise of
any remedy provided for in the Mortgage, and any sale by Lender of the Building
pursuant to the exercise of any rights and remedies under the Mortgage or
otherwise, shall be made subject to this Lease and the rights of Tenant
hereunder.
C. In no event shall Lender or any other Purchaser be:
(1) liable for any act or omission of Landlord or any prior
landlord;
(2) liable for the return of any security deposit;
(3) subject to any offsets or defenses that the Tenant might have
against Landlord or any prior landlord;
(4) bound by any payment or rent or additional rent that Tenant
might have paid to Landlord or any prior landlord for more than the current
month; or
(5) bound by any amendment or modifications of the Lease made
without Lender's or such other Purchaser's prior written consent.
D. Provided that Landlord has previously notified Tenant of Lender's
address for notice, Tenant agrees to give prompt written notice to Lender of any
default by Landlord that would entitle Tenant to cancel this Lease, and agrees
that notwithstanding any provision of this Lease, no notice of cancellation
thereof given on behalf of Tenant shall be effective unless Lender has received
said notice and has failed within 30 days of the date of receipt thereof to cure
Landlord's default, or if the default cannot be cured within 30 days, has failed
to commence and to diligently pursue the cure of Landlord's default which gave
rise to such right of cancellation. Tenant further agrees to give such notices
to any successor of Lender, provided that such successor shall have given
written notice of Tenant of its acquisition of Lender's interest in the Mortgage
and designated the address to which such notices are to be sent.
E. Tenant acknowledges that Landlord may execute and deliver to
Lender an Assignment of Leases and Rents conveying the rentals under this Lease
as additional security for the loan secured by the Mortgage, and Tenant hereby
expressly consents to such Assignment.
F. Tenant agrees to certify in writing to Lender, upon request,
whether or not any default on the part of Landlord exists and the nature of any
such default.
G. The foregoing provisions shall be self-operative and effective
without the execution of any further instruments on the part of Lender or
Tenant. However, Tenant agrees to execute and deliver to Lender or to any
person to whom Tenant herein agrees to attorn such other instruments as either
shall request in order to effectuate said provisions.
29. ATTORNMENT AND MORTGAGEE'S REQUEST
A. Attornment. If any mortgagee of the Building comes into
possession or ownership of the Premises, or acquires Landlord's interest by
foreclosure of the mortgage or otherwise, upon the mortgagee's request Tenant
will attorn to the mortgagee.
B. Mortgage Modification. If a mortgagee of the Building requests
modifications to this Lease as a condition to disbursing any monies to be
secured by the mortgage, Tenant agrees that within seven (7) days after request
by the mortgagee Tenant will execute, acknowledge and deliver to the mortgagee
an agreement, in form and substance satisfactory to the mortgagee, evidencing
such modifications, provided they do not increase Tenant's obligations under
this Lease or materially adversely affect the leasehold interest created by this
Lease.
C. Estoppel Letter. Tenant agrees that within seven (7) days after
request by any mortgagee of the Building, Tenant will execute, acknowledge and
deliver to the mortgagee a notice in form and substance satisfactory to the
mortgagee (as prepared by Landlord), setting forth such information as the
mortgagee may require with respect to this Lease and/or the Premises. If for
any reason Tenant does not timely comply with the provisions of this paragraph,
Tenant will be deemed to have confirmed that this Lease is in full force and
effect with no defaults on the part of either party and without any right of
Tenant to offset, deduct or withhold any Rent or Additional Rent.
30. TRANSFER BY LANDLORD
If Landlord's interest in the Building terminates by reason of a bona
fide sale or other transfer, Landlord will, upon transfer of the Security
Deposit to the new owner, thereupon be released from all further liability to
Tenant under this Lease. At the expiration or termination of the Lease Term,
Tenant shall deliver to Landlord all keys to the Premises and make known to
Landlord the location and combination of all safes, locks and similar items.
31. SURRENDER OF PREMISES; HOLDING OVER
A. Surrender. Tenant agrees to surrender the Premises to Landlord on
the Expiration Date (or sooner termination of the Lease Term pursuant to other
applicable provisions hereof) in as good condition as they were at the
commencement of Tenant's occupancy, ordinary wear and tear, and damage by fire
and windstorm excepted.
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<PAGE>
B. Restoration. In all events, Tenant will promptly restore all
damage caused in connection with any removal of Tenant's personal property.
Tenant will pay to Landlord, upon request, all damages that Landlord may suffer
on account of Tenant's failure to surrender possession as and when aforesaid and
will indemnify Landlord against all liabilities, costs and expenses (including
all reasonable attorneys' fees and costs if any) arising out of Tenant's delay
in so delivering possession, including claims of any succeeding tenant.
C. Removal. Upon expiration of the Lease Term, at Landlord's option,
Tenant may not be required to remove from the Premises Building Standard Items
(as defined in the Work Letter), all of such Building Standard Items are the
property of Landlord.
D. Holdover. If Tenant shall be in possession of the Premises after
the expiration of the Term, in the absence of any agreement extending the Term,
the tenancy under this Lease shall become one from month to month, terminable by
either party on thirty (30) days' prior notice, and shall be subject to all of
the terms and conditions of this Lease as though the Term had been extended from
month to month, except that (i) the Base Rent payable hereunder for each month
during said holdover period shall be equal to one and one-half times (1-1/2) the
monthly installment of Base Rent payable during the last month of the Term and
(ii) all Overhead Rent payable hereunder shall be prorated for each month during
such holdover period.
E. No Surrender. No offer of surrender of the Premises, by delivery
to Landlord or its agent of keys to the Premises or otherwise, will be binding
on Landlord unless accepted by Landlord, in writing, specifying the effective
surrender of the Premises. At the expiration or termination of the Lease Term,
Tenant shall deliver to Landlord all keys to the Premises and make known to
Landlord the location and combinations of all locks, safes and similar items.
No receipt of money by Landlord from Tenant after the Expiration Date (or sooner
termination) shall reinstate, continue or extend the Lease Term, unless Landlord
specifically agrees to same in writing signed by Landlord at the time such
payment is made by Tenant.
32. NO WAIVER; CUMULATIVE REMEDIES
A. No Waiver. No waiver of any provision of this Lease by either
party will be deemed to imply or constitute a further waiver by such party of
the same or any other provision hereof. The rights and remedies of Landlord
under this Lease or otherwise are cumulative and are not intended to be
exclusive and the use of one will not be taken to exclude or waive the use of
another, and Landlord will be entitled to pursue all rights and remedies
available to landlords under the laws of the State of Florida. Landlord, in
addition to all other rights which it may have under this Lease, hereby
expressly reserves all rights in connection with the Building or the Premises
not expressly and specifically granted to Tenant under this Lease and Tenant
hereby waives all claims for damages, loss, expense, liability, eviction or
abatement it has or may have against Landlord on account of Landlord's exercise
of its reserved rights, including, but not limited to, Landlord's right to alter
the existing name, address, style or configuration of the Building or the Common
Areas, signage, suite identifications, parking facilities, lobbies, entrances
and exits, elevators and stairwells.
B. Rent Payments. No receipt of money by Landlord from Tenant at any
time, or any act, or thing done by, Landlord or its agent shall be deemed a
release of Tenant from any liability whatsoever to pay Rent, Additional Rent, or
any other sums due hereunder, unless such release is in writing, subscribed by a
duly authorized officer or agent of Landlord and refers expressly to this
Section. Any payment by Tenant or receipt by Landlord of less than the entire
amount due at such time shall be deemed to be on account of the earliest sum
due. No endorsement or statement on any check or any letter accompanying any
check or payment shall be deemed an accord and satisfaction. In the case of
such a partial payment or endorsement, Landlord may accept such payment, check
or letter without prejudice to its right to collect all remaining sums due and
pursue all of its remedies under the Lease.
33. WAIVER
LANDLORD AND TENANT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION,
PROCEEDING, OR COUNTERCLAIM INVOLVING ANY MATER WHATSOEVER ARISING OUT OF OR IN
CONNECTION WITH (i) THIS LEASE, (ii) THE PREMISES, (iii) TENANT'S USE OR
OCCUPANCY OF THE PREMISES, OR (iv) THE RIGHT TO ANY STATUTORY RELIEF OR REMEDY.
TENANT FURTHER WAIVES THE RIGHT TO INTERPOSE ANY PERMISSIVE COUNTERCLAIM OF ANY
NATURE IN ANY ACTION OR PROCEEDING COMMENCED BY LANDLORD TO OBTAIN POSSESSION OF
THE PREMISES. IF TENANT VIOLATES THIS PROVISION BY FILING A PERMISSIVE
COUNTERCLAIM, WITHOUT PREJUDICE TO LANDLORD'S RIGHT TO HAVE SUCH COUNTERCLAIM
DISMISSED, THE PARTIES STIPULATE THAT SHOULD THE COURT PERMIT TENANT TO MAINTAIN
THE COUNTERCLAIM, THE COUNTERCLAIM SHALL BE SEVERED AND TRIED SEPARATELY FROM
THE ACTION FOR POSSESSION PURSUANT TO RULE 1.270(b) OF THE FLORIDA RULES OF
CIVIL PROCEDURE OR OTHER SUMMARY PROCEDURES SET FORTH IN SECTION 51.011, FLORIDA
STATUTES (1993). THE WAIVERS SET FORTH IN THIS SECTION ARE MADE KNOWINGLY,
INTENTIONALLY, AND VOLUNTARILY BY TENANT. TENANT FURTHER ACKNOWLEDGES THAT IT
HAS BEEN REPRESENTED IN THE MAKING OF THIS WAIVER BY INDEPENDENT COUNSEL,
SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS
THESE WAIVERS WITH COUNSEL. THIS PROVISION IS A MATERIAL INDUCEMENT TO LANDLORD
IN AGREEING TO ENTER INTO THIS LEASE. In the event of any dispute hereunder, or
any default in the performance of any term or condition of this Lease, the
prevailing party in litigation shall be entitled to recover all costs and
expenses associated therewith, including reasonable attorneys' fees.
34. CONSENTS AND APPROVALS
Intentionally not used.
35. RULES AND REGULATIONS
Tenant agrees to abide by all rules and regulations attached hereto as
Exhibit "C" and incorporated herein by this reference, as reasonably amended and
supplemented from time to time by Landlord. Landlord will not be liable to
Tenant for violation of the same or any other act or omission by any other
tenant.
36. SUCCESSORS AND ASSIGNS
This Lease will be binding upon and inure to the benefit of the
respective heirs, personal and legal representatives, successors and permitted
assigns of the parties hereto.
37. QUIET ENJOYMENT
In accordance with and subject to the terms and provisions of this
Lease, Landlord warrants that it has full right to execute and to perform under
this Lease and to grant the estate demised and that Tenant, upon Tenant's
payment of the required
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<PAGE>
Rent and Additional Rent and performing of all of the terms, conditions,
covenants, and agreements contained in this Lease, shall peaceably and quietly
have, hold and enjoy the Premises during the full Lease Term.
38. ENTIRE AGREEMENT.
This Lease, together with the BLI Rider, exhibits, schedules, addenda
and guaranties (as the case may be) fully incorporated into this Lease by this
reference, contains the entire agreement between the parties hereto regarding
the subject matters referenced herein and supersedes all prior oral and written
agreements between them regarding such matters. This Lease may be modified only
by an agreement in writing dated and signed by Landlord and Tenant after the
date hereof.
39. HAZARDOUS MATERIALS.
A. Representation. Tenant represents, warrants and covenants that
(1) the Premises will not be used for any dangerous, noxious or offensive trade
or business and that it will not cause or maintain a nuisance there, (2) it will
not bring, generate, treat, store, use or dispose of Hazardous Substances at the
Premises, (3) it shall at all times comply with all Environmental Laws (as
hereinafter defined) and shall cause the Premises to comply, and (4) Tenant will
keep the Premises free of any lien imposed pursuant to any Environmental Laws.
Only for purposes of this paragraph entitled "Representation", the term
"Premises" shall mean the Building including Common Areas, parking areas,
greenspace and all other elements thereof.
B. Reporting Requirements. Tenant warrants that it will promptly
deliver to the Landlord, (i) copies of any documents received from the United
States Environmental Protection Agency and/or any state, county or municipal
environmental or health agency concerning the Tenant's operations upon the
Premises; (ii) copies of any documents submitted by the Tenant to the United
States Environmental Protection Agency and/or any state, county or municipal
environmental or health agency concerning its operations on the Premises,
including but not limited to copies of permits, licenses, annual filings,
registration forms and, (iii) upon the request of Landlord, Tenant shall provide
Landlord with evidence of compliance with Environmental Laws.
C. Termination, Cancellation, Surrender. At the expiration or
earlier termination of this Lease, Tenant shall surrender the Premises to
Landlord free of any and all Hazardous Substances and in compliance with all
Environmental Laws and to the complete satisfaction of Landlord. Landlord may
require, at Tenant's sole expense at the end of the term, a clean-site
certification, environmental audit or site assessment.
D. Access and Inspection. Landlord shall have the right but not
the obligation, at all times during the term of this Lease to (i) enter upon and
inspect the Premises, (ii) conduct tests and investigations and take samples to
determine whether Tenant is in compliance with the provisions of this Article,
and (ii) request lists of all Hazardous Substances used, stored or located on
the Premises; the cost of all such inspections, tests and investigations to be
borne by Tenant. Promptly upon the written request of Landlord, from time to
time, Tenant shall provide Landlord, at Tenant's expense, with an environmental
site assessment or environmental audit report prepared by an environmental
engineering firm acceptable to Landlord to assess with a reasonable degree of
certainty the presence or absence of any Hazardous Substances and the potential
costs in connection with abatement, cleanup, or removal of any Hazardous
Substances found on, under, at, or within the Premises. Tenant will cooperate
with Landlord and allow Landlord and Landlord's representatives access to any
and all parts of the Premises and to the records of Tenant with respect to the
Premises for environmental inspection purposes at any time. In connection
therewith, Tenant hereby agrees that Landlord or Landlord's representatives may
perform any testing upon or of the Premises that Landlord deems reasonably
necessary for the evaluation of environmental risks, costs, or procedures,
including soils or other sampling or coring.
E. Violations - Environmental Defaults. Tenant shall give to
Landlord immediate verbal and follow-up written notice of any actual or
threatened spills, releases or discharges of Hazardous Substances on the
Premises, caused by the acts or omissions of Tenant or its agents, employees,
representatives, invitees, licensees, subtenants, customers or contractors.
Tenant covenants to promptly investigate, clean up and otherwise remediate any
spill, release or discharge of Hazardous Substances in or about the Premises or
the Building, including but not limited to those caused by the acts or omissions
of Tenant or its agents, employees, representatives, invitees, licensees,
subtenants, customers or contractors at Tenant's sole cost and expense; such
investigation, clean up and remediation to be performed in accordance with all
Environmental Laws and to the satisfaction of Landlord and after Tenant has
obtained Landlord's written consent. Tenant shall return the Premises to the
condition existing prior to the introduction of any such Hazardous Substances.
(1) In the event of (1) a violation of an Environmental Law, (2) a
release, spill or discharge of a Hazardous Substance on or from the Premises, or
(3) the discovery of an environmental condition requiring response which
violation, release, or condition is attributable to the acts or omissions of
Tenant, its agents, employees, representatives, invitees, licensees, subtenants,
customers, or contractors, or (4) an emergency environmental condition
(collectively "Environmental Defaults"), Landlord shall have the right, but not
the obligation, to immediately enter the Premises, to supervise and approve any
actions taken by Tenant to address the violation, release or environmental
condition; and in the event Tenant fails to immediately address such violation,
release, or environmental condition, or if the Landlord deems it necessary, then
Landlord may perform, at Tenant's expense, any lawful actions necessary to
address the violation, release, or environmental condition.
(2) Landlord has the right, but not the obligation to cure any
Environmental Defaults, has the right to suspend some or all of the operations
of the Tenant until it has determined to its sole satisfaction that appropriate
measures have been taken, and has the right to terminate this Lease upon the
occurrence of an Environmental Default.
F. Additional Rent. Any expenses which the Landlord incurs, which
are to be at Tenant's expense pursuant to this Article, will be considered
Additional Rent under this Lease and shall be paid by Tenant on demand by
Landlord.
G. Assignment and Subletting. Notwithstanding anything to the
contrary in this Lease, the Landlord may condition its approval of any
assignment or subletting by Tenant to an Assignee or Subtenant that in the sole
judgment of the Landlord does not create any additional environmental exposure.
H. Indemnification. Tenant shall indemnify, defend (with counsel
approved by Landlord) and hold Landlord and Landlord's affiliates, shareholders,
directors, officers, employees and agents harmless from and against any and all
claims, judgments, damages (including consequential damages), penalties, fines,
liabilities, losses, suits, administrative proceedings, costs and expenses of
any kind or nature, known or unknown, contingent or otherwise, which arise out
of or in anyway related to the acts or omissions of Tenant, its agents,
employees, representatives, invitees, licensees, subtenants, customers or
contractors during or after the term of this Lease (including, but not limited
to, attorneys', consultant, laboratory and expert fees expert fees and including
without limitation,
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<PAGE>
diminution in the value of the Premises, damages for the loss or restriction on
use of rentable or usable space or of any amenity of the Premises and damages
arising from any adverse impact on marketing of space), arising from or related
to the use, presence, transportation, storage, disposal, spill, release or
discharge of hazardous Substances on or about the Premises. However,
notwithstanding the foregoing, Tenant shall have no responsibility for any
Hazardous Substances, if any, located in the Premises as of the date of the
execution of this Lease.
I. Definitions.
(1) "Hazardous Substance" means, (i) asbestos and any asbestos
containing material and any substance that is then defined or listed in, or
otherwise classified pursuant to, any Environmental Laws or any applicable laws
or regulations as a "hazardous substance", "hazardous material", "hazardous
waste", "infectious waste", "toxic substance", "toxic pollutant" or any other
formulation intended to define, list, or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity, reproductive toxicity, or Toxicity Characteristic
Leaching Procedure (TCLP) toxicity, (ii) any petroleum and drilling fluids,
produced waters, and other wastes associated with the exploration, development
or production of crude oil, natural gas, or geothermal resources and (iii)
petroleum products, polychlorinated biphenyls, urea formaldehyde, radon gas,
radioactive material (including any source, special nuclear, or by-product
material), and medical waste.
(2) "Environmental Laws" collectively means and includes all
present and future laws and any amendments (whether common law, statute, rule,
order, regulation or otherwise), permits, and other requirements or guidelines
of governmental authorities applicable to the Premises and relating to the
environment and environmental conditions or to any Hazardous Substance
(including, without limitation, CERCLA, 42 U.S.C. (S) 9601, et. seq.; the
Resource Conservation and Recovery Act of 1976, 42 U.S.C. (S) 6901, et seq., the
Hazardous Materials Transportation Act, 49 U.S.C. (S) 1801, et seq., the Federal
Water Pollution Control Act, 33 U.S.C. (S)1251, et seq., the Clean Air Act, 33
U.S.C. (S) 7401, et seq., the Clear Air Act, 42 U.S.C. (S)741, et seq., the
Toxic Substances Control Act, 15 U.S.C. (S) 2601-2629, the Safe Drinking Water
Act, 42 U.S.C. (S) 300f-300j, the Emergency Planning and Community Right-To-Know
Act, 42 U.S.C. (S) 1101, et seq., and any so-called "Super Fund" or "Super Lien"
law, any law requiring the filing of reports and notices relating to hazardous
substances, environmental laws administered by the Environmental Protection
Agency, and any similar state and local laws and regulations, all amendments
thereto and all regulations, orders, decisions, and decrees now or hereafter
promulgated thereunder concerning the environment, industrial hygiene or public
health or safety.)
J. Radon. RADON GAS: Radon is a naturally occurring radioactive gas
that, when it has accumulated in a building in sufficient quantities, may
present health risk to persons who are exposed to it over time. Levels of radon
that exceed Federal and State Guidelines have been found in buildings in
Florida. Additional information regarding radon and radon testing may be
obtained from your county public health unit.
40. BANKRUPTCY PROVISIONS.
A. Event of Bankruptcy. If this Lease is assigned to any person or
entity pursuant to the provisions of the United States 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 the 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 this
Section not paid or delivered to Landlord shall be held in trust for the benefit
of Landlord and shall be promptly paid or delivered to Landlord. 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.
B. Additional Remedies. In addition to any rights or remedies
hereinbefore or hereinafter conferred upon Landlord under the terms of this
Lease, the following remedies and provisions shall specifically apply in the
event Tenant is in default of this Lease:
(1) In all events, any receiver or trustee in bankruptcy shall
either expressly assume or reject this Lease within sixty (60) days following
the entry of an "Order for Relief" or within such earlier time as may be
provided by applicable law.
(2) In the event of an assumption of this Lease by a debtor or by
a trustee, such debtor or trustee shall within fifteen (15) days after such
assumption (i) cure any default or provide adequate assurance that defaults will
be promptly cured; (ii) compensate Landlord for actual pecuniary loss or provide
adequate assurance that compensation will be made for actual monetary loss,
including, but not limited to, all attorneys' fees and costs incurred by
Landlord resulting from any such proceedings; and (iii) provide adequate
assurance of future performance.
(3) Where a default exists under this Lease, the trustee or debtor
assuming this Lease may not require Landlord to provide services or supplies
incidental to this Lease before its assumption by such trustee or debtor, unless
Landlord is compensated under the terms of this Lease for such services and
supplies provided before the assumption of such Lease.
(4) The debtor or trustee may only assign this Lease if (i) it is
assumed and the assignee agrees to be bound by this Lease, (ii) adequate
assurance of future performance by the assignee is provided, whether or not
there has been a default under this Lease, and (iii) the debtor or trustee has
received Landlord's prior written consent pursuant to the provisions of this
Lease. Any consideration paid by any assignee in excess of the rental reserved
in this Lease shall be the sole property of, and paid to, Landlord.
(5) Landlord shall be entitled to the fair market value for the
Premises and the services provided by Landlord (but in no event less than the
rental reserved in this Lease) subsequent to the commencement of a bankruptcy
event.
(6) Any security deposit given by Tenant to Landlord to secure the
future performance by Tenant of all or any of the terms and conditions of this
Lease shall be automatically transferred to Landlord upon the entry of an "Order
of Relief", such being deemed a material part of the consideration for
Landlord's agreement to enter into this Lease.
(7) The parties agree that Landlord is entitled to adequate
assurance of future performance of the terms and provisions of this Lease in the
event of an assignment under the provisions of the Bankruptcy Code. For purposes
of any such assumption or assignment of this Lease, the parties agree that the
term "adequate assurance" shall include, without limitation, at least the
following: (i) any proposed assignee must have, as demonstrated to Landlord's
satisfaction, a net worth (as defined in accordance with generally accepted
accounting principles consistently applied) in an amount sufficient to assure
that the proposed assignee will have the
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BLUE LAKE STANDARD LEASE
<PAGE>
resources to meet the financial responsibilities under this Lease, including the
payment of all Rent; the financial condition and resources of Tenant are
material inducements to Landlord entering into this Lease; (ii) any proposed
assignee must have engaged in the permitted use described in the BLI Rider for
at least five (5) years prior to any such proposed assignment, the parties
hereby acknowledging that in entering into this Lease, Landlord considered
extensively Tenant's permitted use and determined that such permitted business
would add substantially to the tenant balance in the Building, and were it not
for Tenant's agreement to operate only Tenant's permitted business on the
Premises, Landlord would not have entered into this Lease, and that Landlord's
operation of the Building will be materially impaired if a trustee in bankruptcy
or any assignee of this Lease operates any business other than Tenant's
permitted business; (iii) any assumption of this Lease by a proposed assignee
shall not adversely affect Landlord's relationship with any of the remaining
tenants in the Building taking into consideration any and all other "use"
clauses and/or "exclusivity" clauses which may then exist under their leases
with Landlord; and (iv) any proposed assignee must not be engaged in any
business or activity which it will conduct on the Premises and which will
subject the Premises to contamination by any Hazardous Materials.
41. FIRE PREVENTION SYSTEMS.
Except as otherwise provided in subparagraph (D) herein, Landlord
shall be responsible for the cost of any change, modification, alteration or
installation of any new or existing sprinkler system, fire extinguishing system
and/or fire detection system which may now or hereafter be required as follows:
A. If the National Board of Fire Underwriters or any local Board of
Fire Underwriters or Insurance Exchange (or other bodies hereafter exercising
similar functions) shall require or recommend the installation of fire
extinguishers, a "sprinkler system," fire detection and prevention equipment
(including, but not limited to, smoke detectors and heat sensors), or any
changes, modifications, alterations, or the installation of additional sprinkler
heads or other equipment for any existing sprinkler, fire extinguishing system,
and/or fire detection system for any reason, whether or not attributable to
Tenant's use of the Premises or Alterations performed by Tenant; OR
B. If any law, regulation, or order or if any bureau, department, or
official of the Federal, State, and/or Municipal Governments shall require or
recommend the installation of fire extinguishers, a "sprinkler system," fire
detection and prevention equipment (including, but not limited to, smoke
detectors and heat sensors), or any changes, modifications, alterations, or the
installation of additional sprinkler heads or other equipment for any existing
sprinkler system, fire extinguishing system, and/or fire detection system for
any reason, whether or not attributable to Tenant's use of the Premises or
Alterations performed by Tenant; OR
C. If any such installations, changes, modifications, alterations,
sprinkler heads, or other equipment become necessary to prevent the imposition
of a penalty, an additional charge, or an increase in the fire insurance rate as
fixed by said Board or Exchange, from time to time, or by any fire insurance
company as a result of the use of the Premises whether or not the same is a
Permitted Use under this Lease.
D. Notwithstanding the foregoing, the Tenant shall be responsible for
the cost of any change, modification, alteration or installation of any new or
existing sprinkler system, fire extinguishing system and/or fire detection
system which may or hereafter be required by virtue of a condition of abuse or
disrepair brought about by the actions or failure to act of the Tenant or by
virtue of the election of the Tenant to make such change, modification, or
alteration in the absence of any other requirements contained in subparagraphs
(A), (B) and (C) herein. In the event that the Tenant shall elect or be
required to make any changes, modification, or alteration, the Landlord may, at
its sole option, elect to perform the work and charge the cost thereof to Tenant
as Additional Rent. The Tenant shall pay to Landlord the full cost of such work
within fifteen (15) days after Landlord has presented invoices and/or paid
receipts for the same. If the Landlord does not elect to perform such work, the
Tenant shall immediately proceed, at its sole cost, to perform the work upon the
following conditions:
A. a general contractor licensed in Florida and approved by Landlord
shall be utilized
B. all laws, ordinances and regulations governing such work shall be
complied with
C. a payment and performance bond in Landlord's favor and with a
surety acceptable to Landlord shall be obtained
D. the construction contract and all plans and specifications for the
work shall be subject to Landlord's approval.
42. MISCELLANEOUS.
A. If Tenant has a lease for other space in the Building, any default
by Tenant under such lease will constitute a default hereunder.
B. If any term or condition of this Lease or the application thereof
to any person or circumstance is, to any extent, invalid or unenforceable, the
remainder of this Lease, or the application of such term or condition to persons
or circumstances other than those as to which it is held invalid or
unenforceable, is not to be affected thereby and each term and condition of this
Lease is to be valid and enforceable to the fullest extent permitted by law.
This Lease will be construed in accordance with the laws of the State of
Florida.
C. Submission of this Lease to Tenant does not constitute an offer,
and this Lease becomes effective only upon execution and delivery by both
Landlord and Tenant.
D. Tenant acknowledges that it has not relied upon any statement,
representation, prior or contemporaneous written or oral promises, agreements or
warranties, except such as are expressed herein.
E. Tenant will pay before delinquency all taxes assessed during the
Lease Term against any occupancy interest in the Premises or personal property
of any kind owned by or placed in, upon or about the Premises by Tenant.
F. If Tenant, with Landlord's consent, occupies the Premises or any
part thereof prior to the beginning of the Lease Term, all provisions of this
Lease will be in full force and effect commencing upon such occupancy, except
that Base Rent and Additional Rent shall not be required to be paid until
February 1, 1998.
G. Each party represents and warrants that it has not dealt with any
agent or broker in connection with this transaction except for Blue Lake Realty,
Inc. and the agents or brokers specifically set forth in the BLI Rider with
respect to each Landlord and Tenant. If either party's representation and
warranty proves to be untrue, such party will indemnify the other party against
all resulting liabilities, costs, expenses, claims, demands and causes of
action, including reasonable attorneys' fees and costs through all appellate
actions and proceedings, if any. The foregoing will survive the end of the
Lease Term.
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H. Neither this Lease nor any memorandum hereof will be recorded by
Tenant.
I. Nothing contained in this Lease shall be deemed by the parties
hereto or by any third party to create the relationship of principal and agent,
partnership, joint venturer or any association between Landlord and Tenant, it
being expressly understood and agreed that neither the method of computation of
Rent nor any other provisions contained in this Lease nor any act of the parties
hereto shall be deemed to create any relationship between Landlord and Tenant
other than the relationship of landlord and tenant.
J. Whenever in this Lease the context allows, the word "including"
will be deemed to mean "including without limitation". The headings of
articles, sections or paragraphs are for convenience only and shall not be
relevant for purposes of interpretation of the provisions of this Lease.
K. This Lease does not create, nor will Tenant have, any express or
implied easement for or other rights to air, light or view over or about the
Building or any part thereof.
L. Landlord reserves the right to use, install, monitor, and repair
pipes, ducts and conduits within the walls, columns, and ceilings of the
Premises.
M. Any acts to be performed by Landlord under or in connection with
this Lease may be delegated by Landlord to its managing agent or other
authorized person or firm.
N. It is acknowledged that each of the parties hereto has been fully
represented by legal counsel and that each of such legal counsel has contributed
substantially to the content of this Lease. Accordingly, this Lease shall not
be more strictly construed against either party hereto by reason of the fact
that one party may have drafted or prepared any or all of the terms and
provisions hereof.
O. Landlord and Tenant acknowledge that the terms and provisions of
this Lease have been negotiated based upon a variety of factors, occurring at a
coincident point in time, including, but not limited to: (i) the individual
principals involved and the financial strength of Tenant, (ii) the nature of
Tenant's business and use of the Premises, (iii) the current leasing market
place and the economic conditions affecting rental rates, (iv) the present and
projected tenant mix of the Building, and (v) the projected juxtaposition of
tenants on the floor(s) upon which the Premises are located and the floors
within the Building. Therefore, recognizing the totality, uniqueness,
complexity and interrelation of the aforementioned factors, the Tenant agrees to
use its best efforts not to disseminate in any manner whatsoever, and shall
cause its brokers, agents and representatives, by written agreement not to
disseminate (whether by word of mouth, mechanical reproduction, physical tender
or by any manner of visual or aural transmission or review) the terms and
conditions of this Lease to third parties who could in any way be considered
presently or in the future as prospective tenants for this or any other
leasehold property with which Landlord may be involved.
P. If more than one person or entity is named herein as Tenant, their
liability hereunder will be joint and several. In case Tenant is a corporation,
Tenant (a) represents and warrants that this Lease has been duly authorized,
executed and delivered by and on behalf of Tenant and constitutes the valid and
binding agreement of Tenant in accordance with the terms hereof, and (b) Tenant
shall deliver to Landlord or its agent, concurrently with the delivery of this
Lease, executed by Tenant, certified resolutions of the board of directors (and
shareholders, if required) authorizing Tenant's execution and delivery of this
Lease and the performance of Tenant's obligations hereunder. In case Tenant is
a partnership, Tenant represents and warrants that all of the persons who are
general or managing partners in said partnership have executed this Lease on
behalf of Tenant, or that this Lease has been executed and delivered pursuant to
and in conformity with a valid and effective authorization therefor by all of
the general or managing partners of such partnership, and is and constitutes the
valid and binding agreement of the partnership and every partner therein in
accordance with its terms. It is agreed that each and every present and future
partner in Tenant shall be and remain at all times jointly and severally liable
hereunder and that neither the death, resignation or withdrawal of any partner,
nor the subsequent modification or waiver of any of the terms and provisions of
this Lease, shall release the liability of such partner under the terms of this
Lease unless and until Landlord shall have consented in writing to such release.
Q. Landlord has made no inquiries about and makes no representations
(express or implied) concerning whether Tenant's proposed use of the Premises is
permitted under applicable law, including applicable zoning law; should Tenant's
proposed use be prohibited, Tenant shall be obligated to comply with applicable
law and this Lease shall nevertheless remain in full force and effect.
R. Notwithstanding anything to the contrary in this Lease, if
Landlord cannot perform any of its obligations due to events beyond Landlord's
control, the time provided for performing such obligations shall be extended by
a period of time equal to the duration of such events. Events beyond Landlord's
control include, but are not limited to, hurricanes and floods and other acts of
God, war, civil commotion, labor disputes, strikes, fire, flood or other
casualty, shortages of labor or material, government regulation or restriction
and weather conditions.
S. Tenant agrees to pay, before delinquency, all taxes assessed
during the Lease Term agreement (i) all personal property, trade fixtures, and
improvements located in or upon the Premises and (ii) any occupancy interest of
Tenant in the Premises.
T. The Tenant shall submit to Landlord annually, not later than one
hundred twenty (120) days after its fiscal year end, annual audited financial
statements and accountant-prepared compilation-quality combined statement on all
affiliated entities, all in form and content satisfactory to Landlord.
43. DELIVERY OF GUARANTY.
Intentionally not used.
44. CONFIDENTIALITY.
Tenant agrees that information concerning Landlord and the Blue Lake
project, and the financial terms of this Lease, are confidential and proprietary
information and Tenant agrees that it will not permit the duplication or
disclosure of any such information to any person, unless such duplication, use,
or disclosure is specifically authorized by Landlord in writing. Confidential
and proprietary information is not meant to include any information that is in
the public domain. In addition, Tenant agrees to keep the terms and conditions
as contained herein confidential, with the following exceptions:
A. Tenant may disclose the contents of this Lease to its advisors in
the contemplated transaction, so long as the advisor agrees in writing to
maintain confidentiality; and
B. Tenant may disclose such information as required by court order.
PAGE 20
----------
BLUE LAKE STANDARD LEASE
<PAGE>
C. Tenant may disclose such information as required by the securities
laws and regulations of the United States of America.
Landlord and Tenant shall cooperate in the issuance of press releases or
statements to the media regarding this Lease.
45. SIGNAGE/ENTRY WAY FEATURE.
Tenant shall have the option to erect, at its sole cost and expense,
subject to the approval of the appropriate governmental agencies, and the
approval of Landlord as to size, image and location, in the Landlord's sole
discretion, one (1) pylon sign at the entrance to the Premises, bearing the name
of the Tenant only.
Landlord shall consult with Tenant in the design, size and color
specification of the exterior entry way feature to the Premises, however, the
Landlord's decision as to the design and specifications shall be final.
46. CARPOOLING, MASS TRANSIT AND TRAFFIC CONTROL.
Tenant acknowledges that, due to the nature and size of the Building,
Landlord may be required by applicable governmental authorities to participate
in, and require tenants to participate in, carpool programs, mass transit
programs, flexible shift and other flexible time programs, and other traffic
reduction programs and measures. Tenant agrees to participate in and comply with
such programs and measures required by applicable governmental authorities.
47. UTILITY PROVIDERS.
Any reference in this Lease to Florida Power & Light, or any affiliate
thereof, as a utility provider chosen by the Landlord shall mean any such
provider of utility services as from time-to-time may be designated by the
Landlord as the utility provider for the Project.
48. ASSOCIATION.
The Blue Lake Project, including the Building, in which the Premises are
located shall be subject to a Declaration of Restrictive Covenants, Easements
and Conditions (the "Declaration") which shall govern certain matters with
respect to the development, management and maintenance of the Blue Lake project,
and to satisfy requirements with respect to surface water management, drainage
and other aspects of the Blue Lake project. The Declaration shall provide for
the creation of a property owner's association ("Association") to perform
certain management, operational and maintenance obligations pursuant thereto.
The Association will have the authority to levy fees and assessments against the
Project, including the Building, to pay for the obligations of the Association.
This Lease is subject to the Declaration, upon the recordation of the
Declaration, and to the rights of the Association pursuant thereto.
Additionally, fees and assessments of the Association paid by the Landlord shall
be deemed Operating Expenses for the purpose of determining Overhead Rent.
49. VENDING MACHINES.
No Tenant shall obtain, or accept for use in the Premises, vending
machines or pay telephones, or other similar services from any persons other
than those specifically designated by Landlord to offer or distribute such
services.
[SIGNATURE PAGE FOLLOWS]
PAGE 21
----------
BLUE LAKE STANDARD LEASE
<PAGE>
IN WITNESS WHEREOF, the parties have signed and delivered this Lease
as of the day and year first above written.
WITNESSES: "TENANT"
/s/ Colleen Spinelli
- --------------------------- HIWAY TECHNOLOGIES, INC.
/s/ Jason R. Carres a Florida corporation
- ---------------------------
(As to Tenant)
By: /s/ Scott H. Adams
----------------------------------
Scott H. Adams, President
WITNESSES: "LANDLORD"
/s/ Colleen Spinelli
- --------------------------- BLUE LAKE, LTD., a Florida limited
/s/ Jason R. Carres partnership
- ---------------------------
By: Blue Lake, Inc., a Florida
corporation, its general partner
By: /s/ Michael D. Masanoff E.V.P.
----------------------------------
Print Name: Michael D. Masanoff
--------------------------
Title: EXECUTIVE VICE PRESIDENT
------------------------------
PAGE 22
----------
BLUE LAKE STANDARD LEASE
<PAGE>
Exhibit "B"
Work Letter Agreement
In the event of any inconsistencies between this Agreement and the Lease
dated concurrently herewith to which this Agreement is attached as EXHIBIT "B",
this Agreement shall control. Capitalized terms used in this Agreement shall,
unless otherwise specifically set forth herein, have the same meanings as in the
Lease.
1. Landlord's sole obligation as relates to the initial build-out of the
Premises shall be to construct the demising walls and to install a separate
electrical meter, and, as necessary, at the sole discretion of the Landlord, a
separate HVAC submeter for the Premises. Tenant shall complete or cause the
completion of the initial build-out of the Premises as shown on the Final Plans
(defined in Paragraph 2.) and as more fully described in this Section ("Tenant's
Initial Improvements"). Tenant shall retain an architect and/or engineer
licensed in the State of Florida to prepare complete and detailed demolition,
architectural, structural, mechanical and engineering plans and specifications
prepared by and stamped and certified by such architect or engineer, showing
Tenant's Initial Improvements ("Construction Plans"). The Landlord's published
list of pre-approved general contractors for The Blue Lake Project shall have
the exclusive right to bid for Tenant's construction contract. The cost of the
Construction Plans shall be the responsibility of Tenant. The Construction
Plans shall be acceptable to Landlord in its reasonable discretion. Tenant's
Initial Improvements shall meet or exceed the minimum standards for Tenant's
Initial Improvements ("Minimum Building Materials and Construction") attached
hereto as Exhibit "B-1" and otherwise as determined by Landlord in its
reasonable discretion. If applicable, Tenant's Construction Plans shall include
all information necessary to reflect Tenant's requirements for the installation
of any supplemental air conditioning system and ductwork, heating, electrical,
plumbing and other mechanical systems and all work necessary to connect any
special or non-standard facilities to the Building's base mechanical, electrical
and structural systems. Tenant deliver to Landlord not less than thirty (30)
business days prior to commencing construction not less than three (3) signed
and sealed sets of the Construction Plans. Tenant's Construction Plans shall
include, but not be limited to, indication or identification of the following:
A. locations and structural design of all floor area requiring live
load capacities in excess of 75 pounds per square foot;
B. the density of occupancy in large work areas;
C. the location of any food service areas or vending equipment rooms
if permitted by Landlord;
D. areas requiring 24-hour air conditioning, Tenant's supplemental
HVAC units (if any), and electrical consumption submeters if required by
Landlord;
E. location of rooms for telephone equipment;
F. locations and types of plumbing, if any, required for toilets
(other than core facilities), sinks, drinking fountains, etc.;
G. light switching of offices, conference rooms, etc.;
H. layouts for specially installed equipment, including computers,
size and capacity of mechanical and electrical services required and heat
projection of equipment;
I. dimensioned location of: (a) electrical receptacles (120 volts),
including receptacles for wall clocks, and telephone outlets and their
respective locations (wall or floor), (b) electrical receptacles for use in
the operation of Tenant's business equipment which requires 208 volts or
separate electrical circuits, (c) electronic calculating, CRT systems,
etc., and (d) special audio-visual requirements;
J. special fire protection equipment and raised flooring where
permitted by Building systems and otherwise approved by Landlord;
K. reflected ceiling plan;
L. information concerning air conditioning loads, including, but not
limited to, air volume amounts at all supply vents;
M. non-building standard ceiling heights and/or materials;
N. materials, colors and designs of wall coverings and finishes;
O. painting and decorative treatment required to complete all
construction;
P. swing of each door;
Q. a schedule for doors (including dimensions for undercutting of
doors to clear carpeting) and frames complete with hardware; and
R. all other information necessary to make the work complete and in
all respects ready for operation.
PAGE B-1
----------------
BLUE LAKE STANDARD LEASE
<PAGE>
2. As used herein, "Final Plans" refers to the Construction Plans after
the same have been approved in writing by Landlord. The Landlord Contribution
to cost of construction is set forth in the BLI Rider. Tenant shall be
responsible for the entire cost of Tenant's Initial Improvements including any
revisions to the Final Plans ("Revisions").
3. Promptly following Landlord's approval of the Final Plans, Tenant shall
cause the Final Plans to be submitted for bids to not fewer than three (3)
qualified contractors, including Blue Lake Construction of Boca Raton, Inc.,
reasonably acceptable to Landlord. Tenant shall engage the most qualified
bidder as the contractor for the Tenant's Initial Improvements ("Contractor")
under a separate agreement for construction. Landlord shall not be liable for
the work of or payment to the Contractor.
4. Landlord shall not be responsible or liable for any delay in
substantially completing Tenant's Initial Improvements as a result of any act,
neglect, failure or omission of Tenant, its agents, servants, employees, the
Contractors, or subcontractors ("Tenant Delay"). Tenant Delay includes without
limitation any of the following:
A. Tenant's failure to furnish plans, drawings, and specifications in
accordance with and at the times required by this Work Letter; or
B. any delays resulting from the disapproval by Landlord or
Landlord's Consultant of all or a portion of Tenant's revised plans and
specifications as resubmitted after initial submission; or
C. any delays resulting from Tenant's disapproval of the cost of
Tenant's Extra Cost, which delay shall be deemed to commence upon the date
of Tenant's disapproval of the cost of Tenant's Extra Cost and end on the
date of Tenant's final approval of such cost; or
D. Tenant's request for materials, finishes or installations which
are not readily available at the time Landlord is ready to install same; or
E. Any change(s) to or revision(s) of the Final Plans ("Revisions");
or
F. the performance of work by a person, firm or corporation employed
by Tenant and delays in the completion of the said work by said person,
firm, or corporation.
5. Except as hereinafter provided, neither Tenant nor its agents,
employees, invitees or independent contractors shall enter the Premises during
construction of Tenant's Initial Improvements. Tenant hereby designates
Tenant's Construction Agent as set forth in the BLI Rider for the purposes of
submitting to Landlord or Landlord's Consultant and authorizing Revisions to the
Final Plans. Tenant's Construction Agent shall have the right from time to time
to inspect the Premises during the course of Tenant's Initial Improvements
provided Tenant's Construction Agent shall make a prior appointment with
Landlord and/or its contractor at a mutually convenient time.
6. Tenant shall have the right to make Revisions from time to time after
Final Plans have been prepared. All Revisions shall be subject to Landlord's
prior written approval, which shall not be unreasonably withheld provided the
Revisions are non-structural in nature. Landlord shall either approve or
disapprove the Revisions within five (5) business days after submission thereof
by Tenant. Without limiting the generality of the foregoing, no Revision will
be approved unless (a) all changes to and modifications from the Final Plans are
circled or highlighted as per standard practices and (b) said Revisions conform
with the requirements of this Work Letter. Landlord or Landlord's Consultant
shall notify Tenant in writing of the cost of the Revisions, and any Tenant
Delay that the performance of the same may entail. If Tenant agrees with the
cost and delay of such Revisions, Tenant shall acknowledge Tenant's approval in
writing within three (3) business days after Landlord's notice thereof to
Tenant. If Tenant fails to approve of the cost of such Revisions (and, if
requested by Landlord, the amount of any Tenant Delay that Landlord estimates
will occur as a result of such Revisions) within three (3) business days,
Landlord or Landlord's Consultant shall not approve such Revisions in their sole
and absolute discretion. The cost of any Revisions shall be borne solely by
Tenant and the Revisions shall not delay the Commencement Date hereunder.
7. Tenant shall use due diligence to complete Tenant's Initial
Improvements as soon as may be practicable. Landlord shall not be liable in any
manner whatsoever for its failure to do so by any particular date.
8. Tenant shall notify Landlord of the date of Substantial Completion at
least five (5) days prior thereto. As used herein, "Substantial Completion"
shall mean that, with the exception of punch-list items, Tenant's Initial
Improvements shall have been completed in accordance with the Final Plans and
all mechanical systems serving or affecting the Premises shall then be in
working order. Landlord and Tenant shall thereupon set a mutually convenient
time for Tenant's Construction Agent and Landlord or Landlord's Consultant to
inspect the Premises. Upon completion of the inspection, Tenant's Construction
Agent shall acknowledge in writing that substantial completion has occurred.
PAGE B-2
----------------
BLUE LAKE STANDARD LEASE
<PAGE>
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (this "Amendment") is made effective as of
the 2nd day of January, 1998, by and between BLUE LAKE, LTD., (the "Landlord")
and HIWAY TECHNOLOGIES, INC., (the "Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant are bound under that certain Blue Lake
Corporate Center Standard Lease dated September 23, 1997 (the "Lease") regarding
certain leased premises (the "Existing Premises") described in the Lease, being
located in Blue Lake Corporate Center, Boca Raton, Florida; and
WHEREAS, Tenant wishes to lease from Landlord certain additional space in
Blue Lake Corporate Center as more particularly described below (the "Additional
Premises"), and Landlord has agreed to lease the Additional Premises to Tenant
subject to and on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the sum of TEN and NO/100 DOLLARS
($10.00) paid by Tenant to Landlord, the mutual promises contained herein, and
other good and valuable considerations, the receipt and adequacy of which are
hereby acknowledged, Landlord and Tenant do hereby agree as follows:
1. Recitals. The foregoing recitals are true and correct and are hereby
--------
incorporated by this reference as if set forth in their entirety.
2. Defined Terms. Terms in this Amendment shall have the same meaning as
-------------
ascribed to said terms in the Lease, unless otherwise provided in this
Amendment. As hereby amended, the Lease and this Amendment shall hereinafter be
referred to as the "Lease".
3. Additional Premises. Attached hereto as Exhibit "A" is a floor plan of
-------------------
the Additional Premises which the parties hereto stipulate contains
approximately 21,000 usable square feet, which, when multiplied by an add-on
factor of fifteen (15%) percent, yields a Net Rentable Area of 24,150 square
feet. Commencing on the Additional Premises Commencement Date (as hereinafter
defined), (i) the Premises shall be deemed and defined to include the Existing
Premises together with the Additional Premises for a stipulated combined
aggregate total of approximately 74,750 Rentable Square Feet; and (ii) Tenant's
Share with respect to the Additional Premises is 1.3542% for a combined Tenant's
Share of 4.19% for the entire Premises. The Additional Premises Commencement
Date shall be the earlier to occur of: (i) February 1, 1998, or (ii) the date on
which Tenant takes occupancy of the Additional Premises.
4. Lease Term for Additional Premises. The Lease Term with regard to the
----------------------------------
Additional Premises shall be seven (7) years and run coterminously with the
Lease Term with respect to the Existing Premises in accordance with the Lease.
5. Base Rent. Base Rent for each Lease Year for the Additional Premises
---------
shall conform and be the same as the Base Rent designated for each Lease Year as
detailed in the Lease. Accordingly, by way of example, the Base Rent for the
First Lease Year for the Additional Premises shall be Seven and NO/100 Dollars
($7.00) per Rentable Square Foot. The schedule of increases in Base Rent for
the Existing Premises shall be in accordance with the terms of the Lease.
However, provided that the Tenant fully complies with all terms of this Lease,
for the entire term thereof, Landlord will defer and then waive Base Rent and
Overhead Rent, applicable to the Additional Premises, for months one (1) through
twenty-four (24), inclusive, following the Additional Premises
1
<PAGE>
Commencement Date.
6. Ratification. Except as herein specifically amended, the terms of the
------------
Lease are incorporated herein by reference as if fully set forth herein and
shall apply to and bind the Additional Premises. In the event of any conflict
or ambiguity between this Amendment and the Lease, this Amendment shall pre-empt
and control. The parties hereby ratify and confirm their rights and obligations
under the Lease as modified by this Amendment. Landlord and Tenant each
represent and warrant to the other that (i) the execution and delivery of the
Amendment has been fully authorized by all necessary corporate action, and (ii)
this Amendment is valid, binding and legally enforceable in accordance with its
terms.
IN WITNESS WHEREOF, Landlord and Tenant have each executed this Amendment
on the dates written below their names.
Signed, sealed and delivered
in the presence of
Witnesses: TENANT:
HIWAY TECHNOLOGIES, INC. A FLORIDA
CORPORATION
/s/ Harriet Lowkowitz By: /s/ Scott H. Adams
- ------------------------------ -------------------------------
Print Name: Harriet Lowkowitz Print Name: Scott H. Adams
------------------ -----------------------
/s/ Colleen Spinelli Title: President
- ------------------------------ ----------------------------
Print Name: Colleen Spinelli
------------------
LANDLORD:
BLUE LAKE, LTD., A FLORIDA LIMITED
PARTNERSHIP
BY: BLUE LAKE, INC., A FLORIDA
CORPORATION
/s/ Jason R. Carres By: /s/ Michael D. Masanoff E.V.P.
- ------------------------------ -------------------------------
Print Name: Jason R. Carres Print Name: Michael D. Masanoff
------------------ -----------------------
/s/ Joseph Good Title: Executive Vice President
- ------------------------------ ----------------------------
Print Name: Joseph Good
------------------
2
<PAGE>
AMENDED AND RESTATED
FIRST AMENDMENT TO LEASE
THIS AMENDED AND RESTATED FIRST AMENDMENT TO LEASE (this "Amendment") is
made effective as of the 28th day of January, 1998, by and between BLUE LAKE,
LTD., (the "Landlord") and HIWAY TECHNOLOGIES, INC., (the "Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant are bound under that certain Blue Lake
Corporate Center Standard Lease dated September 23, 1997 (the "Lease") regarding
certain leased premises (the "Existing Premises") described in the Lease, being
located in Blue Lake Corporate Center, Boca Raton, Florida; and
WHEREAS, Tenant wishes to lease from Landlord certain additional space in
Blue Lake Corporate Center as more particularly described below (the "Additional
Premises"), and Landlord has agreed to lease the Additional Premises to Tenant
subject to and on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the sum of TEN and NO/100 DOLLARS
($10.00) paid by Tenant to Landlord, the mutual promises contained herein, and
other good and valuable considerations, the receipt and adequacy of which are
hereby acknowledged, Landlord and Tenant do hereby agree as follows:
1. Recitals. The foregoing recitals are true and correct and are hereby
--------
incorporated by this reference as if set forth in their entirety.
2. Defined Terms. Terms in this Amendment shall have the same meaning as
-------------
ascribed to said terms in the Lease, unless otherwise provided in this
Amendment. As hereby amended, the Lease and this Amendment shall hereinafter be
referred to as the "Lease".
3. Additional Premises. Attached hereto as Exhibit "A" is a floor plan of
-------------------
the Additional Premises which the parties hereto stipulate contains
approximately 24,670 usable square feet, which, when multiplied by an add-on
factor of fifteen (15%) percent, yields a Net Rentable Area of 28,371 rentable
square feet. Commencing on the Additional Premises Commencement Date (as
hereinafter defined), (i) the Premises shall be deemed and defined to include
the Existing Premises together with the Additional Premises for a stipulated
combined aggregate total of approximately 78,971 Rentable Square Feet; and (ii)
Tenant's Share with respect to the Additional Premises is 1.59% for a combined
Tenant's Share of 4.43% for the entire Premises. The Additional Premises
Commencement Date shall be the earlier to occur of: (i) February 1, 1998, or
(ii) the date on which Tenant takes occupancy of the Additional Premises.
4. Lease Term for Additional Premises. The Lease Term with regard to the
----------------------------------
Additional Premises shall run coterminously with the Lease Term with respect to
the Existing Premises in accordance with the Lease.
5. Base Rent. Base Rent for each Lease Year for the Additional Premises
---------
shall conform and be the same as the Base
1
<PAGE>
Rent designated for each Lease Year as detailed in the Lease. Accordingly, by
way of example, the Base Rent for the First Lease Year for the Additional
Premises shall be Seven and NO/100 Dollars ($7.00) per Rentable Square Foot. The
schedule of increases in Base Rent for the Existing Premises shall be in
accordance with the terms of the Lease. However, provided that the Tenant fully
complies with all terms of this Lease, for the entire term thereof, Landlord
will defer and then waive Base Rent and Overhead Rent, applicable to the
Additional Premises, for months one (1) through twenty-four (24), inclusive,
following the Additional Premises Commencement Date.
6. Ratification. Except as herein specifically amended, the terms of the
------------
Lease are incorporated herein by reference as if fully set forth herein and
shall apply to and bind the Additional Premises. In the event of any conflict
or ambiguity between this Amendment and the Lease, this Amendment shall pre-empt
and control. The parties hereby ratify and confirm their rights and obligations
under the Lease as modified by this Amendment. Landlord and Tenant each
represent and warrant to the other that (i) the execution and delivery of the
Amendment has been fully authorized by all necessary corporate action, and (ii)
this Amendment is valid, binding and legally enforceable in accordance with its
terms.
7. THIS AMENDED AND RESTATED FIRST AMENDMENT TO LEASE SHALL REVISE AND
REPLACE THE FIRST AMENDMENT TO LEASE DATED 1/2/98.
IN WITNESS WHEREOF, Landlord and Tenant have each executed this Amendment
on the dates written below their names.
Signed, sealed and delivered
in the presence of
Witnesses: TENANT:
HIWAY TECHNOLOGIES, INC. A FLORIDA
CORPORATION
/s/ Colleen Spinelli By: /s/ Scott H. Adams
- ------------------------------ -------------------------------
Print Name: Colleen Spinelli Print Name: Scott H. Adams
------------------ -----------------------
/s/ Harriet Lowkowitz Title: President
- ------------------------------ ----------------------------
Print Name: Harriet Lowkowitz
------------------
LANDLORD:
BLUE LAKE, LTD., A FLORIDA LIMITED
PARTNERSHIP
BY: BLUE LAKE, INC., A FLORIDA
CORPORATION
/s/ Elena Logan By: /s/ Michael D. Masanoff E.V.P.
- ------------------------------ -------------------------------
Print Name: Elena Logan Print Name: Michael D. Masanoff
------------------ -----------------------
/s/ Eileen Heemskerk Title: Executive Vice President
- ------------------------------ ----------------------------
Print Name: Eileen Heemskerk
------------------
2
<PAGE>
[LOGO OF COMMERCIAL]
SUBLEASE EXHIBIT 10.17
CB Commercial Real Estate Group, Inc.
BROKERAGE AND MANAGEMENT
LICENSED REAL ESTATE BROKER
1. PARTIES.
This Sublease, dated March 18, 1997, is made between Champion Leasing
Corporation "Champion" ("Sublessor"), and Hiway Technologies, Inc., a
Florida Corporation ("Sublessee").
2. MASTER LEASE.
Champion is a Sublessee of a Sublease between MedPartners of Florida,
Inc., "MedPartners" and Champion. MedPartners is the lessee under a written
lease dated July 6, 1994, wherein Catexor Limited Partnership I ("Lessor")
leased to Sublessor the real property located in the City of Boca Raton
County of Palm Beach, State of Florida, described as 6401 Congress Avenue,
Suites 210 & 215 of the 6401 Building in the project commonly known as
Amtec Center ("Master Premises"). Said lease has been amended by the
following amendments First Addendum to Lease and the Champion/MedPartners
Sublease, said lease and amendments* are herein collectively referred to as
the "Master Lease" and are attached hereto as Exhibit "A".
*and sublease
3. PREMISES.
Sublessor hereby subleases to Sublessee on the terms and conditions set
forth in this Sublease the following portion of the Master Premises
("Premises"): Sublessee (Hiway) will lease Suite 215 of the Master
Premises only. The rentable square footage of Suite 215 is equal to 3633
square feet.
4. WARRANTY BY SUBLESSOR.
Sublessor warrants and represents to Sublessee that the Master Lease has
not been amended or modified except as expressly set forth herein, that
Sublessor is not now, and as of the commencement of the Term hereof will
not be, in default or breach of any of the provisions of the Master Lease,
and that Sublessor has no knowledge of any claim by Lessor that Sublessor
is in default or breach of any of the provisions of the Master Lease.
5. TERM.
The Term of this Sublease shall commence on April 1, 1997 ("Commencement
Date"), or when Lessor consents to this Sublease (if such consent is
required under the Master Lease), whichever shall last occur, and end on
July 31, 1999 ("Termination Date"), unless otherwise sooner terminated in
accordance with the provisions of this Sublease. In the event the Term
commences on a date other than the Commencement Date, Sublessor and
Sublessee shall execute a memorandum setting forth the actual date of
commencement of the Term. Possession of the Premises ("Possession") shall
be delivered to Sublessee on the commencement of the Term. If for any
reason Sublessor does not deliver Possession to Sublessee on the
commencement of the Term, Sublessor shall not be subject to any liability
for such failure, the Termination Date shall not be extended by the delay,
and the validity of this Sublease shall not be impaired, but rent shall
abate until delivery of Possession. Notwithstanding the foregoing, if
Sublessor has not delivered Possession to Sublessee within thirty (30) days
after the Commencement Date, then at any time thereafter and before
delivery of Possession, Sublessee may give written notice to Sublessor of
Sublessee's intention to cancel this Sublease. Said notice shall set forth
an effective date for such cancellation which shall be at least ten (10)
days after delivery of said notice to Sublessor. If Sublessor delivers
Possession to Sublessee on or before such effective date, this Sublease
shall remain in full force and effect. If Sublessor fails to deliver
Possession to Sublessee on or before such effective date, this Sublease
shall be cancelled, in which case all consideration previously paid by
Sublessee to Sublessor on account of this Sublease shall be returned to
Sublessee, this Sublease shall thereafter be of no further force or effect,
and Sublessor shall have no further liability to Sublessee on account of
such delay or cancellation. If Sublessor permits Sublessee to take
Possession prior to the commencement of the Term, such early Possession
shall not advance the Termination Date and shall be subject to the
provisions of this Sublease, including without limitation the payment of
rent.
6. RENT.
6.1 Minimum Rent. Sublessee shall pay to Sublessor as minimum rent, without
deduction, setoff, notice, or demand, at 6421 Congress Avenue, Suite
206, Boca Raton, Florida 33487 or at such other place as Sublessor
shall designate from time to time by notice to Sublessee, the sum of
Two Thousand Four Hundred Ninety Seven and 69/100 Dollars ($2,497.69)
per month, in advance on the first day of each month of the Term.
Sublessee shall pay to Sublessor upon execution of this Sublease the
sum of Three Thousand Seven Hundred Twenty Two and 61/100 Dollars
($3,722,61) as rent for April 1997. If the Term begins or ends on a day
other than the first or last day of a month, the rent for the partial
months shall be prorated on a per diem basis. Additional provisions:
The minimum rent shall increase by five (5%) percent effective August
1, 1998. The minimum rent from 8/1/98 through 7/31/99 will equal
$2,622.57 per month or $8.66 psf.
6.2 Operating Costs. If the Master Lease requires Sublessor to pay to
Lessor all or a portion of the expenses of operating the building
and/or project of which the Premises are a part ("Operating Costs"),
including but not limited to taxes, utilities, or insurance, then
Sublessee shall pay to Sublessor as additional rent One Hundred percent
(100%) of the amounts payable by Sublessor for Operating Costs incurred
during the Term. Such
/s/ CP SHA JR W
1
<PAGE>
additional rent shall be payable as and when Operating Costs are
payable by Sublessor to Lessor. If the Master Lease provides for the
payment by Sublessor of Operating Costs on the basis of an estimate
thereof, then as and when adjustments between estimated and actual
Operating Costs are made under the Master Lease, the obligations of
Sublessor and Sublessee hereunder shall be adjusted in a like manner;
and if any such adjustment shall occur after the expiration or earlier
termination of the Term, then the obligations of Sublessor and
Sublessee under this Subsection 6.2 shall survive such expiration or
termination. Sublessor shall, upon request by Sublessee, furnish
Sublessee with copies of all statements submitted by Lessor of actual
or estimated Operating Costs during the Term.
7. SECURITY DEPOSIT.
Sublessee shall deposit with Sublessor upon execution of this Sublease the
sum of Two Thousand Four Hundred Ninety Seven and 69/100 Dollars ($
2,497.69) as security for Sublesee's faithful performance of Sublessee's
obligations hereunder ("Security Deposit"). If Sublessee fails to pay rent
or other charges when due under this Sublease, or fails to perform any of
its other obligations hereunder, Sublessor may use or apply all or any
portion of the Security Deposit for the payment of any rent or other amount
then due hereunder and unpaid, for the payment of any other sum for which
Sublessor may become obligated by reason of Sublessee's default or breach,
or for any loss or damage sustained by Sublessor as a result of Sublessee's
default or breach. If Sublessor so uses any portion of the Security
Deposit, Sublessee shall, within ten (10) days after written demand by
Sublessor, restore the Security Deposit to the full amount originally
deposited, and Sublessee's failure to do so shall constitute a default
under this Sublease. Sublessor shall not be required to keep the Security
Deposit separate from its general accounts, and shall have no obligation or
liability for payment of interest on the Security Deposit. In the event
Sublessor assigns its interest in this Sublease, Sublessor shall deliver to
its assignee so much of the Security Deposit as is then held by Sublessor.
Within ten (10) days after the Term has expired, or Sublessee has vacated
the Premises, or any final adjustment pursuant to Subsection 6.2 hereof has
been made, whichever shall last occur, and provided Sublessee is not then
in default of any of its obligations hereunder, the Security Deposit, or so
much thereof as had not theretofore been applied by Sublessor, shall be
returned to Sublessee or to the last assignee, if any, of Sublease's
interest hereunder.
8. USE OF PREMISES.
The Premises shall be used and occupied only for office space and in strict
accordance with all provisions of the Master Lease , and for no other use
or purpose.
9. ASSIGNMENT AND SUBLETTING.
Sublessee shall not assign this Sublease or further sublet all or any part
of the Premises without the prior written consent of Sublessor (and the
consent of Lessor, if such is required under the terms of the Master Lease)
Sublessor may withhold its consent on any such assignment or further sublet
at its sole discretion for any reason.
10. OTHER PROVISIONS OF SUBLEASE.
All applicable terms and conditions of the Master Lease are incorporated
into and made a part of this Sublease as if Sublessor were the lessor
thereunder, Sublessee the lessee thereunder, and the Premises the Master
Premises, except for the following:
See Paragraph 17
Sublessee assumes and agrees to perform the lessee's obligations under the
Master Lease during the Term to the extent that such Obligations are
applicable to the Premises, except that the obligation to pay rent to
Lessor under the Master Lease shall be considered performed by Sublessee to
the extent and in the amount rent is paid to Sublessor in accordance with
Section 6 of this Sublease. Sublessee shall not commit or suffer any act or
omission that will violate any of the provisions of the Master Lease.
Sublessor shall exercise due diligence in attempting to cause Lessor to
perform its obligations under the Master Lease for the benefit of
Sublessee. If the Master Lease terminates, this Sublease shall terminate
and the parties shall be relieved of any further liability or obligation
under this Sublease, provided however, that if the Master Lease terminates
as a result of a default or breach by Sublessor or Sublessee under this
Sublease and/or the Master Lease, then the defaulting party shall be liable
to the nondefaulting party for the damage suffered as a result of Such
termination. Notwithstanding the foregoing, if the Master Lease gives
Sublessor any right to terminate the Master Lease in the event of the
partial or total damage, destruction, or condemnation of the Master
Premises or the building or project of which the Master Premises are a
part, the exercise of such right by Sublessor shall not constitute a
default or breach hereunder.
11. ATTORNEYS' FEES.
If Sublessor, Sublessee, Or Broker shall commence an action against the
other arising out of or in connection with this Sublease, the prevailing
party shall be entitled to recover its cost of suit and reasonable
attorney's fees.
12. AGENCY DISCLOSURE.
Sublessor and Sublessee each warrant that they have dealt with no other
real estate broker in connection with this transaction except: CB
COMMERCIAL REAL ESTATE GROUP, INC., who represents Sublessor and CB
Commercial, represents Sublessee. In the event that CB COMMERCIAL REAL
ESTATE GROUP, INC. represents both Sublessor and Sublessee, Sublessor and
Sublessee hereby confirm that they were timely advised of the dual
representation and that they consent to the same, and that they do not
expect said broker to disclose to either of them the confidential
information of the other party.
13. COMMISSION.
Upon execution of this Sublease, and consent thereto by Lessor (if such
consent is required under the terms of the Master Lease), Sublessor shall
pay Broker a real estate brokerage commission in accordance with
Sublessor's contract with Broker for the subleasing of the Premises, if
any, and otherwise in the amount of Five Thousand and 00/100 Dollars
($5,000.00), for services rendered in effecting this Sublease. Broker is
hereby made a third party beneficiary of this Sublease for the purpose of
enforcing its right to said commission.
14. NOTICES.
All notices and demands which may or are to be required or permitted to be
given by either party on the other hereunder shall be in writing. All
notices and demands by the Sublessor to Sublessee shall be sent by United
States Mail, postage prepaid, addressed to the Sublessee at the Premises,
and to the address hereinbelow, or to such other place as Sublessee may
from
/s/ SHA CP JR W
2
<PAGE>
time to time designate in a notice to the Sublessor. All notices and
demands by the Subleases to Sublessor shall be sent by United States Mail,
postage prepaid, addressed to the Sublessor at the address set forth
herein, and to such other person or place as the Sublessor may from time to
time designate in a notice to the Sublessee.
To Sublessor: 6421 Congress Avenue, Suite 206, Boca Raton, Florida 33487
----------------------------------------------------------
To Sublessee: 6401 Congress Avenue, Suite 110, Boca Raton, Florida 33487
----------------------------------------------------------
15. CONSENT BY LESSOR AND MEDPARTNERS.
THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT UNLESS CONSENTED TO BY
LESSOR* WITHIN 10 DAYS AFTER EXECUTION HEREOF, IF SUCH CONSENT IS REQUIRED
UNDER THE TERMS OF THE MASTER LEASE.
*AND MEDPARTNERS
16. COMPLIANCE.
The parties hereto agree to comply with all applicable federal, state and
local laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this
Agreement, including, but not limited to, the 1964 Civil Rights and all
amendments thereto, the Foreign Investment in Real Property Tax Act, the
Comprehensive Environmental Response Compensation and Liability Act, and
The Americans With Disabilities Act.
Sublessor: CHAMPION LEASING CORPORATION Sublessee: HIWAY TECHNOLOGIES,
---------------------------- ------------------
INC.
---
By: /s/ Christopher G. Pyle By: /s/ Scott H. Adams
------------------------------ -----------------------------
Title: President Title: President
---------------------------- --------------------------
By: Christopher G. Pyle By: Scott Adams
------------------------------ -----------------------------
Title: President Title: President
---------------------------- --------------------------
Date: 8-19-92 Date: 3-19-97
----------------------------- ---------------------------
MedPartners and LESSOR'S CONSENT TO SUBLEASE
*and MedPartners
The undersigned ("Lessor"), lessor under the Master Lease*, hereby consents
to the foregoing Sublease without waiver of any restriction in the Master
Lease ** concerning further assignment or subletting. Lessor certifies that,
as of the date of Lessor's execution hereof, Sublessor is not in default or
breach of any of the provisions of the Master Lease, and that the Master
Lease has not been amended or modified except as expressly set forth in the
foregoing Sublessee. MedPartners certifies there is no default under the
MedPartners/Champion Sublease MedPartners Acquisition Corp. successor in
interest to:
**or sublease
MedPartners of Florida, Inc.
(Sublessor under the Sublease
agreement dated 4/12/96)
Lessor: Catexor Limited Partnership I
------------------------------
By: /s/ Stig Wennerstrom
----------------------------------
Title:
-------------------------------
AGREED AND CONSENTED TO:
By: Stig Wennerstrom By: /s/ J R
---------------------------------- ---------------------------
Title: President & General Partner Title: Secretary
------------------------------- ------------------------
Date: Date: 4/3/97
-------------------------------- -------------------------
- --------------------------------------------------------------------------------
CONSULT YOUR ADVISORS - This document has been prepared for approval by
your attorney. No representation or recommendation is made by Broker as to
the legal sufficiency or tax consequences of this document or the
transaction to which it relates. These are questions for your attorney.
In any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other
person, with experience in evaluating the condition of the property,
including the possible presence of asbestos, hazardous materials and
underground storage tanks.
- --------------------------------------------------------------------------------
17. Upon mutual execution and consent of this Sublease, Sublessee shall be
allowed early occupancy of the Premises in order to prepare it for their
use. Sublessor will have already vacated the Premises and will deliver it
to Sublessee in a broom clean condition free of all debris. Sublessee will
be responsible for all costs associated with properly demising the subject
Premises.
/s/ SHA CP JR W
3
<PAGE>
EXHIBIT 10.18
COMMERCIAL LEASE
----------------
THIS COMMERCIAL LEASE is made and entered into this 15 day of February,
1996 by and between Catexor Limited Partnership-I (the "Lessor"), a Florida
------
Limited partnership, whose address is 2730 SW 3rd Ave., Miami Florida 33l28-2237
and Hiway Technologies, Inc. (the "Lessee"), a Florida Corporation (state of
------
origin/type of entity), whose address is 6413 Congress Avenue, Suite 150, Boca
Raton, Florida 33487.
WITNESSETH:
1. Lease of Premise. In consideration of the mutual promises, covenants
----------------
and conditions herein contained, and the rent reserved by Lessor, Lessor hereby
leases, lets and demises unto Lessee, and Lessee hereby rents of and from
Lessor, the following premises (the "Premises").
--------
Suite No. 200 of the commercial building (the "Building") described on
--------
Exhibit "A" with a street address of 6401 Congress Avenue, Boca Raton,
Florida 33487 located within the development known as Amtec Center (the
"Project") described on Exhibit "B",
-------
together with easements and improvements appurtenant thereto, but subject to
easements, restrictions and other matters of record. The actual locations,
numbers, sizes and dimensions of all improvements, landscaping and parking areas
may deviate from the descriptions thereof shown on the Exhibits hereto.
2. Term. The term of this Lease (the "Term") shall begin on the date this
---- ----
Lease is executed and continue until the Second (2nd) anniversary (the
"Termination Date") of the first to occur of the following (the "Commencement
---------------- ------------
Date"):
- ----
A. The date upon which Lessee takes possession of the Premises;
B. Five days after a certificate of occupancy is issued for the
improvements described in Exhibit "C" hereof (the "Workletter"); or
----------
C. _____ days from the date hereof,
D. March 1, 1996.
unless this Lease is sooner terminated, or extended, pursuant to the terms and
conditions hereof. If Lessor is unable to give possession of the Premises on the
Commencement Date by reason of the holding over of any tenant, or because
construction, repairs or improvements not completed, all Rent and other payments
due on the Commencement Date shall abate for the period that possession by Lease
is delayed. If Lessee causes such delay, Rent and such other payments shall not
abate. Notwithstanding the foregoing, Lessor shall not be responsible for direct
or consequential damages because of its inability to furnish possession to
Lessee by any particular date. In the event of any such delay, the Termination
Date shall not be extended.
3. Holding Over. In the event of holding over by Lessee after explanation
------------
of the Term or the earlier termination of this Lease without the written consent
of Lessor, Lessee shall pay as liquidated damages for the entire holdover
period, on a per diem basis, double (i) the greater of Rent or the then current
-------
fair market monthly rental of the Premises and (ii) any Additional Rent due
under this Lease (calculated on the basis of Rent with respect to the month
immediately preceding the month in which expiration or termination occurs) for
the entire holdover period. In the event of any unauthorized holding over,
Lessee shall also indemnify Lessor against all claims for damages by any other
tenant to whom Lessor may have leased all or any part of the Premises covered
hereby effective after the termination of this Lease. No payments of money by
Lessee after the expiration of the Term or the earlier termination of this Lease
will reinstate, continue or extend the Term; reduce the liability of Lessee to
Lessor for damages; or affect any termination notice given by Lessor to Lessee.
No extension of the Term will be valid unless and until the same will be reduced
to writing and signed by both Lessor and Lessee.
4. Construction of Improvements. Lessor has completed or will complete
----------------------------
construction of the Building in which the Premises are located. The Workletter
attached hereto as Exhibit "C" describes the leasehold improvements to be made
in and to the Premises by Lessor and/or Lessee, together with a
/s/ SHA JR
<PAGE>
designation of the person(s) or entity(ies) by whom such improvements are to be
constructed and/or installed, Except for completion of any remaining items which
are Lessor's responsibility under the Workletter, and except for defects which
are not observable upon a reasonable inspection and about which Lessee notifies
Lessor in writing within six months after taking possession of the Premise, the
taking of possession of the Premises by Lessee will be conclusive evidence as to
Lessee that: (a) the Building and each and every part and appurtenance thereof
are in good and satisfactory condition; and (b) Lessee waives any defects in the
Premises and all other parts of the Building and the Project.
5. Rent.
----
A. Annual Rent. Lessee agrees to pay Lessor, without demand, notice,
-----------
set-off or deduction, rent ("Rent") as adjusted annually for increases in the
----
cost of living as set forth in subparagraph B hereof, beginning on the
Commencement Date. Rent shall be initially Seventeen Thousand One Hundred Sixty
------------------------------------
Nine and 60/100 Dollars $17,169.60) annually. Lessee's covenant to pay Rent and
- ----------------------------------
other sums due hereunder are independent of Lessor's covenants hereunder and
Lessee shall have no right to withhold any such payments on account of any
alleged failure by Lessor to perform or comply with any of the terms of this
Lease.
B. Annual Rent per Paragraph 5.A. of the Lease shall increase on each
anniversary date by (5%).
C. Method of Payment. Rent shall be payable in equal monthly
-----------------
installments in advance on the first (1st) day of each calendar month of the
Term to Lessor at the following address:
Catexor Limited Partnership I
Lease No. __________ c/o CB Commercial
5355 Town Center Road
Suite 701
Boca Raton, Florida 33486
(the "Payment Address"), or at such other place Lessor may from time to time
---------------
designate in writing. Such Rent shall be due automatically and without notice
from Lessor. If the Commencement Date is not on the first (1st) day of a
calendar month, Rent for the period between the Commencement Date and the first
(1st) day of the following month shall be apportioned, on a per diem basis, at
the monthly rental rate hereinabove provided, and shall be payable on the
Commencement Date. Lessee shall not pay more than two monthly installments of
Rent in advance (the current month and one additional month) without the prior
written consent of all mortgagees of the Project.
D. Use, Excise, Sales and Other Taxes. In addition to the Rent and
----------------------------------
other amounts herein reserved, Lessee shall also pay the amount of any use,
excise, sales or other tax on any rental (as defined by the appropriate
governmental entity), including, but not limited to, sales tax on Operating
Costs, and other amounts due hereunder imposed by the State of Florida and any
federal, state or local
/s/ SHA JR
2
<PAGE>
government or agency. Such taxes and other assessments shall be paid as
Additional Rent at the same time and in the same manner as each payment of Rent.
Lessee shall pay before delinquency any and all taxes and assessments, including
licenses, sales, business corporation or other taxes, fees or charges levied or
imposed upon its business operations in the Premises, including, but not limited
to, taxes or assessments imposed upon trade fixtures, leasehold improvements,
merchandise and other personality in or upon the Premises.
E. Expenditures by Lessor. If Lessor shall make any expenditure for
----------------------
which Lessee is liable under this Lease, the amount thereof shall be deemed
Additional Rent due and payable by Lessee with the succeeding installment of
Rent (unless some other date is expressly provided herein for payment of such
amount) together with interest thereon at the rate per annum equal to five
percent plus the prime rate, as the same is announced from time to time by the
Chase Manhattan Bank, N.A., at its principal place of business in New York City
or, if lower, the highest rate permitted by applicable law (the "Applicable
----------
Interest Rate").
- ---------------
F. Additional Rent. All amounts payable by Lessee under this Lease in
---------------
addition to Rent or as Additional Rent shall be payable and recoverable in the
same manner as Rent.
6. Security Deposit. Lessee has deposited with Lessor, and Lessor hereby
----------------
acknowledges receipt of, $ One Thousand Four Hundred Thirty and 80/100 Dollars
-----------------------------------------------------
($1,430.80) (the "Security Deposit") which shall be held by Lessor,
--------- ----------------
without accrual of Interest, as security for the faithful performance by Lessee
of all of the terms of this Lessee and not as an advance rent deposit or a
measure of Lessor's damages in the case of Lessee's default. Such Security
Deposit shall not be mortgaged, assigned, transferred or encumbered by Lessee
without the express prior written consent of Lessor. If Lessee shall fail to
perform any of the terms of this Lease, then Lessor, at its option and without
prejudice to any other remedy which Lessor may have on account thereof, may
appropriate and apply all or any part of the Security Deposit toward the payment
of any Rent or additional sum due hereunder or to any loss or damage sustained
by Lessor due to such breach on the part of Lessee; and Lessee shall forthwith
upon demand restore the Security Deposit to the original sum deposited. Any
funds paid by Lessee to Lessor as part of the Security Deposit or as a deposit
or advance pursuant to the terms of this Lease, or any exhibit, addendum or
modification hereto, may be commingled with other funds of Lessor and need not
be placed in trust, deposited in escrow or otherwise held in a segregated
account. Should Lessee comply with all of the terms hereof and promptly pay all
of the rentals and all other sums payable by Lessee to Lessor as they become
due, the Security Deposit shall be returned in full to Lessee within 30 days
after the end of the Term. In the event of a bankruptcy or other creditor/debtor
proceeding against Lessee, the Security Deposit shall be deemed to be first
applied to the payment of Rent and other charges due Lessor for all periods
prior to the filing of such proceedings. Lessor may deliver the Security Deposit
and any other deposit made hereunder by Lessee to the purchaser of Lessor's
interest in all or any part of the Project and thereupon Lessor shall be
discharged from any further liability with respect to such deposit; and this
provision shall also apply to any subsequent transferee of Lessor.
7. Operating Costs.
---------------
A. Definitions. In addition to Rent described in Article 5 hereof,
-----------
and other amounts due hereunder, beginning on the Commencement Date Lessee shall
pay as Additional Rent its pro rata share of all expenses, costs and
disbursements of every kind and nature which Lessor shall pay or be obligated to
pay because of or in connection with the ownership, operation and maintenance of
the Building, including, but not limited to, the following (the "Operating
---------
Costs"):
- -----
(1) Services. The cost of providing the services and maintaining,
--------
repairing and managing the Common Areas (as hereinafter defined),
including, without limitation, supplies; professional fees; service
contracts; employees' wages, taxes, and benefits; reasonable management
fee; utilities not separately metered to the Premises; garbage collection
and waste removal; security expenses; pest control; window cleaning and
landscaping.
(2) Taxes and Assessments. Any real estate taxes, assessments of
---------------------
any kind, sewer rents, rates and charges, parking taxes, and other federal,
state or local government charges, general, ordinary or extraordinary,
which may now or hereafter be levied or assessed against the Building and
the Project Common Areas (collectively the "Taxes"). In the event such
-----
Taxes are not separately assessed, Lessor shall reasonably determine the
amount of the applicable tax attributable to the Building and the Project
Common Areas. If at any time during the Term (or any renewal or extension
thereof) the method of taxation then prevailing is altered to impose taxes
directly upon Lessor in place or partly in place of the Taxes, then all
such new taxes imposed directly upon Lessor shall be included within
Operating Costs.
(3) Insurance. All premiums for public liability, fire and
---------
extended coverage or all risk, business interruption, and/or any other
insurance coverage which may reasonably be carried by Lessor with respect
to the Building and the Project Common Areas.
/s/ SHA JR
3
<PAGE>
(4) Capital Investment Items. Contribution for amortization of
-------------------------
the cost of all capital investment items which are primarily for the
purposes of increasing the operating efficiency of the Building or the
Project Common Areas, reducing Operating Costs, improving controlled access
to the Building or the Project, or attempting to satisfy what may be
required by any governmental authority. The amount of the annual
contribution shall be determined by using an amortization schedule and
applying the useful life of the item (as determined under I.R.S.
regulations for the applicable year or by any other standard reasonably
adopted by Lessor) and the Applicable Interest rate in accordance with
generally accepted accounting principles.
Lessee's pro rata share of such Operating Costs shall be in the same ratio that
Leasable area of the Premises bears to the Usable Area of the Building. The
"Leasable area of the Premises" is 2336 square feet. The Usable Area of the
---- ------------------
Building is 180,819 square feet. "Building Common Areas" shall include (a)
- -------- ------- ---------------------
automobile parking areas, driveways, courtyards, plazas and footways shown on
Exhibit "A", if any (if not included in Project Common Areas); (b) elevator,
lobby and stairway areas; (c) elevators; (d) all corridors shared by more than
one tenant; (e) all restrooms shared by more than one tenant; (f) all the
exterior walls of the Building; and (g) interior walls and areas shared by all
tenants in the Building. "Project Common Areas" shall mean such portion of the
--------------------
Project which Lessor from time to time designate as Project Common Areas and
which benefit of are arguably for the use of tenants, owners and occupants of
the Project. Project Common Areas may include (a) automobile parking areas,
driveways and footways shown on Exhibit "B" which are not maintained by and at
the expense of any tenant or occupant of the Project pursuant to a separate
agreement with Lessor and (b) open or landscaped areas shown on Exhibit "B"; and
(c) any other areas so designated by Lessor. "Common Areas" shall collectively
------------
mean the Building Common Areas and the Project Common Areas. Lessee's prorata
share is 1.29% (2336 sf/180,819 sf).
B. Annual Budget. Lessor shall, prior to January 1st of each year,
-------------
provide Lessee with an estimate of the Operating Costs for the next calendar
year, which estimate shall be prepared by Lessor using the latest information
available. Lessee shall pay to Lessor with each monthly installment of rent
Additional Rent equal to one twelfth (1/12th) of Lessee's annual pro rata share
of the estimated Operating Costs based upon the budget for that calendar year.
Lessor shall within ninety (90) days after the close of each calendar year
during the Term give Lessee a statement of such year's actual Operating Costs
with a comparison of the estimated Operating Costs for the previous year (the
"Actual Costs Statement"). Within thirty (30) days after the delivery of the
Actual Costs Statement, Lessee shall be entitled to take a credit in the same
amount of any overpayment against the next installment of Rent due or, if
appropriate, Lessee shall pay Lessor, a lump sum payment of the difference
between Lessee's pro rata share of estimated Operating Costs for the previous
calendar year and Lessee's pro rata share of the actual Operating Costs for such
year. Should this Lease commence or terminate any other time than the first day
of a calendar year, the lump sum payment adjustment shall be calculated by using
a fraction, the numerator of which is the number of days of the Term during the
commencement or termination year, as the case may be, and the denominator of
365. During the last full or partial calendar year during the Term, Lessee's pro
rata share of Operating Costs shall be based solely upon the estimate of
Operating Costs prepared by Lessor for such calendar year. Lessee's Operating
Costs shall be fixed at $3.25 psf for the first year of the lease term.
8. Use.
---
A. General Use Restrictions. Lessee shall use the Premises only for
------------------------
General office use (the "Permitted Uses") and shall not leave the Premises
--------------
vacant or suffer or permit any waste or mistreatment thereof. Throughout the
Term, Lessee shall, at its own expense, comply with all laws, ordinances,
orders, rules and regulations of any municipal, county, state or federal
governmental authority or other governmental authority having or claiming
jurisdiction over the Project, Lessee or Lessor (a "Governmental Authority"),
----------------------
and shall obtain all licenses and permits required with respect to the Permitted
Uses. Lessor, at its sole option, may cancel this Lease if Lessee fails to
provide the applicable municipality's (and/or, if applicable, county's) written
approval (i.e. occupational license) of Lessee's intended use of the Premises.
If during the Term, any law, regulation or rule requires that an alteration,
repair, addition or other change be made to the Premises, such work is to be
done at Lessee's expense. Lessee also agrees to abide by, and cause its agents,
employees, licensees and invitees to abide by, the rules and regulations
promulgated by Lessor, from time to time as amended. Lessor shall not be liable
to Lessee for the violation of any rules and regulations by any other tenant or
person, and the failure to enforce any such rules and regulations against Lessee
or any other tenant shall not constitute a waiver thereof by Lessor. A copy of
the existing rules and regulations is attached hereto and made a part hereof as
Exhibit "D". In the event of any conflict between the provisions of this Lease
and the rules and regulations, the provisions of this Lease shall control.
B. Park Covenants. If the Project is located in, is part of, or
--------------
subsequent to the date hereof is incorporated into any office park, industrial
park, business park or similar entity (the "Park"), this Lease shall be subject
to all of the terms, covenants, restrictions, development criteria or other such
regulations for the Park (the "Covenants"). Lessee hereby accepts its leasehold
estate subject to such Covenants and agrees to conform and comply with all
provisions contained therein or to allow Lessor or the declarant of the
Covenants to fulfill all obligations imposed pursuant thereto. Lessee
/s/ SHA JR
4
<PAGE>
shall pay, as part of its pro rata share of Operating Costs (as hereinafter
defined), its proportionate share of any costs imposed upon the Project as a
result of the Project's association with the Park including, but not limited to,
owner's association fees, maintenance costs and real estate taxes associated
with any common areas of the Park.
9. Lessor's Duty to Maintain and Repair.
------------------------------------
A. Services to Lessee. Lessor agrees to use reasonable efforts to
------------------
cause public utilities to furnish electricity and water necessary for operation
of the Premises and the Building. Lessor also agrees to use all reasonable
efforts to provide (as a part of Operating Costs) the following services (the
"Services") to Lessee while Lessee is occupying the Premises (a) routine
- ---------
maintenance and electrical lighting service for all Common Areas; (b) central
heat and air conditioning for all interior Building Common Areas from 8:00 A.M.
to 6:00 P.M. Monday through Friday (the "Building Hours"); (c) cold water at
--------------
points of supply provided for general use of tenants of the Building; (d)
routine maintenance to the roof, structure and exterior walls of the Building,
reasonable wear and tear expected by both parties, including exterior painting
of the Building and resurfacing of parking lots as necessary (Lessor is not
responsible for maintaining windows, plate glass, doors, special storefronts or
office entries); and (e) elevator service to the Premises, if applicable,
twenty-four (24) hours a day, every day of the year, except during periods of
servicing and repair. If Lessor shall fail to any extent to furnish any services
described in this Lease, Lessor shall not be liable for damages to either person
or property, nor shall such failure be construed as an eviction of Lessee nor
relieve Lessee from any covenant or agreement hereof, including but not limited
to the payment of Rent, Additional Rent and Operating Costs. If any Building
machinery or equipment breaks down or otherwise ceases to function properly,
Lessee shall have no claim for rebate of rents or damages on account of an
interruption in service occasioned or resulting therefrom.
B. Repairs. Lessor shall not be obligated to repair the roof or any
-------
other part of the Premises until notice of the need for such repairs is given to
Lessor by Lessee. Lessor shall have a reasonable opportunity to repair the roof
or other part of the Premises after receiving notice from Lessee. Lessor shall
not be liable to Lessee or to any third parties for damages or injuries
occurring by reason of the need for such repairs. Further, Lessor shall not be
liable for or required to make any repairs, or perform any maintenance, to or
upon the Premises which are required by, related to or which arise out of
negligence, fault, misfeasance or malfeasance of and by Lessee, its employees,
agents, invitees, licensees or customers, in which event Lessee shall be
responsible therefor. Subject to additional limitations set forth elsewhere in
this Lease, Lessor's liability with respect to any defects, repair or
maintenance for which Lessor is responsible under this Lease shall be limited to
the cost of such repairs or maintenance or the curing of such defect.
10. Lessee's Repair and Maintenance Obligations.
-------------------------------------------
A. Duty to Repair. Lessee shall be liable for and required to make
--------------
any repairs, perform any maintenance, and satisfy any claims with respect to the
Project, including the Premises, that are required by, related to, or which
arise from or grow out of negligence, fault, misfeasance or malfeasance of
Lessee, its employees, agents, invitees, licensees or customers, unless Lessor
shall elect by written notice to Lessee to make such repairs, perform such
maintenance or satisfy such claims, in which event Lessee shall repay to Lessor
the cost thereof (plus an additional charge of 15%) within three days of Lessors
written demand.
B. Duty to Maintain. Lessee shall, at its own expense, service, keep
----------------
and maintain the interior of the Premises, including all plumbing, wiring,
piping, heating and cooling equipment and fixtures and equipment on the interior
of the Premises in good and substantial repair during the entire term of this
Lease; but, such agreement of Lessee shall not apply to any damage covered by
fire and extended coverage insurance. Without limiting the foregoing, Lessee is
responsible for repairing, maintaining and/or replacing windows, glass and plate
glass, light bulbs, florescent tubes, doors, fire sprinklers, plumbing
(including toilet), and sewage lines, interior walls and finish work, floors,
floor coverings, ceilings, dock lifts, dock conveyors, truck doors, and
appliances lying within the perimetrical boundaries of the Premises. Lessee
shall keep the sidewalks and loading areas adjacent to the Premises clean and
free of all dirt and refuse. Lessee shall provide at its own expense custodial
services, insect and pest control service, rubbish removal and all other
services and supplies necessary to maintain or repair the Premises as set forth
herein. Lessee agrees to make repairs promptly as they may be needed at its own
expense. All repairs shall be at least equal in quality to the original work.
C. Surrender of the Premises. At the end of the Term or upon the
-------------------------
earlier termination of this Lease, Lessee shall surrender the Premises in good
condition and repair, reasonable wear and tear excepted, and in a broom-clean
condition with all glass, walls, windows and doors intact. In the event of
Lessee's failure to surrender the Premises in the condition required, Lessor may
restore the Premises to such condition, and Lessee shall pay the cost thereof on
demand. Any deposit held pursuant to Article 6 hereof may be credited against
any amount payable by Lessee under this paragraph.
/s/ SHA JR
5
<PAGE>
D. Fire Safety. Lessee, at its own expense, shall install and
-----------
maintain fire extinguishers within the Premises and other fire protective
devices as may be required from time to time by Lessor, any agency having
jurisdiction and/or the insurance underwriters insuring the Premises. Lessor may
install a fire sprinkler system which Lessor shall maintain unless modified by
Lessee. Lessee may not modify any fire sprinkler system without the prior
written consent of Lessor, which may be withheld for any reason. If Lessee
modifies the sprinkler system, Lessee assumes complete responsibility for such
system, including all maintenance obligations.
E. HVAC. The Premises shall be serviced with its own air conditioning
----
and heating by a heating, air conditioning and ventilating system (the "HVAC
----
System"). If the HVAC System is under warranty on the Commencement date, Lessor
- --------
will furnish Lessee with a copy of such warranty. At all times during this
Lease, Lessee shall have a full service maintenance contract for the care and
repair of the HVAC System with a contractor approved by Lessor (the "Approved
--------
Air Conditioning Contractor"). Lessee shall hold Lessor harmless from any and
- -----------------------------
all costs incurred by Lessor as a result of Lessee's failure to keep the
maintenance contract in effect. Lessee shall pay all costs, including service
calls, incurred pursuant to such maintenance contract. In addition, Lessee shall
be responsible for all maintenance and repair costs incurred in connection with
the HVAC System not covered by the maintenance contract. Lessor, at Lessor's
sole option, may contract directly with the Approved Contractor with respect to
the maintenance contract and bill Lessee not less than quarterly for the same.
Lessee will pay all invoices for the maintenance contract within 15 days of
Lessee's receipt of same. Any required replacement of the HVAC system and/or any
major parts such as the compressor, condenser, coils or dryer will be the
Lessor's responsibility. Lessor will not be responsible for replacement if the
cause of the replacement is due to Lessee's negligence.
11. Right of Entry. Lessor, its agents and representatives shall
--------------
have the right to enter into and upon any part of the Premises at any time
either in the event of an emergency and otherwise upon reasonable notice at
reasonable times for the purposes of inspecting, cleaning or making repairs,
alterations or additions thereto; Lessee shall not be entitled to any abatement
or reduction of rent by reason thereof. The right of Lessor to enter, repair or
do anything else to protect its interest, or the exercise or failure to exercise
the right, shall in no way diminish Lessee's obligations or enlarge Lessor's
obligations under this Lease, or affect any right of Lessor, or create any duty
or liability by Lessor to Lessee or any third party.
12. Utilities. In addition to Rent, Additional Rent and Lessee's pro rata
---------
share of Operating Costs, Lessee shall pay all costs and expenses for heat,
cooling, telephone service, sewer service and any and all other utilities
separately metered and furnished to or used in connection with the Premises for
any purpose whatsoever during the Term, promptly as each thereof shall become
due and payable. In addition, Lessee shall pay all charges (whether or not
separately metered) for utility services, including electricity for parking lot
lighting, which are required by Lessee over and above the normal utility service
provided by Lessor to the remainder of the tenants of the Building. Lessor may
provide electricity or other utilities to Lessee metered by tab meters or
metered in common for the whole Building (and allocated proportionately to
Lessee on a square footage basis). Lessor shall bill Lessee, as Additional Rent,
not less than quarterly for all utilities provided by Lessor, based on Lessor's
actual costs for such utilities (including reasonable billing costs). Payment
for such utilities shall be due within ten days of Lessee's receipt of the bill
for such utilities. Lessor shall not be liable for any interruption or failure
of utility services furnished through Lessor to the Premises.
13. Access Control. Lessee is responsible for access control to the
--------------
Premises. Lessor shall not be liable to Lessee, and Lessee shall not make any
claim against Lessor, for any loss Lessee may incur by reason of break-ins,
burglaries, acts of vandalism, personal injury or death. Lessor agrees to
furnish Lessee two (2) keys for each door entering the Premises. Additional keys
will be furnished at a reasonable charge by Lessor on an order signed by Lessee
or Lessee's authorized representative. All such keys shall remain the property
of Lessor. No additional locks or changes to existing locks shall be allowed on
any door of the Premises without Lessor's written permission, and Lessee shall
not make, or permit to be made, any duplicate keys, except those furnished by
Lessor, exclusive of keys to Lessee's safes and vaults. At the end of the Term
or upon the earlier termination of this Lease, Lessee shall surrender to Lessor
all keys of the Premises and give to Lessor the explanation of the combination
of all locks for safes, safe cabinets and vault doors, if any, that will remain
in the Premises after the termination of this Lease. In the event Lessee loses
or misplaces key(s) prior to or at termination of this Lease provided to Lessee
by Lessor, Lessee shall be solely liable for all costs incurred by Lessor in
changing lock(s) requiring such keys.
14. Quiet Enjoyment. Lessor covenants that so long as Lessee pays the Rent
---------------
and the other amounts reserved in this Lease and performs its agreements
hereunder, Lessee shall have the right to quietly enjoy and use the Premises
during the Term, subject only to the provisions of this Lease.
15. Assignment-Subletting. Lessee shall not assign this Lease nor any
---------------------
rights hereunder, nor let or sublet all or any part of the Premises, nor suffer
or permit any person of corporation to use any part of the Premises, without
first obtaining the express prior written consent of Lessor, which consent shall
not be unreasonably withheld. The transfer of fifty percent (50%) or more of the
stock of Lessee if Lessee is a corporation, the transfer of any partnership
interest if Lessee is a partnership, or the transfer of a beneficial interest in
a land trust if Lessee is a land trust, shall not be unreasonably withheld.
/s/ SHA JR
6
<PAGE>
deemed an assignment requiring the consent of Lessor if any such transfer will
effectively vest control of Lessee in an entity or person other than the entity
or person then having such control. Should Lessor consent to such assignment of
this Lease or to a sublease of all or any part of the Premises, Lessee does
hereby guarantee payment of all Rent herein reserved and all other obligations
hereunder until the expiration of the Term. No failure of Lessor to promptly
collect from any assignee or sublessee, or any extension of the time for the
payment of such rents, shall release or relieve Lessee or any guarantor from its
guaranty or obligation of payment of such rents or performance of other
obligations. Should Lessor consent to such assignment or sublease, all amounts
received by Lessee as consideration for the same, including, without limitation,
amounts received from a sublessee in excess of amounts to be remitted by Lessee
to Lessor hereunder, shall be the property of Lessor and delivered to Lessor by
Lessee immediately upon receipt. Any consent by Lessor to an assignment or
sublease of Lessee's rights hereunder shall be effective for that transaction
only. Lessor hereby expressly reserves the right to approve or disapprove of all
future assignments or subleases by Lessee or its assignee or sublessee, which
approval.* Notwithstanding the foregoing, Lessee may, upon thirty (30) days
prior written notice to Lessor, assign this Lease without Lessor's consent, to
a corporation with which Lessee may merge or consolidate, to any parent or
subsidiary of Lessee or to a subsidiary of Lessee's parent; provided, however,
that such assignment shall not affect or reduce any of the obligations of
Lessee under this Lease and that Lessee shall remain primarily liable
hereunder.
*shall not be unreasonably withheld
16. Signs. Without first obtaining Lessor's express prior written consent,
-----
which may be withheld for any or no reason, Lessee shall not place or permit to
be placed or maintained upon any exterior door, roof, wall or window of the
Premises or upon any portion of the interior of the Premises visible from the
exterior of the Building any sign, awning, canopy, interior graphics advertising
matter or other item of any kind; will not place or maintain any decoration,
lettering or advertising matter on the glass of any window or door of the
Premises; and will not place or maintain any freestanding structure within or
upon the Common Areas or the Premises immediately adjacent thereto. Lessee
agrees to maintain such items as may be approved by Lessor in good condition and
repair at all times and to remove the same at the expiration of the Term or the
earlier termination of this Lease as and if requested by Lessor. Upon removal
thereof, Lessee agrees to repair any damage to the Premises or Building Common
Areas caused by such installation and/or removal.
17. Parking and Common Areas. In addition to the Premises, but subject to
------------------------
Lessor's reservation of rights in Article 30 hereof, Lessee shall have the right
to non-exclusive use, in common with Lessor, other tenants, and the guests,
employees and invitees of same, of the Common Areas for their intended purposes.
The Common Areas shall be subject to the exclusive control and management of
Lessor. Lessee further agrees that it and its officers and employees will park
their automobiles only in the areas as Lessor may from time to time designate
for employee parking, which areas may be within or without the Project. Lessee
agrees that it will, within five (5) days after written request therefor by
Lessor, furnish to Lessor the state automobile license numbers assigned to its
cars and the cars of all of its employees. Lessee shall not park any truck nor
delivery vehicle in the parking areas, nor permit delivery of supplies and
equipment at any place or during any time period other than as designated by
Lessor. In the event that Lessor deems it necessary to prevent the acquisition
of public rights in and to the Building or the Project, Lessor may from time to
time temporarily close portions of the Common Areas and may erect private
boundary markers or take such steps as deemed appropriate for that purpose. Such
action shall not constitute or be considered an eviction or disturbance of
Lessee's quiet possession of the Premises. Lessee shall have eight (8)
--------
unassigned parking spaces within the Common Areas.
18. Alteration to the Premises and Removal of Equipment.
---------------------------------------------------
A. Approval Required. Lessee shall not make any alteration,
-----------------
installation, improvement or addition to the Premises, including, but not
limited to, roof and wall penetrations, the installation of heating, air
conditioning or ventilating equipment or the construction of a mezzanine, or
increase or decrease the Usable Area of the Premises, without first obtaining
the express prior written consent of Lessor. Unless Lessor has waived such
requirement in writing, Lessee's request for approval of any alteration,
improvement, addition or installation must be accompanied by details with
respect to the proposed source of funds for payment of the cost of the item,
design concept, plans and specifications, names of proposed contractors, hours
of construction, proposed construction methods, and evidence of security for
jobs whose cost exceeds $1000 (such as payment and performance bonds).
B. Complex Alterations. If the nature, volume or complexity of any
-------------------
proposed alteration, addition, improvement or installation causes Lessor to
consult with an independent architect, engineer or other consultant, Lessee will
reimburse Lessor for the fees and expenses incurred by Lessor. If any
improvements will affect the Building Common Areas, Lessor may require that such
work be designed by consultants designated by Lessor and be performed by Lessor
or Lessor's contractors at Lessee's expense.
C. Standard of Work. All work to be performed by or for Lessee
----------------
pursuant hereto will be performed diligently and in a first-class, workmanlike
manner, in compliance with all applicable laws, ordinances, regulations and
rules of any public authority having jurisdiction over the Building and/or
/s/ SHA
7
<PAGE>
Lessee and Lessee's insurance carriers. Lessor will have the right, but not the
obligation, to inspect periodically the work on the Premises and may require
reasonable changes in the method or quality of the work. Lessee's work shall not
interfere with the progress of any other work on the Building or the Project
being performed by or on account of Lessor. Lessee's work shall be performed as
quietly as possible and not unreasonably interfere or interrupt other tenant's
business in the Building. In addition, Lessor reserves the right to require that
all or part of Lessee's work be performed after the Building Hours or on the
weekends if Lessor, in Lessor's sole discretion, determines that Lessee's work
will disturb Lessor's other tenants in the Building.
D. Ownership of Alterations. Upon the expiration of the Term or the
------------------------
earlier termination of this Lease, all additions, installations, decorations,
improvements (whether temporary or permanent), fixtures (except Lessee's trade
fixtures which can be removed without defacing the Premises or the Building) and
alterations, whether placed there by Lessee or Lessor, shall remain a part of
the Premises as the property of Lessor without compensation or allowance or
credit to the Lessee. Lessee shall, however, remove such items at its expense
upon Lessor's written request. If Lessee does not remove such items after
Lessor's request, Lessor may remove and sell or dispose of the same at the
expense of Lessee in a manner Lessor deems advisable, or place such property in
storage at Lessee's expense. Carpeting, emergency lights, fire extinguishers,
alarm systems, shelving and cabinetry will be deemed improvements of the
Premises and not movable trade fixtures, regardless of how or where affixed.
Such alterations will not be removed by Lessee from the Premises either during
or at the expiration of the Term or earlier termination of this Lease and will
be surrendered as a part of the Premises unless such alteration is not Building
standard and Lessor has requested that Lessee remove same. Notwithstanding the
foregoing, Lessee shall not be liable for removal of standard improvements to
the Building made by Lessor. Any of Lessee's property remaining in the Premises
ten (10) days after the expiration of the Term or earlier termination of this
Lease will be deemed to have been abandoned by Lessee, and in such case such
items may be retained by Lessor as Lessor's property or disposed of by Lessor
without accountability to Lessee, in such manner as Lessor determines, at
Lessee's expense.
19. Liens. Lessee agrees that it will make full and prompt payment of all
-----
sums necessary to pay for the cost of repairs, alterations, improvements,
changes or other work done by Lessee to the Premises, and further agrees to
indemnify and hold harmless Lessor from and against any and all such costs and
liabilities incurred by Lessee, and against any and all mechanic's,
materialman's or laborer's liens arising out of or from such work which may be
asserted, claimed or charged against the Premises, the Building or the Project.
Notwithstanding anything to the contrary in this Lease, Lessor shall not be
liable for, and the interest of Lessor in the Premises and the Project shall not
be subject to, any mechanic's, materialman's or laborer's liens for improvements
or work made, by or for Lessee, whether or not the same shall be made or done in
accordance with an agreement between Lessor and Lessee. It is specifically
understood and agreed that in no event shall Lessor or the interest of Lessor in
the Premises be liable for or subject to any mechanic's, materialman's or
laborer's liens for improvements or work made by or for Lessee; and this Lease
specifically prohibits the subjecting of Lessor's Interest in the Premises to
any mechanic's, materialman's or laborer's liens for improvements made by Lessee
or for which Lessee is responsible for payment under the terms of this Lease.
All persons dealing with Lessee are hereunder placed upon notice of these
provisions. In the event any notice or claim of lien shall be asserted of record
against the interest of Lessor in the Premise or the Project on account of or
growing out of any improvement or work done by or for Lessee or any person
claiming by, through or under Lessee, or for improvements or work the cost of
which is the responsibility of Lessee, Lessee agrees to have such notice or
claim of lien cancelled and discharged of record (either by payment and
satisfaction or by removal by transfer to bond or deposit as permitted by law)
within thirty (30) days after notice to Lessee by Lessor. Lessee may contest any
such lien after discharging the same by transfer to a bond or deposit pursuant
to Florida law. Lessee shall have the right to grant a security interest to any
bank or other lending institution in Lessee's trade fixtures and equipment
provided that such security interest does not attach to any part of the
Premises. Upon execution of this Lease, Lessor and Lessee shall execute a
Memorandum of this Lease in the form attached as Exhibit "E" hereto, which may
be recorded among the Public Records of the County in which the Project is
located at Lessor's sole option.
20. Casualty. In the event the Premises are damaged or destroyed by fire
--------
or other casualty, Lessee shall notify Lessor immediately. In the event the
Premises are rendered untenantable by fire or other casualty, Lessor shall have
the option of terminating this Lease or rebuilding the Premises and/or Building,
and in such event written notice of the election by Lessor shall be given to
Lessee not later than thirty (30) days after settlement of any of Lessor's
insurance claims. In the event Lessor elects to rebuild the Premises, the
Premises shall be restored to its former condition within a reasonable time,
during which time Rent and Lessee's pro rata share of Operating Costs shall be
abated in proportion to the part of the Premises which are untenantable.
Notwithstanding the foregoing, if such damage or destruction resulted from or
was contributed to by the act, omission, fault or neglect of Lessee, or Lessee's
employees, invitees or agents, then there shall be no abatement of Rent and
Lessee's pro rata share of Operating Costs. In the case of such restoration,
Lessor and Lessee shall have the same respective obligations to construct or
install improvements as are designated in the Workletter. Notwithstanding
anything to the contrary contained in this Article, Lessor shall only be
obligated to restore or rebuild the Premises to a building standard condition,
and nothing herein shall be construed
/s/ SHA
8
<PAGE>
to obligate Lessor under any circumstances to repair or restore improvements
made by Lessee or specially constructed by Lessor for Lessee. In the event
Lessor elects to terminate this Lease, the Rent, Additional Rent and Lessee's
pro rata share of Operating Costs shall be paid to and adjusted as of the date
of such casualty, the Term of this Lease shall then expire and this Lease shall
be of no further force or effect. Thereafter, Lessor shall be entitled to sole
possession of the Premises. In the event the Premises are not repaired and
tenantable within 150 days after the damage or casualty, Lessee shall have the
option to terminate this Lease by written notice to Lessor at any time
thereafter but at least thirty (30) days prior to the Premises being repaired
and made tenantable.
21. Indemnification. Lessor shall not be liable for injury caused to any
---------------
person or property by reason of the failure of Lessee to perform any of its
covenants or agreements hereunder, nor for such damages or injury caused by
reason of any present or future defect in the Premises now or in the future
existing. Lessee agrees to indemnify and hold harmless Lessor, and its managing
agent, representatives, agents, servants and employees, from and against any and
all loss, damage, claim, demand, liability, cost or expense, including, but not
limited to, attorneys' fees and expenses, by reason of any damage or injury to
persons (including loss of life or illness) or property which may arise or be
claimed to have arisen as a result of or in connection with the occupancy or use
of the Premises or the Project by Lessee, its agents, employees, guests,
contractors, licensees or invitees, or in connection with any construction of
any improvements by Lessee, including, without limitation, any modification by
Lessee of the sprinkler system in the Premises.* In the event that any claim is
alleged against Lessor and/or its successors or assigns by anyone arising out of
the use or occupancy of the Premises and/or the Project by Lessee or by its
representatives, agents, servants, employees, licenses, invitees or guests, it
is expressly understood and agreed that at Lessor's written direction, Lessee
shall take over the defense of each and every claim promptly and pay all
attorney's fees, verdicts, judgments, settlement payments and all other costs
and expenses whatsoever incurred in connection with the defense of all such
claims, without exception, it being expressly understood that Lessee shall be
and remain fully responsible for all such claims and will hold Lessor and its
managing agent, representatives, agents, servants, and employees completely
harmless from and against any cost or expense whatsoever in connection herewith
regardless of whether Lessee or Lessor defends such claims.*
* unless due to the negligence or willful misconduct of Lessor.
22. Insurance.
---------
A. Lessor's Property. Except as noted below, Lessor shall bear all
-----------------
risks of loss or physical damage on the portion of the Building constructed by
Lessor (excluding any improvements made by Lessee) which is caused by fire or
other casualty. Lessor shall maintain (1) standard fire and extended coverage
insurance on the portion of the Building constructed by Lessor (excluding any
improvements made by Lessee) and Lessor's personal property used in connection
with the Building, insuring against loss or damage by fire and against loss or
damage by other risks now or hereinafter embraced by "all-risk coverage", in
amounts equal to the full replacement cost of the Building; and (2) rent or
rental value insurance against loss of rent or rental value due to any risk
insured above, including an extended coverage endorsement, in an amount equal
to the annual total Rent for the Building. Such insurance shall be maintained
with an insurance company authorized to do business in Florida (and the cost
thereof shall be included in Operating Costs), and payments for losses
thereunder shall be made solely to Lessor. Notwithstanding the foregoing, if any
loss sustained by Lessor is caused by the negligence of Lessee, its agents,
servants, employees, licensees, invitees or guests, then Lessee shall be liable
to Lessor for the amount of the deductible under Lessor's insurance, up to a
maximum of $1,000. Further Lessor shall not be responsible for loss or damage to
items for which Lessee is responsible as is more fully set forth below.
B. Lessor's Public Liability Insurance. Lessor shall maintain
-----------------------------------
comprehensive liability insurance on the entire Building and the Project in
amounts desired by Lessor.
C. Lessee's Public Liability Insurance. Lessee shall, at its expense,
-----------------------------------
provide and maintain in force during the entire Term of this Lease, and any
extension or renewal hereof, public liability insurance against the liability of
Lessee and its authorized representatives arising out of or in connection with
Lessee's use or occupancy of the Premises with limits of coverage of not less
than $250,000.00 for any property damage or loss from any one accident, and not
less than $1,000,000.00 for injury to any one person from any one accident (such
insurance may be procured under a combined single limit of $1,000,000.00),
covering Lessee, and naming Lessor and Lessor's managing agent, as additional
insured, as their interests may appear. Lessor may require Lessee to increase
the foregoing limits of liability insurance from time to time to new levels
reasonably required by Lessor. Each policy of such insurance shall name as the
insured thereunder Lessor, Lessor's managing agent and Lessee and shall be of
the type commonly known as owner's, landlord's and tenant's insurance. Such
policies shall be with a company or companies reasonably acceptable to Lessor
and admitted to do business in Florida.
D. Lessee's Other Insurance. In addition to the foregoing insurance,
------------------------
Lessee shall provide, at its expense: (a) plate glass insurance providing full
coverage for replacement of destroyed or damaged glass in or upon the Premises,
including but not limited to destroyed or damaged laminated glass; (b) Workmen's
Compensation Insurance for the benefit of all employees entering upon the
/s/ SHA JR
9
<PAGE>
Building as a result of or in connection with their employment by Lessee; (c)
all other insurance required of Lessee, as an employer, pursuant to any law,
rule or ordinance of any governmental authority having jurisdiction; and (d)
fire casualty and extended coverage insurance on Lessee's fixtures, improvements
and finishings, which policies of insurance shall be in such amounts, in such
forms and issued by such companies as shall name Lessor and Lessee, Lessor's
managing agent as their interests may appear. At all times during construction
upon the Premises, including initial construction of the Premises prior to the
Commencement Date and during any alteration of the Premises, Lessee shall obtain
builder's risk insurance with such limits as Lessor shall from time to time
require, and any such policy of insurance shall name as the insured thereunder
Lessor, Lessor's managing agent and Lessee, as their interests may appear.
E. Form of Lessee's Insurance Policies. The original of each policy of
-----------------------------------
insurance obtained by Lessee or certified duplicates thereof issued by the
insurance or insuring organization shall be delivered by Lessee to Lessor on or
before ten (10) days prior to occupancy of the Premises by Lessee and proof of
renewal shall be delivered to Lessor not less than fifteen (15) days prior to
the expiration of any such policy. Each policy shall provide that the insurer
will not cancel or change the coverage provided by such policy without first
giving Lessor ten (10) days prior written notice. Each insurance policy required
by this Lease shall state the expiration of the policy and also state that
Lessor's coverage thereunder is primary whether or not Lessor has other
collectible insurance. In addition to any other remedies that Lessor may have
under this Lease, Lessor shall have the right to obtain the insurance Lessee is
required to carry hereunder if Lessee should fail to carry such insurance and
furnish Lessor with the required insurance certificates after notification from
Lessor to do so. Lessee shall pay the cost thereof to Lessor on demand.
F. Extraordinary Insurance. In addition to and together with Lessee's
-----------------------
pro rata share of Operating Costs, Lessee shall pay to Lessor within ten (10)
business day's of its receipt of Lessor's written request, the entire amount of
any extraordinary or additional premium for insurance upon or for the Building
occasioned by or resulting from Lessee's use of the Premises.
G. Waiver of Subrogation. Anything in this Lease to the contrary
---------------------
notwithstanding, to the extent permissible under the insurance policies required
by this Lease and/or maintained by Lessee or Lessor with respect to the
Premises, the Building or the Project and without invalidation of the same, and
except as provided above with respect to deductibles under their respective
insurance policies, (i) Lessor and Lessee each hereby waives any and all rights
of recovery, claim, action or cause of action, against the other, its agents,
officers or employees, for any loss or damage that occurs to the Premises, the
Building or the Project, or any improvements thereto, or any personal property
of such party therein, by reason of fire, the elements, or any other cause which
could be insured against under the terms of standard fire and extended coverage
insurance policies, regardless of cause or origin, including negligence of the
other party hereto, its agents, officers, or employees, and (ii) each covenants
that no insurer shall hold any right of subrogation against such other party.
H. Lessee's Property. All personal property belonging to Lessee or to
-----------------
Lessee's agents, servants, employees, licensees, invitees or guests which is
located in or about the Building or the Premises shall be there at the sole risk
of Lessee or such other person. Neither Lessor nor its agents shall be liable
for any damage to either the person or the property of Lessee, or for the loss
of or interruption to business, or for the loss of or damage to any property of
Lessee, by theft or from any other cause whatsoever including, but not limited
to, loss or damage caused in whole or in part by the Building becoming out of
repair, or resulting from fire, explosion, failing plaster, steam, gas,
electricity, water, rain or snow, or leaks from any part of the Premises or from
the pipes, appliances or plumbing works, or from the roof, street or subsurface
or from any other place or by dampness or by any other cause of whatsoever
nature, including the negligence of Lessor, its agents, servants, employees,
licensees, invitees or guests. Neither Lessor nor its agents shall be liable for
any loss or damage caused by other tenants, if any, or persons in the Premises,
or caused by operations in the construction of any private, public or quasi-
public work. Notwithstanding the foregoing, if any such loss sustained by Lessee
is caused by the negligence of Lessor, its agents, servants, employees,
licensees, invitees or guests, then Lessor shall be liable to Lessee for the
amount of the deductible under Lessee's insurance, up to a maximum of $1,000. It
is expressly agreed that it shall be the sole obligation of Lessee to insure, at
its expense, any and all property of any nature whatsoever of Lessee's located
on the Premises.
23. Default.
-------
A. Events of Default and Remedies. In the event Lessee or any
------------------------------
guarantor of Lessee's obligation under this Lease shall (a) fail to make any
rental or other payment due hereunder within ten days after the same shall
become due, or (b) admit its inability to pay its debts, or (c) make an
assignment for the benefit of its creditors, or (d) have its leasehold estate
taken upon execution or other process of law against Lessee, except eminent
domain, or (e) abandon the Premises during the Term hereof, or (f) have any
receiver appointed in any proceeding commenced against it based upon its
insolvency and if such receiver is not discharged within ninety (90) days after
appointment, or (g) breach or fail to perform any of the agreements, covenants
and/or provisions herein or comply with any applicable rule or regulation
pertaining to the Building or the Project, other than the agreement to pay
/s/ SHA JR
10
<PAGE>
rental or any other payment due hereunder, and Lessee fails to use its best
efforts to cure such breach or failure within fifteen days after written notice
from Lessor or (h) any proceedings are flied against Lessee or any guarantor of
this Lease under the Bankruptcy code or any similar provisions of any future
federal bankruptcy law, or (i) fail to vacate the Premises immediately upon the
expiration of the Term or the earlier termination of this Lease, by lapse of
time or otherwise; then Lessor, in any such event(s), shall have the option to:
(I) Sue for rents as they become due;
(II) Terminate this Lease, resume possession of the Premises (together
with all additions, alterations, fixtures and improvements
thereto) for its own account and recover immediately from Lessee
any and all sums and damages for violation of Lessee's
obligations hereunder in existence or due at the time of
termination and damages for Lessee's default in an amount equal
to the difference between the Rent for which provision is made in
this Lease and fair rental value of the Premises for the
remainder of the Lease term, together with all other charges,
rental payments, costs and expenses herein agreed to be paid by
Lessee, all costs and expenses of Lessor in connection with any
attempts to re-lease or relet the Premises (including, but not
limited to, broker's fees, advertising costs and cleaning
expenses), the costs of recovering the Premises, and the costs of
repairs and renovations reasonably necessary in connection with
any re-leasing or reletting;
(III) Resume possession and re-lease or re-rent the Premises for the
remainder of the Lease term for the account of Lessee and recover
from Lessee at the end of the Lease term or at the time each
payment of rent becomes due under this Lease (adjusted to present
value), as the Lessor may elect, the difference between the rent
for which provision is made in this Lease and the rent received
on the re-leasing or re-renting, together with all costs and
expenses of Lessor in connection with such re-leasing or re-
rental and collection of rent and the cost of all repairs or
renovations reasonably necessary in connection with the releasing
or re-rental, and if this option is exercised, Lessor shall, in
addition, be entitled to recover from Lessee immediately any
other damages occasioned by or resulting from the abandonment or
a breach or default other than a default in the payment of rent;
(IV) Accelerate the whole or any part of Rent, Additional Rent and
Operating Costs for the entire unexpired balance of the Term, as
well as all other charges, payments, costs and expenses to be
paid by Lessee hereunder, including but not limited to damages
for violation of Lessee's obligations hereunder in existence at
the time of acceleration, so that all sums due and payable under
this Lease will be treated as payable in advance on the date of
acceleration and this Lease will remain in effect. For the
purposes of determining the amounts due upon acceleration, Rent,
Additional Rent and Lessee's pro rata share of Operating Costs
shall be treated as fixed at the levels in effect on the date of
acceleration for the remaining term of this Lease; but to the
extent required by law, the total amount so accelerated will be
reduced to present value; or
(V) Without terminating this Lease, enter upon the Premises, without
being liable for prosecution or any claim for damages therefor
(whether caused by the negligence of Lessor or otherwise), and do
whatever Lessee is obligated to do under the terms of this Lease,
in which event Lessee shall reimburse Lessor on demand for any
expenses which Lessor may incur in thus effecting compliance with
the terms of this Lease.
Notwithstanding the foregoing, with respect to re-lease or re-renting the
Premises, Lessor and Lessee agree that Lessor shall only be required to use the
same efforts Lessor then uses to lease other properties Lessor owns or manages
(or if the Premises is then managed for Lessor, then Lessor shall instruct such
manager to use the same efforts such manager then uses to lease other space or
properties which it owns or manages); provided, however, that Lessor (or its
manager) shall not be required to give any preference or priority to the showing
or leasing of the Premises over any other space that Lessor (or its manager) may
be leasing or have available and may place a suitable prospective tenant in any
such available space regardless of when such alternative space becomes
available; provided, further, that Lessor shall not be required to observe any
instruction given by Lessee about such re-letting or accept any tenant unless
such offered tenant has a creditworthiness acceptable to Lessor, leases the
entire Premises, agrees to use the Premises in a manner consistent with the
Lease, and leases the Premises at the same or greater rent, for no more than the
current term and on the same terms and conditions of this Lease without the
expenditure by Lessor for tenant improvements or broker's commissions.
/s/ SHA JR
11
<PAGE>
The remedies for which provision is made in this Article shall not be
exclusive and in addition thereto Lessor may pursue such other remedies as are
now or hereinafter provided by law, equity or statute in the event of any
breach, default or abandonment by Lessee.
B. Lessor's Damages. In any event, and irrespective of any option
----------------
exercised by Lessor, Lessee agrees to pay and the Lessor shall be entitled to
recover all costs and expenses incurred by Lessor, including reasonable
attorneys' fees, paralegal fees and expenses, in connection with collection of
Rent or damages or enforcing other rights of Lessor in the event of a breach,
default or abandonment by Lessee irrespective of whether or not Lessor elects to
terminate this Lease by reason of such a breach, default or abandonment.
Lessor's damages hereunder shall include, without limitation, any loss of Rent
prior to or after reletting of the Premises; broker's commissions; advertising
costs; reasonable costs of repairing, cleaning, repainting and remodeling the
Premises for reletting; and moving and storage charges incurred by Lessor in
moving Lessee's property and effects from the Premises after termination of this
Lease. In the event that any court or governmental authority shall limit any
amount which Lessor may be entitled to recover under this paragraph, Lessor
shall be entitled to recover the maximum amount permitted under law. Nothing in
this Article shall be interpreted to limit Lessor's recovery from Lessee of the
maximum amount permitted under law or of any other sums or damages which Lessor
may be entitled to so recover in addition to the damages set forth herein.
Lessee hereby expressly waives any and all rights of redemption, if any, granted
by or under any present or future law in the event Lessee shall be evicted or
dispossessed for any cause, or in the event Lessor shall obtain possession of
the Premises by virtue of the provisions of this Lease, or otherwise.
C. Additional Costs. All past due installments of Rent and other sums
----------------
of money due and payable from Lessee to Lessor under this Lease shall bear
interest at the Applicable Interest Rate from the date due until paid. In
addition to the foregoing, if any payment of rent is not received within ten
(10) days after the date due, Lessee shall pay Lessor an additional $10.00 per
day for each day of delinquency after the due date to the date paid, which
amount represents an estimate of Lessor's administrative costs reasonably
related to collecting and accounting for such late payment.
E. Survival. All of Lessee's obligations under this Article shall
--------
survive the termination of this Lease.
F. Any remedies that the Lessor chooses to exercise under Paragraph
23 of this Lease must be done through the legal process.
24. Waiver or Estoppel - Remedies are Cumulative. The failure of Lessor to
--------------------------------------------
insist, in any one of more instances, upon strict performance of any covenants
or agreements of this Lease, or exercise any option of Lessor herein contained,
shall not be construed as a waiver or relinquishment for the future of such
covenant, agreement or option, but the same shall continue and remain in full
force and effect, and Lessor shall have the right to require strict performance
or to declare a default at any time and take such action as might be lawful or
authorized hereunder, either in law or in equity. Receipt of Rent or other
payments due hereunder by Lessor, with knowledge of the breach of any covenant
or agreement hereof, shall not be deemed a waiver of such breach and no waiver
by Lessor of any provision hereof shall be deemed to have been made unless
expressed in writing and signed by Lessor. Lessor's receipt of less than the
full amount due from Lessee shall not be construed to be other than a payment on
the account of the amounts then due, nor shall any statement on Lessee's check
or letter accompanying Lessee's payment be deemed an accord and satisfaction,
and Lessor may accept such payment as a partial payment only. Any and all rights
and remedies which are available to Lessor and which are either set forth herein
or are generally available to Lessor under applicable law are cumulative in
nature and none shall exclude any other rights or remedies allowed by law or
equity.
25. Subordination and Attornment.
----------------------------
A. Subordination. All rights and interests of Lessee hereunder are
-------------
and shall be and remain subject, subordinate and inferior to all mortgages,
heretofore or hereafter encumbering the Premises or the Project, or any part
thereof, and to all renewals, modifications, consolidations, replacements and
extensions of any such mortgage. The right of the holder of any such mortgage
shall at all times be and remain prior and superior to all rights and interest
of Lessee. This provision shall
/s/ SHA JR
12
<PAGE>
constitute a self-operative subordination agreement with respect to all such
mortgages and all renewals, modifications, consolidations, replacements and
extensions thereof.
B. Attornment. Lessee further covenants and agrees that if the lessor
----------
of any ground lease acquires title to the Project through termination or
assignment of such ground lease or if the holder of any mortgage acquires the
Premises by foreclosure or deed in lieu of foreclosure, or if any other party
acquires the Premises as a purchaser at any foreclosure sale (any such lessor of
any ground lease, holder of any mortgage or purchaser at a foreclosure sale
being each hereinafter referred to as the "Purchaser"), Lessee will thereafter,
but only at the option of the Purchaser, as evidence by the written notice of
the purchaser's election given to Lessee within a reasonable time after the
Purchaser's acquisition of title, remain bound by novation or otherwise to the
same effect as if a new and identical lease containing the terms of this Lease
between the Purchaser, as lessor, and Lessee, as lessee, had been entered into
for the remainder of the Term of this Lease effective on the date of the
Purchaser's acquisition of title.
C. Further Documentation. If the holder of any such mortgage or any
---------------------
person, firm or corporation agreeing to make a loan secured by a mortgage on the
Building, the Premises or the Project shall require confirmation of any
subordination for which provision is herein made or a separate subordination
agreement with respect to any mortgage transaction, Lessee shall execute such
confirmation or subordination agreement, within ten (10) days of Lessor's
request for the same, in the form required by such mortgage holder or other
person, firm or corporation agreeing to make a loan secured by a mortgage on the
Building, the Premises or the Project, and the execution of the same shall not
diminish or affect the liability of Lessee hereunder or of any other party
responsible for or guaranteeing the obligations of Lessee under this Lease.
26. Estoppel Certificates. Lessee will, at any time and from time to time,
---------------------
within five days after the request of Lessor, execute, acknowledge and deliver
to Lessor a certificate executed by Lessee certifying: (a) whether or not this
Lease is unmodified and is in full force and effect (or, if there have been
modifications, the extent to which this Lease is in full force and effect as
modified and stating the modifications), (b) whether or not there are then
existing any defaults on the part of Lessor or any offsets or defenses against
the enforcement of any provisions of this Lease by Lessor (and if so, specifying
the same), (c) the dates, if any, to which Rent, Operating Costs and Additional
Rental and other charges have been paid, (d) the address to which notices to
Lessee should be sent, (e) that Lessor has completed the improvements to the
Premises Lessor is responsible for completing under the Workletter and that
Lessee has accepted the same; (f) that Lessee is in possession of the Premises
and (g) such other matters as Lessor shall request.
27. Condemnation. Should the Premises or the Building be taken
------------
appropriated or condemned for public purposes, or voluntarily transferred in
lieu of condemnation, in whole or in such substantial part as to render the
Building unsuitable for Lessor's purposes, materially adversely affect the value
of the Building or the Project, or the Premises unsuitable for Lessee's
purposes, then the Term shall, at the option of Lessor in the first and second
instances and at the option of Lessee in the third instance, terminate when
Lessee's right to possession is terminated. If neither party exercises this
option to terminate by notice to the other party within ten days after the date
of such taking, or if the portion of the Premises or the Building taken,
appropriated, condemned or voluntarily transferred in lieu of condemnation does
not render the Building unsuitable for Lessor's purposes or the Premises
unsuitable for Lessee's purposes, then this Lease shall terminate only as to the
part taken or conveyed on the date Lessee shall yield possession, and Lessor
shall make such repairs and alterations as may be necessary to make the part not
taken usable, and the rental payable hereunder shall be reduced in proportion to
the part of the Premises taken. The Premises shall be deemed unsuitable for
Lessee's purposes only if the portion of the Premises taken is so great that
Lessee cannot continue to conduct business in a manner comparable to the manner
in which Lessee conducted its business prior to the taking. Lessor reserves unto
itself, and Lessee assigns to Lessor, all right to damages or compensation
accruing on account of any taking, appropriation, transfer in lieu of
condemnation, or condemnation of any part of the Premises, the Building or the
Project, or by reason of any act of any public or quasi-public authority for
which damages are payable, including, without limitation, any award for the
value of the unexpired portion of the Term. Lessee agrees to execute such
instruments of assignment as may be required by Lessor, to join with Lessor in
any petition for the recovery of damages if requested by Lessor, and to turn
over to Lessor any such damages that may be recovered in any such proceeding.
Lessor does not reserve to itself, and Lessee does not assign to Lessor, any
damages payable for on account of interruption in Lessee's business, for moving
and relocation expenses and for depreciation to, removal of and/or loss of trade
fixtures installed by Lessee at its cost and expense which are not part of the
Premises. Notwithstanding the foregoing, no temporary taking of the Premises,
and/or Lessee's rights therein, by a public or quasi-public agency under the
right of eminent domain will terminate this Lease or give Lessee any right to
any abatement of Rent, Additional Rent or any other payment to be made by Lessee
under this Lease. Any award made to Lessee by reason of any temporary taking
will belong entirely to Lessee and Lessor will not be entitled to share in such
award.
28. Lessor's Right of Performance. In the event that Lessee fails to
-----------------------------
completely fulfill or perform any of its monetary or non-monetary duties and
obligations set forth herein, Lessor may, in its
/s/ SHA JR
13
<PAGE>
sole discretion, perform or cause to be performed any and all such duties and
obligations. If Lessor expends any sums of money in the performance of any of
the monetary or non-monetary duties and obligations of the Lessee set forth
herein, any such sums of money expended by Lessor shall become additional
amounts of rental due under this Lease and shall be paid by Lessee immediately
upon demand.
29. Liability of Lessor. In the event of any sale, transfer or conveyance
-------------------
by Lessor of the Premises, the seller shall be and hereby is entirely freed and
relieved, released and discharged of all liabilities and obligations of Lessor
hereunder which accrue from or after the date of such sale. It shall be deemed
and construed, without further agreement between the parties or between the
parties and the purchaser of the Premises, that such purchaser has assumed and
agreed to carry out any and all covenants and obligations of Lessor hereunder
from and after such date. Lessor shall not be liable for or responsible to
Lessee 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 which may arise through repair or alteration of any part
of the Premises, the Building or the Project, or failure to make any such
repairs. Lessee will not hold Lessor liable for injury or damage to person or
property caused by other tenants or persons in the Building or the Project or
resulting from the operation of the elevator, heating, ventilating or air-
conditioning systems, or lighting apparatus, or from falling plaster or other
materials or fixtures, or from steam, gas, electricity, water, rain or dampness
which may leak or flow from any part of the Building, or from the pipes,
appliances, or plumbing work of the same, or from any other place. All goods or
property or personal effects stored or placed by the Lessee in or about the
Building shall be at the sole risk of the Lessee. Notwithstanding anything to
the contrary contained in this Lease, in the event of a breach by Lessor of any
of the terms, covenants and conditions of this Lease to be performed by Lessor,
or if Lessor otherwise shall be liable to Lessee with respect to any matter
related to or arising out of this Lease, it is specifically understood and
agreed that the monetary liability of any Lessor hereunder shall be limited to
the equity of Lessor in the Building. In the furtherance of the foregoing,
Lessee hereby agrees that any judgment it may obtain against Lessor (and any
officers, shareholders or employees of Lessor) as a result of a breach of any of
the terms, covenants or conditions hereof shall be enforceable solely against
Lessor's fee interest in the Project, and Lessor (and any trustees, officers,
shareholders or employees of Lessor) shall never be personally liable for such
judgment. This Article shall not limit any right that Lessee may otherwise have
to obtain injunctive relief against Lessor or Lessor's successor in interest, or
to bring any other action not involving Lessor's personal liability for monetary
damages.
30. Reservation of Rights by Lessor. Lessor shall have the following
-------------------------------
rights, exercisable without notice or restriction (except as provided to the
contrary in subsections (a) and (e) below), without any liability to Lessee for
damage or injury to person, property or business, without being deemed an
eviction or disturbance of any manner of Lessee's use or possession of the
Premises and without relieving Lessee from its obligation to pay all Rent when
due or from any other obligation under this Lease: (a) to change the Building's
and/or the Project's name or to change the Building's and/or the Project's
street address upon sixty (60) days' prior notice; (b) to install, affix and
maintain any and all signs on the exterior and/or interior of the Building
(excluding the Interior of the Premises); (c) to designate all sources,
furnishings, signs, sign painting and lettering to Lessee and to designate or
approve prior to installation all types and configurations of signs, window
shades, blinds, window treatments, drapes, awnings or other similar items, and
all internal lighting, fixtures or equipment that may be visible from the
exterior of the Premises or the Building; (d) to display the Premises to
prospective mortgagees and purchasers at reasonable hours, upon reasonable
notification to Lessee, and, during the last 12 months of the Term, to display
the Premises at reasonable hours to prospective tenants; (e) to display on the
exterior of the Premises "for rent" or "for sale" signs provided that no such
signs shall be placed or maintained on the Premises prior to the ninetieth
(90th) day before the expiration or termination of this Lease; (f) to change the
arrangement and/or location of entrances, parking areas, doors, corridors,
elevators, stairs, toilets or other public parts of the Building and the
Project; (g) to grant to any person the exclusive right to conduct any business
or render any service in or to the Building or the Project, provided such
exclusive right shall not operate to prohibit Lessee from using the Premises for
such purposes as are permitted under this Lease; (h) to prohibit the placing of
vending or dispensing machines of any kind in or about the Premises, except such
machines which are for the exclusive use of Lessee, its employees and invitees;
(i) to have access for Lessor and other tenants of the Building of which the
Premises are a part to any mail chutes and mail boxes located in the Premises
and/or Building according to the rules of the United States Post Office; (j) to
close the Building of which the Premises are a part after the Building Hours and
on Saturdays (except as provided otherwise herein), Sundays and national
holidays except that Lessee and its employees and invitees shall be entitled to
admission at all times under such regulations as Lessor prescribes for access
control purposes; (k) to take any and all reasonable measures, including
inspections, repairs, alterations, decorations, additions and improvements to
the Premises, the Building or the Project, as may be necessary or desirable in
the operation thereof or for the safety, protection or preservation thereof or
Lessor's interest therein; (l) to retain at all times master keys or passkeys to
the Premises; (m) to increase or decrease the size of the Project by adding
additional real property to the Building or the Project or by expanding the
improvements (i.e. additional stories) thereon or adding additional improvements
thereto or by taking away real property from the Project; (n) to change Lessee's
pro rata
/s/ SHA JR
14
<PAGE>
share of Operating Costs by recomputing the Usable Area of the Building or the
Project as a result of (i) expansion or reduction of the size of the Building or
the Project; (ii) casualty; (iii) eminent domain or (iv) any provision(s) of
this Lease; (o) to change or modify the design and layout of Building Common
Areas and Project Common Areas, including, but not limited to, the parking
area(s) shown on Exhibit "B" attached hereto; (p) to grant any tenant of the
Building or the Project exclusive use of a portion of the parking areas serving
the Building or the Project (by roping off that portion of the parking areas or
otherwise); (q) establish a parking validation system and charge all users a fee
for participation (including Lessee's employees, agents, invitees and licensees)
or treat the costs of operation of the system as part of the Operating Costs of
the Building; (r) to enter onto the Premises for repair or expansion of the
Building or the Project or to use the exterior walls of the Premises and the
area between the finished ceiling of the Premises and the slab of the Building
floor thereabove and the area between the finished floor of the Premises floor
and the finished ceiling of the portion of the Building therebelow, together
with the right to locate or relocate (both vertically and horizontally),
install, maintain, use, repair and replace pipes, utility lines, cables, ducts,
conduits, flues, refrigerant lines, drains, sprinkler mains and valves, access
panels, wires and appurtenant meters or equipment, and structural elements
leading through, under or above the Premises, when deemed necessary by the
Lessor for improvement of other premises in the Building or the Project;
provided, however, such construction, installation and maintenance shall not
materially diminish the Usable Area of the Premises or materially interfere with
Lessee's intended use of the Premises; (s) to change the Building Hours; (t) to
relocate Lessee to other space in the Building approximately the same size or
greater than the Premises at Lessor's cost and expense; (u) to change Lessee's
pro rata share of Operating Costs by replacing the applicable ratio used to
compute Lessee's share with a ratio based on all allocated parking spaces or a
combination of allocated parking spaces and square footage of certain areas; and
(v) to close any skylights or windows in the Building not within the Premises.
This Article shall not be construed to alter or create any obligations of Lessor
or Lessee with respect to repairs or improvements or other obligations provided
herein. Anything in this Lease to the contrary notwithstanding, the term
"Lessor" shall be limited to mean and include only the then owner of the
Project, or the tenant under any underlying ground lease of the Building, and
not any predecessor owner or tenant.
31. Hazardous Waste. Without limiting the foregoing, Lessee agrees to
---------------
comply strictly and in all respects with the requirements of any and all
federal, state and local statutes, rules and regulations now or hereinafter
existing relating to the discharge, spillage, storage, uncontrolled loss,
seepage, filtration, disposal, removal or use of hazardous materials, including
but not limited to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the
Resource Conversation and Recovery Act, the Hazardous Materials Transportation
Act and the Florida Hazardous Substances Law (collectively the "Hazardous Waste
---------------
Law") and with all similar applicable laws and regulations and shall notify
- ---
Lessor promptly in the event of any discharge, spillage, uncontrolled loss,
seepage or filtration of oil, petroleum, chemical liquids or solids, liquid or
gaseous products or any other Hazardous Materials (a "Spill") or the presence of
-----
any substance or material presently or hereafter identified to be toxic or
hazardous according to any Hazardous Waste Law, including, without limitation,
any asbestos, PCBs, radioactive substance, methane, volatile hydrocarbons,
acids, pesticides, paints, petroleum based products, lead, cyanide, DDT,
printing inks, industrial solvents or any other material or substance which has
in the past or could presently or at any time in the future cause or constitute
a health, safety or other environmental hazard to any person or property
(collectively "Hazardous Materials") upon the Premises or the Project, and shall
-------------------
promptly forward to Lessor copies of all orders, notices, permits, applications
or other communications and reports in connection with any such Spill or
Hazardous Materials. Lessee shall not handle, use, generate, manufacture, store
or dispose of Hazardous Materials in, upon, under or about the Premises and
Project. Lessee shall indemnify Lessor and hold Lessor harmless from and against
all loss, penalty, liability, damage and expense suffered or incurred by Lessor
related to or arising out of (i) the presence of Hazardous Materials on the
Premises; (ii) any Spill or Hazardous Material affecting the Project, including
any loss of value of the Project as a result of a Spill or the presence of
Hazardous Material; or (iii) any other matter affecting the Project as a result
of Lessee's action or inaction within the jurisdiction of any Governmental
Authority; which loss, damage, penalty, liability, damage and expense shall
include, but not be limited to, (a) court costs, attorney's fees and expenses,
and disbursements through and including any appellate proceedings; (b) all
foreseeable and unforeseeable consequential damages, directly or indirectly,
arising out of the use, generation, storage or disposal of Hazardous Materials
by Lessee; (c) the cost of any required or necessary repair, clean-up or
detoxification of the Project; and (d) the cost of preparation of any closure or
other plans required under the Hazardous Waste Law, necessary to sell or lease
the Premises or the Project.
32. Invalidity of Particular Provisions. If any term or provisions of this
-----------------------------------
Lease or the application thereof to any person or circumstances, shall to any
extent be Invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to person 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 enforced
to the fullest extent permitted by law.
33. Notices. All notices required or contemplated by this Lease shall be
-------
in writing and shall be delivered in person by Lessor or Lessee or their
representatives, by professional courier or by United States Certified Mail,
Return Receipt Requested, addressed to the party to whom such notices is
15
<PAGE>
directed at the address initially set forth in this Lease, with copies to Lessor
at the Payment Address, and to Lessee at the following address:
6401 Congress Avenue
--------------------
Suite 200
---------
Boca Raton, Florida 33487
-------------------------
By giving at least two (2) days prior written notice to the other party, either
party may change its address for notices hereunder.
34. Building Hours. The Building shall be open for regular business during
--------------
the Building Hours. Access shall be accommodated by the Building access control
system, if any, at all other times.
35. Entire Agreement. Lessee agrees that Lessor has not made any
----------------
statement, promise or agreement, or taken upon itself any engagement whatsoever,
verbally or in writing, in conflict with the terms of this Lease, or which in
any way modifies, varies, alters, enlarges or invalidates any of its provisions.
This Lease sets forth the entire understanding between Lessor and Lessee, and
shall not be changed, modified or amended except by an instrument in writing
signed by the party against whom the enforcement of any such change,
modification, or amendment is sought.
36. Representations. The taking possession of the Premises by Lessee shall
---------------
be conclusive evidence that the Premises were in good and satisfactory condition
at the time such possession was taken. No representations, except those
contained herein, have been made on the part of Lessor with respect to the
order, repair or condition of the Premises or the Building. Lessee will make no
claim on account of any representations whatsoever, whether made by any renting
agent, broker, officer or other representative of Lessor or which may be
contained in any circular, prospectus or advertisement relating to the Premises,
the Building or the Project, or otherwise, unless the same is specifically set
forth in this Lease.
37. Interpretation. The covenants and agreements herein contained shall
--------------
bind, and the benefit and advantages hereof shall inure to, the respective
heirs, legal representatives, successors and assigns of Lessor and Lessee.
Whenever used, the singular number shall include the plural, the plural shall
include the singular, and the use of any gender shall include all genders. The
headings set forth in this Lease are for ease of reference only, and shall not
be interpreted to modify or limit the provisions hereof. All of Lessee's
obligations hereunder not fully performed as of the expiration of the Term or
the earlier termination of this Lease shall survive the expiration or earlier
termination of the Term hereof.
38. Governing Law and Venue. This Lease shall be construed in accordance
-----------------------
with the laws of the State of Florida. Lessor and Lessee (and any and all
guarantors of this Lease) irrevocably agree that their respective agreements and
obligations hereunder (and under any Guaranty of Rent Payment) will be
performable in the County where the Premises are located and that venue for any
action arising under or related to this Lease (or arising under or related to
any Guaranty of Rent Payment) shall be in the County where the Premises are
located.
39. Attorney's Fees. In any litigation involving the interpretation of
---------------
this Lease or the enforcement of any provisions hereof, the prevailing party
shall be entitled to attorney's fees, paralegal fees, expenses and costs. When
any party is entitled to attorney's fees, paralegal fees, expenses and costs
hereunder, the term attorney's fees and costs shall be construed to include the
payment of attorney's fees, paralegal fees, expenses and costs on appeal.
40. No Partnership or Joint Venture. It is understood and agreed that
-------------------------------
nothing contained in this Lease shall be deemed or construed as creating a
partnership or joint venture between Lessor and Lessee or between Lessor and any
other party, or cause either party to be characterized as a "warehouseman" or a
"bailee" or to be responsible in any way for the debts and obligations of the
other party.
41. Nondisclosure of Lease Terms. Lessee acknowledges and agrees that the
----------------------------
terms of this Lease and all addenda, exhibits and amendments hereto are
confidential and constitute proprietary information of the Lessor. Lessee agrees
that it and its partners, officers, directors, employees and attorneys shall not
disclose the terms and conditions of this Lease or the exhibits, addenda, and
amendments hereto to any other person; provided, however, that Lessee may
disclose such terms to its independent accountants with respect to the
preparation of financial statements. Lessee shall not record this Lease.
42. Waiver of Jury Trial. Lessor and Lessee each acknowledges that it is
--------------------
aware of and has had the advice of counsel of its choice with respect to its
rights to trial by jury under the Constitutions of the United States and the
State of Florida, and each party does hereby expressly and knowingly waive and
release all such rights to trial by jury in any action, proceeding or
counterclaim brought by either
/s/ SHA JR
16
<PAGE>
party hereto against the other on any matters whatsoever arising out of or in
any way connected with this Lease, Lessee's use or occupancy of the Premises,
and/or any claim of injury or damage.
43. No offer. Submission of this Lease by Lessor to Lessee for examination
--------
and signature does not constitute an offer or option for lease. This Lease will
be effective only upon execution and delivery by both Lessee and Lessor.
44. Counterparts. This Lease may be executed in several counterparts, each
------------
of which shall be deemed an original, and all of which shall constitute but one
and the same instrument.
45. Lessee's Authority. Lessee makes the following representations to
------------------
Lessor, on which Lessor is entitled to rely in executing this Lease. (i) Lessee
has the power to enter into this Lease and the transactions contemplated hereby
and to perform its obligations hereunder, and by proper resolution the signatory
hereto has been duly authorized to execute and deliver this Lease; and (ii) the
execution, delivery and performance of this Lease and the consummation of the
transactions herein contemplated shall not conflict with or result in a
violation or breach of, or a default under Lessee's Articles of incorporation or
bylaws or partnership agreements, as amended, or any indenture, mortgage, deed
of trust note, security agreement or other agreement or instrument to which
Lessee is a party or by which it is bound or to which any of its properties is
subject. Lessor may cancel this Lease if (1) Lessee is a Florida Corporation
-------------------
(state of origin/type of entity) and Lessee fails to provide adequate
documentation of Lessee's existence and the authority of the individual
executing this Lease on behalf of Lessee within ten business days of the date of
execution of this Lease; or (2) Lessee fails to deliver a financial statement
satisfactory to Lender at or prior to the date of execution of this Lease.
46. Joint and Several Liability. If more than one party is defined as
---------------------------
Lance in this Lease, all of the duties, obligations, promises, covenants and
agreements contained in this Lease to be paid and performed by Lessee will be
the joint and several obligation of all parties defined as Lessee. Each party
defined as Lessee agrees that Lessor in Lessor's sole discretion may (i)
institute or bring suit against each such party, jointly and severally, or
against any one or more of such parties, (ii) compromise or settle with any one
or more of such parties for such consideration as lessor may deem proper, and
(iii) release one or more of such parties from liability hereunder, and that no
such action by Lessor will impair or affect Lessor's right to collect costs,
expenses, losses or damages incurred or suffered by Lessor from the other
parties defined as Lessee, or any of such parties, not so sued, compromised,
settled with or released.
47. Brokerage. Lessee warrants and represents that it has not dealt,
---------
consulted or negotiated with any real estate broker or agent in connection with
this Lease other than CB Commercial Real Estate Group, Inc. (the "Designated
------------------------------------- ----------
Broker"). In the event of any breach of the foregoing, Lessee hereby agrees to
- ------
indemnify and hold harmless Lessor from and against any and all loss and
liability resulting from or arising out of (a) all claims of any real estate
broker or agent for a commission ion other than claims by the Designated Broker;
and (b) all attorney's fees and costs incurred by the Lessor as a result of any
such claims.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease to be executed
as required by law on this, the day and year first above written.
Signed, Sealed and delivered
in the presence of:
WITNESS: LESSOR: CATEXOR LIMITED PARTNERSHIP I
/s/ Diane L. Dunlap 2/19/96 By: /s/ Stig Wennerstrom 2/19/96
- ----------------------------- ------------------------------- -------
Date Catexor, Inc. - General Partner Date
Print Name Diane L. Dunlap Stig Wennerstrom - President
----------------
- ------------------- -------
Date
Print Name Maria Abadia
----------------
WITNESS: LESSEE: HIWAY TECHNOLOGIES, INC.
/s/ Steven Rogers 2/15/96 By: /s/ Scott H. Adams 2/15/96
- ----------------- ------- -------------------------- -------
Scott H. Adams - President Date
Print Name Steven M. Rogers
----------------
(Corporate Seal)
/s/ Karen A. Glasgow 2/15/96
- -------------------- -------
Date
Print Name Karen A. Glasgow
----------------
[SEAL OF NOTARY PUBLIC] /s/ Karen A. Glasgow
--------------------------
Karen A. Glasgow
<PAGE>
FIRST ADDENDUM TO LEASE
This FIRST ADDENDUM TO LEASE is made and entered into this 24 day of June,
1996, by and between CATEXOR LIMITED PARTNERSHIP-I ("Lessor") and Hiway
Technologies, Inc. ("Lessee").
WITNESSETH
WHEREAS, Lessor leases to Lessee, pursuant to that certain Lease dated
February 15, 1996 (the "Lease") between Catexor Limited Partnership-I and Hiway
Technologies, Inc. for that certain Demised Premises located at 6401 Congress
Avenue, Suite 200, Boca Raton, Florida 33487 within the 6401 Building of that
certain development known as Amtec Center.
WHEREAS, Lessor and Lessee desire to amend the lease as hereinafter set
forth:
NOW THEREFORE for and in consideration of the covenants herein contained
and other valuable consideration; the receipt and sufficience of which is hereby
acknowledged, Lessor and Lessee agree as follows:
1. Any terms used herein which are defined in the Lease shall have the same
meaning herein as therein.
2. The lease term shall be extended until February 28, 2001.
Except as amended by this Lease Amendment, all of the terms, conditions,
and provisions of the Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day, month and year first above written:
/s/ Diane L. Dunlap LESSOR: CATEXOR LIMITED PARTNERSHIP - I
- -------------------
Witness
Diane L. Dunlap By: /s/ Stig Wennerstrom
- ------------------- --------------------------------
(Print Name) Catexor, Inc - General Partner
Stig Wennerstrom - President
/s/ Yvonne Bulla
- -------------------
Witness
Yvonne Bulla
- -------------------
(Print Name)
/s/ Joel Richardson LESSEE: HIWAY TECHNOLOGIES, INC.
- -------------------
Witness
Joel Richardson By: /s/ Scott H. Adams
- ------------------- -----------------------------
(Print Name) Scott H. Adams - President
/s/ Barbara Mendelson
- -------------------
Witness
Barbara Mendelson
- -------------------
(Print Name)
<PAGE>
SECOND ADDENDUM TO LEASE AGREEMENT
This SECOND ADDENDUM TO LEASE AGREEMENT is made and entered into this 2nd
---
day of October, 1996, by and between CATEXOR LIMITED PARTNERSHIP-I, a Florida
-------
Limited Partnership ("Lessor") and Hiway Technologies, Inc., a Florida
Corporation ("Lessee").
WITNESSETH
WHEREAS, Lessor leases to Lessee, pursuant to that certain Lease dated
February 15, 1996, and as further amended by that certain First Addendum to
Lease Agreement dated June 24, 1996 (as so amended the "Lease"), the premises
located at 6401 Congress Avenue, Suite 200, Boca Raton, Florida 33487 (the
"Existing Premises") within the 6401 Congress Avenue building of that certain
development known as Amtec Center (the "Building").
WHEREAS, Lessee desires to lease from Lessor and Lessor desires to lease to
Lessee Suite 110, containing 2,643 square feet, as shown on the site plan of the
6401 Building attached hereto and made a part hereof as Exhibit "Al" (the
"Additional Premises").
NOW THEREFORE for and in consideration of the covenants herein contained
and other valuable consideration; the receipt and sufficience of which is hereby
acknowledged, Lessor and Lessee agree as follows:
1. Any terms used herein which are defined in the Lease shall have the
same meaning herein as therein.
2. Lessee hereby leases from Lessor and Lessor hereby leases to Lessee
the Additional Premises, effective the earlier of (a) the date upon
which Lessee takes occupancy of the Additional Premises or (b) the day
a certificate of occupancy is issued for the improvements described in
the attached Exhibit "Cl". The lease term for the Additional Premises
shall be for a period of five (5) years. A Certificate of Rent and
Lease Commencement has been attached as Exhibit "B1" and will be
executed once the lease commencement date is determined.
3. Prior to the Lease Commencement date, the subject premises will be
finished substantially in accordance with the architectural plans
provided by Ronald Richardson & Associates, dated September 4, 1996.
The architectural plans have been attached and made part of this Lease
Addendum as Exhibit "C2". The scope of work, cost of the improvements
and related qualifications have been outlined in the Corporex
Builders, Inc. proposal dated September 26, 1996 and has been attached
and made part of this Lease Addendum as Exhibit "Cl". The total cost
of the improvements, less any change orders or building department
revisions, is $45,043.00. Lessor will enter into the construction
contract and will be responsible for the direct payment of all work to
be completed in the premises per Exhibit "Cl". However, it is agreed
that Lessee will reimburse Lessor for one-third the cost of the
improvements plus 100% the cost of any change orders or building
department revisions. Lessor must receive Lessee's check for the
reimbursement of the improvements prior to the date the lease term
commences.
4. Annual Rent for the Additional Premises shall accrue and be due and
payable upon the lease commencement date which will be finalized per
Exhibit "B1". The Annual Rent for the Additional Premises payable
pursuant to Section 5 (A) of the Lease shall equal $9.40 per square
foot, or Twenty Four Thousand Eight Hundred Forty Four and 20/100
Dollars ($24,844.20), in equal monthly installments of Two Thousand
Seventy and 35/100 Dollars ($2,070.35).
Notwithstanding the provisions of Section 5 (B) of the Lease,
effective on each anniversary of the Commencement Date for the
Additional Premises until the expiration of the Lease, Lessee's Annual
Rent payable under the Lease with respect to the Additional Premises
shall be adjusted upward by an amount equal to four (4%) percent of
the prior year's Annual Rent (i.e., a fixed amount of 4%).
5. Effective on the Commencement Date for the Additional Premises,
Lessee's proportionate share with respect to the Additional Premises,
as set forth in Section 7 (A) of the Lease is hereby agreed to equal
1.46% (2643/180,819).
<PAGE>
6. Pursuant to Section 6 of the Lease, due upon execution of this Second
Addendum to Lease Agreement shall be an additional security deposit
equal to two month's base rent or Four Thousand One Hundred Forty and
70/100 Dollars ($4,140.70) to be held as security for the Additional
Premises.
7. Except as specifically amended hereby, the terms, provisions,
representations, covenants and conditions of the Lease shall remain in
full force and effect and where appropriate, the provisions of the
Lease, as amended hereby, applicable to the Existing Premises shall
also apply to the Additional Premises.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed as of the day, month and year first above written:
/s/ Diane L. Dunlap LESSOR: CATEXOR LIMITED PARTNERSHIP - I,
- ------------------- A FLORIDA LIMITED PARTNERSHIP
Witness
Diane L. Dunlap By: /s/ Stig Wennerstrom
- ------------------- ---------------------------------
(Print Name) Catexor, Inc - General Partner
Stig Wennerstrom - President
/s/ Yvonne Bulla
- -------------------
Witness
Yvonne Bulla
- -------------------
(Print Name)
/s/ Joel Richardson LESSEE: HIWAY TECHNOLOGIES, INC.,
- -------------------- A FLORIDA CORPORATION
Witness
Joel Richardson By: /s/ Scott H. Adams
- -------------------- --------------------------
(Print Name) Scott H. Adams - President
/s/ Justine Nesbitt
- --------------------
Witness
Justine Nesbitt
- --------------------
(Print Name)
20
<PAGE>
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
Hiway Technologies, Inc., a Delaware corporation, located at 5050 Blue Lake
Drive, Boca Raton, Florida 33431, its predecessors, successors and assigns,
(hereinafter referred to as "Employer") and ______________________________
(hereinafter referred to as "Employee") hereby enter into this Employment
Agreement as of the date set forth below. In consideration of the mutual
promises made herein, the parties hereto agree as follows:
ARTICLE 1. TERM OF EMPLOYMENT
Specified Period
Section 1.1. Employer hereby employs Employee and Employee hereby accepts
employment with Employer for a period of three (3) years, beginning January 1,
1998 and terminating on December 31, 2000.
Automatic Renewal
Section 1.2. This Agreement shall be renewed automatically for succeeding
terms of Two (2) years unless one party gives notice to the other at last ninety
(90) days prior to the expiration of any term of his or its intention not to
renew.
"Employment Term" Defined
Section 1.3. As used herein, the phrase "Employment Term" refers to the
entire period of employment of Employee by Employer hereunder, whether for the
periods provided above, or whether terminated earlier as hereinafter provided or
extended by mutual agreement between Employer and Employee.
ARTICLE 2. DUTIES AND OBLIGATIONS OF EMPLOYEE
General Duties and Authority
Section 2.1. Employee shall serve as the ___________________________ of
Employer. In such capacity, Employee shall do and perform all services, acts or
things necessary or advisable to discharge the normal duties of such office of
Employer, subject at all times to the policies set by Employer's Board of
Directors.
-1-
<PAGE>
Devotion to Employer's Business
Section 2.2.
(a) Except as otherwise provided herein, Employee shall devote substantially
all of his productive time, ability and attention to the business of Employer
during the term of this Agreement.
(b) And except in connection with business arrangements in effect as of the
date of this Agreement; Employee shall not engage in any material new business
ventures, duties or pursuits, or directly or indirectly render any services of a
business, commercial or professional nature to any other person or organization
for compensation, without the prior written consent of Employer. The expenditure
of reasonable amounts of time for education, charitable or professional
activities shall not be deemed a breach of this Agreement if such activities do
not materially interfere with the services required under this Agreement.
(c) This Agreement shall not be interpreted to prohibit Employee from making
passive personal investments or conducting private business affairs if those
activities do not materially interfere with the services required under this
Agreement.
Competitive Activities
Section 2.3.
During the term of this Agreement, Employee shall not, directly or indirectly,
either as an employee, employer, consultant, agent, principal, partner,
stockholder, corporate officer, director or in any other individual or
representative capacity, engage or participate in any business that is in
competition with the business of Employer as of the date of such activity,
except that Employee's investment in publicly traded corporations shall not be
deemed to be a breach of this Section 2.3 unless Employee owns more than five
percent of the outstanding shares of such corporation.
Section 2.4.
(a) During the term of this Agreement or any extensions thereof, Employee
agrees that he will not undertake planning for or organization of any business
activity competitive with Employer's business or combine or conspire with other
employees or representatives of Employer's business for the purpose of
organizing any competitive business activity.
(b) During the term of this Agreement or any extensions thereof and except
as provided in Section 2.1, Employee agrees that he will not directly or
indirectly or by action in concert with others induce or influence (or seek to
induce or influence) any person who is engaged (as an employee, agent,
independent contractor or otherwise) by Employer to terminate his or her
employment or engagement.
-2-
<PAGE>
(c) Employee hereby covenants and represents that he will not at any time
during the term of this Agreement or any extensions thereof, directly or
indirectly use or divulge, disclose or communicate any confidential information
of Employer to others, except in the proper performance of his authorized
duties.
(d) Employee represents and warrants that Employee is free to enter into
this Agreement and to perform each of the terms and covenants of it.
ARTICLE 3. OBLIGATIONS OF EMPLOYER
General Description
Section 3.1. Employer shall provide Employee with the compensation,
incentives, benefits and business expense reimbursement specified elsewhere in
this Agreement.
Office and Staff
Section 3.2. Employer shall provide Employee a private office, office
equipment, supplies and other facilities and services suitable to Employee's
position and adequate for the performance of his duties.
Indemnification of Losses of Employee
Section 3.3. To the fullest extent permitted by Delaware law, Employer shall
indemnify and defend Employee from all costs, expenses and losses whether direct
or indirect, including consequential damages and attorney's fees, incurred or
sustained by Employee in consequence of the proper discharge of his duties on
Employer's behalf.
ARTICLE 4. COMPENSATION OF EMPLOYEE
Annual Salary
Section 4.1.
(a) As compensation for the services to be performed hereunder, Employee
shall receive an initial base salary at the rate of One Hundred Sixty Thousand
Dollars ($160,000) per year beginning June 1, 1998.
(b) Employee shall receive such increases in salary as may be determined by
Employer's Board of Directors or its Compensation Committee in its sole
discretion from time to time, but the Board shall not decrease the salary set
forth in Section 4.1(a) above except with
-3-
<PAGE>
Employee's consent. Such increases shall be considered a part of this Agreement
and subject to its terms.
Bonus Compensation
Section 4.2. In addition to his base salary, Employee shall be entitled to
receive annual bonuses during the term of this Agreement equal to five percent
(5%) of Company EBITDA (as calculated before consideration of this and all such
similar bonuses) up to a maximum of One Hundred Forty Thousand Dollars
($140,000) for each calendar year of the Company, to be paid by the end of the
first quarter of the succeeding year.
Tax Withholding
Section 4.3. Employer shall have the right to deduct or withhold from the
compensation due to Employee hereunder any and all sums required for federal
income and social security taxes and all state or local taxes now applicable or
that may be enacted and become applicable in the future.
Annual Vacation
Section 4.4. Employee shall be entitled to twenty (20) paid vacation days
each year. Employee may be absent from his employment for vacation only at such
times as may be approved by Employer, such approval not to be unreasonably
withheld. In the event that Employee is unable for any reason to take the total
amount of vacation time authorized herein during any year, he shall be deemed to
have carried forward any entitlement to vacation for that year.
Automobile Expenses
Section 4.5. Employee shall be entitled to the use of an Employer-provided
automobile, including gasoline, maintenance and insurance, in the furtherance of
his duties hereunder pursuant to standard Employer Policy.
Insurance and Benefits
Section 4.6. Employee shall be eligible to participate in all life, health,
medical and dental insurance and benefit plans, including a 401k plan, and any
other plan offered during the term of this Agreement by Employer should Employee
elect to participate in such plans.
-4-
<PAGE>
ARTICLE 5. REIMBURSEMENT OF BUSINESS EXPENSES
Section 5.1.
(a) Employer shall promptly reimburse Employee for all business expenses
incurred by Employee in connection with the business of Employer.
(b) Each such expenditure shall be reimbursable only if Employee furnishes
to employer adequate records and other documentary evidence required by the
appropriate taxing authorities for the substantiation of each such expenditure.
ARTICLE 6. TERMINATION OF EMPLOYMENT
Termination for Cause
Section 6.1.
(a) Employer reserves the right to terminate this Agreement for cause. For
purpose of this Agreement, the Employer shall have "Cause" to terminate
Employee's employment hereunder upon (i) the willful and continued failure by
the Employee to substantially perform his duties hereunder (other than any such
failure resulting from Employee's incapacity due to physical or mental illness),
after demand for substantial performance is delivered by Employer that
specifically identifies the manner in which Employer believes Employee has not
substantially performed his duties, or (ii) the willful engaging by Employee in
misconduct which is materially injurious to the Employer, monetarily or
otherwise.
(b) Notwithstanding the foregoing, Employee shall not be deemed to have been
terminated for Cause without (i) reasonable notice to Employee setting forth the
reasons for employer's intention to terminate for Cause, (ii) an opportunity for
Employee, together with his Counsel, to be heard before Employer's Board of
Directors ("Board") and (iii) delivery to Employee of a notice of termination
from the Board finding that in the good faith opinion of the Board, Employee was
guilty of conduct set forth in clause (a)(i) or (a)(ii) of the preceding
paragraph, and specifying the particulars thereof in detail.
Termination Without Cause
Section 6.2.
(a) This Agreement shall be terminated upon the death of Employee.
-5-
<PAGE>
(b) Employee may terminate this Agreement upon thirty (30) days written
notice to Employer if there occurs (i) a change in control of Employer (as
defined below), (ii) a failure by Employer to comply with any material provision
of this Agreement which has not been cured within thirty (30) days after notice
of such noncompliance has been given by Employee to Employer, (iii) any material
change by Employer in Employee's duties, responsibilities, job title or
description, or location of his office, unless such change was initiated at the
request or suggestion of the Employee or (iv) a termination of Employee's
employment under Section 6.1(a) which is not effected pursuant to the procedures
set forth in Section 6.1(b) or which is disputed and is finally determined by a
court of competent jurisdiction, not to have been for cause.
(c) For purposes of this Section, a "change in control of Employer" shall be
deemed to have occurred if (i) any person or entity becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of securities of Employer representing fifty percent
(50%) or more of the combined voting power of Employer's then outstanding
securities.
(e) Except as otherwise provided herein, termination under this Section 6.2
shall not be considered "for cause" for purposes of this Agreement.
Termination by Employee
Section 6.3. Employee may at any time terminate his obligations under this
Agreement by giving Employer at least thirty (30) days written notice.
ARTICLE 7. COMPENSATION UPON TERMINATION
Compensation Upon Termination
Section 7.1. For Cause or Election by Employee. If Employer terminates
---------------------------------
Employee's employment hereunder for cause, pursuant to Section 6.1, or Employee
effectively terminates his employment pursuant to Section 6.2(a), 6.2(b)(iii)
(where the termination is a result of a "change" that was initiated at the
request or suggestion of the Employee only), or 6.3, then Employer shall pay
Employee's compensation through the date of termination, reimburse Employee for
all outstanding business expenses, and pay Employee for all other matters
required by law, such as for accrued vacation, but Employer shall have no
further obligations under this Agreement.
Section 7.2. Without Cause. If Employer terminates Employee's employment
-------------
without cause and for reasons other than as provided in Sections 7.3 or 7.4 or
other than as a result of Employee's suggestion as provided in 6.2(b)(iii), then
Employee shall be paid both salary and bonus compensation through the then
remaining term of this Agreement, during which period vacation pay shall
continue to accrue and be paid as accrued, use of Employer-provided automobile
and all insurance and benefits shall continue, and all of employee's stock
options shall vest fully and the period of exercise thereof shall continue for
not less than the remaining term of this Agreement.
-6-
<PAGE>
Section 7.3. Change of Control. If the termination of Employee's employment
-----------------
occurs because of a change of control pursuant to Section 6.2(b)(i), then
Employer shall pay Employee as provided in Section 7.2 without regard to any
other provisions of this Agreement.
Section 7.4. Material Breach By Employer. If a court of competent
---------------------------
jurisdiction makes a final determination that Employee terminated his employment
because of a material breach by Employer as provided in Section 6.2(b)(ii),
(iii) or (iv) then Employer shall pay Employee as provided in Section 7.2 and in
addition, Employer shall pay all other damages to which Employee may be entitled
as a result of such breach, and including all legal fees and expenses incurred
by him as a result of such termination. Employee shall not be required to
mitigate the amount of any payment payable under this Article 7.
ARTICLE 8. GENERAL PROVISIONS
Notices
Section 8.1. Any notices to be given hereunder by either party to the other
shall be in writing and may be transmitted by personal delivery or by mail,
registered or certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to the parties at the address appearing in the
introductory paragraph of this Agreement, but each party may change that address
by written notice in accordance with this Section. Notices delivered personally
shall be deemed communicated as of the date of actual receipt; mailed notice
shall be deemed communicated as of one day after the date of mailing.
Attorneys' Fees and Costs
Section 8.2. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which that party may be entitled. This provision shall be
construed as applicable to the entire Agreement.
Entire Agreement
Section 8.3. This Agreement supersedes any and all other agreements, either
oral or in writing, between the parties hereto with respect to the subject
matter contained herein and contains all of the covenants and agreements between
the parties with respect to that subject matter. Each party to this Agreement
acknowledges that no representations, inducements, promises or agreements,
orally or otherwise, have been made by any party, or anyone acting on behalf of
any party, which are not embodied herein, and that no other agreement, statement
or promise not contained in this Agreement shall be valid or binding on either
party.
-7-
<PAGE>
Modifications
Section 8.4. Any modification of this Agreement will be effective only if it
is in writing and signed by the party to be charged.
Effect of Waiver
Section 8.5. The failure of either party to insist on strict compliance with
any of the terms, covenants or conditions of this Agreement by the other party
shall not be deemed a waiver of that term, covenant or condition, nor shall any
waiver or relinquishment of any right or power at any one time or times be
deemed a waiver or relinquishment of that right or power for all or any other
times.
Partial Invalidity
Section 8.6. If any provision in this Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force without being impaired or
invalidated in any way.
Law Governing Agreement
Section 8.7. This Agreement shall be governed by and construed in accordance
with laws of the State of Delaware.
Executed on _________________, 1998 by:
EMPLOYER:
Hiway Technologies, Inc.
By:________________________________
EMPLOYEE:
__________________________________
-8-
<PAGE>
EXHIBIT 10.20
LEASE
-----
1. PARTIES. This Lease ("Lease"), dated June 13, 1997, is entered into by
and between AMB PROPERTIES II, L.P., a California limited partnership
("Landlord"), whose address is 505 Montgomery Street, Fifth Floor, San
Francisco, California 94111 and BEST INTERNET COMMUNICATIONS, INC., a California
corporation ("Tenant"), whose address is 345 East Middlefield Road, Mountain
View, CA 94043.
2. PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord the premises, consisting of approximately ten thousand six hundred
(10,600) square feet, shown in EXHIBIT A ("Premises"), in the building commonly
---------
known as 401 Third Street ("Building"), as further defined in Paragraph 3.B., in
the City and County of San Francisco ("City"), California.
3. DEFINITIONS. The following terms shall have the following meanings in
this Lease:
A. ALTERATIONS. Any alterations, additions or improvements made in,
-----------
on or about the Building or the Premises after the Rent Commencement Date,
including, but not limited to, lighting, heating, ventilating, air conditioning,
electrical, partitioning, drapery and carpentry installations.
B. BUILDING. The building described in Paragraph 2 above.
--------
C. CC&RS. All recorded covenants, conditions and restrictions
-----
affecting the Project now in force or which may hereafter be in force, as
modified or amended from time to time.
D. COMMENCEMENT DATE. The Commencement Date shall be the date
-----------------
provided for in Paragraph 4.A.(i).
E. HVAC. Heating, ventilating and air conditioning.
----
F. INTEREST RATE. Twelve percent (12%) per annum, however, in no
-------------
event to exceed the maximum rate of interest permitted by law.
G. LANDLORD'S AGENTS. Landlord's authorized agents, partners,
-----------------
subsidiaries, directors, officers, employees, contractors, and invitees.
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H. LANDLORD'S WORK. The improvements to the Premises to be
---------------
constructed by Landlord pursuant to EXHIBIT C.
----------
I. MONTHLY RENT. The rent payable pursuant to Paragraph 5.A., as
------------
adjusted from time to time pursuant to the terms of this Lease.
J. PROJECT. That certain project commonly known as Yerba Buena
-------
Commons located in San Francisco, California and consisting of that certain land
described in EXHIBIT B and all buildings and improvements located thereon,
---------
including, without limitation, the Building. Landlord further reserves the
right to incorporate into the Project any real property adjacent to the Project.
K. REAL PROPERTY TAXES. Any form of assessment, license, fee, rent
-------------------
tax, levy, penalty (if a result of Tenant's delinquency), or tax (other than net
income, estate, succession, inheritance transfer or franchise taxes), imposed by
any authority having the direct or indirect power to tax, or by any city,
county, state or federal government or any improvement or other district or
division thereof, whether such tax is: (i) determined by the area of the Project
or any part thereof or the rent and other sums payable hereunder by Tenant or by
other tenants, including, but not limited to, any gross income or excise tax
levied by any of the foregoing authorities with respect to receipt of such rent
or other sums due under this Lease; (ii) imposed upon any legal or equitable
interest of Landlord in the Project or the Premises or any part thereof; (iii)
imposed upon this transaction or any document to which Tenant is a party
creating or transferring any interest in the Project; (iv) levied or assessed in
lieu of, in substitution for, or in addition to, existing or additional taxes
against the Project whether or not now customary or within the contemplation of
the parties; (v) imposed as a special assessment for such purposes as fire
protection, street, sidewalk, road, utility construction and maintenance, refuse
removal and for other governmental services; or (vi) imposed as a result of any
transfer of any interest in the Project by Landlord, or the construction of any
improvements thereon or thereto.
L. RENT. Monthly Rent plus the Additional Rent defined in Paragraph
----
5.B.
M. RENT COMMENCEMENT DATE. The Rent Commencement Date shall be the
----------------------
date determined in accordance with Paragraph 4.A.(ii).
N. SECURITY DEPOSIT. That amount paid by Tenant pursuant to
----------------
Paragraph 7.
O. TENANT'S PERCENTAGE. For purposes of this Lease Tenant's
-------------------
Percentage for all Operating Expenses other than Real Property Taxes is agreed
to be twenty-two and twenty-two one hundredths percent (22.22%) and for Real
Property Taxes is agreed to be thirty-one percent (31%).
2
<PAGE>
P. TENANT'S PERSONAL PROPERTY. Tenant's trade fixtures, furniture,
--------------------------
equipment and other personal property in the Premises.
Q. TENANT'S WORK. The improvements to the Premises to be constructed
-------------
by Tenant pursuant to EXHIBIT C.
---------
R. TERM. The term of this Lease set forth in Paragraph 4.A.(iii).
----
4. LEASE TERM.
A. TERM.
----
(i) Commencement Date. The Commencement Date shall be July 1,
-----------------
1997. Subject to the provisions of the next sentence, Tenant shall be entitled
to possession of the Premises on the Commencement Date. If for any reason
whatsoever, Landlord cannot deliver possession of the Premises to Tenant on the
Commencement Date, this Lease shall not be void or voidable, nor shall Landlord,
or Landlord's Agents, be liable to Tenant for any loss or damage resulting
therefrom and the Commencement Date shall be the date on which Landlord delivers
possession of the Premises to Tenant. Notwithstanding the foregoing to the
contrary, in the event Landlord is unable to deliver possession of the Premises
by August 1, 1997, as that date may be extended due to the occurrence of a force
majeure (as that term is defined in Paragraph 38.N. below), then Tenant, upon
ten (10) days' prior written notice to Landlord, may terminate this Lease;
provided, however, the Lease shall not terminate in the event that Landlord
delivers possession of the Premises to Tenant within such ten (10) day period.
All obligations of Tenant hereunder except those relating to the payment of Rent
shall commence as of the Commencement Date, including, without limitation, the
obligations contained in Paragraph 21.
(ii) Rent Commencement Date. The Rent Commencement Date shall be
----------------------
the earlier of the (a) the date which is thirty (30) days after the Commencement
Date, or (b) the date on which Tenant opens for business in the Premises. Once
the actual Rent Commencement Date has been determined, Landlord and Tenant shall
execute a Rent Commencement Date Memorandum setting forth such date in the form
shown in EXHIBIT D.
---------
(iii) Term. The Term shall commence on the Rent Commencement Date
----
and shall expire on the date which is seven (7) years after the Rent
Commencement Date, unless sooner terminated and subject to the extension granted
to Tenant as provided for in Paragraph 4.B.
B. OPTION TO EXTEND TERM.
---------------------
(i) Option Period. Provided that Tenant is not in default under
-------------
the Lease at the time of exercise of the Option (hereafter defined), Tenant
shall have the option ("Option") to extend the initial seven (7) year Term of
this Lease for one (1) period of five (5) years (the "Option Period") on the
same terms, covenants and conditions provided herein, except
3
<PAGE>
that the Monthly Rent due hereunder shall be determined pursuant to Paragraph
4.B.(ii). Tenant shall exercise the Option by giving Landlord written notice
("Option Notice") at least one hundred eighty (180) days but not more than two
hundred seventy (270) days prior to the expiration of the initial seven (7) year
Term of this Lease.
(ii) Option Period Monthly Rent. The Monthly Rent for the first year
--------------------------
of the Option Period shall be determined as follows:
(a) The parties shall have ten (10) days after Landlord receives
the Option Notice within which to agree on the Monthly Rent for the first year
of the Option Period. If the parties agree on said Monthly Rent within ten (10)
days after Landlord receives the Option Notice, they shall immediately execute
an amendment to this Lease stating said Monthly Rent and the adjustments to said
Monthly Rent as provided for below.
(b) If the parties are unable to agree on the Monthly Rent for
the first year of the Option Period within ten (10) days after Landlord receives
the Option Notice, the then current fair market rental value of the Premises
shall be determined in accordance with Paragraph 4.B.(ii)(d) below and the
Monthly Rent for the first year of the Option Period shall be the greater of (i)
the amount which is ninety-five percent (95%) of such fair market rental value
of the Premises, or (ii) Seventeen Thousand Nine Hundred Fifty-Eight and 33/100
Dollars ($17,958.33).
(c) The "fair market rental value of the Premises" shall be
defined to mean the fair market rental value of the Premises as of the
commencement of the Option Period, taking into consideration all relevant
factors, including length of term, the uses permitted under this Lease, the
quality, size, design and location of the Premises, and the Monthly Rent for
premises comparable to the Premises in buildings comparable to and located in
the same general area as the Building, and also specifically taking into
consideration Tenant's right under the Lease to have use of the reserved parking
spaces described in Paragraph 37 of this Lease, which right at the time of
execution of this Lease Landlord and Tenant agreed had a value of Two Thousand
Five Hundred Dollars ($2,500.00) per month for each month of the initial seven
(7) year Term.
(d) Within five (5) days after the expiration of the ten (10) day
period set forth in Paragraph 4.B.(ii)(b) each party, at its cost and by giving
notice to the other party, shall appoint a real estate appraiser with at least
five (5) years' full-time commercial appraisal experience in the area in which
the Premises are located to appraise and set the then fair market rental value
of the Premises for the first year of the Option Period. If a party does not
appoint an appraiser within this five (5) day time period, the single appraiser
appointed shall be the sole appraiser and shall set the then fair market rental
value of the Premises. If the two appraisers are appointed by the parties as
stated in this Paragraph 4.B.(ii)(d), they shall meet promptly and attempt to
set the then fair market rental value of the Premises. If they are unable to
agree within fifteen (15) days after the second appraiser has been appointed,
they shall attempt to elect a third appraiser meeting the qualifications stated
in this Paragraph 4.B.(ii)(d) within five (5) days after the last day the two
appraisers are given to set the then fair market rental value of
4
<PAGE>
the Premises. If they are unable to agree on the third appraiser, either of the
parties to this Lease, by giving five (5) days' notice to the other party, can
apply to the then President of the Real Estate Board for the city in which the
Premises are located, or the then Presiding Judge of the Superior Court for the
county in which the Premises are located for the selection of a third appraiser
who meets the qualifications stated in this Paragraph 4.B.(ii)(d). Each of the
parties shall bear one-half (1/2) of the cost of appointing the third appraiser
and of paying the third appraiser's fee. The third appraiser, however selected,
shall be a person who has not previously acted in any capacity for either party.
Within twenty (20) days after the selection of the third
appraiser, a majority of the appraisers shall set the then fair market rental
value of the Premises. If a majority of the appraisers are unable to set the
then fair market rental value of the Premises within the stipulated period of
time, the three appraisals shall be added together and their total divided by
three (3); subject to the next sentence, the resulting quotient shall be the
then fair market rental value of the Premises. If, however, the low appraisal
and/or high appraisal are/is more than ten percent (10%) lower and/or higher
than the middle appraisal, the low appraisal and/or high appraisal shall be
disregarded. If only one appraisal is disregarded, the remaining two appraisals
shall be added together and their total divided by two (2); the resulting
quotient shall be the then fair market rental value of the Premises. If both the
low appraisal and the high appraisal are disregarded as stated in this Paragraph
4.B.(ii)(d), the middle appraisal shall be the then fair market rental value of
the Premises. After the then fair market rental value of the Premises has been
set, the appraisers shall immediately notify the parties of such value. After
the fair market rental value of the Premises has been set as provided for in
this Paragraph 4.B.(ii) (d) and the Monthly Rent for the first year of the
Option Period determined in accordance with Paragraph 4.B.(ii)(b), Landlord and
Tenant shall immediately thereafter execute an amendment to this Lease setting
forth said Monthly Rent and the adjustments to said Monthly Rent as provide for
below.
The Monthly Rent amount for the first year of the Option Period
as determined pursuant to the provisions of Paragraphs 4.B.(ii)(a) or
4.B.(ii)(d) shall be adjusted upward but not downward to reflect the increase in
the Index (as that term is defined in Paragraph 5.A.(ii). The "Adjustment Dates"
shall be the first day of every year of the Option Period after the first year
of the Option Period. The "Adjustment Index" shall be the Index published most
recently before the applicable Adjustment Date. The "Comparison Index" shall be
the Index published most recently before the commencement of the first year of
the Option Period. On each Adjustment Date, the Monthly Rent payable immediately
prior thereto shall be adjusted by multiplying such Monthly Rent by a fraction,
the numerator of which is the applicable Adjustment Index and the denominator of
which is the Comparison Index; provided, however, in no event shall the adjusted
Monthly Rent be an amount which is less than the product of 1.02 multiplied by
the Monthly Rent due immediately prior to the adjustment nor be an amount which
is higher than the product of 1.05 multiplied by the Monthly Rent due
immediately prior to the adjustment.
(iii) Default. Notwithstanding the exercise by Tenant of the Option,
-------
in the event that Tenant is in default of the Lease at any time from the date of
the Option Notice
5
<PAGE>
through the date on which the Option Period commences, then, at Landlord's
election and upon written notice by Landlord to Tenant, Tenant's exercise of the
Option may be voided by Landlord and Tenant shall thereafter have no rights
hereunder to extend the initial seven (7) year Term through the Option Period.
(iv) Personal and Non-Assignable. Notwithstanding any other
---------------------------
provision hereof, the Option granted under this Paragraph 4.B. is personal to
Best Internet Communications, Inc., a California corporation ("Original
Tenant"), and shall not be assignable or transferable to or exercisable by or on
behalf of any assignee, subtenant or licensee of the Original Tenant.
(v) Term. Unless the context clearly requires otherwise, all
----
references in this Lease to the Term shall mean and refer to the initial seven
(7) year Term as it may be extended through the Option Period.
5. RENT.
A. MONTHLY RENT. Tenant shall pay to Landlord, in lawful money of
------------
the United States, for each calendar month of the Term, net Monthly Rent as
provided for in this Paragraph 5.A., in advance, on the first day of each
calendar month, without abatement, deduction, claim, offset, prior notice or
demand:
(i) The Monthly Rent payable for the period commencing on the Rent
Commencement Date and continuing through the twelfth (12th) month of the Term
shall be Seventeen Thousand Nine Hundred Fifty-Eight and 33/100 Dollars
($17,958.33). Thereafter, that amount shall be adjusted in accordance with
Paragraph 5.A.(ii). Notwithstanding the foregoing to the contrary, the first
Monthly Rent payment shall be paid by Tenant to Landlord upon full execution of
this Lease.
(ii) The Monthly Rent amount set forth in Paragraph 5.A.(i) shall
be adjusted upward but not downward to reflect the increase in the Consumer
Price Index [All Urban Consumers] (base years 1982-1984=100) for San Francisco -
Oakland - San Jose ("Index") as published by the United States Department of
Labor's Bureau of Labor Statistics ("Bureau"). The "Adjustment Dates" shall be
the first day of every year of the Term after the first year of the Term. The
"Adjustment Index" shall be the Index published most recently before the
applicable Adjustment Date. The "Comparison Index" shall be the Index published
most recently before the Rent Commencement Date. On each Adjustment Date, the
Monthly Rent payable immediately prior thereto shall be adjusted by multiplying
such Monthly Rent by a fraction, the numerator of which is the applicable
Adjustment Index and the denominator of which is the Comparison Index; provided,
however, in no event shall the adjusted Monthly Rent be an amount which is less
than the product of 1.02 multiplied by the Monthly Rent due immediately prior to
the adjustment nor be an amount which is higher than the product of 1.05
multiplied by the Monthly Rent due immediately prior to the adjustment. Should
the Bureau discontinue the publication of the Index, or publish same less
frequently, or alter same in some other manner,
6
<PAGE>
then Landlord shall adopt a substitute index or substitute procedure which
reasonably reflects and monitors consumer prices.
B. ADDITIONAL RENT. Additionally, Tenant shall pay, as and with the
---------------
net Monthly Rent, Tenant's Percentage of the estimated monthly Operating
Expenses, as adjusted from time to time, and as more specifically set forth in
Paragraph 17.C. All monies (except Monthly Rent) required to be paid by Tenant
under this Lease, including, without limitation, Operating Expenses, shall be
deemed Additional Rent.
C. PRORATIONS. If the Rent Commencement Date is not the first (1st)
----------
day of a month, or if the expiration date of this Lease is not the last day of a
month, a prorated installment of Rent based on a thirty (30) day month shall be
paid for the fractional month during which the Lease commences or expires.
6. LATE PAYMENT CHARGES. Tenant acknowledges that late payment by
Tenant to Landlord of Rent and other charges provided for under this Lease will
cause Landlord to incur costs not contemplated by this Lease, the exact amount
of such costs being extremely difficult or impracticable to fix. Therefore, if
any installment of Rent or any other charge due from Tenant is not received by
Landlord within ten (10) days after the date it is due, Tenant shall pay to
Landlord an additional sum equal to five percent (5%) of the amount overdue as a
late charge for every month or portion thereof that the Rent or other charges
remain unpaid. The parties agree that this late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of the late
payment by Tenant.
Initials:
Landlord Tenant
7. SECURITY DEPOSIT. Tenant shall deposit with Landlord upon execution of
this Lease Seventeen Thousand Nine Hundred Fifty Eight and 33/100ths Dollars
($17,958.33) as security for the full and faithful performance of every
provision of this Lease to be performed by Tenant (the "Security Deposit"). If
Tenant defaults with respect to any provision of this Lease, Landlord may apply
all or any part of the Security Deposit for the payment of any Rent or other sum
in default, the repair of such damage to the Premises or the payment of any
other amount which Landlord may spend or become obligated to spend by reason of
Tenant's default or to compensate Landlord for any other loss or damage which
Landlord may suffer by reason of Tenant's default to the full extent permitted
by law. If any portion of the Security Deposit is so applied, Tenant shall,
within ten (10) days after written demand therefor, deposit cash with Landlord
in an amount sufficient to restore the Security Deposit to its original amount.
If Tenant is not otherwise in default, the Security Deposit or any balance
thereof shall be returned to Tenant within thirty (30) days after the expiration
of the Term.
7
<PAGE>
8. HOLDING OVER. If Tenant remains in possession of all or any part of
the Premises after the expiration of the Term, with the express or implied
consent of Landlord, such tenancy shall be month-to-month only and shall not
constitute a renewal or extension for any further term. If Tenant remains in
possession either with or without Landlord's consent, Monthly Rent shall be
increased to an amount equal to one hundred twenty-five percent (125%) of the
Monthly Rent payable during the last month of the Term, and any other sums due
under this Lease shall be payable in the amount and at the times specified in
this Lease. Such month-to-month tenancy shall be subject to every other term,
condition, and covenant contained herein. If Tenant remains in possession
without Landlord's consent, Tenant shall indemnify, defend and hold Landlord
harmless from all claims, costs and liabilities including attorneys' fees and
costs, arising from or in connection with Tenant remaining in possession.
9. LANDLORD'S WORK. Landlord shall construct the Landlord's Work (as
that term is defined in Exhibit C) pursuant to the terms of EXHIBIT C.
--------- ---------
10. CONDITION OF PREMISES.
A. CONDITION OF PREMISES. Subject to the provisions of Paragraphs
---------------------
10.B. and 10.C. below, by taking possession of the Premises, Tenant shall be
deemed to have accepted the Premises in good condition and repair and otherwise
in the condition required by this Lease, subject to all applicable laws, codes
and ordinances. Any damage to the Premises caused by Tenant's move-in or by
Tenant's Work (as that term is defined in EXHIBIT C) shall be repaired or
----------
corrected by Tenant, at its sole expense. Tenant acknowledges that neither
Landlord nor Landlord's Agents have made any representations or warranties as to
the suitability or fitness of the Premises for the conduct of Tenant's business,
nor has Landlord or Landlord's Agents agreed to undertake any Alterations or
construct any improvements to the Premises except as expressly provided in this
Lease.
B. WALK-THROUGH. Within five (5) days after completion of the
------------
Landlord's Work, Tenant shall conduct an inspection of the Landlord's Work with
Landlord and complete a punch-list of items needing additional work by Landlord.
If Tenant fails to submit a punch-list to Landlord within such five (5) day
period, it shall be deemed that there are no items of Landlord's Work needing
additional work or repair. Landlord's contractor shall complete all reasonable
punch-list items within thirty (30) days after the walk-through inspection or as
soon as practicable thereafter. Upon completion of such punch-list items,
Tenant shall approve or reasonably disapprove such completed items in writing to
Landlord. If Tenant fails to approve or reasonably disapprove such items within
fourteen (14) days of completion, such items shall be deemed approved by Tenant.
C. LATENT DEFECTS; WATER-TIGHTNESS.
-------------------------------
(i) If there are any material latent defects in the electrical,
plumbing, and HVAC systems serving the Premises which Landlord installed as part
of the Landlord's Work and if Tenant notifies Landlord in writing of such
defects within forty-five (45) days after the date that Landlord completes that
portion of the Landlord's Work described in items 1, 2, and
8
<PAGE>
3 of Paragraph 1 of EXHIBIT C hereto, then Landlord at its expense shall make
---------
such repairs as may be necessary to correct such defects. If the Tenant fails to
give notice of such defects as and when required hereinabove, Tenant shall be
deemed to have waived its rights hereunder to require the correction thereof.
For purposes of this lease, a defect shall be deemed to be "latent" if such
could not have been discovered by a thorough and diligent inspection by Tenant.
(ii) If the Premises are not water-tight and Tenant notifies
Landlord in writing within one hundred eighty (180) days after the Commencement
Date that the Premises are not water-tight, then Landlord at its expense shall
make such repairs as may be necessary to make the Premises water-tight. If the
Tenant fails to give notice of the lack of water-tightness as and when required
hereinabove, Tenant shall be deemed to have waived its rights hereunder to
require the correction thereof.
D. REPRESENTATIONS AND WARRANTIES. Landlord represents and warrants
------------------------------
to Tenant as of the date of this Lease as follows:
(i) To the current actual knowledge of Landlord, the Premises as
they exists on the date of this Lease are in material compliance with applicable
building and fire codes in effect at the time that the Premises were
constructed;
(ii) Except for the installation of any necessary entrance ramps
to the Premises as provided for in item 6 of Paragraph 1 of EXHIBIT C hereto, to
---------
the current actual knowledge of Landlord, the Premises as they exist on the date
of this Lease are in material compliance with requirements of Title III of the
Americans With Disabilities Act of 1990, 42 U.S.C. 12101 et seq ("ADA") imposed
by the city in which the Premises are located; and
(iii) To the current actual knowledge of Landlord, the Premises
and the soils underneath the Premises are not contaminated with Hazardous
Materials (as that term is defined in Paragraph 11.D.(v) of this Lease) with
levels of contamination greater than the levels established as acceptable by
governmental agencies having jurisdiction over such contamination.
11. USE OF THE PREMISES.
A. TENANT'S USE. Tenant shall use the Premises solely for (i) the
------------
retail sale of internet communication services, including, but not limited to,
web hosting, (ii) the conduct of training courses and seminars, (iii) operation
of an on-site web-hosting facility, and (iv) any uses which are related to the
uses described in the foregoing clauses (i) through (iii) provided that such
related uses are permitted and comply fully with the CC&Rs and any and all
applicable law, statute, zoning restriction, redevelopment plan, ordinance, or
governmental law, rule or regulation or requirement of public authorities now or
hereafter in force. Tenant shall not use the Premises for any purposes other
than those described in the immediately preceding sentence without obtaining the
prior written consent of Landlord. Tenant agrees that Tenant shall faithfully
and timely perform and comply with any and all CC&Rs.
9
<PAGE>
B. COMPLIANCE WITH LAWS. Tenant shall not use the Premises or suffer
--------------------
or permit anything to be done in or about the Premises or the Project which will
in any way conflict with any law, statute, zoning restriction, ordinance or
governmental law, rule, regulation or requirement of public authorities now in
force or which may hereafter be in force, relating to or affecting the
condition, use or occupancy of the Premises or the Project. Tenant shall not
commit any public or private nuisance or any other act or thing which might or
would disturb the quiet enjoyment of any other tenant of the Project or any
occupant of nearby property. Tenant shall place no loads upon the floors, walls
or ceilings in excess of the maximum designed load determined by Landlord or
which endanger the structure; nor place any harmful liquids in the drainage
systems; nor dump or store waste materials or refuse or allow such to remain
outside the Building proper, except in the enclosed trash areas provided. Tenant
shall not store or permit to be stored or otherwise placed any other material of
any nature whatsoever outside the Building.
C. EMISSIONS. Tenant shall not:
---------
(i) Permit any vehicle on the Project to emit exhaust which is in
violation of any governmental law, rule, regulation or requirement;
(ii) Discharge, emit or permit to be discharged or emitted, any
liquid, solid or gaseous matter, or any combination thereof, into the
atmosphere, the ground or any body of water, which matter, as reasonably
determined by Landlord or any governmental entity with jurisdiction, does or may
pollute or contaminate the same, or is or may become radioactive, or may
adversely affect (1) the health or safety of persons, whether on the Premises,
the Project, or elsewhere, (2) the condition, use or enjoyment of the Premises
or the Project or any other real or personal property located on the Project or
elsewhere, or (3) the Project or any of the improvements constructed thereon,
including buildings, foundations, pipes, utility lines, landscaping or parking
areas;
(iii) Produce, or permit to be produced, any intense glare, light
or heat except within an enclosed or screened area, and then only in such manner
that the glare, light or heat shall not be discernible from outside the
Premises;
(iv) Create, or permit to be created, any sound pressure level
which will interfere with the quiet enjoyment of any real property outside the
Project, or which will create a nuisance or violate any governmental law, rule,
regulation or requirement;
(v) Create or permit to be created any ground vibration that is
discernible outside the Premises; or
(vi) Transmit, receive or permit to be transmitted or received,
any electromagnetic, microwave or other radiation which is harmful or hazardous
to any person or property in, on or about the Project or elsewhere.
Tenant will not be in violation of this Paragraph 11.C. if with
respect to Tenant's back-up generator installed at the Premises the following
conditions are met: (a)
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Tenant shall conduct any testing of the generator on Mondays through Fridays
between the hours of 10:00 a.m. and 3:00 p.m.; (b) the generator is operated in
a good and safe manner and in compliance with all applicable laws, ordinances,
rules and regulations; and (c) Tenant has installed all commercially available
devices which will, to the greatest extent possible, reduce noise, emissions,
and vibrations resulting from the operation of the generator.
D. HAZARDOUS MATERIALS.
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(i) Except for the use of ordinary and general office supplies
typically used in the ordinary course of business within retail premises, such
as copier toner, liquid paper, glue, ink and common household cleaning
materials, and except for the use of Hazardous Materials (hereafter defined in
Paragraph 11.D.(v) below) which are necessary for the operation of Tenant's
back-up generator installed at the Premises and which Hazardous Materials shall
be used in compliance with all applicable Hazardous Materials Law (hereafter
defined in Paragraph 11.D.(vi)), neither Tenant nor Tenant's agents, employees,
contractors, subcontractors, invitees and sublessees (collectively "Tenant's
Agents") shall cause or permit Hazardous Materials (hereafter defined in
Paragraph 11.D.(v)) to be handled, transported, stored, treated, disposed of, or
used in or about the Premises or the Project. Tenant shall indemnify, defend
upon demand with counsel reasonably acceptable to Landlord, and hold harmless
Landlord and Landlord's Agents from and against any and all liabilities, losses,
claims, damages, lost profits, consequential damages, interest, penalties,
fines, monetary sanctions, attorneys' fees, experts' fees, court costs,
remediation costs, investigation costs, and other expenses which result from or
arise in any manner whatsoever out of (a) the use, storage, treatment,
transportation, release, or disposal of Hazardous Materials on or about the
Premises or the Project by Tenant or Tenant's Agents or (b) Tenant's breach of
any of its obligations under this Paragraph 11.D.
(ii) If the presence of Hazardous Materials in, on, or about the
Premises or the Project caused or permitted by Tenant or Tenant's Agents results
in contamination or deterioration of water or soil, then Tenant shall promptly
take any and all action necessary to investigate and remediate such
contamination. Tenant shall further be solely responsible for, and shall
defend, indemnify, and hold Landlord and Landlord's Agents harmless from and
against, all claims, costs and liabilities, including attorney's fees and costs,
arising out of or in connection with any investigation and remediation required
hereunder to return the Premises or the Project to its condition existing prior
to the appearance of such Hazardous Materials.
(iii) Tenant shall give Landlord written notice as soon as
reasonably practicable of any Hazardous Materials released, spilled, discharged
or disposed of on or about the Premises or the Project.
(iv) Landlord may cause testing wells to be installed on or about
the Premises or the Project, and may cause the ground water to be tested to
detect the presence of Hazardous Materials by the use of such tests as are then
customarily used for such purposes. The cost of such tests and of the
installation, maintenance, repair and replacement of such wells shall
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be paid by Tenant if such tests disclose the existence of facts which give rise
to liability of Tenant pursuant to its indemnity given in Paragraph 11.D(i) or
(ii).
(v) As used herein, the term "Hazardous Material," means any
hazardous or toxic substance, material or waste which is or becomes regulated by
any local governmental authority, the State of California or the United States
Government. The term "Hazardous Material," includes, without limitation,
petroleum products, asbestos, PCB's, and any material or substance which is (i)
defined as hazardous or extremely hazardous pursuant to Section 66160 of Title
26 of the California Code of Regulations, Division 22, (ii) defined as a
"hazardous waste" pursuant to Section 1004 of the Federal Resource Conservation
and Recovery Act, 42 U.S.C., Section 6901 et seq. (42 U.S.C. Section 6903), or
(iii) defined as a "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.,
Section 9601 et seq. (42 U.S.C. 6901).
(vi) Landlord shall indemnify, defend, and hold harmless Tenant
and Tenant's partners, officers, directors, employees, and agents from and
against all claims, demand, liabilities, actions, causes of action, costs and
expenses incurred by Tenant or Tenant's partners, officers, directors,
employees, and agents, to the extent arising from any use, storage, treatment,
transportation, release, or disposal of Hazardous Materials by Landlord or its
employees or agents in, on or about the Premises or the Project in violation of
any applicable Hazardous Materials Law. As used herein the term "Hazardous
Material Law" shall mean any statute, law, ordinance, or regulation of any
governmental body or agency (including the U.S. Environmental Protection Agency,
the California Regional Water Quality Control Board, and the California
Department of Health Services) which regulates the use, storage, release or
disposal of any Hazardous Material.
(vii) The obligations of Landlord and Tenant under this Paragraph
11.D shall survive the expiration or earlier termination of the Term.
12. QUIET ENJOYMENT. Landlord covenants that Tenant, upon performing
the terms, conditions and covenants of this Lease, shall have quiet and peaceful
possession of the Premises as against any person claiming the same by, through
or under Landlord.
13. ALTERATIONS. Tenant shall not make or permit any Alterations in,
on or about the Premises, except for nonstructural Alterations which do not
require permits and do not exceed Ten Thousand Dollars ($10,000.00) in cost
without the prior written consent of Landlord, and according to plans and
specifications approved in writing by Landlord, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, Tenant shall not, without
the prior written consent of Landlord, make any: (i) Alterations to the
structure or exterior of the Building; (ii) Alterations to and penetrations of
the roof of the Building; (iii) Alterations to the floor slab of the Premises;
and (iv) Alterations visible from outside the Premises, to which Landlord may
withhold Landlord's consent on wholly aesthetic grounds. Further
notwithstanding the foregoing, Tenant shall not, without the prior written
consent of Landlord, which consent shall not be unreasonably withheld, make any
Alterations to the Premises which involve the removal and/or construction of
interior walls within the Premises. All Alterations shall be installed at
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Tenant's sole expense, in compliance with all applicable laws and CC&Rs, by a
licensed contractor, shall be done in a good and workmanlike manner conforming
in quality and design with the Premises existing as of the Rent Commencement
Date, and shall not diminish the value of either the Project, the Building or
the Premises. All Alterations made by Tenant shall be the property of Tenant
until the expiration or earlier termination of the Term, at which time such
Alterations shall become the property of Landlord if Landlord has, pursuant to
the terms of this Lease, elected not to have Tenant remove the Alterations.
Landlord, within thirty (30) days after giving its consent to any proposed
Alterations, shall notify Tenant in writing whether Tenant must at the
expiration or earlier termination of the Term, remove, at Tenant's expense, any
or all Alterations installed by Tenant and return the Premises to their
condition prior to the installation of such Alterations, normal wear and tear
excepted, and in the event that Landlord fails to notify Tenant as and when
required herein, then Tenant shall not be obligated to remove the Alterations.
Landlord, at Landlord's option at the expiration or earlier termination of the
Term, may require Tenant to remove some or all of any Alterations installed
without or not requiring Landlord's consent. With regard to Alterations not
requiring Landlord's consent, Tenant shall provide Landlord copies of all plans
and specifications therefor prior to the construction thereof. Notwithstanding
any other provision of this Lease, Tenant shall be solely responsible for the
maintenance and repair of any and all Alterations made by it to the Premises.
Tenant shall give Landlord written notice of Tenant's intention to perform work
on the Premises, whether or not Landlord's consent is required, at least ten
(10) business days prior to the commencement of such work to enable Landlord to
post and record a Notice of Nonresponsibility or other notice deemed proper
before the commencement of any such work. Landlord, at Landlord's option at the
expiration or earlier termination of the Term, may require Tenant to remove some
or all of any Alterations installed without Landlord's consent.
14. SURRENDER OF THE PREMISES. Upon the expiration or earlier termination
of the Term, Tenant shall surrender the Premises to Landlord in its condition
existing as of the Commencement Date, normal wear and tear and fire or other
casualty and approved Alterations which Landlord has indicated shall remain upon
the Premises upon the expiration of the Term excepted, with all interior walls
repaired and repainted if marked or damaged, all carpets shampooed and cleaned,
all broken, marred or nonconforming acoustical ceiling tiles replaced, all
windows washed, the plumbing and electrical systems and lighting in good order
and repair, including replacement of any burned out or broken light bulb or
ballasts, and all floors cleaned and waxed, all to the reasonable satisfaction
of Landlord. Tenant shall remove from the Premises all of Tenant's Alterations
required to be removed pursuant to Paragraph 13 and all Tenant's Personal
Property, and repair any damage and perform any restoration work caused by such
removal. If Tenant fails to remove such Alterations and Tenant's Personal
Property, and such failure continues after the termination of this Lease,
Landlord may retain such property and all rights of Tenant with respect to it
shall cease, or Landlord may place all or any portion of such property in public
storage for Tenant's account. Tenant shall be liable to Landlord for costs of
removal of any such Alterations and Tenant's Personal Property and storage and
transportation costs of same, and the cost of repairing and restoring the
Premises, together with interest at the Interest Rate from the date of
expenditure by Landlord. If the Premises are not so surrendered at the
expiration or earlier termination of this Lease, Tenant shall indemnify, defend
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and hold Landlord and Landlord's Agents harmless against all claims, costs and
liabilities, including attorneys' fees and costs, resulting from Tenant's delay
in so surrendering the Premises.
15. PERSONAL PROPERTY TAXES. Tenant shall pay prior to delinquency all
taxes assessed or levied against Tenant's Personal Property in, on or about the
Premises or elsewhere. When possible, Tenant shall cause its Personal Property
to be assessed and billed separately from the real or personal property of
Landlord.
16. UTILITIES AND SERVICES. Tenant shall be responsible for and shall pay
promptly all charges for water, gas, electricity, telephone, refuse pickup,
janitorial service and all other utilities, materials and services furnished
directly to or used by Tenant in, on or about the Premises, together with any
taxes thereon. The gas and electrical service to the Premises shall be
separately metered to the Premises at the expense of Landlord. Landlord shall
not be liable in damages or otherwise for any failure or interruption of any
utility service or other service furnished to the Premises, except to the extent
resulting from the gross negligence or willful misconduct of Landlord or
Landlord's Agents.
17. REPAIR AND MAINTENANCE.
A. LANDLORD'S OBLIGATIONS. Landlord shall at its expense maintain in
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good order, condition and repair the structural parts of the Building, which are
agreed to consist only of the foundation and subflooring of the Building, the
roof structure, exterior walls, and the interior bearing or structural walls
(excluding, however, interior wall surfaces), except for any damage thereto
caused by the negligence or willful acts or omissions of Tenant or of Tenant's
Agents, or by reason of the failure of Tenant to perform or comply with any
terms of this Lease, or caused by Alterations made by Tenant or by Tenant's
Agents; provided, however, (a) Tenant shall reimburse Landlord as an Operating
Expense pursuant to Paragraph 17.C. for Landlord's cost of maintaining,
repairing and replacing the roof membrane and covering and Landlord's cost of
maintaining, repairing, and painting the surfaces of the exterior walls of the
Building, and (b) Tenant shall reimburse Landlord, within ten (10) days after
Tenant's receipt of an invoice therefor, for all Landlord's cost of maintenance,
repair or replacement of the roof structure and the roof membrane and covering
required as a result of the installation and operation of any of Tenant's
equipment installed on the roof, including, without limitation, HVAC units and
related equipment. It is an express condition precedent to all obligations of
Landlord to repair that Tenant shall have notified Landlord of the need for such
repairs. Tenant waives the provisions of Sections 1941 and 1942 of the
California Civil Code and any similar or successor law regarding Tenant's right
to make repairs and deduct the expenses of such repairs from the Rent due under
this Lease.
B. TENANT'S OBLIGATIONS. Tenant shall at all times and at its own
--------------------
expense clean, keep and maintain in good order, condition and repair every part
of the Premises which is not within Landlord's obligation pursuant to Paragraph
17.A. Tenant's repair and maintenance obligations shall include all plumbing and
sewage facilities within the Premises, the HVAC system serving the Premises,
fixtures, interior walls and ceiling, floors, windows, doors, entrances,
plateglass, showcases, skylights, all electrical facilities and equipment,
including
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lighting fixtures, lamps, fans and any exhaust equipment and systems, any
automatic fire extinguisher equipment within the Premises, electrical motors and
all other appliances and equipment of every kind and nature located in, upon or
about the Premises, but shall not include the repair of any damage to the
Premises to the extent resulting from the negligence of willful acts or
omissions of Landlord or Landlord's Agents, or by reason of the default by
Landlord in the performance of its obligations under this Lease. Tenant shall
also be responsible for all pest control within the Premises. Tenant shall
obtain preventative maintenance contracts for the HVAC system serving the
Premises (or such other periodic service as Landlord shall designate) in
accordance with manufacturer recommendations, which shall be subject to the
reasonable approval of Landlord and paid for by Tenant, and which shall provide
for and include replacement of filters, oiling, and lubricating of machinery,
parts replacement, adjustment of drive belts, oil changes and other preventive
maintenance, including annual maintenance of duct work, interior units drains
and caulking of sheet metal, and recaulking of jacks and vents on an annual
basis. Tenant shall provide Landlord with copies of all HVAC maintenance reports
on a quarterly basis, including copies of contractor recommendations for repairs
and/or replacements. If any repairs and/or replacements are recommended by the
contractor, Tenant shall perform such repairs and/or replacements and shall
provide Landlord with evidence that such repairs and/or replacements have been
completed in accordance with the contractor's recommendations. Landlord may, at
Landlord's election, have the HVAC systems serving the Premises inspected by
Landlord's contractor on a semi-annual basis to confirm whether Tenant has
maintained the HVAC systems as required herein. The cost of any such semi-annual
inspections shall be paid by Tenant upon ten (10) days after written invoice by
Landlord therefor. Notwithstanding the foregoing to the contrary, Landlord shall
have the right at any time during the Term to assume the maintenance and repair
of the HVAC systems serving the Premises upon written notice to Tenant and, if
Landlord elects to do so, the cost of all such maintenance and repair, including
any service contracts maintained by Landlord for such purpose, shall be
considered to be an Operating Expense and paid by Tenant as provided for in
Paragraph 17.C., except that for purposes of application of Paragraph 17.C. all
such costs and not merely Tenant's Percentage thereof shall be paid by Tenant.
C. REIMBURSEMENT BY TENANT.
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(i) TENANT TO PAY OPERATING EXPENSES. Tenant shall pay Landlord
--------------------------------
monthly, as Additional Rent, Tenant's Percentage of Operating Expenses.
(ii) OPERATING EXPENSES. As used herein, the term "Operating
------------------
Expenses" shall mean all expenses incurred by Landlord for the following:
repair, maintenance and replacement of the roof membrane and covering; repair
and maintenance of the side roof located at the back of the Premises; repair,
maintenance and painting of the surfaces of the exterior walls of the Building;
maintenance, repair and cleaning of the sidewalks and walkways of the Project
and the parking facility of the Project; premiums for commercial liability
insurance covering the Project; premiums for any and all property insurance
policy or policies carried by Landlord (including, at Landlord's option,
earthquake and flood insurance policies) on the Building; premiums for insurance
against loss of rents carried by Landlord; and Real Property Taxes. The cost of
any repair item which is an Operating Expense and which, as reasonably
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determined by Landlord, constitutes a capital improvement shall, together with
ten percent (10%) interest thereon, be amortized over its useful life in
accordance with generally accepted accounting principles, and only such
amortized cost shall be paid by Tenant pursuant to the terms of Paragraph
17.C.(iii) below for each month after such repair is made until the earlier of
(a) the expiration of the Term or (b) the end of the applicable amortization
period.
Notwithstanding the foregoing to the contrary, Operating Expenses
shall not include the following: expenses for repairs and maintenance paid to
Landlord from proceeds of insurance; expenses for repairs and maintenance which
are the responsibility of Tenant under this Lease or which are reimbursed to
Landlord by other tenants of the Project; depreciation on maintenance and
operating machinery and equipment; payments of principal or interest on any
loans which are secured by the Project; costs attributable to advertising or
marketing the Project or any space in the Project to prospective tenants;
brokers' and finders' fees or commissions; attorneys' fees incurred in
connection with the leasing of any space in the Project; costs or expenses to
the extent incurred as a result of any default by Landlord under this Lease; and
costs of Hazardous Materials investigation, remediation and removal to the
extent incurred as a result of any use, storage, treatment, transportation,
release, or disposal of Hazardous Materials by Landlord or Landlord's Agents in,
on or about the Premises or the Project in violation of any applicable Hazardous
Materials Law.
(iii) MONTHLY PAYMENTS. From and after the Rent Commencement
----------------
Date, Tenant shall pay to Landlord on the first day of each calendar month of
the Term Tenant's Percentage of the estimated monthly Operating Expenses
incurred by Landlord. The foregoing estimated monthly charges may be adjusted by
Landlord at the end of any calendar quarter on the basis of Landlord's
experience and reasonably anticipated costs. Any such adjustment shall be
effective as of the calendar month next succeeding receipt by Tenant of written
notice of such adjustment. Within one hundred twenty (120) days following the
end of each calendar year (including the calendar year in which the expiration
of the Term occurs) Landlord shall endeavor to furnish Tenant a statement of
such actual expenses ("Actual Expenses") for the calendar year and the payments
made by Tenant with respect to such period. If Tenant's payments for the
Operating Expenses do not equal the amount of the Actual Expenses, Tenant shall
pay Landlord the deficiency within thirty (30) days after receipt of such
statement. If Tenant's payments exceed the Actual Expenses, Landlord shall
offset the excess against the Operating Expenses thereafter becoming due to
Landlord or, upon expiration or earlier termination of the Term, Landlord shall
refund such excess to Tenant. There shall be appropriate adjustments of the
Operating Expenses as of the Rent Commencement Date and expiration of the Term.
(iv) AUDIT. If Tenant disputes the statement of Actual Expenses
-----
delivered by Landlord, Tenant shall have the right, to be exercised, if at all,
not later than sixty (60) days following receipt of the statement of Actual
Expenses, to cause Landlord's books and records relating to Operating Expenses
with respect to the preceding calendar year to be audited by a certified public
accountant mutually acceptable to Landlord and Tenant. The amounts payable under
Paragraph 17.C.(iii) above by Landlord to Tenant shall be appropriately adjusted
on the basis of such audit. If such audit discloses a liability for refund by
Landlord to Tenant in excess of five percent (5%) of the payment made by Tenant
for the calendar year being audited,
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Landlord shall pay for the costs of the audit; otherwise, Tenant shall pay for
the cost of the audit. If Tenant fails to request an audit within the aforesaid
sixty (60) day period, Tenant shall be deemed to have waived its right to
request such amount.
D. COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Tenant shall, at its
----------------------------------------
cost, comply with, including the making by Tenant of any Alteration to the
Premises, all present and future regulations, rules, laws, ordinances, and
requirements of all governmental authorities (including, without limitation,
state, municipal, County and federal governments and their departments, bureaus,
boards and officials) arising from Tenant's use or occupancy of the Premises.
18. LIENS. Tenant shall keep the Premises and the Project free from
any liens arising out of any work performed, materials furnished or obligations
incurred by or on behalf of Tenant and shall indemnify, defend and hold Landlord
and Landlord's Agents harmless from all claims, costs and liabilities, including
attorneys' fees and costs, in connection with or arising out of any such lien or
claim of lien. Tenant shall cause any such lien imposed to be released of record
by payment or posting of a proper bond acceptable to Landlord within ten (10)
days after written request by Landlord. Tenant shall give Landlord written
notice of Tenant's intention to perform work on the Premises which might result
in any claim of lien at least ten (10) days prior to the commencement of such
work to enable Landlord to post and record a Notice of Nonresponsibility. If
Tenant fails to so remove any such lien within the prescribed ten (10) day
period, then Landlord may do so at Tenant's expense and Tenant shall reimburse
Landlord for such amounts upon demand. Such reimbursement shall include all
costs incurred by Landlord including Landlord's reasonable attorneys' fees with
interest thereon at the Interest Rate.
19. LANDLORD'S RIGHT TO ENTER THE PREMISES. Tenant shall permit Landlord
and Landlord's Agents to enter the Premises at all reasonable times upon no less
than twenty-four (24) hours notice, except for emergencies in which case no
notice shall be required, to inspect the same, to post Notices of
Nonresponsibility and similar notices, to show the Premises to interested
parties such as prospective lenders, to make necessary repairs, to discharge
Tenant's obligations hereunder when Tenant has failed to do so, and at any
reasonable time within one hundred and eighty (180) days prior to the expiration
or earlier termination of the Term, to place upon the Premises and/or the
Building ordinary "For Lease" signs and to show the Premises to prospective
tenants.
20. SIGNS. Subject to the provisions of this Paragraph 20, Tenant shall be
entitled to maintain a total of three (3) identification signs on the exterior
of the Premises. Tenant's exterior identification signs shall only be located at
the two main entrances to the Premises on Third Street and Perry Street, on the
yellow paneled areas on the exterior wall of the Premises, or on awnings
approved by Landlord which are mounted on the exterior wall of the Premises in
locations equipped for awnings. The size, design, color and other physical
aspects of all Tenant's exterior and interior signage shall be subject to the
Landlord's written approval prior to installation (which shall not be
unreasonably withheld), the CC&Rs, and any appropriate municipal or other
governmental approvals. The cost of all Tenant's signs, and their installation,
maintenance and removal expense shall be Tenant's sole expense. If Tenant fails
to maintain any
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of its signs, or, if Tenant fails to remove any of its sign upon termination of
this Lease, Landlord may do so at Tenant's expense and Tenant's reimbursement to
Landlord for such amounts shall be deemed Additional Rent.
21. INSURANCE.
A. TENANT'S INDEMNIFICATION. Tenant shall defend (with counsel
------------------------
reasonably satisfactory to the indemnified party), indemnify and save Landlord
and Landlord's partners, officers, directors, employees, and agents harmless
from and against any and all liens, claims, demands, actions, causes of action,
obligations, penalties, charges, liabilities, damages, losses, costs or
expenses, including reasonable attorneys' fees and costs and expenses of
litigation and appeal, arising from or connected with the conduct or management
of the business conducted by Tenant on the Premises, or from Tenant's use or
occupancy of the Premises or the Project, or from any breach or default on the
part of Tenant in the performance of any covenant or agreement on the part of
Tenant to be performed pursuant to the terms of this Lease, or from violation of
or noncompliance with any governmental requirements or insurance requirements by
Tenant or Tenant's agents, employees, contractors, subtenants, vendors, and
concessionaires, or from any negligent or willful acts or omissions of Tenant or
any person upon the Premises or the Project by license or invitation of Tenant
or occupying the Premises, or any part thereof, or the Project under Tenant,
including, without limitation, Tenant's agents, employees, contractors,
subtenants, vendors, and concessionaires. Tenant agrees that the obligations
assumed herein shall survive the termination or expiration of this Lease. The
foregoing indemnity shall not apply, however, to any claims, damage, loss,
liability or expense arising out of or in connection with the presence of any
Hazardous Materials in, on or about the Project as a result of the conduct of
Tenant or Tenant's Agents, which indemnity shall be governed solely by the
provisions of Paragraphs 11.D.(i) and (ii) above.
B. TENANT'S INSURANCE. Tenant agrees to maintain in full force and
------------------
effect at all times, at its own expense, for the protection of Tenant and
Landlord, as their interests may appear, policies of insurance issued by a
responsible carrier or carriers acceptable to Landlord which afford the
following coverages:
(i) Commercial general liability insurance in an amount not less
than Five Million and no/l00ths Dollars ($5,000,000.00) combined single limit
for both bodily injury and property damage which includes blanket contractual
liability broad form property damage, personal injury, completed operations and
products liability, naming Landlord as an additional insured.
(ii) "Special Form" property insurance (including, without
limitation, vandalism, malicious mischief, inflation endorsement, and sprinkler
leakage endorsement) on Tenant's Personal Property located on or in the
Premises. Such insurance shall be in the full amount of the replacement cost, as
the same may from time to time increase as a result of inflation or otherwise,
and shall be in a form providing coverage comparable to the coverage provided in
the standard ISO Special Form form. As long as this Lease is in effect, the
proceeds
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of such policy shall be used for the repair and replacement of such items so
insured. Landlord shall have no interest in the insurance proceeds on Tenant's
Personal Property.
C. PREMISES INSURANCE. Landlord shall at all times maintain "Special
------------------
Form" property insurance (including inflation endorsement, sprinkler leakage
endorsement and, at Landlord's option, boiler and machinery insurance,
earthquake and flood coverage) on the Building, excluding coverage of all
Tenant's Personal Property located on or in the Premises, but including the
Landlord's Work. Such insurance may also include insurance against loss of rents
on a "Special Form" basis, including, at Landlord's option, earthquake and
flood, in an amount equal to the Monthly Rent and Additional Rent, and any other
sums payable under the Lease, for a period of at least twelve (12) months
commencing on the date of loss. Such insurance shall name Landlord and
Landlord's Agents as named insureds and include a lender's loss payable
endorsement in favor of Landlord's lender (Form 438 BFU Endorsement). If the
Project insurance premiums are increased after the Commencement Date, due to an
increase in the value of the Building or its replacement cost, Tenant shall pay
Tenant's Percentage of such increase within ten (10) days of notice of such
increase. If such insurance premiums are increased due to Tenant's use of the
Premises, improvements installed by Tenant, or any other cause solely
attributable to Tenant, Tenant shall pay the full amount of the increase.
D. WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive all
---------------------
rights of recovery against the other on account of loss or damage occasioned to
such waiving party for its property or the property of others under its control
to the extent that such loss or damage is insured against under any insurance
policies which may be in force at the time of such loss or damage. Tenant and
Landlord shall, upon obtaining policies of insurance required hereunder, give
notice to the insurance carrier that the foregoing mutual waiver of subrogation
is contained in this Lease and Tenant and Landlord shall cause each insurance
policy obtained by such party to provide that the insurance company waives all
right of recovery by way of subrogation against either Landlord or Tenant in
connection with any damage covered by such policy.
E. INCREASED COVERAGE. Upon demand, Tenant shall provide Landlord, at
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Tenant's expense, with such increased amount of existing insurance, and such
other insurance as Landlord or Landlord's lender may reasonably require to
afford Landlord and Landlord's lender adequate protection.
F. CO-LNSURER. If, on account of the failure of Tenant to comply with
----------
the foregoing provisions, Landlord is adjudged a co-insurer by its insurance
carrier, then, any loss or damage Landlord shall sustain by reason thereof,
including attorneys' fees and costs, shall be borne by Tenant and shall be
immediately paid by Tenant upon receipt of a bill therefor and evidence of such
loss.
G. INSURANCE REQUIREMENTS. All insurance shall be in a form
-----------------------
satisfactory to Landlord and shall be carried with companies that have a general
policy holder's rating of not less than "A" and a financial rating of not less
than Class "X" in the most current edition of Best's Insurance Reports; shall
------------------------
provide that such policies shall not be subject to material alteration or
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cancellation except after at least thirty (30) days' prior written notice to
Landlord; and shall be primary as to Landlord. The policy or policies, or duly
executed certificates for them, together with satisfactory evidence of payment
of the premium thereon shall be deposited with Landlord prior to the
Commencement Date, and upon renewal of such policies, not less than thirty (30)
days prior to the expiration of the term of such coverage. If Tenant fails to
procure and maintain the insurance required hereunder, Landlord may, but shall
not be required to, order such insurance at Tenant's expense and Tenant shall
reimburse Landlord. Such reimbursement shall include all costs incurred by
Landlord including Landlord's reasonable attorneys' fees, with interest thereon
at the Interest Rate.
H. LANDLORD'S DISCLAIMER. Except to the extent specifically included
---------------------
in Landlord's indemnification obligations set forth in Paragraph 21.I. below,
Landlord and Landlord's Agents shall not be liable for any loss or damage to
persons or property resulting from fire, explosion, falling plaster, glass, tile
or sheetrock, steam, gas, electricity, water or rain which may leak from any
part of the Building or from the pipes, appliances or plumbing works therein or
from the roof, street or subsurface, or any other cause whatsoever. Tenant
shall give prompt written notice to Landlord in case of a casualty, accident or
repair needed in the Premises.
I. LANDLORD'S INDEMNIFICATION. Notwithstanding the provisions of
--------------------------
Paragraph 21.H. above to the contrary, Landlord shall defend (with counsel
reasonably satisfactory to the indemnified party), indemnify and save Tenant and
Tenant's partners, officers, directors, employees, and agents harmless from and
against any and all claims, damages, losses, liabilities or expenses, including,
without limitation, reasonable attorneys' fees and costs, relating to any injury
to persons or damage to property located on the Premises or within the Project
(but not for injury to, or interference with, the business of Tenant or Tenant's
partners, officers, directors, employees, or agents, or for consequential
damages), to the extent such injury or damage results from (a) the gross
negligence or willful misconduct of Landlord, its agents or employees or (b) any
default by Landlord in the performance of any of its obligations under this
Lease. Landlord agrees that the obligations assumed herein shall survive the
termination or earlier expiration of the Term. The foregoing indemnity shall not
apply, however, to any claims, damages, losses, liabilities or expenses which
result from any use, storage, treatment, transportation, release, or disposal of
Hazardous Materials by Landlord or Landlord's Agents in, on or about the
Premises or the Project in violation of any applicable Hazardous Materials Law,
any indemnity for such matters being governed solely by the provisions of
Paragraph 11.D. (vi) above.
22. DAMAGE OR DESTRUCTION.
A. LANDLORD TO REBUILD. If the Premises are damaged or destroyed by
-------------------
fire or other casualty insured under Landlord's casualty insurance carried under
Paragraph 21.C. then Landlord shall repair the damaged or destroyed portions of
the Premises, using reasonable diligence, unless Landlord elects to terminate
this Lease as hereinafter provided. If such damage or destruction substantially
interferes with the conduct of Tenant's business in the Premises, then
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a just part of the Monthly Rent shall be abated, to the extent of such
interference reasonably attributable to such damage or destruction, until
substantial completion of such repairs.
B. LANDLORD'S OPTIONS TO TERMINATE. If (i) twenty-five percent
-------------------------------
(25%) or more of the leasable area of the Building is damaged or destroyed by
fire or other casualty insured under Landlord's casualty insurance carried under
Paragraph 21.C. (notwithstanding that the Premises may sustain no material
damage), or (ii) the Building is damaged or destroyed by casualty so insured and
the cost of repair or replacement equals or exceeds twenty-five percent (25%) of
the actual replacement cost thereof, or (iii) the Premises cannot, with
reasonable diligence, be fully repaired by Landlord within one hundred eighty
(180) days after the date that the extent of the damage or destruction is
established by Landlord, or (iv) the Premises cannot be safely repaired because
of the presence of hazardous factors, including, but not limited to, earthquake
faults, radiation, chemical waste and other similar dangers, or (v) the Premises
and/or the Building, or any portion thereof, are damaged or destroyed in whole
or in part from any cause or casualty, and Landlord does not actually receive
insurance proceeds sufficient to fund the cost of repair and restoration
(excluding the amount of the deductible payable under Landlord's applicable
insurance policy or policies), then, in any such event, Landlord may elect, in
its sole discretion, to (a) repair or rebuild the damaged or destroyed portion
of the Premises or the Building, or (b) terminate this Lease by giving written
notice of such termination to Tenant. Landlord shall make its election within
thirty (30) days after any such damage or destruction. If Landlord elects to
repair or rebuild, then it shall proceed with reasonable diligence to make such
repairs or rebuilding. Unless Landlord elects to terminate this Lease
hereunder, any damage or destruction to the Premises and/or the Building shall
have no effect on this Lease and this Lease shall remain in full force and
effect, the parties waiving the provisions of any statute or law to the
contrary.
C. EXTENT OF LANDLORD'S REPAIR AND REBUILDING OBLIGATIONS. If
------------------------------------------------------
Landlord elects to repair and rebuild hereunder, then its obligation for such
repair and rebuilding shall be limited to a scope of work not exceeding the
original scope of work for the portions of the Premises and/or Building repaired
and reconstructed hereunder and Landlord's Work as set forth in EXHIBIT C.
----------
Landlord shall have sole control over all design and construction decisions with
respect to such repair and rebuilding. All costs and expenses for such repair
and rebuilding shall be borne by Landlord. If Landlord elects to repair and
rebuild hereunder, then Tenant shall forthwith replace or repair all of Tenant's
Work as set forth in EXHIBIT C, Tenant's signs, trade fixtures, equipment
---------
display cases and all other installations made or installed by Tenant under this
Lease, regardless of whether paid for by Landlord or Tenant. Tenant shall
prosecute its work of repair and reconstruction hereunder with all due diligence
and shall re-open for business in the Premises at the earliest possible time
after the event of damage or destruction, so that Landlord will be deprived of
the benefits of Tenant's business operations in the Premises for as short a time
as possible.
D. DAMAGE NEAR END OF TERM. In addition to its termination rights set
-----------------------
forth in Paragraph 22.B., Landlord shall have the right to terminate this Lease
if any damage to the Premises or the Building occurs during the last twelve (12)
months of the Term of this Lease or the last twelve (12) months of the Option
Period; provided, however, Landlord shall not be
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entitled to terminate this Lease as provided for in this Paragraph 22.D. if
either (i) prior to the occurrence of the damage to the Premises or the Building
Tenant has exercised the Option (as defined in Paragraph 4.B. above), or (ii)
such damage occurs prior to the time Tenant has exercised its Option and within
ten (10) days after Landlord exercises its termination right under this
Paragraph 22.D. Tenant properly and timely delivers its Option Notice exercising
the Option.
E. TENANT WAIVERS. Tenant hereby waives any right at law or in
--------------
equity which it might have to terminate this Lease on account of any damage or
destruction to the Premises and/or the Building, including all rights under
California Civil Code Sections 1932(2) and 1933(4), and any similar or successor
statutes. In the event of any such damage or destruction, the rights, duties
and obligations of the parties shall be governed solely by the applicable
provisions of this Lease with respect thereto.
F. TENANT'S TERMINATION RIGHT. Notwithstanding anything to the
--------------------------
contrary contained in this Paragraph 22, in the event that Landlord is obligated
or elects to repair or rebuild pursuant to this Paragraph 22 but is delayed in
completing such repairs and rebuilding as may be necessary to give Tenant
reasonable use of and access to the Premises and/or its exclusive use parking
spaces as described in Paragraph 37 below (or cannot be provided with suitable
replacement parking) by the date which is two hundred seventy (270) days after
Landlord commences the actual repairs and rebuilding, as that day may be
extended due to force majeure (as that term is defined in Paragraph 38.N.) or
delays caused by Tenant, its subtenants, employees, agents or contractors (such
date, as it may be extended, is referred to herein as the "Tenant Termination
Date"), then Tenant shall be entitled to terminate this Lease by giving written
notice to Landlord within ten (10) days after Tenant receives written notice
from Landlord establishing the Tenant Termination Date. In the event that
Tenant fails to give written notice of termination within such ten (10) day
period, then Tenant shall be deemed to have waived its right to terminate as
provided for in this Paragraph 22.F.
23. CONDEMNATION. If title to all of the Premises or Building or so much
thereof is taken for any public or quasi-public use under any statute or by
right of eminent domain so that reconstruction of the Premises or Building will
not, in Landlord's and Tenant's mutual opinion, result in the Premises being
reasonably suitable for Tenant's continued occupancy for the uses and purposes
permitted by this Lease, this Lease shall terminate as of the date that
possession of the Premises or Building or part thereof be taken, and Landlord
shall refund to Tenant any prepaid Rent allocable to the period following the
date of the taking. A sale by Landlord to any authority having the power of
eminent domain, either under threat of condemnation or while condemnation
proceedings are pending, shall be deemed a taking under the power of eminent
domain for all purposes of this paragraph.
If any part of the Premises is taken and the remaining part is
reasonably suitable for Tenant's continued occupancy for the purposes and uses
permitted by this Lease, this Lease shall, as to the part so taken, terminate as
of the date that possession of such part of the Premises is taken. The Rent and
other sums payable hereunder shall be reduced in the same proportion that
Tenant's use and occupancy of the Premises is reduced. If the parties disagree
as to the
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<PAGE>
amount of Rent reduction, the matter shall be resolved by arbitration and such
arbitration shall comply with and be governed by the California Arbitration Act,
Sections 1280 through 1294.2 of the California Code of Civil Procedure. Each
party hereby waives the provisions of Section 1265.130 of the California Code of
Civil Procedure allowing either party to petition the Superior Court to
terminate this Lease in the event of a partial taking of the Project or
Premises.
No award for any partial or entire taking shall be apportioned. Tenant
assigns to Landlord its interest in any award which may be made in such taking
or condemnation, together with any and all rights of Tenant arising in or to the
same or any part thereof. Nothing contained herein shall be deemed to give
Landlord any interest in or require Tenant to assign to Landlord any separate
award made to Tenant for the taking of (a) Tenant's Personal Property, (b) the
taking of Alterations to the Premises made by Tenant at its sole cost and
expense and which are, at the time of the taking, the property of Tenant, (c)
the interruption of Tenant's business, or (d) its moving costs.
24. ASSIGNMENT AND SUBLETTING.
A. LANDLORD CONSENT REQUIRED. Tenant shall not assign this Lease,
-------------------------
or any rights, duties or obligations hereunder, and Tenant shall not sublet all
or any portion of the Premises, without Landlord's prior written consent, which
shall not be unreasonably withheld or delayed, and then only upon and subject to
the terms and conditions hereinafter set forth. In considering any request for
consent to a proposed assignment or sublease, Landlord shall make its decision
based on the standards and criteria set forth in Paragraph 24.C. Prior to
effectuating any such assignment or sublease, Tenant shall notify Landlord in
writing of the name and address of the proposed assignee or sublessee, and
deliver to Landlord with such notice a true and complete copy of the proposed
assignment agreement or sublease, such other information or documents as may be
necessary or appropriate to enable Landlord to determine the qualifications of
the proposed assignee or sublessee and the compliance of such transaction with
the requirements of this Paragraph 24 and a request that Landlord consent
thereto. Within thirty (30) days after the receipt of such written notice,
Landlord shall either: (i) consent in writing to such proposed assignment or
sublease, subject to the terms and conditions hereinafter set forth; or (ii)
notify Tenant in writing that Landlord refuses such consent; or (iii) in the
event of an assignment terminate this Lease or in the event of a sublease
termination this Lease with respect to the portion of the Premises which Tenant
desires to sublease. Upon a termination as to the portion of the Premises
Tenant desires to sublease, the Monthly Rent then payable by Tenant to Landlord
hereunder shall be reduced in the proportion that the number of square feet of
such portion of the Premises bears to the total number of square feet of the
Premises then leased by Tenant under this Lease.
B. PAYMENT OF CONSIDERATION TO LANDLORD. If Landlord consents to any
------------------------------------
assignment or sublease hereunder, then Tenant shall pay to Landlord, immediately
upon Tenant's receipt thereof, any and all "consideration" (as defined below)
received by Tenant on account of such transaction, howsoever the same may be
denominated or characterized, to the extent that such consideration exceeds the
following: (a) in the case of subleases, the sum of the pro rata portion of the
Monthly Rent and other charges payable by Tenant hereunder attributable to the
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<PAGE>
sublet portion of the Premises, based on the square footage of the Premises and
the square footage of the sublet portion of the Premises, plus reasonable
attorneys' fees and reasonable leasing commissions paid by Tenant in connection
with the sublet; and (b) in the case of assignments, the sum of reasonable
attorneys' fees and reasonable commissions paid by Tenant in connection with the
assignment. As used herein, "consideration" includes any and all consideration
received by Tenant on account of such assignment or subletting, including,
without limitation, money, property, assumption of liabilities other than those
arising under this Lease, discounts, services, credits or any other item or
thing of value. Irrespective of the form of such consideration, Landlord shall
be entitled to be paid in cash in an amount equivalent to the aggregate of the
cash portion of the consideration and the value of any non-cash portion of the
consideration. In the event that any consideration is paid or given in
installments, Landlord shall receive each such installment at the time paid or
given.
C. PARAMETERS OF LANDLORD'S CONSENT. Landlord shall have the right
--------------------------------
to base its consent to any assignment or sublease hereunder upon such factors
and considerations as Landlord reasonably deems relevant or material to the
proposed assignment or sublease transaction and the best interest of the Project
operations. Without limiting the generality of the foregoing, Tenant
acknowledges that it shall be reasonable for Landlord to withhold its consent to
any assignment or sublease transaction hereunder if Tenant has not demonstrated
that: (i) the proposed assignee or sublessee is financially responsible, with
sufficient net worth and net current assets, properly and successfully to
operate its business in the Premises and meet the financial and other
obligations of this Lease; (ii) the proposed assignee or sublessee possesses
sound and good business judgment, reputation and experience, and proven
management skills in the operation of a business or businesses substantially
similar to the uses permitted in the Premises under Paragraph 11.A.; (iii) the
use of the Premises proposed by such assignee or sublessee is permitted under
the CC&Rs and applicable laws, statutes, zoning restrictions, redevelopment
plans, ordinances, or governmental rules, regulations, or requirements;
provided, however, in no event will Landlord be obligated to consent to a use
which would violate the provisions of Paragraph 11.C. of this Lease or a use
which includes the sale of liquor, beer, wine, or other alcoholic beverages; and
(iv) the assignment or sublease would not breach any covenant of Landlord
respecting radius, location, use or exclusively in any other lease, financing
agreement or other agreement relating to the Project or contained in this Lease.
D. OTHER TERMS AND CONDITIONS. Each assignment or sublease to which
--------------------------
Landlord consents shall be effected by an instrument in writing in form and
substance satisfactory to Landlord, and shall be executed by both Tenant and the
assignee or sublessee, as the case may be. One (1) executed copy of such
written instrument shall be delivered to Landlord concurrently with the
consummation of such assignment or sublease transaction. Each assignee or
sublessee in any assignment or sublease transaction hereunder shall agree in
such written instrument to assume and be bound by all of the terms, covenants,
conditions and obligations of this Lease. Every sublease shall be subject and
subordinate to the provisions of this Lease. If Landlord consents to an
assignment or sublease, Tenant shall remain liable for all its obligations and
liabilities under this Lease, including the payment of Rent. No consent by
Landlord to any modification, amendment or termination of this Lease, or
extension, waiver or modification of payment or any other obligations under this
Lease, or any other action of
24
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Landlord with respect to any assignee or sublessee, or the insolvency,
bankruptcy or default of any such assignee or sublessee, shall affect the
continuing liability of Tenant for its obligations and liabilities hereunder,
and Tenant waives any defense arising out of or based thereon. Tenant shall
reimburse Landlord for all costs and expenses incurred in connection with any
proposed assignment or sublease transaction hereunder, including attorneys' fees
and lease administration fees incurred by Landlord in connection with the
processing and documentation of any requested assignment or subletting,
regardless of whether such transaction is actually consummated; provided,
however, Tenant's obligation to reimburse Landlord for all such costs and
expenses shall not exceed One Thousand Dollars ($1,000.00) per each proposed
assignment or sublease transaction. Landlord may also require, as a condition of
any assignment or subletting, that Tenant not then be in default under this
Lease.
E. LANDLORD RIGHTS AND REMEDIES. Any assignment or sublease made
----------------------------
without Landlord's prior written consent hereunder shall, at Landlord's sole
election, be void and shall constitute a default by Tenant under this Lease and
Tenant shall have not be entitled to received notice thereof or have an
opportunity to cure such default. No consent to any assignment or sublease
shall constitute a waiver of the provisions of this Paragraph 24 with respect to
any subsequent assignment or sublease, and each assignment or sublease by Tenant
hereunder shall require Landlord's prior written consent pursuant to this
Paragraph 24. If Tenant purports to assign this Lease, or sublease all or any
portion of the Premises, or permit any person or persons other than Tenant to
occupy the Premises, without Landlord's prior written consent given hereunder,
Landlord may collect rent from the person or persons then or thereafter
occupying the Premises and apply the net amount collected to the Rent hereunder,
but no such collection shall be deemed a waiver of this Paragraph 24, or the
acceptance of any such purported assignee, sublessee or occupant, or a release
of Tenant from the further performance by Tenant of covenants on the part of
Tenant herein contained.
F. SCOPE OF ASSIGNMENT OR SUBLETTING. As used herein, an assignment
---------------------------------
or subletting includes the following: (i) if Tenant is a partnership, a
transfer, voluntary or involuntary, of all or any part of any interest in such
partnership, or the dissolution of the partnership, whether voluntary or
involuntary; (ii) if Tenant is a corporation, any dissolution, merger,
consolidation or other reorganization of Tenant, or the transfer, either by a
single transaction or in a series of transactions, of a controlling percentage
of the stock of Tenant, or the sale, by a single transaction of or series of
transaction, within any one (1) year period, of corporate assets equaling or
exceeding twenty percent (20%) of the total value of Tenant's assets, unless any
such corporate change results from the trading of shares listed on a recognized
public stock exchange and such trading is not for the purposes of acquiring
effective control of Tenant; (iii) if Tenant is a trust, the transfer,
voluntarily or involuntarily, of all or any part of the controlling interest in
such trust; and (iv) if Tenant is any other form of entity, a transfer,
voluntary or involuntary, of all or any part of any interest in such entity. As
used herein, the phrase "controlling percentage" or "controlling interest" means
the ownership of, and/or the right to vote, stock possessing at least fifty-one
percent (51%) of the total combined interests in Tenant, or voting power of all
classes of Tenant's capital stock issued, outstanding, and entitled to vote for
the election of directors.
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G. PERMITTED SUBLET. Notwithstanding the foregoing to the contrary,
----------------
Tenant may, without obtaining Landlord's prior consent, sublet up to but not
exceeding two thousand five hundred (2,500) square feet of the Premises to one
sublessee ("Permitted Sublet"). However, the foregoing Permitted Sublet shall be
exempt from the requirement of Landlord's consent only if all of the following
conditions shall be met: (i) the use which shall be made of the sublease
premises shall be a use which is permitted under the CC&Rs and applicable law,
statute, zoning restriction, redevelopment plan, ordinance or governmental law,
rule, regulation or requirement; provided, however, in no event shall the use of
the sublease premises (a) be a use which would violate the provisions of
Paragraph 11.C., or (b) include the sale of liquor, beer, wine or other
alcoholic beverages; (ii) the Permitted Sublet would not result in a breach of
any covenant or agreement of Tenant under this Lease; (iii) the Permitted Sublet
would not breach any covenant of Landlord respecting radius, location, use or
exclusivity in any other lease of, or financing agreement relating to, the
Project, or contained in this Lease; (iv) Tenant shall have provided to Landlord
all information to allow Landlord to determine, and Landlord shall have
determined, that the proposed sublet is a Permitted Sublet which is exempt from
the requirement of Landlord's consent; and (v) Tenant shall have provided
Landlord with a fully executed copy of a written sublease agreement for the
Permitted Sublet. No sublet of the type described in this Paragraph 24.G. shall
release Tenant of its obligations under this Lease.
H. PERMITTED AFFILIATE TRANSFER. Notwithstanding the foregoing to
----------------------------
the contrary, Tenant may, without obtaining Landlord's prior consent, assign all
of its interest in this Lease or sublet the entire Premises to (a) any entity
which controls, is controlled by, or is under common control with, Tenant, or
(b) any entity into which Tenant may merge or consolidate (each transfer
described above hereinafter referred to as a "Permitted Affiliate Transfer").
However, a Permitted Affiliate Transfer shall be exempt from the requirement of
Landlord's consent only if all of the following conditions are met: (i) any
transferee under a Permitted Affiliate Transfer shall have a net worth equal to
or greater than that of Tenant as of the date of the Permitted Affiliate
Transfer; (ii) the use proposed to be conducted in the Premises by the
transferee under a Permitted Affiliate Transfer shall be the same as the use
permitted under the Lease; (iii) the tenancy of the transferee under the
Permitted Affiliate Transfer would not result in a breach of any covenant or
agreement of Tenant under this Lease; (iv) the tenancy of the transferee under
the Permitted Affiliate Transfer would not breach any covenant of Landlord
respecting radius, location, use or exclusivity in any other lease of, or
financing agreement relating to, the Project, or contained in this Lease; (v)
Tenant shall have provided to Landlord all information to allow Landlord to
determine, and Landlord shall have determined, that the proposed assignment or
sublease is a Permitted Affiliate Transfer which is exempt from the requirement
of Landlord's consent; and (vi) Tenant shall have provided Landlord with a fully
executed copy of a written assignment or sublease agreement, and any such
assignment agreement shall provide that the assignee thereunder assumes for the
benefit of Landlord all of Tenant's obligations under the Lease, and any
sublease agreement shall contain a provision directing the sublessee to pay the
rent and other sums due thereunder directly to Landlord upon receiving written
notice from Landlord that Tenant is in default under the Lease with respect to
the payment of Rent. Any Permitted Affiliate Transfer shall in no way release
Tenant of any of its obligations under this Lease. As used in this Paragraph
24.H. "control", "controls", or "controlled" shall mean the possession, direct
or indirect, of the power to direct or cause the
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direction of the management and policies of an entity, and the ownership,
directly or indirectly, of the majority of the ownership interests in an entity.
I. ENCUMBRANCES. Tenant shall not encumber, hypothecate or transfer
------------
as security (whether by conditional assignment or sublease, or otherwise) this
Lease, or any Tenant's rights, duties or obligations hereunder.
25. DEFAULT.
A. TENANT'S DEFAULT. A default under this Lease by Tenant shall exist
----------------
if any of the following occurs:
(i) If Tenant fails to pay Rent or any other sum required to be
paid hereunder within ten (10) days of the date due; or
(ii) If Tenant fails to perform any term, covenant or condition of
this Lease except those requiring the payment of money and except for those
obligations for which default thereof is separately provided for in other
subparagraphs of this paragraph 25.A., and Tenant fails to cure such breach
within thirty (30) days after written notice from Landlord where such breach
could reasonably be cured within such thirty (30) day period; provided, however,
that where such failure could not reasonably be cured within the thirty (30) day
period, that Tenant shall not be in default if it commences such cure within the
thirty (30) day period and thereafter diligently prosecutes same to completion,
which completion shall occur not later than ninety (90) days from the date of
receipt of written notice from Landlord; or
(iii) Failure of Tenant to execute and deliver to Landlord any
estoppel certificate, subordination agreement, or lease amendment within the
time periods and in the manner required by Paragraph 29 or 26 or 36,
respectively; or
(iv) An assignment or attempted assignment of this Lease by Tenant
contrary to the provisions of Paragraph 24, or a sublease or attempted sublease
of the Premises by Tenant contrary to the provision of Paragraph 24; or
(v) If Tenant assigns its assets for the benefit of its creditors;
or
(vi) If the sequestration or attachment of or execution on any
material part of Tenant's Personal Property essential to the conduct of Tenant's
business occurs, and Tenant fails to obtain a return or release of such Personal
Property within thirty (30) days thereafter, or prior to sale pursuant to such
sequestration, attachment or levy, whichever is earlier; or
(vii) If Tenant fails to continuously or uninterruptedly conduct
its business in the Premises, or shall have abandoned or vacated the Premises;
provided, however, Tenant shall not be in default hereunder pursuant to the
provisions of this Paragraph 25A(vii) if
27
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Tenant ceases conducting its business in the Premises or vacates the Premises
for no more than sixty (60) consecutive or non-consecutive days during the Term
of this Lease; or
(viii) If a court makes or enters any decree or order other than
under the bankruptcy laws of the United States adjudging Tenant to be insolvent;
or approving as properly filed a petition seeking reorganization of Tenant; or
directing the winding up or liquidation of Tenant and such decree or order shall
have continued for a period of thirty (30) days.
B. REMEDIES. Upon a default, Landlord shall have the following
--------
remedies, in addition to all other rights and remedies provided by law or
otherwise provided in this Lease, to which Landlord may resort cumulatively or
in the alternative:
(i) Landlord may continue this Lease in full force and effect,
and this Lease shall continue in full force and effect as long as Landlord does
not terminate this Lease, and Landlord shall have the right to collect Rent when
due.
(ii) Landlord may terminate Tenant's right to possession of the
Premises at any time by giving written notice to that effect, and relet the
Premises or any part thereof. Tenant shall be liable immediately to Landlord for
all costs Landlord incurs in reletting the Premises or any part thereof,
including, without limitation, broker's commissions, expenses of cleaning and
redecorating the Premises required by the reletting and like costs. Reletting
may be for a period shorter or longer than the remaining term of this Lease. No
act by Landlord other than giving written notice to Tenant shall terminate this
Lease. Acts of maintenance, efforts to relet the Premises or the appointment of
a receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession. On
termination, Landlord has the right to remove all Tenant's Personal Property and
store the same at Tenant's cost and to recover from Tenant as damages:
(a) The worth at the time of award of unpaid Rent and other
sums due and payable which had been earned at the time of termination; plus
(b) The worth at the time of award of the amount by which the
unpaid Rent and other sums due and payable which would have been payable after
termination until the time of award exceeds the amount of such Rent loss that
Tenant prove could have been reasonably avoided; plus
(c) The worth at the time of award of the amount by which the
unpaid Rent and other sums due and payable for the balance of the Term after the
time of award exceeds the amount of such Rent loss that Tenant proves could be
reasonably avoided; plus
(d) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform Tenant's
obligations under this Lease, or which, in the ordinary course of things, would
be likely to result therefrom, including, without limitation, any costs or
expenses incurred by Landlord: (i) in retaking possession of the Premises; (ii)
in maintaining, repairing, preserving, restoring, replacing, cleaning, altering
or
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rehabilitating the Premises or any portion thereof, including such acts for
reletting to a new tenant or tenants; (iii) for leasing commissions; or (iv) for
any other costs necessary or appropriate to relet the Premises; plus
(e) At Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted from time to time by the laws of
the State of California.
The "worth at the time of award" of the amounts referred to in
Paragraphs 25.B.(ii)(a) and 25.B.(ii)(b) is computed by allowing interest at the
Interest Rate on the unpaid rent and other sums due and payable from the
termination date through the date of award. The "worth at the time of award" of
the amount referred to in Paragraph 25.B.(ii)(c) is computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). Tenant waives redemption or relief from
forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or
under any other present or future law, in the event Tenant is evicted or
Landlord takes possession of the Premises by reason of any default of Tenant
hereunder.
(iii) Landlord may, with or without terminating this Lease, re-
enter the Premises and remove all persons and property from the Premises; such
property may be removed and stored in a public warehouse or elsewhere at the
cost of and for the account of Tenant. No re-entry or taking possession of the
Premises by Landlord pursuant to this paragraph shall be construed as an
election to terminate this Lease unless a written notice of such intention is
given to Tenant.
C. BANKRUPTCY.
----------
(i) The commencement of a bankruptcy action or liquidation action
or reorganization action or insolvency action or an assignment of or by Tenant
for the benefit of creditors, or any similar action undertaken by Tenant, or the
insolvency of Tenant, shall, at Landlord's option, constitute a breach of this
Lease by Tenant. If the trustee or receiver appointed to serve during a
bankruptcy, liquidation, reorganization, insolvency or similar action elects to
reject Tenant's unexpired Lease, the trustee or receiver shall notify Landlord
in writing of its election within thirty (30) days after an order for relief in
a liquidation action or within thirty (30) days after the commencement of any
action.
(ii) Within thirty (30) days after court approval of the
assumption of this Lease, the trustee or receiver shall cure (or provide
adequate assurance to the reasonable satisfaction of Landlord that the trustee
or receiver shall cure) any and all previous defaults under the unexpired Lease
and shall compensate Landlord for all actual pecuniary loss resulting from
Tenant's breach of this Lease, including any attorneys' fees and costs incurred
by Landlord as a result of such breach and/or the bankruptcy proceedings
instituted by or against Tenant, and shall provide adequate assurance of future
performance under the Lease to the reasonable satisfaction of Landlord. Adequate
assurance of future performance, as used herein, includes, but shall not be
limited to: (i) assurance of source and payment of Rent, and other consideration
due under this
29
<PAGE>
Lease; (ii) assurance that the assumption or assignment of this Lease will not
breach any provision, such as radius, location, use, or exclusivity provision,
in any other lease of space within the Project.
(iii) Nothing contained in this section shall affect the right of
Landlord to refuse to accept an assignment upon commencement of or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors or other similar act. Nothing
contained in this Lease shall be construed as giving or granting or creating an
equity in the Premises to Tenant. In no event shall the leasehold estate under
this Lease, or any interest therein, be assigned by voluntary or involuntary
bankruptcy proceeding without the prior written consent of Landlord. In no event
shall this Lease or any rights or privileges hereunder be an asset of Tenant
under any bankruptcy, insolvency or reorganization proceedings.
D. LANDLORD'S DEFAULT. Landlord shall not be deemed to be in default
------------------
in the performance of any obligation required to be performed by it hereunder
unless and until it has failed to perform such obligation within thirty (30)
days after receipt of written notice by Tenant to Landlord specifying the nature
of such default; provided, however, that if the nature of Landlord's obligation
is such that more than thirty (30) days are required for its performance, then
Landlord shall not be deemed to be in default if it shall commence such
performance within such thirty (30) day period and thereafter diligently
prosecute the same to completion.
26. SUBORDINATION. This Lease is subject and subordinate to mortgages and
deeds of trust (collectively "Encumbrances") which may now affect the Building
or the Project, to the CC&Rs and to all renewals, modifications, consolidations,
replacements and extensions thereof; provided, however, if the holder or holders
of any such Encumbrance ("Holder") shall require that this Lease be prior and
superior thereto, Tenant shall, within seven (7) days after written request from
Landlord, execute, have acknowledged and deliver any and all reasonable
documents or instruments, which Landlord or Holder deems necessary or desirable
for such purposes. In the event that the deed of trust which currently encumbers
the Project ("Existing Deed of Trust") is not fully reconveyed by the
beneficiary thereunder within one hundred twenty (120) days after the latest
date of execution of this Lease by either Landlord or Tenant, then Landlord
shall exercise commercially reasonable efforts to obtain, within thirty (30)
days after the expiration of the aforesaid one hundred twenty (120) period, from
the beneficiary under the Existing Deed of Trust a non-disturbance agreement in
favor of Tenant on such beneficiary's standard subordination, non-disturbance
and attornment agreement form. Landlord shall have the right to cause this Lease
to be and become and remain subject and subordinate to any and all Encumbrances
which may hereafter be executed covering the Building or the Project or any
renewals, modifications, consolidations, replacements or extensions thereof, for
the full amount of all advances made or to be made thereunder and without regard
to the time or character of such advances, together with interest thereon and
subject to all the terms and provisions thereof; provided only, that upon the
foreclosure of any such Encumbrances so long as Tenant is not in default, Holder
agrees to recognize Tenant's rights under this Lease as long as Tenant shall pay
the Rent and observe and perform all the provisions of this Lease to be observed
and performed by Tenant. Within ten (10) days after Landlord's written request,
Tenant shall execute any and all
30
<PAGE>
documents required by Landlord or the Holder to make this Lease subordinate to
any lien of the Encumbrance provided that Holder agrees in writing to recognize
Tenant's rights under this Lease as long as Tenant shall pay the Rent and
observe and perform all the provisions of this Lease to be observed and
performed by Tenant. If Tenant fails to do so, it shall be deemed that this
Lease is subordinated. Notwithstanding anything to the contrary set forth in
this paragraph, Tenant hereby attorns and agrees to attorn to any entity
purchasing or otherwise acquiring the Building or the Project at any sale or
other proceeding or pursuant to the exercise of any other rights, powers or
remedies under such Encumbrance, provided that Holder agrees to recognize
Tenant's rights under this Lease so long as Tenant is not in default hereunder.
27. NOTICES. Any notice or demand required or desired to be given under
this Lease shall be in writing and shall be personally served or in lieu of
personal service may be given by mail. If given by mail, such notice shall be
deemed to have been given when seventy-two (72) hours have elapsed from the time
when such notice was deposited in the United States mail, registered or
certified, and postage prepaid, addressed to the party to be served. At the date
of execution of this Lease, the addresses of Landlord and Tenant are as set
forth in Paragraph 1. After the Commencement Date, the address of Tenant shall
be the address of the Premises. Either party may change its address by giving
notice of same in accordance with this paragraph.
28. ATTORNEYS' FEES. If either party brings any action or legal proceeding
for damages for an alleged breach of any provision of this Lease, to recover
rent, or other sums due, to terminate the tenancy of the Premises or to enforce,
protect or establish any term, condition or covenant of this Lease or right of
either party, the prevailing party shall be entitled to recover as a part of
such action or proceedings, or in a separate action brought for that purpose,
reasonable attorneys' fees and costs.
29. ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS. Tenant shall within ten
(10) days following written request by Landlord:
(i) Execute and deliver to Landlord any documents, including estoppel
certificates, in the form prepared 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, and (b) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord, or, if there are
uncured defaults on the part of the Landlord, stating the nature of such uncured
defaults, and (c) evidencing the status of the Lease as may be required either
by a lender making a loan to Landlord to be secured by deed of trust or mortgage
covering the Building or the Project or a purchaser of the Building or the
Project from Landlord. Tenant's failure to deliver an estoppel certificate
within ten (10) days after delivery of Landlord's written request therefor shall
be conclusive upon Tenant (a) that this Lease is in full force and effect,
without modification except as may be represented by Landlord, (b) that there
are now no uncured defaults in Landlord's performance and (c) that no Rent has
been paid in advance. If Tenant fails to so deliver a requested estoppel
certificate within the prescribed time it shall be conclusively presumed that
the Lease is unmodified and in full force and effect except as represented by
Landlord.
31
<PAGE>
(ii) Deliver to Landlord the current financial statements of Tenant,
and financial statements of the two (2) years prior to the current financial
statements year, with an opinion of a certified public accountant (or if such
statements are not audited, then such statements shall be certified by Tenant's
chief financial officer as being true and correct in all respects), including a
balance sheet and profit and loss statement for the most recent prior year, all
prepared in accordance with generally accepted accounting principles
consistently applied.
30. TRANSFER OF THE BUILDING OR PROJECT BY LANDLORD. In the event of any
conveyance of the Building and/or the Project and assignment by Landlord of this
Lease, Landlord shall be and is hereby entirely released from all liability
under any and all of its covenants and obligations contained in or derived from
this Lease occurring after the date of such conveyance and assignment and Tenant
agrees to attorn to such transferee provided such transferee assumes Landlord's
obligations under this Lease.
31. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS. If Tenant shall at any
time fail to make any payment or perform any other act on its part to be made or
performed under this Lease, Landlord may, but shall not be obligated to and
without waiving or releasing Tenant from any obligation of Tenant under this
Lease, upon written notice to Tenant, make such payment or perform such other
act to the extent Landlord may deem desirable, and in connection therewith, pay
expenses and employ counsel. All sums so paid by Landlord and all penalties,
interest and costs in connection therewith shall be due and payable by Tenant on
the next day after any such payment by Landlord, together with interest thereon
at the Interest Rate from such date to the date of payment by Tenant to
Landlord, plus collection costs and attorneys' fees. Landlord shall have the
same rights and remedies for the nonpayment thereof as in the case of default in
the payment of Rent.
32. LIMITATION OF LIABILITY. Landlord shall never be personally liable
under this Lease; Tenant shall look solely to Landlord's interest in the Project
for any recovery of damages for any default by Landlord under this Lease, or any
recovery of any judgment against Landlord. None of the members comprising
Landlord (whether partners, shareholders, officers, directors, trustees,
employees, beneficiaries or otherwise) shall ever be personally liable for any
such damages or judgment. There shall be no levy of execution against any assets
of Landlord, other than the Project, or the assets of such members on account of
any liability of Landlord hereunder. Tenant hereby waives any right of recovery
or satisfaction of any judgment against Landlord or its members (whether
partners, shareholders, officers, directors, trustees, employees, beneficiaries
or otherwise), except as to Landlord's interest in the Project as herein
specified.
33. MORTGAGEE PROTECTION. If Landlord defaults under this Lease, Tenant
will notify any beneficiary of a deed of trust or mortgagee of a mortgage
covering the Building or the Project for which Landlord has provided Tenant with
a name and address, and offer such beneficiary or mortgagee a reasonable
opportunity to cure the default, including time to obtain possession of the
Building or the Project by power of sale or a judicial foreclosure, if such
should prove necessary to effect a cure.
32
<PAGE>
34. BROKERS. Landlord and Tenant warrant and represent each to the other
that it has had no dealings with any real estate broker or agent in connection
with the negotiation of this Lease, except for Edward Plant Company, Inc. and
Cooper/Brady Corporate Real Estate Services, and that it knows of no other real
estate broker or agent who is or might be entitled to a commission in connection
with this Lease. Landlord and Tenant agree to indemnify, defend and hold each
other and their respective agents harmless from and against any and all
liabilities or expenses, including attorneys' fees and costs, arising out of or
in connection with claims made by any broker or individual against the
indemnified party for commissions or fees in connection with the execution of
this Lease and resulting from the actions of the indemnifying party.
35. ACCEPTANCE. This Lease shall only become effective and binding upon
full execution hereof by Landlord and delivery of a signed copy to Tenant.
Neither party shall record this Lease nor a short form memorandum thereof.
36. MODIFICATION FOR LENDER. If in connection with obtaining financing for
the Project or any portion thereof, Landlord's lender shall request reasonable
modifications to this Lease as a condition to such financing, and which
modifications do not materially adversely affect Tenant's rights or obligations
hereunder, then Tenant shall execute an amendment to this Lease setting forth
such modifications within ten (10) days after written request therefor by
Landlord.
37. PARKING. During the Term and any extensions thereof into the Option
Period, Tenant shall have the right to use twenty-five (25) reserved parking
spaces in the parking facility for the Project. The location of such spaces
shall be determined by Landlord and shall be subject to change from time to time
as may be required by Landlord or the operator of the parking facility. In
making use of its reserved parking spaces and the parking facility Tenant shall
comply with all rules and regulations which may be promulgated from time to time
by Landlord and/or the operator of the parking facility.
38. GENERAL.
A. CAPTIONS. The captions and headings used in this Lease are for the
--------
purpose of convenience only and shall not be construed to limit or extend the
meaning of any part of this Lease.
B. EXECUTED COPY. Any fully executed copy of this Lease shall be
-------------
deemed an original for all purposes.
C. TIME. Time is of the essence for the performance of each term,
----
condition and covenant of this Lease.
D. SEPARABILITY. If one or more of the provisions contained herein,
------------
except for the payment of Rent, is for any reason held invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision of this Lease, but
33
<PAGE>
this Lease shall be construed as if such invalid, illegal or unenforceable
provision had not been contained herein.
E. CHOICE OF LAW. This Lease shall be construed and enforced in
-------------
accordance with the substantive laws of the State of California. The language in
all parts of this Lease shall in all cases be construed as a whole according to
its fair meaning and not strictly for or against either Landlord or Tenant.
F. GENDER; SINGULAR, PLURAL. When the context of this Lease requires,
------------------------
the neuter gender includes the masculine, the feminine, a partnership or
corporation or joint venture, and the singular includes the plural.
G. BINDING EFFECT. The covenants and agreement contained in this
--------------
Lease shall be binding on the parties hereto and on their respective heirs,
successors and assigns to the extent this Lease is assignable.
H. WAIVER. The waiver by Landlord or Tenant of any breach of any
------
term, condition or covenant, of this Lease by the other shall not be deemed to
be a waiver of such provision or any subsequent breach of the same or any other
term, condition or covenant of this Lease. The subsequent acceptance of Rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding breach
at the time of acceptance of such payment. No covenant, term or condition of
this Lease shall be deemed to have been waived by Landlord or Tenant unless such
waiver is in writing signed by the waiving party.
I. ENTIRE AGREEMENT. This Lease is the entire agreement between the
----------------
parties, and there are no agreements or representations between the parties
except as expressed herein. Except as otherwise provided herein, no subsequent
change or addition to this Lease shall be binding unless in writing and signed
by the parties hereto.
J. AUTHORITY. If Tenant is a corporation or a partnership, each
---------
individual executing this Lease on behalf of said corporation or partnership, as
the case may be, represents and warrants that he is duly authorized to execute
and deliver this Lease on behalf of said entity in accordance with its corporate
bylaws, statement of partnership or certificate of limited partnership, as the
case may be, and that this Lease is binding upon said entity in accordance with
its terms. Landlord, at its option, may require a copy of such written
authorization to enter into this Lease.
K. EXHIBITS. All exhibits, amendments, riders and addenda attached
--------
hereto are hereby incorporated herein and made a part hereof.
L. RULES AND REGULATIONS. Landlord shall have the right to establish
---------------------
from time to time such reasonable rules and regulations as Landlord shall deem
appropriate for the protection of the Project.
34
<PAGE>
M. DAYS OF WEEK. If the date upon which any act is to be performed or
------------
notice is to be delivered under this Lease shall fall upon a Saturday, Sunday or
legal holiday, such act or notice shall be timely if performed or delivered on
the next business day.
N. FORCE MAJEURE. The performance of any obligation to be performed
-------------
by Landlord and Tenant under this Lease, excluding, however, the obligation to
pay Rent or any other sum payable to Landlord by Tenant, shall be excused for
any period during which either party is prevented from performing such
obligation due to causes beyond such parties control, including without
limitation, strikes, lockouts or other labor disturbance or labor dispute,
governmental regulation, moratorium or other governmental action, civil
disturbance, war, war-like operations, invasions, rebellion, hostilities,
sabotage, fires or other casualty, rain, flooding, hailstorms, lightning,
earthquake, or other acts of God (collectively, "force majeure"). Landlord and
Tenant each agree to (i) provide written notice to the other if Landlord or
Tenant is unable to perform any obligation imposed upon such party hereunder
within the time period required, if such inability to perform is due to force
majeure. and (ii) use reasonable efforts to mitigate the effects of force
majeure on the timely performance of such obligation.
O. ACCESS. Subject to the effects (i) the occurrence of a force
------
majeure (as that term is defined in Paragraph 38.N. above), (ii) damage to,
destruction of, or condemnation of the Premises, (iii) any other matters beyond
the reasonable control of Landlord, and (iv) any applicable laws, statutes,
zoning restrictions, redevelopment plans, ordinances, or governmental rules,
regulations, or requirements, Tenant and Tenant's employees, contractors, and
customers may have access to the Premises every day of the week, 24 hours per
day. Landlord shall have no liability under this Lease if Tenant or its
employees, contractors, or customers are unable to have access to the Premises
during the times provided in the immediately preceding sentence for any reason
other than Landlord's gross negligence or willful misconduct.
This Lease is effective as of the date the last signatory necessary to
execute the Lease shall have executed this Lease.
TENANT LANDLORD
- ------ --------
BEST INTERNET COMMUNICATIONS, INC. AMB PROPERTIES II, L.P.,
a California corporation a California limited partnership
By: Third and Harrison, LLC,
By: ______________________________ a California limited liability
company
Its: _____________________________ By: AMB Development, Inc.
a California corporation,
Date: __________, 1997 its general partner
By: ________________________
Luis A. Belmonte,
President
Date: ___________, 1997
35
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 (File
No. 333-56527) of our reports dated May 27, 1998 on our audits of the
consolidated financial statements and financial statement schedule of Hiway
Technologies, Inc. We also consent to the references to us under the headings
"Experts" and "Selected Consolidated Financial Data" in such Prospectus.
PricewaterhouseCoopers LLP
San Jose, California
July 19, 1998
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1998
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<PERIOD-END> DEC-31-1996 DEC-31-1997 JUN-30-1998
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<SECURITIES> 0 0 0
<RECEIVABLES> 1,753 3,622 4,292
<ALLOWANCES> (373) (1,072) (940)
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<CURRENT-ASSETS> 3,276 9,056 9,645
<PP&E> 5,499 10,763 16,095
<DEPRECIATION> (686) (2,057) (2,969)
<TOTAL-ASSETS> 9,539 19,467 24,863
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<LOSS-PROVISION> 687 1,525 1,128
<INTEREST-EXPENSE> (118) (142) (179)
<INCOME-PRETAX> 665 4,796 2,099
<INCOME-TAX> 1 361 99
<INCOME-CONTINUING> 664 4,435 2,000
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