<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 16, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
AT HOME CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7370 77-0408542
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
----------------
425 BROADWAY STREET
REDWOOD CITY, CALIFORNIA 94063
(415) 569-5000
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
KENNETH A. GOLDMAN
CHIEF FINANCIAL OFFICER
AT HOME CORPORATION
425 BROADWAY
REDWOOD CITY, CALIFORNIA 94063
(415) 569-5000
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
----------------
COPIES TO:
<TABLE>
<S> <C>
GORDON K. DAVIDSON, ESQ. LARRY W. SONSINI, ESQ.
LAIRD H. SIMONS III, ESQ. ALLEN L. MORGAN, ESQ.
JEFFERY L. DONOVAN, ESQ. DAVID C. DRUMMOND, ESQ.
DOROTHY L. HINES, ESQ. TREVOR J. CHAPLICK, ESQ.
FENWICK & WEST LLP PAUL R. TOBIAS, ESQ.
TWO PALO ALTO SQUARE WILSON SONSINI GOODRICH & ROSATI,
PALO ALTO, CALIFORNIA 94306 PROFESSIONAL CORPORATION
(415) 494-0600 650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
(415) 493-9300
</TABLE>
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series A Common Stock,
$.01 par value per
share................. 9,200,000 shs. $7.00 $64,400,000 $19,516
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Includes 1,200,000 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 amount of the registration fee.
----------------
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of Prospectus: (i) one to be
used in connection with the Company's initial public offering of its Series A
Common Stock in the United States and Canada (the "U.S. Prospectus") and (ii)
one to be used in a concurrent offering outside the United States and Canada
(the "International Prospectus"). The U.S. and International Prospectuses are
identical in all material respects except for the front cover page. The form
of U.S. Prospectus is included herein and the U.S. Prospectus cover page is
followed by the alternate cover page to be used in the International
Prospectus. The alternate cover page for the International Prospectus included
herein is labeled "Alternate Page for International Prospectus." Final forms
of the U.S. Prospectus and the International Prospectus will be filed with the
Securities and Exchange Commission under Rule 424(b).
<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 JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE +
+SECURITIES LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued May 16, 1997
Shares
[LOGO OF @HOME NETWORK]
At Home Corporation
SERIES A COMMON STOCK
----------
OF THE SHARES OF SERIES A COMMON STOCK OFFERED HEREBY, SHARES ARE BEING
OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS, AND
SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA
BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." ALL OF THE SHARES OF
SERIES A COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. PRIOR TO
THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE SERIES A COMMON STOCK
OF THE COMPANY. THE COMPANY HAS THREE SERIES OF COMMON STOCK: SERIES A COMMON
STOCK, SERIES B COMMON STOCK AND SERIES K COMMON STOCK (COLLECTIVELY, THE
"COMMON STOCK"). THE SHARES OF COMMON STOCK ARE SUBSTANTIALLY IDENTICAL,
EXCEPT THAT (I) HOLDERS OF SERIES A AND SERIES K COMMON STOCK ARE ENTITLED
TO ONE VOTE PER SHARE, AND HOLDERS OF SERIES B COMMON STOCK ARE ENTITLED TO
TEN VOTES PER SHARE, ON ALL MATTERS SUBMITTED TO A VOTE OF STOCKHOLDERS,
(II) THE HOLDERS OF SERIES A COMMON STOCK VOTE SEPARATELY AS A SERIES TO
ELECT TWO DIRECTORS WHO ARE NOT OFFICERS OR EMPLOYEES OF THE COMPANY AND
ARE NOT AFFILIATES OR ASSOCIATES OF TELE-COMMUNICATIONS, INC. ("TCI"),
COMCAST CORPORATION ("COMCAST") OR COX COMMUNICATIONS, INC. ("COX"),
(III) THE HOLDERS OF SERIES B COMMON STOCK VOTE SEPARATELY AS A SERIES TO
ELECT FIVE DIRECTORS, OF WHICH, PURSUANT TO A STOCKHOLDERS' AGREEMENT,
THREE ARE TO BE DESIGNATED BY TCI, ONE IS TO BE DESIGNATED BY COMCAST
AND ONE IS TO BE DESIGNATED BY COX, AND (IV) THE HOLDERS OF SERIES K
COMMON STOCK VOTE SEPARATELY AS A SERIES TO ELECT ONE DIRECTOR. EACH
SHARE OF SERIES B AND SERIES K COMMON STOCK IS CONVERTIBLE AT THE
OPTION OF THE HOLDER INTO ONE SHARE OF SERIES A COMMON STOCK.
IMMEDIATELY FOLLOWING THE COMPLETION OF THIS OFFERING, TCI WILL OWN
ALL OF THE SERIES B COMMON STOCK AND WILL HAVE APPROXIMATELY % OF
THE COMBINED VOTING POWER OF THE OUTSTANDING COMMON STOCK (ASSUMING
NO EXERCISE OF THE OVER-ALLOTMENT OPTION GRANTED TO THE U.S.
UNDERWRITERS). THEREFORE, TCI WILL HAVE THE ABILITY TO CONTROL MOST
SIGNIFICANT MATTERS REQUIRING STOCKHOLDER APPROVAL, INCLUDING THE
ELECTION OF A MAJORITY OF THE COMPANY'S DIRECTORS, SUBJECT TO
CERTAIN SUPERMAJORITY APPROVAL RIGHTS HELD BY COMCAST AND COX. SEE
"PRINCIPAL STOCKHOLDERS" AND "DESCRIPTION OF CAPITAL STOCK." IT IS
CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE
BETWEEN $ AND $ PER SHARE. SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE
INITIAL PUBLIC OFFERING PRICE. APPLICATION HAS BEEN MADE TO HAVE
THE SERIES A COMMON STOCK APPROVED FOR QUOTATION ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "ATHM."
----------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON
PAGE 6 HEREOF.
----------
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.
----------
PRICE $ A SHARE
----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Share................................... $ $ $
Total (3)................................... $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses of the offering payable by the Company
estimated at $ .
(3) The Company has granted the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
additional Shares at the price to public less underwriting discounts and
commissions, for the purpose of covering over-allotments, if any. If the
U.S. Underwriters exercise such option in full, the total price to
public, underwriting discounts and commissions, and proceeds to Company
will be $ , $ and $ , respectively. See "Underwriters."
----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the
Underwriters. It is expected that delivery of the Shares will be made on or
about , 1997 at the office of Morgan Stanley & Co. Incorporated, New York,
N.Y., against payment therefor in immediately available funds.
----------
The activities of the Managers are being jointly organized.
MORGAN STANLEY & CO. MERRILL LYNCH & CO.
Incorporated
----------
ALEX. BROWN & SONS HAMBRECHT & QUIST
INCORPORATED
, 1997
<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 JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE +
+SECURITIES LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[Alternate Page for International Prospectus]
PROSPECTUS (Subject to Completion)
Issued May 16, 1997
Shares
[LOGO OF @HOME NETWORK]
At Home Corporation
SERIES A COMMON STOCK
----------
OF THE SHARES OF SERIES A COMMON STOCK OFFERED HEREBY, SHARES ARE BEING
OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS, AND SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES
AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS." ALL OF THE SHARES OF
SERIES A COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. PRIOR TO
THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE SERIES A COMMON STOCK
OF THE COMPANY. THE COMPANY HAS THREE SERIES OF COMMON STOCK: SERIES A
COMMON STOCK, SERIES B COMMON STOCK AND SERIES K COMMON STOCK
(COLLECTIVELY, THE "COMMON STOCK"). THE SHARES OF COMMON STOCK ARE
SUBSTANTIALLY IDENTICAL, EXCEPT THAT (I) HOLDERS OF SERIES A AND SERIES K
COMMON STOCK ARE ENTITLED TO ONE VOTE PER SHARE, AND HOLDERS OF SERIES B
COMMON STOCK ARE ENTITLED TO TEN VOTES PER SHARE, ON ALL MATTERS
SUBMITTED TO A VOTE OF STOCKHOLDERS, (II) THE HOLDERS OF SERIES A COMMON
STOCK VOTE SEPARATELY AS A SERIES TO ELECT TWO DIRECTORS WHO ARE NOT
OFFICERS OR EMPLOYEES OF THE COMPANY AND ARE NOT AFFILIATES OR
ASSOCIATES OF TELE-COMMUNICATIONS, INC. ("TCI"), COMCAST CORPORATION
("COMCAST") OR COX COMMUNICATIONS, INC. ("COX"), (III) THE HOLDERS OF
SERIES B COMMON STOCK VOTE SEPARATELY AS A SERIES TO ELECT FIVE
DIRECTORS, OF WHICH, PURSUANT TO A STOCKHOLDERS' AGREEMENT, THREE ARE
TO BE DESIGNATED BY TCI, ONE IS TO BE DESIGNATED BY COMCAST AND ONE
IS TO BE DESIGNATED BY COX AND (IV) THE HOLDERS OF SERIES K COMMON
STOCK VOTE SEPARATELY AS A SERIES TO ELECT ONE DIRECTOR. EACH SHARE
OF SERIES B AND SERIES K COMMON STOCK IS CONVERTIBLE AT THE OPTION
OF THE HOLDER INTO ONE SHARE OF SERIES A COMMON STOCK. IMMEDIATELY
FOLLOWING THE COMPLETION OF THIS OFFERING, TCI WILL OWN ALL OF THE
SERIES B COMMON STOCK AND WILL HAVE APPROXIMATELY % OF THE
COMBINED VOTING POWER OF THE OUTSTANDING COMMON STOCK (ASSUMING NO
EXERCISE OF THE OVER-ALLOTMENT OPTION GRANTED TO THE U.S.
UNDERWRITERS). THEREFORE, TCI WILL HAVE THE ABILITY TO CONTROL
MOST SIGNIFICANT MATTERS REQUIRING STOCKHOLDER APPROVAL,
INCLUDING THE ELECTION OF A MAJORITY OF THE COMPANY'S DIRECTORS,
SUBJECT TO CERTAIN SUPERMAJORITY APPROVAL RIGHTS HELD BY
COMCAST AND COX. SEE "PRINCIPAL STOCKHOLDERS" AND "DESCRIPTION
OF CAPITAL STOCK." IT IS CURRENTLY ESTIMATED THAT THE INITIAL
PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND $ PER SHARE.
SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE
CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
APPLICATION HAS BEEN MADE TO HAVE THE SERIES A COMMON STOCK
APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET UNDER
THE SYMBOL "ATHM."
----------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON
PAGE 6 HEREOF.
----------
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.
----------
PRICE $ A SHARE
----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Share................................... $ $ $
Total (3)................................... $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses of the offering payable by the Company
estimated at $ .
(3) The Company has granted the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
additional Shares at the price to public less underwriting discounts and
commissions, for the purpose of covering over-allotments, if any. If the
U.S. Underwriters exercise such option in full, the total price to
public, underwriting discounts and commissions, and proceeds to Company
will be $ , $ and $ , respectively. See "Underwriters."
----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the
Underwriters. It is expected that delivery of the Shares will be made on or
about , 1997 at the office of Morgan Stanley & Co. Incorporated, New York,
N.Y., against payment therefor in immediately available funds.
----------
The activities of the Managers are being jointly organized.
MORGAN STANLEY & CO. MERRILL LYNCH INTERNATIONAL
International
----------
ALEX. BROWN INTERNATIONAL HAMBRECHT & QUIST
, 1997
<PAGE>
INSIDE GATE-FOLD
[PICTURE TO COME]
<PAGE>
GATE FOLD TWO
[COLOR TO COME]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and notes thereto
appearing elsewhere in this Prospectus. Except as otherwise noted herein,
information in this Prospectus (i) assumes no exercise of the U.S.
Underwriters' over-allotment option, (ii) includes the April 1997 Series C
Preferred Stock financing as though it had occurred as of March 31, 1997 and
(iii) assumes the conversion of all outstanding shares of Preferred Stock of
the Company into shares of Common Stock of the Company, which will occur upon
the closing of this offering. The number of shares of Common Stock shown as
outstanding throughout the Prospectus assumes no adjustment to the number of
shares of Series A Common Stock issuable upon conversion of the Series C
Preferred Stock since any such assumption would be arbitrary prior to the
determination of an estimated price range or initial public offering price per
share.
THE COMPANY
@Home Corporation (the "Company") is a leading provider of Internet services
over the cable television infrastructure to consumers and businesses. The
Company's primary offering, the @Home service, allows subscribers to connect
their personal computers via cable modems to a new high-speed "parallel
Internet" developed and managed by the Company. This service enables
subscribers to receive the "@Home Experience," which includes Internet service
at a peak data transmission speed over 300 times faster than typical dial-up
connections, "always on" availability and rich multimedia programming through
an intuitive graphical user interface. The technology foundation of the @Home
Experience is the Company's scalable, distributed, intelligent network
architecture (the "@Network"), which optimizes traffic routing, improves
security and consistency of service, and facilitates end-to-end network
management, enhancing the Company's ability to address performance bottlenecks
before they affect the user experience. The content foundation of the @Home
Experience is provided by the Company's @Media division, which aggregates
content, sells advertising to businesses and will provide premium services to
@Home subscribers. For businesses, the Company's @Work services provide a
platform for Internet, intranet and extranet connectivity solutions and
networked business applications over both cable infrastructure and leased
digital telecommunications lines. By combining @Network's distributed
architecture with cable, telephone and technology relationships, the @Work
services provide a compelling platform for nationwide delivery of network-based
business applications. The Company has developed this platform at a low
incremental cost by leveraging @Network investment.
The Company has entered into distribution arrangements for the @Home service
with TCI, Comcast, Cox, Rogers Cablesystems Limited ("Rogers"), Shaw
Cablesystems Ltd. ("Shaw"), Marcus Cable Operating Company, L.P. ("Marcus") and
InterMedia Partners IV L.P. ("Intermedia"), whose cable systems pass
approximately 44 million homes in North America and who have been upgrading
these systems to two-way hybrid fiber coaxial cable. The Company has launched
its service through TCI, Comcast and Cox in portions of 12 cities and
communities (of which 10 have revenue-paying subscribers) in the United States.
To expand distribution, the Company is aggressively seeking to work with
additional United States and international cable system operators. In order to
shorten time to market for cable operators, the Company provides a turnkey
solution, which includes not only technology platform, but also marketing,
customer service, billing and a national brand. According to Paul Kagan
Associates, Inc., cable is available to 97% of the homes in the United States,
and, according to Baskerville Communications, there will be approximately 203
million homes passed in Europe and the Asia Pacific region in the year 2000.
The Company was founded in March 1995 on the premise that the cable
infrastructure could enable the fastest, most cost-effective delivery mechanism
for residential Internet services but that the actual speed of these services
would ultimately be limited by the fundamental architecture of the Internet. As
a result, the Company assembled a team of industry experts to develop an
advanced network architecture and the custom hardware and software products
that would address these limitations. Prior to launching the @Home service in
September 1996, the Company implemented a nationwide backbone, designed and
built its Network Operations Center with 24X7 end-to-end management
capabilities, deployed regional data centers and headend equipment, implemented
an integrated customer management system including billing and support,
implemented a customized browser and aggregated the initial multimedia content
required to deliver the @Home Experience to its first subscribers.
3
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Total Common Stock outstanding prior to this offering... 108,603,587 Shares(1)
Series A Common Stock offered:
U.S. offering.......................................... Shares
International offering................................. Shares
Total................................................ Shares
Common Stock to be outstanding after this offering:
Series A Common Stock outstanding after this offering.. Shares(1)
Series B Common Stock outstanding after this offering.. 15,400,000 shares
Series K Common Stock outstanding after this offering.. 14,877,660 shares
Total................................................ shares
Use of proceeds......................................... For general corporate
purposes, including
working capital and
capital expenditures.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol.................. ATHM
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS
MARCH 28, 1995 ENDED
(INCEPTION) TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -----------------
1995 1996 1996 1997
-------------- ------------ ------- --------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues....................... $ -- $ 676 $ -- $ 806
Total costs and expenses....... 2,886 25,703 3,794 11,747
Loss from operations........... (2,886) (25,027) (3,794) (10,941)
Net loss....................... (2,756) (24,513) (3,710) (10,901)
Pro forma net loss per
share(2)...................... $ $
======== ========
Pro forma shares used in per
share calculations(2).........
======== ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(3)(4)
------- ------------ -----------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
cash investments..................... $ 6,427 $54,427 $
Working capital (deficit)............. (2,335) 45,665
Total assets.......................... 26,878 74,878
Capital lease obligations, less
current portion, and other long-term
liabilities.......................... 8,085 8,085
Stockholders' equity.................. 7,670 55,670
</TABLE>
- -------
(1) Based on the number of shares outstanding as of March 31, 1997. Excludes
(i) 919,250 Shares of Series A Common Stock then issuable upon the exercise
of options outstanding under the Company's 1996 Incentive Stock Option Plan
(the "First 1996 Plan") and the Company's 1996 Incentive Stock Option Plan
No. 2 (the "Second 1996 Plan" and with the First 1996 Plan, the "1996
Plans") with a weighted average exercise price of $.21 per share, (ii)
1,349,423 additional Shares of Series A Common Stock reserved for issuance
under the Company's 1997 Equity Incentive Plan, (iii) 400,000 Shares
reserved for issuance under the Company's 1997 Employee Stock Purchase Plan
(the "Purchase Plan") and (iv) 200,000 Shares of Series A Common Stock
issuable upon the exercise of outstanding warrants with an exercise price
of $ . Subsequent to March 31, 1997, the Company (i) issued and sold
240,000 shares of its Series C Preferred Stock at a price of $200 per
share, which will convert upon the closing of this offering into Shares
of Series A Common Stock, (ii) issued warrants to purchase, commencing
December 31, 1997, 100,000 shares of its Series C Preferred Stock at a
price of $200 per share, which will convert upon the closing of this
offering into warrants to purchase 2,000,000 Shares of Series A Common
Stock at a purchase price of $ per share, and (iii) granted options to
purchase 183,000 Shares of Series A Common Stock under the 1996 Plans with
an exercise price of $1.00 per share. See "Management--Employee Benefit
Plans," "Description of Capital Stock" and Notes 5 and 10 of Notes to
Consolidated Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of pro forma shares used in per share
calculations.
(3) Reflects the gross proceeds from the sale on April 11, 1997 of 240,000
shares of the Company's Convertible Series C Preferred Stock at a price of
$200 per share.
(4) Reflects the sale of the Shares of Series A Common Stock offered hereby
at an assumed initial public offering price of $ per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses. See "Use of Proceeds" and "Capitalization."
4
<PAGE>
THE COMPANY
The Company is a leading provider of Internet services over the cable
television infrastructure to consumers and businesses. The Company's primary
offering, the @Home service, allows subscribers to connect their personal
computers via cable modems to a new high-speed "parallel Internet" developed
and managed by the Company. This service enables subscribers to receive the
"@Home Experience," which includes Internet service at a peak data
transmission speed over 300 times faster than typical dial-up connections,
"always on" availability and rich multimedia programming through an intuitive
graphical user interface. The technology foundation of the @Home Experience is
the @Network, which optimizes traffic routing, improves security and
consistency of service, and facilitates end-to-end network management,
enhancing the Company's ability to address performance bottlenecks before they
affect the user experience. The content foundation of the @Home Experience is
provided by the Company's @Media division, which aggregates content, sells
advertising to businesses and will provide premium services to @Home
subscribers.
The Company has entered into distribution arrangements for the @Home service
with TCI, Comcast, Cox, Rogers, Shaw, Marcus and Intermedia (collectively,
together with their affiliates, the "Cable Partners"), whose cable systems
pass approximately 44 million homes in North America and which have been
upgrading these systems to two-way hybrid fiber coaxial cable. The Company has
launched its service through TCI, Comcast and Cox in portions of 12 cities and
communities (of which 10 have revenue-paying subscribers) in the United
States. To expand distribution, the Company is aggressively seeking to work
with additional United States and international cable system operators. In
order to shorten time to market for cable operators, the Company provides a
turnkey solution, which includes not only a technology platform, but also
marketing, customer service billing and a national brand. According to Paul
Kagan Associates, Inc., cable is available to 97% of the homes in the United
States, and, according to Baskerville Communications, there will be
approximately 203 million homes passed in Europe and the Asia Pacific region
in the year 2000.
For businesses, @Work services provide a platform for Internet, intranet and
extranet connectivity solutions and networked business applications over both
cable infrastructure and leased digital telecommunications lines. In order to
accelerate deployment of @Work services into major metropolitan areas, the
Company has established a strategic relationship with Teleport Communications
Group Inc. ("TCG"), the country's largest competitive local exchange carrier,
to provide co-location facilities and local telephone circuits for
infrastructure and subscriber connectivity. By combining @Network's
distributed architecture with cable, telephone and technology relationships,
the @Work services provide a compelling platform for nationwide delivery of
network-based business applications. The Company has developed this platform
at a low incremental cost by leveraging its existing @Network investment.
Forrester Research projects that United States business Internet access
revenues will climb from $595 million in 1996 to $10.4 billion in 2000.
The Internet has emerged as a global communications medium enabling millions
of people to share information and conduct business electronically. Much of
the potential of the Internet remains unfulfilled due to problems with its
performance and reliability. These limitations stem from its basic
architecture, which is not optimized for distribution of data-intensive
multimedia content. As a network of hundreds of interconnected, separately
administered public and commercial networks, problems with any element in the
Internet can result in performance bottlenecks slowing data transmission speed
to that of the weakest link. A variety of new technologies are being explored
to address the performance and reliability problems encountered by users of
the Internet. However, each of these new approaches focuses on increasing the
speed of transmission along the "last-mile" connection to the user, rather
than the fundamental architectural performance problems of the Internet.
The Company was founded in March 1995 on the premise that the cable
infrastructure would enable the fastest, most cost-effective delivery
mechanism for residential Internet services but the actual speed of these
services would ultimately be limited by the fundamental architecture of the
Internet. As a result, the Company assembled a team of industry experts to
develop an advanced network architecture and the custom hardware and software
products that would address these limitations. Prior to launching the @Home
service in September 1996, the Company implemented a nationwide backbone,
designed and built its Network Operations Center with 24X7 end-to-end
management capabilities, deployed regional data centers and headend equipment,
implemented an integrated customer management system including billing and
support, implemented a customized browser and aggregated the multimedia
content required to deliver the @Home Experience to its first subscribers.
The Company was incorporated in Delaware in March 1995. The Company's
executive offices are located at 425 Broadway Street, Redwood City, California
94063. Its telephone number at that location is (415) 569-5000 and its Web
site address is http://www.home.net. Information contained in the Company's
Web site is not part of this Prospectus.
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RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Series A Common Stock offered hereby. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from the results discussed in such
forward-looking statements. Factors that may cause such a difference include,
but are not limited to, those discussed below and in the sections entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
Short Operating History; History of Losses; Unproven Business Model; No
Assurance of Profitability. The Company was incorporated in March 1995,
commenced operations in August 1995 and has incurred substantial net losses in
each fiscal period since its inception. As of March 31, 1997, the Company had
an accumulated deficit of $38.2 million. In addition, the Company currently
intends to increase its capital expenditures and operating expenses in order
to expand its network to support additional expected subscribers in existing
and future markets and to market and provide the Company's services to a
growing number of potential subscribers. As a result, the Company expects to
incur additional substantial operating and net losses for the foreseeable
future. The profit potential of the Company's business model is unproven, and,
to be successful, the Company must, among other things, develop and market
products and services that are widely accepted by consumers and businesses at
prices that will yield a profit. The Company's @Home service has only recently
been launched in portions of 12 cities and communities (of which 10 have
revenue-paying subscribers) in the United States, and there can be no
assurance that it will achieve broad consumer or commercial acceptance.
Currently, the Company has only approximately 5,000 subscribers to its @Home
service in these areas. Because it is a consumer service, the success of the
Company's @Home service will depend upon the willingness of subscribers to pay
the monthly fees and installation costs of the @Home service, both of which
are set by local cable system operators ("Affiliated LCOs") affiliated with
the Cable Partners and not by the Company. The @Home service is currently
priced at a premium to many other online services, and there can be no
assurance that large numbers of subscribers will be willing to pay a premium
for the @Home service. Accordingly, it is difficult to predict whether the
Company's pricing model will prove to be viable, whether demand for the
Company's services will materialize at the prices it expects the Affiliated
LCOs to charge or whether current or future pricing levels will be
sustainable. If such pricing levels are not achieved or sustained or if the
Company's services do not achieve or sustain broad market acceptance, the
Company's business, operating results and financial condition will be
materially adversely affected. The Company's ability to generate future
revenues will be dependent on a number of factors, many of which are beyond
the Company's control, including, among others, the rate at which its cable
partners upgrade their cable infrastructures, the success of the Affiliated
LCOs in marketing the @Home service to subscribers in their local cable areas
and the prices that the Affiliated LCOs set for the @Home service. Because of
the foregoing factors, among others, the Company is unable to forecast its
revenues with any degree of accuracy. There can also be no assurance that the
Company will ever achieve profitability. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Strategy."
Potential Fluctuations in Quarterly Operating Results. The Company's
quarterly operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside the Company's
control. Factors that may affect the Company's quarterly operating results
attributable to its @Home service include the timing of Cable Partners'
upgrades of their cable infrastructures and rollouts of the @Home service, the
rate at which customers subscribe to the Company's Internet services and the
prices subscribers pay for such services, subscriber churn rates, changes in
the revenue splits between the Company and the Cable Partners, the demand for
Internet advertising, the effectiveness of Affiliated LCOs' marketing and
other operations, and potential competition with Affiliated LCOs for
advertising revenue. Quarterly operating results attributable to the Company's
@Work services are dependent on the timing of Cable Partners' upgrades of
their cable infrastructures and rollouts of the @Home service, the demand for,
and level of acceptance of, the Company's corporate Internet, intranet and
extranet connectivity and telecommuting solutions and the introduction of,
demand for, and level of acceptance of, the Company's value-added business
applications. Additional factors that may affect the Company's quarterly
operating results generally include the amount and timing of capital
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expenditures and other costs relating to the expansion of the Company's
network, the introduction of new Internet and telecommuting services by the
Company or its competitors, price competition or pricing changes in the
Internet, cable and telecommuting industries, technical difficulties or
network downtime, general economic conditions and economic conditions specific
to the Internet, Internet media, corporate intranet and cable industries. The
Company operates with very little backlog, and quarterly sales and operating
results are difficult to forecast even in the short term. There can be delays
in the commencement and recognition of revenue because the installation of
telecommunication lines to implement certain services has lead times that are
controlled by third parties. A significant portion of the Company's expenses
are fixed in advance based in large part on future revenue forecasts. If
revenue is below expectations in any given quarter, the adverse impact of the
shortfall on the Company's operating results may be magnified by the Company's
inability to adjust spending to compensate for the shortfall. Therefore, a
shortfall in actual as compared to estimated revenue would have an immediate
adverse effect on the Company's business, financial condition and operating
results that could be material. In addition, the Company plans to increase
operating expenses to fund additional research and development, sales and
marketing, general and administrative activities and infrastructure. To the
extent that these expenses are not accompanied by an increase in revenues, the
Company's business, operating results and financial condition could be
materially affected. Due to all of the foregoing factors, it is likely that
the Company's operating results in one or more future quarters will fail to
meet or exceed the expectations of securities analysts or investors. In such
event, the trading price of the Series A Common Stock would likely be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Control by TCI; Veto Power of Other Principal Stockholders. The purchasers
of Series A Common Stock in this offering will have little influence over
management decisions concerning the Company. Following this offering, TCI will
control approximately % of the voting power of the Company and will have
the power to elect a majority of the members of the Company's Board of
Directors (the "Board") and the power to control all matters requiring the
approval of the holders of the Company's Common Stock voting together as a
single class. TCI owns all of the Series B Common Stock, which carries ten
votes per share and has the right under the Company's Certificate of
Incorporation to elect five directors (the "Series B Common Stock Directors"),
of which, pursuant to a Stockholders' Agreement, three are to be designated by
TCI, one is to be designated by Comcast and one is to be designated by Cox.
All actions of the Board must be approved by a majority of the Series B Common
Stock Directors as well as by a majority of the entire Board. So long as TCI
owns at least 7,700,000 shares of Series B Common Stock and a majority of the
voting power of the Company, TCI will have the power to increase the size of
the Board and elect a majority of the Board at any time without a meeting of
the stockholders. Accordingly, TCI will have the power to control the Company
and to make decisions concerning the operations of the Company, even if the
interests of TCI and other stockholders differ. TCI's control of the Company
is subject only to fiduciary duties under Delaware law and certain
restrictions in the Company's Certificate of Incorporation. These restrictions
require that certain significant corporate actions (such as amendments to the
Company's Certificate of Incorporation or a merger of the Company and certain
other business matters) may be taken only if such actions are approved by a
supermajority or, in certain cases, unanimous vote of the directors designated
by TCI, Comcast, Cox (collectively, the "Principal Cable Stockholders") and
KPCB. Accordingly, any two (or in some cases any one) of the three directors
designated by Comcast, Cox and KPCB will have the ability to veto certain
corporate actions and can prevent the Company from taking certain actions
favored by stockholders holding a majority of the voting power in the Company.
See "Management--Board Composition and Procedures," "Certain Transactions" and
"Description of Capital Stock."
Dependence on Cable Partners for Distribution; Potential Conflicts of
Interest with Principal Cable Stockholders. The Cable Partners are expected to
provide through certain of their cable systems the principal distribution
network for the Company's services to the Company's subscribers (the majority
of whom are expected to be subscribers to such Cable Partners' cable
television services) and will share the revenue from the @Home services that
are derived from such subscribers. Given the contractual and business
relationships between the Cable Partners and the Company, the interests of the
Cable Partners may not always coincide with the interests of the Company, and
conflicts of interest concerning the split of revenues and other matters exist
between the Company and the Principal Cable Stockholders, who control the
Company. There can be no
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assurance that transactions between the Company and the Cable Partners will be
on arm's-length terms, particularly for transactions with the Principal Cable
Stockholders, or that the Company could not have obtained more favorable terms
in negotiations with unaffiliated third parties. The Board, which is
controlled by TCI, has the power to approve transactions in which the
Principal Cable Stockholders have an interest, including a change in revenue
splits in favor of the Principal Cable Stockholders. As a result of certain
contractual "most favored nation" provisions (the "MFN"), which provide that
the cable affiliates of the Principal Cable Stockholders are entitled to
distribution arrangements at least as favorable as those obtained by any other
cable system operator, the Principal Cable Stockholders could determine to
cause the Company to approve more favorable distribution arrangements,
including more favorable revenue splits, for one or more cable affiliates in
order to receive more favorable distribution arrangements for their respective
cable affiliates by virtue of the MFN. See "Management--Board Composition and
Procedures."
The economic and other terms of the amended and restated master distribution
agreement pursuant to which the Principal Cable Stockholders distribute the
Company's services ("Master Distribution Agreement") may be less favorable to
the Company than those that could have been negotiated had the Company been
independent of the Principal Cable Stockholders. Because the Company does not
yet have a significant number of subscribers, it is not yet possible to
determine whether the revenue splits and the other economic aspects of the
distribution of the Company's services will be sufficiently attractive to
encourage a sufficient number of cable system operators to enter into
distribution agreements with the Company, or to encourage cable system
operators, including the Principal Cable Stockholders, to incur the
substantial capital expenditures required to upgrade their cable systems to a
two-way hybrid fiber-coaxial ("HFC") cable infrastructure and to roll out and
vigorously promote the @Home service. Because of their control of the Company,
the Principal Cable Stockholders will have the power to change any of the
terms of distribution, including the revenue splits with the Company. In
addition, Affiliated LCOs are permitted to assume certain customer service
functions that are initially to be performed by the Company, and the Principal
Cable Stockholders are permitted to make related expense adjustments or
adjustments to the revenue splits based upon the level of customer and network
service to be provided by each of the Principal Cable Stockholders and the
Company. The Principal Cable Stockholders control the Company and effectively
determine and can subsequently change the rollout schedule of the @Home
service. Moreover, the Principal Cable Stockholders and Rogers and Shaw have
certain priority rights with respect to the rollout schedule of the @Home
service. This priority could adversely affect the Company because the Company
may be required to roll out its services to the Principal Cable Stockholders
and Rogers and Shaw, and their respective Affiliated LCOs, before rolling out
the services to other cable system operators, even though such other cable
system operators may be ready to roll out the @Home service sooner or on terms
more favorable for the Company than the Principal Cable Stockholders and
Rogers and Shaw, and their respective Affiliated LCOs. See "Business--
Strategic Distribution Relationships--Strategic Relationships with Cable
Partners" and "Certain Transactions."
Each Principal Cable Stockholder has the right to exclude the promotion of a
limited number of specified national content providers from the @Home service
offered through such Principal Cable Stockholder's cable systems, subject to
an adjustment in the split of premium service revenues between the Principal
Cable Stockholder and the Company. In addition, a Principal Cable Stockholder
has the right to block access to certain content, including streaming video
segments of more than ten minutes in duration, and the Company is obligated to
use its best efforts to block such access. The Company is obligated to use
reasonable best efforts to consult with and involve each of the Principal
Cable Stockholders in the development of requirements for and design of
enhancements, new features and new applications of the @Home service and
coordinate with respect to the introduction of such enhancements, features and
applications that could have a significant effect on the cable operations of a
Principal Cable Stockholder. If Principal Cable Stockholders representing a
majority of the residential subscribers who subscribe to the @Home service via
affiliated LCOs of the Principal Cable Stockholders object to such
enhancement, feature or application, the Company has agreed not to implement
such enhancement, feature or application in the territories of objecting
Principal Cable Stockholders. See "Certain Transactions--Certain Business
Relationships."
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No Obligation of Principal Cable Stockholders to Carry the Company's
Services; Limitations on Exclusivity. Although the Principal Cable Stockholders
and their Affiliated LCOs are prohibited from obtaining high-speed (greater
than 128 Kbps) residential consumer Internet services from any source other
than the Company, the Principal Cable Stockholders are under no affirmative
obligation to carry any of the Company's services. In addition, the Principal
Cable Stockholders' and their Affiliated LCOs' exclusivity obligations in favor
of the Company expire on June 4, 2002, and may be terminated sooner under the
following circumstances: (i) Comcast may terminate its own exclusivity
obligations upon its election after June 4, 1999 if it permits a portion of its
equity in the Company to be repurchased by the Company at Comcast's original
cost; (ii) Comcast or Cox may terminate all Principal Cable Stockholders'
exclusivity obligations at any time if there is a change of control of TCI or
after June 4, 1999 if certain subscriber penetration requirements for the @Home
services are not met by TCI and its affiliates; (iii) the Principal Cable
Stockholders may terminate all exclusivity obligations upon a change in law
that materially impairs certain of the Principal Cable Stockholders' rights;
and (iv) any Affiliated LCO may terminate its exclusivity obligations if the
Company fails to roll out the @Home service in such operator's territory by the
deadlines set forth in the rollout schedules. The exclusivity obligations of
the Principal Cable Stockholders in the Master Distribution Agreement also are
subject to exceptions that would permit the Principal Cable Stockholders and
their affiliates to engage in certain activities which could compete, directly
or indirectly, with the activities of the Company; for example, each Principal
Cable Stockholder and its affiliates is permitted to (i) engage in any business
other than the provision of high-speed residential consumer Internet services,
including competing with the Company's @Work operations, (ii) maintain voting
equity interests of 10% or less in public companies that do directly compete
with the Company's @Home service and related Internet backbone connectivity
services, (iii) acquire an interest in any business that competes with the
Company's high-speed residential consumer Internet services (so long as the
competitive business is not such entity's primary business and subject to a
limited obligation to divest the competing business on reasonable terms, such
divestiture subject to a right of first refusal by the Company), (iv) acquire
equity securities that are registered under the Securities Exchange Act of
1934, as amended, of an entity that competes with the Company, provided that
the Principal Cable Stockholder does not control (or is not under common
control) with such entity, and (v) operate a competing business in any cable
system territory where the exclusivity obligations to the Company have been
terminated. The Principal Cable Stockholders' exclusivity obligations do not
apply to (i) the creation or aggregation of content, (ii) the provision of
telephony services, (iii) the provision of services that are primarily work-
related, such as @Work services, (iv) the provision of Internet services that
do not use the cable television plant, (v) the provision of any local Internet
service that does not require use of an Internet backbone outside a single
metropolitan area, (vi) the provision of services that are utilized primarily
to connect students to schools, colleges or universities, (vii) the provision
of Internet telephony, Internet video telephony or Internet video conferencing,
(viii) the provision of certain limited Internet services primarily intended
for display on a television, (ix) the provision of certain Internet services
that are primarily downstream services where the user cannot send upstream
commands in real-time, (x) the provision of streaming video services that
include video segments longer than ten minutes in duration or (xi) limited
testing, trials and similar activities of less than six months. Until the later
of such time as the applicable Principal Cable Stockholder ceases to be
obligated under the exclusivity provisions set forth above or, if the
exclusivity provisions are terminated by reason of TCI's failure to meet
specified subscriber penetration requirements, June 4, 2002, the Company has
agreed (i) not to offer or provide Internet services at data transmission
speeds greater than 128 Kbps to residences in any geographic area served by the
cable systems of a Principal Cable Stockholder that remains in compliance with
the exclusivity provisions without regard to whether the "Restricted Period,"
as defined in the agreement, has ended as to such Principal Cable Stockholder
(the "Exclusive Territory") and (ii) not to offer, provide, distribute,
advertise, promote or market (or carry or otherwise distribute advertising or
promotions with respect to) any streaming video transmissions that include
video segments longer than ten minutes in duration or any other Internet
service that is not a "Restricted Business," as defined in the agreement, to
residences in the Exclusive Territory of a Principal Cable Stockholder without
its prior written consent. Moreover, no assurance can be given that the Company
will have access to the cable infrastructures of the Principal Cable
Stockholders or other Cable Partners for such services, and the Company must
negotiate a separate agreement with the Principal Cable Stockholders for each
portion of such services that the Company seeks to provide over their cable
infrastructures. Any such denial of access or exclusion could have a material
adverse effect on the Company's
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business, operating results and financial condition. See "Business--Strategic
Distribution Relationships--Strategic Relationships with Principal Cable
Partners" and "Certain Transactions."
Dependence on Cable Partners to Develop, Upgrade and Maintain Two-Way Cable
Infrastructure. Transmission of the @Home service over cable is dependent on
the availability of high-speed two-way HFC cable infrastructure. However, only
a small portion of existing cable plant in the United States has been upgraded
to HFC cable and even less is capable of high-speed two-way transmission. The
Cable Partners and other cable system operators have announced and begun to
implement major infrastructure investments in order to deploy two-way HFC
cable. However, cable system operators have limited experience with these
upgrades, and these investments have placed a significant strain on the
financial, managerial, operating and other resources of the Cable Partners and
other cable system operators, most of which are already highly leveraged, and
thus have been, and the Company expects will continue to be, subject to change,
delay or cancellation. Although the Company's commercial success depends on the
successful and timely completion of these infrastructure upgrades, the Cable
Partners are under no obligation to the Company to upgrade systems or to roll
out, market or promote the Company's services. In addition, none of the Cable
Partners has agreed to any specific schedule for rolling out two-way HFC
infrastructure improvements, and the Cable Partners are not contractually
required to achieve any specific rollout schedule. Because of the very
substantial capital cost of upgrading cable systems for high-speed two-way data
transmission, there has been uncertainty in recent months as to the rate at
which the Cable Partners and other cable system operators will upgrade their
systems. For example, to increase television programming capacity to compete
with other modes of multichannel entertainment delivery systems such as direct
satellite, the Cable Partners may choose to roll out digital set-top boxes,
which do not support high-speed Internet access services, rather than to
upgrade their cable infrastructures to two-way HFC cable. The failure of the
Cable Partners to complete these upgrades in a timely and satisfactory manner,
or at all, would prevent the Company from delivering high-performance Internet
access services and would have a material adverse effect on the Company's
business, operating results and financial condition. To the extent that the
Company is required (because of the lack of upgraded two-way HFC cable
connections), or together with the Affiliated LCOs otherwise chooses, to
distribute the Company's services through cable systems to the home with a
telephone return path for data from the home, the Company's services may not
achieve the high speed and quality of experience necessary to attract and
retain subscribers to the @Home service. In addition, the Company will be
highly dependent on the Cable Partners and any future cable partners to
continue to maintain their cable infrastructure in such a manner that the
Company will be able to provide consistently high performance and reliable
service. Therefore, in addition to the Company's business being subject to
general economic and market conditions and factors relating to Internet service
providers and online services specifically, the success and future growth of
the Company's business will also be subject to economic and other factors
affecting the cable television industry generally, particularly its ability to
finance substantial capital expenditures. See "Business--Strategy," "--Products
and Services," "--@Network Architecture" and "--Strategic Distribution
Relationships--Strategic Relationships with Cable Partners."
Dependence on Cable Partners to Roll Out, Market, Install, Maintain
Infrastructure for, Provide Customer Service for and Bill for the @Home
Service. In order to roll out the @Home service in a geographic area, the Cable
Partners must have completed the two-way HFC cable infrastructure upgrade in
that area. Following the rollout of the @Home service in a service area, the
Company's business will be highly dependent on the Affiliated LCO to maintain
its cable infrastructure in such a manner as to permit the reliable
transmission of the @Home service. Because subscribers of the Company will
subscribe to its services through an Affiliated LCO, the Affiliated LCO (and
not the Company) will substantially control the customer relationship with the
subscriber. Each Affiliated LCO has complete discretion regarding the pricing
of @Home service to subscribers in its territory (except for certain premium
services contracted for by the Company), and an Affiliated LCO could use the
@Home service as a loss leader in order to increase demand for other Affiliated
LCO products or services with more attractive terms for the Affiliated LCO.
Neither the Cable Partners nor their Affiliated LCOs have any affirmative
obligations (other than the payment of revenue splits to the Company) with
respect to marketing, installing and maintaining infrastructure for, providing
customer service for and billing for the @Home service, and the Company has no
remedies against the Cable Partners or their Affiliated LCOs, other than in
limited circumstances such as an Affiliated LCO's failure to upgrade its cable
system or roll out the @Home service
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after it has committed to do so. Moreover, the Master Distribution Agreement
does not create affirmative obligations on the part of any Principal Cable
Stockholder to cause its Affiliated LCOs to perform any of the foregoing
activities or to upgrade any of their cable systems. The Company's business
model requires that a material number of Affiliated LCOs of all its Cable
Partners roll out the @Home service, and if a sufficient number of Affiliated
LCOs does not roll out the @Home service, the Company's business model will not
be viable. Each of the Principal Cable Stockholders and its Affiliated LCOs is
entitled to MFN terms with respect to the distribution of the @Home service,
subject to certain exceptions. These terms could limit the Company's ability to
negotiate agreements with other cable system operators and otherwise could
limit the Company's potential to generate revenue. The Affiliated LCOs are
expected to provide general customer service to the Company's subscribers and
have the option to provide technical support, rather than utilizing the
Company's service and support capabilities. If an Affiliated LCO provides
either general customer service or technical support, there could be a revenue
split adjustment between the Company and the Affiliated LCO, and the Company
would have little or no control over the quality of customer service actually
provided to its subscribers. If the customer service and support provided by
Affiliated LCOs are unsatisfactory to subscribers, consumer demand for the
Company's @Home service will likely be materially adversely affected. See
"Business--Strategic Distribution Relationships--Strategic Relationships with
Cable Partners."
Potential Competition with Cable Partners for Advertising Revenue. While the
Company retains 100% of all national advertising revenue delivered on the @Home
service, an Affiliated LCO retains 100% of revenue generated from local service
offerings that do not require access to an Internet backbone or that relate to
programming within the local areas of the browser for the @Home service, such
as revenues from local advertising. Moreover, given the national coverage of
the combined operations of the Principal Cable Stockholders and their
Affiliated LCOs, the Principal Cable Stockholders and their Affiliated LCOs
could strike agreements with advertisers that would effectively result in
broad-based advertising campaigns throughout most of the United States in
competition with the Company's national advertising campaigns, generating
revenue only for Affiliated LCOs and not for the Company. Accordingly, the
Company may carry in the United States a significant amount of advertising that
is national in scope and focus for which it receives no share of the revenues.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Strategic Distribution Relationships--Strategic
Relationships with Cable Partners."
Dependence on TCG for Local Telecommunications Services for the @Work
Services. The Company depends on TCG, which, like the Company, is also
controlled by TCI, Comcast and Cox, to provides local telecommunications
services and co-location within TCG's facilities on favorable economic terms
that enable the Company to provide @Work services to an entire metropolitan
area. If the Company were required to obtain comparable telecommunications
services from local exchange carriers, it would effectively be limited to
providing @Work services to commercial customers within a ten-mile radius of
one of the Company's points of presence. As a result, the Company would be
required to build multiple points of presence to service an entire metropolitan
area, which would substantially increase the Company's capital costs to enter
new markets and which could make such market entry uneconomical for the
Company. Moreover, if the Company were required to pay standard local exchange
carrier rates, the Company's ongoing operating costs for its @Work services
would be substantially higher. The loss of the Company's strategic relationship
with TCG would have a material adverse effect on the Company's ability to
deploy its @Work services and on its business, operating results and financial
condition. In addition, TCG has acquired a provider of Internet-related
services to businesses and corporate customers and will compete directly with
the @Work Internet service, and to the extent TCG acquires or enters into
strategic relationships with other Internet service providers ("ISPs"), TCG may
reduce its support of the @Work services. Although there are alternative
suppliers for TCG's services, it could take a significant period of time to
establish similar relationships and equivalent terms might not be available.
See "Business--Strategic Distribution Relationships--Strategic Relationship
with TCG."
Unproven Network Scalability and Speed. Due to the limited deployment of the
Company's services, the ability of the @Network to connect and manage a
substantial number of online subscribers 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 subscriber levels while maintaining superior
performance. While peak downstream data transmission speeds across HFC cable
approach 27 megabits per second ("Mbps") in each 6 MHz channel, the actual
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downstream data transmission speeds over the @Network could be significantly
slower and will depend on a variety of factors, including type and location of
content, Internet traffic, the number of active subscribers on a given cable
network node, the number of 6 MHz channels allocated by the Affiliated LCO (in
its discretion) to carry the Company's services, the capability of cable
modems used and the service quality of the Affiliated LCOs' two-way HFC cable
infrastructures. The upstream transmission data carrier is located in a range
not used for broadcast by traditional cable infrastructures and is more
susceptible to interference than the downstream channel, resulting in a slower
peak data transmission speed. In addition to the factors affecting downstream
data transmission speeds, actual upstream data transmission speeds over the
@Network can be materially impacted by the level of interference in the
Affiliated LCOs' upstream data broadcast range. The actual data delivery
speeds that can be realized by subscribers will be significantly lower than
peak data transmission speeds due to the subscriber's hardware, operating
system and software configurations. To access the @Home service, subscribers
need a personal computer with at least a 66 MHz 486 or equivalent
microprocessor and 16 megabytes of main memory. There can be no assurance that
the @Network will be able to achieve or maintain such a high speed of data
transmission, especially as the number of the Company's subscribers grows, and
the Company's failure to achieve or maintain high-speed data transmission
would significantly reduce consumer demand for its services and have a
material adverse effect on its business, operating results and financial
condition. See "Business--@Network Architecture."
Dependence on High-Quality Content Provision and Acceptance; Developing
Market for High-Quality Content. A key component of the Company's strategy is
to provide a more compelling interactive experience to Internet users than the
experience currently available from dial-up ISPs and online service providers
("OSPs"). The Company believes that, in addition to providing high-speed,
high-performance Internet access, it must also promote the development of and
aggregate high-quality multimedia content. The Company's success in providing
and aggregating such content is dependent on its ability to motivate content
providers to create and support high-quality, high-speed multimedia content
and its ability to aggregate content offerings in a manner that subscribers
find useful and compelling and will be dependent, in part, on the Company's
ability to develop a customer base sufficiently large to justify investments
in the development of such content. There can be no assurance that the Company
will be successful in these endeavors. In addition, the market for high-
quality multimedia Internet content has only recently begun to develop and is
rapidly evolving, and there is significant competition among ISPs and OSPs for
aggregating such content. If the market fails to develop or develops more
slowly than expected, or if competition increases, or if the Company's content
offerings do not achieve or sustain market acceptance, the Company's business,
operating results and financial condition will be materially adversely
affected. See "Business--Strategy" and "--Products and Services."
Uncertain Acceptance and Maintenance of the "@Home" Brand. The Company
believes that establishing and maintaining the "@Home" brand are critical to
attract and expand its subscriber base. Promotion of the "@Home" brand will
depend, among other things, on the Company's success in providing high-speed,
high-quality consumer and business Internet products, services and content,
the marketing efforts of the Affiliated LCOs, and the reliability of the
Affiliated LCOs' networks, none of which can be assured. If consumers and
businesses do not perceive the Company's existing products and services to be
of high quality, or if the Company introduces new products or services or
enters into new business ventures that are not favorably received by consumers
and businesses, the Company will be unsuccessful in promoting and maintaining
its brand. To the extent the Company expands the focus of its marketing
efforts to geographic areas where the @Home service is not available, the
Company risks frustrating potential subscribers who are not able to access the
Company's products and services. Furthermore, in order to attract and retain
subscribers, and to promote and maintain the "@Home" brand in response to
competitive pressures, the Company may find it necessary to increase
substantially its financial commitment to creating and maintaining a distinct
brand loyalty among customers. If the Company is unable to successfully
establish or maintain the "@Home" brand, or if the Company incurs excessive
expense in an attempt to improve its offerings or promote and maintain its
brand, the Company's business, operating results and financial condition would
be materially adversely affected. See "Business--Strategy" and "--
Distribution, Marketing and Sales."
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Management of Expanded Operations; Dependence on Key Personnel. The Company
may not be equipped to successfully manage any future periods of rapid growth
or expansion, which could be expected to place a significant strain on the
Company's managerial, operating, financial and other resources. The Company is
highly dependent upon the efforts of its senior management team, and the
Company's future performance will depend, in part, upon the ability of senior
management to manage growth effectively, which will require the Company to
implement additional management information systems capabilities, to develop
further its operating, administrative, financial and accounting systems and
controls, to maintain close coordination among engineering, accounting,
finance, marketing, sales and operations, and to hire and train additional
technical and marketing personnel. There is intense competition for senior
management, technical and marketing personnel in the areas of the Company's
activities. The loss of the services of any of the Company's senior management
team or the failure to attract and retain additional key employees could have
a material adverse effect on the Company's business, operating results and
financial condition. The Company maintains no key-person life insurance. See
"Management."
Competition. The markets for consumer and business Internet services and
online content are extremely competitive, and the Company expects that
competition will intensify in the future. The Company's most direct
competitors in these markets are ISPs, national long distance carriers and
local exchange carriers, wireless service providers, OSPs and Internet content
aggregators. Many of these competitors are offering (or may soon offer)
technologies that will attempt to compete with some or all of the Company's
high-speed data service offerings. Such technologies include Integrated
Services Digital Network ("ISDN") and Digital Subscriber Line ("xDSL"). The
Company also competes with other cable-based data services that are seeking to
contract with cable system operators to bring their services into geographic
areas that are not covered by an exclusive relationship between the Company
and its Cable Partners. The bases of competition in these markets include
transmission speed, reliability of service, ease of access, price/performance,
ease-of-use, content quality, quality of presentation, timeliness of content,
customer support, brand recognition, operating experience and revenue sharing.
ISPs, such as BBN Corporation ("BBN"), Earthlink Network, Inc.
("Earthlink"), MindSpring Enterprises, Inc. ("MindSpring"), Netcom On-Line
Communications Services, Inc. ("Netcom") and PSInet Inc. ("PSInet"), provide
basic Internet access to residential consumers and businesses, generally using
existing telephone network infrastructures. This method is widely available
and inexpensive. Barriers to entry are low, resulting in a highly competitive
and fragmented market.
Long distance inter-exchange carriers, such as AT&T Corp. ("AT&T"), MCI
Communications Corporation ("MCI"), Sprint Corporation ("Sprint") and
WorldCom, Inc. ("WorldCom"), have deployed large-scale Internet access
networks and sell connectivity to business and residential customers. The
regional Bell operating companies ("RBOCs") and other local exchange carriers
have also entered this field and are providing price competitive services.
Many of such carriers are offering diversified packages of telecommunications
services, including Internet access service, to residential customers and
could bundle such services together, which could place the Company at a
competitive disadvantage.
Wireless service providers, including AT&T and Hughes Network Systems, are
developing wireless Internet connectivity, such as multichannel multipoint
distribution service, local multipoint distribution service and digital
broadcast satellite.
OSPs include companies such as America Online, Inc. ("America Online"),
CompuServe Corporation ("CompuServe"), Microsoft Corporation's Microsoft
Network ("MSN"), Prodigy, Inc. ("Prodigy") and WebTV Networks Inc. ("WebTV")
(which has agreed to be acquired by Microsoft Corporation) that provide, over
the Internet and on proprietary online services, content and applications
ranging from news and sports to consumer video conferencing. These services
are designed for broad consumer access over telecommunications-based
transmission media, which enables the provision of data services to the large
group of consumers who have personal computers with modems. In addition, they
provide basic Internet connectivity, ease-of-use and consistency of
environment. In addition to developing their own content or supporting
proprietary third-party
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content developers, online services often establish relationships with
traditional broadcast and print media outlets to bundle their content into the
service, such as the relationship of Microsoft Corporation ("Microsoft") with
NBC to provide multimedia news and information programming over both cable
television and MSN.
Content aggregators seek to provide a "one-stop" shop for Internet and
online users. Their success depends on capturing audience flow, providing
ease-of-use and offering a range of content that appeals to a broad audience.
Their business models are predicated on attracting and retaining an audience
for their set of offerings. Leading companies in this area include America
Online, CompuServe, Excite, Inc. ("Excite"), Microsoft and Yahoo! Inc.
("Yahoo!"). In this market, competition occurs in acquiring both content
providers and subscribers. The principal bases of competition in attracting
content providers include quality of demographics, audience size, cost-
effectiveness of the medium and ability to create differentiated experiences
using aggregator tools. The principal bases of competition in attracting
subscribers include richness and variety of content and ease of access to the
desired content. The proprietary online services such as America Online,
CompuServe and MSN have the advantage of a large customer base, industry
experience, many content partnerships and significant resources.
The Company's competitors in the cable-based services market are those cable
companies that have developed their own cable-based services and market those
services to unaffiliated cable system operators that are planning to deploy
data services and with which the Company would like to work. Several cable
system operators, including Time Warner Inc. ("Time Warner") and the
Continental Cablevision subsidiary of U S WEST, Inc. ("US West"), have
deployed high-speed Internet access services over their existing local HFC
networks. Specifically, Time Warner, which is the second largest cable company
in the United States, has established its own cable-based ISP with proprietary
content, called Road Runner, which features a variety of Time Warner
publications and services. Time Warner plans to market the Road Runner service
through Time Warner's own cable systems as well as to other cable system
operators nationwide. Continental Cablevision has developed another service
called Highway One, which offers high-speed Internet services to its existing
customers. Others that have publicly announced limited-area trials for their
own cable-based Internet services include Adelphia Communications Corporation
("Adelphia"), BellSouth Corporation ("BellSouth") and Jones Intercable, Inc.
("Jones Intercable"). Some of these companies such as Time Warner have their
own substantial libraries of multimedia content, which could provide them with
a significant competitive advantage.
Many of the Company's competitors and potential competitors have
substantially greater financial, technical and marketing resources, larger
subscriber bases, longer operating histories, greater name recognition and
more established relationships with advertisers and content and application
providers than the Company. Such competitors may be able to undertake more
extensive marketing campaigns, adopt more aggressive pricing policies and
devote substantially more resources to developing Internet services or online
content than the Company. There can be no assurance that the Company will be
able to compete successfully against current or future competitors or that
competitive pressures faced by the Company will not materially adversely
affect the Company's business, operating results or financial condition.
Further, as a strategic response to changes in the competitive environment,
the Company may make certain pricing, service or marketing decisions or enter
into acquisitions or new ventures that could have a material adverse effect on
the Company's business, operating results or financial condition. See
"Business--Competition."
Risk of System Failure. The Company's operations are dependent upon its
ability to support its highly complex network infrastructure and avoid damage
from fires, earthquakes, floods, power losses, telecommunications failures and
similar events. The occurrence of a natural disaster or other unanticipated
problem at the Company's Network Operations Center ("NOC") or at a number of
the Company's regional data centers ("RDCs") could cause interruptions in the
services provided by the Company. Additionally, failure of the Cable Partners
or TCG to provide the data communications capacity required by the Company, as
a result of natural disaster, operational disruption or any other reason,
could cause interruptions in the services provided by the Company. Any damage
or failure that causes interruptions in the Company's operations could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business--@Network Architecture."
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Risks of Technological Change. The markets for consumer and business
Internet access services and online content are characterized by rapid
technological developments, frequent new product introductions and evolving
industry standards. The emerging nature of these products and services and
their rapid evolution will require that the Company continually improve the
performance, features and reliability of its network, Internet content and
consumer and business services, particularly in response to competitive
offerings. There can be no assurance that the Company will be successful in
responding quickly, cost effectively and sufficiently to these developments.
There may be a time-limited market opportunity for the Company's cable-based
consumer and business Internet services, and there can be no assurance that
the Company will be successful in achieving widespread acceptance of its
services before competitors offer products and services with speed and
performance similar to the Company's current offerings. In addition, the
widespread adoption of new Internet or telecommuting technologies or
standards, cable-based or otherwise, could require substantial expenditures by
the Company to modify or adapt its network, products and services and could
fundamentally affect the character, viability and frequency of Internet-based
advertising, either of which could have a material adverse effect on the
Company's business, operating results and financial condition. In addition,
new Internet or telecommuting services or enhancements offered by the Company
may contain design flaws or other defects that could have a material adverse
effect on the Company's business, operating results and financial condition.
See "Business--Products and Services," "--@Network Architecture" and "--
Product Development and Engineering."
Dependence on Two-Way Cable Modems. Each of the Company's subscribers
currently must obtain a cable modem from an Affiliated LCO to access the @Home
service. The inability of the Affiliated LCOs to obtain a sufficient quantity
of cable modems, or the inability of subscribers to otherwise obtain cable
modems, at acceptable price and performance levels could delay or impair the
expansion of the Company's business. In addition, the Company's Cable Partners
currently depend on a limited number of suppliers, principally Motorola, Inc.
("Motorola") and Bay Networks, Inc. ("Bay Networks") for cable modems. The
loss of such suppliers or their inability to provide cable modems that meet
the requirements of the Company's services, would have a material adverse
effect on the Company's business, operating results and financial condition.
See "Business--@Network Architecture."
Dependence on Key Technology Suppliers. The Company currently depends on a
limited number of suppliers for certain key technologies used to build and
manage the @Network. In particular, the Company depends on Sun Microsystems,
Inc. ("Sun") for high availability servers, Silicon Graphics, Inc. ("SGI") for
caching servers, Cisco Systems, Inc. ("Cisco") for network routing and
switching hardware, Sprint for national switched ATM backbone services,
Objective Systems Integrators, Inc. ("OSI") for network management software,
Tivoli Systems Inc. ("Tivoli") for systems management software to operate RDCs
remotely, Oracle Corporation ("Oracle") for advanced database management
software and Netscape Communications Corporation ("Netscape") for server and
browser software. Although the Company believes that there are alternative
suppliers for each of these technologies, it could take a significant period
of time to establish relationships with alternative suppliers and substitute
their technologies into the @Network. The loss of any of the Company's
relationships with these suppliers could have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
@Network Architecture."
Dependence on the Internet. Market acceptance of the Company's services is
substantially dependent upon the adoption of the Internet for commerce,
entertainment and communications. As is typical in the case of an emerging
industry characterized by rapidly changing technology, evolving industry
standards and frequent new product and service introductions, demand for and
market acceptance of recently introduced Internet products and services are
subject to a high level of uncertainty. In addition, critical issues
concerning the commercial use of the Internet remain unresolved and may affect
the growth of Internet use, especially in the business and consumer markets
targeted by the Company. Despite growing interest in the commercial
possibilities for the Internet, many businesses and consumers have been
deterred from purchasing Internet access services for a number of reasons,
including inconsistent quality of service, lack of availability of cost-
effective, high-speed service, a limited number of local access points for
corporate users, inability to integrate business applications on the Internet,
the need to deal with multiple and frequently incompatible vendors, inadequate
protection of the
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confidentiality of stored data and information moving across the Internet and
a lack of tools to simplify Internet access and use. The adoption of the
Internet for commerce and communications, particularly by those individuals
and enterprises that have historically relied upon alternative means of
commerce and communication, generally requires understanding and acceptance of
a new way of conducting business and exchanging information. In particular,
enterprises that have already invested substantial resources in other means of
conducting commerce and exchanging information, or in relationships with other
ISPs, may be reluctant and slow to adopt a new strategy that may make their
existing personnel, infrastructure and ISP relationship obsolete. If the
market fails to develop, develops more slowly than expected or market
competition increases, the Company's business, operating results and financial
condition may be materially adversely affected. See "Business--Industry
Background."
Security Risks. Despite the implementation of security measures, the
Company's or Affiliated LCOs' networks may be vulnerable to unauthorized
access, computer viruses and other disruptive problems. ISPs and OSPs have in
the past experienced, and may in the future experience, interruptions in
service as a result of the accidental or intentional actions of Internet
users, current and former employees or others. Unauthorized access could also
potentially jeopardize the security of confidential information stored in the
computer systems of the Company and its subscribers, which may result in
liability of the Company to its subscribers and also may deter potential
subscribers. Although the Company intends to continue to implement industry-
standard security measures, such measures have been circumvented in the past,
and there can be no assurance that measures implemented by the Company will
not be circumvented in the future. Moreover, the Company has no control over
the security measures that the Affiliated LCOs adopt. Eliminating computer
viruses and alleviating other security problems may require interruptions,
delays or cessation of service to the Company's subscribers, which could have
a material adverse effect on the Company's business, operating results and
financial condition. See "Business--Network Architecture."
Government Regulation. Although the Company's services are not directly
subject to current regulations of the Federal Communications Commission (the
"FCC") or any other federal or state communications regulatory agency, changes
in the regulatory environment relating to the Internet connectivity market,
including regulatory changes that, directly or indirectly, affect
telecommunications costs, limit usage of subscriber-related information or
increase the likelihood or scope of competition from the RBOCs or other
telecommunications companies, could affect the prices at which the Company may
sell its services. For example, proposed regulations by the FCC would require
discounted Internet connectivity rates for schools and libraries, which would
limit revenues without reducing related costs. The Company cannot predict the
impact, if any, that future regulation or regulatory changes might have on its
business. In addition, regulation of cable television rates may affect the
speed at which the Cable Partners upgrade their cable infrastructures to two-
way HFC. Currently, the Affiliated LCOs have generally elected to classify the
distribution of the Company's services as "additional cable services" under
their respective franchise agreements, and to pay franchise fees in accordance
therewith. Local franchise authorities may attempt to subject the Affiliated
LCOs to higher or other franchise fees or taxes or otherwise seek to require
them to obtain additional franchises in connection with their distribution of
the @Home services. There are thousands of franchise authorities in the United
States alone, and thus it will be difficult or impossible for the Company, its
Cable Partners or their Affiliated LCOs to operate under a unified set of
franchise requirements. It is possible that governmental authorities may
attempt to impose additional fees or regulations on Affiliated LCOs carrying
the Company's services. In the event that the FCC or another governmental
agency were to classify the cable system operators as "common carriers" of
Internet services, or cable system operators were to seek such classification
as a means of protecting themselves against liabilities, the Company's rights
as the exclusive ISP over the systems of certain of the Cable Partners could
be lost. In addition, if the Company, the Cable Partners or their Affiliated
LCOs were classified as common carriers, they could be subject to government-
regulated tariff schedules for the amounts they could charge for their
services. Rogers and Shaw have informed the Company that, due to certain
Canadian regulations, they are required to provide access to their respective
networks to third-party ISPs, and that therefore the Company's services may
not have exclusive access to such networks. To the extent the Company
increases the number of foreign jurisdictions in which it offers its services,
the Company will be subject to additional governmental regulation.
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See "--Risks Associated with International Operations" and "Business--
Strategic Distribution Relationships--Strategic Relationships with Cable
Partners."
Potential Liability for Defamatory or Indecent Content. The law relating to
liability of ISPs and OSPs for information carried on or disseminated through
their networks is currently unsettled. A number of lawsuits have sought to
impose such liability for defamatory speech and indecent materials. A recent
federal statute seeks to impose such liability, in some circumstances, for
transmission of obscene or indecent materials. In one case, a court has held
that an OSP could be found liable for defamatory matter provided through its
service, on the ground that the service provider exercised active editorial
control over postings to its service. Other courts have held that ISPs and
OSPs may, under certain circumstances, be subject to damages for copying or
distributing copyrighted materials. The Telecommunications Act of 1996
prohibits, and imposes criminal penalties and civil liability for using, an
interactive computer service for transmitting indecent or obscene
communications. A number of states have adopted or are currently considering
similar legislation. The anti-indecency provisions of the Telecommunications
Act of 1996 have been declared unconstitutional by the United States District
Courts for the Eastern District of Pennsylvania and the Southern District of
New York, which have issued preliminary injunctions against their enforcement.
The United States Supreme Court has heard oral arguments on the appeal of
those decisions. The imposition upon ISPs or OSPs of potential liability for
materials 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 the discontinuation of
certain product or service offerings. In addition, the imposition of liability
on the Company for information carried on the @Network could have a material
adverse effect on the Company's business, operating results and financial
condition.
Liability for Information Retrieved and Replicated. Because materials will
be downloaded and redistributed by subscribers and cached or replicated by the
Company in connection with the Company's offering of its services, there is a
potential that claims may be made against the Company, the Cable Partners or
their Affiliated LCOs under both United States and foreign law for defamation,
negligence, copyright or trademark infringement, or other theories based on
the nature and content of such materials. Such types of claims have been
brought, and sometimes successfully pressed, against OSPs in the past. In
particular, copyright and trademark laws are evolving both domestically and
internationally, and there is uncertainty concerning how broadly the rights
afforded under these laws will be applied to online environments. It is
impossible for the Company to determine who all the potential rights holders
may be with respect to all materials available through the Company's services.
In addition, a number of third-party owners of patents have claimed to hold
patents that cover various forms of online transactions or online technology.
As with other OSPs, patent claims could be asserted against the Company based
upon its services or technologies. Although the Company carries general
liability insurance, the Company's insurance may not cover potential claims of
the foregoing types, or may not be adequate to indemnify the Company for all
liability that may be imposed. Any imposition of liability that is not covered
by insurance or is in excess of insurance coverage could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Risks Associated with International Operations. A key component of the
Company's strategy is expansion into international markets. To date, the
Company has developed relationships only with United States and Canadian cable
system operators. The Company has extremely limited experience in developing
localized versions of its products and services and in developing
relationships with international cable system operators. There can be no
assurance that the Company will be successful in expanding its product and
service offerings into other foreign markets. In addition to the uncertainty
regarding the Company's ability to generate revenues from foreign operations
and expand its international presence, there are certain risks inherent in
doing business on an international level, such as regulatory requirements
(including the regulation of Internet access), legal uncertainty regarding
liability for information retrieved and replicated in foreign jurisdictions,
export and import restrictions, tariffs and other trade barriers, difficulties
in staffing and managing foreign operations, longer payment cycles, problems
in collecting accounts receivable, political instability, fluctuations in
currency
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exchange rates, seasonal reductions in business activity during the summer
months in Europe and certain other parts of the world and potentially adverse
tax consequences, which could adversely affect the success of the Company's
future international operations. There can be no assurance that one or more of
such factors will not have a material adverse effect on the Company's future
international operations and, consequently, on the Company's business,
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Distribution, Marketing and Sales."
Intellectual Property; Litigation. The Company regards its technology as
proprietary and attempts to protect it with copyrights, trademarks, trade
secret laws, restrictions on disclosure and other methods. In addition, the
Company has filed one patent application and is in the process of preparing
additional patent applications with respect to aspects of its high-bandwidth
network technology and online advertising. There can be no assurance that any
patent will issue from these applications or that, if issued, any claims
allowed will be sufficiently broad to protect the Company's technology. In
addition, there can be no assurance that any patents that may be issued will
not be challenged, invalidated or circumvented, or that any rights granted
thereunder would provide proprietary protection to the Company. Failure of any
patents to provide protection to the Company's technology may make it easier
for the Company's competitors to offer technology equivalent or superior to
the Company's technology. The Company also generally enters into
confidentiality or license agreements with its employees and consultants, and
generally controls access to and distribution of its documentation and other
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use the Company's products,
services or technology without authorization, or to develop similar technology
independently. In addition, effective copyright, trademark and trade secret
protection may be unavailable or limited in certain foreign countries, and the
global nature of the Internet makes it virtually impossible to control the
ultimate destination of the Company's content offerings. Policing unauthorized
use of the Company's content offerings is difficult. There can be no assurance
that the steps taken by the Company will prevent misappropriation or
infringement of its technology. In addition, litigation may be necessary in
the future to enforce the Company's intellectual property rights, to protect
the Company's trade secrets or to determine the validity and scope of the
proprietary rights of others. Such litigation could result in substantial
costs and diversion of resources and could have a material adverse effect on
the Company's business, operating results and financial condition.
From time to time, the Company has received, and may receive in the future,
notice of claims of infringement of other parties' proprietary rights,
including claims for infringement resulting from the downloading of materials
by the online or Internet services operated or facilitated by the Company.
There can be no assurance that infringement or invalidity claims (or claims
for indemnification resulting from infringement claims) will not be asserted
or prosecuted against the Company or that any assertions or prosecutions will
not materially adversely affect the Company's business, operating results and
financial condition. Irrespective of the validity or the successful assertion
of such claims, the Company would incur significant costs and diversion of
management time and resources with respect to the defense thereof, which could
have a material adverse effect on the Company's business, operating results
and financial condition. If any claims or actions are asserted against the
Company, the Company may seek to obtain a license under a third party's
intellectual property rights. There can be no assurance, however, that under
such circumstances a license would be available on commercially reasonable
terms, or at all. See "Business--Intellectual Property."
Ability of TCI to Transfer Control of the Company. Although each of the
Principal Cable Stockholders has agreed not to transfer its shares until six
years after the closing date of this offering (subject to certain exceptions),
TCI has retained the ability to sell its controlling interest to a third party
without providing an opportunity for the holders of Series A Common Stock
purchased in this offering to participate in the sale. Comcast, Cox and KPCB
have certain "tag along" rights to participate in such a control sale, which
rights have not been provided to the purchasers of Series A Common Stock in
this offering, and TCI has certain "drag along" rights to cause Comcast, Cox
and KPCB to sell their shares in such a control sale. In addition, each
Principal Cable Stockholder is permitted to make indirect transfers of up to
49.9% of its equity ownership in the Company by transferring equity interests
in the subsidiary of the Principal Cable Stockholder that holds the
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shares of the Company. Moreover, the Company has elected not to be subject to
Section 203 of the Delaware General Corporation Law, which provides certain
protections for minority stockholders in the event a person acquires a
significant (15% or greater) interest in the Company other than in a
transaction approved by the Board and in certain cases by the stockholders of
the Company. Accordingly, majority control of the Company could be acquired
with no assurance that stockholders other than the Principal Cable
Stockholders and KPCB would receive the same amount and type of consideration
for their stock in the Company. In addition, TCI's control of the voting stock
of the Company may make the Company less attractive as a target for a takeover
than it otherwise might be or render more difficult or discourage a merger
proposal, a tender offer or a proxy contest, even if such actions were favored
by the holders of Series A Common Stock. See "Certain Transactions" and
"Description of Capital Stock."
Certain Anti-Takeover Provisions. Upon completion of this offering, the
Board will have the authority to issue up to 9,650,000 shares of Preferred
Stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, 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
financings or acquisitions or other corporate purposes, may have the effect of
delaying, deferring or preventing a change in control of the Company, may
discourage bids for the Company's Series A Common Stock at a premium over the
market price of the Series A Common Stock and may adversely affect the market
price of, and the voting and other rights of the holders of, the Common Stock.
The Company has no current plans to issue shares of Preferred Stock. The
Company's Certificate of Incorporation and indemnity agreements provide that
the Company will indemnify officers and directors against losses that they may
incur in investigations and legal proceedings resulting from their services to
the Company. Such provisions may have the effect of preventing changes in the
management of the Company. See "Description of Capital Stock."
Shares Eligible for Future Sale. Sales of a substantial number of shares of
Series A Common Stock in the public market following this offering could
adversely affect the prevailing market price of the Company's Series A Common
Stock. Following expiration of or earlier release from the 180-day lockup
agreements with Morgan Stanley & Co. Incorporated, approximately 103,803,587
shares will become eligible for sale, subject in most cases to compliance with
certain volume limitations. The remaining approximately shares held by
existing stockholders will become eligible for sale on April 11, 1998. In
addition, the Company intends to register on Form S-8, immediately following
the effective date of this offering, a total of 1,749,423 shares of Series A
Common Stock reserved for issuance under the Company's Purchase Plan and 1997
Equity Incentive Plan and a total of 919,250 shares subject to outstanding
options granted under the 1996 Plans. The holders of approximately shares
of Common Stock, some of which are currently outstanding and some of which are
to be issued upon conversion of outstanding shares of Preferred Stock at the
closing of this offering, are also entitled to certain rights with respect to
registration of such shares of Common Stock for offer or sale to the public.
If such holders, by exercising their registration rights, cause a large number
of shares to be registered and sold in the public market, such sales could
have a material adverse effect on the market price for the Company's Common
Stock. See "Management--Employee Benefit Plans," "Description of Capital
Stock--Registration Rights" and "Shares Eligible for Future Sale."
Requirements for Additional Capital. The Company is investing significantly
in the development of its network infrastructure and hiring new personnel
rapidly in anticipation of potential growth in its business, which is still at
a very early stage. The Company believes that the net proceeds from this
offering, together with existing cash, cash equivalents, short-term cash
investments and capital lease financing, will be sufficient to meet its
working capital and capital expenditure requirements for at least the next 18
months. However, the Company may need to raise additional funds if its
estimates of working capital and/or capital expenditure and/or lease financing
requirements change or prove inaccurate or in order for the Company to respond
to unforeseen technological or marketing hurdles or to take advantage of
unanticipated opportunities. Over the longer term, it is likely that the
Company will require substantial additional funds to continue to fund the
Company's
19
<PAGE>
infrastructure investment, product development, marketing, sales and customer
support needs. There can be no assurance that any such funds will be available
at the time or times needed, or available on terms acceptable to the Company.
If adequate funds are not available, or are not available on acceptable terms,
the Company may not be able to continue its network implementation, to develop
new products and services or otherwise to respond to competitive pressures.
Such inability could have a material adverse effect on the Company's business,
operating results and financial condition. The Principal Cable Stockholders
have the preemptive right, subject to certain restrictions, to purchase a pro
rata portion of any new securities offered by the Company other than
securities issued pursuant to a public offering, securities issued pursuant to
any incentive plan or agreement for the benefit of the Company's employees,
directors or consultants, securities issued by the Company in connection with
an acquisition, and securities issued in exchange for interests in a joint
venture or other business combination. The existence of this right could
adversely affect the Company's ability to raise required capital on a timely
basis. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
No Prior Trading Market; Possible Volatility of Stock Price. Prior to this
offering, there has been no public market for the Common Stock of the Company,
and there can be no assurance that an active trading market will develop or,
if one does develop, that it will be maintained. The initial public offering
price, which will be established by negotiations between the Company and the
representatives of the Underwriters based upon a number of factors, may not be
indicative of prices that will prevail in the trading market. See
"Underwriters" for a discussion of the factors to be considered in determining
the initial public offering price. The stock market has from time to time
experienced significant price and volume fluctuations. In addition, the market
price of the shares of the Company's Series A Common Stock, similar to that of
other Internet companies, is likely to be highly volatile. Factors such as
fluctuations in the Company's operating results, announcements of
technological innovations or new products by the Company or its competitors,
regulatory actions, and general market conditions may have a significant
effect on the market price of the Company's Series A Common Stock.
Immediate and Substantial Dilution. Investors participating in this offering
will incur immediate, substantial dilution in the amount of $ . To the
extent that options to purchase the Company's Series A Common Stock are
exercised, there will be further substantial dilution. See "Dilution."
20
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Series
A Common Stock offered hereby are estimated to be approximately $ million
(approximately $ million if the U.S. Underwriters' over-allotment option is
exercised in full), at an assumed initial public offering price of $ per
share and after deducting estimated underwriting discounts and commissions and
estimated offering expenses. The Company intends to use the net proceeds for
general corporate purposes, including working capital and capital
expenditures. A portion of the net proceeds may also be used to acquire or
invest in complementary businesses or products or to obtain the right to use
complementary technologies. The Company has no current plans, agreements or
commitments with respect to any acquisition, and the Company is not currently
engaged in any negotiations with respect to any such transaction. Pending such
uses, the net proceeds of this offering will be invested in short-term,
interest-bearing, investment grade securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying any cash dividends on its capital stock
in the foreseeable future.
21
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1997, (i) the actual short-
term debt and capitalization of the Company, (ii) the pro forma short-term
debt and capitalization of the Company giving effect to the gross proceeds
from the sale of the 240,000 shares of the Company's Series C Preferred Stock
(which were issued on April 11, 1997), as if outstanding on March 31, 1997,
and to the conversion of all outstanding shares of Preferred Stock into shares
of Common Stock, which will occur upon the closing of this offering and (iii)
the pro forma short-term debt and capitalization of the Company as adjusted to
give effect to the sale of the shares of Series A Common Stock offered
hereby, at an assumed initial public offering price of $ and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses.
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of capital lease
obligations(1)................................ $ 4,766 $ 4,766 $ 4,766
======== ======== ========
Capital lease obligations, less current
portion, and other long-term liabilities(1)... $ 8,085 $ 8,085 $ 8,085
-------- -------- --------
Stockholders' equity:
Convertible preferred stock, $.01 par value;
14,522,613 shares authorized, 4,522,613
shares issued and outstanding actual;
10,000,000 shares authorized, no shares
issued and outstanding pro forma and as
adjusted(2).................................. 44,993 -- --
Common stock, $.01 par value; 180,277,660
shares authorized, 13,351,327 shares issued
and outstanding actual; shares
authorized, shares issued and
outstanding pro forma, 230,277,660 shares
authorized, shares issued and
outstanding as adjusted(2)................... 6,212 99,205
Notes receivable from stockholders............ (515) (515) (515)
Deferred compensation......................... (4,850) (4,850) (4,850)
Accumulated deficit........................... (38,170) (38,170) (38,170)
-------- -------- --------
Total stockholders' equity................. 7,670 55,670
-------- -------- --------
Total capitalization..................... $ 15,755 $ 63,755 $
======== ======== ========
</TABLE>
- --------
(1) See Notes 4 and 5 of Notes to Consolidated Financial Statements.
(2) Excludes (i) 919,250 shares of Series A Common Stock issuable at a
weighted average exercise price of $.21 per share upon exercise of stock
options outstanding as of March 31, 1997 under the First 1996 Plan and the
Second 1996 Plan, (ii) 1,349,423 additional shares of Series A Common
Stock reserved for future issuance under the 1997 Equity Incentive Plan,
(iii) 400,000 shares of Series A Common Stock reserved for future issuance
under the Purchase Plan and (iv) 200,000 shares of Series A Common Stock
issuable upon exercise of outstanding warrants. Subsequent to March 31,
1997, the Company (i) issued and sold 240,000 shares of its Series C
Preferred Stock at a price of $200 per share, which will convert upon the
closing of this offering into shares of Series A Common Stock, (ii)
issued warrants to purchase, commencing December 31, 1997, 100,000 shares
of its Series C Preferred Stock at a price of $200 per share, which will
convert upon the closing of this offering into warrants to purchase
2,000,000 shares of Series A Common Stock at a purchase price of $ per
share and (iii) granted options to purchase 183,000 shares of Series A
Common Stock under the 1996 Plans with an exercise price of $1.00 per
share. See "Management--Employee Benefit Plans," "Description of Capital
Stock" and Notes 5 and 10 of Notes to Consolidated Financial Statements.
22
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1997
was approximately $55,670,000, or $ per share of Common Stock. "Pro forma
net tangible book value per share" represents the amount of total tangible
assets less total liabilities, divided by the number of shares of Common Stock
then outstanding (giving pro forma effect to the gross proceeds of the sale of
240,000 shares of the Company's Series C Preferred Stock, as if issued on or
prior to March 31, 1997 and the conversion of all then-outstanding shares of
Preferred Stock into shares of Common Stock). After giving effect to the sale
of the shares of Series A Common Stock offered hereby (at an assumed
initial public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses), the
Company's pro forma net tangible book value as of March 31, 1997 would have
been $ , or $ per share of Common Stock. This represents an immediate
increase in pro forma net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new public
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $
Pro forma net tangible book value per share at March 31, 1997........ $
Increase in pro forma net tangible book value per share attributable
to new investors....................................................
---
Pro forma net tangible book value per share after offering............
----
Dilution per share to new public investors............................ $
====
</TABLE>
The following table summarizes, as of March 31, 1997, on the pro forma basis
described above, the difference between the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by the existing stockholders and by new public investors
purchasing shares of Series A Common Stock in this offering (at an assumed
initial public offering price of $ per share and before deducting estimated
underwriting discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- ------------------- AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
----------- ------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(Series A, Series B
and Series K Common
Stock)(1).............. % $94,408,643 % $
New public investors
(Series A Common
Stock)(2)..............
----------- ----- ----------- -----
Total................. 100.0% $ 100.0%
=========== ===== =========== =====
</TABLE>
- --------
(1) After conversion of Preferred Stock in connection with this offering.
(2) The foregoing computations assume no exercise of stock options outstanding
as of March 31, 1997. As of March 31, 1997, there were options outstanding
to purchase a total of 919,250 shares of Series A Common Stock at a
weighted average exercise price of $.21 per share and warrants to purchase
200,000 shares of Series A Common Stock at an exercise price of $15 per
share. To the extent that any of these options are exercised, there will
be further dilution to new public investors. Subsequent to March 31, 1997,
the Company (i) issued warrants to purchase, commencing December 31, 1997,
100,000 shares of its Series C Preferred Stock at a price of $200 per
share and (ii) granted options to purchase 183,000 shares of Series A
Common Stock under the 1996 Plans with an exercise price of $1.00 per
share. See "Capitalization," "Management--Employee Benefit Plans" and
Notes 5 and 10 of Notes to Consolidated Financial Statements.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is qualified by
reference, and should be read in conjunction with, the Company's Consolidated
Financial Statements and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this Prospectus. The selected consolidated statement of operations data
presented below for the period from March 28, 1995 (inception) to December 31,
1995 and the year ended December 31, 1996, respectively, and the selected
consolidated balance sheet data as of December 31, 1995 and 1996, are derived
from consolidated financial statements of the Company that have been audited
by Ernst & Young LLP, independent auditors, and are included elsewhere in this
Prospectus. The selected consolidated statement of operations data for the
three months ended March 31, 1996 and 1997 and the selected consolidated
balance sheet data as of March 31, 1997 are derived from unaudited
consolidated financial statements included elsewhere in this Prospectus that
have been prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's consolidated operating results for such periods
and its financial condition as of such date. The operating results for the
three months ended March 31, 1997 are not necessarily indicative of the
results to be expected for any other interim period or any future fiscal year.
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 28, 1995
(INCEPTION) THREE MONTHS
TO YEAR ENDED ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -----------------
1995 1996 1996 1997
-------------- ------------ ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues....................... $ -- $ 676 $ -- $ 806
Costs and expenses:
Operating..................... -- 6,969 679 4,325
Product development and
engineering.................. 1,447 6,312 1,286 2,330
Sales and marketing........... 496 6,368 831 2,934
General and administrative.... 943 6,054 998 2,158
------- -------- ------- --------
Total costs and expenses....... 2,886 25,703 3,794 11,747
------- -------- ------- --------
Loss from operations........... (2,886) (25,027) (3,794) (10,941)
Interest income, net........... 130 514 84 40
------- -------- ------- --------
Net loss....................... $(2,756) $(24,513) $(3,710) $(10,901)
======= ======== ======= ========
Pro forma net loss per
share(1)...................... $ $
======== ========
Pro forma shares used in per
share calculations(1).........
======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
MARCH 31,
1995 1996 1997
------ ------- ---------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term cash
investments......................................... $6,907 $16,770 $ 6,427
Working capital (deficit)............................ 6,244 10,573 (2,335)
Total assets......................................... 8,124 33,388 26,878
Capital lease obligations, less current portion, and
other long-term liabilities......................... -- 7,329 8,085
Stockholders' equity................................. 7,212 18,317 7,670
</TABLE>
- --------
(1) For an explanation of the determination of the number of pro forma shares
used in per share calculations, see Note 1 of Notes to Consolidated
Financial Statements.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
The following discussion contains forward-looking statements. The Company's
actual results may differ significantly from those projected in the forward-
looking statements. Factors that might cause future actual results to differ
materially from the Company's recent results or those projected in the
forward-looking statements include, but are not limited to, those discussed in
"Risk Factors," "Business" and below. The Company assumes no obligation to
update the forward-looking statements or such factors.
OVERVIEW
The Company is a leading provider of Internet services to consumers and
businesses over the cable television infrastructure. The Company was founded
in March 1995 on the premise that the cable infrastructure would enable the
fastest, most cost-effective delivery mechanism for Internet services. To
overcome fundamental architectural limitations of the Internet, the Company
has been developing and deploying the @Network, a scalable, distributed
network that links its private high-speed nationwide backbone to HFC cable
systems. To date, the Company has expended more than $57.7 million on capital
expenditures and operating costs and expenses (including deferred
compensation) to design and build the @Network and the corporate
infrastructure necessary to support the rollout of the @Home and @Work
services. As of March 31, 1997, the Company had developed a nationwide
backbone, designed and implemented a Network Operations Center with end-to-end
management capabilities, deployed regional data centers in 12 geographic
areas, implemented an integrated customer management system including billing
and support, implemented a customized browser and aggregated the initial
multimedia content required to deliver the @Home service to subscribers.
The Company's primary offering, the @Home service, allows subscribers to
connect their personal computers via cable modems to the Company's new high-
speed "parallel Internet." The Company has agreements with seven leading North
American cable companies, which have granted the Company the right to
distribute high-bandwidth residential consumer Internet services over their
cable systems. The @Home service, which currently includes use of a cable
modem, is presently offered by TCI, Comcast and Cox to consumers in portions
of 12 cities and communities (of which 10 have revenue-paying subscribers) in
the United States for a flat monthly fee generally ranging from $35 to $55,
although its Cable Partners have the right to alter such fees. Under the
current arrangements with its Cable Partners in the United States, the Company
receives 35% of such monthly fees, although this percentage is subject to
change by the Cable Partners. See "Risk Factors--Dependence on Cable Partners
for Distribution; Potential Conflicts of Interest with Principal Cable
Stockholders." As of May 15, 1997, the Company had approximately 5,000
subscribers. In the second half of 1997, the Company plans to integrate its
@Home service with the Wave interactive service currently provided by Rogers
and Shaw in Canada to approximately 5,000 subscribers. The Company anticipates
that the subscriber pricing and revenue or royalty splits with cable system
operators in Canada and other international markets will differ from those
prevailing in the United States based on differences in services and content
provided by the Company and the cable system operators.
For businesses, @Work services provide a platform for Internet, intranet and
extranet connectivity solutions and networked business applications over both
cable infrastructure and leased digital telecommunications lines. In order to
accelerate deployment of @Work services into major metropolitan areas, the
Company has established a strategic relationship with TCG, the country's
largest CLEC, to provide co-location facilities and local telephone circuits
for infrastructure and subscriber connectivity. The @Work Internet service is
currently available in five metropolitan markets: Chicago, Hartford, San
Diego, the San Francisco Bay Area and Seattle. The @Work Internet service
offers dedicated high-speed Internet access options, which are priced
competitively to existing alternatives. The Company currently receives 100% of
installation and monthly access fees for these services. Businesses that are
passed by two-way HFC cable capable of delivering the @Home service also can
connect to the @Work Internet service. Under the revenue and cost arrangements
currently contemplated with
25
<PAGE>
its U.S. Cable Partners for such HFC connectivity, the Company's revenue
generally will depend on the services provided by the respective parties. As
of May 15, 1997, the Company was receiving revenues from five customers and
had agreements with more than 50 additional business customers to begin to
install service. Substantially all of these agreements are for services over
telecommunications lines.
The Company expects to generate substantially all of its revenues through
1998 from monthly fees from subscribers to the @Home service and the @Work
Internet service and from customer services provided to the Cable Partners.
The Company believes that a growing subscriber base will generate @Media
division advertising revenues, as well as revenues from premium services and
transaction processing.
The Company has incurred substantial net losses in each fiscal period since
its inception and, as of March 31, 1997, had an accumulated deficit of $38.2
million (including deferred compensation). The Company currently intends to
increase its capital expenditures and marketing and sales expenditures in
order to expand its network to support additional expected subscribers in
existing and future markets and to provide the Company's services to a growing
number of potential subscribers. As a result, the Company expects to incur
additional substantial net losses for the foreseeable future. The Company is
in the early stages of executing its business model, and the profit potential
of the Company's subscription-based business model is unproven in the Internet
industry. Because its success is dependent on the growth of the Internet into
a mass market, the Company must, among other things, develop and market
products and services that are widely accepted by consumers and businesses at
prices that will yield a profit. There can be no assurance that the Company's
services will achieve broad consumer or commercial acceptance. See "Risk
Factors--Short Operating History; History of Losses; Unproven Business Model;
No Assurance of Profitability."
The Company's ability to generate future revenues will be dependent on a
number of factors, many of which are beyond the Company's control, including,
among others, the rate at which its Cable Partners upgrade their cable
infrastructures, the success of the Affiliated LCOs in marketing the @Home
service to subscribers in their local cable areas and the prices that the
Affiliated LCOs set for the @Home service. Because of the foregoing factors,
among others, the Company is unable to forecast its revenues with any degree
of accuracy. In addition, the Company currently intends to increase its
capital expenditures and operating expenses in order to expand its network and
customer services to support additional expected subscribers in current and
future markets and to market and provide the Company's services to a growing
number of potential subscribers. To the extent that such expenses are not
accompanied or followed by increased revenues, the Company's business,
operating results and financial condition will be materially adversely
affected. Accordingly, there can also be no assurance that the Company will
ever achieve profitability. See "Risk Factors."
As described above, the Company did not commence operations until mid-1995.
In late 1996, the Company began generating its first revenues. Because of the
Company's significantly different levels of operations during 1995 and 1996,
year-to-year comparisons and a comparison of the first quarter of 1997 to the
same period in 1996 are not meaningful. The following discussion summarizes
the Company's quarterly results of operations in 1996 and the first quarter of
1997.
26
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain consolidated statement of operations
data for the Company's five most recent quarters. This information has been
derived from the Company's unaudited consolidated financial statements. In
management's opinion, this unaudited information has been prepared on the same
basis as the annual consolidated financial statements and includes all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the information for the quarters presented. This
information should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this Prospectus. The
operating results for any quarter are not necessarily indicative of results
for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1996 1996 1996 1996 1997
--------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues....................... $ -- $ -- $ 141 $ 535 $ 806
Costs and expenses:
Operating costs............... 679 1,102 1,968 3,220 4,325
Product development and
engineering.................. 1,286 1,520 1,918 1,588 2,330
Sales and marketing........... 831 1,289 1,855 2,393 2,934
General and administrative.... 998 737 1,858 2,461 2,158
------- ------- ------- ------- --------
Total costs and expenses....... 3,794 4,648 7,599 9,662 11,747
------- ------- ------- ------- --------
Loss from operations........... (3,794) (4,648) (7,458) (9,127) (10,941)
Interest income, net........... 84 79 212 139 40
------- ------- ------- ------- --------
Net loss....................... $(3,710) $(4,569) $(7,246) $(8,988) $(10,901)
======= ======= ======= ======= ========
</TABLE>
REVENUES
Revenues consist of monthly subscription fees and fees for customer support
activities for cable system operators, both of which are recognized during the
period in which services are provided. The Company began recognizing revenues
in September 1996. Total revenues were $676,000 and $806,000 for the year
ended December 31, 1996 and the quarter ended March 31, 1997, respectively.
Substantially all of the revenues to date have been derived from customer
services provided to TCI and Comcast. Revenues from related parties (the
Principal Cable Stockholders) represented 94% of revenues for the year ended
December 31, 1996 and 86% of revenues in the three months ended March 31,
1997.
COSTS AND EXPENSES
Quarterly expenses for the Company increased sequentially during 1996 and
the first quarter of 1997 as a result of increased business activities,
initially related to the build-out and testing of the @Network and more
recently attributable to subscriber growth for the @Home service commencing in
the third quarter of 1996. As the @Home service has been initiated in
additional geographic areas, increases in marketing and customer service
activities, increased personnel and the additional support of the @Network
have contributed to increases in expenses. The Company believes continued
expansion of operations as well as its network infrastructure is critical to
the achievement of its goals and anticipates that costs and expenses will
continue to increase in each quarter for the foreseeable future.
Operating Costs. Operating costs are primarily related to providing services
to customers and maintaining the @Network infrastructure. These costs include
salaries and related expenses for operating and customer service personnel,
telecommunications transport costs, content programming and the depreciation,
amortization and maintenance of capital equipment. Operating costs for the
four quarters of 1996 and the first quarter of 1997 were $679,000, $1.1
million, $2.0 million, $3.2 million and $4.3 million, respectively. Increases
in the second and third quarters of 1996 were primarily attributable to
increased expenditures to establish the Company's
27
<PAGE>
customer operations department as well as the development of additional
content programming resources. Increases in the fourth quarter of 1996 and the
first quarter of 1997 were principally attributable to additional transport
costs to support the rollout of the @Network to additional sites, maintenance
and depreciation of capital equipment, increased customer operations
expenditures to support the subscriber base and additional expenses for
content programming. Operating costs increased from $0 for the period from
March 28, 1995 (inception) to December 31, 1995 (the "Inception Period") to
$7.0 million for the year ended December 31, 1996.
Product Development and Engineering. Product development and engineering
expenses consist primarily of salaries and related expenses for personnel,
fees to outside contractors and consultants, the allocated cost of facilities,
and the depreciation and amortization of capital equipment. Product
development and engineering expenses for the four quarters of 1996 and the
first quarter of 1997 were $1.3 million, $1.5 million, $1.9 million, $1.6
million and $2.3 million, respectively. The sequential increase in expenses
for the first three quarters of 1996 was due primarily to additional personnel
costs to support the expansion, development and testing of the @Network. The
decrease in expenses in the fourth quarter of 1996 from the previous quarter
was due to a reduction in certain royalty payments. The increase in expenses
in the first quarter of 1997 over the fourth quarter of 1996 is principally
attributable to the increase in personnel and related expenses. Product
development and engineering expenses are primarily due to three areas: the
design, testing and deployment of the @Network, the development of software
tools and enabling platforms for the creation and distribution of enhanced
content and applications specifically designed to take advantage of the
@Network and the development of @Work services. Product development and
engineering costs have been expensed as incurred. Product development and
engineering expenses increased from $1.4 million for the Inception Period to
$6.3 million for the year ended December 31, 1996.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and promotional expenses. Sales and marketing expenses
for the four quarters of 1996 and the first quarter of 1997 were $831,000,
$1.3 million, $1.9 million, $2.4 million and $2.9 million, respectively. The
sequential increase in expenses was the result of increased sales and
marketing activities to support the expansion of regional deployments of the
@Home and @Work services. Sales and marketing expenses have increased
primarily due to the expansion of the Company's sales force, related travel
and entertainment expenses, expenditures for trade shows and increased
marketing activities to attract additional cable partners, subscribers and
corporate accounts. The Company and the Cable Partners both market the
Company's services to prospective customers and determine the specific costs
and expenses to be borne by each party. The Company bears the cost of national
sales and marketing programs (such as public relations, distribution, database
marketing and acquisition programs); retail distribution; joint Company/Cable
Partner market research; and retention and loyalty programs. Expenditures
typically borne by the Cable Partners include local sales and marketing
programs such as public relations, events and acquisition programs;
demonstration sites; market specific research; and cross-cable services
database marketing and bundling with core cable programs. Sales and marketing
expenses increased from $496,000 for the Inception Period to $6.4 million for
the year ended December 31, 1996.
General and Administrative. General and administrative expenses consist
primarily of administrative and executive personnel costs, fees for
professional services and the costs of in-house systems and infrastructure to
support the operations of the Company. General and administrative expenses for
the four quarters of 1996 and the first quarter of 1997 were $998,000,
$737,000, $1.9 million, $2.5 million and $2.2 million, respectively. The
quarterly increases beginning with the second quarter of 1996 were primarily
related to additions of personnel to support the operations of the Company and
their related costs. The increase in general and administrative expenses in
the third and fourth quarters of 1996 relates primarily to stock compensation
charges resulting from stock options and restricted stock purchase agreements.
General and administrative expenses increased from $943,000 for the Inception
Period to $6.1 million for the year ended December 31, 1996.
INTEREST INCOME, NET
Interest income, net was $84,000, $79,000, $212,000, $139,000 and $40,000
for the four quarters of 1996 and the first quarter of 1997, respectively.
Interest income, net was $130,000 and $514,000 for the Inception
28
<PAGE>
Period and the year ended December 31, 1996, respectively. Interest income,
net represents interest earned by the Company on its cash and short-term cash
investments, less interest expense on capital lease obligations.
INCOME TAXES
At December 31, 1996, the Company had net operating loss and research and
development tax credit carryforwards for federal and state tax purposes of
$16.0 million and $120,000, respectively, which will expire at various times
through the year 2011 if not utilized. Certain changes in the ownership of the
Company, as defined in the Tax Reform Act of 1986 and similar state
provisions, may restrict the utilization of such carryforwards. At December
31, 1996, the Company had net deferred tax assets of $11.0 million relating
principally to the net operating loss and research and development credit
carryforwards. Realization of deferred tax assets is dependent on future
earnings, if any, the timing and amount of which are uncertain. A valuation
allowance has been recorded for the entire net deferred tax asset as a result
of uncertainties regarding the realization of the asset due to the lack of
earnings history of the Company. Accordingly, the Company has not recorded any
income tax benefit for net losses incurred for any period from inception
through March 31, 1997. See Note 6 of Notes to Consolidated Financial
Statements.
NET LOSS
The Company's net loss was $3.7 million, $4.6 million, $7.2 million, $9.0
million and $11.0 million for the four quarters of 1996 and the first quarter
of 1997. The net loss increased to $24.5 million for 1996 from $2.8 million
for the Inception Period. The increase in loss was due primarily to increases
in expenses as a result of increased business activities.
FACTORS AFFECTING OPERATING RESULTS
The Company's revenue is difficult to forecast in part because the market
for high-bandwidth Internet service is rapidly evolving. The Company's
quarterly operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside the Company's
control. Factors that may affect the Company's quarterly operating results
attributable to its @Home service include the timing of Cable Partners'
upgrades of their cable infrastructures and rollouts of the @Home service, the
rate at which customers subscribe to the Company's Internet services and the
prices subscribers pay for such services, subscriber churn rates, changes in
the revenue splits between the Company and the Cable Partners, the demand for
Internet advertising, the effectiveness of Affiliated LCOs' marketing and
other operations, and potential competition with Affiliated LCOs for
advertising revenue. Quarterly operating results attributable to the Company's
@Work services are dependent on the demand for, and level of acceptance of,
the Company's corporate Internet, intranet and extranet connectivity and
telecommuting solutions, the introduction of, demand for, and level of
acceptance of, the Company's value-added business applications and the timing
of Cable Partners' upgrades of their cable infrastructures and rollouts of the
@Home service. Additional factors that may affect the Company's quarterly
operating results generally include the amount and timing of capital
expenditures and other costs relating to the expansion of the Company's
network, the introduction of new Internet and telecommuting services by the
Company or its competitors, price competition or pricing changes in the
Internet, cable and telecommunications industries, technical difficulties or
network downtime, general economic conditions and economic conditions specific
to the Internet, corporate intranet and cable industries. The Company operates
with very little backlog, and quarterly sales and operating results are
difficult to forecast even in the short term. There can be delays in the
commencement and recognition of revenue because the installation of
telecommunication lines to implement certain services have lead times that are
controlled by third parties. A significant portion of the Company's expenses
are fixed in advance based in large part on future revenue forecasts. If
revenue is below expectations in any given quarter, the adverse impact of the
shortfall on the Company's operating results may be magnified by the Company's
inability to adjust spending to compensate for the shortfall. Therefore, a
shortfall in actual as compared to estimated revenue would have an immediate
adverse effect on the Company's business, financial condition and operating
results that could be material. In addition, the Company plans to increase
operating expenses to fund additional research and development, sales and
marketing, general and administrative activities
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and infrastructure. To the extent that these expenses are not accompanied by
an increase in revenues, the Company's business, operating results and
financial condition could be materially adversely affected. Due to all of the
foregoing factors, it is likely that the Company's operating results in one or
more future quarters will fail to meet or exceed the expectations of
securities analysts or investors. In such event, the trading price of the
Series A Common Stock would likely be materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through a
combination of private sales of equity securities and capital equipment
leases. At March 31, 1997, the principal source of liquidity for the Company
was $6.4 million of cash, cash equivalents and short-term cash investments. In
April 1997, the Company raised approximately $48.0 million, less issuance
costs, from the sale of convertible preferred stock. The Company finances and
expects to continue financing its substantial capital equipment expenditures
from a variety of sources including direct vendor leasing programs and third
party commercial leasing arrangements.
The Company has had significant negative cash flows from operating
activities in each quarterly period to date. Cash used in operating activities
for the Inception period, the year ended December 31, 1996 and the quarter
ended March 31, 1997 was $2.1 million, $19.3 million and $8.3 million,
respectively. Cash used in operating activities in each of these periods was
primarily the result of net losses.
Cash used in investing activities for the Inception period and for the year
ended December 31, 1996 was $1.0 million and $14.3 million, respectively. Cash
used for investing activities in these periods was primarily the result of
capital expenditures for equipment, software, furniture and fixtures as well
as purchases of net short-term cash investments. For the quarter ended March
31, 1997, cash provided by investing activities was $3.4 million, resulting
primarily from sales and maturities of short-term cash investments, partially
offset by capital expenditures. Gross capital expenditures for equipment,
software, furniture and fixtures in the Inception period, the year ended
December 31, 1996 and the quarter ended March 31, 1997 were $963,000, $15.2
million and $4.5 million, respectively, of which $0, $7.9 million and $3.1
million, respectively, were financed through capital leases. The Company
expects to expend a minimum of $30.0 million in leasehold improvements,
equipment, software and fixtures through the remainder of 1997, much of which
will be financed through capital leases.
Cash provided by financing activities for the Inception period and the year
ended December 31, 1996, was $10.0 million and $36.5 million, respectively,
resulting primarily from net proceeds from the sale of Preferred Stock. Cash
used in financing activities for the quarter ended March 31, 1997 was $688,000
resulting primarily from payments on capital lease obligations.
The Company believes that the net proceeds from this offering, together with
existing cash, cash equivalents, short-term cash investments and capital lease
financing, will be sufficient to meet its working capital and capital
expenditure requirements for at least the next 18 months. Thereafter, if cash
generated by operations is insufficient to satisfy the Company's liquidity
requirements, the Company may need to sell additional equity or debt
securities or obtain additional credit facilities. The sale of additional
equity or convertible debt securities may result in additional dilution to the
Company's stockholders. There can be no assurance that the Company will be
able to raise any such capital on terms acceptable to the Company or at all.
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BUSINESS
The Company is a leading provider of Internet services over the cable
television infrastructure to consumers and businesses. The Company's primary
offering, the @Home service, allows subscribers to connect their personal
computers via cable modems to a new high-speed "parallel Internet" developed
and managed by the Company. This service enables subscribers to receive the
"@Home Experience," which includes Internet service at a peak data
transmission speed over 300 times faster than typical dial-up connections,
"always on" availability and rich multimedia programming through an intuitive
graphical user interface. The technology foundation of the @Home Experience is
the "@Network," which optimizes traffic routing, ensures security and
consistency of service, and facilitates end-to-end network management in order
to enhance its ability to address performance bottlenecks before they affect
the user experience. The content foundation of the @Home Experience is
provided by the Company's @Media division, which aggregates content, sells
advertising to businesses and will provide premium services to @Home
subscribers.
The Company has entered into distribution arrangements for the @Home service
with TCI, Comcast, Cox, Rogers, Shaw, Marcus and Intermedia (collectively,
together with their affiliates, the "Cable Partners"), whose cable systems
pass approximately 44 million homes in North America and who have been
upgrading these systems to hybrid fiber coaxial cable. The Company has
launched its service through TCI, Comcast and Cox in portions of 12 cities and
communities (of which 10 have revenue-paying subscribers) in the United
States. To expand distribution, the Company is aggressively seeking to work
with additional United States and international cable system operators. In
order to shorten time to market for cable operators, the Company provides a
turnkey solution, which includes not only a technology platform, but also
marketing, customer service, billing and a national brand. According to Paul
Kagan Associates, Inc., cable is available to 97% of the homes in the United
States, and, according to Baskerville Communications, there will be
approximately 203 million homes passed in Europe and the Asia Pacific region
in the year 2000.
For businesses, @Work services provide a platform for Internet, intranet and
extranet connectivity solutions and networked business applications over both
cable infrastructure and leased digital telecommunications lines. In order to
accelerate deployment of the @Work services into major metropolitan areas, the
Company has established a strategic relationship with TCG, the country's
largest competitive local exchange carrier, to provide co-location facilities
and local telephone circuits for infrastructure and subscriber connectivity.
By combining @Network's distributed architecture with cable, telephone and
technology relationships, the @Work services provide a compelling platform for
nationwide delivery of network-based business applications. The Company has
developed this platform at a low incremental cost by leveraging its existing
@Network investment. Forrester Research projects that United States
commercial Internet access revenues will climb from $595 million in 1996 to
$10.4 billion in 2000.
The Company was founded in March 1995 on the premise that the cable
infrastructure would enable the fastest, most cost-effective delivery
mechanism for residential Internet services but the actual speed of these
services would ultimately be limited by the fundamental architecture of the
Internet. As a result, the Company assembled a team of industry experts to
develop an advanced network architecture and the custom hardware and software
products that would address these limitations. Prior to launching the @Home
service in September 1996, the Company implemented a nationwide backbone,
designed and built its Network Operations Center with 24X7 end-to-end
management capabilities, deployed regional data centers and headend equipment,
implemented an integrated customer management system including billing and
support, implemented a customized browser and aggregated the multimedia
content required to deliver the @Home Experience to its first subscribers.
INDUSTRY BACKGROUND
GROWTH OF INTERNET USAGE AND CONTENT
The Internet, a network of hundreds of interconnected, separately-
administered public and commercial networks, has emerged as a global
communications medium enabling millions of people to share information and
conduct business electronically. During the past few years, the number of
Internet users, advertisers and
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content developers and businesses online has grown dramatically. With readily-
available, low-cost Internet access, consumers and businesses are making
increased use of Web browsers, electronic mail, corporate intranets,
telecommuting, online advertising and electronic commerce. According to
Jupiter Communications, the number of Internet households worldwide will grow
from an estimated 23.4 million in 1996 to 66.6 million by 2000. The Company
believes that this growth in the number of users will drive more dramatic
growth in both Internet advertising, which International Data Corporation
("IDC") estimates will grow from $181 million in 1996 to $2.9 billion in 2000,
and Internet commerce, which IDC estimates will grow from $318 million in 1995
to $95 billion in 2000.
Internet usage continues to be stimulated by a number of factors, including
the emergence of the World Wide Web, the increasing sophistication of Internet
browsers and Web-enabled software, the availability of low-cost, flat-rate
pricing for Internet access and online services, and the wealth of
increasingly-useful information published on the Internet. Increased Internet
use and the availability of powerful new tools for the development and
distribution of Internet content have led to a proliferation of Internet-based
services, such as advertising, online magazines, specialized news feeds,
interactive games and educational and entertainment applications, that are
increasingly incorporating multimedia information such as video and near-CD-
quality audio clips. The Internet has the potential to become a platform
through which consumers and businesses easily access rich multimedia
information and entertainment, creating new sources of revenue for
advertisers, content providers and businesses. The growth of Internet
advertising and commerce depends, in part, on the ability of advertisers and
online merchants to deliver a compelling multimedia message to attract viewers
and potential customers. However, multimedia content and other data-intensive
applications require high bandwidth.
LIMITATIONS OF INTERNET ARCHITECTURE AND BANDWIDTH
The potential of the Internet as a medium for communication, education,
entertainment and commerce remains unfulfilled due to problems with its
performance and reliability. The Internet's performance limitations stem from
its basic architecture, which is not optimized for distribution of data-
intensive multimedia content. A limitation associated with any element in the
system, whether it is the "last-mile" connection to the user (the "local
loop"), the infrastructure of the ISP or OSP, the Internet backbone or the
content provider's Web server, can result in performance bottlenecks that slow
data transmission speed to that of the weakest link. For example, the Internet
frequently becomes overloaded when transmitting the same data streams from
popular Web site servers to millions of individual users. In addition, dial-up
users frequently encounter busy signals upon attempting to connect to their
ISP/OSPs and are unable to readily access quality multimedia content due to
the slow speed of their analog modems. Because the Internet is an
interconnection of independently operated networks, there is no single point
of accountability or management to respond to performance problems or to
ensure optimized Internet traffic routing, security or consistency of service.
Therefore, no single ISP/OSP offers an end-to-end solution to Internet
bottlenecks. Performance limitations of the Internet frustrate and discourage
users from fully utilizing it as a convenient and effective information tool,
a compelling educational and entertainment resource, or a way to purchase
goods and services.
TECHNOLOGIES TO INCREASE INTERNET BANDWIDTH
Several new technologies attempt to address the performance problems of the
Internet. While these technologies increase the transmission speed of data
across the local loop, they do not provide an end-to-end solution to the
fundamental performance constraints inherent in the Internet architecture.
Improved Modem Offerings. In early 1997, dial-up modems offering peak data
transmission speeds of 56 Kbps were introduced for use with ISP/OSPs over
existing telephone lines, although many ISP/OSPs do not yet support this
transmission speed. The lack of a universal standard has slowed the rate of
adoption of faster modems.
Telecommunications-Based Offerings. Integrated Services Digital Network
("ISDN") technology enables peak data transmission speeds of 128 Kbps between
the user and the ISP/OSP over specially conditioned
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telephone lines. Although ISDN technology has been available for several
years, it has not been widely deployed due primarily to its high costs.
Asymmetric Digital Subscriber Line ("ADSL") is currently the most prominent
implementation of Digital Subscriber Line ("xDSL") technology, an emerging
telecommunications protocol originally developed to deliver video on demand.
ADSL enables peak data transmission speeds of 8.4 Mbps downstream from the
ISP/OSP to the user and 640 Kbps upstream from the user to the ISP/OSP;
however, typical implementations realize substantially lower data transmission
speeds. ADSL access is priced significantly above other access services and is
not expected to be widely available in the near term.
Wireless Offerings. Satellite-delivered approaches such as direct broadcast
satellite ("DBS") currently provide peak data transmission speeds of
approximately 400 Kbps downstream and rely on dial-up modems and the telephony
network for upstream transmission ("telephone return"). These approaches have
scaling limitations due to the necessity of dividing a finite amount of
satellite bandwidth among subscribers in a broad geographic area. Other
wireless offerings rely on ground-based radios instead of satellites. Such
offerings include multichannel multipoint distribution service ("MMDS") and
local multipoint distribution service ("LMDS"), which are one-way and two-way
high-bandwidth wireless digital broadcasting systems, respectively. MMDS and
LMDS are not yet widely available, require unobstructed "line-of-sight"
transmission paths and may require additional radio frequency spectrum
allocations, an entirely new distribution infrastructure and new equipment
(including specialized radio modems).
Cable Offerings. In recent years, cable system operators have been upgrading
to hybrid fiber-coaxial ("HFC") cable infrastructure both to compete more
effectively with DBS television providers, which offer a large number of
television channels with digital audio and video, and to increase revenue by
offering digital television, telephony, and data transmission using cable
modems through the upgraded infrastructure. Like corporate LANs, the cable
infrastructure is "always on" and does not consume network resources when
idle, making it well-suited for Internet data transmission. This architecture
contrasts with a switched telephone system, which requires a separate
completed circuit for each data transmission session. Peak data transmission
speeds across HFC cable approach 27 Mbps downstream and 10 Mbps upstream.
Modern HFC networks are highly scalable because HFC cable can transmit
multiple independent data streams over the fiber optic distribution system
that links a single headend (a cable distribution center) to several
neighborhoods in a metropolitan area.
THE COMPANY'S OPPORTUNITY
The Company believes that the rich, multimedia promise of the Internet can
be delivered to businesses and consumers through the global deployment of a
new network architecture that exploits the performance advantages and "always
on" characteristic of the two-way HFC cable infrastructure. Such an
architecture would significantly enhance the user's experience by enabling and
encouraging the creation and aggregation of compelling, multimedia content
that is optimized for a high-bandwidth environment. The Company also believes
this network architecture could be leveraged to extend high-speed Internet
access to businesses, deliver value-added applications and provide remote
access to corporate LANs. For cable system operators, the Company believes a
turnkey data transmission solution that provides the data network design
capability and other engineering resources required to address the complex
problems associated with delivering high-speed Internet services over cable
would have strong appeal.
THE COMPANY'S SOLUTION
The Company is a leading provider of Internet services to consumers and
businesses over cable infrastructure. The Company has entered into
distribution arrangements for the @Home service with TCI, Comcast, Cox,
Rogers, Shaw, Marcus and Intermedia, whose cable systems pass approximately 44
million homes in North America. The Company's two Internet services, @Home for
consumers and @Work for businesses, provide an end-to-end solution over the
Company's new network architecture (the "@Network"), which is a high-
performance "parallel Internet" for high-bandwidth data transmission and
content. The @Network leverages the cable infrastructure and other high-speed
local-loop technologies, alleviates the bottlenecks inherent
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in the architecture of the Internet and serves as a platform for a variety of
high-bandwidth interactive services. The @Home service combines the
technological and programming capabilities of the Company to provide the
comprehensive "@Home Experience." The @Home Experience includes the fastest
residential Internet access currently available (over 300 times faster than a
28.8 Kbps modem) and is "always on" (eliminating the tedious and unreliable
dial-up process). The Company's @Media programming services aggregate high-
quality and compelling multimedia content, stimulate the development of new
high-bandwidth content and deliver this content through an intuitive graphical
user interface. The @Work services offer secure and reliable Internet access
through connections between corporate LANs and the @Network, and the ability
to create virtual private networks. In addition to providing programming
services for the @Home Experience, the Company's @Media division sells
advertising and will package premium services. The Company's comprehensive
customer and technical service organization supports all of its services on a
24X7 basis. The Company expects that many of its services will be highly
transferable to international markets, recognizing that some degree of
localization of content will be essential to achieving success.
The @Network is a scalable, distributed, intelligent network architecture
that combines a private high-speed nationwide backbone with distributed
caching. Caching moves frequently accessed information close to the user to
avoid multiple transmissions of the same data over the backbone. The @Network
is an end-to-end network solution, enabling the Company to manage the network
24 hours a day from a central Network Operations Center ("NOC") and enhancing
its ability to address performance bottlenecks before they affect the user
experience. All elements of the @Network are readily scalable, enabling it to
provide sustainable high performance as usage increases. In order to shorten
time to market for cable operators, the Company provides a turnkey solution,
which includes not only a technology platform, but also a national brand,
marketing, customer service and billing. This solution enables cable operators
to leverage their infrastructures to deliver high-bandwidth, interactive data
services that represent significant new revenue opportunities.
STRATEGY
The Company's objective is to leverage the cable infrastructure and other
high-speed, local loop transmission technologies to become the leading global
provider of branded, high-speed Internet services. The Company's strategy to
achieve this objective has the following key elements:
Expand Distribution. The Company has strategic relationships with seven
leading cable companies whose cable systems pass approximately 44 million
homes. To expand distribution, the Company aggressively seeks to form
strategic relationships with additional United States and international cable
companies to obtain exclusive rights to their coverage areas. In addition, the
Company has developed a comprehensive set of step-by-step plans and
certification processes to verify that cable companies have upgraded their
cable systems to a two-way HFC cable infrastructure that is capable of
delivering the Company's services. With these plans and processes, TCI,
Comcast and Cox have launched the @Home service in portions of 12 cities and
communities (of which 10 have revenue-paying subscribers) in the United
States. The Company plans to continue to roll out the @Home service as cable
system operators complete two-way HFC upgrades. In addition, to access
residences that are not upgraded to two-way HFC cable, the Company is
exploring alternative delivery mechanisms, such as the use of one-way HFC
cable with telephone return and the use of high-speed telecommunications
services for multiple dwelling units ("MDUs").
Drive Penetration by Providing the Most Compelling Internet Experience. The
Company strives to provide the most compelling interactive Internet experience
available to drive subscriber penetration. The @Home service enables the @Home
Experience, which includes the fastest residential Internet access currently
available, is "always on" and aggregates high-quality and compelling
multimedia Internet content, including video clips and near-CD-quality sound,
with an intuitive graphical user interface. The Company is working with
leading advertisers and over 100 content providers to develop multimedia
content that takes advantage of the high bandwidth and caching and
multicasting capabilities of the @Network to provide an enriched interactive
experience for the user. For international markets, the Company intends to
rely on local cable system operators and content providers to develop high-
quality localized content that delivers the @Home Experience abroad. The
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Company manages the @Network from end to end, 24 hours a day, enhancing its
ability to address performance bottlenecks before they affect the user
experience. The Company and the Cable Partners have developed a comprehensive
approach for managing all subscriber interactions, including installation,
billing and transaction management, technical support and customer service,
intended to ensure that every customer interaction with the @Home service is a
positive experience.
Build Brand Awareness. The Company's marketing strategy is to accelerate
penetration within its geographic markets by creating awareness for the
"@Home" brand to make it synonymous with a compelling online interactive
multimedia experience. The Company supports this strategy through cooperative
promotional programs with the Cable Partners, which are licensed by the
Company to use the "@Home" brand in conjunction with their own brands in the
distribution of the Company's services, and through certification of third-
party hardware and software products as "@Home Ready."
Maintain Technological Leadership. The Company's technology strategy is to
continue to develop advanced technological solutions that maximize the
inherent advantages of "always on" connectivity, speed, security and
reliability afforded by the cable infrastructure and the @Network. The Company
continually works to develop: new caching and replicating techniques to
improve the performance and efficiency of the @Network; advanced multicasting
technologies to provide efficient transport of "one-to-many" content;
adaptations of the Company's services for use over non-HFC access
technologies; advertisement targeting and content personalization systems to
fit desired subscriber profiles; virtual private network technology solutions
to enable secure and scalable end-to-end telecommuting and commercial services
over the @Network; and other services and technologies designed to enhance the
@Home Experience and improve market penetration.
Offer Unique Value Proposition to Business Subscribers. The Company's
strategy for its @Work services is to provide secure, reliable corporate
Internet, intranet and extranet connectivity solutions complemented by a
series of network-based business applications. By combining @Network's
distributed architecture with cable, telephone and technology relationships,
the @Work services provide a compelling platform for nationwide delivery of
network-based business applications. The Company has developed this platform
at a low incremental cost by leveraging its existing @Network investment. For
example, by connecting distance workers to the corporate LAN in areas where
the @Home service is available, the Company believes the @Work services can
offer a fast, secure and cost-effective solution for telecommuters. The @Work
services will also facilitate corporate broadcasting to the desktop, and
distributed applications and Web hosting. The Company intends to expand its
network reach by leveraging its relationships with TCG (the nation's largest
CLEC), cable system operators, other high-speed facility providers and
technology suppliers to reach commercial subscribers across the nation. The
Company intends to create awareness of the "@Work" brand, making it synonomous
with network-based distributed applications.
Drive Incremental Revenues from Advertising and Premium Services. The
strategy of the Company's @Media division is to leverage the high bandwidth
and comprehensive usage-compilation capabilities of the @Network to offer
advertisers and content providers a technological platform for the delivery of
rich, multimedia advertising and premium content to @Home subscribers. The
Company sells advertising that uses the @Home audio/video advertising window
to businesses for advertising on national areas of the @Home Guide for the
@Home service. The Company also works with content and application providers
to deliver specialized content such as high-speed online interactive games,
new applications such as near-CD-quality online music, and online transactions
where subscribers can automatically purchase and download software or music.
The multimedia and technology platforms developed with @Media technologies
significantly enhance the @Home Experience. The Company negotiates revenue
sharing agreements for such advertising, content and online transactions.
PRODUCTS AND SERVICES
The Company currently offers two Internet services, @Home for consumers and
@Work for businesses. The Company's @Media division complements the @Home
service by providing programming, selling advertising and packaging premium
services.
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@HOME SERVICE
The Company's primary offering is the @Home service, a comprehensive
Internet solution that leverages the two-way HFC cable television
infrastructure and the Company's technological and programming capabilities to
provide the @Home Experience, which the Company believes is the most
compelling consumer Internet experience currently available. By connecting via
a cable modem to the @Network through the local cable infrastructure, @Home
subscribers' personal computers can achieve peak data transmission speeds over
two-way HFC cable of 10 Mbps (10,000 Kbps), over 300 times faster than the
peak data transmission speed of a 28.8 Kbps modem. This high bandwidth is
critical for enabling sophisticated multimedia applications, advertising,
online commerce and online interactive games. In addition, the cable
infrastructure is "always on," providing instantaneous access to the Internet
and eliminating the need for a tedious dial-up procedure using the telephone
network.
The Company's programming services, provided by the @Media division, enhance
the @Home Experience by aggregating high-quality and compelling multimedia
content available on the Internet and delivering this content through an
intuitive graphical user interface. The cornerstone of this programming is the
@Home Guide, the user's guide to the high-quality multimedia content on the
Web. The Company believes the @Home Guide broadens the appeal of online
services beyond technology enthusiasts to the mass market by simplifying
navigation, increasing the subscriber's knowledge of Internet resources,
presenting compelling high-bandwidth content with animated graphics, near-CD-
quality audio and video clips, and stimulating persistent usage by promoting
current events and interesting new services. The @Home Guide is organized
around a series of "channels," which are defined by both topical subjects
(such as news, technology, sports or popular culture) and audiences (such as
children, game players or shoppers), and which present engaging "best of the
Web" editorial content every day. With the @Home Guide, the Company generates
and directs regular audience traffic to @Media and content providers'
offerings. The @Home Guide includes @Home QuickHits, which takes advantage of
the "always on" feature of the @Home service to provide one-click access to
personal stock portfolios, local weather and traffic, dining and other useful
daily information. The @Home Experience also permits @Home subscribers to
access online services, purchase software and engage in multiplayer gaming and
interactive shopping.
The @Home service, including a cable modem provided by the Cable Partner, is
currently offered to consumers for flat monthly fees generally ranging from
$35 to $55. Installation of the @Home service is provided by the Cable Partner
at a price generally ranging from $75 to $175. Upon installation, each new
subscriber's personal computer is configured for the @Home Experience with
@Home client software, which provides access to the @Home Guide and an
extensive set of online services. The @Home client software includes a
customized Netscape browser and other high-performance and multimedia software
optimized for the @Home Experience. In addition to making the Internet
considerably easier to access for consumers, this software offers advertisers
and content and application providers a rich and consistent client environment
for delivering multimedia advertising, content and applications.
The @Home service is currently offered by TCI, Comcast and Cox in portions
of 12 cities and communities in the United States, 10 of which are in
commercial service: Arlington Heights (IL), Baltimore (MD), Fremont (CA),
Hartford (CT), Orange County (CA), Phoenix (AZ), San Diego (CA), Sarasota
(FL), Seattle (WA) and Union County (NJ); and two of which are in test:
Detroit (MI) and Philadelphia (PA). Under the current United States Cable
Partner arrangements, the Company receives 35% of monthly fees and fees for
premium services, and the Cable Partner retains the entire installation
payment. In Canada and other international markets, subscriber pricing and
revenue or royalty splits with cable system operators may be different from
those that prevail in the United States based on differences in services and
content provided by the international cable system operators, data transport
costs and regulatory environments. For areas where two-way HFC cable is not
yet available, the Company has developed a telephone return version of the
@Home service, which uses one-way HFC cable for high-speed downstream
transmission and an analog telephone line for upstream transmission, and an
MDU @Home service offering delivered via a digital telecom-based connection
for high-density apartment and condominium complexes. To access the @Home
service, subscribers need a personal computer with at least
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a 66 MHz 486 or equivalent microprocessor and 16 megabytes of main memory. The
Company is developing software and a specialized @Home service to enable set-
top boxes connected to televisions and cable modems to deliver the @Home
Experience to the broad market that does not use computers.
@WORK SERVICES
@Work services provide a platform for corporate Internet, intranet and
extranet connectivity solutions and have the ability to provide a series of
networked business applications over both HFC cable and leased digital
telecommunications lines that leverage the @Network. In order to accelerate
deployment of @Work services into metropolitan areas, the Company has
established a strategic partnership with TCG, the country's largest CLEC, to
provide targeted co-location and local telephone circuits for infrastructure
and subscriber connectivity. The Company offers @Work Internet and plans to
offer @Work Remote services.
@Work Internet. The @Work Internet service delivers dedicated, high-speed,
end-to-end managed Internet connectivity to commercial enterprises over both
local telephone circuits and HFC cable. The @Work Internet service offers
telecommunications access options at peak data transmission speeds ranging
from 56 Kbps to 45 Mbps, which are priced competitively to existing
alternatives. Businesses that are passed by two-way HFC cable in areas where
the @Home service has been launched can connect to the @Work Internet service
without paying for local telephone circuits. The @Work Internet HFC service
offers peak data transmission speeds of 10 Mbps downstream and 384 Kbps
upstream using the @Network. The @Work Internet service is currently available
in five major metropolitan markets: Chicago, Hartford, San Diego, the San
Francisco Bay Area and Seattle.
@Work Remote. The Company has developed the @Work Remote service to offer
secure, high-speed telecommuting solutions via HFC cable and virtual private
networks among remote users, branch offices and a corporate LAN. The @Work
Remote service includes the network equipment and software needed to connect
the corporate LAN securely to the @Network via high-bandwidth local telephone
circuits. Users will be able to gain secure access to all of their corporate
LAN resources 24 hours a day, seven days a week. The Company offers virtual
private network capability between branch offices and corporate headquarters.
The Company is currently negotiating arrangements with the Cable Partners to
offer the @Work Remote service over the cable infrastructure for
telecommuters.
The Company's future @Work services offerings are expected to include
internal corporate multicasting, "push-based" multimedia content delivery and
geographically distributed Web site hosting services. In addition, by
designing each RDC to include high-availability, high-performance servers and
mass storage, the Company will have the ability to deliver and facilitate
next-generation client-server and distributed-object networked business
applications.
@MEDIA SERVICES AND TECHNOLOGIES
The @Media division sells advertising and, in partnership with content
providers, packages advertising-supported transaction and premium services
which it will offer to @Home subscribers. Advertisers and content providers
can utilize @Media technologies that enable them to exploit the high-
bandwidth, multimedia capabilities of the @Network. In addition, the @Media
division provides the programming services that aggregate the high-quality and
compelling multimedia content delivered through the @Home Guide, the
cornerstone of the @Home Experience.
The @Media division sells advertising through the "B*box," a broadband
audio/video advertising space located in the @Home Guide. With the B*box,
advertisers are not constrained by the Web banner paradigm and can broaden
their creative presentation using video clips, near-CD-quality audio and
animation. Advertisers have the ability to enhance their message by using
multimedia tools and technologies such as Shockwave, Quicktime Video and Real
Audio. The Company has a broad range of revenue-generating advertisers,
including CondeNet, General Motors, InsWeb, Toyota and Unilever. Advertisers
have reported response rates (click-throughs)
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substantially greater than they currently experience with traditional Web
banner advertisements. The Company believes that advertisers' ability to
present more compelling messages to online users will lead to advertising
rates greater than those charged for banner advertising on the Web.
The Company believes that growth in its subscriber base will be critical to
attracting advertisers. In addition to traditional sales and marketing
efforts, the Company has developed a variety of compelling programming
services delivered through the @Home Guide in order to drive incremental
subscriber penetration. In addition to receiving advertising fees, the @Media
programming services provide a variety of revenue sources. Examples of @Media
programming services include:
Real-Time News and Entertainment Services: Continuously-updated,
scrolling headlines delivered via the News Carousel in the News, Sports and
Business @Home Guide channels, and video clips presenting top stories,
sports highlights and movie previews. Current @Media partners include
Bloomberg, CNET, CNN, MSNBC, SportsLine, The New York Times and USA Today.
Enhanced Search and Directory Services: Leading search and directory
services integrated into the @Home Guide. The Company shares in the
advertising revenue generated from these services. Current @Media partners
include BigBook, Excite, Infospace, Switchboard, WhoWhere, Yahoo! and Zip2.
Digital Audio Services: Near-CD-quality audio on various music, talk and
event channels (e.g. jazz, rock and 24-hour sports talk) via the Company's
TuneIn service. Users can simultaneously listen to TuneIn and browse the
Internet without a material degradation in download speeds. Current @Media
partners include CNET Radio, Net Radio, SportsLine and TheDJ.
Software Purchase with Real-time Downloading: Purchase and download
software titles at speeds substantially faster and with greater reliability
than a typical dial-up modem. A current @Media partner, CNET, provides its
BuyDirect.com service.
High-Speed Multiplayer Gaming: Download and play popular Internet games
against other online players, delivered via @Home Games, an @Home Guide
channel. A current @Media partner, CNET, provide its gamecenter.com
service.
Interactive Shopping: Evaluate and purchase goods via an interactive
multimedia shopping experience. A current partner is iQVC.
The @Media division offers a series of technologies to advertisers and
content providers in delivering compelling multimedia advertising and premium
services, including Replicate, DirectConnect, M-Cast and KnowledgeAPI.
Replicate enables the Company's content partners to place copies of their
content and applications locally on the @Network. DirectConnect allows content
providers to connect directly to the Company's high-speed network without
traversing the congested Internet, further accelerating transmission speeds
between popular sites and services. M-Cast enables the efficient multicasting
of advertising, content and services such as continually updated news and
sports information, video clips and audio from one source to many subscribers
simultaneously. KnowledgeAPI is software that enables the personalization and
targeting of both content and advertising to specific interest groups based on
subscriber-provided profile information. For example, for an @Home Games
multiplayer online game, the Company could utilize Replicate to enable fast
downloading of the game software, DirectConnect to minimize the latency
between users and the game server (enabling an interactive "fast-twitch"
experience), M-Cast to efficiently distribute realtime game-play positional
data to all simultaneous players, and KnowledgeAPI to match gamers with
similar interests.
@NETWORK ARCHITECTURE
The Company designed the @Network on the premise that sustainable, high-
performance Internet access requires a new, scalable architecture to alleviate
Internet bottlenecks and to enable true end-to-end network management
capabilities. The Company has developed and implemented its scalable,
distributed intelligent network architecture that links a private high-speed
nationwide backbone with Cable Partners' HFC systems and the TCG
infrastructure. To ensure compatibility and seamless access to the Internet,
this high-performance
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"parallel Internet" uses the same underlying communications protocols and is
effectively one of the world's largest intranets. Residential subscribers
access the network primarily through high-speed cable modems, which attach to
their personal computers via a standard Ethernet connection, while businesses
can also connect through CLEC telecommunications networks. The two key
principles of the Company's network strategy are moving data closer to the
user and end-to-end network management.
Moving Data Closer to the User. The @Network utilizes caching and
replication technologies to move the information a subscriber requests close
to the subscriber. While communications costs have dropped over time, the cost
of processing and storing data has diminished faster. In addition to this
fundamental shift in the economics of processing and storage versus
communications, local caching dramatically reduces backbone network traffic
enabling the @Network to overcome a fundamental weakness of the Internet--
duplicative data transfers. For example, when a subscriber downloads a video
clip from a Web site, the user must "pull" data across the Internet from that
Web site to the user's ISP and finally to the user's computer. If the user's
neighbor requests the same video clip from that Web site, the neighbor pulls
the same data across a similar path. In contrast, the Company's approach would
move the video clip over its high-speed backbone only once in a given
geographic area and retain it in a local cache near the user's home where it
could be accessed by every subscriber within that area without retransmission
over the backbone. This more cost-effective approach simultaneously improves
the end user's performance and reduces traffic volume across the backbone.
End-to-End Network Management. End-to-end network management is achieved
through the Company's proactive network quality, service and performance
management systems. The @Network provides visibility from the Company's
servers (or content partners' servers) across the backbone and all the way to
the subscriber's home. Because the @Network is centrally managed, the Company
can dynamically identify and enhance network quality, service and performance
or address issues before they affect the user experience.
The primary components of the @Network are the Company's high-speed private
national backbone, RDCs, regional networks, headends (including caching
servers), network connections and cable modems and the Network Operations
Center.
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[GRAPHIC APPEARS HERE]
Graphic depicts the network architecture of the @Network. The graphic
illustrates the connections among the various components of the @Network,
including network access points (NAPs) to the Internet, private national
backbone, regional networks, RDCs, headends and buildings. A caption at the
lower left of the graphic illustrates the connections, at the home, among two-
way HFC cable, a cable modem, an ethernet card and a personal computer. A legend
at the lower right of the graphic identifies the following services depicted as
images on the graphic along with the following peak data transmission speeds:
(i) @Home (Downstream--up to 27 Mbps; Upstream--up to 10 Mbps); (ii) @Work
Remote (Downstream--up to 27 Mbps; Upstream--up to 10 Mbps); and (iii) @Work
Internet (up to 45 Mbps). The legend also identifies the Regional Network and
its peak data transmission speed of 45-155 Mbps, as well as a line that
illustrates the @Work Virtual Private Network capability.
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Private National Backbone. The Company operates its own private national
backbone, which consists of a network of high-speed asynchronous transfer mode
("ATM") communications services that the Company leases to connect its RDCs
and regional networks with content providers and the Internet. These services
currently operate at a speed of 45 Mbps and can be upgraded to 155 Mbps. This
backbone can be viewed as a high-speed "parallel Internet" that connects via
the Company's routers to the Internet at multiple network access points
("NAPs") with "Tier-One" peering status, which permits the Company to exchange
Internet traffic with other nationwide ISPs. The Company's backbone approach
provides a high performance, cost-effective, scalable transport facility that
can extend service to new areas without requiring frequent network topology
reconfigurations.
Regional Data Centers. The RDCs act as service hubs for defined geographic
areas, such as major metropolitan areas, providing key services, including e-
mail, news groups and chat facilities, to subscribers, proactively managing
network performance, replicating content and applications, and providing an
economical infrastructure to cache and multicast data throughout a region and
to house local content and subscribers' Web pages. The Company uses state-of-
the-art "high-availability" servers in its RDCs for these mission-critical
activities in order to provide the maximum service availability that consumers
and commercial subscribers expect. To date, the Company has deployed RDCs in
12 geographic areas. The Company estimates that to provide the @Home service
throughout North America will eventually require it to deploy between 30 and
50 RDCs.
Regional Networks. The regional networks consist of network routers and
switches that interconnect the Company's RDCs and its national backbone to
multiple cable headend facilities at speeds of 45 Mbps to 155 Mbps. These
networks generally take advantage of cable operators' fiber optic
infrastructures that are normally used to transport cable television signals
from a consolidated master headend facility to other headends within a region.
This approach allows the Company to frequently avoid the high cost of leasing
conventional high-speed communication services from local telephone companies
when deploying high-speed connectivity in a region.
Headends. The cable system headends are connected to each RDC through the
regional network. In order to move data as close to the subscriber as possible
and to avoid repetitive transmission of the same data, the headends employ
high-performance caching servers which store frequently accessed content
locally, thereby greatly reducing the amount of data transmission (and
corresponding transport costs) in higher layers of the network. In addition,
local caching servers can compile far more comprehensive usage data than is
normally attainable on the Internet, which data can be used for network
troubleshooting, tuning performance and tailoring the service. Additional
caching servers and/or storage capacity can be added economically as
penetration in a particular community grows, increasing the ability to support
additional service demand without significant capital outlay.
Network Connections and Cable Modems. The last leg of the network connection
is from the headend to the consumer over a cable operator's HFC cable system.
Multiple fiber optic lines carry the signal from the headend out to cable
"nodes" in each neighborhood, which in turn connect through traditional
coaxial cable to the home. These fiber optic nodes typically service from 300
to 2,000 homes in a relatively modern cable system. In such a system, each
television channel requires 6 MHz of the 450-750 MHz of total system capacity.
Downstream transmission of the @Home service utilizes a similar channel.
Upstream transmission, however, utilizes a frequency range not used for
traditional broadcast by cable systems. This range is more prone to
interference than downstream channels. In such a two-way system, no use of
telephone line facilities in the home is required. In the home, a cable modem
connects to the cable television coaxial wiring and attaches to the user's
personal computer via standard Ethernet connections. Cable modems are
manufactured by a variety of vendors, including Motorola and Bay Networks. The
peak data transmission speed of a cable modem depends on the specific model
and can approach 27 Mbps downstream and 10 Mbps upstream. Even when cable
modems operate at these speeds, however, the performance that subscribers
actually experience is often constrained by their operating systems, software
and hardware.
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The @Network is "always on" unlike switched technologies such as dial-up and
ISDN. The coaxial cable connection from the neighborhood node to the home is a
medium shared among those subscribers attached to a given fiber optic node or
a number of combined fiber optic nodes. Proximate users share high-bandwidth
access (much like corporate LANs) and may limit the effective bandwidth that
is available to a given subscriber at a given time. However, this shared
connection is particularly efficient and well suited to the sporadic nature of
Internet traffic, where browsing tends to consume bandwidth in discrete bursts
intermixed with periods of inactivity. As subscriber penetration increases,
the cable operator has multiple cost-effective alternatives to increase
capacity, including allocating additional 6 MHz channels for the @Home service
or reducing the number of subscribers sharing a given bandwidth by adding
lasers and transmitters each of which serve a smaller number of subscribers
over the same fiber-optic infrastructure. These approaches allow the cable
operator to fine-tune both the amount of bandwidth available and the number of
users sharing that bandwidth, and to increase bandwidth incrementally as
subscriber penetration in a market increases.
Network Operations Center. The Company provides end-to-end network
management through its NOC. The NOC uses advanced network management tools and
systems to monitor the network infrastructure on a 24X7 basis, enhancing its
ability to address performance bottlenecks before they affect the user's
experience. From the NOC, the Company can manage the @Network from end-to-end,
including the backbone, RDCs, regional networks, headends facilities, servers
and other components of the network infrastructure to the user's home.
The Company also utilizes certain key technologies from third parties to
build and manage the @Network. In particular, the Company has established
strategic relationships with Sun for high availability servers, SGI for
caching servers, Cisco for network routing and switching hardware, Sprint for
national switched ATM backbone services, OSI for network management software,
Tivoli for systems management software to operate RDCs remotely, Oracle for
advanced database management software and Netscape for server and browser
software. See "Risk Factors--Dependence on Key Technology Suppliers."
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STRATEGIC DISTRIBUTION RELATIONSHIPS
Strategic Relationships with Cable Partners. The Company has strategic
relationships with seven leading cable companies whose systems pass
approximately 44 million homes. Subject to certain exceptions, the Company's
Principal Cable Stockholders, TCI, Comcast and Cox, have granted the Company
the exclusive right to offer high-bandwidth residential consumer Internet
services over their cable systems for an agreed period. Rogers and Shaw have
agreed to market and promote the @Home service under the name "Wave@Home" in
Canada. In addition, Marcus and Intermedia have entered into agreements to
distribute the @Home service through certain of their cable systems. The
following table sets forth the number of homes passed by the cable systems of
each of the Cable Partners and the principal cities and communities served by
their cable systems.
<TABLE>
<CAPTION>
MILLIONS OF PRINCIPAL CITIES AND COMMUNITIES
CABLE PARTNER HOMES PASSED SERVED BY CABLE PARTNER'S SYSTEMS
- ------------- ------------ ---------------------------------
<S> <C> <C>
TCI.............. 23.8 Chicago, Dallas, Denver, Hartford, Miami,
Pittsburgh, San Francisco Bay Area, Seattle and
Washington, D.C.
Comcast.......... 7.3 Baltimore, Detroit, Northern New Jersey, Orange
County, Philadelphia and Sarasota
Cox.............. 5.2 Hampton Roads, Hartford, New Orleans, Oklahoma
City, Omaha, Orange County, Phoenix, Providence
and San Diego
Rogers........... 2.7 London, Ottawa, Toronto, Vancouver and Victoria
Shaw............. 2.0 Calgary, Edmonton, Saskatoon, Windsor and
Winnipeg
Marcus........... 1.9 Fort Worth
Intermedia....... 1.4 Asheville, Greenville, Nashville and Spartanburg
----
Total............ 44.3
====
</TABLE>
The Company believes that approximately two million of these homes are
currently passed by upgraded two-way HFC cable, and the Cable Partners have
announced plans to complete the upgrade of a majority of the systems that pass
these homes within five years. The Company has launched the @Home service
through TCI, Comcast and Cox in portions of 12 cities and communities (of
which 10 have revenue-paying subscribers) in the United States and has
approximately 5,000 subscribers. In the second half of 1997, the Company plans
to integrate its @Home service with the Wave interactive service currently
provided by Rogers and Shaw to approximately 5,000 subscribers in Canada. To
date, TCI, Comcast and Cox have launched the @Home service in portions of the
cities and communities set forth in the following table.
<TABLE>
<CAPTION>
TCI COMCAST COX
--- ------- ---
<S> <C> <C>
Arlington Heights, IL Baltimore, MD Orange County, CA
Fremont, CA Detroit, MI* Phoenix, AZ
Hartford, CT Philadelphia, PA* San Diego, CA
Seattle, WA Sarasota, FL
Union County, NJ
</TABLE>
- --------
*In market trials
In order to shorten time to market for cable operators, the Company provides
a turnkey solution, which includes not only a technology platform, but also a
national brand, marketing, customer service and billing. This solution enables
the Cable Partners to leverage their respective infrastructures to deliver
high-bandwidth interactive data services that represent significant new
revenue opportunities. The Company's Cable Partners have the additional
opportunity to develop and receive all the revenues derived from local content
distributed though the @Network to local subscribers. The Cable Partners bear
the cost of upgrading and maintaining their cable systems to provide high-
speed two-way data transmission, installing the @Home service in subscribers'
homes, procuring the cable modems needed to interface with the @Network and
local marketing efforts.
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The @Home service, including a cable modem provided by the Cable Partner, is
currently offered to consumers in the United States for flat monthly fees
generally ranging from $35 to $55. Installation of the @Home service is
provided by the Cable Partner at a price generally ranging from $75 to $175.
Under the current United States Cable Partner arrangements, the Company
receives 35% of monthly fees and fees for premium services, and the Cable
Partner retains the entire installation payment. In Canada and other
international markets, the Company anticipates that the subscriber pricing and
revenue or royalty splits with cable system operators will be different from
those that prevail in the United States based on differences in services and
content provided by the Company and the cable system operators.
Strategic Relationship with TCG. The Company has established a strategic
relationship with TCG to provide facilities management and telecommunications
network services for the local transport requirements of the Company's @Work
services. TCG, of which TCI, Comcast and Cox control a majority of the voting
stock, is the largest CLEC in the United States, providing high-speed fiber
optic telecommunications services to more than 7,700 commercial customer sites
in 57 major metropolitan centers in the United States. The Company's access to
TCG's fiber optic network and switching infrastructure gives the Company a
nationwide opportunity in the commercial marketplace, which the Company
believes will accelerate the deployment of the Company's @Work services into
major United States markets. As the Company's @Work services grow, the Company
believes that its strategic relationship with TCG will provide TCG the
benefits of driving additional traffic volumes over TCG's existing networks
and generating significant incremental revenues for TCG. See "Risk Factors--
Dependence on TCG for Local Telecommunications Services for the @Work
Services."
DISTRIBUTION, MARKETING AND SALES
The Company has entered into distribution arrangements for the @Home service
with TCI, Comcast, Cox, Rogers, Shaw, Marcus and Intermedia, whose cable
systems pass approximately 43 million homes in North America. To expand
distribution, the Company is aggressively seeking to work with additional
United States and international cable companies to obtain exclusive rights to
their coverage areas. The Company is also exploring alternative delivery
mechanisms such as the use of telephone return and the use of high-speed
telecommunications services for MDUs. The Company has developed a
comprehensive set of step-by-step plans and certification processes to verify
that cable companies have upgraded their cable systems to a two-way HFC cable
infrastructure that is capable of delivering the Company's services. The
Company's marketing strategy is to accelerate penetration within its
geographic markets by creating awareness of the "@Home" brand, making it
synonymous with a compelling online interactive multimedia experience. The
Company executes this strategy through cooperative promotional programs with
the Company's Cable Partners, which are licensed by the Company to use the
"@Home" brand in conjunction with their own brands in the distribution of the
Company's services. Ultimately, the Company plans to leverage its growing
subscriber base by marketing services that provide incremental revenue
opportunities such as advertising, premium subscriber services and @Work
value-added services.
@Home Service. The @Home service is sold to consumer households by the Cable
Partners in the markets they serve. While the Cable Partners have the primary
responsibility for locally marketing the service, the Company assists them in
local market planning and product promotions by providing templates and
materials for print, direct mail and broadcast advertising. The Company also
believes that retailers and original equipment manufacturers ("OEMs") may
provide a major opportunity for the Company to gain exposure to a much wider
audience of consumers, provide hands-on demonstrations and increase subscriber
penetration by certifying products such as personal computers and cable modems
as "@Home Ready" and developing "@Home-branded" products.
@Work Services. The Company's sales and marketing strategy for its @Work
services utilizes both a direct sales force and indirect sales channels. The
Company engages in direct sales through a National Account Team and a Valued
Account Team. The National Account Team proactively calls on senior executives
and chief information officers at Fortune 1,000 companies in regions where the
@Work services are available. These sales are typically complex in nature and
involve businesses with significant integration needs and multiple sites. The
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Valued Account Team consists of both inbound and outbound telesales
representatives and focuses on sales to non-Fortune 1,000 companies. This team
responds to call activity and leads generated through @Work marketing
activities, including direct mail, online Web promotion and advertising,
national and regional industry events, @Work seminars, promotional programs
and pursuit of favorable industry analyst and press coverage. The indirect
sales team works with @Work partner companies to leverage their sales forces
to sell @Work services. Indirect sales partners include OEMs, value added
resellers and systems integrators. The Company also plans to establish
distribution arrangements for the @Work services through its Cable Partners.
@Media Services and Technologies. The Company sells advertising to national
consumer businesses through a direct sales force and attracts advertisers by
providing a series of services and technologies through its Interactive
Advertising Group. The Company's Interactive Advertising Group, which consists
of advertising production resources, ad program management personnel and a
traditional commissioned advertising sales team, works with advertisers to
develop compelling advertising for the Internet. The Company's Media
Development Team works with leading content and application providers to
package access to premium subscription offerings. The Company and its Cable
Partners market these offerings to subscribers to the @Home service through
online and traditional media.
International Markets. The Company believes that international markets will
provide a substantial opportunity for its services. Simba Information Inc.
projects that there will be 21 million online and Internet users outside North
America in 2000. The Company expects that many of its services will be highly
transferable to international markets, recognizing that some degree of
localization of content will be essential to achieving success. Accordingly,
the Company plans to address targeted international markets though local
partners that will market, sell and distribute the Company's services in their
countries. The international markets that the Company plans to target first
are Canada, the United Kingdom, Germany, Japan and France. In March 1997, the
Company entered into exclusive arrangements for the distribution of its @Home
service under the name "Wave@Home" in Canada through Rogers and Shaw, the two
leading cable system operators in Canada, whose systems reach approximately
five million homes or 50% of the homes passed by cable in Canada. Through
Rogers and Shaw, which have the right to redistribute the Wave@Home service to
other cable system operators in Canada, the Company expects to expand the
distribution of its service in Canada.
CUSTOMER SERVICE AND TECHNICAL SUPPORT
The Company believes that inadequate customer service and technical support
represent a major shortcoming of Internet access services. The Company and its
Cable Partners have developed a comprehensive approach for managing all
subscriber interactions, including installation, billing and transaction
management, technical support and customer service, intended to ensure that
every interaction a subscriber has with the Company's services is a positive
experience. The @Home service is typically installed in the subscriber's home
by a trained computer technician and a cable technician both provided by the
Cable Partner. The Company assists the Cable Partners in training the service
installers, provides automated installation processes and collateral materials
and, in some cases, coordinates installation schedules. To ensure ongoing
customer satisfaction, the Company and the Cable Partners provide three tiers
of customer service and technical support: general customer service (Tier 1);
technical support (Tier 2); and network management support (Tier 3). Tier 1
support, including billing, is typically the responsibility of the Cable
Partner, although the Company offers the full range of service and support as
a complete outsourced solution, and the Cable Partner has the option of
contracting with the Company for Tier 1 support at the Company's cost.
Alternatively, the Cable Partner may elect to provide Tier 2 support and
reduce the revenue split paid to, or otherwise be compensated by, the Company.
The Company provides an open "ServiceAPI" for cable operators to integrate
their existing billing, service and support systems with the Company's
systems. All of these programs are supported by "@Home University," which
provides a comprehensive set of education services to assist the Cable Partner
in training installers and customer service representatives and training
developers on implementing the ServiceAPI.
The Company's technical support personnel are co-located with the Company's
NOC staff, who are responsible for monitoring the performance of the @Network
from end-to-end on a 24X7 basis. The co-location
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of these two organizations facilitates close collaboration between the two
groups to resolve subscriber problems more rapidly and to anticipate potential
problems before they can affect the user experience. The Company utilizes
customized network tools that enable its technical support staff to deliver
solutions that would otherwise require advanced engineering analysis. The
Company is also developing a state-of-the-art knowledge-base system to capture
and organize the latest information to meet the needs of the Company's
technical support staff, cable partners and subscribers. By leveraging its
integrated subscriber management systems and technical support database, the
Company plans to provide an online customer support service known as
"Help@Home," which will enable comprehensive access to its service and support
knowledge base by both subscribers and cable operators through the Web, e-mail
or interactive voice response.
COMPETITION
The markets for consumer and business Internet services and online content
are extremely competitive, and the Company expects that competition will
intensify in the future. The Company's most direct competitors in this market
are ISPs, national long distance carriers, local exchange carriers, wireless
service providers, OSPs and Internet content aggregators. Many of these
competitors are offering (or may soon offer) technologies that will attempt to
compete with some or all of the Company's high-speed data service offerings.
Such technologies include ISDN and xDSL. The Company also competes with other
cable-based data services that are seeking to contract with cable system
operators to bring their services into geographic areas that are not covered
by an exclusive relationship between the Company and its Cable Partners. The
bases of competition in these markets include transmission speed, reliability
of service, ease of access, price/performance, ease-of-use, content quality,
quality of presentation, timeliness of content, customer support, brand
recognition, operating experience and revenue sharing. The Company believes
that it compares favorably with its competitors with respect to each of these
factors, except brand recognition, which the Company is starting to build.
However, many of the Company's competitors and potential competitors have
substantially greater resources than the Company, and there can be no
assurance that the Company will be able to compete effectively in its target
markets.
Internet Service Providers. ISPs, such as BBN, Earthlink, MindSpring, Netcom
and PSInet, provide basic Internet access to residential consumers and
businesses, generally using existing telephone network infrastructures. This
method is widely available and inexpensive, but performance is limited.
Barriers to entry are low, resulting in a highly competitive and fragmented
market.
National Long Distance Carriers and Local Exchange Carriers. Long distance
inter-exchange carriers, such as AT&T, MCI, Sprint and WorldCom, have deployed
large-scale Internet access networks and sell connectivity to business and
residential customers. The RBOCs and other local exchange carriers have also
entered this field and are providing price competitive services.
Wireless Service Providers. Wireless service providers, including AT&T and
Hughes Network Systems, are developing wireless Internet connectivity, such as
MMDS, LMDS and DBS. MMDS and LMDS are not yet available and will require radio
frequency spectrum auctions before service is possible. They will also require
an entirely new distribution infrastructure, and new equipment including
specialized modems.
Online Service Providers. OSPs include companies such as America Online,
CompuServe, MSN, Prodigy and WebTV that provide, over the Internet and on
proprietary online services, content and applications ranging from news and
sports to consumer video conferencing. These services are designed for broad
consumer access over telecommunications-based transmission media, which
enables the provision of data services to the large group of consumers who
have personal computers with modems. In addition, they provide basic Internet
connectivity, ease-of-use and consistency of environment. In addition to
developing their own content or supporting proprietary third-party content
developers, online services often establish relationships with traditional
broadcast and print media outlets to bundle their content into the service,
such as Microsoft's relationship with NBC to provide multimedia news and
information programming over both cable television and MSNBC.
Internet Content Aggregators. Content aggregators seek to provide a "one-
stop" shop for Internet and online users. Their success depends on capturing
audience flow, providing ease-of-use and offering a range of
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content that appeals to a broad audience. Their business models are predicated
on attracting and retaining an audience for their set of offerings. Leading
companies in this area include America Online, CompuServe, Excite, Microsoft
and Yahoo!. In this market, competition occurs in acquiring both content
providers and subscribers. The principal bases of competition in attracting
content providers include quality of demographics, audience size, cost-
effectiveness of the medium and ability to create differentiated experiences
using aggregator tools. The principal bases of competition in attracting
subscribers include richness and variety of content and ease of access to the
desired content. The proprietary online services such as America Online,
CompuServe and MSN have the advantage of a large customer base, industry
experience, many content partnerships and substantial resources.
Cable-Based Data Services. The Company's competitors in the cable-based
services market are those cable companies that have developed their own cable-
based services and market those services to unaffiliated cable system
operators that are planning to deploy data services and with which the Company
would like to work. Several cable system operators, including Time Warner and
US West's Continental Cablevision subsidiary, have deployed high-speed
Internet access services over their existing local HFC networks. Specifically,
Time Warner, which is the second largest cable company in the United States,
has established its own cable-based ISP with proprietary content service,
called Road Runner, which features a variety of Time Warner publications and
services. Time Warner plans to market the Road Runner service through Time
Warner's own cable systems as well as to other cable system operators
nationwide. Continental Cablevision has developed another service called
Highway One, which offers high-speed Internet services to its existing
customers. Others that have publicly announced limited-area trials for their
own cable-based Internet services include Adelphia, BellSouth and Jones
Intercable. Some of these companies such as Time Warner have their own
substantial libraries of multimedia content, which could provide them with a
significant competitive advantage.
Many of the Company's competitors and potential competitors in the Internet
have substantially greater financial, technical and marketing resources,
larger subscriber bases, longer operating histories, greater name recognition
and more established relationships with advertisers and content and
application providers than the Company. Such competitors may be able to
undertake more extensive marketing campaigns, adopt more aggressive pricing
policies and devote substantially more resources to developing Internet
services or online content than the Company. There can be no assurance that
the Company will be able to compete successfully against current or future
competitors or that competitive pressures faced by the Company will not
materially adversely affect the Company's business, operating results or
financial condition. Further, as a strategic response to changes in the
competitive environment, the Company may make certain pricing, service or
marketing decisions or enter into acquisitions or new ventures that could have
a material adverse effect on the Company's business, operating results or
financial condition. See "Risk Factors--Competition."
PRODUCT DEVELOPMENT AND ENGINEERING
The Company's product development and engineering efforts focus on the
design and development of new technologies and products to increase the speed
and efficiency of the @Network and to facilitate the development and
distribution of high bandwidth over its network. The principal areas of
current product development and engineering include:
. enhancing caching and replication techniques to improve network
performance and efficiency;
. advancing multicasting technologies to provide efficient transport of
"one-to-many" content;
. adapting the Company's network services for use over non-HFC access
technologies, such as xDSL, and conventional twisted-pair ethernet wiring
in MDUs;
. developing advertisement targeting and content personalization systems to
fit desired subscriber profiles;
. developing virtual private network technology solutions to enable secure
and scalable end-to-end telecommuting and commercial services over the
@Network;
. enhancing the Company's advanced network management capabilities to
identify and address network performance issues before they could affect
the subscriber's experience;
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. developing advanced directory and certification services to enable the
Company's subscribers to perform electronic commerce and access
information and premium resources securely; and
. defining application programming interfaces for TV-based Internet devices
that can browse and interact with the Web without requiring the use of a
personal computer.
The Company's product development and engineering expenses for the period
from March 28, 1995 (inception) to December 31, 1995, 1996 and the first
quarter of 1997 were $1.4 million, $6.3 million and $2.3 million,
respectively.
INTELLECTUAL PROPERTY
The Company regards its technology as proprietary, attempts to protect it
with copyrights, trademarks, trade secret laws, restrictions on disclosure and
other methods, and has filed one patent application and is in the process of
preparing additional patent applications with respect to aspects of its high-
bandwidth network technology and online advertising. There can be no assurance
that any patent will issue from these applications or that, if issued, any
claims allowed will be sufficiently broad to protect the Company's technology.
In addition, there can be no assurance that any patents that may be issued
will not be challenged, invalidated or circumvented, or that any rights
granted thereunder would provide proprietary protection to the Company.
Failure of any patents to provide protection to the Company's technology may
make it easier for the Company's competitors to offer technology equivalent or
superior to the Company's technology. The Company also generally enters into
confidentiality or license agreements with its employees and consultants, and
generally controls access to and distribution of its documentation and other
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use the Company's products,
services or technology without authorization, or to develop similar technology
independently. In addition, effective copyright, trademark and trade secret
protection may be unavailable or limited in certain foreign countries, and the
global nature of the Internet makes it virtually impossible to control the
ultimate destination of the Company's content offerings. Policing unauthorized
use of the Company's content offerings is difficult. There can be no assurance
that the steps taken by the Company will prevent misappropriation or
infringement of its technology. In addition, litigation may be necessary in
the future to enforce the Company's intellectual property rights, to protect
the Company's trade secrets or to determine the validity and scope of the
proprietary rights of others. Such litigation could result in substantial
costs and diversion of resources and could have a material adverse effect on
the Company's business, operating results and financial condition.
From time to time, the Company has received, and may receive in the future,
notice of claims of infringement of other parties' proprietary rights,
including claims for infringement resulting from the downloading of materials
by the online or Internet services operated or facilitated by the Company.
There can be no assurance that infringement or invalidity claims (or claims
for indemnification resulting from infringement claims) will not be asserted
or prosecuted against the Company or that any assertions or prosecutions will
not materially adversely affect the Company's business, operating results and
financial condition. Irrespective of the validity or the successful assertion
of such claims, the Company would incur significant costs and diversion of
resources with respect to the defense thereof, which could have a material
adverse effect on the Company's business, operating results and financial
condition. If any claims or actions are asserted against the Company, the
Company may seek to obtain a license under a third party's intellectual
property rights. There can be no assurance, however, that under such
circumstances a license would be available on commercially reasonable terms,
or at all.
LEGAL PROCEEDINGS
On April 18, 1997, Netcom filed a complaint in Superior Court of the State
of California in and for the County of Santa Clara against the Company and its
Senior Vice President and General Manager, @Work Group, Donald P. Hutchison.
The complaint alleges that the Company misappropriated Netcom's trade secrets
by hiring several former Netcom employees and that Mr. Hutchison violated a
proprietary information agreement with Netcom by disclosing trade secrets and
soliciting Netcom's employees to work for the Company. Netcom seeks
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compensatory and punitive damages, as well as injunctive relief to prohibit
the Company from hiring any employee from Netcom and from misappropriating
Netcom's trade secrets. Discovery has just commenced. The Company denies that
allegations contained in the complaint and intends to contest the litigation
vigorously. The Company believes that any judgment for Netcom in the
litigation would not have a material adverse effect on the Company's business,
operating results and financial condition.
EMPLOYEES
As of March 31, 1997, the Company had 246 employees, excluding temporary
personnel and consultants. Of the total, 60 were employed in networking
engineering, 75 supporting the @Home service including customer support and
related activities, 27 supporting the @Work services, 53 in the @Media
division and 31 in general and administration. None of the Company's employees
is represented by a labor union, and the Company considers its relations with
its employees to be good. The Company's ability to achieve its financial and
operational objectives depends in large part upon the continued service of its
senior management and key technical personnel and its continuing ability to
attract and retain highly qualified technical and managerial personnel.
Competition for such qualified personnel in the Company's industry and
geographical location in the San Francisco Bay Area is intense, particularly
in software development, network engineering, cable engineering and product
management personnel. See "Risk Factors--Management of Growth and Expansion;
Dependence on Key Personnel."
FACILITIES
The Company is currently headquartered in Mountain View, California, where
it occupies approximately 33,000 square feet of administrative facilities
under a lease expiring in 2001. During the second quarter of 1997, the Company
plans to relocate its headquarters to new facilities consisting of
approximately 133,000 square feet in Redwood City, California, which the
Company will occupy under a 12-year lease. In connection with this lease, the
Company is obligated to reimburse the landlord for leasehold improvements
totaling approximately $5.5 million. In addition, the Company has three
separate options to require the landlord to build a total of approximately
400,000 additional square feet of facilities on adjacent property, subject to
certain conditions. The Company would then occupy these buildings under leases
of 12 years with base rent to be determined based on the cost of construction
of the buildings. The Company anticipates that the Redwood City facilities
will be adequate for the foreseeable future. Upon relocation to Redwood City,
the Company will vacate the Mountain View facilities and sublet them for the
remaining term of the lease.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages and
positions, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Thomas A. Jermoluk(1)... 40 Chairman of the Board, President and Chief Executive Officer
David P. Bagshaw........ 44 Senior Vice President, @Media Group
Dean A. Gilbert......... 40 Senior Vice President and General Manager, @Home Group
Kenneth A. Goldman...... 47 Senior Vice President and Chief Financial Officer
Donald P. Hutchison..... 40 Senior Vice President and General Manager, @Work Group
John L. O'Farrell....... 38 Senior Vice President, International
Milo S. Medin........... 34 Vice President, Networks
David G. Pine........... 38 Vice President, General Counsel and Secretary
William R. Hearst 47 Vice Chairman
III(1)(2)..............
James L. Barksdale(1)... 54 Director
Brendan R. Clouston(4).. 44 Director
L. John Doerr(1)(3)..... 45 Director
John C. Malone.......... 56 Director
Bruce W. 47 Director
Ravenel(2)(3)(4).......
Brian L. Roberts........ 37 Director
Edward S. Rogers........ 63 Director
Larry E. Romrell(4)..... 57 Director
David M. Woodrow(2)..... 51 Director
</TABLE>
- --------
(1) Member of .Com Committee
(2) Member of the Audit Committee
(3)Member of the Compensation Committee
(4)Member of the Series B Committee
THOMAS A. JERMOLUK has served as Chairman, President and Chief Executive
Officer of the Company since he joined the Company in July 1996. From 1994 to
July 1996, he was President, and from 1992 to July 1996 he was Chief Operating
Officer, of Silicon Graphics, Inc. ("SGI"), a visual computing company. From
1991 to 1994, Mr. Jermoluk was Executive Vice President of SGI, and, from 1988
to 1991, he was Vice President and General Manager of SGI's Advanced System
Division. From October 1993 to August 1996, he was a member of the board of
directors of SGI. Prior to joining SGI in 1986, Mr. Jermoluk managed a variety
of hardware and software development projects at Hewlett-Packard Company and
Bell Laboratories. He currently serves on the boards of directors of Pure
Atria Corporation and Forte Software, Inc. Mr. Jermoluk holds B.S. and M.S.
degrees in Computer Science from Virginia Tech.
DAVID P. BAGSHAW has served as the Senior Vice President of the Company's
@Media Group since he joined the Company in September 1996. From August 1991
to August 1996, he served as Vice President of Marketing of SGI, where he was
responsible for various marketing organizations and activities, including
communications, public relations, business development, application developer
support and product marketing. From 1987 to August 1991, he served as a
product manager and as a director of marketing at SGI. Mr. Bagshaw holds B.S.
and M.S. degrees in Mechanical Engineering from Stanford University and an
M.B.A. degree from the Stanford University Graduate School of Business.
DEAN A. GILBERT has served as Senior Vice President and General Manager of
the Company's @Home Group since November 1996 and was Senior Vice President,
Marketing and Sales of the Company from February 1996 to November 1996. From
September 1994 to February 1996, he served as President and Chief Executive
Officer of Positive Communications, Inc., a provider of paging products and
services. From 1991 to September 1994, Mr. Gilbert was Executive Vice
President, Group Operations and from 1989 to 1991 was Senior Vice President,
Marketing, Programming and Business Development of KBLCOM, Incorporated, a
cable television provider. He holds B.A. and M.A. degrees in
Telecommunications from Michigan State University.
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KENNETH A. GOLDMAN has served as Senior Vice President and Chief Financial
Officer of the Company since he joined the Company in July 1996. From July
1992 to July 1996 he was Senior Vice President and Chief Financial Officer of
Sybase, Inc., a database software and services company. From 1989 to July
1992, Mr. Goldman was Vice President of Finance and Administration and Chief
Financial Officer at Cypress Semiconductor Corporation, a semiconductor
manufacturer. From 1983 to 1989, he was Vice President and Chief Financial
Officer of VLSI Technology Inc. Mr. Goldman serves on the boards of directors
of Global Village Inc. and Unison Software, Inc. He holds a B.S. degree in
Electrical Engineering from Cornell University and an M.B.A. degree from the
Harvard University Graduate School of Business.
DONALD P. HUTCHISON has served as Senior Vice President and General Manager
of the Company's @Work Group since he joined the Company in February 1997.
Prior to that time, he served as Senior Vice President, Strategic Partnerships
from March 1996 to November 1996, Senior Vice President, Sales from August
1995 to March 1996 and Vice President, Sales and Marketing from May 1994 to
August 1995 of Netcom On-Line Communications Services, Inc., an Internet
access service provider. From 1989 to May 1994, Mr. Hutchison was Director of
Sales and Marketing at TAU Corporation, a digital video imaging company. From
1987 to 1989, he was Director of Sales and Business Planning for Pixar, and,
prior to that time, he held various sales and management positions with Prime
Computer and Data General Corporation. Mr. Hutchison holds a B.A. degree in
Business Economics from the University of California at Santa Barbara and an
M.B.A. degree from Loyola Marymount University.
JOHN L. O'FARRELL has served as Senior Vice President, International of the
Company since he joined the Company in April 1997. From August 1995 to April
1997, he was President of U S WEST Interactive Services, Inc., an Internet
content development company. Prior to that time, Mr. O'Farrell was Vice
President, Corporate Strategy of U S WEST, Inc., a telephone and cable network
operator, from May 1994 to August 1995 and as Executive Director, Corporate
Strategy from 1992 to May 1994. Before joining U S WEST, Inc., he held general
management, marketing and consulting positions in the United States and Europe
with Telecom Ireland (Ireland), Booz, Allen & Hamilton (U.S.), the Commission
of European Communities (Luxembourg), Digital Equipment Corporation and
Siemens AG (both Germany). Mr. O'Farrell holds a B.E.E. degree from University
College Dublin, Ireland and an M.B.A. degree from the Stanford University
Graduate School of Business.
MILO S. MEDIN has served as Vice President, Networks of the Company since he
joined the Company as its first employee in June 1995. From 1985 to June 1995,
he was employed at the NASA Ames Research Center ("NASA Ames"), where he was
responsible for a variety of wide area networking projects, including the use
of Internet technology to interconnect NASA facilities and researchers at over
200 sites in 16 countries. In 1989, Mr. Medin developed the architecture for
the first Internet interconnect at NASA Ames, linking the major government
backbones together. He also managed the National Research and Educational
network project at NASA Ames, which, in concert with the United States
Department of Energy, deployed the first non-experimental 155 Mbps Internet
backbone using switched ATM services to interconnect supercomputing and data
archive facilities across the United States. Prior to joining NASA, he was
employed by Science Applications Inc. as a programmer for defense program
activities at the Lawrence Livermore National Laboratory and at the Los Alamos
National Laboratory. In addition, Mr. Medin has been active in the development
of Internet routing protocols and standards, primarily in the Internet
Engineering Task Force, the leading Internet development and standards
organization, for more than 10 years. He studied Computer Science at the
University of California at Berkeley.
DAVID G. PINE has served as Vice President and General Counsel of the
Company since he joined the Company in April 1996 and as Secretary of the
Company since July 1996. From 1990 to March 1996, he served as Vice President,
General Counsel and Secretary of Radius Inc., a manufacturer of computer
peripherals. Before that, Mr. Pine was in private law practice with Fenwick &
West LLP. Mr. Pine holds an A.B. degree in Government from Dartmouth College
and a J.D. degree from the University of Michigan Law School.
WILLIAM R. HEARST III has been a director of the Company since August 1995
and has served as Vice Chairman of the Board of Directors since July 1996. He
has been a general partner of KPCB, a venture capital
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firm, since January 1995. From May 1995 to July 1996, he was the founding
Chief Executive Officer of the Company. Before joining KPCB, Mr. Hearst was
editor and publisher of the San Francisco Examiner for ten years. He is a
Fellow of the American Association for the Advancement of Science and a
Trustee of the Carnegie Institute of Washington and the California Academy of
Sciences. Mr. Hearst holds an A.B. degree in Mathematics from Harvard
University.
JAMES L. BARKSDALE has been a director of the Company since August 1995. He
has been President and Chief Executive Officer of Netscape, an Internet
software company, since January 1995. He has served as a director of Netscape
since October 1994. Mr. Barksdale served as President and Chief Operating
Officer of AT&T Wireless Services (formerly, McCaw Cellular Communications,
Inc.) from 1992 to September 1994 and as its Chief Executive Officer from
September 1994 to January 1995. From 1983 to January 1992, he served as
Executive Vice President and Chief Operating Officer of Federal Express
Corporation. From 1979 to 1983, Mr. Barksdale served as Chief Information
Officer of Federal Express Corporation. Mr. Barksdale also serves on the
boards of directors of 3Com Corporation, Harrah's Entertainment, Inc., Navio
Communications Inc. and Robert Mondavi Corp. He holds a B.S. degree in
Business Administration from the University of Mississippi.
BRENDAN R. CLOUSTON has been a director of the Company since August 1996. He
has been Executive Vice President of TCI since January 1994, Chief Financial
Officer of TCI from March 1997 to April 1997, President and Chief Executive
Officer of TCI Communications, Inc. ("TCIC") from October 1994 to March 1997,
and Executive Vice President and Chief Operating Officer of TCIC from March
1992 to October 1994. Prior to joining TCIC, he held various executive
positions with United Artists Entertainment Company and its predecessor,
United Artists Communications, Inc., most recently as Executive Vice President
and Chief Financial Officer. Mr. Clouston also serves on the board of
directors of TCG. He holds a B.A. degree from the University of Toronto and an
M.B.A. degree from the University of Western Ontario.
L. JOHN DOERR has been a director of the Company since August 1995. He has
been a general partner of KPCB since September 1980. Prior to joining KPCB,
Mr. Doerr was employed by Intel Corporation for five years. He serves on the
boards of directors of Amazon.com, Inc., Intuit Inc., Macromedia, Inc.,
Netscape, Platinum Software Corporation, Shiva Corporation and Sun
Microsystems, Inc. Mr. Doerr holds B.S.E.E. and M.E.E. degrees from Rice
University and an M.B.A. degree from the Harvard University Graduate School of
Business.
JOHN C. MALONE has been a director of the Company since April 1997. He has
served as Chairman and Chief Executive Officer of TCI since November 1996 and
as President and Chief Executive Officer of TCI from 1973 through November
1996. Dr. Malone also serves on the boards of directors of Tele-Communications
International, Inc., TCI Satellite Entertainment, Inc., BET Holdings, Inc.,
Discovery Communications, Inc. and the Bank of New York Company, Inc. He holds
a B.S. degree in Electrical Engineering and Economics from Yale University and
an M.S. degree in Industrial Management and a Ph.D. in Operations Research
from Johns Hopkins University.
BRUCE W. RAVENEL has been a director of the Company since August 1995. Since
January 1996, he has served as President and Chief Executive Officer of
TCI.NET, Inc. and Senior Vice President of TCI Communications, Inc., both
wholly owned subsidiaries of TCI, where he has been responsible for all
Internet-related business activities of TCI. From March 1994 to January 1996,
Mr. Ravenel was Senior Vice President and Chief Operating Officer of TCI
Technology Ventures, Inc., a division of TCI. From March 1992 to March 1994,
he served as Vice President of TCI Technology, Inc., a subsidiary of TCI. He
serves on the board of directors of Acclaim Entertainment, Inc. Mr. Ravenel
holds a B.A. degree in Economics from the University of Colorado.
BRIAN L. ROBERTS has been director of the Company since August 1996. He has
served as President of Comcast since February 1990 and as a director of
Comcast since 1987. Prior to becoming President, Mr. Roberts spent eight years
in various management positions with Comcast. He is also a member of the
boards of directors of Comcast UK Cable Partners Limited, Storer
Communications, Inc. and TCG. Mr. Roberts holds a B.S. degree in Economics
from the Wharton School of Finance of the University of Pennsylvania.
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EDWARD S. ROGERS has been a director of the Company since April 1997. He has
served as President and Chief Executive Officer and a director of Rogers, a
telecommunications company, since 1979 and as Acting President and Chief
Executive Officer of Rogers Cablesystems Limited, a cable company and a wholly
owned subsidiary of Rogers Communications, since April 1996. Mr. Rogers
founded Rogers Cable TV (now Rogers Cablesystems Limited) in 1967, Rogers
Radio Broadcasting Limited (now Rogers Broadcasting Limited) in 1969 and
Cantel, Inc. (now Rogers Cantel, Inc.) in 1983 and has served in various
management positions with Rogers related entities during the last 30 years.
Mr. Rogers serves on the boards of directors of Rogers Cantel Mobile
Communications Inc. and the Toronto-Dominion Bank. He holds a B.A. in
Political Science and Economics from the University of Toronto and an LL.B
from Osgoode Hall Law School.
LARRY E. ROMRELL has been a director of the Company since August 1995. He
has served as Executive Vice President of TCI since January 1994 and President
and Chief Executive Officer of TCI Technology Ventures since September 1994.
From 1991 to October 1994, Mr. Romrell was Senior Vice President of TCI. He
serves on the boards of directors of General Communication, Inc., TCG and
United Video Satellite Group, Inc.
DAVID M. WOODROW has been a director of the Company since August 1996. He
has served as Senior Vice President of Broadband Services for Cox since April
1994. Mr. Woodrow joined Cox in 1982 as Director, Business Development, and
was promoted to Western Regional Manager in 1984, to Vice President and
General Manager of Cox Cable Santa Barbara, Inc. in 1985 and to Senior Vice
President, Operations in 1989. Prior to joining Cox, he was employed by the
Technology Components Group of Exxon Enterprises from 1976 to 1982 and by
Pitney Bowes, Inc. from 1970 to 1976. Mr. Woodrow serves on the board of
directors of TCG and is a director of the Cellular Telephone Industry
Association. He holds B.S. and M.S. degrees in Mechanical Engineering from
Purdue University and an M.B.A. degree from the University of Connecticut.
Directors are elected by the stockholders at each annual meeting of
stockholders to serve until the next annual meeting of stockholders or until
their successors are duly elected and qualified. The existing directors were
elected pursuant to provisions in the Certificate of Incorporation, a
stockholders' agreement and a voting agreement that will be modified or
replaced effective upon the closing of this offering. See "Board Composition
and Procedures," "Certain Transactions" and "Description of Capital Stock"
below. Executive officers are elected by, and serve at the discretion of, the
Board. Members of the Board do not receive compensation for their services as
directors.
BOARD COMPOSITION AND PROCEDURES
Immediately following the closing of this offering, the Board will consist
of 11 directors. Under the Company's Certificate of Incorporation, the holders
of the Series B Common Stock, all of which will be owned by a subsidiary of
TCI immediately following this offering, have the right to elect five members
of the Board (the "Series B Common Stock Directors"). TCI has initially
designated Messrs. Clouston, Ravenel and Romrell as Series B Common Stock
Directors. Subject to certain conditions, TCI has also agreed to elect one
representative designated by Comcast and one representative designated by Cox
as Series B Common Stock Directors. Mr. Roberts is the current representative
of Comcast, and Mr. Woodrow is the current representative of Cox. The holders
of the Series K Common Stock, the substantial majority of which is controlled
by KPCB, have the right to elect one director (the "Series K Common Stock
Director"), who is currently Mr. Doerr. So long as the holders of Series B
Common Stock or Series K Common Stock are entitled to elect any Series B
Common Stock Director or any Series K Common Stock Director, the holders of
Series A Common Stock have the right to elect two directors (the "Series A
Common Stock Directors") who are not officers or employees of the Company and
are not affiliates or associates of TCI, Comcast or Cox ("Outside Directors").
Messrs. Barksdale and Hearst are the current Series A Common Stock Directors.
Immediately following this offering, TCI, Comcast and Cox will own
approximately %, % and %, respectively, of the outstanding Series
A Common Stock, and TCI together with either Comcast or/and Cox will have the
ability to elect both of the Series A Common Stock Directors. The remaining
three directors are elected by all of the stockholders voting together. Since
TCI holds more than 50% of the outstanding voting power of the Company's
capital stock, it has the power to elect all three of these directors.
However, TCI, Comcast, Cox and KPCB have
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agreed to vote for the election of the Chief Executive Officer of the Company
to the Board. Subject to certain conditions, TCI, Comcast and Cox have also
agreed to vote for the election to the Board of one representative jointly
designated by Rogers and Shaw, who is currently Mr. Rogers. TCI has elected
Dr. Malone to the remaining position on the Board. Under the Certificate of
Incorporation, a committee consisting of the Series B Common Stock Directors
who are officers, directors or employees of TCI or any subsidiary of TCI (the
"Series B Committee") has the power, exercisable at any time, so long as TCI
holds at least 7,700,000 shares of Series B Common Stock and a majority of the
voting power of the Company, to increase the size of the Board up to 17
directors and to elect up to six additional directors to fill any vacancies
created by the increase. Since three of the five Series B Common Stock
Directors and four of the eleven current directors are officers of TCI or a
subsidiary of TCI, TCI has the power, without a meeting of the stockholders,
to increase the size of the Board up to 17 directors and appoint a total of 10
members, constituting at least a majority of the Board, without a meeting of
the stockholders. See "Description of Capital Stock."
Under the Certificate of Incorporation, all actions of the Board must be
approved by (i) a majority of the members of the Board present at a meeting at
which a quorum is present or unanimous written consent of all members of the
Board and (ii) so long as TCI owns at least 7,700,000 shares of Series B
Common Stock and securities representing a majority of the outstanding voting
power of the Company, a majority of the Series B Common Stock Directors.
Accordingly, because TCI has the right to elect three of the five Series B
Common Stock Directors, TCI has the power to prevent the Board from taking any
action that is not approved by its designated Series B Common Stock Directors.
In addition, to the extent that TCI exercises its power to elect a majority of
the entire Board, TCI will be able to control all Board decisions, subject to
the supermajority and unanimous vote requirements discussed below.
In addition, certain actions of the Board require the approval of a of at
least 75% (currently five of six) of the total number of Series B and Series K
Common Stock Directors, and certain other actions of the Board require the
unanimous approval of all of the Series B and Series K Common Stock Directors.
Accordingly, with the current composition of the Board, actions that require
supermajority approval cannot be taken without the approval of at least two of
the three directors designated by Comcast, Cox and KPCB, and actions that
require unanimous approval cannot be taken without the approval of all three
of such directors and the Series B Common Stock Directors designated by TCI.
The Company actions that require supermajority approval by the Series B and
Series K Directors are: (i) a merger, consolidation or other business
combination; (ii) the acquisition of assets having a value greater than 20% of
the value of the Company's assets; (iii) the disposition of assets having an
aggregate value greater than 50% of the value of the Company's assets; (iv)
the acquisition by the Company of assets in exchange for capital stock that
would constitute more than 16 2/3% of its fully diluted shares (other than a
sale of stock solely for cash); (v) the appointment or removal of the Chief
Executive Officer; (vi) voluntary dissolution or liquidation or the initiation
of voluntary bankruptcy proceedings; (vii) any amendment of the Certificate of
Incorporation or Bylaws of the Company other than the filing of a Certificate
of Designation establishing a series of Preferred Stock; (viii) the creation
or issuance of any additional class or series of capital stock having more
than one vote per share or entitled to vote as a separate class or series on
any matter subject to certain exceptions; (ix) any increase in the number of
shares reserved for issuance to management of the Company in excess of
16,000,000 shares plus an amount equal to the greater of (a) 7.5% of the
number of shares issued by the Company after August 1, 1996 or (b) 4% per year
of the total fully diluted shares outstanding on August 1, 1996; (x) the
declaration of dividends on or certain repurchases of Common Stock, (xi) the
adoption of any budget for the Company that does not provide for a
substantially pro rata rollout of the Company's services to TCI, Comcast and
Cox in proportion to the number of qualifying homes passed made available by
them to the Company and (xii) the appointment of any Outside Directors to the
.Com Committee other than the current members of the .Com Committee.
The Company actions that require unanimous approval by the Series B and
Series K Directors are: (i) the authorization or issuance of any shares of
Series AX, AM, AT and T Preferred Stock other than pursuant to the power
granted to the Board in the Certificate of Incorporation; (ii) any amendments
to or modifications of the actions requiring supermajority or unanimous
approval of the Series B and Series K Directors; (iii) any increase
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in the number of Series B or Series K Common Stock Directors; (iv) any
modifications of the rights of the holders of Series B or Series K Common
Stock to designate and elect directors; (v) the appointment of any directors
to the .Com Committee other than the Chief Executive Officer, the other
directors who are currently members of the .Com Committee and any additional
Outside Directors elected to the .Com Committee by supermajority vote; and
(vi) any amendment to the specifications and standards for the @Home service
that would require the operator facilities of any affiliate of a Principal
Cable Stockholder to be capable of distributing or providing streaming video
transmissions that include video segments longer than ten minutes in duration.
The Certificate of Incorporation specifies certain requirements for the
approval of certain transactions between the Company and any holder of more
than 5% of the voting power of the Company or any affiliate of such holder.
First, such a related party transaction must be approved by a majority of the
members of the Board present at a meeting for which the notice sets forth the
related party transaction and a reasonably detailed description of the matter,
or by unanimous written consent of the Board following such a meeting. In
addition, so long as the holders of Series B Common Stock are entitled to
elect a Series B Common Stock Director, the related party transaction must
also be approved either (i) by a majority of the Series B and Series K Common
Stock Directors who are disinterested with respect to the transaction and by a
majority of all Series B Common Stock Directors regardless of whether they are
disinterested with respect to the transaction or (ii) by all of the Series B
Common Stock Directors regardless of whether they are disinterested with
respect to the transaction. These requirements do not apply to (i)
transactions involving an aggregate amount less than $1,000,000 that are
entered into in the ordinary course of business on arms'-length terms, (ii)
the entering into of LCO Agreements and other agreements for the provision of
ancillary or related services that are on terms no more favorable to the
related party than the terms of similar agreements then currently offered by
the Company to affiliates of each other Principal Cable Stockholder without
regard to size, identity or ownership of securities of the Company, (iii) the
entering into or performance under any .Com Agreement or Promotional Agreement
discussed below or (iv) any actions taken by the Series B Committee.
.COM COMMITTEE
The Company's Certificate of Incorporation establishes a committee of the
Board referred to as the ".Com Committee" consisting of the Chief Executive
Officer of the Company and the other members of the Board who are not
affiliated with TCI, Comcast or Cox (currently Messrs. Jermoluk, Barksdale,
Doerr and Hearst) to review and approve certain content and promotional
agreements (".Com Agreements" and "Promotional Agreements") between the
Company and content providers that are affiliates of the Principal Cable
Stockholders. It is the Company's policy to maintain a position of openness
and non-exclusion with regard to entering into such agreements and that such
content providers will not be unfairly advantaged or disadvantaged in their
ability to obtain carriage or promotion on the Company's services by reason of
their relationship with a Principal Cable Stockholder. Accordingly, any .Com
Agreement or Promotional Agreement between the Company and any affiliate of a
Principal Cable Stockholder may be approved by any one of three methods, to be
chosen by the applicable Principal Cable Stockholder: (i) by the authorized
officers of the Company on the Company's standard terms and conditions, (ii)
by a majority of the .Com Committee or (iii) by a majority of the entire Board
including all of the Series B Common Stock Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was formed in July 1996 to review and
approve the compensation and benefits for the Company's key executive
officers, administer the Company's stock purchase and stock option plans and
make recommendations to the Board regarding such matters. The Compensation
Committee is currently composed of Messrs. Ravenel and Doerr. No interlocking
relationship exists between the Board or Compensation Committee and the board
of directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
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<PAGE>
AUDIT COMMITTEE
The Board has established an Audit Committee to meet with and consider
suggestions from members of management and the Company's internal audit staff,
as well as the Company's independent accountants, concerning the financial
operations of the Company. The Audit Committee also has the responsibility to
review audited financial statements of the Company and consider and recommend
the employment of, and approve the fee arrangements with, independent
accountants for both audit functions and for advisory and other consulting
services. Messrs. Hearst, Ravenel and Woodrow are the members of the Audit
Committee.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation awarded to, earned by, or paid for services rendered to the
Company in all capacities during 1996 by the Company's present and former
Chief Executive Officers and the four most highly compensated executive
officers, other than the Chief Executive Officers, who were serving as
executive officers at the end of 1996 and whose compensation for 1996 was in
excess of $100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------- ---------------
OTHER
ANNUAL RESTRICTED OTHER
NAME AND PRINCIPAL POSITION SALARY COMPENSATION STOCK AWARDS(1) COMPENSATION(2)
- --------------------------- -------- ------------ --------------- ---------------
<S> <C> <C> <C> <C>
Thomas A. Jermoluk,
Chairman, President and
Chief Executive
Officer................ $209,985 -- -- (3) $272
William R. Hearst III,
Former Chief Executive
Officer................ -- (4) -- -- (5) --
Sean Doherty, Former
President, @Work
Group.................. 217,869 -- -- (6) 257
Dean A. Gilbert, Senior
Vice President and
General Manager, @Home
Group.................. 201,643 $30,000 (7) -- (8) 425
Milo S. Medin, Vice
President, Networks.... 154,744 -- -- (9) 257
Kenneth A. Goldman,
Senior Vice President
and Chief Financial
Officer................ 104,664 50,000 (7) -- (10) 464
</TABLE>
- --------
(1) All shares reflected in this column were purchased at their fair market
value on the date of purchase. With the exception of Mr. Hearst's shares,
which were immediately vested, all shares are restricted shares that vest
over a period of four years so long as the individual remains
continuously employed by the Company. The Company has the right to
repurchase unvested restricted shares at cost upon the termination of the
executive's employment.
(2) Represents life insurance premiums paid by the Company.
(3) Mr. Jermoluk was employed by the Company in July 1996. On July 31, 1996,
he purchased 3,000,000 shares of the Company's Series A Common Stock for
$150,000 in cash and 50,000 shares of the Company's Series K Preferred
Stock for $500,000 in cash. As at December 31, 1996, he held vested and
unvested restricted shares with aggregate values of $812,500 and
$2,437,500, respectively. See "--Employment Agreement."
(4) Mr. Hearst, a general partner of KPCB, served on an interim basis as
Chief Executive Officer without compensation.
(5) Mr. Hearst purchased 400,000 shares of the Company's Series A Common
Stock on July 31, 1996 for $20,000 in cash. As of December 31, 1996, the
aggregate value of all shares held by Mr. Hearst was $100,000.
(6) Mr. Doherty purchased 500,000 shares of the Company's Series A Common
Stock on May 31, 1996 in exchange for a promissory note in the amount of
$25,000. As of December 31, 1996, he held vested and
56
<PAGE>
unvested restricted shares with aggregate values of $44,312 and $80,688,
respectively. Mr. Doherty resigned his employment with the Company in
February 1997, and the Company repurchased the 301,850 shares that were
unvested at the time of his resignation for their original purchase price
by reducing the outstanding principal and interest due under the promissory
note.
(7) Represents amounts paid in connection with the Company's employment of
these individuals.
(8) Mr. Gilbert was employed by the Company in February 1996. Mr. Gilbert
purchased 440,000 shares of the Company's Series A Common Stock on May
31, 1996 in exchange for a promissory note in the amount of $22,000. As
of December 31, 1996, Mr. Gilbert held no vested restricted shares and
held unvested restricted shares with an aggregate value of $110,000.
(9) Mr. Medin purchased 600,000 shares of the Company's Series A Common Stock
on May 31, 1996 in exchange for a promissory note in the amount of
$30,000. As of December 31, 1996, Mr. Medin held vested and unvested
restricted shares with aggregate values of $56,310 and $93,690,
respectively.
(10) Mr. Goldman was employed by the Company in July 1996. Mr. Goldman
purchased 550,000 shares of the Company's Series A Common Stock on July
29, 1996 for $27,500 in cash. As of December 31, 1996, Mr. Goldman held
no vested restricted shares and held unvested restricted shares with an
aggregate value of $137,500.
The Company granted no stock options to the Named Executive Officers through
December 31, 1996.
EMPLOYEE BENEFIT PLANS
1996 Incentive Stock Option Plan. In January 1996, the Board adopted the
1996 Incentive Stock Option Plan (the "First 1996 Plan"), which was amended in
May 1996. Under the First 1996 Plan, up to 3,000,000 shares of Series A Common
Stock were reserved for issuance. As of March 31, 1997, options to purchase
2,559,426 shares had been exercised (net of repurchases), options to purchase
an additional 175,000 shares of Series A Common Stock at an exercise price of
$.05 were outstanding and 265,574 shares remained available for future grants.
Following the closing of this offering, no additional options will be granted
under the First 1996 Plan. Options granted under the First 1996 Plan are
subject to terms substantially similar to those described below with respect
to options to be granted under the 1997 Equity Incentive Plan. The First 1996
Plan does not provide for issuance of restricted stock or stock bonus awards.
1996 Incentive Stock Option Plan No. 2. In July 1996, the Board adopted the
1996 Incentive Stock Option Plan No. 2 (the "Second 1996 Plan"), which was
amended in October 1996. Under the Second 1996 Plan, up to 13,000,000 shares
of Series A Common Stock were reserved for issuance, provided that such number
is reduced by the number of restricted shares sold outside of the First 1996
Plan and Second 1996 Plan (6,825,150 such shares were sold through March 31,
1997 (net of repurchases)). As of March 31, 1997, options to purchase
3,946,751 shares had been exercised (net of repurchases), options to purchase
744,250 shares were outstanding at exercise prices ranging from $.05 to $.25
per share, and 1,483,849 shares were available for grant. Following the
closing of this offering, no additional options will be granted under the
Second 1996 Plan. Options granted under the Second 1996 Plan are subject to
terms substantially similar to those described below with respect to options
to be granted under the 1997 Equity Incentive Plan. The Second 1996 Plan does
not provide for issuance of restricted stock or stock bonus awards.
1997 Equity Incentive Plan. In May 1997, the Board adopted and the
stockholders approved the 1997 Equity Incentive Plan, under which the total
number of shares of Series A Common Stock reserved for issuance is 16,000,000
less: (a) the total number of shares issued by the Company under (i)
restricted stock purchase agreements entered into prior to the effective date
of the 1997 Equity Incentive Plan with employees, officers, directors,
consultants, independent contractors or advisors of the Company and (ii) the
First 1996 Plan or the Second 1996 Plan (the "1996 Plans") pursuant to the
exercise of options granted on or before the effective date of the 1997 Equity
Incentive Plan; (b) shares that are issuable as of the effective date of the
1997 Equity Incentive Plan upon exercise of options granted under the 1996
Plans; and (c) shares reserved for issuance at any time under the Company's
1997 Employee Stock Purchase Plan.
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<PAGE>
Shares that: (a) are subject to issuance upon exercise of an option granted
under the 1996 Plans or under the 1997 Equity Incentive Plan that cease to be
subject to such option for any reason other than exercise of such option; (b)
are subject to an award granted under restricted stock purchase agreements
entered into prior to the effective date of the 1997 Equity Incentive Plan
with employees, officers, directors, consultants, independent contractors or
advisors of the Company, the 1996 Plans, or the 1997 Equity Incentive Plan,
that are forfeited or are repurchased by the Company at the original issue
price; or (c) are subject to any other award granted under the 1996 Plans or
under the 1997 Equity Incentive Plan that otherwise terminates without shares
being issued, will again be available for grant and issuance under the 1997
Equity Incentive Plan. In addition, on August 1, 1997, the number of shares
reserved for issuance under the 1997 Equity Incentive Plan will automatically
increase by 4,200,000 shares. The 1997 Equity Incentive Plan will become
effective on the effective date of the Registration Statement for this
offering and will serve as the successor to the 1996 Plans. The 1997 Equity
Incentive Plan will terminate in May 2007, unless sooner terminated by the
Board. The 1997 Equity Incentive Plan authorizes the award of options,
restricted stock awards and stock bonuses (each an "Award"). No person will be
eligible to receive more than 1,000,000 shares in any calendar year pursuant
to Awards under the 1997 Equity Incentive Plan other than a new employee of
the Company who will be eligible to receive no more than 2,000,000 shares in
the calendar year in which such employee commences employment. The 1997 Equity
Incentive Plan is administered by a committee appointed by the Board,
currently the Compensation Committee, currently consisting of Messrs. Doerr
and Ravenel, both of whom are "disinterested persons" under applicable federal
securities laws and "outside directors" as defined under applicable federal
tax laws. The committee has the authority to construe and interpret the 1997
Equity Incentive Plan and any agreement made thereunder, grant Awards and make
all other determinations necessary or advisable for the administration of the
1997 Equity Incentive Plan.
The 1997 Equity Incentive Plan provides for the grant of both incentive
stock options ("ISOs") that qualify under Section 422 of the Code and
nonqualified stock options ("NQSOs"). ISOs may be granted only to employees of
the Company or of a parent or subsidiary of the Company. NQSOs 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, independent contractors and advisors render bona fide
services not in connection with the offer and sale of securities in a capital-
raising transaction ("Eligible Service Providers"). The exercise price of ISOs
must be at least equal to the fair market value of the Company's Series A
Common Stock on the date of grant. (The exercise price of ISOs granted to ten
percent stockholders must be at least equal to 110% of that value.) The
exercise price of NQSOs must be at least equal to 85% of the fair market value
of the Company's Series A Common Stock on the date of grant. The maximum term
of options granted under the 1997 Equity Incentive Plan is ten years. Options
granted under the 1997 Equity Incentive Plan may not be transferred in any
manner other than by will or by the laws of descent and distribution and may
be exercised during the lifetime of the optionee only by the optionee. Options
granted under the 1997 Equity Incentive Plan generally expire three months
after the termination of the optionee's service to the Company or a parent or
subsidiary of the Company, except in the case of death or disability, in which
case the options generally may be exercised up to 12 months following the date
of death or termination of service. Options will generally terminate one month
after termination for cause.
Opportunities to purchase shares of the Company's Series A Common Stock
("Restricted Stock Awards"), and awards of shares of the Company's Series A
Common Stock ("Stock Bonuses"), either of which may be subject to a right of
repurchase in favor of the Company or other restrictions on ownership or
transfer, may be given to Eligible Service Providers. The administrator of the
1997 Equity Incentive Plan has the authority to determine the restrictions
applied to the stock. The sum of (i) Restricted Stock Awards, (ii) Stock
Bonuses and (iii) options with an exercise or purchase price below fair market
value issued under the 1997 Equity Incentive Plan may not exceed 20% of the
total number of shares reserved for issuance under the 1997 Equity Incentive
Plan as of any date.
If the Company is acquired under certain circumstances, any or all
outstanding Awards may be assumed or replaced by the successor corporation. If
Awards are not assumed, the vesting of such Awards will accelerate
58
<PAGE>
and all outstanding options will become exercisable in full prior to the
consummation of the transaction. Any options not exercised prior to the
transaction will expire.
1997 Employee Stock Purchase Plan. In May 1997, the Board adopted and the
stockholders approved the 1997 Employee Stock Purchase Plan (the "Purchase
Plan") and reserved a total of 400,000 shares of the Company's Series A Common
Stock for issuance thereunder. The Purchase Plan will become effective upon
the effective date of the Registration Statement for this offering and will
permit eligible employees to acquire shares of the Company's Series A Common
Stock through payroll deductions. Eligible employees may select a rate of
payroll deduction between 2% and 10% of their compensation and are subject to
certain maximum purchase limitations described in the Purchase Plan. Except
for the first offering, each offering under the Purchase Plan will be for a
period of 24 months (the "Offering Period") and will consist of four six-month
purchase periods (each a "Purchase Period"). The first Offering Period is
expected to begin on the first business day following the effective date of
this Registration Statement and, depending on the effective date of this
Registration Statement, may be greater or less than 24 months long. Offering
Periods thereafter will begin on February 15 and August 15. The purchase price
for the Company's Series A Common Stock purchased under the Purchase Plan is
85% of the lesser of the fair market value of the Company's Series A Common
Stock on the first day of the applicable Offering Period and the last day of
the applicable Purchase Period. The Board has the power to change the duration
of Offering Periods and Purchase Periods without stockholder approval, if such
change is announced at least 15 days prior to the beginning of the Offering or
Purchase Period to be affected. The Purchase Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Code.
401(k) Plan. The Board maintains the @Home 401(k) Plan (the "401(k) Plan"),
a defined contribution plan intended to qualify under Section 401 of the Code.
All employees who are at least 21 years old and have been employed by the
Company for one month are eligible to participate in the 401(k) Plan. An
eligible employee of the Company may begin to participate in the 401(k) Plan
on the first day of January, April, July or October of the Plan year
coinciding with or following the date on which such employee meets the
eligibility requirements. A participating employee may make pre-tax
contributions of a percentage (not less than 2% and not more than 20%) of his
or her eligible compensation and up to 100% of any cash bonus, subject to
limitations under the federal tax laws. Employee contributions and the
investment earnings thereon are fully vested at all times. The Company does
not make matching or profit-sharing contributions.
EMPLOYMENT AGREEMENT
On July 31, 1996, the Board elected Thomas A. Jermoluk as President, Chief
Executive Officer and Chairman of the Board of the Company pursuant to an
employment agreement dated July 19, 1996. Under the employment agreement, the
Company has agreed to pay Mr. Jermoluk an annual base salary of $500,000 per
year, and Mr. Jermoluk is eligible to receive a bonus of $200,000 per year
based on the performance of the Company with respect to its annual operating
plan. On July 31, 1996, the Company sold to Mr. Jermoluk a total of 3,000,000
shares of Series A Common Stock at a purchase price of $.05 per share for a
total of $150,000 and a total of 50,000 shares of the Company's Series K
Preferred Stock at a purchase price of $10 per share for a total of $500,000.
Of these shares, 25% were immediately vested on July 22, 1996, and an
additional 2.08% will vest each month on August 22, 1997 and each subsequent
month of Mr. Jermoluk's continuous employment. The Series K Preferred Stock
will be converted upon the closing of this offering into 1,000,000 shares of
Series K Common Stock. Under the terms of Mr. Jermoluk's employment agreement,
so long as Mr. Jermoluk is employed by the Company, and for 90 days thereafter
if his employment is terminated without cause, to the extent that Mr. Jermoluk
sells any of his vested shares during the five-year period beginning on July
22, 2000 at an average price less than $5 per share, the Company is obligated
to pay Mr. Jermoluk the excess of $5 per share over such average price for
each share sold. The Company must repurchase any unvested shares at
Mr. Jermoluk's cost upon the termination of his employment. If the Company
terminates Mr. Jermoluk's employment without cause, the Company will be
obligated to pay Mr. Jermoluk's base salary and bonus for six months after the
date of such termination, and the Company's right to repurchase any unvested
shares will lapse at the date of such termination.
59
<PAGE>
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF
LIABILITY
The Company's Certificate of Incorporation includes a provision that
eliminates, to the fullest extent permitted by the Delaware General
Corporation Law (the "Delaware Law"), the personal liability of its directors
for monetary damages for breach of fiduciary duty as a director.
As permitted by Section 145 of the Delaware Law, the Company's Certificate
of Incorporation provides that (i) the Company is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware Law,
(ii) the Company is required to advance expenses, as incurred, to its
directors and officers in connection with a legal proceeding after receipt of
an undertaking by such directors or officers to repay all amounts to which
they are ultimately determined not to be entitled, (iii) to the extent that
the Company is obligated to indemnify a person who is serving at its request
as a director, officer, employee or agent of another entity, the Company's
obligation will be reduced by any amount the indemnitee collects from such
other entity and (iv) the rights conferred in the Company's Certificate of
Incorporation are not exclusive.
The Company has entered into Indemnification Agreements with each of its
current directors and intends to enter into such Indemnification Agreements
with each of its executive officers to give such directors and officers
additional contractual assurances regarding the scope of the indemnification
set forth in the Company's Certificate of Incorporation and to provide
additional procedural protections. At present, except as disclosed in
"Business--Legal Proceedings," there is no pending litigation or proceeding
involving a director, officer or employee of the Company for which
indemnification is sought, nor is the Company aware of any threatened
litigation that may result in claims for indemnification.
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<PAGE>
CERTAIN TRANSACTIONS
Since March 28, 1995, the Company's inception date, there has not been nor
is there currently proposed, any transaction or series of similar transactions
to which the Company or any of its subsidiaries was or is to be a party in
which the amount involved exceeds $60,000 and in which any director, executive
officer, holder of more than 5% of the Common Stock of the Company or any
member of the immediate family of any of the foregoing persons had or will
have a direct or indirect material interest other than (i) compensation
agreements, which are described where required in "Management," and (ii) the
transactions described below.
TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND 5% SECURITY HOLDERS
The Company has financed its operations to date through a series of private
Preferred Stock financings. Upon the closing of this offering, all shares of
Preferred Stock will be converted into shares of Common Stock at a conversion
rate of 20 shares of Common Stock for each share of Preferred Stock subject to
adjustment of the Series C Preferred Stock conversion rate if the offering
price is less than $10 per share of Series A Preferred Stock. Shares of Series
T Preferred Stock will be converted into shares of Series B Common Stock.
Shares of Series K Preferred Stock will be converted into shares of Series K
Common Stock. Shares of all other series of Preferred Stock will be converted
into shares of Series A Common Stock. See "Description of Capital Stock."
Initial Financings from TCI and KPCB. On August 29, 1995 and May 9, 1996,
the Company sold shares of its Series T Preferred Stock to a wholly owned
subsidiary of TCI and shares of its Series K Preferred Stock to venture
capital funds affiliated with KPCB, in each case at a cash purchase price of
$10 per share, as follows:
<TABLE>
<CAPTION>
PURCHASER DATE TYPE OF STOCK SHARES TOTAL PURCHASE PRICE
--------- ------- ------------------------- ------- --------------------
<S> <C> <C> <C> <C>
TCI............. 8/29/95 Series T Preferred Stock 770,000 $ 7,700,000
KPCB............ 8/29/95 Series K Preferred Stock 230,000 2,300,000
TCI............. 5/9/96 Series T Preferred Stock 770,000 7,700,000
KPCB............ 5/9/96 Series K Preferred Stock 230,000 2,300,000
</TABLE>
1996 Financing from TCI, Comcast, Cox and KPCB. On August 1, 1996, the
Company issued 770,000 shares of its Series AT Preferred Stock to a wholly
owned subsidiary of TCI in exchange for the cancellation of 770,000 shares of
the Company's Series T Preferred Stock and sold additional shares of its
Preferred Stock to wholly owned subsidiaries of TCI, Comcast and Cox and
purchasers affiliated with KPCB (the "KPCB Purchasers"), in each case at a
cash purchase price of $10 per share, as follows:
<TABLE>
<CAPTION>
PURCHASER TYPE OF STOCK SHARES TOTAL PURCHASE PRICE
--------- ------------------------- ------- --------------------
<S> <C> <C> <C>
TCI..................... Series AT Preferred Stock 783,000 $ 7,830,000
Comcast................. Series AM Preferred Stock 727,865 7,278,650
Cox..................... Series AX Preferred Stock 727,865 7,278,650
KPCB Purchasers......... Series K Preferred Stock 233,883 2,338,830
</TABLE>
1997 Financing from Rogers, Shaw and Other Strategic Partners. On April 11,
1997, the Company sold an aggregate of 240,000 shares of its Series C
Preferred Stock at a cash purchase price of $200 per share to certain
companies with which the Company has established a strategic commercial
relationship and to James L. Barksdale, who is a director of the Company and
the Chief Executive Officer of Netscape. Among the purchasers were the
following:
<TABLE>
<CAPTION>
PURCHASER TYPE OF STOCK SHARES TOTAL PURCHASE PRICE
--------- ------------------------- ------- --------------------
<S> <C> <C> <C>
Rogers.................. Series C Preferred Stock 75,000 $15,000,000
Shaw.................... Series C Preferred Stock 75,000 15,000,000
Netscape................ Series C Preferred Stock 20,000 4,000,000
James L. Barksdale...... Series C Preferred Stock 5,000 1,000,000
</TABLE>
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<PAGE>
In connection with the Series C Preferred Stock financing, the Company
entered into agreements with Rogers and Shaw granting them exclusive rights to
distribute the @Home service in Canada under the "Wave@Home" brand and the
right to license other cable companies to distribute the service in Canada. In
addition, on April 11, 1997, the Company granted to Rogers and Shaw
transferable warrants to purchase up to an aggregate of 100,000 shares of
Series C Preferred Stock each at a purchase price of $200 per share (which
warrants will be converted into the right to purchase up to an aggregate of
2,000,000 shares of Series A Common Stock at $ per share following this
offering). These warrants will become exercisable on April 11, 2004 or earlier
upon the achievement of certain performance milestones with respect to the
distribution of the Wave@Home service in Canada.
Pursuant to a Voting Agreement entered into with Rogers and Shaw on April
11, 1997, TCI, Comcast and Cox have agreed (i) to use their reasonable best
efforts to cause a single representative designated jointly by Rogers and Shaw
to be nominated for election to the Board and an additional representative
designated jointly by Rogers and Shaw to be afforded the right to attend all
meetings of the Board as a nonvoting observer and (ii) to vote all voting
securities of the Company controlled by them in favor of election of the
designee of Rogers and Shaw to the Board. The Voting Agreement will terminate
on the earlier to occur of the date that (i) neither Rogers nor Shaw continues
to offer the Wave@Home service on an exclusive basis or (ii) Rogers and Shaw
together with their controlled affiliates cease to own at least 2,000,000
shares of Series A Common Stock plus either an additional 500,000 shares of
Series A Common Stock or warrants to purchase an additional 500,000 shares of
Series A Common Stock.
Stockholders' Agreement. On August 1, 1996, TCI, Comcast, Cox and the KPCB
Purchasers (collectively, the "Principal Stockholders") and the Company
entered into a Stockholders' Agreement, which they have agreed to amend upon
the closing of this offering (as amended, the "Stockholders' Agreement"),
which provides for certain voting agreements, restrictions on transfer of
Company securities, rights of first offer, tag-along and drag-along rights and
preemptive rights. The following summary description of the Stockholders'
Agreement does not purport to be complete and is qualified in its entirety by
reference to the text of the Stockholders' Agreement, which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Furthermore, there can be no assurance that the parties will not cause the
Stockholders' Agreement to be amended, modified or terminated or cause the
Company to waive any provision of the Stockholders' Agreement.
The Stockholders' Agreement provides that each Principal Stockholder will
vote all of its shares of Company voting stock in favor of any action required
by the Stockholders' Agreement, including the election of the Chief Executive
Officer of the Company to its Board, and that any holder of Series B Common
Stock (all of which is currently owned by TCI) will vote all such shares in
favor of the election of certain designees of TCI, Comcast and Cox to the
Board (the "Series B Common Stock Directors") as follows: Comcast will be
entitled to designate one director so long as it owns at least 5,000,000
shares of Common Stock; Cox will be entitled to designate one director so long
as it owns at least 5,000,000 shares of Common Stock; and TCI will be entitled
to designate three directors so long as it owns at least 7,700,000 shares of
Series B Common Stock, two directors so long as it owns at least 6,350,000
shares of Series B Common Stock and one director so long as it owns at least
5,000,000 shares of Series B Common Stock.
The Stockholders' Agreement, with certain exceptions, restricts transfers of
Company securities by the Principal Stockholders until the earliest to occur
of (i) June 4, 2006, (ii) the fifth anniversary of the termination of the
exclusive period applicable to any Principal Cable Stockholder and (iii) the
sixth anniversary of this offering. To the extent transfers of Series B and K
Common Stock are permitted, the holders of such shares generally must convert
them to Series A Common Stock prior to consummating such transfers. Following
the first anniversary of this offering, each Principal Stockholder will be
permitted to sell its Company securities in the public market if it first
offers to each other Principal Stockholder the right of first offer to
purchase such securities. Following the closing of this offering, the
restrictions on transfer will not apply to any constituent partner of KPCB.
The restrictions on transfer do not apply to a transfer of Company securities
that would result in an unaffiliated third party acquiring a majority of the
voting stock of the Company (a "Control Block Sale"). In the event of a
Control Block Sale, all Principal Stockholders that continue to own at least
25% of the Company
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<PAGE>
securities they now hold (the "Eligible Principal Stockholders") will be
permitted to participate in the Control Block Sale by selling a pro rata
portion of their Company securities to the third party (the "Tag-Along
Right"). If any group of Principal Stockholders consisting of TCI and any two
other Eligible Principal Stockholders proposes to make a Control Block Sale,
that group will have the right to require the other Principal Stockholders to
sell a pro rata portion of their Company securities to the third party in the
Control Block Sale (the "Drag-Along Right").
The Stockholders' Agreement provides that, if the number of homes passed by
a Principal Cable Stockholder's cable systems that are subject to (or have
been released from) the exclusivity provisions of the Master Distribution
Agreement with the Company described below falls below 80% of the Principal
Cable Stockholder's base homes passed as of June 4, 1996, then such Principal
Cable Stockholder must offer to sell a proportionate amount of its Company
securities to the other Principal Stockholders at a price equal to the average
closing price of the Company's Series A Common Stock over the most recent 20
trading days preceding the event.
The Stockholders' Agreement gives each Eligible Principal Stockholder the
preemptive right to purchase a pro rata portion of any new securities offered
by the Company other than securities issued pursuant to a public offering,
securities issued pursuant to any incentive plan or agreement for the benefit
of the Company's employees, directors or consultants, securities issued by the
Company in connection with an acquisition, and securities issued in exchange
for interests in a joint venture or other business combination.
The Stockholders' Agreement will terminate on the earliest of (i) June 4,
2021, (ii) when there are no Eligible Principal Stockholders and no Principal
Cable Stockholders subject to exclusivity obligations under the Master
Distribution Agreement, (iii) a merger in which the Company is not the
surviving entity or (iv) when there are no shares of Common Stock or Preferred
Stock of the Company outstanding.
Registration Rights Agreement. All of the current holders of Preferred Stock
have certain registration rights with respect to their shares of Series A
Common Stock following this offering. See "Description of Capital Stock--
Registration Rights."
Officer Loans. In connection with the exercise of stock options granted
under the Second 1996 Plan, the Company permitted two executive officers,
Donald P. Hutchison and John L. O'Farrell to purchase shares of Series A
Common Stock in exchange for promissory notes in the amounts of $96,000 and
$66,000, respectively. Each note is secured by the shares purchased with that
note. The notes bear interest at the rates of 6.31% and 6.42%, respectively,
and are due and payable on March 15, 2002 and April 28, 2002, respectively.
The Company has approved loans to Messrs. Hutchison and O'Farrell of $100,000
and $200,000, respectively, to assist each of them in the purchase of a home.
The loans will be secured by the homes purchased by Messrs. Hutchison and
O'Farrell, respectively. The loans, which have not yet been issued, will have
a five-year term and bear interest at the minimum rate sufficient to avoid
imputation of taxable income.
CERTAIN BUSINESS RELATIONSHIPS
Master Distribution Agreement with TCI, Comcast and Cox. In May 1997, the
Company and its Principal Cable Stockholders (TCI, Comcast and Cox) entered
into the Master Distribution Agreement. The following summary description of
the Master Distribution Agreement does not purport to be complete and is
qualified in its entirety by reference to the text of the Master Distribution
Agreement, which is filed as an exhibit to the Registration Statement of which
this Prospectus forms a part. Furthermore, there can be no assurance that the
parties will not cause the Master Distribution Agreement to be amended,
modified or terminated or cause the Company to waive any portion of the Master
Distribution Agreement.
Under the terms of the Master Distribution Agreement, in connection with the
Company's periodic budgets and business plans, the parties have agreed to
cooperate in good faith to establish a master rollout schedule for
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the deployment of the @Home service within the cable system territories of the
respective Principal Cable Stockholders, and the Company is obligated to use
commercially reasonable efforts to cause the @Home service to be made
available to the qualifying upgraded homes passed of the Principal Cable
Stockholders on a substantially pro rata basis in accordance with the master
roll-out schedule. While the Master Distribution Agreement provides that the
Principal Cable Stockholders will be subject to certain exclusivity
obligations described below, there is no affirmative obligation on the part of
the Principal Cable Stockholders to upgrade their cable plants to two-way HFC
cable or to offer the @Home service over their cable systems. The Master
Distribution Agreement contemplates that the Company will enter into
agreements ("LCO Agreements") with the local cable operators affiliated with
the Principal Cable Stockholders ("Affiliated LCOs") for the distribution of
the @Home service, although no LCO Agreements have been executed to date. The
Company and the Principal Cable Stockholders have established the principal
terms of the LCO Agreements, including the payment to the Company of 35% of
the basic and premium service revenue received by Affiliated LCOs from
subscribers to the @Home service. There can be no assurance that the parties
will not cause the LCO Agreements to be amended, modified or terminated or
cause the Company to waive any provision of the LCO Agreements.
Until June 4, 2002 or such earlier time as the exclusivity provisions
described below terminate as to a Principal Cable Stockholder (the "Restricted
Period"), each Principal Cable Stockholder has agreed not to conduct,
participate in or have a material beneficial ownership in any business within
the United States (a "Restricted Business") that involves (i) the provision of
a residential Internet service over the cable television plant of the
Principal Cable Stockholder at data transmission speeds greater than 128 Kbps
and whose primary purpose is the provision to consumers of entertainment,
information content, transactional services or electronic mail, chat and news
groups (a "Consumer Purpose"), (ii) the connection by the Principal Cable
Stockholder of its cable television plant directly or indirectly to any
Internet backbone for a Consumer Purpose at data transmission speeds greater
than 128 Kbps or (iii) the provision of an Internet backbone service. These
exclusivity provisions do not apply to (i) the creation or aggregation of
content, (ii) the provision of telephony services, (iii) the provision of
services that are primarily work-related such as the @Work services, (iv) the
provision of Internet services that do not use the cable television plant, (v)
the provision of any local Internet service that does not require use of an
Internet backbone outside a single metropolitan area, (vi) the provision of
services that are utilized primarily to connect students to schools, colleges
or universities, (vii) the provision of Internet telephony, Internet video
telephony or Internet video conferencing, (viii) the provision of certain
limited Internet services for display on a television, (ix) the provision of
certain Internet services that are primarily downstream services where the
user cannot send upstream commands in "real-time," as referenced in the Master
Distribution Agreement, (x) the provision of streaming video transmissions
that include video segments longer than ten minutes in duration or (xi)
limited testing, trials and similar activities of less than six months.
The exclusivity provisions described in the preceding paragraph may be
terminated under the following circumstances: (i) Comcast may terminate its
exclusivity obligations at its election after June 4, 1999 if it permits a
portion of its equity in the Company to be repurchased by the Company at
Comcast's original cost; (ii) Comcast or Cox may terminate all Principal Cable
Stockholders' exclusivity obligations if there is a change of control of TCI
at any time or if certain subscriber penetration levels for the @Home services
are not achieved by TCI and its affiliates on June 4, 1999 or any anniversary
thereof; (iii) the Principal Cable Stockholders may terminate all exclusivity
obligations upon a change in law that materially impairs certain of the
Principal Stockholders' rights under the Master Distribution Agreement; and
(iv) any Affiliated LCO may terminate its exclusivity obligations if the
Company fails to roll out the @Home service in such operator's territory by
mutually agreed dates in a schedule set forth in an LCO Agreement.
Until the later of (i) such time as the applicable Principal Cable
Stockholder ceases to obligated under the exclusivity provisions set forth
above or (ii) if the exclusivity provisions are terminated by reason of TCI's
failure to meet specified subscriber penetration requirements, June 4, 2002,
the Company has agreed (a) not to offer or provide Internet services at data
transmission speeds greater than 128 Kbps to residences in the geographic area
served by the cable systems of a Principal Cable Stockholder that remains in
compliance with the exclusivity provisions without regard to whether the
Restricted Period has ended as to such Principal Cable Stockholder (the
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"Exclusive Territory") and (b) not to offer, provide, distribute, advertise,
promote or market (or carry or otherwise distribute advertising or promotions
with respect to) any streaming video transmissions that include video segments
longer than ten minutes in duration or any other Internet service that is not
a Restricted Business to residences in the Exclusive Territory of a Principal
Cable Stockholder without its prior written consent.
In addition, the Company has agreed that it will not offer, provide,
distribute, advertise, promote or market any streaming video transmissions
that include video segments longer than ten minutes in duration in any "area
of dominant influence" as defined by the FCC ("ADI") that includes an
Exclusive Territory of a Principal Cable Stockholder without the prior consent
of the affected Principal Cable Stockholders having two-thirds of the cable
television subscribers of all Principal Cable Stockholders having an Exclusive
Territory in the ADI.
Each Principal Cable Stockholder and its controlled affiliates are entitled
to "most favored nation" ("MFN") terms and conditions of carriage with respect
to the distribution of the Company's services and with respect to the terms
and conditions of any related trademark license agreement or ancillary
services arrangements, including all direct and indirect benefits as a result
of a transaction with the Company that are no less favorable than those
offered to any other cable operator individually or collectively from time to
time. This MFN provision requires identical treatment of the Principal Cable
Stockholders and their controlled affiliates without regard to size or
identity with respect to each other and with respect to the terms and
conditions provided to unaffiliated third parties (except as to exclusivity
and certain other terms applicable to third parties).
The Principal Cable Stockholders and their affiliates are entitled to
create, author, promote and otherwise engage in the business of local content
offerings, and will retain all revenue from such local content offerings and
associated advertising. The Company is responsible for the aggregation and
promotion of national content offerings as part of the @Home service and will
retain all revenues from associated advertising. Each Principal Cable
Stockholder has the right to exclude the promotion of a limited number of
specified national content providers from the @Home service offered through
such Principal Cable Stockholder's cable systems, subject to an adjustment in
the split of premium service revenues between the Principal Cable Stockholder
and the Company. In addition, a Principal Cable Stockholder has the right to
block access to content that (i) includes streaming video segments of more
than ten minutes in duration, (ii) is pornographic or overly violent or
(iii) could adversely affect a cable operator's franchise to deliver cable
television service or the @Home service, and the Company is obligated to use
its best efforts to block such access.
The Company is obligated to use reasonable best efforts to consult with and
involve each of the Principal Cable Stockholders in the development of
requirements for and design of enhancements, new features and new applications
of the @Home service and coordinate with respect to the introduction of such
enhancements, features and applications that could have a significant effect
on the cable operations of a Principal Cable Stockholder. If Principal Cable
Stockholders representing a majority of the residential subscribers of the
@Home service object to such enhancement, feature or application, the Company
has agreed not to implement such enhancement, feature or application in the
territories of objecting Principal Cable Stockholders.
Services Provided by Affiliates of Principal Stockholders. During 1995, KPCB
advanced $210,000 of general and administrative expenses to the Company. The
Company repaid $117,000 of these advances in 1995 and the remainder in 1996.
During 1995, the Company made expense-sharing payments in the amount of
$109,000 to an affiliate of TCI. During 1995 and 1996, the Company contracted
for development and system integration of back office systems in the amounts
of $291,000 and $2,631,000, respectively, from a company in which TCI has a
30% ownership interest. During 1995 and 1996, the Company contracted for
$123,000 and $77,000, respectively, of prototype development for the @Home
user interface from a company owned by TCI.
Agreement with Rogers and Shaw. In March 1997, in connection with the equity
investment in the Company by Rogers and Shaw, the Company, Rogers and Shaw
entered into an agreement for the distribution by Rogers and Shaw in Canada of
a localized version of the @Home service referred to as "Wave@Home." The
Company has granted Rogers and Shaw the exclusive rights for an initial period
of six years, subject to achievement of certain performance milestones, to
distribute, market and promote the service in Canada either
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directly in jurisdictions where they are licensed to operate cable systems or
indirectly through the sublicensing of other cable operators in Canada. During
the term of the exclusivity of such licenses, Rogers and Shaw have each
agreed, subject to the same exceptions to exclusivity available to the
Principal Cable Stockholders, not to market, promote or control any other
residential Internet service (other than dial-up services at data transmission
speeds of 128 Kbps or less). However, Rogers and Shaw are not precluded from
distributing other residential Internet Services. Rogers and Shaw will be
responsible, among other things, for (i) upgrading their cable systems for
two-way data transmission services, (ii) providing the necessary cable data
routers and cable modems, (iii) providing the telecommunications systems
necessary to connect their subscribers to cable headends or fiber nodes, to
connect such headends or fiber nodes to the Company's RDCs in Canada and to
connect such RDCs to the nearest points of presence of the @Home backbone in
the United States, (iv) providing customer installation, billing, customer
service and technical support, (v) providing the Company with space to co-
locate its RDCs and related equipment within Rogers' and Shaw's network
distribution facilities, (vi) providing necessary modifications to billing,
subscriber and network management systems to interface with the Company,
(vii) distributing and promoting the Wave@Home Service and (viii) programming
local content and customizing certain national content for the Canadian
market.
The Company will be responsible under the Agreement, among other things,
for: (i) treating Rogers and Shaw with a priority equal to TCI, Comcast and
Cox in matters of deployment, (ii) granting Rogers and Shaw access to the
Company's broadband networks, (iii) installing and maintaining an optimal
number of RDCs and providing the same level of performance received by the
Principal Cable Stockholders, (iv) providing software necessary for the
Wave@Home Service, (v) providing the telecommunications facilities connecting
the nearest points of presence of the Company's backbone in the United States
to the @Network, (vi) providing network support, (vii) providing general
engineering, operations, marketing and management support, when reasonably
requested, (viii) providing training programs, (ix) providing access and
automated exchange of data from the Company to Rogers and Shaw necessary for
billing and subscriber management, (x) working with Rogers and Shaw to develop
a network architecture that minimizes inter-city data transport within Rogers'
and Shaw's networks, (xi) developing and maintaining the user interface and
page templates for national content and (xii) providing the same or additional
content platform technologies provided to the Principal Cable Stockholders.
The Company is restricted from offering, promoting, marketing or providing (or
carrying third-party advertising or promotion with respect to) any streaming
video transmissions that include video segments longer than ten minutes in
duration.
Agreement with TCG. In April 1997, the Company and TCG, of which TCI,
Comcast and Cox collectively hold a majority of the voting stock, entered into
a Master Communications Services Agreement, with an initial term of five
years, under which TCG has agreed to provide the Company with facilities
management and telecommunications network services for the local
telecommunications transport requirements of the Company's services. TCG is
the largest CLEC in the United States, providing high-speed fiber optic
telecommunications to more than 7,700 commercial customer sites in 57
metropolitan centers in the United States. In markets served by TCG networks,
TCG will provide the Company with (i) the ability to co-locate its RDCs within
TCG's network distribution facilities and (ii) all intralata and interlata
transport access facilities to and from the co-located RDC, including all
services provided completely on TCG's network and services provided through a
combination of TCG's network and the network of a third-party local exchange
carrier. In market areas not served by TCG, TCG will serve as a facility
manager to procure co-location space and intralata and interlata transport
facilities. The agreement provides the Company with such telecommunications
services at rates generally at or below those of competing carriers, and the
ability to co-locate the Company's RDCs within TCG's network distribution
facilities at favorable rates.
Agreement with Netscape. Pursuant to an OEM Software License Agreement,
Netscape has granted the Company a nonexclusive, worldwide license to use
certain Netscape Internet client, Internet server and Internet applications
software internally, distribute the Netscape Internet client software to
subscribers of the Company's services, and distribute the Netscape Internet
server and Internet applications software to the Company's cable affiliates
until December 31, 1998. Under the terms of the agreement, the Company paid
Netscape $1,338,000
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during 1996 and is obligated to pay Netscape an additional $2,331,222 during
1997 as nonrefundable license fees and prepaid support and service fees. James
L. Barksdale, a director of the Company, is the Chief Executive Officer of
Netscape.
The Company believes that the terms of each of the transactions described
above, taken as a whole, were no less favorable than the Company could have
obtained from unaffiliated third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of April 11, 1997 and as
adjusted to reflect the sale of the shares of Series A Common Stock
offered hereby by: (i) each person who is known by the Company to own
beneficially more than 5% of the Company's Common Stock, (ii) each director of
the Company, (iii) each of the Named Executive Officers and (iv) all directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
NUMBER OF SHARES COMMON STOCK VOTE OF ALL SERIES OF
BENEFICIALLY OWNED (1) BENEFICIALLY OWNED(1) COMMON STOCK(1)
-------------------------------- --------------------- ---------------------
BEFORE AFTER BEFORE AFTER
NAME OF BENEFICIAL OWNER SERIES A SERIES B SERIES K OFFERING OFFERING (2) OFFERING OFFERING (2)
- ------------------------ ---------- ---------- ---------- -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
TCI(3).................. 31,060,000 15,400,000 -- 42.8% % 74.9% %
Brendan R. Clouston
John C. Malone
Bruce W. Ravenel
Larry E. Romrell
Comcast(4).............. 14,557,300 -- -- 13.4 5.9
Brian L. Roberts
Cox(5).................. 14,557,300 -- -- 13.4 5.9
David M. Woodrow
KPCB(6)................. 400,000 -- 12,877,660 11.9 5.2
L. John Doerr
William R. Hearst III
Thomas A. Jermoluk(7)... 3,000,000 -- 1,000,000 3.7 1.6
Rogers(8)............... 1,500,000 -- -- 1.4 *
Edward S. Rogers
Milo S. Medin(9)........ 600,000 -- -- * *
Kenneth A. Goldman(10).. 550,000 -- -- * *
James L. Barksdale(11).. 500,000 -- -- * *
Netscape
Dean A. Gilbert(12)..... 440,000 -- -- * *
Sean Doherty............ 198,150 -- -- * *
All directors and
executive officers as a
group (18 persons)(13).. 68,589,600 15,400,000 13,877,660 90.1 95.7
</TABLE>
- --------
* Less than 1% of the Company's outstanding Common Stock
(1) Percentage ownership is based on 108,603,587 shares outstanding as of
April 11, 1997, after conversion of all outstanding Preferred Stock into
Common Stock in connection with this offering, and shares outstanding
after the offering (assuming no adjustment to the number of shares of
Series A Common Stock issuable upon the conversion of the Series C
Preferred Stock). 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) Assumes the U.S. Underwriters' over-allotment option to purchase up
to shares of Series A Common Stock is not exercised.
(3) Represents shares held of record by TCI Internet Holdings, Inc., a wholly
owned subsidiary of TCI. Messrs. Clouston, Malone, Ravenel and Romrell
are officers of TCI or its affiliates. Messrs. Clouston, Ravenel and
Romrell serve as TCI's designees as Series B Common Stock Directors. The
address of TCI and Messrs. Clouston, Malone, Ravenel and Romrell is TCI,
5619 DTC Parkway, Englewood, Colorado 80111.
(4) Represents shares held of record by Comcast PC Investments, Inc., a
wholly owned subsidiary of Comcast. Mr. Roberts is the President of
Comcast and serves as its designee as a Series B Common Stock Director.
The address of Comcast and Mr. Roberts is Comcast, 1500 Market Street,
35th Floor, Philadelphia, Pennsylvania 19102.
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(5) Represents shares held of record by Cox @Home, Inc., a wholly owned
subsidiary of Cox. Mr. Woodrow is the Senior Vice President of Broadband
Services of Cox and serves as its designee as a Series B Common Stock
Director. The address of Cox and Mr. Woodrow is Cox @Home, Inc., 1400
Lake Hearn Drive, Atlanta, Georgia 30319.
(6) Represents 12,555,720 shares of Series K Common Stock held of record by
Kleiner Perkins Caufield & Byers VII, 321,940 shares of Series K Common
Stock held of record by KPCB Information Sciences Zaibatsu Fund II and
400,000 shares of Series A Common Stock held of record by Mr. Hearst.
Messrs. Doerr and Hearst, directors of the Company, are general partners
of KPCB, which is the general partner of the general partner of these
funds. Mr. Doerr serves as the designee of the Series K Common Stock on
the Board. Mr. Hearst is Vice Chairman of the Company. The address of
KPCB and Messrs. Doerr and Hearst is Kleiner Perkins Caufield & Byers,
2750 Sand Hill Road, Menlo Park, California 94025.
(7) Mr. Jermoluk is the Chairman, President and Chief Executive Officer of
the Company. Of these shares, 3,000,000 were subject to repurchase at
April 11, 1997.
(8) Represents 1,500,000 shares held of record by Rogers, a wholly owned
subsidiary of Rogers Communications, Inc. Mr. Rogers is the President and
Chief Executive Officer of Rogers Communications, Inc. and the designee
of Rogers and Shaw on the Board.
(9) Mr. Medin is the Vice President, Networks of the Company. Of these
shares, 324,600 were subject to repurchase at April 11, 1997.
(10) Mr. Goldman is a Senior Vice President and the Chief Financial Officer of
the Company. Of these shares 513,333 were subject to repurchase at April
11, 1997.
(11) Represents 100,000 shares held of record by Mr. Barksdale and 400,000
shares held of record by Netscape. Mr. Barksdale, a director of the
Company, is the President and Chief Executive Officer of Netscape.
Mr. Barksdale disclaims beneficial ownership of the shares held of record
by Netscape.
(12) Mr. Gilbert is a Senior Vice President and the General Manager, @Home
Group of the Company. Of these shares, 311,608 were subject to repurchase
at April 11, 1997.
(13) Includes all of the shares shown in the table and an additional 1,425,000
shares of Series A Common Stock held of record by four other executive
officers.
DESCRIPTION OF CAPITAL STOCK
As of April 11, 1997, assuming the conversion of all outstanding shares of
Preferred Stock into shares of Common Stock, there were outstanding
shares of Series A Common Stock held of record by approximately 254
stockholders, 15,400,000 shares of Series B Common Stock held of record by one
stockholder, 14,877,660 shares of Series K Common Stock held of record by five
stockholders, options to purchase 919,250 shares Series A of Common Stock and
warrants to purchase 2,200,000 shares of Series A Common Stock.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Certificate of
Incorporation, which is included as an exhibit to the Registration Statement,
of which this Prospectus forms a part, and by the provisions of applicable
law.
COMMON STOCK
The Company is authorized to issue 230,277,660 shares of Common Stock, $.01
par value, of which 200,000,000 have been designated Series A Common Stock,
15,400,000 have been designated Series B Common Stock and 14,877,660 have been
designated Series K Common Stock. Subject to preferences that may be
applicable to any 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 may from time to time determine. Holders of Series A Common Stock and
Series K Common Stock are entitled to one vote for each share held, and
holders of Series B Common Stock are entitled to ten votes for each share
held, on all matters presented to stockholders. The Series A Common Stock is
the only series of Common
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Stock that is registered in this offering. Each share of Series B Common Stock
and Series K Common Stock is convertible, at the option of the holder, into
one share of Series A Common Stock. Shares of Series A Common Stock are not
convertible into shares of Series B or Series K Common Stock. All other rights
and privileges are equal with respect to holders of Series A, B and K Common
Stock, except that, so long as there are at least 5,000,000 shares of Series B
Common Stock outstanding, the holders of Series B Common Stock, voting
separately as single series, have the right to elect five directors to the
Board; so long as there are at least 5,000,000 shares of Series K Common Stock
outstanding, the holders of Series K Common Stock, voting separately as a
single series, have the right to elect one director to the Board; so long as
the holders of Series B Common Stock or Series K Common Stock are entitled to
elect any Series B Common Stock Director or any Series K Common Stock
Director, the holders of Series A Common Stock, voting separately as a single
series, have the right to elect two directors who are not officers (other than
the Vice Chairman) or employees of the Company and are not affiliates or
associates of TCI, Comcast or Cox. The Common Stock is not entitled to
preemptive rights and is not subject to redemption. Upon 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 duly and validly issued, fully paid
and nonassessable. See "Management--Board Composition and Procedures."
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of Preferred Stock
will be converted into shares of Common Stock at a conversion rate of 20
shares of the applicable series of Common Stock for each share of Preferred
Stock. The Preferred Stock so converted will be retired and may not be
reissued. See Notes 5 and 10 of Notes to Financial Statements for a
description of the Preferred Stock. The Board is authorized, subject to any
limitation prescribed by Delaware law, to issue, from time to time, in one or
more series, up to 9,650,000 additional shares of Preferred Stock, with such
designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, as
shall be stated and expressed in a Board resolution or resolutions providing
for the issue of such series without any further vote or action by the
stockholders. The Board may authorize the issuance of such Preferred Stock
with voting or conversion rights that could adversely affect the voting power
or other rights of the holders of Common Stock. Thus, the issuance of
Preferred Stock 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.
REGISTRATION RIGHTS
Following this offering, the holders of approximately shares of Series
A Common Stock issued or issuable upon conversion of the Preferred Stock (and
other series of Common Stock) and holders of warrants to purchase a total of
2,200,000 shares of Series A Common Stock will have certain rights to cause
the Company to register those shares (the "Registrable Shares") under the
Securities Act at any time after the first anniversary of the closing date of
this offering. Thereafter, the Company may be required to effect up to four
registrations requested by the TCI stockholder group, two registrations
requested by the Comcast stockholder group, two registrations requested by the
Cox stockholder group, two registrations requested by the KPCB stockholder
group and two registrations requested by the Series C Preferred stockholder
group. Stockholder groups not part of the initial registration demand are
entitled to notice of such registration and are entitled to include shares of
Registrable Securities therein. These registration rights are subject to
certain conditions and limitations, including (i) the right, under certain
circumstances, of the underwriters of an offering to limit the number of
shares included in such registration and (ii) the right of the Company to
delay the filing of a registration statement for not more than 120 days after
receiving the registration demand. Notwithstanding the foregoing, the exercise
of the Principal Stockholders' registration rights are subject to the other
Principal Stockholders' rights of first offer as set forth in the
Stockholders' Agreement, unless specifically exempted therefrom. If any
stockholder group requests registration of at least 500,000 Registrable
Shares, the Company is obligated to pay all registration
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expenses incurred in connection with such registration (other than
underwriters' discounts and commissions and stock transfer fees or expenses)
and the fees and expenses of a single counsel to the selling stockholders.
These demand registration rights expire with respect to the Series C Preferred
stockholder group upon the fifth anniversary of the closing of this offering.
In addition, if the Company proposes to register any of its equity
securities under the Securities Act, whether or not for sale for its own
account, other than in connection with a Company employee benefit plan or a
corporate reorganization, the holders of Registrable Shares are entitled to
notice of such registration and are entitled to include Registrable Shares
therein. These rights are subject to certain conditions and limitations,
including the right of the underwriters of an offering to limit the number of
shares included in such registration under certain circumstances and the right
of the Company to delay or withdraw any such registration. The Company is
obligated to pay all registration expenses incurred in connection with such
registration other than underwriters' discounts and commissions, stock
transfer fees or expenses, the pro rata share of the incremental filing fee
under the Securities Act attributable to the applicable Registrable Shares and
the fees and disbursements of counsel to the holders of the Registrable
Shares. These "piggyback" registration rights expire with respect to the
Series C Preferred stockholder group upon the fifth anniversary of the closing
of this offering.
DELAWARE TAKEOVER STATUTE
The Company is not subject to Section 203 of the Delaware Law which, subject
to certain exceptions, prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three
years following the date that such stockholder became an interested
stockholder.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is .
The Transfer Agent's telephone number is .
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Series A
Common Stock of the Company. Future sales of substantial amounts of Series A
Common Stock in the public market could materially and adversely affect
prevailing market prices from time to time. Furthermore, since no shares will
be available for sale shortly after this offering because of certain
contractual and legal restrictions on resale (as described below), sales of
substantial amounts of Series A Common Stock of the Company in the public
market after these restrictions lapse could materially and adversely affect
the prevailing market price and the ability of the Company to raise equity
capital in the future.
Upon completion of this offering, the Company will have outstanding an
aggregate of shares of Common Stock (based upon shares outstanding at April
11, 1997), assuming no exercise of the U.S. Underwriters' over-allotment
option and no exercise of outstanding options or warrants. Of these shares,
all of the shares sold in this offering will be freely tradeable without
restriction or further registration under the Securities Act, unless such
shares are purchased by "affiliates" of the Company as that term is defined in
Rule 144 under the Securities Act (the "Affiliates"). The remaining
shares of Common Stock held by existing stockholders are "restricted
securities" as that term is defined in Rule 144 under the Securities Act
("Restricted Shares"). Restricted Shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rule
144 or 701 promulgated under the Securities Act, which rules are summarized
below. All officers, directors, stockholders and option holders of the Company
have agreed not to offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly (or enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of), any shares of Common Stock or any securities convertible into
or exercisable or
71
<PAGE>
exchangeable for shares of Common Stock, for a period of 180 days after the
date of this Prospectus, without the prior written consent of Morgan Stanley &
Co. Incorporated. As a result of the contractual restrictions described below
and the provisions of Rule 144 and 701, the Restricted Shares will be
available for sale in the public market as follows: (i) no shares will be
eligible for immediate sale on the date of this Prospectus; (ii) shares
will be eligible for 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 (iii) the remaining shares will become
eligible for sale on April 11, 1998, subject to the volume limitation 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 shares immediately after this
offering); or (ii) the average weekly trading volume of the Common Stock on
the Nasdaq National Market during the four calendar weeks preceding the filing
of a notice on 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 90 days preceding a sale, 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; therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering. In general, under Rule 701 of the Securities Act
as currently in effect, any employee, consultant or advisor of the Company who
purchases shares from the Company in connection with a compensatory stock or
option plan or other written agreement is eligible to resell such shares 90
days after the effective date of this offering in reliance on Rule 144, but
without compliance with certain restrictions, including the holding period,
contained in Rule 144.
Upon completion of this offering, the holders of shares of Common Stock
issuable upon conversion of Preferred Stock, or their transferees, will be
entitled to certain rights with respect to the registration of such shares
under the Securities Act. See "Description of Capital Stock--Registration
Rights." Registration of such shares under the Securities Act would result in
such shares becoming freely tradeable without restriction under the Securities
Act (except for share purchases by Affiliates) immediately upon the
effectiveness of such registration.
The Company intends to file a registration statement under the Securities
Act covering approximately 2,668,673 shares of Common Stock reserved for
issuance under the Company's 1997 Equity Incentive Plan or the Stock Purchase
Plan and the shares subject to outstanding options under the 1996 Plans. As of
March 31, 1997, options to purchase 919,250 shares of Series A Common Stock
were issued and outstanding under the 1996 Plans. Subsequent to March 31,
1997, the Board granted options to purchase an additional 183,000 shares of
Series Common Stock under the 1996 Plans. See "Management--Employee Benefit
Plans." Such registration statement is expected to be filed and become
effective as soon as practicable after the effective date of this offering.
Accordingly, shares registered under such registration statement will, subject
to Rule 144 volume limitations applicable to Affiliates, be available for sale
in the open market, unless such shares are subject to vesting restrictions
with the Company or the lock-up agreements described above.
72
<PAGE>
UNDERWRITERS
Under the terms and subject to conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters
named below for whom Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Alex. Brown & Sons Incorporated and Hambrecht &
Quist LLC are acting as U.S. Representatives, and the International
Underwriters named below for whom Morgan Stanley & Co. International Limited,
Merrill Lynch International, Alex. Brown International and Hambrecht & Quist
LLC are acting as International Representatives, have severally agreed to
purchase, and the Company has agreed to sell to them, severally, the
respective number of shares of Series A Common Stock set forth opposite the
names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated...................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................................
Alex. Brown & Sons Incorporated.....................................
Hambrecht & Quist LLC...............................................
----
Subtotal..........................................................
----
International Underwriters:
Morgan Stanley & Co. International Limited..........................
Merrill Lynch International.........................................
Alex. Brown International...........................................
Hambrecht & Quist LLC...............................................
Subtotal..........................................................
----
Total...........................................................
====
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively
referred to as the "Underwriters" and "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all of the shares of Common Stock offered hereby (other than
those covered by the U.S. Underwriters' over-allotment option described below)
if any such shares are taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for
73
<PAGE>
the account of anyone other than a United States or Canadian Person (as
defined herein) and (ii) it has not offered or sold, and will not offer or
sell, directly or indirectly, any Shares or distribute any prospectus relating
to the Shares outside the United States or Canada or to anyone other than a
United States or Canadian Person. Pursuant to the Agreement between U.S. and
International Underwriters, each International Underwriter has represented and
agreed that, with certain exceptions: (i) it is not purchasing any Shares for
the account of any United States or Canadian Person and (ii) it has not
offered or sold, and will not offer or sell, directly or indirectly, any
Shares or distribute any prospectus relating to the Shares in the United
States or Canada or to any United States or Canadian Person. With respect to
any Underwriter that is a U.S. Underwriter and an International Underwriter,
the foregoing representations and agreements (i) made by it in its capacity as
a U.S. Underwriter apply only to it in its capacity as a U.S. Underwriter and
(ii) made by it in its capacity as an International Underwriter apply only to
it in its capacity as an International Underwriter. The foregoing limitations
do not apply to stabilization transactions or to certain other transactions
specified in the Agreement between U.S. and International Underwriters. As
used herein, "United States or Canadian Person" means any national or resident
of the United States or Canada, or any corporation, pension, profit-sharing or
other trust or other entity organized under the laws of the United States or
Canada or of any political subdivision thereof (other than a branch located
outside the United States and Canada of any United States or Canadian Person),
and includes any United States or Canadian branch of a person who is otherwise
not a United States or Canadian Person. All shares of Series A Common Stock to
be purchased by the Underwriters are referred to herein as the "Shares."
Pursuant to the Agreement between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of
any number of Shares as may be mutually agreed. The per share price of any
Shares sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per
share amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any Shares, directly or indirectly, in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and has represented that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus
in the province or territory of Canada in which such offer or sale is made.
Each U.S. Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing
such Shares, such dealer represents and agrees that it has not offered or
sold, and will not offer or sell, directly or indirectly, any of such Shares
in any province or territory of Canada or to, or for the benefit of, any
resident of any province or territory of Canada in contravention of the
securities laws thereof and that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus
in the province or territory of Canada in which such offer is made, and that
such dealer will deliver to any other dealer to whom it sells any of such
Shares a notice containing substantially the same statement as is contained in
this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not
offered or sold and, prior to the date six months after the closing date for
the sale of Shares to the International Underwriters, will not offer or sell,
any Shares to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the Shares in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and
will only issue or pass on in the United Kingdom any document received by it
in connection with the offering of the Shares to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document
may otherwise lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in
74
<PAGE>
Japan or to or for the account of any resident thereof, any Shares acquired in
connection with the distribution contemplated hereby, except for offers or
sales to Japanese International Underwriters or dealers and except pursuant to
any exemption from the registration requirements of the Securities and
Exchange Law and otherwise in compliance with applicable provisions of
Japanese law. Each International Underwriter has further agreed to send to any
dealer who purchases from it any of the Shares a notice stating in substance
that, by purchasing such Shares, such dealer represents and agrees that it has
not offered or sold, and will not offer or sell, any of such Shares, directly
or indirectly, in Japan or to or for the account of any resident thereof
except for offers or sales to Japanese International Underwriters or dealers
and except pursuant to any exemption from the registration requirements of the
Securities and Exchange Law and otherwise in compliance with applicable
provisions of Japanese law, and that such dealer will send to any other dealer
to whom it sells any of such Shares a notice containing substantially the same
statement as is contained in this sentence.
The Underwriters initially propose to offer part of the shares of Series A
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ a share to other Underwriters or to certain dealers. After the
initial offering of the Series A Common Stock, the offering price and other
selling terms may from time to time be varied by the Representatives.
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an aggregate of additional shares of Series
A Common Stock at the public offering price set forth on the cover page
hereof, less underwriting discounts and commissions. The U.S. Underwriters may
exercise such option to purchase solely for the purpose of covering over-
allotments, if any, made in connection with the offering of the shares of
Series A Common Stock offered hereby. To the extent such option is exercised,
each U.S. Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of
Series A Common Stock as the number set forth next to such U.S. Underwriter's
name in the preceding table bears to the total number of shares of Series A
Common Stock set forth next to the names of all U.S. Underwriters in the
preceding table.
See "Shares Eligible for Future Sale" for a description of certain
arrangements by which all officers, directors, stockholders and option holders
of the Company have agreed not to sell or otherwise dispose of Common Stock or
convertible securities of the Company for up to 180 days after the date of
this Prospectus without the prior consent of Morgan Stanley & Co.
Incorporated. The Company has agreed in the Underwriting Agreement that it
will not, directly or indirectly, without the prior written consent of Morgan
Stanley & Co. Incorporated, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of any shares of Common
Stock or any securities convertible into or exchangeable for Common Stock, for
a period of 180 days after the date of this Prospectus, except under certain
circumstances.
The Representatives have informed the Company that they do not intend sales
to discretionary accounts to exceed five percent of the total number of shares
of Series A Common Stock offered by them.
The Underwriters have reserved for sale, at the initial public offering
price, up to shares of the Series A Common Stock offered hereby for
certain individuals who have expressed an interest in purchasing such shares
of Series A Common Stock in the offering. The number of shares available for
sale to the general public will be reduced to the extent such persons purchase
such reserved shares. Any reserved shares not so purchased will be offered by
the Underwriters to the general public on the same basis as other shares
offered hereby.
In order to facilitate the offering of the Series A Common Stock, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Series A Common Stock. Specifically, the Underwriters
may over-allot in connection with the offering, creating a short position in
the Series A
75
<PAGE>
Common Stock for their own account. In addition, to cover over-allotments or
to stabilize the price of the Series A Common Stock, the Underwriters may bid
for, and purchase, shares of Series A Common Stock in the open market.
Finally, the underwriting syndicate may reclaim selling concessions allowed to
an Underwriter or a dealer for distributing the Series A Common Stock in the
offering, if the syndicate repurchases previously distributed Series A Common
Stock in transactions to cover syndicate short positions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain
the market price of the Series A Common Stock above independent market levels.
The Underwriters are not required to engage in these activities, and may end
any of these activities at any time.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the Series A
Common Stock or any other securities of the Company. The initial public
offering price for the Series A Common Stock will be determined by
negotiations among the Company and the Representatives. Among the factors to
be considered in determining the initial public offering price will be the
future prospects of the Company and its industry in general, sales, earnings
and certain other financial and operating information of the Company in recent
periods, and the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies
engaged in activities similar to those of the Company. The estimated initial
public offering price range set forth on the cover page of this Preliminary
Prospectus is subject to change as a result of market conditions and other
factors.
LEGAL MATTERS
The validity of the shares of Series A Common Stock offered hereby will be
passed upon for the Company by Fenwick & West LLP, Palo Alto, California.
Certain legal matters will be passed upon for the Underwriters by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements of At Home Corporation as of December
31, 1995 and 1996, and for the period from March 28, 1995 (inception) to
December 31, 1995 and the year ended December 31, 1996, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
CHANGE IN INDEPENDENT AUDITORS
Effective April 1, 1997, the Company selected Ernst & Young LLP as its
principal independent auditors to replace KPMG Peat Marwick LLP, who were
dismissed as auditors of the Company on that date. The decision to change
independent auditors was approved by the Board. In connection with the audit
for the period from March 28, 1995 (inception) to December 31, 1995, and the
subsequent interim periods through April 1, 1997, there were no disagreements
with KPMG Peat Marwick LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedures,
which, if not resolved to the satisfaction of KPMG Peat Marwick LLP, would
have caused them to make reference to the matter in their report. The former
accountant's report for the period from March 28, 1995 (inception) to December
31, 1995 is not a part of the financial statements of the Company included in
this Prospectus. The report of KPMG Peat Marwick LLP on the financial
statements of the Company for the period from March 28, 1995 (inception) to
December 31, 1995 did not contain any adverse opinion or disclaimer of opinion
and was not qualified or modified as to uncertainty, audit scope or accounting
principles.
76
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act, of which this Prospectus forms a part, with respect
to the shares of Series A Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto. Certain items are omitted in accordance with the rules
and regulations of the Commission. For further information with respect to the
Company and the Series A Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits 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 thereto, may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048, and copies of all or any part of the Registration Statement may be
obtained from such offices upon the payment of the fees prescribed by the
Commission. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
site is http://www.sec.gov.
77
<PAGE>
AT HOME CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Stockholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
At Home Corporation
We have audited the accompanying consolidated balance sheets of At Home
Corporation as of December 31, 1995 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the period
from March 28, 1995 (inception) to December 31, 1995 and for the year ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of At Home
Corporation at December 31, 1995 and 1996, and the consolidated results of its
operations and its cash flows for the period from March 28, 1995 (inception)
to December 31, 1995 and for the year ended December 31, 1996, in conformity
with generally accepted accounting principles.
San Jose, California
May 1, 1997, except for Note 10,
as to which the date is
May , 1997
- -------------------------------------------------------------------------------
Neither a share price nor a range has been determined for common shares in
this offering, which precludes management from calculating the pro forma net
loss per share under the method discussed in Note 1 to the consolidated
financial statements. The foregoing report is in the form that will be signed
upon determination of the share price, if no other events have occurred from
May 1, 1997 to the date of such determination that would affect the
consolidated financial statements and notes thereto.
ERNST & YOUNG LLP
San Jose, California
May 1, 1997
F-2
<PAGE>
AT HOME CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
----------------- MARCH 31, MARCH 31,
1995 1996 1997 1997
------- -------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 6,844 $ 9,709 $ 4,067
Short-term cash investments...... 63 7,061 2,360
------- -------- --------
Total cash, cash equivalents and
short-term cash investments..... 6,907 16,770 6,427
Accounts receivable.............. -- 164 81
Accounts receivable--related
parties......................... -- 640 445
Other current assets............. 249 741 1,835
------- -------- --------
Total current assets............... 7,156 18,315 8,788
Property, equipment and
improvements, net................. 921 14,328 17,343
Other assets....................... 47 745 747
------- -------- --------
Total assets....................... $ 8,124 $ 33,388 $ 26,878
======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable................. $ 392 $ 1,946 $ 2,859
Accounts payable--related
parties......................... 431 1,482 665
Accrued compensation and related
expenses........................ 89 248 366
Other accrued liabilities........ -- 885 2,467
Current portion of capital lease
obligations..................... -- 3,181 4,766
------- -------- --------
Total current liabilities.......... 912 7,742 11,123
Capital lease obligations, less
current portion................... -- 5,654 6,410
Other long-term liabilities........ -- 1,675 1,675
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock,
$0.01 par value:
Authorized shares--14,522,613
Issued and outstanding shares--
1,000,000 in 1995 and
4,522,613 in 1996 and 1997
(pro forma--none)............. 9,968 44,993 44,993 $ --
Common stock, $0.01 par value:
Authorized shares--180,277,660
Issued and outstanding shares--
none in 1995, 11,855,088 in
1996 and 13,351,327 in 1997... -- 1,035 6,212 51,205
Notes receivable from
stockholders.................... -- (170) (515) (515)
Deferred compensation............ -- (272) (4,850) (4,850)
Accumulated deficit.............. (2,756) (27,269) (38,170) (38,170)
------- -------- -------- --------
Total stockholders' equity......... 7,212 18,317 7,670 $ 7,670
------- -------- -------- ========
Total liabilities and stockholders'
equity............................ $ 8,124 $ 33,388 $ 26,878
======= ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
AT HOME CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 28, 1995 THREE MONTHS ENDED
(INCEPTION) TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -----------------------
1995 1996 1996 1997
-------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues (1).............. $ -- $ 676 $ -- $ 806
Costs and expenses:
Operating costs......... -- 6,969 679 4,325
Product development and
engineering............ 1,447 6,312 1,286 2,330
Sales and marketing..... 496 6,368 831 2,934
General and
administrative......... 943 6,054 998 2,158
------- -------- ------- --------
Total costs and expenses.. 2,886 25,703 3,794 11,747
------- -------- ------- --------
Loss from operations...... (2,886) (25,027) (3,794) (10,941)
Interest income, net...... 130 514 84 40
------- -------- ------- --------
Net loss.................. $(2,756) $(24,513) $(3,710) $(10,901)
======= ======== ======= ========
Pro forma net loss per
share.................... $ $
======== ========
Pro forma shares used in
per share calculations...
======== ========
- --------
(1)Revenues from related
parties $ -- $ 634 $ -- $ 690
</TABLE>
See accompanying notes.
F-4
<PAGE>
AT HOME CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE TOTAL
----------------- ----------------- FROM DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT STOCKHOLDERS COMPENSATION DEFICIT EQUITY
--------- ------- ---------- ------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of preferred
stock, less issuance
costs of $32........... 1,000,000 $ 9,968 -- $ -- $ -- $ -- $ -- $ 9,968
Net loss................ -- -- -- -- -- -- (2,756) (2,756)
--------- ------- ---------- ------ ----- ------- -------- --------
BALANCES AT DECEMBER 31,
1995................... 1,000,000 9,968 -- -- -- -- (2,756) 7,212
Issuance of preferred
stock, less issuance
costs of $232.......... 3,522,613 35,025 -- -- -- -- -- 35,025
Series A common stock
issued under stock
option plans and
restricted stock
agreements, net of
repurchases............ -- -- 11,855,008 689 (170) -- -- 519
Deferred compensation
related to grant of
stock options.......... -- -- -- 346 -- (346) -- --
Amortization of deferred
compensation........... -- -- -- -- -- 74 -- 74
Net loss................ -- -- -- -- -- -- (24,513) (24,513)
--------- ------- ---------- ------ ----- ------- -------- --------
BALANCES AT DECEMBER 31,
1996................... 4,522,613 44,993 11,855,008 1,035 (170) (272) (27,269) 18,317
Series A common stock
issued under stock
option plans and
restricted stock
agreements, net of
repurchases
(unaudited)............ -- -- 1,496,319 440 (345) -- -- 95
Deferred compensation
related to grant of
stock options
(unaudited)............ -- -- -- 4,737 -- (4,737) -- --
Amortization of deferred
compensation
(unaudited)............ -- -- -- -- -- 159 -- 159
Net loss (unaudited).... -- -- -- -- -- -- (10,901) (10,901)
--------- ------- ---------- ------ ----- ------- -------- --------
BALANCES AT MARCH 31,
1997 (UNAUDITED)....... 4,522,613 $44,993 13,351,327 $6,212 $(515) $(4,850) $(38,170) $ 7,670
========= ======= ========== ====== ===== ======= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
AT HOME CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 28, 1995 THREE MONTHS
(INCEPTION) TO YEAR ENDED ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -----------------------
1995 1996 1996 1997
-------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash and cash equivalents,
beginning of period...... $ -- $ 6,844 $ 6,844 $ 9,709
CASH USED IN OPERATING
ACTIVITIES
Net loss.................. (2,756) (24,513) (3,710) (10,901)
Adjustments to reconcile
net loss to cash used in
operating activities:
Amortization of deferred
compensation............ -- 74 -- 159
Depreciation and
amortization............ 42 1,829 75 1,452
Changes in assets and
liabilities:
Accounts receivable...... -- (804) -- 278
Other assets............. (296) (1,190) 186 (1,096)
Accounts payable......... 823 2,605 (33) 96
Accrued compensation and
related expenses........ 89 159 91 118
Other accrued
liabilities............. -- 885 264 1,582
Other long-term
liabilities............. -- 1,675 -- --
------- -------- ------- -------
Cash (used in) operating
activities............... (2,098) (19,280) (3,127) (8,312)
CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES
Purchase of short-term
cash investments......... (63) (8,998) -- (299)
Sales and maturities of
short-term cash
investments.............. -- 2,000 -- 5,000
Purchase of property,
equipment and
improvements............. (963) (7,320) (1,274) (1,343)
------- -------- ------- -------
Cash provided by (used in)
investing activities..... (1,026) (14,318) (1,274) 3,358
CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES
Proceeds from issuance of
convertible preferred
stock.................... 9,968 35,025 -- --
Proceeds from sale of
common stock............. -- 519 -- 95
Proceeds from capital
lease financing.......... -- 1,500 -- --
Payments on capital lease
obligations.............. -- (581) -- (783)
------- -------- ------- -------
Cash provided by (used in)
financing activities..... 9,968 36,463 -- (688)
------- -------- ------- -------
Net increase (decrease) in
cash and cash
equivalents.............. 6,844 2,865 (4,401) (5,642)
------- -------- ------- -------
Cash and cash equivalents,
end of period............ 6,844 9,709 2,443 4,067
Short-term cash
investments, end of
period................... 63 7,061 63 2,360
------- -------- ------- -------
Total cash, cash
equivalents and short-
term cash investments,
end of period............ $ 6,907 $ 16,770 $ 2,506 $ 6,427
======= ======== ======= =======
SUPPLEMENTAL DISCLOSURES
Interest paid............ $ -- $ 143 $ -- $ 134
======= ======== ======= =======
Acquisition of equipment
under capital leases.... $ -- $ 7,916 $ -- $ 3,124
======= ======== ======= =======
Notes receivable from
stockholders issued in
connection with exercise
of stock options and
restricted stock
purchases............... $ -- $ 170 $ -- $ 345
======= ======== ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
At Home Corporation (the "Company") was incorporated in the state of
Delaware on March 28, 1995. The Company provides Internet services to
consumers and businesses over the cable television infrastructure. As of
December 31, 1996, the Company's services were available through cable systems
in a limited number of cities in the United States.
Dependence on Cable Companies
The Company has strategic relationships with seven major cable companies
which are expected to provide through their cable systems the principal
distribution network for the Company's services to its subscribers. The
Company's three principal cable stockholders have granted the Company the
exclusive right to offer high-speed residential consumer Internet services
over their cable systems, subject to certain exceptions. However, the
principal cable stockholders are under no obligation to carry the Company's
services. In addition, the principal cable stockholders' exclusivity
obligations in favor of the Company expire in June 2002, and may be terminated
prior to that date under certain circumstances.
Transmission of data over cable is dependent on the availability of high-
speed two-way hybrid fiber coaxial cable infrastructure. Currently, a
substantial majority of existing cable plants in the United States have not
been upgraded from coaxial cable to hybrid fiber-coaxial cable and, in
addition, are not capable of two-way transmission. Cable system operators have
announced and begun to implement major infrastructure investments in order to
deploy data-over-cable services. However, there can be no assurance that such
infrastructure improvements will be completed.
Dependence on Key Technology Suppliers
The Company currently depends on a limited number of suppliers for certain
key technologies used to build and manage the Company's services. Although the
Company believes that there are alternative suppliers for each of these
technologies, the Company has established favorable relationships with each of
its current suppliers, and it could take a significant period of time to
establish relationships with alternative suppliers and substitute their
technologies. The loss of any of the Company's relationships with its current
suppliers could have a material adverse effect on the Company's financial
condition and results of operations.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany transactions and
balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain 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 results of operations during the reporting period.
Actual results could differ from those estimates.
F-7
<PAGE>
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interim Financial Information
The interim financial information as of March 31, 1997 and for the three
months ended March 31, 1996 and 1997 is unaudited but includes all
adjustments, consisting only of normal recurring adjustments, that the Company
considers necessary for a fair presentation of its financial position at such
date and the results of operations and cash flows for those periods. Operating
results for the three months ended March 31, 1997 are not necessarily
indicative of results that may be expected for any future periods.
Revenue Recognition
Monthly customer subscription revenue is recognized in the period in which
subscription services are provided. The Company also earns revenue from cable
system operators for providing certain support services, such as customer
support, local area content development and pre-commercial deployment fees.
Revenue from cable system operators is recognized as the services are
performed. For the period from March 28, 1995 (inception) to December 31, 1995
and the year ended December 31, 1996, such revenue was derived from cable
system operators that are also stockholders of the Company. Revenues also
include the sale of online advertising primarily based on fixed-fee charter
programs.
Property, Equipment and Improvements
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the shorter of the estimated
useful life of the asset or the lease term.
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," effective January 1, 1996. The adoption did not have a
material impact on the Company's financial statements.
Income Taxes
The Company accounts for income taxes under the liability method. Deferred
tax assets and liabilities are determined based on differences between the
financial reporting and tax bases of assets and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected to
reverse.
Stock-Based Compensation
The Company accounts for stock-based awards to employees in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB Opinion No. 25") and has adopted the disclosure-only
alternative of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123").
Pro Forma Net Loss Per Share
Except as noted below, pro forma net loss per share is computed using the
weighted average number of common shares outstanding and also gives effect to
the assumed conversion of all outstanding shares of convertible preferred
stock into common stock upon the closing of the Company's initial public
offering (using the as-if-converted method). Common equivalent shares are
excluded from the computation as their effect is antidilutive, except that
pursuant to applicable Securities and Exchange Commission Staff Accounting
Bulletins, common and common equivalent shares (from stock options and
warrants) issued during the period commencing
F-8
<PAGE>
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
twelve months prior to the initial filing date of the proposed public offering
at prices below the assumed public offering price have been included in the
calculation as if they were outstanding for all periods presented (using the
treasury stock method).
Historical net loss per share is not presented since such amounts are not
considered meaningful as a result of the significant change in the Company's
capital structure (Note 5) that will occur in connection with the initial
public offering of its common stock.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" ("FAS 128"), which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings (loss) per share and to restate such
amounts previously reported. Under the new requirements for calculating
primary (basic) earnings (loss) per share, the dilutive effect of stock
options and warrants and convertible preferred stock will be excluded. Fully
diluted earnings per share will include the dilutive effect of common stock
equivalents. The Company has not determined what the impact of FAS 128 will be
on the calculation of primary and fully diluted net loss per share.
2. FINANCIAL INSTRUMENTS
Cash and Cash Equivalents
Cash equivalents are highly liquid investments with insignificant interest
rate risk and maturities of three months or less and are stated at amounts
that approximate fair value, based on quoted market prices. Cash equivalents
consist principally of investments in interest-bearing demand deposit accounts
with financial institutions and highly liquid debt securities of corporations
and the U.S. Government. The Company includes in cash and cash equivalents all
short-term, highly liquid investments that mature within three months of their
acquisition date.
Short-Term Cash Investments
The Company has classified all short-term cash investments as available-for-
sale. Available-for-sale securities are carried at amounts that approximate
fair market value based on quoted market prices. Realized gains and losses and
declines in value judged to be other-than-temporary on available-for-sale
securities are included in interest income. Interest on securities classified
as available-for-sale is also included in interest income.
F-9
<PAGE>
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
2. FINANCIAL INSTRUMENTS (CONTINUED)
Short-Term Cash Investments (continued)
The following is a summary of available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------- -------
<S> <C> <C>
Commercial paper.......................................... $ -- $ 1,003
U.S. government obligations............................... -- 4,000
Money market instruments.................................. 63 9,933
------- -------
63 14,936
Included in cash and cash equivalents..................... -- 7,875
------- -------
Included in short-term cash investments................... $ 63 $ 7,061
======= =======
</TABLE>
Unrealized gains and losses at December 31, 1995 and 1996 and realized gains
and losses for the periods then ended were not material. Accordingly, the
Company has not made a provision for such amounts in its consolidated balance
sheets. The cost of securities sold is based on the specific identification
method.
3. PROPERTY, EQUIPMENT AND IMPROVEMENTS
The components of property, equipment and improvements are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- ESTIMATED
1995 1996 USEFUL LIVES
------- ------- ------------
<S> <C> <C> <C>
Computer equipment and software............. $ 763 $13,952 3 years
Furniture and fixtures...................... 200 1,881 5 years
Leasehold improvements...................... -- 366 lease term
------- -------
963 16,199
Less accumulated depreciation and
amortization............................... 42 1,871
------- -------
$ 921 $14,328
======= =======
</TABLE>
Equipment and improvements include amounts for assets acquired under capital
leases, principally computer equipment and software and furniture and fixtures
of $0 and $9,949,000 at December 31, 1995 and 1996, respectively. Accumulated
amortization of these assets was $817,000 at December 31, 1996.
4. LEASE OBLIGATIONS
The Company leases certain office facilities under non-cancelable operating
leases that expire at various dates through 2009, and which require the
Company to pay operating costs, including property taxes, insurance, and
maintenance. These facility leases generally contain renewal options and
provisions adjusting the lease payments based upon changes in the consumer
price index and increases in real estate taxes and operating expenses or in
fixed increments. Rent expense is reflected on a straight-line basis over the
terms of the leases. The Company also has obligations under a number of
capital equipment leases.
F-10
<PAGE>
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
4. LEASE OBLIGATIONS (CONTINUED)
Future minimum lease payments under non-cancelable operating and capital
leases having terms in excess of one year as of December 31, 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
Year Ending December 31,
1997................................................... $ 1,843 $ 3,739
1998................................................... 2,854 3,439
1999................................................... 2,850 2,316
2000................................................... 2,835 379
2001................................................... 2,834 --
Thereafter............................................. 18,859 --
-------- -------
Total minimum lease payments......................... $ 32,075 9,873
========
Less amounts representing interest..................... (1,038)
-------
Present value of minimum capital lease obligations..... 8,835
Less current portion................................... (3,181)
-------
Noncurrent portion..................................... $ 5,654
=======
</TABLE>
The Company is also committed under an operating lease to make expenditures
for tenant improvements estimated to be approximately $5,500,000 in 1997.
Facility rent expense for the period from March 28, 1995 (inception) to
December 31, 1995 and for the year ended December 31, 1996 amounted to $98,000
and $600,000, respectively.
5. STOCKHOLDERS' EQUITY
Preferred Stock
Preferred stock consists of the following at December 31, 1996:
<TABLE>
<CAPTION>
SHARES SHARES ISSUED LIQUIDATION
SERIES AUTHORIZED AND OUTSTANDING PREFERENCE
------ ---------- --------------- -----------
<S> <C> <C> <C>
AT.................................... 1,553,000 1,553,000 $15,530,000
AX.................................... 727,865 727,865 7,278,650
AM.................................... 727,865 727,865 7,278,650
K..................................... 743,883 743,883 7,438,830
T..................................... 770,000 770,000 7,700,000
Undesignated.......................... 10,000,000 -- --
---------- --------- -----------
14,522,613 4,522,613 $45,226,130
========== ========= ===========
</TABLE>
F-11
<PAGE>
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
Preferred Stock (continued)
Shares of Series AT, AX and AM preferred stock are convertible into Series A
common stock. Shares of Series T preferred stock are convertible into Series B
common stock, and shares of Series K preferred stock are convertible into
Series K common stock, each on a 20-for-1 basis, subject to antidilution
provisions. Conversion is at the option of the holder, or mandatorily as
determined by the appropriate members of the Board of Directors, and automatic
upon the Company's initial public offering of common stock unless the
appropriate number of members of the Board of Directors vote not to require
such automatic conversion.
Holders of the Company's Series AT, AX, AM, K and T preferred stock are
entitled to receive noncumulative dividends in the amount of 10% of the
original issuance price per year in preference to holders of common stock at
the discretion of the Board of Directors. No such dividends have been declared
since the inception of the Company.
In the event of the liquidation of the Company, holders of Series AT, AX,
AM, K and T preferred stock are entitled to receive an amount per share equal
to the original issuance price plus declared and unpaid dividends, prior and
in preference to any distribution of assets to holders of common stock.
The holder of Series T preferred stock has the right, for 60 days after
August 29, 2001 and each anniversary thereof until August 29, 2005, to
purchase all Series K preferred stock at fair market value (the "Call") and,
during the same period and certain other periods, the holder of Series K
preferred stock has the right to require the holder of Series T preferred
stock to purchase all of the Series K preferred stock at fair market value
(the "Put"). The holder of Series T preferred stock has the right to require
an initial public offering of the Company's common stock in lieu of purchasing
Series K preferred stock pursuant to the Put. The Call and the Put expire upon
the Company's initial public offering.
Upon the exercise of the Call or Put, all other holders of Series AT, AX, AM
and K preferred stock will have the right to participate in the purchase of
the affected securities on a pro rata basis, and such preferred stockholders
will also have the right to exercise a put to the holder of Series T preferred
stock with terms similar to those provided by the put as described above.
Holders of preferred stock are entitled to the same number of votes per
share as the common shares into which the preferred shares are convertible. As
of December 31, 1996, one principal cable stockholder controlled approximately
76% of the voting power of the Company as a result of ownership of convertible
preferred stock.
Common Stock
Common stock consists of the following at December 31, 1996:
<TABLE>
<CAPTION>
SHARES SHARES ISSUED
SERIES AUTHORIZED AND OUTSTANDING
------ ----------- ---------------
<S> <C> <C>
A............................................. 150,000,000 11,855,008
B............................................. 15,400,000 --
K............................................. 14,877,660 --
----------- ----------
180,277,660 11,855,008
=========== ==========
</TABLE>
F-12
<PAGE>
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
Common Stock (continued)
The holders of Series A, B and K common stock have one, ten and one vote(s)
per share, respectively. Each share of Series B and K common stock is
convertible into one share of Series A common stock at the option of the
holders.
Stock Splits
In August 1996, the Company completed a one-for-ten reverse stock split of
the outstanding shares of Series K and T preferred stock and a two-for-one
stock split of the outstanding shares of Series A common stock. All share and
per share amounts in the accompanying consolidated financial statements have
been retroactively adjusted to reflect the stock splits.
Stock Purchase Agreements
During 1996, the Company entered into stock purchase agreements with certain
employees, officers, directors and consultants under which the Company issued
7,527,000 shares of Series A common stock at prices ranging from $0.01 to
$0.10 per share, and 50,000 shares of Series K preferred stock at $10.00 per
share. Proceeds from the issuance of the restricted stock were received in the
form of cash or five-year secured promissory notes bearing interest at a rate
of approximately 5.9% per annum. Certain of the agreements provide that the
unvested shares are subject to repurchase by the Company upon termination of
employment at the original price paid for the shares. The shares generally
vest at the rate of 25% after one year and ratably on a monthly basis for
three years thereafter. During the year ended December 31, 1996, the Company
repurchased 400,000 shares of common stock pursuant to such agreements.
Under the terms of an employment agreement with an executive officer, so
long as the officer is employed by the Company, and for 90 days thereafter if
his employment is terminated without cause, to the extent the officer sells
any of his vested common shares during a five-year guarantee period beginning
in July 2000 at an average price less than $5 per share, if the Company's
stock is publicly traded, the Company is obligated to pay the officer the
difference between $5 per share and the average price for each share sold. At
December 31, 1996, the officer owns 3,000,000 shares of Series A common stock
and 50,000 shares of Series K common stock (convertible into 1,000,000 shares
of Series K common stock upon completion of an initial public offering of the
Company's common stock). During the year ended December 31, 1996 the Company
accrued compensation expense of $1,675,000 in connection with this agreement,
which amount is included in other long-term liabilities in the consolidated
balance sheet.
Warrants
In October 1996, the Company issued a warrant to its facilities lessor that
gives the lessor the right to purchase 200,000 shares of Series A common stock
for $15 per share. The warrant is exercisable for a five-year period beginning
in October 1997, or immediately upon an initial public offering of the
Company's common stock. The Company deemed the warrant to have insignificant
fair value at the time of issuance.
Stock Options
In January 1996, the Company adopted the 1996 Incentive Stock Option Plan,
and in July 1996, the Company adopted the 1996 Incentive Stock Option Plan No.
2. The plans provide for incentive stock options, as defined by the Internal
Revenue Code, to be granted to employees, at an exercise price not less than
100% of the fair value at the grant date as determined by the Board of
Directors. The plans also provide for nonqualified stock options to be issued
to nonemployee officers, directors and consultants at an exercise price of not
less than 85% of the fair value at the grant date.
F-13
<PAGE>
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
Stock Options (continued)
The options are exercisable immediately upon issuance and generally have a
term of ten years. The Company reserves the right of first refusal to purchase
all shares held by the participant upon termination. Unvested shares may be
repurchased by the Company at the original purchase price. Fully vested shares
may be repurchased by the Company at the higher of the original purchase price
or the fair market value of the shares as determined by the Board of
Directors. The vesting schedule is determined by the Board of Directors at the
time of issuance. Stock options generally vest at the rate of 25% after one
year and ratably on a monthly basis for three years thereafter. The repurchase
right for vested shares expires upon the completion of an initial public
offering of the Company's common stock. The Company has reserved 16,000,000
shares of Series A common stock (less the number of shares purchased by
employees, officers, directors and consultants outside of the plans) for
issuance under the plans.
A summary of activity under the Company's stock option plans is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE EXERCISE
SHARES PER SHARE PRICE
---------- -------------- --------
<S> <C> <C> <C>
Balance at December 31, 1995............ -- -- --
Options granted........................ 5,296,500 $0.05 - $0.10 $0.06
Options exercised (nonvested shares)... (4,875,500) $0.05 - $0.10 $0.06
Options forfeited...................... (198,000) $0.05 - $0.10 $0.05
---------- ------------- -----
Balance at December 31, 1996............ 223,000 $0.05 - $0.10 $0.06
Options granted........................ 2,591,501 $0.25 $0.25
Options exercised (nonvested shares)... (1,894,251) $0.05 - $0.25 $0.25
Options forfeited...................... (1,000) $0.10 $0.10
---------- ------------- -----
Balance at March 31, 1997............... 919,250 $0.05 - $0.25 $0.21
========== ============= =====
</TABLE>
The following table summarizes information about options outstanding at
March 31, 1997, all of which were exercisable upon grant into shares of
nonvested stock:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER CONTRACTUAL EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE
--------------- ----------- ------------ --------
<S> <C> <C> <C>
$0.05...................................... 175,000 9.5 $0.05
$0.10...................................... 27,000 9.8 $0.10
$0.25...................................... 717,250 9.9 $0.25
------- --- -----
$0.05 - $0.25.............................. 919,250 9.5 $0.21
======= === =====
</TABLE>
At March 31, 1997, outstanding options to purchase 41,720 shares were vested
and 5,569,071 shares of nonvested common stock issued pursuant to exercises of
options were subject to repurchase at the Company's option in the event of
employee termination.
F-14
<PAGE>
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
The Company has recorded deferred compensation expense of $346,000 during
the year ended December 31, 1996 and $4,737,000 during the three months ended
March 31, 1997 for the difference between the exercise or purchase price and
the deemed fair value of certain of the Company's stock options granted and
stock issued under stock purchase agreements. These amounts are being
amortized by charges to operations over the vesting periods of the individual
stock options and stock purchase agreements, which are generally four years. A
portion of the shares issued under certain stock purchase agreements during
the year ended December 31, 1996 vested immediately. As a result the related
compensation charge for the vested shares was recorded in the period in which
the shares were issued.
Pro Forma Disclosures of the Effect of Stock-Based Compensation Plans
Pro forma information regarding results of operations and loss per share is
required by FAS 123 for stock-based awards to employees as if the Company had
accounted for such awards using a valuation method permitted under FAS 123.
From inception through December 31, 1995, the Company made no stock-based
awards to employees. Stock-based awards to employees under stock options and
stock purchase agreements during the year ended December 31, 1996 were valued
using the minimum value method, assuming no expected dividends, a weighted-
average expected life of four years and a weighted-average risk-free interest
rate of 6.5%. Should the Company complete an initial public offering of its
common stock, stock-based awards granted thereafter will be valued using the
Black-Scholes option pricing model. Among other things, the Black-Scholes
model considers the expected volatility of the Company's stock price,
determined in accordance with FAS 123, in arriving at an estimated fair value.
The minimum value method does not consider stock price volatility. Further,
certain other assumptions necessary to apply the Black-Scholes model may
differ significantly from assumptions used to calculate the value of stock-
based awards under the minimum value method.
The weighted-average minimum values of options and nonvested shares issued
to employees during 1996 were each $0.01. For pro forma purposes, the
estimated minimum value of the Company's stock-based awards to employees is
amortized over the vesting period of the underlying instruments. The results
of applying FAS 123 to the Company's stock-based awards to employees was not
material to the Company's results of operations or loss per share reflected in
the accompanying consolidated statement of operations for the year ended
December 31, 1996.
Unaudited Pro Forma Stockholders' Equity
Unaudited pro forma stockholders' equity at March 31, 1997 gives effect to
the conversion into common stock of outstanding shares of preferred stock that
will convert to common stock upon the closing of the Company's initial public
offering of its common stock.
6. INCOME TAXES
The Company's income tax provision (benefit) differs from the income tax
benefit determined by applying the U.S. federal statutory rate to the net loss
as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
----- -------
<S> <C> <C>
Tax provision (benefit) at U.S. statutory rate............. $(937) $(8,334)
Net operating losses and temporary differences not
recognized................................................ 937 8,334
----- -------
Total.................................................. $ -- $ --
===== =======
</TABLE>
F-15
<PAGE>
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
6. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities for federal and state
income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 525 $ 6,568
Tax credit carryforwards................................ 13 120
Capitalized start-up costs.............................. 574 4,284
Accrued expenses, not currently deductible.............. 31 525
------- --------
Total gross deferred tax assets........................... 1,143 11,497
Less valuation allowance................................ (1,143) (10,977)
------- --------
Deferred tax assets..................................... -- 520
Deferred tax liabilities:
Property and equipment.................................. -- (520)
------- --------
Total gross deferred tax liabilities...................... -- (520)
------- --------
Net deferred tax assets................................... $ -- $ --
======= ========
</TABLE>
Realization of deferred tax assets is dependent on future earnings, if any,
the timing and amount of which are uncertain. Accordingly, a valuation
allowance, in an amount equal to the net deferred tax assets as of December
31, 1995 and 1996, has been established to reflect these uncertainties.
At December 31, 1996, the Company has net operating loss and research and
development tax credit carryforwards for federal and state tax purposes of
approximately $16,002,000 and $120,000, respectively, that will begin to
expire at various dates beginning in years 2003 through 2011, if not utilized.
Certain changes in ownership of the Company, as defined in the Tax Reform Act
of 1996 and similar state provisions, may restrict the utilization of such
carryforwards.
7. RELATED PARTY TRANSACTIONS
For the period from March 28, 1995 (inception) to December 31, 1995 and for
the year ended December 31, 1996, the Company purchased services of
approximately $733,000 and $2,726,000 respectively, from certain preferred
stockholders.
The Company entered into an OEM software license agreement under which the
Company paid the vendor $1,388,000 during 1996 and is obligated to pay an
additional $2,331,000 during 1997 as nonrefundable license fees, prepaid
support and services. A member of the Company's Board of Directors is also an
executive officer of the vendor.
Related party transactions with principal cable stockholders are described
in Note. 1
8. RETIREMENT PLAN
The Company has a retirement plan under Section 401(k) of the Internal
Revenue Code. Under the retirement plan, participating employees may defer a
portion of their pretax earnings up to the Internal Revenue Service annual
contribution limit. The Company may make contributions to the plan at the
discretion of the Board of Directors. To date, no such contributions have been
made by the Company.
F-16
<PAGE>
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
9. LITIGATION
On April 18, 1997, Netcom filed a complaint in Superior Court of the State
of California in and for the County of Santa Clara against the Company and an
officer of the Company. The complaint alleges that the Company misappropriated
Netcom's trade secrets by hiring several former Netcom employees and that the
officer violated a proprietary information agreement with Netcom by disclosing
trade secrets and soliciting Netcom's employees to work for the Company.
Netcom seeks compensatory and punitive damages, as well as injunctive relief
to prohibit the Company from hiring any employee from Netcom and from
misappropriating Netcom's trade secrets. Discovery has just commenced. The
Company denies the allegations contained in the complaint and intends to
contest the litigation vigorously. The Company believes that any judgment for
Netcom in the litigation would not have a material adverse effect on the
Company's business, results of operations and financial condition.
10. SUBSEQUENT EVENTS
Series C Preferred Stock Financing
In April 1997, the Company issued 240,000 shares of Series C convertible
preferred stock to investors at $200 per share, resulting in cash proceeds of
$48,000,000, less issuance costs. In connection with the issuance, the Company
authorized the designation of 350,000 shares of authorized Series C preferred
shares. Holders of Series C preferred stock are entitled to noncumulative
annual dividends equal to 10% of the issue price if and when declared by the
Board of Directors. Each share of Series C preferred stock is convertible into
20 shares of Series A common stock at the option of the holder, subject to
certain adjustments. Each share of Series C preferred stock will automatically
convert into Series A common stock upon the closing date of an initial public
offering of the Company's common stock. If the offering price per share of the
Series A common stock in an initial public offering is less than the effective
price per share paid for the Series A common stock upon conversion of the
Series C preferred stock, the conversion rate will be adjusted so that the
effective price per share of the Series A common stock issued upon such
conversion will equal the offering price.
The Company also issued warrants to purchase 100,000 additional shares of
Series C preferred stock at a price of $200 per share to certain of the Series
C preferred stock investors that are also cable system operators. The warrants
are exercisable from June 2004 or earlier, subject to certain performance
standards being met by the cable systems operators, as specified in the
agreement. The exercise price per share of the warrants will be reduced to the
extent the offering price per share in an initial public offering of the
Company's common stock is less than the exercise price of the warrants on as-
if-converted basis.
Proposed Public Offering of Common Stock
In May 1997, the Board of Directors authorized management of the Company to
file a Registration Statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock to the public. In
addition, the Company's Board of Directors authorized an increase in the
number of authorized shares of Series A common stock from 150,000,000 to
200,000,000, subject to stockholder approval.
1997 Equity Incentive Plan
The Company's 1997 Equity Incentive Plan was adopted by the Board of
Directors and stockholders in May 1997 to be effective upon the completion of
the Company's initial public offering of its common stock. The 1997 Plan
provides for the grant of incentive stock options, nonqualified stock options,
restricted stock awards and stock bonuses to employees, directors and
consultants of the Company. The total number of shares of
F-17
<PAGE>
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
10. SUBSEQUENT EVENTS (CONTINUED)
Series A common stock reserved for issuance under the 1997 Plan is 16,000,000
less the total number of shares issued or issuable to employees, officers,
directors and consultants under restricted stock purchase agreements and the
1996 Incentive Stock Option Plans (Note 5) and shares reserved for issuance
under the 1997 Employee Stock Purchase Plan.
1997 Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan was adopted by the Board of
Directors and stockholders in May 1997 to be effective upon the completion of
the Company's initial public offering of its common stock. The Company has
reserved a total of 400,000 shares of Series A common stock for issuance under
the plan. Eligible employees may purchase common stock at 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 the last day of the applicable purchase period.
F-18
<PAGE>
INSIDE BACK COVER
[PICTURE TO COME]
<PAGE>
LOGO
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses to be paid by the Registrant in connection with this offering
are as follows. All amounts other than the SEC registration fee, NASD filing
fee and Nasdaq National Market application fee are estimates.
<TABLE>
<S> <C>
SEC Registration Fee................................................ $19,516
NASD Filing Fee..................................................... 6,940
Nasdaq National Market Application Fee.............................. 50,000
Printing............................................................ *
Legal Fees and Expenses............................................. *
Accounting Fees and Expenses........................................ *
Director and Officer Liability Insurance............................ *
Blue Sky Fees and Expenses.......................................... *
Custodial Fees...................................................... *
Transfer Agent and Registrar Fees................................... *
Miscellaneous....................................................... *
-------
Total............................................................. $ *
=======
</TABLE>
- --------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article V, Section C of the Registrant's Third Amended and
Restated Certificate of Incorporation provides that, to the fullest extent
permitted by the Delaware General Corporation Law, a director of the Company
shall not be liable to the Company or any of its stockholders for monetary
damages for breach of fiduciary duty as a director. Such section further
provides for mandatory indemnification, to the fullest extent permitted by
applicable law, for any person who is or was a director or officer of the
Company, or a person who is a legal representative of such director or
officer, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust, enterprise or nonprofit entity, including service with respect
to employee benefit plans, against all liability and loss suffered and
expenses (including attorneys' fees) reasonably incurred by such person.
Indemnity of any person who was or is serving at the Company's request as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, enterprise or nonprofit entity must be reduced by any
amount such person may collect as indemnification from such other corporation,
partnership, joint venture, trust, enterprise or nonprofit entity. In
addition, the Registrant has entered into Indemnification Agreements with each
of its directors and intends to do so with its executive officers. Reference
is also made to Article VIII of the Underwriting Agreement, which provides for
the indemnification of officers, directors and controlling persons of the
Registrant against certain liabilities. The indemnification provision in the
Company's Third Amended and Restated Certificate of Incorporation and the
Indemnification Agreements may be sufficiently broad to permit indemnification
of the Registrant's directors for liabilities arising under the Securities
Act.
The Registrant, with approval by the Registrant's Board of Directors, has
applied for, and expects to obtain, directors' and officers' liability
insurance with a per claim and annual aggregate coverage limit of $ .
II-1
<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>
DOCUMENT EXHIBIT NUMBER
-------- --------------
<S> <C>
Underwriting Agreement (draft dated May 15, 1997)........... 1.01
Third Amended and Restated Certificate of Incorporation of
Registrant................................................. 3.01
Form of Indemnification Agreement........................... 10.09
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table sets forth information regarding all securities sold by
the Registrant since March 28, 1995, the Company's inception date.
<TABLE>
<CAPTION>
AGGREGATE
DATE TITLE OF NUMBER PURCHASE FORM OF
CLASS OF PURCHASER OF SALE SECURITIES OF SHARES PRICE CONSIDERATION
- ------------------ -------- --------------------------- --------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
TCI Internet Services,
Inc. .................. 8/29/95 Series T Preferred Stock 770,000(1) $ 7,700,000 Cash
3 venture capital
funds.................. 8/29/95 Series K Preferred Stock 230,000(1) $ 2,300,000 Cash
TCI Internet Holdings,
Inc. .................. 5/9/96 Series T Preferred Stock 770,000(1)(2) $ 7,700,000 Cash
2 venture capital
funds.................. 5/9/96 Series K Preferred Stock 230,000(1) $ 2,300,000 Cash
One company............. 7/19/96 Series A Common Stock 20,000 $ 1,000 Property(3)
TCI Internet Holdings,
Inc. .................. 8/1/96 Series AT Preferred Stock 783,000(1) $ 7,830,000 Cash
Cox @Home, Inc.
(formerly known as Cox
Teleport Providence,
Inc.).................. 8/1/96 Series AX Preferred Stock 727,865(1) $ 7,278,650 Cash
Comcast PC Investments,
Inc. .................. 8/1/96 Series AM Preferred Stock 727,865(1) $ 7,278,650 Cash
2 venture capital funds,
one Company officer and
one individual......... 8/1/96 Series K Preferred Stock 283,883(1) $ 2,838,830 Cash
Company's landlord...... 10/18/96 Warrant to purchase -- $ 3,000 Cash
200,000 shares of Series A
Common Stock
2 foreign companies, 4
domestic companies and
one Company director... 4/11/97 Series C Preferred Stock 240,000(1) $48,000,000 Cash
2 foreign companies..... 4/11/97 Warrants to purchase -- $ 2,000 Cash
100,000 shares of Series C
Preferred Stock
17 officers and
employees.............. 5/31/96- Series A Common Stock 7,527,000(4) $ 400,800(5) Cash and notes(5)
10/1/96 (restricted stock purchases)
236 officers and
employees.............. 8/14/96- Series A Common Stock 6,769,751(6) $ 780,713(7) Cash and notes(7)
3/31/97 (stock option purchases)
</TABLE>
- --------
(1) Upon the closing of the Company's initial public offering, each share of
Preferred Stock will convert automatically into 20 shares of the
appropriate series of Common Stock subject to adjustment of the Series C
Preferred Stock conversion rate if the offering price is less than $10.00
per share.
(2) These shares were subsequently exchanged for a like number of shares of
Series AT Preferred Stock.
(3) The Registrant issued these shares in exchange for an Internet domain
name.
(4) Of these shares, 701,850 have been repurchased by the Registrant.
(5) Each individual paid a portion or all of the purchase price in cash
(aggregating $272,010). Four officers and six other employees paid most of
their respective purchase prices with promissory notes (aggregating
$128,790).
(6) Of these shares, 263,574 have been repurchased by the Registrant.
(7) Each individual paid a portion or all of the purchase price in cash
(aggregating $541,313). Two executive officers and four other employees
paid most of their respective purchase prices with promissory notes
(aggregating $239,400).
All sales of Series A Common Stock made pursuant to the exercise of stock
options granted under the Registrant's stock option plans or pursuant to
restricted stock purchase agreements were made pursuant to the exemption from
the registration requirements of the Securities Act afforded by Rule 701
promulgated under the Securities Act.
The sales to two foreign companies of Series C Prefered Stock and warrants
to purchase Series C Preferred Stock were made in reliance on Regulation S.
All other sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. These sales were
made without general solicitation or advertising. Each purchaser was a
sophisticated investor with access to all relevant information necessary to
evaluate the investment who represented to the Registrant that the shares were
being acquired for investment.
II-2
<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 May 15, 1997).
3.01 Third Amended and Restated Certificate of Incorporation of Registrant
filed August 14, 1996.
3.02 Certificate of Amendment of Third Amended and Restated Certificate of
Incorporation of Registrant filed April 11, 1997.
3.03 Certificate of Designation of Series C Convertible Participating
Preferred Stock of Registrant filed April 11, 1997.
3.04 Form of Certificate of Amendment of the Third Amended and Restated
Certificate of Incorporation of Registrant to be effective upon the
closing of this offering.*
3.05 Form of Second Amended and Restated Bylaws of Registrant to be
effective upon the closing of this Offering.*
4.01 Third Amended and Restated Registration Rights Agreement, dated April
11, 1997, among Registrant and the parties indicated therein.
4.02 Letter Agreement relating to Tag-Along/Drag-Along Rights, dated April
11, 1997, among Registrant and the parties indicated therein.
4.03 Canadian Purchase Letter Agreement, dated April 11, 1997, among
Registrant and the parties indicated therein.
4.04 Form of Amended and Restated Stockholders' Agreement, dated August 1,
1996, among Registrant and the parties indicated therein, as amended
on May , 1997.*
4.05 Form of certificate of Registrant's Series A Common Stock.*
5.01 Opinion of Fenwick & West LLP regarding legality of the securities
being registered.*
9.01 Voting Agreement, dated April 11, 1997, among Registrant, TCI Internet
Holdings, Inc., Comcast PC Investments, Inc., Cox Teleport Providence,
Inc., Rogers Cablesystems Limited and Shaw Cablesystems Ltd.
10.01 Stock Purchase Agreement, dated August 29, 1995, among Registrant, TCI
Internet Services, Inc., Kleiner Perkins Caufield & Byers VII, KPCB
VII Founders Fund and KPCB Information Sciences Zaibatsu Fund II.
10.02 Letter Agreement, dated May 9, 1996, among Registrant, TCI Internet
Holdings, Inc., Kleiner Perkins Caufield & Byers VII, KPCB VII
Founders Fund and KPCB Information Sciences Zaibatsu Fund II.
10.03 Stock Purchase and Exchange Agreement, dated August 1, 1996, among
Registrant, TCI Internet Holdings, Inc., Kleiner Perkins Caufield &
Byers VII, KPCB Information Sciences Zaibatsu Fund II, James Clark,
Comcast PC Investments, Inc. and Cox Teleport Providence, Inc.
10.04 Term Sheet, dated June 4, 1996, among Registrant, TCI Internet
Holdings, Inc., Kleiner Perkins Caufield & Byers VII. KPCB Information
Sciences Zaibatsu Fund II, KPCB VII Founders Fund, Comcast PC
Investments, Inc. and Cox Teleport Providence, Inc.
10.05 Stock Purchase Agreement, dated April 11, 1997, among Registrant,
Rogers Cablesystems Limited, Shaw Cablesystems Ltd., Sun Microsystems,
Inc., Netscape Communications Corporation, James Barksdale, Motorola,
Inc. and Bay Networks, Inc.
10.06 Term Sheet dated March 18, 1997 among Registrant and Shaw Cablesystems
Ltd. and Rogers Cablesystems Limited.**
10.07 Master Communications Services Agreement dated April 2, 1997 between
Registrant and Teleport Communications Group Inc.**
10.08 Lease, dated October 17, 1996, between Registrant and Martin/Campus
Associates, L.P.
10.09 Form of Indemnification Agreement entered into by Registrant with each
of its directors and executive officers.
10.10 Registrant's 1996 Incentive Stock Option Plan.
10.11 Registrant's 1996 Incentive Stock Option Plan No. 2.
10.12 Registrant's 1997 Equity Incentive Plan.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
10.13 Registrant's 1997 Employee Stock Purchase Plan.
10.14 Restricted Stock Purchase Agreement dated July 31, 1996 between
Registrant and Thomas A. Jermoluk for purchase of Series A Common
Stock.
Restricted Stock Purchase Agreement dated July 31, 1996 between
Registrant and Thomas A. Jermoluk for purchase of Series K Preferred
10.15 Stock.
10.16 Restricted Stock Purchase Agreement dated July 31, 1996 between
Registrant and William R. Hearst III for purchase of Series A Common
Stock.
10.17 Restricted Stock Purchase Agreement dated July 29, 1996 between
Registrant and Ken Goldman for purchase of Series A Common Stock.
10.18 Form of Restricted Stock Purchase Agreement and Promissory Note
between Registrant and other officers for purchase of Series A Common
Stock.
10.19 Employment Letter Agreement dated July 19, 1996 between Registrant and
Thomas A. Jermoluk.
10.20 Form of Master Distribution Agreement Term Sheet among Registrant and
the parties indicated therein.*
10.21 Form of Term Sheet for Form of LCO Agreement among Registrant and the
parties indicated therein.*
11.01 Statement regarding the computation of net loss and of pro forma net
loss per share.*
16.01 Letter regarding change in certifying accountant.*
21.01 Subsidiaries of Registrant.
23.01 Consent of Fenwick & West, LLP (included in Exhibit 5.01).*
23.02 Consent of Ernst & Young LLP.
24.01 Form of power of attorney executed by each officer and director whose
signature has been conformed on the signature page appearing on page
II-6 of the Registration Statement.
27.01 Financial data schedule.
</TABLE>
- --------
* To be supplied by amendment.
** Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
(b)All 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.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
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-5
<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 REDWOOD CITY, STATE OF
CALIFORNIA, ON THE 15TH DAY OF MAY, 1997.
AT HOME CORPORATION
By: /s/ Thomas A. Jermoluk
----------------------------------
THOMAS A. JERMOLUK CHAIRMAN,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
In accordance with the requirements of the Securities Act, this Registration
Statement was signed by the following persons in the capacities and on the
dates indicated.
NAME TITLE DATE
PRINCIPAL EXECUTIVE OFFICER:
/s/ Thomas A. Jermoluk
- ----------------------------- Chairman, President and
THOMAS A. JERMOLUK Chief Executive Officer May 15, 1997
PRINCIPAL FINANCIAL AND PRINCIPAL ACCOUNTING OFFICER:
/s/ Kenneth A. Goldman
- ----------------------------- Senior Vice President and
KENNETH A. GOLDMAN Chief Financial Officer May 15, 1997
DIRECTORS:
/s/ William R. Hearst III
- ----------------------------- Vice Chairman May 15, 1997
WILLIAM R. HEARST III
/s/ James L. Barksdale
- ----------------------------- Director May 15, 1997
JAMES L. BARKSDALE
/s/ Brendan R. Clouston
- ----------------------------- Director May 15, 1997
BRENDAN R. CLOUSTON
/s/ L. John Doerr
- ----------------------------- Director May 15, 1997
L. JOHN DOERR
/s/ John C. Malone
- ----------------------------- Director May 15, 1997
JOHN C. MALONE
/s/ Bruce W. Ravenel
- ----------------------------- Director May 15, 1997
BRUCE W. RAVENEL
/s/ Brian L. Roberts
- ----------------------------- Director May 15, 1997
BRIAN L. ROBERTS
/s/ Edward S. Rogers
- ----------------------------- Director May 15, 1997
EDWARD S. ROGERS
/s/ Larry E. Romrell
- ----------------------------- Director May 15, 1997
LARRY E. ROMRELL
/s/ David M. Woodrow
- ----------------------------- Director May 15, 1997
DAVID M. WOODROW
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT TITLE PAGE
------- ------------- ------------
<C> <S> <C>
1.01 Underwriting Agreement (draft dated May 15, 1997).
3.01 Third Amended and Restated Certificate of Incorporation
of Registrant filed August 14, 1996.
3.02 Certificate of Amendment of Third Amended and Restated
Certificate of Incorporation of Registrant filed April
11, 1997.
3.03 Certificate of Designation of Series C Convertible
Participating Preferred Stock of Registrant filed April
11, 1997.
3.04 Form of Certificate of Amendment to the Third Amended
and Restated Certificate of Incorporation of Registrant
to be effective upon the closing of this offering.*
3.05 Form of Second Amended and Restated Bylaws of
Registrant to be effective upon the closing of this
Offering.*
4.01 Third Amended and Restated Registration Rights
Agreement, dated April 11, 1997, among Registrant and
the parties indicated therein.
4.02 Letter Agreement relating to Tag-Along/Drag-Along
Rights, dated April 11, 1997, among Registrant and the
parties indicated therein.
4.03 Canadian Purchase Letter Agreement, dated April 11,
1997, among Registrant and the parties indicated
therein.
4.04 Form of Amended and Restated Stockholders' Agreement,
dated August 1, 1996, among Registrant and the parties
indicated therein, as amended on May , 1997.*
4.05 Form of certificate of Registrant's Series A Common
Stock.*
5.01 Opinion of Fenwick & West LLP regarding legality of the
securities being registered.*
9.01 Voting Agreement, dated April 11, 1997, among
Registrant, TCI Internet Holdings, Inc., Comcast PC
Investments, Inc., Cox Teleport Providence, Inc.,
Rogers Cablesystems Limited and Shaw Cablesystems Ltd.
10.01 Stock Purchase Agreement, dated August 29, 1995, among
Registrant, TCI Internet Services, Inc., Kleiner
Perkins Caufield & Byers VII, KPCB VII Founders Fund
and KPCB Information Sciences Zaibatsu Fund II.
10.02 Letter Agreement, dated May 9, 1996, among Registrant,
TCI Internet Holdings, Inc., Kleiner Perkins Caufield &
Byers VII, KPCB VII Founders Fund and KPCB Information
Sciences Zaibatsu Fund II.
10.03 Stock Purchase and Exchange Agreement, dated August 1,
1996, among Registrant, TCI Internet Holdings, Inc.,
Kleiner Perkins Caufield & Byers VII, KPCB Information
Sciences Zaibatsu Fund II, James Clark, Comcast PC
Investments, Inc. and Cox Teleport Providence, Inc.
10.04 Term Sheet, dated June 4, 1996, among Registrant, TCI
Internet Holdings, Inc., Kleiner Perkins Caufield &
Byers VII. KPCB Information Sciences Zaibatsu Fund II,
KPCB VII Founders Fund, Comcast PC Investments, Inc.
and Cox Teleport Providence, Inc.
10.05 Stock Purchase Agreement, dated April 11, 1997, among
Registrant, Rogers Cablesystems Limited, Shaw
Cablesystems Ltd., Sun Microsystems, Inc., Netscape
Communications Corporation, James Barksdale, Motorola,
Inc. and Bay Networks, Inc.
10.06 Term Sheet dated March 18, 1997 among Registrant and
Shaw Cablesystems Ltd. and Rogers Cablesystems
Limited.**
10.07 Master Communications Services Agreement dated April 2,
1997 between Registrant and Teleport Communications
Group Inc.**
10.08 Lease, dated October 17, 1996, between Registrant and
Martin/Campus Associates, L.P.
10.09 Form of Indemnification Agreement entered into by
Registrant with each of its directors and executive
officers.
10.10 Registrant's 1996 Incentive Stock Option Plan.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT TITLE PAGE
------- ------------- ------------
<C> <S> <C>
10.11 Registrant's 1996 Incentive Stock Option Plan No. 2.
10.12 Registrant's 1997 Equity Incentive Plan.
10.13 Registrant's 1997 Employee Stock Purchase Plan.
10.14 Restricted Stock Purchase Agreement dated July 31, 1996
between Registrant and Thomas A. Jermoluk for purchase
of Series A Common Stock.
10.15 Restricted Stock Purchase Agreement dated July 31, 1996
between Registrant and Thomas A. Jermoluk for purchase
of Series K Preferred Stock.
10.16 Restricted Stock Purchase Agreement dated July 31, 1996
between Registrant and William R. Hearst III for
purchase of Series A Common Stock.
10.17 Restricted Stock Purchase Agreement dated July 29, 1996
between Registrant and Ken Goldman for purchase of
Series A Common Stock.
10.18 Form of Restricted Stock Purchase Agreement and
Promissory Note between Registrant and other officers
for purchase of Series A Common Stock.
10.19 Employment Letter Agreement dated July 19, 1996 between
Registrant and Thomas A. Jermoluk.
10.20 Form of Master Distribution Agreement Term Sheet among
Registrant and the parties indicated therein.*
10.21 Form of Term Sheet for Form of LCO Agreement among
Registrant and the parties indicated therein.*
11.01 Statement regarding the computation of net loss and of
pro forma net loss per share.*
16.01 Letter regarding change in certifying accountant.*
21.01 Subsidiaries of Registrant.
23.01 Consent of Fenwick & West, LLP (included in Exhibit
5.01).*
23.02 Consent of Ernst & Young LLP.
24.01 Form of power of attorney executed by each officer and
director whose signature has been conformed on the
signature page appearing on page II-6 of the
Registration Statement.
27.01 Financial data schedule.
</TABLE>
- --------
* To be supplied by amendment.
** Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 1.01
[_________] Shares
AT HOME CORPORATION
Series A Common Stock, $.01 par value
UNDERWRITING AGREEMENT
_________, 1997
<PAGE>
_______, 1997
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Alex. Brown & Sons Incorporated
Hambrecht & Quist LLC
as Representatives of the several Underwriters
named in Schedule I hereto
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Merrill Lynch International
Alex. Brown International
Hambrecht & Quist LLC
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
At Home Corporation, a Delaware corporation (the "Company"), proposes
to issue and sell to the several Underwriters (as defined below) an aggregate of
[_________] shares of its Series A Common Stock ($.01 per share par value) (the
"Firm Shares").
It is understood that, subject to the conditions hereinafter stated,
[__________] Firm Shares (the "U.S. Firm Shares") will be sold to the several
U.S. Underwriters named in Schedule I hereto (the "U.S. Underwriters") in
connection with the offering and sale of such U.S. Firm Shares in the United
States and Canada to United States and Canadian Persons (as such terms are
defined in the Agreement Between U.S. and International Underwriters of even
date herewith), and [__________] Firm Shares (the "International Shares") will
be sold to the several International Underwriters named in Schedule II hereto
(the "International Underwriters") in connection with the offering and sale of
such International Shares outside the United States and Canada to persons other
than United States and Canadian Persons. Morgan Stanley & Co. Incorporated,
Merrill Lynch & Co., Alex. Brown & Sons Incorporated and Hambrecht & Quist LLC
shall act as representatives (the "U.S. Representatives") of the several U.S.
Underwriters, and Morgan Stanley & Co. International Limited, Merrill Lynch &
Co. International, Alex. Brown International and Hambrecht & Quist LLC shall act
as representatives (the "International Representatives") of the several
International Underwriters. The U.S. Underwriters and the International
Underwriters are hereinafter collectively referred to as the Underwriters.
The Company also proposes to issue and sell to the several U.S.
Underwriters not more than an additional [_______] shares of its Series A Common
Stock ($.01 per share par value) (the "Additional Shares"), if and to the extent
that the U.S. Representatives shall have determined to exercise, on behalf of
the U.S. Underwriters, the right to purchase such shares of Common Stock granted
to the U.S. Underwriters in Article II hereof. The Firm Shares and the
Additional Shares are hereinafter collectively referred to as the "Shares." The
shares of Series A Common Stock ($.01 per share par value) of the Company to be
outstanding after giving effect to the sales contemplated hereby are hereinafter
referred to as the "Series A Common Stock." All shares of
<PAGE>
Common Stock of the Company outstanding after the issuance of Series A Common
Stock, together with the shares of Series A Common Stock, are hereinafter
collectively referred to as the "Common Stock".
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, relating to the Shares. The registration
statement contains two prospectuses to be used in connection with the offering
and sale of the Shares: the U.S. prospectus, to be used in connection with the
offering and sale of Shares in the United States and Canada to United States and
Canadian Persons, and the international prospectus, to be used in connection
with the offering and sale of Shares outside the United States and Canada to
persons other than United States and Canadian Persons. The international
prospectus is identical to the U.S. prospectus except for the outside front
cover page. The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement;" the U.S. prospectus and the
international prospectus in the respective forms first used to confirm sales of
Shares are hereinafter collectively referred to as the "Prospectus." If the
Company has filed an abbreviated registration statement to register additional
shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the
"Rule 462 Registration Statement"), then any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462 Registration
Statement.
As part of the offering contemplated by this Agreement, Morgan Stanley
& Co. Incorporated ("Morgan Stanley") has agreed to reserve out of the Shares
set forth opposite its name on Schedule I to this Agreement, up to ____________
shares, for sale to the Company's employees, officers, and directors and other
parties associated with the Company (collectively, "Participants"), as set forth
in the Prospectus under the heading "Underwriting" (the "Directed Share
Program"). The Shares to be sold by Morgan Stanley pursuant to the Directed
Share Program (the "Directed Shares") will be sold by Morgan Stanley pursuant to
this Agreement at the public offering price. Any Directed Shares not orally
confirmed for purchase by any Participants by the end of the first business day
after the date on which this Agreement is executed will be offered to the public
by Morgan Stanley as set forth in the Prospectus.
I.
The Company represents and warrants to and agrees with each of the
Underwriters that:
(a) The Registration Statement has become effective, no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) the Registration Statement and the Prospectus
comply and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph (b) do not apply
to statements or omissions in the Registration Statement or the Prospectus
based upon information relating to any Underwriter furnished to the Company
in writing by such Underwriter through you expressly for use therein.
-2-
<PAGE>
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has
the corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct
of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or
be in good standing would not have a material adverse effect on the Company
and the Subsidiary (as defined below), taken as a whole.
(d) The Company has only one subsidiary, athome.net (the
"Subsidiary"), which has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and the Subsidiary, taken as a whole. All of the
issued shares of capital stock of the Subsidiary have been duly and validly
authorized and issued, are fully paid and non-assessable, and are owned
directly by the Company, free and clear of all liens, encumbrances,
equities or claims. The Company does not own, directly or indirectly, an
interest in any corporation, partnership, business, trust or other entity
required to be set forth in Exhibit 21.01 to the Registration Statement.
(e) The Company and the Subsidiary have good and marketable title in
fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the
Company and the Subsidiary, taken as a whole, in each case free and clear
of all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property
and do not interfere with the use made and proposed to be made of such
property by the Company and the Subsidiary; and any real property and
buildings held under lease by the Company and the Subsidiary are held by
them under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and the Subsidiary, in
each case except as described in or contemplated by the Prospectus.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance of
the Shares to be sold by the Company have been duly authorized and are
validly issued, fully paid and non-assessable. Except as set forth in the
Prospectus, neither the Company nor the Subsidiary has outstanding any
options to purchase, or any preemptive rights or other rights to subscribe
for or to purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. All
outstanding shares of capital stock of the Company and options and other
rights to acquire capital stock have been issued in compliance with the
registration and qualification provisions of all applicable federal and
state securities laws and were not issued in violation of any preemptive
rights, rights of first refusal or other similar rights.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive rights, rights of first refusal or similar
rights.
(i) This Agreement has been duly authorized, executed and delivered
by the Company.
-3-
<PAGE>
(j) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of applicable law or the certificate of incorporation or by-
laws of the Company or the Subsidiary or any agreement or other instrument
binding upon the Company or the Subsidiary that is material to the Company
and the Subsidiary, taken as a whole, or any judgment, order or decree of
any governmental body, agency or court having jurisdiction over the Company
or the Subsidiary, and no consent, approval, authorization or order of or
qualification with any governmental body or governmental agency is required
for the performance by the Company of its obligations under this Agreement,
except as may be required by the securities or Blue Sky laws of the various
states and foreign jurisdictions in connection with the offer and sale of
the Shares by the U.S. Underwriters or by the rules and regulations of the
NASD.
(k) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and the Subsidiary, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement).
(l) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) the Company and
the Subsidiary have not incurred any material liability or obligation,
direct or contingent, nor entered into any material transaction not in the
ordinary course of business; (ii) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock other than
ordinary and customary dividends; and (iii) there has not been any material
change in the capital stock, short-term debt or long-term debt of the
Company and the Subsidiary, except in each case as described in or
contemplated by the Prospectus.
(m) There are no legal or governmental proceedings pending or, to the
best of the Company's knowledge, threatened to which the Company or the
Subsidiary is a party or to which any of the properties of the Company or
the Subsidiary is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required.
(n) Each of the Company and the Subsidiary has all necessary consents,
authorizations, approvals, orders, certificates and permits of and from,
and has made all declarations and filings with, all federal, state, local,
foreign and other governmental or regulatory authorities, all self-
regulatory organizations and all courts and other tribunals, to own, lease,
license and use its properties and assets and to conduct its business in
the manner described in the Prospectus, except to the extent that the
failure to obtain or file would not have a material adverse effect on the
Company and the Subsidiary taken as a whole. Neither the Company nor the
Subsidiary has received any notice of proceedings related to the revocation
or modification of any such consent, authorization, approval, order,
certificate or permit which, singly or in the aggregate, if the subject of
any unfavorable decision, ruling or finding, would result in a material
adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of the Company and the Subsidiary, taken
as a whole, except as described in or contemplated by the Prospectus.
(o) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 or Rule 462 under the Securities Act, complied when so
filed in all material respects with the Securities Act and the rules and
regulations of the Commission thereunder, except for the omission of a
price range and other information derived therefrom.
-4-
<PAGE>
(p) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(q) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the
Company or to require the Company to include such securities with the
Shares registered pursuant to the Registration Statement.
(r) The Company and the Subsidiary are insured by insurers of
recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
are engaged; neither the Company nor the Subsidiary has been refused any
insurance coverage sought or applied for; and neither the Company nor the
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business or operations
of the Company and the Subsidiary, taken as a whole, except as described in
or contemplated by the Prospectus.
(s) The Company and the Subsidiary (i) are in compliance with any and
all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
(collectively, "Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental
Laws to conduct their respective businesses and (iii) are in compliance
with all terms and conditions of any such permit, license or approval,
except where such noncompliance with Environmental Laws, failure to receive
required permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the Company
and the Subsidiary, taken as a whole.
(t) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a material adverse
effect on the Company and the Subsidiary, taken as a whole.
(u) Except as disclosed in the Prospectus, (i) the Company and the
Subsidiary own or possess, or can acquire on reasonable terms, adequate
licenses or other rights to use all material patents, copyrights,
trademarks, service marks, trade names, technology and know-how currently
employed by them to conduct the irrespective businesses in the manner
described in the Prospectus, (ii) neither the Company nor the Subsidiary
has received any notice of infringement or conflict with (and neither the
Company nor the Subsidiary knows of any infringement or conflict with)
asserted rights of others with respect to any patents, copyrights,
trademarks, service marks, trade names, trade secrets, technology or know-
how which could reasonably be expected to result in any material adverse
effect upon the Company and the Subsidiary, taken as a whole, and (iii) the
discoveries, inventions, products or processes of the Company and the
Subsidiary referred to in the Prospectus do not, to the best knowledge of
the Company or the Subsidiary, infringe or conflict with any right or
patent of any third party, or any discovery, invention, product or process
which is the subject of a published patent application filed by any third
party, known to the Company or the Subsidiary which could reasonably be
expected to have a material adverse effect on the Company and the
Subsidiary, taken as a whole.
-5-
<PAGE>
(v) Each of the Company and the Subsidiary maintains a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (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 the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(w) No material labor dispute with the employees of the Company or the
Subsidiary exists, except as described in or contemplated by the
Prospectus, or, to the best knowledge of the Company, is imminent; and,
without conducting any independent investigation, the Company is not aware
of any existing, threatened or imminent labor disturbance by the employees
of any of its principal suppliers, manufacturers or contractors that could
reasonably be expected to have a material adverse effect on the Company and
the Subsidiary, taken as a whole.
(x) All outstanding shares of Common Stock, and all securities
convertible into or exercisable or exchangeable for Common Stock, are
subject to valid, binding and enforceable agreements (collectively, the
"Lock-up Agreements") that restrict the holders thereof from selling,
making any short sale of, granting any option for the purchase of, or
otherwise transferring or disposing of, any of such shares of Common Stock,
or any such securities convertible into or exercisable or exchangeable for
Common Stock, for a period of 180 days after the date of the Prospectus
without the prior written consent of the Company or Morgan Stanley & Co.
Incorporated.
(y) The Company (i) has notified each holder of a currently
outstanding option issued under either the 1996 Incentive Stock Option Plan
No. 1 or the 1996 Incentive Stock Option Plan No. 2 (collectively, the
"Option Plan") and each person who has acquired shares of Common Stock
pursuant to the exercise of any option granted under the Option Plan that
pursuant to the terms of the Option Plan, none of such options or shares
may be sold or otherwise transferred or disposed of for a period of 180
days after the date of the initial public offering of the Shares and (ii)
has imposed a stop-transfer instruction with the Company's transfer agent
in order to enforce the foregoing lock-up provision imposed pursuant to the
Option Plan.
(z) As of the date the Registration Statement becomes effective, the
Series A Common Stock will be authorized for listing on the Nasdaq National
Market upon official notice of issuance.
(aa) The Company has complied with all provisions of Section 517.075,
Florida Statutes, relating to doing business with the Government of Cuba or
any person or affiliate located in Cuba.
Furthermore, the Company represents and warrants to Morgan Stanley
that (i) the Registration Statement, the Prospectus and any preliminary
prospectus comply, and any further amendments or supplements thereto will
comply, with any applicable laws or regulations of foreign jurisdictions in
which the Prospectus or any preliminary prospectus, as amended or supplemented,
if applicable, are distributed in connection with the Directed Share Program,
and that (ii) no authorization, approval, consent, license, order, registration
or qualification of or with any government, governmental instrumentality or
court, other that such as have been obtained, is necessary under the securities
laws and regulations of foreign jurisdictions in which the Directed Shares are
offered outside the United States.
II.
The Company hereby agrees to sell to the several Underwriters, and
each Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees,
-6-
<PAGE>
severally and not jointly, to purchase from the Company the respective numbers
of Firm Shares set forth in Schedule I and Schedule II hereto opposite the name
of such Underwriter at U.S.$______ a share (the "Purchase Price").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the U.S. Underwriters the Additional Shares, and the U.S. Underwriters shall
have a one-time right to purchase, severally and not jointly, up to
[_____________] Additional Shares at the Purchase Price. If the U.S.
Representatives, on behalf of the U.S. Underwriters, elect to exercise such
option, the U.S. Representatives shall so notify the Company in writing not
later than 30 days after the date of this Agreement, which notice shall specify
the number of Additional Shares to be purchased by the U.S. Underwriters and the
date on which such shares are to be purchased. Such date may be the same as the
Closing Date (as defined below) but not earlier than the Closing Date nor later
than ten business days after the date of such notice. Additional Shares may be
purchased as provided in Article IV hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each U.S. Underwriter agrees, severally
and not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as the U.S. Representatives may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of U.S. Firm Shares set forth in Schedule I
hereto opposite the name of such U.S. Underwriter bears to the total number of
U.S. Firm Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of the Prospectus, (1) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or (2) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (1) or (2) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (i) the Shares to be sold hereunder and (ii) 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 issuances of
Common Stock hereafter under the option or equity incentive plans described in
the Prospectus, and (iii) the Company's issuance of Common Stock under the
employee stock purchase plan described in the Prospectus.
III.
The Company is advised by you that the Underwriters propose to make a
public offering of their respective portions of the Shares as soon after the
Registration Statement and this Agreement have become effective as in your
judgment is advisable. The Company is further advised by you that the Shares
are to be offered to the public initially at U.S.$_____________ a share (the
"Public Offering Price") and to certain dealers selected by you at a price that
represents a concession not in excess of U.S.$______ a share under the Public
Offering Price, and that any Underwriter may allow, and such dealers may
reallow, a concession, not in excess of U.S.$_____ a share, to any Underwriter
or to certain other dealers.
IV.
Payment for the Firm Shares shall be made to the Company in Federal or
other funds immediately available in New York City against delivery of such Firm
Shares for the respective accounts of the several Underwriters at 10:00 A.M.,
New York City time, on [___________, 1997], or at such other time on the same or
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<PAGE>
such other date, not later than [_________, 1997], as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to
as the Closing Date.
Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 A.M., New York City time, on the date specified in the
notice described in Article II or at such other time on the same or on such
other date, in any event not later than [_______, 1997] as shall be designated
in writing by the U.S. Representatives. The time and date of such payment are
hereinafter referred to as the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
V.
The obligations of the Company to sell the Shares to the Underwriters
and the several obligations of the Underwriters to purchase and pay for the
Shares on the Closing Date are subject to the condition that the Registration
Statement shall have become effective not later than 5:30 P.M. (New York City
time) on the date hereof.
The several obligations of the Underwriters hereunder are subject to
the following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of any
review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any of the Company's securities by
any "nationally recognized statistical rating organization," as such term
is defined for purposes of Rule 436(g)(2) under the Securities Act, and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or otherwise,
or in the earnings, business or operations, of the Company and the
Subsidiary, taken as a whole, from that set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the date
of this Agreement) that, in your judgment, is material and adverse and that
makes it, in your judgment, impracticable to market the Shares on the terms
and in the manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by the chief executive
officer and the chief financial officer of the Company on behalf of the
Company, to the effect set forth in clause (a) above, and to the effect
that the representations and warranties of the Company contained in this
Agreement are true and correct in all material respects as of the Closing
Date and that the Company has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or satisfied
hereunder on or before the Closing Date.
-8-
<PAGE>
The officers signing and delivering such certificate may rely
upon the best of their knowledge as to proceedings threatened.
(c) You shall have received on the Closing Date an opinion of Fenwick
& West LLP counsel for the Company, dated the Closing Date, to the effect
that:
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State
of Delaware, has the corporate power and corporate authority to own
its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in good
standing in __________, __________, __________. All of the issued
shares of capital stock of the Subsidiary have been duly and validly
authorized and issued, are fully paid and non-assessable and, to such
counsel's knowledge, are owned directly by the Company, free and clear
of all liens, encumbrances, equities or claims;
(ii) the Subsidiary has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
corporate authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified to transact business
and is in good standing in __________, __________, __________;
(iii) the authorized capital stock of the Company conforms in
all material respects as to legal matters to the description thereof
contained in the Prospectus;
(iv) the shares of Common Stock outstanding prior to the
issuance of the Shares have been duly authorized, are validly issued
and non-assessable and to such counsel's knowledge, are fully paid;
(v) the Shares have been duly authorized, and, when issued
and delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and, to such counsel's
knowledge, the issuance of such Shares will not be subject to any
preemptive rights, rights of first refusal or similar rights;
(vi) to such counsel's knowledge, no shares of Common Stock
are required pursuant to any agreement or other right to be registered
under the Registration Statement, and no person or entity has any
right to cause Common Stock to be registered under the Registration
Statement, which rights have not been validly waived;
(vii) this Agreement has been duly authorized, executed and
delivered by the Company;
(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of the certificate of incorporation
or by-laws of the Company or the Subsidiary, to such counsel's
knowledge, any agreement or other instrument binding upon the Company
or the Subsidiary that is material to the Company and the Subsidiary
(where such agreements and instruments have been identified to such
counsel by the Company as all material agreements and instruments
binding on the Company and the Subsidiary), taken as a whole, or, to
such counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the
Company or the Subsidiary, and no consent, approval, authorization or
order of or qualification with any governmental body or governmental
agency is required for the performance by the Company of its
obligations under this Agreement, except such as may be required by
the securities
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<PAGE>
or Blue Sky laws of the various states in connection with the offer
and sale of the Shares by the U.S. Underwriters or the rules and
regulations of the NASD (as to which such counsel need not express any
opinion);
(ix) the statements (1) in the Prospectus under the captions
"Risk Factors -- Shares Eligible for Future Sale," "Dividend Policy,"
"Certain Transactions," "Description of Capital Stock," "Shares
Eligible for Future Sale" and, to the extent such statements summarize
this Agreement, "Underwriters" and (2) in the Registration Statement
in Items 14 and 15, in each case insofar as such statements constitute
summaries of the legal matters, documents or proceedings referred to
therein, fairly present the information called for with respect to
such legal matters, documents and proceedings and fairly summarize the
matters referred to therein;
(x) such counsel does not know of any legal, regulatory or
governmental proceeding pending or threatened to which the Company or
the Subsidiary is a party or to which any of the properties of the
Company or the Subsidiary is subject that are required to be described
in the Registration Statement or the Prospectus and are not so
described or of any statutes, regulations, contracts or other
documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required;
(xi) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the net
proceeds therefrom as described in the Prospectus will not be, an
"investment company" as such term is defined in the Investment Company
Act of 1940, as amended;
(xii) to such counsel's knowledge: (1) based solely on oral
advice of the Staff of the Commission, the Registration Statement has
become effective under the Securities Act; (2) no stop order
proceedings with respect to the Registration Statement have been
instituted or are pending or threatened under the Securities Act and
nothing has come to such counsel's attention to lead it to believe
that such proceedings are contemplated; and (3) any required filing of
the Prospectus and any supplement thereto pursuant to Rule 424(b)
under the Securities Act has been made in the manner and within the
time period required by such Rule 424(b);
(xiii) the Shares to be sold under this Agreement to the
Underwriters are duly authorized for quotation on the Nasdaq National
Market; and
(xiv) such counsel (1) is of the opinion that the
Registration Statement and Prospectus (except for financial statements
and schedules and other financial and statistical data included
therein as to which such counsel need not express any opinion) comply
as to form in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder, (2) has
no reason to believe that (except for financial statements and
schedules and other financial and statistical data as to which such
counsel need not express any belief) the Registration Statement and
the prospectus included therein at the time the Registration Statement
became effective contained any 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 and (3) has no
reason to believe that (except for financial statements and schedules
and other financial and statistical data as to which such counsel need
not express any belief) the Prospectus contains any untrue statement
of a material fact or omits to state a material fact necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
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<PAGE>
The opinion of Fenwick & West LLP described in this paragraph (C)
above shall be rendered to the Underwriters at the request of the Company,
and shall so state therein.
(d) The Underwriters shall have received on the Closing Date an
opinion of Wilson Sonsini Goodrich & Rosati, counsel for the Underwriters,
dated the Closing Date, covering the matters referred to in subparagraphs
(v), (vii), (ix) (but only as to the statements in the Prospectus under
"Description of Capital Stock" and "Underwriters"), (xi) and (xv) of
paragraph (C) above.
With respect to subparagraph (xv) of paragraph (c) above, Fenwick &
West LLP and Wilson Sonsini Goodrich & Rosati may state that their opinion and
belief are based upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto and review
and discussion of the contents thereof, but are without independent check or
verification except as specified.
(e) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters,
from Ernst & Young LLP, independent public accountants, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements
and certain financial information contained in the Registration Statement
and the Prospectus; provided that the letter delivered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof.
(f) The Lock-Up Agreements, each substantially in the form of Exhibit
A hereto, between the Underwriters and certain stockholders, officers and
directors of the Company relating to sales and certain other dispositions
of shares of Common Stock or certain other securities, delivered to you on
or before the date hereof, shall be in full force and effect on the Closing
Date.
(g) The shares of Series A Common Stock of the Company shall have
received approval for listing, upon official notice of issuance, on the
Nasdaq National Market.
All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed in compliance with the provisions
hereof only if Wilson Sonsini Goodrich & Rosati, counsel for the Underwriters,
shall be reasonably satisfied that they comply in form and scope.
The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they may
reasonably request with respect to the good standing of the Company, the due
authorization and issuance of the Additional Shares and other matters related to
the issuance of the Additional Shares.
VI.
In further consideration of the agreements of the Underwriters herein
contained, the Company covenants with each Underwriter as follows:
(a) To furnish to you, without charge, four (4) signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto), and to furnish to you in New York City, without
charge, prior to 5:00 P.M. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
paragraph (C) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.
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<PAGE>
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the reasonable opinion of Wilson Sonsini
Goodrich & Rosati, counsel for the Underwriters, the Prospectus is required
by law to be delivered in connection with sales by an Underwriter or
dealer, any event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the Prospectus
is delivered to a purchaser, not misleading, or if, in the reasonable
opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-
month period ending September 30, 1998 that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(f) During a period of three years from the effective date of the
Registration Statement, the Company will furnish to you copies of (i) all
reports to its stockholders and (ii) all reports, financial statements and
proxy or information statements filed by the Company with the Commission or
any national securities exchange.
(g) The Company will apply the proceeds from the sale of the Shares
as set forth under in "Use of Proceeds" in the Prospectus.
(h) The Company will use its best efforts to obtain and maintain in
effect the quotation of the Shares on the Nasdaq National Market and will
take all necessary steps to cause the Shares to be included on the Nasdaq
National Market as promptly as practicable and to maintain such inclusion
for a period of three years after the date hereof or until such earlier
date as the Shares shall be listed for regular trading privileges on
another national securities exchange approved by you.
(i) The Company will file with the Commission such reports on Form SR
as may be required pursuant to Rule 463 under the Securities Act.
(j) The Company will comply with all registration, filing and
reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), which may from time to time be applicable to the
Company.
(k) The Company will comply with all provisions of all undertakings
contained in the Registration Statement.
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<PAGE>
(l) Prior to the Closing Date, the Company will not, directly or
indirectly, issue any press release or other communication and will not
hold any press conference with respect to the Company, or its financial
condition, results of operations, business, properties, assets, or
prospects or this offering, without your prior written consent.
(m) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the Common Stock has been or is likely to be materially
affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company
will, after written notice from you advising the Company to the effect set
forth above, forthwith prepare, consult with you concerning the substance
of, and disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor, publication
or event.
(n) The Company agrees: (i) to enforce the terms of each Lock-up
Agreement and (ii) issue stop-transfer instructions to the transfer agent
for the Common Stock with respect to any transaction or contemplated
transaction that would constitute a breach of or default under the
applicable Lock-up Agreement. In addition, except with the prior written
consent of Morgan Stanley, the Company agrees (i) not to amend or
terminate, or waive any right under, any Lock-up Agreement, or take any
other action that would directly or indirectly have the same effect as an
amendment or termination, or waiver of any right under, any Lock-up
Agreement, that would permit any holder of shares of Common Stock, or
securities convertible into or exercisable or exchangeable for Common
Stock, to sell, make any short sale of, grant any option for the purchase
of, or otherwise transfer or dispose of, any of such shares of Common Stock
or other securities prior to the expiration of 180 days after the date of
the Prospectus, and (ii) not to consent to any sale, short sale, grant of
an option for the purchase of, or other disposition or transfer of shares
of Common Stock, or securities convertible into or exercisable or
exchangeable for Common Stock, subject to a Lock-up Agreement.
(o) The Company will place a restrictive legend on any shares of
Common Stock acquired pursuant to the exercise, after the date hereof and
prior to the expiration of the 180-day period after the date of the initial
public offering of the Shares, of any option granted under the Option Plan,
which legend shall restrict the transfer of such shares prior to the
expiration of such 180-day period. In addition, the Company agrees that,
without the prior written consent of Morgan Stanley, it will not release
any stockholder or option holder from the market standoff provision imposed
by the Company pursuant to the terms of the Option Plan earlier than 180
days after the date of the initial public offering of the Shares.
(p) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted to the extent required
by the National Association of Securities Dealers, Inc. (the "NASD") or the
NASD rules from sale, transfer, assignment, pledge or hypothecation for a
period of three months following the date of the effectiveness of the
Registration Statement. Morgan Stanley will notify the Company as to which
Participants will need to be so restricted. The Company will direct the
transfer agent to place stop transfer restrictions upon such securities for
such period of time.
(q) The Company will pay all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Share Program
and stamp duties, similar taxes or duties or other taxes, if any, incurred
by the Underwriters in connection with the Directed Share Program.
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Furthermore, the Company covenants with Morgan Stanley that the
Company will comply with all applicable securities and other applicable
laws, rules and regulations in each foreign jurisdiction in which the
Directed Shares are offered in connection with the Directed Share Program.
VII.
The Company agrees, whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees, disbursements
and expenses of the Company's counsel and the Company's accountants in
connection with the registration and delivery of the Shares under the
Securities Act and all other fees or expenses in connection with the
preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the
mailing and delivering of copies thereof to the Underwriters and dealers,
in the quantities hereinabove specified, (ii) all costs and expenses
related to the transfer and delivery of the Shares to the Underwriters,
including any transfer or other taxes payable thereon, (iii) the cost of
printing or producing any Blue Sky or Legal Investment memorandum in
connection with the offer and sale of the Shares under state securities
laws, including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection with the Blue Sky or Legal
Investment memorandum, (iv) all filing fees and the reasonable fees and
disbursements (including filing fees) of counsel to the Underwriters
incurred in connection with the review and qualification of the offering of
the Shares by the NASD (v) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A relating
to the Common Stock and all costs and expenses incident to listing the
Shares on the Nasdaq National Market, (vi) the cost of printing
certificates representing the Shares, (vii) the costs and charges of any
transfer agent, registrar or depositary, (viii) the costs and expenses of
the Company relating to investor presentations on any "road show"
undertaken in connection with the marketing of the offering of the Shares,
including, without limitation, expenses associated with the production of
road show slides and graphics, fees and expenses of any consultants engaged
in connection with the road show presentations with the prior approval of
the Company, travel and lodging expenses of the representatives and
officers of the Company and any such consultants, and the cost of any
aircraft chartered in connection with the road show, and (ix) all other
costs and expenses incident to the performance of the obligations of the
Company hereunder for which provision is not otherwise made in this Article
VII. It is understood, however, that except as provided in this Article
VII, Article VIII and the last paragraph of Article X below, the
Underwriters will pay all of their costs and expenses, including fees and
disbursements of their counsel, stock transfer taxes payable on resale of
any of the Shares by them and any advertising expenses connected with any
offers they may make.
VIII.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such losses,
claims, damages or liabilities are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information
relating to any
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Underwriter furnished to the Company in writing by such Underwriter through
you expressly for use therein; 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.
(b) The Company agrees to indemnify and hold harmless Morgan Stanley
and each person, if any, who controls Morgan Stanley within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act
("Morgan Stanley Entities"), from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating
any such action or claim) (i) caused by any untrue statement or alleged
untrue statement of a material fact contained in the prospectus wrapper
material prepared by or with the consent of the Company for distribution in
foreign jurisdictions in connection with the Directed Share Program
attached to the Prospectus or any preliminary prospectus, or caused by any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, when
considered in conjunction with the Prospectus or any applicable preliminary
prospectus, not misleading; (ii) caused by the failure of any Participant
to pay for and accept delivery of the shares which, immediately following
the effectiveness of the Registration Statement, were subject to a properly
confirmed agreement to purchase; or (iii) related to, arising out of, or in
connection with the Directed Share Program, provided that, the Company
shall not be responsible under this clause (iii) for any losses, claim,
damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted form the bad faith or gross
negligence of Morgan Stanley Entities.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, the directors of the Company, the officers
of the Company who sign the Registration Statement and each person, if any,
who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the
indemnity from the Company to such Underwriter set forth in paragraph (a)
of this Article VIII, but only with reference to information relating to
such Underwriter furnished to the Company in writing by or on behalf of
such Underwriter through you expressly for use in the Registration
Statement, any preliminary prospectus, the Prospectus or any amendments or
supplements thereto.
(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 paragraph (a), (b) or (c) of this Article VIII, such
person (the "Indemnified Party") shall promptly notify the person against
whom such indemnity may be sought (the "Indemnifying Party") in writing and
the Indemnifying Party, upon request of the Indemnified Party, shall retain
counsel reasonably satisfactory to the Indemnified Party to represent the
Indemnified Party and any others the Indemnifying Party may designate in
such proceeding and shall pay 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, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless
(i) the Indemnifying Party and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (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. It is understood that the
Indemnifying Party shall not, in respect of the legal expenses of any
Indemnified Party in connection
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with any proceeding or related proceedings in the same jurisdiction, be
liable for the fees and expenses of more than one separate firm (in
addition to any local counsel) for all such Indemnified Parties and that
all such fees and expenses shall be reimbursed as they are incurred. Such
firm shall be designated in writing by Morgan Stanley in the case of
parties indemnified pursuant to paragraph (a) of this Article VIII, and by
the Company in the case of parties indemnified pursuant to the paragraph
(c) of this Article VIII. Notwithstanding anything contained herein to the
contrary, if indemnity may be sought pursuant to paragraph (b) of this
Article VIII in respect of such action or proceeding, then in addition to
such separate firm for the Indemnified Parties, the Indemnifying Party
shall be liable for the reasonable fees and expenses of not more that one
separate firm (in addition to any local counsel) for Morgan Stanley for the
defense of any losses, claims, damages and liabilities arising out of the
Directed Share Program, and all persons, if any who control Morgan Stanley
within the meaning of either Section 15 of the Act or Section 20 of the
Exchange Act. 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.
Notwithstanding the foregoing sentence, if at any time an Indemnified Party
shall have requested an Indemnifying Party to reimburse the Indemnified
Party for fees and expenses of counsel as contemplated by the second and
third sentences of this paragraph, the Indemnifying Party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days
after receipt by such Indemnifying Party of the aforesaid request and (ii)
such Indemnifying Party shall not have reimbursed the Indemnified Party in
accordance with such request prior to the date of such settlement. No
Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Party is or could have been
a party and indemnity could have been sought hereunder by such Indemnified
Party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter
of such proceeding.
(e) To the extent the indemnification provided for in paragraph (a),
(b) or (c) of this Article VIII is unavailable to an Indemnified Party or
insufficient in respect of any losses, claims, damages or liabilities
referred to therein, then each Indemnifying Party under such paragraph, in
lieu of indemnifying such Indemnified Party thereunder, shall contribute to
the amount paid or payable by such Indemnified Party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other hand from the offering of the
Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and of the
Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other
hand in connection with the offering of the Shares shall be deemed to be in
the same respective proportions as the net proceeds from the offering of
the Shares (before deducting expenses) received by the Company and the
total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover of the Prospectus, bear
to the aggregate Public Offering Price of the Shares. The relative fault
of the Company on the one hand and the Underwriters on the other hand 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 by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission. The Underwriters' respective obligations to contribute
pursuant to this Article VIII are several in proportion to the respective
number of Shares they have purchased hereunder, and not joint.
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(f) The Company and the Underwriters agree that it would not be just
or equitable if contribution pursuant to this Article VIII 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 that does not take
account of the equitable considerations referred to in paragraph (e) of
this Article VIII. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, 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
Article VIII, no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The remedies provided for in this
Article VIII are not exclusive and shall not limit any rights or remedies
which may otherwise be available to any Indemnified Party at law or in
equity.
(g) The indemnity and contribution provisions contained in this
Article VIII and the representations, warranties and other statements of
the Company contained in this Agreement shall remain operative and in full
force and effect regardless of (i) any termination of this Agreement, (ii)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter or by or on behalf of the Company, its officers
or directors or any person controlling the Company and (iii) acceptance of
and payment for any of the Shares.
IX.
This Agreement shall be subject to termination by notice given by you
to the Company, if (a) after the execution and delivery of this Agreement and
prior to the Closing Date (i) trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the National Association of Securities
Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange or the Chicago Board of Trade, (ii) trading of any securities of the
Company shall have been suspended on any exchange or in any over-the-counter
market, (iii) a general moratorium on commercial banking activities in New York
shall have been declared by either Federal or New York State authorities, or
(iv) there shall have occurred any outbreak or escalation of hostilities or any
change in financial markets or any calamity or crisis that, in your judgment, is
material and adverse and (b) in the case of any of the events specified in
clauses (a)(i) through (iv), such event singly or together with any other such
event makes it, in your judgment, impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus.
X.
This Agreement shall become effective upon execution and delivery
hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares
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<PAGE>
set forth opposite their respective names in Schedule I or Schedule II bears to
the aggregate number of Firm Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
--------
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Article X by an amount in excess of one-
ninth of such number of Shares without the written consent of such Underwriter.
If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased, and arrangements satisfactory to you and the Company for
the purchase of such Firm Shares are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case either you or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
This Agreement may be signed in two or more counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
-18-
<PAGE>
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York.
Very truly yours,
AT HOME CORPORATION
By:_______________________________________
Thomas A. Jermoluk
Chairman of the Board, President and
Chief Executive Officer
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Alex. Brown & Sons Incorporated
Hambrecht & Quist LLC
Acting severally on behalf of themselves and the
several U.S. Underwriters named in Schedule I hereto
By: Morgan Stanley & Co. Incorporated
By:______________________________________
William R. Salisbury, Principal
Morgan Stanley & Co. International Limited
Merrill Lynch International
Alex. Brown International
Hambrecht & Quist LLC
Acting severally on behalf of themselves
and the several International Underwriters
named in Schedule II hereto.
By: Morgan Stanley & Co. International Limited
By:_______________________________________
Name:
Title:
-19-
<PAGE>
SCHEDULE I
----------
U.S. Underwriters
-----------------
<TABLE>
<CAPTION>
NUMBER OF U.S.
FIRM
SHARES
UNDERWRITER TO BE PURCHASED
- ---------------------------------------------------- -------------------
<S> <C>
Morgan Stanley & Co. Incorporated...................
Merrill Lynch, Pierce, Fenner & Smith Incorporated..
Alex. Brown & Sons Incorporated.....................
Hambrecht & Quist LLC...............................
Total U.S. Firm Shares...............
</TABLE>
-20-
<PAGE>
SCHEDULE II
-----------
International Underwriters
--------------------------
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL
SHARES
UNDERWRITER TO BE PURCHASED
- ------------------------------------------- ---------------
<S> <C>
Morgan Stanley & Co. International Limited.
Merrill Lynch International................
Alex. Brown International..................
Hambrecht & Quist LLC...................... -------
Total International Shares.. =======
</TABLE>
-21-
<PAGE>
EXHIBIT A
AT HOME CORPORATION
FORM OF LOCK-UP AGREEMENT
May __ ,1997
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Hambrecht & Quist LLC
Alex. Brown & Sons Incorporated
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Morgan Stanley & Co. International Limited
Merrill Lynch International Limited
Hambrecht & Quist LLC
Alex. Brown International
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E 14 4QA
England
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated ("Morgan
Stanley") and Morgan Stanley & Co. International Limited ("MSEL"), as
Representatives of the several Underwriters, propose to enter into an
Underwriting Agreement (the "Underwriting Agreement") with At Home Corporation,
a Delaware corporation (the "Company") providing for the initial public offering
(the "Public Offering") by the several Underwriters, including Morgan Stanley
and MSIL (the "Underwriters"), of Series A Common Stock, $.01 par value per
share, of the Company (the "Common Stock").
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the final prospectus relating
to the Public Offering (the "Prospectus"), (1) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities
<PAGE>
Morgan Stanley & Co. Incorporated
May 16, 1997
Page 2
convertible into or exercisable or exchangeable for Common Stock (collectively,
the "Shares") (provided that such Shares are either now owned by the undersigned
or are hereafter acquired prior to or in connection with the Public Offering),
or (2) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Shares,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to the sale of any Shares to
the Underwriters pursuant to the Underwriting Agreement. In addition, the
undersigned agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the Prospectus, make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock.
Notwithstanding the foregoing, if the undersigned is an individual, he or
she may transfer any or all of the Shares either during his or her lifetime or
on death by gift, will or intestacy to his immediate family or to a trust the
beneficiaries of which are exclusively the undersigned and/or a member or
members of his or her immediate family; provided, however, that in any such
case, it shall be a condition to the transfer that the transferee execute an
agreement stating that the transferee is receiving and holding the Shares
subject to the provisions of this Agreement, and there shall be no further
transfer of such Shares except in accordance with this Agreement. For purposes
of this paragraph, "immediate family" shall mean spouse, lineal descendant,
father, mother, brother or sister of the transferor.
In addition, notwithstanding the foregoing, if the undersigned is a
partnership, the partnership may transfer any Shares to a partner of such
partnership or a retired partner of such partnership who retires after the date
hereof, or to the estate of any such partner or retired partner, and any partner
who is an individual may transfer any such Shares by gift, will or intestate
succession to his or her spouse or lineal descendants or ancestors; if the
undersigned is a trust, the trust may transfer any Shares to any beneficiary of
such trust or to the estate of any such beneficiary, and any beneficiary who is
an individual may transfer any such Shares by gift, will or intestate succession
to his or her spouse or lineal descendants or ancestors; and if the undersigned
is a corporation, the corporation may transfer any Shares to any shareholder of
such corporation, and any shareholder who is an individual may transfer any such
Shares by gift, will or intestate succession to his or her spouse or lineal
descendant or ancestors; provided, however, that in any such case, it shall be a
condition to the transfer that the transferee execute an agreement stating that
the transferee is receiving and holding the Shares subject to the provisions of
this Agreement, and there shall be no further transfer of such Shares except in
accordance with Agreement.
Whether or not the Public Offering actually occurs depends on a number of
factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
agreement between the Company and the Underwriters. This Agreement shall
terminate and be of no further effect if the Registration Statement for the
Public Offering
-2-
<PAGE>
Morgan Stanley & Co. Incorporated
May 16, 1997
Page 3
is not declared effective by the Securities and Exchange Commission by December
31, 1997. The undersigned agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of
securities of the Company held by the undersigned except in compliance with the
terms and conditions of this Agreement.
Very truly yours,
______________________________________
(Name)
______________________________________
(Address)
-3-
<PAGE>
EXHIBIT 3.01
THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
AT HOME CORPORATION
AT HOME CORPORATION, a corporation organized and existing under the
laws of the State of Delaware (the "CORPORATION"), hereby certifies as follows:
FIRST. The name of the Corporation is At Home Corporation. The
original Certificate of Incorporation of the Corporation was filed on March 28,
1995. An Amended and Restated Certificate of Incorporation was filed on August
29, 1995, a Second Amended and Restated Certificate of Incorporation was filed
on August 1, 1996, and a Certificate of Retirement was filed on August 2, 1996.
The name under which the Corporation was originally incorporated is "at Home
Corporation."
SECOND. Pursuant to Section 242(b) of the Delaware General
Corporation Law (the "DGCL") the Board of Directors of the Corporation has duly
adopted by unanimous written consent in accordance with DGCL Section 141(f), and
a majority of each class of the outstanding stock entitled to vote as a class
has approved by written consent in accordance with DGCL Section 228(d), this
Third Amended and Restated Certificate of Incorporation of the Corporation,
which amends and restates the Second Amended and Restated Certificate of
Incorporation of the Corporation.
THIRD. Pursuant to Sections 242 and 245 of the DGCL, the text of the
Second Amended and Restated Certificate of Incorporation is hereby restated to
read in its entirety as follows:
ARTICLE I
NAME
The name of the Corporation is At Home Corporation.
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the Corporation in the State
of Delaware is One Rodney Square, 10th Floor, Tenth and King Streets, in the
City of Wilmington, County of New Castle, 19801. The name of its registered
agent at such address is RL&F Service Corp.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.
<PAGE>
ARTICLE IV
AUTHORIZED STOCK
The total number of shares of capital stock which the Corporation
shall have authority to issue is one hundred ninety-four million eight hundred
thousand two hundred seventy-three (194,800,273) shares, of which one hundred
eighty million two hundred seventy-seven thousand six hundred sixty
(180,277,660) shares shall be common stock with a par value of $.01 per share
("COMMON STOCK"), and fourteen million five hundred twenty-two thousand six
hundred thirteen (14,522,613) shares shall be preferred stock with a par value
of $.01 per share ("PREFERRED STOCK"). Said shares of Common Stock and Preferred
Stock shall be divided into the following series:
(a) One hundred fifty million (150,000,000) shares of Common Stock
shall be of a series designated as "SERIES A COMMON STOCK";
(b) Fifteen million four hundred thousand (15,400,000) shares of
Common Stock shall be of a series designated as "SERIES B COMMON STOCK";
(c) Fourteen million eight hundred seventy-seven thousand six hundred
sixty (14,877,660) shares of Common Stock shall be of a series designated as
"SERIES K COMMON STOCK";
(d) Seven hundred twenty-seven thousand eight hundred sixty-five
(727,865) shares of Preferred Stock shall be of a series designated as "Series
AM Convertible Participating Preferred Stock" (the "SERIES AM PREFERRED STOCK");
(e) One million five hundred fifty-three thousand (1,553,000) shares
of Preferred Stock shall be of a series designated as "Series AT Convertible
Participating Preferred Stock" (the "SERIES AT PREFERRED STOCK");
(f) Seven hundred twenty-seven thousand eight hundred sixty-five
(727,865) shares of Preferred Stock shall be of a series designated as "Series
AX Convertible Participating Preferred Stock" (the "SERIES AX PREFERRED STOCK");
(g) Seven hundred forty-three thousand eight hundred eighty-three
(743,883) shares of Preferred Stock shall be of a series designated as "Series K
Convertible Participating Preferred Stock" (the "SERIES K PREFERRED STOCK");
(h) Seven hundred seventy thousand (770,000) shares of Preferred
Stock shall be of a series designated as "Series T Convertible Participating
Preferred Stock" (the "SERIES T PREFERRED STOCK"); and
(i) Ten million (10,000,000) shares of Preferred Stock, which are
undesignated as to series and are issuable in accordance with the provisions of
Section D of this Article IV (the "SERIES PREFERRED STOCK").
-2-
<PAGE>
The description of the Common Stock and the Preferred Stock of the
Corporation, and the relative rights, preferences, privileges and limitations
thereof, or the method of fixing and establishing the same, are as hereinafter
in this Article IV set forth:
SECTION A
CERTAIN DEFINITIONS
Unless the context otherwise requires, the terms defined in this
Section A shall have, for all purposes of this Certificate, the meanings herein
specified:
"BOARD OF DIRECTORS" or "BOARD" shall mean the Board of Directors of
the Corporation and, unless the context indicates otherwise, shall also mean, to
the extent permitted by law, any committee thereof authorized, with respect to
any particular matter, to exercise the power of the Board of Directors of the
Corporation with respect to such matter.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or a
day on which banking institutions in New York, New York are not required to be
open.
"CAPITAL STOCK" shall mean any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) corporate stock.
"CERTIFICATE" shall mean this Third Amended and Restated Certificate
of Incorporation of the Corporation, as it may from time to time hereafter be
amended or restated.
"CONVERTIBLE COMMON STOCK" shall mean the Series B Common Stock and
the Series K Common Stock, collectively.
"CONVERTIBLE PREFERRED STOCK" shall mean the Series A Preferred Stock,
the Series K Preferred Stock and the Series T Preferred Stock, collectively.
"IPO" shall mean the closing of an initial public offering of the
Series A Common Stock.
"1933 ACT" shall mean the Securities Act of 1933, as amended.
"PERSON" shall mean any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof, or other entity, whether acting in an individual, fiduciary or other
capacity.
"SELECTED PREFERRED STOCK" shall mean, collectively, the Series AM
Preferred Stock, the Series AX Preferred Stock and the Series T Preferred Stock.
"SELECTED PREFERRED STOCK DIRECTORS" shall mean, collectively, the
Series AM Preferred Stock Director, if any, the Series AX Preferred Stock
Director, if any, and the Series T Preferred Stock Directors, if any.
-3-
<PAGE>
"SERIES A COMMON STOCK" shall mean the Series A Common Stock, par
value $.01 per share, of the Corporation.
"SERIES A PREFERRED STOCK" shall mean, collectively, the three
separate series of Preferred Stock designated as the Series AM Preferred Stock,
the Series AT Preferred Stock and the Series AX Preferred Stock.
"SERIES B COMMON STOCK" shall mean the Series B Common Stock, par
value $.01 per share, of the Corporation.
"SERIES K COMMON STOCK" shall mean the Series K Common Stock, par
value $.01 per share, of the Corporation.
SECTION B
SERIES A, SERIES B AND SERIES K COMMON STOCK
Each share of the Series A Common Stock, each share of the Series B
Common Stock and each share of Series K Common Stock shall, except as otherwise
provided in this Section B, be identical in all respects and shall have equal
rights and privileges.
1. Voting Rights.
-------------
(a) General Voting Rights.
---------------------
Holders of Series A Common Stock shall be entitled to one vote
for each share of such stock held, holders of Series B Common Stock shall be
entitled to ten votes for each share of such stock held, and holders of Series K
Common Stock shall be entitled to one vote for each share of such stock held on
all matters presented to the holders of Common Stock of the Corporation. Except
as otherwise provided in this Certificate and except as may otherwise be
required by the DGCL or, with respect to any series of Series Preferred Stock,
in any resolution or resolutions providing for the establishment of such series
pursuant to authority vested in the Board of Directors by this Certificate, the
holders of shares of Series A Common Stock, the holders of shares of Series B
Common Stock, the holders of shares of Series K Common Stock and the holders of
shares of each series of Preferred Stock entitled to vote thereon, if any, shall
vote as one class with respect to the election of directors and with respect to
all other matters to be voted on by stockholders of the Corporation (including,
without limitation, any proposed amendment to this Certificate that would
increase the number of authorized shares of Series A Common Stock, of Series B
Common Stock, of Series K Common Stock or of any other class or series of stock
or decrease the number of authorized shares of any such class or series of stock
(but not below the number of shares thereof then outstanding)), and no separate
vote or consent of the holders of shares of Series A Common Stock, the holders
of shares of Series B Common Stock, the holders of shares of Series K Common
Stock or the holders of shares of any such series of Preferred Stock shall be
required for the approval of any such matter.
-4-
<PAGE>
(b) Election of Convertible Common Stock Directors.
----------------------------------------------
(i) In the event that the holders of the Selected
Preferred Stock were entitled to elect Selected Preferred Stock
Directors immediately prior to the Mandatory Conversion (as
hereinafter defined), then upon and after such Mandatory
Conversion, so long as there are not less than 5,000,000 shares
of Series B Common Stock outstanding, the holders of Series B
Common Stock, voting separately as a single series, shall have
the exclusive right, acting by written consent given in
accordance with paragraph 1(b)(vi) below or by vote at a meeting
called for that purpose, to elect five directors to the Board of
Directors (such directors elected by the holders of the Series B
Common Stock are hereinafter collectively referred to as the
"SERIES B COMMON STOCK DIRECTORS").
In the event the holders of the Series K Preferred
Stock were entitled to elect a Series K Preferred Stock Director
immediately prior to the Mandatory Conversion, then, upon and
after such Mandatory Conversion, so long as there are not less
than 5,000,000 shares of Series K Common Stock outstanding, the
holders of Series K Common Stock, voting separately as a single
series, shall have the exclusive right, acting by written consent
given in accordance with paragraph 1(b)(vi) below or by vote at a
meeting called for that purpose, to elect one director to the
Board of Directors (such director elected by the holders of the
Series K Common Stock is hereinafter referred to as the "SERIES K
COMMON STOCK DIRECTOR," and together with the Series B Common
Stock Directors, the "CONVERTIBLE COMMON STOCK DIRECTORS").
(ii) The initial Convertible Common Stock Directors will
be those persons first elected, by written consent given in
accordance with paragraph 1(b)(vi) or by vote at a meeting called
for that purpose, of the holders of the series of Convertible
Common Stock entitled to vote for such directors on or after the
date on which holders of such series of Convertible Common Stock
are first entitled to elect such Convertible Common Stock
Directors in accordance with paragraph 1(b)(i).
(iii) At any meeting having as a purpose the election of
directors by holders of the Series B Common Stock and/or holders
of the Series K Common Stock, as the case may be, the presence,
in person or by proxy, of the holders of a majority of the shares
of the applicable series of Convertible Common Stock entitled to
vote in such election then outstanding shall be required and be
sufficient to constitute a quorum of such series for the election
of any director by such holders. Each Convertible Common Stock
Director to be elected at such meeting shall be elected by a
plurality of the votes of the shares of the applicable series of
Convertible Common Stock present in person or represented by
proxy at such meeting and entitled to vote in the election of
such Convertible Common Stock Director or by written consent of
the holders of such
-5-
<PAGE>
shares given in accordance with paragraph 1(b)(vi) below. At any
such meeting or adjournment thereof, (i) the absence of a quorum
of such holders of Series B Common Stock or Series K Common
Stock, as the case may be, shall not prevent the election of the
directors to be elected by the holders of shares other than the
series of Convertible Common Stock the holders of which do not
constitute a quorum for such election at such meeting, and the
absence of a quorum of holders of shares other than the Series B
Common Stock or Series K Common Stock shall not prevent the
election of the directors to be elected by the holders of the
Series B Common Stock or Series K Common Stock, as the case may
be, and (ii) in the absence of a quorum of holders of (x) shares
of the Series B Common Stock or Series K Common Stock, (y) shares
other than the Series B Common Stock or Series K Common Stock, or
(z) shares of all such classes and series, holders of a majority
of the shares, present in person or by proxy, of each class or
series of stock which lack a quorum shall have power to adjourn
the meeting for the election of directors which such class or
series is entitled to elect, from time to time, without notice
(subject to applicable law) other than announcement at the
meeting, until a quorum shall be present.
(iv) Except as provided in paragraph 1(b)(v), any vacancy
in the office of a Convertible Common Stock Director occurring
during the effectiveness of the applicable provisions of
paragraph 1(b)(i) shall be filled solely by the holders of the
series of Convertible Common Stock entitled to vote for such
Convertible Common Stock Director by vote of such holders as
provided in paragraph 1(b)(iii) above at a meeting called for
such purpose or by written consent of such holders given in
accordance with paragraph 1(b)(vi) below.
(v) A Convertible Common Stock Director may be removed
without cause by the vote or by written consent of the holders of
a majority of the outstanding shares of Series B Common Stock or
Series K Common Stock, as the case may be, which elected such
Convertible Common Stock Director. Any vacancy in the office of
a Convertible Common Stock Director shall be filled by the
affirmative vote of the holders of a majority of the outstanding
shares of the applicable series of Convertible Common Stock
entitled to elect the Convertible Common Stock Director so
removed at a meeting, which may be the same meeting at which the
removal of such Convertible Common Stock Director was voted upon,
or by written consent of the holders of such series of
Convertible Common Stock given in accordance with paragraph
1(b)(vi) below. Any director elected to fill a vacancy shall
serve the same remaining term as that of his or her predecessor
and until his or her successor has been chosen and has qualified.
(vi) With respect to actions by the holders of the Series B
Common Stock or the Series K Common Stock upon those matters on
-6-
<PAGE>
which such holders are each entitled to vote separately as a
separate series, such actions 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 shares of Series B Common Stock or
Series K Common Stock, as the case may be, having not less than
the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares of such
series of Series B Common Stock or Series K Common Stock entitled
to vote thereon were present and voted, and shall be delivered to
the Corporation as provided in the DGCL. Notice shall be given in
accordance with the applicable provisions of the DGCL of the
taking of corporate action without a meeting by less than
unanimous written consent.
(vii) The right of the holders of the Convertible Common
Stock to elect the Convertible Common Stock Directors shall be in
addition to their right to vote, together as a single class, with
the holders of the Series A Common Stock and/or any series of
Preferred Stock so entitled to vote, in the election of all other
members of the Board of Directors (other than any directors to be
elected solely by the holders of Preferred Stock as provided in
paragraph 7 of Section C of this Article IV or by any series of
Series Preferred Stock).
2. Conversion Rights.
-----------------
Each share of Series B Common Stock shall be convertible at any
time, at the option of the holder thereof, into one share of Series A Common
Stock. Each share of Series K Common Stock shall be convertible at any time, at
the option of the holder thereof, into one share of Series A Common Stock. Any
such conversion may be effected by any holder of any series of Convertible
Common Stock by surrendering such holder's certificate or certificates for the
series of Convertible Common Stock to be converted, duly endorsed, at the office
of the Corporation or any transfer agent for the Convertible Common Stock,
together with a written notice to the Corporation at such office that such
holder elects to convert all or a specified number of shares of such series of
Convertible Common Stock represented by such certificate and stating the name or
names in which such holder desires the certificate or certificates for Series A
Common Stock to be issued. If so required by the Corporation, any certificate
for shares surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed by the holder
of such shares or the duly authorized representative of such holder. Promptly
thereafter, the Corporation shall issue and deliver to such holder or such
holder's nominee or nominees, a certificate or certificates for the number of
shares of Series A Common Stock to which such holder shall be entitled as herein
provided (provided that the Corporation will use commercially reasonable efforts
to make such delivery within two Business Days after receipt of the certificate
or certificates, notice, and if required, instruments of transfer referred to
above). Such conversion shall be deemed to have been made at the close of
business on the date of receipt by the Corporation or any such transfer agent of
the certificate or certificates, notice and, if required, instruments of
transfer referred to above, and the Person or Persons entitled to receive the
Series A Common Stock issuable on such conversion shall be treated for all
purposes as the record holder or holders of such Series A Common Stock
-7-
<PAGE>
on that date; provided, however, that the conversion may, at the option of any
-------- -------
holder surrendering Convertible Common Stock for conversion, be conditioned upon
the IPO or upon notice by such holder to the Corporation of the occurrence of
any other specified event. A number of shares of Series A Common Stock equal to
the number of shares of Series B Common Stock and Series K Common Stock,
respectively, outstanding from time to time shall be set aside and reserved for
issuance upon conversion of shares of Series B Common Stock and of Series K
Common Stock, respectively. Shares of Series B Common Stock and Series K Common
Stock that have been converted hereunder shall be retired and shall not be
reissued. Shares of Series A Common Stock shall not be convertible into shares
of Series B Common Stock or Series K Common Stock.
3. Dividends. Subject to paragraph 4 of this Section B, whenever a
---------
dividend is paid to the holders of one series of Common Stock, the Corporation
also shall pay to the holders of all other series of Common Stock a dividend per
share equal to the dividend per share paid to the holders of such first series
of Common Stock. Dividends shall be payable only if, as and when declared by
the Board of Directors out of the assets of the Corporation legally available
therefor.
4. Share Distributions. If at any time a distribution paid in
-------------------
Series A Common Stock, Series B Common Stock, Series K Common Stock or any other
securities of the Corporation or any other Person (hereinafter sometimes called
a "SHARE DISTRIBUTION") is to be made with respect to the Series A Common Stock,
Series B Common Stock or Series K Common Stock, such share distribution may be
declared and paid only as follows:
(a) a share distribution consisting of shares of Series A Common
Stock (or any securities of the Corporation that are convertible into, or
exercisable or exchangeable for, or evidence the right to purchase shares of
Series A Common Stock) to holders of Series A Common Stock, Series B Common
Stock and Series K Common Stock, on an equal per share basis; or consisting of
shares of Series A Common Stock (or securities of the Corporation that are
convertible into, or exercisable or exchangeable for, or evidence the right to
purchase shares of Series A Common Stock) to holders of Series A Common Stock
and, on an equal per share basis, shares of Series B Common Stock (or securities
of the Corporation that are convertible into, or exercisable or exchangeable
for, or evidence the right to purchase shares of Series B Common Stock) to
holders of Series B Common Stock and, on an equal per share basis, shares of
Series K Common Stock (or securities of the Corporation that are convertible
into, or exercisable or exchangeable for, or evidence the right to purchase
shares of Series K Common Stock) to holders of Series K Common Stock; and
(b) a share distribution consisting of any class or series of
securities of the Corporation or any other Person other than as described in
paragraph 4(a) above, on the basis of a distribution of identical securities, on
an equal per share basis, to holders of Series A Common Stock, Series B Common
Stock and Series K Common Stock or on the basis of a distribution of different
classes or series of securities to holders of Series A Common Stock, Series B
Common Stock and Series K Common Stock, provided that (i) the securities so
distributed (and, if applicable, the securities into which the distributed
securities are convertible, or for which they are exercisable or exchangeable,
or which the distributed securities evidence the right to purchase) do not
differ in any respect other than their relative voting rights and
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<PAGE>
related differences in designation, conversion and share distribution
provisions, (ii) such rights and provisions shall not differ to a greater extent
than the corresponding differences in voting rights, designation, conversion and
share distribution provisions among the Series A Common Stock, the Series B
Common Stock and the Series K Common Stock and (iii) in each case such
distribution is otherwise made on an equal per share basis.
The Corporation shall not reclassify, subdivide or combine any
series of Convertible Common Stock without reclassifying, subdividing or
combining all other series of Convertible Common Stock, on an equal per share
basis.
5. Liquidation and Dissolution. In the event of a liquidation,
---------------------------
dissolution or winding up of the Corporation, whether voluntary or involuntary,
after payment or provision for payment of the debts and liabilities of the
Corporation and subject to the prior payment in full of the preferential amounts
to which any series of Preferred Stock (including the Convertible Preferred
Stock) is entitled, the holders of Series A Common Stock, the holders of Series
B Common Stock, the holders of Series K Common Stock and the holders of any
class or series of Preferred Stock entitled to participate in such distribution
shall share equally, on a share for share basis (on an as converted into Common
Stock basis with respect to any shares of Preferred Stock which are convertible
into Common Stock, unless the designations, preferences, rights and
qualifications, limitations or restrictions of such Preferred Stock provide
otherwise), in the assets of the Corporation remaining for distribution to
holders of Common Stock. Neither the consolidation or merger of the Corporation
with or into any other Person or Persons nor the sale, transfer or lease of all
or substantially all of the assets of the Corporation shall itself be deemed to
be a liquidation, dissolution or winding up of the Corporation within the
meaning of this paragraph 5.
6. Limitation on Issuance of Series B Common Stock and of Series K
---------------------------------------------------------------
Common Stock. No shares of Series B Common Stock shall be issued except
- ------------
pursuant to paragraph 4 of this Section B, upon conversion of shares of Series T
Preferred Stock or shares of any series of Series Preferred Stock which have
been authorized in accordance with this Certificate, having the right to convert
into shares of Series B Common Stock. No shares of Series K Common Stock shall
be issued except pursuant to paragraph 4 of this Section B, upon conversion of
shares of Series K Preferred Stock or shares of any series of Series Preferred
Stock, which have been authorized in accordance with this Certificate, having
the right to convert into shares of Series K Common Stock.
SECTION C
SERIES AM, SERIES AT, SERIES AX,
SERIES K AND SERIES T PREFERRED STOCK
The Convertible Preferred Stock shall have the following preferences,
limitations and relative rights:
1. Certain Definitions. Unless the context otherwise requires, the
-------------------
terms defined in this paragraph 1 shall have, for all purposes of this
Certificate, the meanings herein specified:
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<PAGE>
"@HOME REPURCHASE RIGHT" has the meaning given to such term in the
Master Distribution Agreement.
"CABLE PARENT" shall mean, as applicable, each of (i) TCI Internet
Services, Inc., a Colorado corporation ("TCI SERVICES"), TCI Communications,
Inc., a Delaware corporation, and TCI Cable Investments Inc., a Delaware
corporation (TCI Communications, Inc., TCI Cable Investments, Inc. and TCI
Services collectively being a single Cable Parent), (ii) Comcast On-Line
Communications, Inc., a Delaware corporation, and Comcast Cable Communications,
Inc., a Delaware corporation (collectively being a single Cable Parent) and
(iii) Cox Communications, Inc., a Delaware corporation.
"COMMON STOCK" shall mean any series of Common Stock of the
Corporation.
"COMCAST" shall mean Comcast Corporation, a Pennsylvania corporation.
"COMCAST STOCKHOLDER GROUP" has the meaning given to such term in the
Stockholders' Agreement.
"COMCAST SUB" shall mean Comcast PC Investments, Inc., a Delaware
corporation, and any Controlled Affiliate of Comcast to which Company Securities
are transferred in accordance with the terms of the Stockholders' Agreement.
"COMPANY SECURITIES" has the meaning given to such term in the
Stockholders' Agreement.
"CONTROL" shall mean the direct or indirect power to direct the
management and policies of any Person, whether through the ownership of voting
securities, by contract, management agreement or otherwise.
"CONTROLLED AFFILIATE" shall mean, as to any Person, any other Person
which is Controlled by such Person; provided, however, that the Corporation
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shall not be deemed to be a Controlled Affiliate of any Parent or such Parent's
Controlled Affiliates.
"CONVERTIBLE SECURITIES" shall mean securities, other than shares of
Series B Common Stock or Series K Common Stock, that are convertible into, or
exercisable or exchangeable for, or evidence the right to purchase, shares of
Series A Common Stock, Series B Common Stock or Series K Common Stock.
"COX SUB" shall mean Cox Teleport Providence, Inc. a Delaware
corporation, and any Controlled Affiliate of Cox Communications, Inc. to which
Company Securities are transferred in accordance with the terms of the
Stockholders' Agreement.
"DIVIDEND PAYMENT DATE" shall mean the first day of January, April,
July and October in each year commencing on the first Dividend Payment Date
after the Filing Date, or if any such day is not a Business Day, then on the
next succeeding Business Day, as and if designated by the Board of Directors.
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<PAGE>
"DIVIDEND PERIOD" shall mean any three-month period from and including
any Dividend Payment Date to (but not including) the next successive Dividend
Payment Date; provided, however, that the first Dividend Period shall be the
-------- -------
period (even if less than three months) from and including the Filing Date to
(but not including) the first Dividend Payment Date.
"FILING DATE" shall mean the date on which this Certificate is filed
with the Secretary of State of the State of Delaware.
"ISSUE PRICE" of a share of Convertible Preferred Stock shall
initially be $10.00, and shall be appropriately adjusted to take into account
any stock splits, reverse splits and the like occurring after the Filing Date.
"JUNIOR STOCK" shall mean, as the context requires, (i) the Common
Stock, (ii) any other class or series of capital stock, whether now existing or
hereafter created, of the Corporation, other than (A) the Convertible Preferred
Stock, (B) any class or series of Parity Stock (except to the extent provided
under clause (iii) hereof) and (C) any Senior Stock, and (iii) any class or
series of Parity Stock to the extent that it ranks junior to the Convertible
Preferred Stock as to dividend rights, rights of redemption and/or rights on
liquidation, as the case may be. For purposes of clause (iii) above, a class or
series of Parity Stock shall rank junior to the Convertible Preferred Stock as
to dividend rights, rights of redemption and/or rights on liquidation if the
holders of shares of Convertible Preferred Stock shall be entitled to dividend
payments, payments on redemption or payments of amounts distributable upon
dissolution, liquidation or winding up of the Corporation, as the case may be,
in preference or priority to the holders of shares of such class or series.
"KPCB AFFILIATES" shall mean collectively, Kleiner, Perkins, Caufield
& Byers VII and KPCB Information Sciences Zaibatsu Fund II, each a California
partnership, and James Clark.
"LIQUIDATION PRICE" measured per share of the Convertible Preferred
Stock as of the date in question (the "DETERMINATION DATE"), shall mean an
amount equal to the sum of (a) $10.00, as appropriately adjusted to take into
account any stock splits, reverse splits and the like occurring after the Filing
Date, plus (b) an amount equal to all dividends which have theretofore been
declared but which are unpaid as of the Determination Date on such share of
Convertible Preferred Stock. In the event that the Special Directors and the
Special K Director determine by a Supermajority Vote not to require the
Mandatory Conversion (as defined below) upon the IPO, then upon the IPO the
amount in clause (a) of this definition shall be deemed to be $.01 (as
appropriately adjusted to take into account any stock splits, reverse splits and
the like occurring after the Filing Date), unless the Special Directors and the
Special K Director have determined by a Supermajority Vote not to so reduce the
Liquidation Price. In connection with the determination of the Liquidation Price
of a share of Convertible Preferred Stock upon any liquidation, dissolution or
winding up of the Corporation, the Determination Date shall be the record date
for the distribution of amounts payable to stockholders in connection with any
such liquidation, dissolution or winding up.
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<PAGE>
"MASTER DISTRIBUTION AGREEMENT" shall mean the provisions of Article
VII of the Term Sheet, including any other provisions or definitions in other
sections of the Term Sheet which are referenced in Article VII; provided that if
the matters set forth in Article VII of the Term Sheet are superseded by a
definitive agreement which is executed by the applicable parties to the Term
Sheet, such definitive agreement will constitute the Master Distribution
Agreement for all purposes hereunder.
"PARENT" has the meaning given to such term in the Stockholders'
Agreement.
"PARITY STOCK" shall mean, as the context requires, any class or
series of capital stock, whether now existing or hereafter created, of the
Corporation ranking on a parity basis with the Convertible Preferred Stock as to
dividend rights, rights of redemption and/or rights on liquidation, as the case
may be. Capital stock of any class or series shall rank on a parity as to
dividend rights, rights of redemption or rights on liquidation with the
Convertible Preferred Stock, whether or not the dividend rates, dividend payment
dates, redemption or liquidation prices per share or sinking fund or mandatory
redemption provisions, if any, are different from those of the Convertible
Preferred Stock, if the holders of shares of such class or series shall be
entitled to dividend payments, payments on redemption or payments of amounts
distributable upon dissolution, liquidation or winding up of the Corporation, as
the case may be, in proportion to their respective accrued and unpaid dividends,
redemption prices or liquidation prices, respectively, without preference or
priority, one over the other, as between the holders of shares of such class or
series and the holders of Convertible Preferred Stock. No class or series of
capital stock that ranks junior to the Convertible Preferred Stock as to rights
on liquidation shall rank or be deemed to rank on a parity basis with the
Convertible Preferred Stock as to dividend rights or rights of redemption,
unless the instrument creating or evidencing such class or series of capital
stock otherwise expressly provides. The Series AM Preferred Stock, the Series AT
Preferred Stock, the Series AX Preferred Stock, the Series K Preferred Stock and
the Series T Preferred Stock shall each be deemed to be Parity Stock as to each
of the other such series.
"PUBLIC COMPANY" shall mean the Corporation shall be deemed to be a
"Public Company" at such time as the Series A Common Stock is (i) registered
under Section 12(b) or 12(g), or such entity is required to file reports
pursuant to Section 15(d), of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT") (or any successor or comparable provisions of the federal
securities laws), and (ii) actively traded.
"RECORD DATE" for the dividends payable on any Dividend Payment Date
shall mean the fifteenth day of the month preceding the month during which such
Dividend Payment Date shall occur, or if any such day is not a Business Day,
then on the next succeeding Business Day, as and if designated by the Board of
Directors.
"SENIOR STOCK" shall mean, as the context requires, any class or
series of capital stock, whether now existing or hereafter created, of the
Corporation ranking prior to the Convertible Preferred Stock as to dividend
rights, rights of redemption and/or rights on liquidation, as the case may be.
Capital stock of any class or series shall rank prior to the Convertible
Preferred Stock as to dividend rights, rights of redemption or rights on
liquidation if the holders of shares of such class or series shall be entitled
to dividend payments, payments on redemption or payments of amounts
distributable upon dissolution, liquidation or winding up of
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<PAGE>
the Corporation, as the case may be, in preference or priority to the holders of
shares of Convertible Preferred Stock. No class or series of capital stock that
ranks on a parity basis with or junior to the Convertible Preferred Stock as to
rights on liquidation shall rank or be deemed to rank prior to the Convertible
Preferred Stock as to dividend rights or rights of redemption, notwithstanding
that the dividend rate, dividend payment dates, sinking fund provisions, if any,
or redemption provisions thereof are different from those of the Convertible
Preferred Stock, unless the instrument creating or evidencing such class or
series of capital stock otherwise expressly provides. Notwithstanding the
foregoing, any class or series of capital stock which requires the Corporation
to cumulate or accrue dividends on such shares, or to pay such dividends in
shares of capital stock in the event such dividends are not declared and paid
during any dividend period applicable to such class or series, or to add any
such unpaid dividends to the liquidation or redemption price of any such class
or series of capital stock, shall constitute Senior Stock.
"SPECIAL DIRECTORS" shall mean (i) the Selected Preferred Stock
Directors prior to the Mandatory Conversion and (ii) following the Mandatory
Conversion, the Series B Common Stock Directors.
"SPECIAL K DIRECTOR" shall mean (i) the Series K Preferred Stock
Director prior to the Mandatory Conversion and (ii) following the Mandatory
Conversion, the Series K Common Stock Director.
"SPECIAL VOTING STOCK" shall mean any class or series of capital stock
of the Corporation established or authorized after the Filing Date (including
pursuant to the authority granted herein to the Board to establish the
designations, preferences, rights and qualifications, limitations and
restrictions of any series of Series Preferred Stock pursuant to Board Action)
having voting rights deemed senior to those of the holders of Series A Preferred
Stock or Series K Preferred Stock. A class or series of capital stock shall be
deemed to have senior voting rights and to be Special Voting Stock if holders of
such security (x) are entitled to more than one vote per share (determined on an
as-converted into Common Stock basis) when voting with the holders of Common
Stock or (y) are entitled to vote as a separate class or series upon any matter
submitted to a vote of all of the stockholders of the Corporation other than (i)
as required by Section 242(b) of the DGCL, (ii) with respect to the creation or
issuance of a class or series of capital stock which is to rank senior to such
capital stock as to liquidation rights or rights relating to dividends,
distributions, repurchases and redemptions, (iii) with respect to amendments to
the terms and provisions of such securities, or (iv) such additional matters as
would be customary or appropriate in the context of the issuance of such class
or series of capital stock in a financing transaction with a third party (as
opposed to a strategic transaction) in light of the circumstances under which
such financing transaction is being consummated.
"STOCKHOLDERS' AGREEMENT" shall mean that certain Amended and Restated
Stockholders' Agreement, dated as of August 1, 1996, by and among the
Corporation, TCI Sub, Comcast Sub, Cox Sub and the KPCB Affiliates and certain
Affiliates of such Persons, as such agreement may be amended from time to time.
"SUBJECT SHARES" has the meaning given to such term in the Master
Distribution Agreement.
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<PAGE>
"SUBSIDIARY" of any Person shall mean (i) a corporation a majority of
the capital stock of which, having voting power under ordinary circumstances to
elect directors, is at the time, directly or indirectly, owned by such Person
and/or one or more Subsidiaries of such Person and (ii) any other Person (other
than a corporation) in which such Person and/or one or more Subsidiaries of such
Person, directly or indirectly, has (x) a majority ownership interest or (y) the
power to elect or direct the election of a majority of the members of the
governing body of such first-named Person.
"SUPERMAJORITY VOTE" has the meaning given to such term in Section
B(4)(a) of Article V of this Certificate.
"TCI" shall mean Tele-Communications, Inc., a Delaware corporation, or
any related Spin Off Parent (as defined in the Stockholders' Agreement).
"TCI SUB" shall mean TCI Internet Holdings, Inc., a Colorado
corporation, and any Controlled Affiliate of TCI, to which Company Securities
are transferred in accordance with the terms of the Stockholders' Agreement.
"TERM SHEET" shall mean the Term Sheet, dated June 4, 1996, as amended
by the Stockholders' Agreement as of August 1, 1996, among the Corporation,
Comcast Sub, Cox Sub, and certain of their respective affiliates, as the same
may be amended from time to time.
"UNANIMOUS VOTE" has the meaning given to such term in Section B(4)(b)
of Article V of this Certificate.
2. Dividends.
---------
(a) Dividend Rights; Dividend Payment Dates. Subject to the
---------------------------------------
prior preferences and other rights of any Senior Stock and the provisions of
this Article IV, the holders of Convertible Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, in its discretion,
but prior and in preference to any declaration or payment of dividends on any
Junior Stock, out of unrestricted funds legally available therefor, quarterly
cash dividends per share at the rate of 10.0% per annum of the Issue Price (the
"CONVERTIBLE PREFERRED DIVIDEND"). The Convertible Preferred Dividend shall be
noncumulative; that is, the Convertible Preferred Dividend shall be paid only
when, as and if declared by the Board of Directors, it being intended that a
Convertible Preferred Dividend not declared in any quarter will not be carried
over to a future quarter.
(b) Dividends on Junior Stock. In addition, following the
-------------------------
payment of the Convertible Preferred Dividend for any period, in the event that
the Board of Directors proposes, subject to the provisions of this paragraph, to
declare or pay a dividend on any Junior Stock in cash or consisting of assets,
property or securities other than Common Stock, then the holders of Convertible
Preferred Stock shall be entitled to receive, when and as declared by the Board
of Directors, an additional dividend amount (the "PARTICIPATING DIVIDEND")
determined as follows: (i) in the event that a dividend is declared with respect
to Junior Stock (other than Common Stock (or any other security that is
convertible into, or exercisable or exchangeable for,
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<PAGE>
Common Stock)), the Participating Dividend payable to the holders of the
Convertible Preferred Stock shall equal an amount per share equal to the
dividend to be paid on each share or other unit of Junior Stock multiplied by a
fraction, the numerator of which is the Liquidation Price of a share of
Convertible Preferred Stock and the denominator of which is the lowest of (x)
the liquidation price (if applicable), (y) the redemption price (if applicable)
and (z) the price at which such share or unit was originally purchased (as
adjusted for stock splits, stock dividends and the like occurring after the
Filing Date), of a share or other unit of such Junior Stock; or (ii) in the
event that a dividend is declared with respect to Junior Stock which is Common
Stock or such Junior Stock is convertible into, or exercisable or exchangeable
for, Common Stock, then the amount of the Participating Dividend per share of
Convertible Preferred Stock shall be (x) (1) the amount of the dividend to be
paid on a single share of Common Stock, or (2) if such Junior Stock is
convertible into, or exercisable or exchangeable for, Common Stock, such amount
as would be payable on each share of Common Stock into which such Junior Stock
is convertible into or exercisable or exchangeable for, multiplied by (y) the
number of shares of Common Stock into which a share of Convertible Preferred
Stock may then be converted. Dividends payable on the Convertible Preferred
Stock shall be calculated on the basis of a 360-day year of twelve 30-day
months. Dividends on the Convertible Preferred Stock will be payable, as
provided in paragraph 2(e) below, to the holders of record of the Convertible
Preferred Stock as of the close of business on the Record Date for such dividend
payment.
(c) Dividends on Parity Stock. So long as any shares of Convertible
-------------------------
Preferred Stock are outstanding and dividends on such shares of Convertible
Preferred Stock have not been (or are not contemporaneously) declared and paid
in full for the two immediately preceding Dividend Periods, no dividends shall
be declared or paid or set apart for payment by the Corporation upon any Parity
Stock; provided, however, that a dividend may be declared and paid (regardless
-------- -------
of whether such dividends have been paid for any preceding Dividend Period) pro
rata with respect to all Convertible Preferred Stock and Parity Stock then
outstanding such that the amounts of any dividends declared per share on the
Convertible Preferred Stock and such Parity Stock shall in all cases bear to
each other the same ratio that the Convertible Preferred Dividend (assuming such
dividend had been declared by the Board) and, if applicable, any Participating
Dividend (collectively, the "CONVERTIBLE FULL DIVIDEND") per share of
Convertible Preferred Stock for the then-current Dividend Period and dividends
on shares of such other Parity Stock for the then-current Dividend Period
(excluding any accumulated or accrued dividends on such Parity Stock) bear to
each other.
(d) Other Limitations on Dividends and Repurchases. If the
-----------------------------------------------
Convertible Full Dividend has not been declared and paid or set apart for
payment for the Dividend Payment Date falling in the then-current Dividend
Period, then, with respect to such then-current Dividend Period, (i) the
Corporation shall not declare or pay any dividend on, or make any distribution
with respect to, any Junior Stock or set aside any money or assets for such
purpose and (ii) the Corporation shall not repurchase, redeem or otherwise
acquire for value any shares of its Junior Stock, any equity securities of any
Subsidiary of the Corporation or any options, warrants or other rights to
acquire such securities; provided, however, that the Corporation may at any
-------- -------
time, out of funds legally available therefor, repurchase (x) from employees,
directors or consultants of the Corporation or any Subsidiary thereof, shares of
equity securities of the Corporation, equity securities of any Subsidiary of the
Corporation or options, warrants or other rights to acquire such securities
issued to such employees, directors or
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<PAGE>
consultants provided that such repurchase is pursuant to repurchase or
redemption rights contained in the instrument pursuant to which such securities
were originally issued and (y) from the Comcast Stockholder Group any Subject
Shares upon the Corporation's exercise of the @Home Repurchase Right pursuant to
the Master Distribution Agreement (the right or obligation of the Corporation to
so repurchase or redeem such securities pursuant to the foregoing clauses (x)
and (y), is hereinafter referred to as a "PERMITTED REPURCHASE").
(e) Special Record Date. Dividends may be declared and paid at any
-------------------
time (subject to the rights of any Senior Stock and, if applicable, to the
concurrent satisfaction of any dividend arrearages then existing with regard to
any Parity Stock which ranks on a parity basis with the Convertible Preferred
Stock as to the payment of dividends) without reference to the regular Dividend
Payment Date, to holders of record as of the close of business on such date, not
more than 45 days nor less than 10 days preceding the payment date thereof, as
may be fixed by the Board of Directors (the "SPECIAL RECORD DATE"). Notice of
each Special Record Date shall be given, not more than 45 days nor less than 10
days prior thereto, to the holders of record of the shares of Convertible
Preferred Stock.
(f) Pro Rata Payment. All dividends paid with respect to the shares
----------------
of Convertible Preferred Stock pursuant to this paragraph 2 shall be paid pro
rata to all the holders of shares of Convertible Preferred Stock outstanding on
the applicable Record Date or Special Record Date, as the case may be.
(g) Termination of Convertible Preferred Dividend Right. In the event
---------------------------------------------------
that the Special Directors and the Special K Director determine by a
Supermajority Vote not to require the Mandatory Conversion upon the IPO, then
upon the IPO, unless the Special Directors and the Special K Director have also
determined by a Supermajority Vote not to terminate the Convertible Preferred
Dividend right, the provisions of paragraph 2(a), (b), (c) and (d) shall
terminate and the holders of Convertible Preferred Stock shall be entitled to
receive dividends if, as and when the Board shall declare dividends on the
Common Stock other than dividends payable in Common Stock pursuant to which such
Convertible Preferred Stock is entitled to an adjustment pursuant to paragraph
6(c) below. The amount of such dividend per share of Convertible Preferred Stock
shall be the amount of the dividend to be paid on a single share of Common Stock
multiplied by the number of shares of Common Stock into which a share of
Convertible Preferred Stock may then be converted.
3. Distributions Upon Liquidation, Dissolution or Winding Up.
---------------------------------------------------------
(a) Liquidation Preference Prior to IPO. Prior to the IPO and subject
-----------------------------------
to the prior payment in full of the preferential amounts to which any Senior
Stock is entitled, in the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of Convertible
Preferred Stock shall be entitled to receive from the assets of the Corporation
available for distribution to stockholders, before any payment or distribution
shall be made to the holders of any Junior Stock, an amount in cash (and, to the
extent sufficient cash is not available for such payment, property at its fair
market value) per share, equal to the Liquidation Price of such share of
Convertible Preferred Stock as of the date of payment or distribution, which
payment or distribution shall be made pari passu with any such payment or
---- -----
distribution made to the holders of any Parity Stock ranking on a parity basis
with the
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<PAGE>
Convertible Preferred Stock with respect to distributions upon liquidation,
dissolution or winding up of the Corporation. Except as provided in paragraph
3(b) below, the holders of Convertible Preferred Stock shall be entitled to no
other or further distribution of or participation in any remaining assets of the
Corporation after receiving the Liquidation Price per share. If, upon
distribution of the Corporation's assets in liquidation, dissolution or winding
up, the assets of the Corporation to be distributed among the holders of the
Convertible Preferred Stock and to all holders of any Parity Stock ranking on a
parity basis with the Convertible Preferred Stock with respect to distributions
upon liquidation, dissolution or winding up shall be insufficient to permit
payment in full to such holders of the respective preferential amounts to which
they are entitled, then the entire assets of the Corporation to be distributed
to holders of the Convertible Preferred Stock and such Parity Stock shall be
distributed pro rata to such holders based upon the aggregate of the full
preferential amounts to which the shares of Convertible Preferred Stock and such
Parity Stock would otherwise respectively be entitled. Neither the consolidation
or merger of the Corporation with or into any other corporation or corporations
nor the sale, transfer or lease of all or substantially all of the assets of the
Corporation shall itself be deemed to be a liquidation, dissolution or winding
up of the Corporation within the meaning of this paragraph 3. Notice of the
liquidation, dissolution or winding up of the Corporation shall be given, not
less than 20 days prior to the date on which such liquidation, dissolution or
winding up is expected to take place or become effective, to the holders of
record of the shares of Convertible Preferred Stock, during which 20 day period
such holders shall continue to be entitled to exercise their conversion rights
as set forth in paragraph 6 of this Section C.
(b) Liquidation Preference After IPO. In the event that the Special
--------------------------------
Directors and the Special K Director determine by a Supermajority Vote not to
require the Mandatory Conversion upon the IPO, then upon the IPO, unless the
Special Directors and the Special K Director have also determined by a
Supermajority Vote not to change the Liquidation Price of the Convertible
Preferred Stock as described in paragraph 1 of this Section C, subject to prior
payment in full of the Liquidation Price (as changed as described in paragraph 1
of this Section C) on each outstanding share of Convertible Preferred Stock and
if there are any assets of the Corporation available for distribution to
stockholders, such remaining assets shall be distributed among the holders of
the then outstanding Common Stock and Convertible Preferred Stock pro rata
according to the number of shares of Common Stock held by each holder thereof
(where, for this purpose, holders of shares of Convertible Preferred Stock will
be deemed to hold the greatest whole number of shares of Common Stock then
issuable upon conversion in full of such shares of Convertible Preferred Stock).
4. Limitations on Dividends and Redemptions. So long as any shares
----------------------------------------
of Convertible Preferred Stock are outstanding, the Corporation shall not,
absent the requisite Board Action and the approval of the holders of the
Convertible Preferred Stock, as required pursuant to paragraph 7(c) of this
Section C, (a) declare or pay any dividend, or make any distribution, on, or (b)
repurchase, redeem or otherwise acquire for value any shares of, any Junior
Stock, any equity securities of any Subsidiary of the Corporation or any
options, warrants or other rights to acquire such securities other than (i) the
payment of dividends on any Junior Stock solely in shares of Junior Stock or the
redemption, purchase or other acquisition of Junior Stock solely in exchange for
(together with a cash adjustment for fractional shares, if any) shares of Junior
Stock; or (ii) a repurchase or redemption of equity securities of the
Corporation, any equity securities of any
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<PAGE>
Subsidiary of the Corporation, or any options, warrants or other rights to
acquire any such securities which is a Permitted Repurchase.
5. Status of Reacquired Convertible Preferred Stock. In the event
------------------------------------------------
that the Corporation repurchases or otherwise reacquires shares of Convertible
Preferred Stock, such shares shall be retired and shall not be reissued.
6. Conversion.
----------
(a) Optional and Mandatory Conversion. Each outstanding share of
----------------------------------
Series AM Preferred Stock shall be convertible at the option of the holder at
any time into fully paid and non-assessable full shares of Series A Common Stock
at the then effective Conversion Rate (as defined below) for such shares. Each
outstanding share of Series AT Preferred Stock shall be convertible at the
option of the holder at any time into fully paid and non-assessable full shares
of Series A Common Stock at the then effective Conversion Rate for such shares.
Each outstanding share of Series AX Preferred Stock shall be convertible at the
option of the holder at any time into fully paid and non-assessable full shares
of Series A Common Stock at the then effective Conversion Rate for such shares.
Each outstanding share of Series K Preferred Stock shall be convertible at the
option of the holder at any time into fully paid and non-assessable full shares
of Series K Common Stock at the then effective Conversion Rate for such shares.
Each outstanding share of Series T Preferred Stock shall be convertible at the
option of the holder at any time into fully paid and non-assessable full shares
of Series B Common Stock at the then effective Conversion Rate for such shares.
In addition, unless the Special Directors and the Special K Director determine
by a Supermajority Vote not to require conversion of all outstanding shares of
Convertible Preferred Stock upon the IPO, then, subject to the receipt of any
required regulatory consents or approvals or the filing of any required notices
with any governmental entities and the expiration of any waiting period related
thereto, the holders of all shares of Convertible Preferred Stock shall be
deemed to have converted such shares into shares of Series A Common Stock,
Series B Common Stock or Series K Common Stock (whichever series of Common Stock
such shares of Convertible Preferred Stock are initially convertible into)
immediately prior to the IPO (or at such earlier or later time as is determined
by a Unanimous Vote) (such conversion upon the IPO or such earlier or later time
is referred to herein as the "MANDATORY CONVERSION"). All such conversions of
Convertible Preferred Stock shall be effected in such manner and upon such terms
and conditions as hereinafter provided in this paragraph 6. In case cash,
securities or property other than Series A Common Stock, Series B Common Stock
or Series K Common Stock, as applicable, shall be payable, deliverable or
issuable upon conversion as provided herein, then all references to Series A
Common Stock, Series B Common Stock or Series K Common Stock in this paragraph 6
shall be deemed to apply, so far as appropriate and as nearly as may be, to such
cash, property or other securities. Notwithstanding anything to the contrary in
this Article IV, subject to the provisions for adjustment hereinafter set forth
in this paragraph 6, any provisions in this Article that refer to a conversion
of the Convertible Preferred Stock shall mean, (i) in the case of the Series T
Preferred Stock, the conversion of the Series T Preferred Stock into the Series
B Common Stock, (ii) in the case of the Series K Preferred Stock, the conversion
of the Series K Preferred Stock into the Series K Common Stock, and (iii) in the
case of the Series A Preferred Stock, the conversion of the Series A Preferred
Stock into the Series A Common Stock.
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<PAGE>
(b) Initial Conversion Rates. Subject to the provisions for
-------------------------
adjustment hereinafter set forth in this paragraph 6, (i) each series of the
Series A Preferred Stock may be converted into Series A Common Stock at the
initial conversion rate of twenty fully paid and non-assessable shares of Series
A Common Stock for each share of Series A Preferred Stock so converted; (ii) the
Series K Preferred Stock may be converted into Series K Common Stock at the
initial conversion rate of twenty fully paid and non-assessable shares of Series
K Common Stock for each share of Series K Preferred Stock so converted; and
(iii) the Series T Preferred Stock may be converted into Series B Common Stock
at the initial conversion rate of twenty fully paid and non-assessable shares of
Series B Common Stock for each share of Series T Preferred Stock so converted.
(This conversion rate as from time to time adjusted cumulatively pursuant to the
provisions of this paragraph is hereinafter referred to as the "CONVERSION
RATE").
(c) Adjustments for Stock Splits, Stock Dividends, Etc. In case after
---------------------------------------------------
the Filing Date the Corporation shall (i) pay a dividend or make a distribution
on its outstanding shares of Series A Common Stock, Series B Common Stock or
Series K Common Stock in shares of its Common Stock, (ii) subdivide the then
outstanding shares of Series A Common Stock, Series B Common Stock or Series K
Common Stock into a greater number of shares of Series A Common Stock, Series B
Common Stock or Series K Common Stock, (iii) combine the then outstanding shares
of Series A Common Stock, Series B Common Stock or Series K Common Stock into a
smaller number of shares of Series A Common Stock, Series B Common Stock or
Series K Common Stock, or (iv) issue by reclassification of its shares of Series
A Common Stock, Series B Common Stock or Series K Common Stock any shares of any
other class of capital stock of the Corporation (including any such
reclassification in connection with a merger in which the Corporation is the
continuing corporation), then the Conversion Rate in effect immediately prior to
the opening of business on the record date for such dividend or distribution or
the effective date of such subdivision, combination or reclassification shall be
adjusted so that the holder of each share of the Convertible Preferred Stock
thereafter surrendered for conversion shall be entitled to receive the number
and kind of shares of capital stock of the Corporation that such holder would
have owned or been entitled to receive immediately following such action had
such shares of Convertible Preferred Stock been converted immediately prior to
such time into the series of Common Stock into which such series of Convertible
Preferred Stock is initially convertible. An adjustment made pursuant to this
paragraph 6(c) for a dividend or distribution shall become effective immediately
after the record date for the dividend or distribution and an adjustment made
pursuant to this paragraph 6(c) for a subdivision, combination or
reclassification shall become effective immediately after the effective date of
the subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any action listed above shall be taken. For purposes of
this paragraph 6(c), in the event the Corporation takes any of the actions
described in clauses (i) through (iv) above with respect to the Series A Common
Stock at a time when no shares of Series B Common Stock or Series K Common Stock
are issued and are outstanding such that a corresponding dividend, subdivision,
combination or reclassification with respect to the Series B Common Stock or
Series K Common Stock is not required in accordance with paragraph 4 of Section
B of this Certificate, then the Conversion Rate of the Convertible Preferred
Stock shall be adjusted in accordance with the foregoing provisions of this
paragraph 6(c) as if shares of Series B Common Stock and/or Series K Common
Stock were outstanding on the record date for such dividend or distribution or
the effective date for such subdivision, combination or reclassification and the
Corporation otherwise satisfied its obligations under paragraph 4 of Section B
of this Certificate.
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<PAGE>
(d) Adjustments for Reclassification, Merger, Etc. In case of any
----------------------------------------------
reclassification or change in the Series A Common Stock, Series B Common Stock
or Series K Common Stock (other than any reclassification or change referred to
in paragraph 6(c) and other than a change in par value) or in case of any
consolidation of the Corporation with any other corporation or any merger of the
Corporation into another corporation or of another corporation into the
Corporation (other than a merger in which the Corporation is the continuing
corporation and which does not result in any reclassification or change (other
than a change in par value or any reclassification or change to which paragraph
6(c) is applicable) in the outstanding Series A Common Stock, Series B Common
Stock or Series K Common Stock), or in case of any sale or transfer to another
corporation or entity (other than by mortgage or pledge) of all or substantially
all of the properties and assets of the Corporation, in any such case after the
Filing Date, the Corporation (or its successor in such consolidation or merger)
or the purchaser of such properties and assets shall make appropriate provision
so that the holder of a share of the Convertible Preferred Stock shall have the
right thereafter to convert such share into the kind and amount of shares of
stock and other securities and property that such holder would have owned
immediately after such reclassification, change, consolidation, merger, sale or
transfer if such holder had converted such share into Series A Common Stock,
Series B Common Stock or Series K Common Stock, as applicable, immediately prior
to the effective date of such reclassification, change, consolidation, merger,
sale or transfer (assuming for this purpose (to the extent applicable) that such
holder failed to exercise any rights of election and received per share of
Series A Common Stock, Series B Common Stock or Series K Common Stock, as
applicable, the kind and amount of shares of stock and other securities and
property received per share by a plurality of the non-electing shares), and the
holders of the Convertible Preferred Stock shall have no other conversion rights
under these provisions; provided, that effective provision shall be made, in the
Articles or Certificate of Incorporation of the resulting or surviving
corporation or otherwise or in any contracts of sale or transfer, so that the
provisions set forth herein for the protection of the conversion rights of the
Convertible Preferred Stock shall thereafter be made applicable, as nearly as
reasonably may be to any such other shares of stock and other securities and
property deliverable upon conversion of the Convertible Preferred Stock
remaining outstanding or other convertible preferred stock or other Convertible
Securities received by the holders of Convertible Preferred Stock in place
thereof; and provided, further, that any such resulting or surviving corporation
or purchaser shall expressly assume the obligation to deliver, upon the exercise
of the conversion privilege, such shares, securities or property as the holders
of the Convertible Preferred Stock remaining outstanding, or other convertible
preferred stock or other convertible securities received by the holders in place
thereof, shall be entitled to receive pursuant to the provisions hereof, and to
make provisions for the protection of the conversion rights as above provided.
(e) Notice of Adjustments in Conversion Rates. Whenever the
------------------------------------------
Conversion Rate or the conversion privilege shall be adjusted as provided in
paragraphs 6(c) or (d), the Corporation shall promptly cause a notice to be
mailed to the holders of record of the Convertible Preferred Stock describing
the nature of the event requiring such adjustment, the Conversion Rate in effect
immediately thereafter and the kind and amount of stock or other securities or
property into which the Convertible Preferred Stock shall be convertible after
such event. Where appropriate, such notice may be given in advance and included
as a part of a notice required to be mailed under the provisions of paragraph
6(g).
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<PAGE>
(f) Calculation and Timing of Adjustments. The Corporation may, but
--------------------------------------
shall not be required to, make any adjustment of the Conversion Rate if such
adjustment would require an increase or decrease of less than 1% in such
Conversion Rate; provided, however, that any adjustments which by reason of this
paragraph 6(f) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this
paragraph 6 shall be made to the nearest 1/100th of a share. In any case in
which this paragraph 6(f) shall require that an adjustment shall become
effective immediately after a record date for such event, the Corporation may
defer until the occurrence of such event (x) issuing to the holder of any shares
of Convertible Preferred Stock converted after such record date and before the
occurrence of such event the additional shares of Series A Common Stock, Series
B Common Stock or Series K Common Stock or other capital stock issuable upon
such conversion by reason of the adjustment required by such event over and
above the shares of Series A Common Stock, Series B Common Stock or Series K
Common Stock or other capital stock issuable upon such conversion before giving
effect to such adjustment and (y) paying to such holder cash in lieu of any
fractional interest to which such holder is entitled pursuant to paragraph 6(l);
provided, however, that, if requested by such holder, the Corporation shall
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares of Series A Common Stock,
Series B Common Stock or Series K Common Stock or other capital stock, and such
cash, upon the occurrence of the event requiring such adjustment.
(g) Notice of Certain Events. In case at any time:
-------------------------
(i) the Corporation shall take any action which would
require an adjustment in the Conversion Rate pursuant to this
paragraph 6;
(ii) there shall be any capital reorganization or
reclassification of the Common Stock (other than a change in par
value), or any consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of the Corporation is
required, or any sale, transfer or lease of all or substantially all
of the properties and assets of the Corporation, or a tender offer for
shares of Common Stock representing at least a majority of the total
voting power represented by the outstanding shares of Common Stock
which has been recommended by the Board of Directors as being in the
best interests of the holders of Common Stock; or
(iii) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, in any such event, the Corporation shall give written notice to the
holders of the Convertible Preferred Stock at their respective addresses as the
same appear on the books of the Corporation, at least twenty days (or ten days
in the case of a recommended tender offer as specified in clause (ii) above)
prior to any record date for such action, dividend or distribution or the date
as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property, if any, deliverable upon such reorganization, reclassification,
consolidation, merger, sale, transfer, lease, tender offer,
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<PAGE>
dissolution, liquidation or winding up, during which period such holders may
exercise their conversion rights; provided, however, that any notice required by
any event described in clause (ii) of this paragraph 6(g) shall be given in the
manner and at the time that such notice is given to the holders of Common Stock.
Without limiting the obligations of the Corporation to provide notice of
corporate actions hereunder, the failure to give the notice required by this
paragraph 6(g) or any defect therein shall not affect the legality or validity
of any such corporate action of the Corporation or the vote upon such action.
(h) Procedures for Conversion. Before any holder of Convertible
--------------------------
Preferred Stock shall be entitled to convert the same into Series A Common
Stock, Series B Common Stock or Series K Common Stock, as applicable (or, in the
case of the Mandatory Conversion, before any holder of Convertible Preferred
Stock so converted shall be entitled to receive a certificate or certificates
evidencing the shares of Series A Common Stock, Series B Common Stock or Series
K Common Stock, as applicable, issuable upon such conversion), such holder shall
surrender the certificate or certificates for such Convertible Preferred Stock
at the office of the Corporation or at the office of the transfer agent for the
Convertible Preferred Stock, which certificate or certificates, if the
Corporation shall so request, shall be duly endorsed to the Corporation or in
blank or accompanied by proper instruments of transfer to the Corporation or in
blank (such endorsements or instruments of transfer to be in form satisfactory
to the Corporation), and shall give written notice to the Corporation at said
office that such holder elects to convert all or a part of the shares
represented by said certificate or certificates (or, in the case of the
Mandatory Conversion, that such holder is surrendering the same) in accordance
with the terms of this paragraph 6, and shall state in writing therein the name
or names in which such holder wishes the certificates for Series A Common Stock,
Series B Common Stock or Series K Common Stock, as applicable, to be issued.
Every such notice of election to convert shall constitute a contract between the
holder of such Convertible Preferred Stock and the Corporation, whereby the
holder of such Convertible Preferred Stock shall be deemed to subscribe for the
amount of Series A Common Stock, Series B Common Stock or Series K Common Stock,
as applicable, which such holder shall be entitled to receive upon conversion of
the number of shares of Convertible Preferred Stock to be converted, and, in
satisfaction of such subscription, to deposit the shares of Convertible
Preferred Stock to be converted, and thereby the Corporation shall be deemed to
agree that the surrender of the shares of Convertible Preferred Stock to be
converted shall constitute full payment of such subscription for Series A Common
Stock, Series B Common Stock or Series K Common Stock, as applicable, to be
issued upon such conversion. The Corporation will as soon as practicable after
such deposit of a certificate or certificates for Convertible Preferred Stock,
accompanied by the written notice and the statement above prescribed, issue and
deliver at the office of the Corporation or of said transfer agent to the Person
for whose account such Convertible Preferred Stock was so surrendered, or to his
nominee(s) or, subject to compliance with applicable law, transferee(s), a
certificate or certificates for the number of full shares of Series A Common
Stock, Series B Common Stock or Series K Common Stock, as applicable, to which
such holder shall be entitled, together with cash in lieu of any fraction of a
share as hereinafter provided together with an amount in cash equal to the full
amount of any cash dividend declared (or required to be declared) on the
Convertible Preferred Stock which, as of the date of such conversion, remains
unpaid (provided that the Corporation will use commercially reasonable efforts
to make such delivery within two Business Days after such deposit and such
notice and statement). If surrendered certificates for Convertible Preferred
Stock are converted only in part, the Corporation will issue and deliver to
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<PAGE>
the holder, or to his nominee(s), without charge therefor, a new certificate or
certificates representing the aggregate of the unconverted shares. Such
conversion shall be deemed to have been made as of the date of such surrender of
the Convertible Preferred Stock to be converted or immediately prior to the
Mandatory Conversion; and the Person or Persons entitled to receive the Series A
Common Stock, Series B Common Stock or Series K Common Stock, as applicable,
issuable upon conversion of such Convertible Preferred Stock shall be treated
for all purposes as the record holder or holders of such Series A Common Stock,
Series B Common Stock or Series K Common Stock, as applicable, on such date;
provided, however, that the conversion may, at the option of any holder
- -------- -------
surrendering Convertible Preferred Stock for conversion, be conditioned upon the
IPO or upon notice by such holder to the Corporation of the occurrence of any
other specified event, as the case may be.
(i) Transfer Taxes. The issuance of certificates for shares of Series
---------------
A Common Stock, Series B Common Stock or Series K Common Stock, as applicable,
upon conversion of shares of Convertible Preferred Stock shall be made without
charge for any issue, stamp or other similar tax in respect of such issuance,
provided, however, if any such certificate is to be issued in a name other than
that of the registered holder of the share or shares of Convertible Preferred
Stock converted, the Person or Persons requesting the issuance thereof shall pay
to the Corporation the amount of any tax which may be payable in respect of any
transfer involved in such issuance or shall establish to the satisfaction of the
Corporation that such tax has been paid.
(j) Reservation of Shares. The Corporation shall reserve and keep
----------------------
available at all times thereafter, solely for the purpose of issuance upon
conversion of the outstanding shares of Convertible Preferred Stock, such number
of shares of Series A Common Stock, Series B Common Stock and Series K Common
Stock as shall be issuable upon the conversion of all outstanding shares of
Convertible Preferred Stock, provided that nothing contained herein shall be
construed to preclude the Corporation from satisfying its obligations in respect
of the conversion of the outstanding shares of Convertible Preferred Stock by
delivery of shares of Series A Common Stock, Series B Common Stock or Series K
Common Stock which are held in the treasury of the Corporation. The Corporation
shall take all such corporate and other actions as from time to time may be
necessary to insure that all shares of Series A Common Stock, Series B Common
Stock and Series K Common Stock issuable upon conversion of shares of
Convertible Preferred Stock at the Conversion Rate in effect from time to time
will, upon issue, be duly and validly authorized and issued, fully paid and
nonassessable and free of any preemptive or similar rights.
(k) Retirement of Convertible Preferred Stock. All shares of
------------------------------------------
Convertible Preferred Stock received by the Corporation upon conversion thereof
into Series A Common Stock, Series B Common Stock or Series K Common Stock, as
applicable, shall be retired and shall not be reissued.
(l) Payment in Lieu of Fractional Shares. The Corporation shall not
-------------------------------------
be required to issue fractional shares of Series A Common Stock, Series B Common
Stock or Series K Common Stock or scrip upon conversion of the Convertible
Preferred Stock. As to any final fraction of a share of Series A Common Stock,
Series B Common Stock or Series K Common Stock, as applicable, which a holder of
one or more shares of Convertible Preferred
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<PAGE>
Stock would otherwise be entitled to receive upon conversion of such shares in
the same transaction, the Corporation shall pay a cash adjustment in respect of
such final fraction in an amount equal (I) if the Corporation is a Public
Company, to the same fraction of the market value of a full share of Series A
Common Stock or (II) if the Corporation is not a Public Company, to the same
fraction of the fair market value of a share of Series A Common Stock, Series B
Common Stock or Series K Common Stock, as applicable, as determined in good
faith by the Board of Directors. For the purpose of any computation under this
paragraph 6 requiring the determination of the current market value per share of
Series A Common Stock, if the Corporation is a Public Company, such value at any
date shall be deemed to be the average of the daily closing prices for a share
of Series A Common Stock for the ten (10) consecutive trading days before the
day in question. The closing price for each day shall be the last reported sale
price regular way or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices regular way, in either case
on the composite tape, or if the shares of Series A Common Stock are not quoted
on the composite tape, on the principal United States securities exchange
registered under the Exchange Act, on which the shares of Series A Common Stock
are listed or admitted to trading, or if they are not listed or admitted to
trading on any such exchange, the last reported sale price (or the average of
the quoted closing bid and asked prices if there were no reported sales) as
reported by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or any comparable system, or if the Series A Common Stock is
not quoted on Nasdaq or any comparable system, the average of the closing bid
and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the Corporation for that
purpose or, in the absence of such quotations, such other method of determining
market value as the Board of Directors shall from time to time deem to be fair.
(m) Regulatory Matters. If any shares of Series A Common Stock,
------------------
Series B Common Stock or Series K Common Stock which would be issuable upon
conversion of shares of Convertible Preferred Stock require registration with or
approval of any governmental authority before such shares may be issued upon
conversion, the Corporation will in good faith and as expeditiously as possible
cause such shares to be duly registered or approved, as the case may be.
Without limiting the foregoing, if the conversion of shares of Convertible
Preferred Stock shall be subject to the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations promulgated thereunder
(the "HSR ACT AND RULES"), the Corporation shall promptly comply with any
applicable filing or notice requirements under the HSR Act and Rules and use its
reasonable commercial efforts to furnish the information required in connection
therewith to the Federal Trade Commission and the Antitrust Division of the
Department of Justice. If applicable, the Corporation shall use its reasonable
commercial efforts to list (i) the shares of Series A Common Stock issuable upon
conversion of the Series A Preferred Stock, (ii) the shares of Series A Common
Stock issuable upon conversion of the Series K Common Stock required to be
delivered upon conversion of the Series K Preferred Stock, and (iii) the shares
of Series A Common Stock issuable upon conversion of the Series B Common Stock
required to be delivered upon conversion of the Series T Preferred Stock, in
each case prior to delivery of such shares of Series A Common Stock upon such
conversion, on the principal national securities exchange (including, but not
limited to, the Nasdaq National Market) on which the outstanding Series A Common
Stock is listed at the time of such delivery.
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<PAGE>
7. Voting.
------
(a) General Voting Rights. In connection with any matter as to
---------------------
which the holders of Common Stock are entitled to vote including, but not
limited to, the election of Common Stock Directors (as hereinafter defined),
each share of Convertible Preferred Stock issued and outstanding as of the
record date for such meeting shall have (and the holder of record thereof shall
be entitled to cast) the number of votes equal to the number of votes such
holder would have been entitled to cast had it converted its shares of
Convertible Preferred Stock into shares of Series A Common Stock (in the case of
Series A Preferred Stock), Series B Common Stock (in the case of shares of
Series T Preferred Stock), or Series K Common Stock (in the case of Series K
Preferred Stock) immediately prior to the record date for the determination of
stockholders entitled to vote upon such matter. Except as provided below and in
paragraph 1 of Section B of this Article IV and except as otherwise may be
required by law, the holders of Common Stock, the holders of Convertible
Preferred Stock and the holders of any other series of Series Preferred Stock
shall be entitled to notice of and to attend any meeting of stockholders and to
vote together as a single class.
(b) Election of Preferred Stock Directors.
-------------------------------------
(i) The holders of the Series AM Preferred Stock, voting
separately as a single series, shall have the exclusive right,
acting by written consent given in accordance with paragraph
7(b)(vi) below or by vote at a meeting called for that purpose,
to elect one director to the Board of Directors so long as there
are at least 250,000 shares of Series AM Preferred Stock (as
adjusted for stock splits, stock dividends and the like occurring
after the Filing Date) outstanding (such director elected by the
holders of the Series AM Preferred Stock is hereinafter referred
to as the "SERIES AM PREFERRED STOCK DIRECTOR").
The holders of the Series AT Preferred Stock, voting
separately as a single series, shall have the exclusive right,
acting by written consent given in accordance with paragraph
7(b)(vi) below or by vote at a meeting called for that purpose,
to elect (x) two directors to the Board of Directors so long as
at least 750,000 shares of Series AT Preferred Stock remain
outstanding or (y) one director to the Board of Directors in the
event that less than 750,000 shares of Series AT Preferred Stock
remain outstanding but so long as at least 250,000 shares of
Series AT Preferred Stock remain outstanding, in each case as
adjusted for stock splits, stock dividends and the like occurring
after the Filing Date (such directors elected by the holders of
the Series AT Preferred Stock are hereinafter referred to as the
"SERIES AT PREFERRED STOCK DIRECTORS").
The holders of the Series AX Preferred Stock, voting
separately as a single series, shall have the exclusive right,
acting by written consent given in accordance with paragraph
7(b)(vi) below or by vote at a meeting called for that purpose,
to elect one director to the Board of Directors so long as there
are at least 250,000 shares of Series AX
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<PAGE>
Preferred Stock (as adjusted for stock splits, stock dividends
and the like occurring after the Filing Date) outstanding (such
director elected by the holders of the Series AX Preferred Stock
is hereinafter referred to as the "SERIES AX PREFERRED STOCK
DIRECTOR," and the Series AX Preferred Stock Director, the Series
AM Preferred Stock Director and the Series AT Preferred Stock
Directors are hereinafter referred to as the "SERIES A PREFERRED
STOCK DIRECTORS").
The holders of the Series K Preferred Stock, voting
separately as a single series, shall have the exclusive right,
acting by written consent given in accordance with paragraph
7(b)(vi) below or by vote at a meeting called for that purpose,
to elect one director to the Board of Directors so long as there
are at least 250,000 shares of Series K Preferred Stock (as
adjusted for stock splits, stock dividends and the like occurring
after the Filing Date) outstanding (such director elected by the
holders of the Series K Preferred Stock is hereinafter referred
to as the "SERIES K PREFERRED STOCK DIRECTOR").
The holders of the Series T Preferred Stock, voting
separately as a single series, shall have the exclusive right,
acting by written consent given in accordance with paragraph
7(b)(vi) below or by vote at a meeting called for that purpose,
to elect (x) three directors to the Board of Directors so long as
at least 385,000 shares of Series T Preferred Stock remain
outstanding; (y) two directors to the Board of Directors in the
event that less than 385,000 shares of Series T Preferred Stock
remain outstanding but so long as at least 317,500 shares of
Series T Preferred Stock remain outstanding; or (z) one director
to the Board of Directors in the event that less than 317,500
shares of Series T Preferred Stock remain outstanding but so long
as at least 250,000 shares of Series T Preferred Stock remain
outstanding, in each case as adjusted for stock splits, stock
dividends and the like occurring after the Filing Date (such
directors elected by the holders of the Series T Preferred Stock
are hereinafter referred to as the "SERIES T PREFERRED STOCK
DIRECTORS," and together with the Series A Preferred Stock
Directors and the Series K Preferred Stock Director, the
"PREFERRED STOCK DIRECTORS").
(ii) Each of the Preferred Stock Directors will be that
person elected, by written consent given in accordance with
paragraph 7(b)(vi) below or by vote at a meeting called for that
purpose, of the holders of the series of Preferred Stock entitled
to vote for such director.
(iii) At any meeting having as a purpose the election of
directors by holders of the Series AM Preferred Stock, the Series
AT Preferred Stock, the Series AX Preferred Stock, the Series K
Preferred Stock and/or holders of the Series T Preferred Stock,
as the case may be, the presence, in person or by proxy, of the
holders of a majority of the shares of the applicable series of
Convertible Preferred Stock entitled to vote in such
-26-
<PAGE>
election then outstanding shall be required and be sufficient to
constitute a quorum of such series for the election of any
director by such holders. Each Preferred Stock Director to be
elected at such meeting shall be elected by a plurality of the
votes of the shares of the series of Convertible Preferred Stock
present in person or represented by proxy at such meeting and
entitled to vote in the election of such Preferred Stock Director
or by written consent of the holders of the shares of such series
given in accordance with paragraph 7(b)(vi) below. At any such
meeting or adjournment thereof, (i) the absence of a quorum of
such holders of Series AM Preferred Stock, Series AT Preferred
Stock, Series AX Preferred Stock, Series K Preferred Stock or
Series T Preferred Stock, as the case may be, shall not prevent
the election of the directors to be elected by the holders of
shares other than the series of Convertible Preferred Stock the
holders of which do not constitute a quorum for such election at
such meeting, and the absence of a quorum of holders of shares
other than the Series AM Preferred Stock, Series AT Preferred
Stock, Series AX Preferred Stock, Series K Preferred Stock or
Series T Preferred Stock shall not prevent the election of the
directors to be elected by the holders of the Series AM Preferred
Stock, Series AT Preferred Stock, Series AX Preferred Stock, the
Series K Preferred Stock or the Series T Preferred Stock, as the
case may be, and (ii) in the absence of a quorum of holders of
any of (x) shares of the Series AM Preferred Stock, the Series AT
Preferred Stock, the Series AX Preferred Stock, the Series K
Preferred Stock or Series T Preferred Stock, (y) shares other
than the Series AM Preferred Stock, the Series AT Preferred
Stock, the Series AX Preferred Stock, the Series K Preferred
Stock or the Series T Preferred Stock, or (z) shares of all such
classes and series, holders of a majority of the shares, present
in person or by proxy, of each class or series of stock which
lack a quorum shall have power to adjourn the meeting for the
election of directors which such class or series is entitled to
elect, from time to time, without notice (subject to applicable
law) other than announcement at the meeting, until a quorum shall
be present.
(iv) Except as provided in paragraph 7(b)(v), any vacancy
in the office of a Preferred Stock Director occurring during the
effectiveness of the applicable provisions of paragraph 7(b)(i)
shall be filled solely by the holders of the series of
Convertible Preferred Stock entitled to elect such Preferred
Stock Director by vote of such holders as provided in paragraph
7(b)(iii) above at a meeting called for such purpose or by
written consent of such holders given in accordance with
paragraph 7(b)(vi) below.
(v) A Preferred Stock Director elected by a specified
series of Convertible Preferred Stock may be removed without
cause by the vote or by written consent of the holders of a
majority of the outstanding shares of such series of Convertible
Preferred Stock which elected such Preferred Stock Director. Any
vacancy in the office of a Preferred Stock Director shall be
filled by the affirmative vote of the holders of a majority of
the
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outstanding shares of the applicable series of Convertible
Preferred Stock entitled to elect the Preferred Stock Director so
removed at a meeting, which may be the same meeting at which the
removal of such Preferred Stock Director was voted upon, or by
written consent of the holders of such series of Preferred Stock
given in accordance with paragraph 7(b)(vi) below. Any director
elected to fill a vacancy shall serve the same remaining term as
that of his or her predecessor and until his or her successor has
been chosen and has qualified.
(vi) With respect to actions by the holders of the Series
AM Preferred Stock, the Series AT Preferred Stock, the Series AX
Preferred Stock, the Series K Preferred Stock or the Series T
Preferred Stock upon those matters on which such holders are
entitled to vote as a separate series, such actions 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 shares of
Series AM Preferred Stock, Series AT Preferred Stock, Series AX
Preferred Stock, Series K Preferred Stock or Series T Preferred
Stock, as the case may be, having not less than the minimum
number of votes that would be necessary to authorize or take such
action at a meeting at which all shares of such series of
Convertible Preferred Stock entitled to vote thereon were present
and voted, and shall be delivered to the Corporation as provided
in the DGCL. Notice shall be given in accordance with the
applicable provisions of the DGCL of the taking of corporate
action without a meeting by less than unanimous written consent.
(vii) The right of the holders of Convertible Preferred
Stock to elect the Preferred Stock Directors shall be in addition
to their right to vote, on an as-converted basis (in the case of
the Series A Preferred Stock into Series A Common Stock, in the
case of Series K Preferred Stock into Series K Common Stock and
in the case of the Series T Preferred Stock into Series B Common
Stock), with the holders of the Common Stock and any other series
of Series Preferred Stock so entitled to vote, together as a
single class, in the election of all other members of the Board
of Directors (other than the Series B and Series K Common Stock
Directors).
(c) Protective Covenants. Notwithstanding the rights and
--------------------
privileges of any class or series of Preferred Stock then outstanding, so long
as any shares of Convertible Preferred Stock shall remain outstanding, the
Corporation shall not, without first obtaining the affirmative vote (or, except
with respect to clause (iii) below, the written consent) of the holders of not
less than a majority of the outstanding shares of the Convertible Preferred
Stock (with the holders of the Series AM Preferred Stock, the Series AT
Preferred Stock, the Series AX Preferred Stock, the Series K Preferred Stock and
the Series T Preferred Stock voting together as a single class except as
otherwise provided in clause (i) below):
(i) adopt, amend, alter or repeal any provision of the
Certificate or any resolution of the Board of Directors or any
other
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instrument establishing and designating the Convertible Preferred
Stock, any series of Series Preferred Stock or any Common Stock
and determining the relative voting powers, designations,
preferences, rights and qualifications, limitations and
restrictions thereof, so as to effect any adverse change in the
voting powers, designations, preferences, rights and
qualifications, limitations and restrictions of the holders of
the Convertible Preferred Stock; provided, however, that the
-------- -------
Corporation will not make any such amendment, alteration or
repeal which would affect adversely the voting powers,
designations, preferences, rights and qualifications, limitations
or restrictions of the shares of one or more series of
Convertible Preferred Stock without the consent of the holders of
a majority of the outstanding shares of each such series of
Preferred Stock so affected, each voting separately as a separate
series of Preferred Stock (or, if such amendment, alteration or
repeal would affect adversely the voting powers, designations,
preferences, rights and qualifications, limitations or
restrictions of the shares of all series of Convertible Preferred
Stock in the same manner, without the consent of the holders of a
majority of the outstanding shares of Convertible Preferred Stock
voting as a single class);
(ii) create, designate or issue any capital stock which is
Special Voting Stock;
(iii) (a) consolidate with, or merge with or into, any
Person or enter into a binding share exchange or similar
transaction with any person (other than a merger of the
Corporation with a wholly owned Subsidiary thereof which does not
effect a change in the capital stock of the Corporation) (b)
dispose of assets or properties in one transaction or a series of
related transactions having an aggregate value in excess of 50%
of the fair market value of the consolidated assets of the
Corporation other than a transfer to a wholly-owned Subsidiary of
the Corporation or (c) consent to any liquidation, dissolution or
winding up of the Corporation or any of its material
Subsidiaries; or
(iv) (a) declare or pay any dividend on, or make any
distribution to holders of, Junior Stock or equity securities of
any Subsidiary of the Corporation or (b) purchase, redeem or
otherwise acquire for value any Junior Stock, any equity
securities of any Subsidiary of the Corporation or any options,
warrants or other rights to acquire such securities (other than a
repurchase or redemption of shares of Junior Stock, any equity
securities of any Subsidiary of the Corporation or any options,
warrants or other rights to acquire such securities which is a
Permitted Repurchase).
Any approval obtained pursuant to this paragraph 7(c) with
respect to any matter described in clause (iii) above shall not be valid unless
such matter shall have been presented to the holders of the Convertible
Preferred Stock for a vote at a meeting held on not
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less than thirty (30) days' prior written notice, which notice shall have
described in detail each such matter to be voted upon.
8. Waiver. Unless otherwise provided in this Certificate, any
------
provision which, for the benefit of the holders of the Convertible Preferred
Stock or any series thereof, prohibits, limits or restricts actions by the
Corporation, or imposes obligations on the Corporation, may be waived in whole
or in part, or the application of all or any part of such provision in any
particular circumstance or generally may be waived, in each case only pursuant
to (i) a waiver which has been approved by Board Action (as if the subject of
such waiver were a Supermajority Item (or a Unanimous Item if the matter that is
the subject of such waiver would otherwise be a Unanimous Item)) and (ii) the
consent of the holders of a majority (or such greater percentage thereof as may
be required by applicable law or any applicable rules of any national securities
exchange or national interdealer quotation system) of the outstanding shares of
(x) each series of Convertible Preferred Stock, each consenting separately as a
separate series of Preferred Stock, or (y) if such waiver would affect adversely
the voting powers, designations, preferences, rights and qualifications,
limitations or restrictions of the shares of all series of Convertible Preferred
Stock in the same manner, all series of Convertible Preferred Stock consenting
together as a single class of Preferred Stock. Any such waiver shall be binding
on all holders, including any subsequent holders, of the Convertible Preferred
Stock.
9. Method of Giving Notices. Any notice required or permitted
------------------------
hereby to be given to the holders of shares of Convertible Preferred Stock shall
be deemed duly given if deposited in the United States mail, first class mail,
postage prepaid, and addressed to each holder of record at the holder's address
appearing on the books of the Corporation or supplied by the holder in writing
to the Corporation for the purpose of such notice.
10. Exclusion of Other Rights. Except as provided in the Bylaws of
-------------------------
the Corporation or as may otherwise be required by law and except for the
equitable rights and remedies which may otherwise be available to holders of
Convertible Preferred Stock, the shares of Convertible Preferred Stock shall not
have any designations, preferences, limitations or relative rights other than
those specifically set forth herein.
11. Heading of Subdivisions. The headings of the various
-----------------------
subdivisions hereof are for convenience of reference only and shall not affect
the interpretation of any of the provisions hereof.
SECTION D
SERIES PREFERRED STOCK
The Series Preferred Stock may be issued, from time to time, in one or
more series, with such designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in a resolution or
resolutions providing for the issue of such series adopted pursuant to Board
Action (as hereinafter defined); the Series Preferred Stock may rank senior to,
junior to or on a parity with the Convertible Preferred Stock with respect to
(i) rights upon liquidation, dissolution or winding up of the Corporation, (ii)
the payment of dividends or (iii) distributions on, or the repurchase or
redemption of any other shares of capital stock of the Corporation. The
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Convertible Preferred Stock will rank on a parity with any Series Preferred
Stock that is not by its terms made senior or junior to the Convertible
Preferred Stock. Subject to the provisions of paragraph 7(c)(ii) of Section C,
the Board of Directors, in such resolution or resolutions (a copy of which shall
be filed and recorded as required by law), is also expressly authorized to fix:
(i) the distinctive serial designations and the division of
such shares into series and the number of shares of a particular
series, which may be increased or decreased, but not below the number
of shares thereof then outstanding, by a certificate made, signed,
filed and recorded as required by law;
(ii) the dividend rate or amounts, if any, for the particular
series, the date or dates from which dividends on all shares of such
series shall be cumulative, if dividends on stock of the particular
series shall be cumulative and the relative rights of priority, if
any, or participation, if any, with respect to payment of dividends on
shares of that series;
(iii) the rights of the shares of each series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment
of shares of each series;
(iv) the right, if any, of the holders of a particular series
to convert or exchange such stock into or for other classes or series
of a class of stock or indebtedness of the Corporation, and the terms
and conditions of such conversion or exchange, including provision for
the adjustment of the conversion or exchange rate in such events as
the Board of Directors shall determine; provided that no series of
Series Preferred Stock shall have the right to convert into Series B
Common Stock;
(v) the voting rights, if any, of the holders of a particular
series;
(vi) the terms and conditions, if any, for the Corporation to
purchase or redeem shares of a particular series; and
(vii) any other relative rights, powers, preferences and
limitations of a particular series of the Series Preferred Stock.
The Board of Directors, acting through Board Action, is authorized to
exercise its authority with respect to fixing and designating various series of
the Series Preferred Stock and determining the relative rights, powers and
preferences thereof to the full extent permitted by applicable law, subject to
any stockholder vote that may be required by this Certificate.
All shares of any one series of the Series Preferred Stock shall be
alike in every particular. Except to the extent otherwise provided in the
resolution or resolutions providing for the issue of any series of Series
Preferred Stock, the holders of shares of such series shall have no voting
rights except as may be required by the laws of the State of Delaware. Further,
unless otherwise expressly provided in the Certificate of Designation for a
series of Series Preferred Stock, no consent or vote of the holders of shares of
Series Preferred Stock or any series thereof
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shall be required for any amendment to this Certificate that would increase the
number of authorized shares of Series Preferred Stock or the number of
authorized shares of any series thereof or decrease the number of authorized
shares of Series Preferred Stock or the number of authorized shares of any
series thereof (but not below the number of shares of Series Preferred Stock or
of such series, as the case may be, then outstanding).
Except as may be provided by the Board of Directors in a Certificate
of Designation or by law, shares of any series of Series Preferred Stock that
have been redeemed (whether through the operation of a sinking fund or
otherwise) or purchased by the Corporation, or which, if convertible or
exchangeable, have been converted into or exchanged for shares of stock of any
other class or classes shall be retired and shall not be reissued.
ARTICLE V
DIRECTORS
SECTION A
NUMBER AND DESIGNATION
The governing body of the Corporation shall be a Board of Directors
which shall consist of not less than three (3) and not more than fifteen (15)
directors, with the exact number to be specified from time to time by resolution
of the Board of Directors in accordance with this Certificate.
1. Preferred Stock Directors. The Preferred Stock Directors shall
-------------------------
be elected by the holders of the Convertible Preferred Stock, subject to, and in
the manner provided in, Article IV of this Certificate.
2. Convertible Common Stock Directors. The Convertible Common Stock
----------------------------------
Directors shall be elected by the holders of the Convertible Common Stock,
subject to, and in the manner provided in, Article IV of this Certificate.
3. Common Stock Directors. Directors of the Corporation other than
----------------------
the Convertible Common Stock Directors, Preferred Stock Directors, and directors
elected by any holders of any series of Series Preferred Stock entitled to elect
such directors, shall be elected by the holders of the Common Stock and
Convertible Preferred Stock, subject to, and in the manner provided in, Article
IV of this Certificate, and shall be designated as "COMMON STOCK DIRECTORS."
SECTION B
BOARD ACTIONS
1. Definitions. Unless the context otherwise requires, the terms
-----------
defined in this paragraph 1 shall have, for all purposes of this Certificate,
the meanings herein specified:
"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries Controls, is
Controlled by, or is under common Control with such Person.
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<PAGE>
"ASSOCIATE" shall have the meaning set forth in Rule 405 under the
Securities Act.
"@HOME SERVICES" means the business of providing Internet connectivity
service and Internet "backbone" service, which includes substantially the
following: (i) direct connectivity to the Internet through the development,
packaging, marketing and distribution of a suite of branded Internet
connectivity services and certain branded applications, including one or more
custom browsers, for use by subscribers and information providers, together with
connections to various on-line hosting services (such as America Online,
Prodigy, CompuServe and MSN) and information providers, both in the United
States and internationally (in countries where the Corporation is capable of
providing such service), (ii) directory services and navigation services to
content created by third parties, provided, however, that it is not contemplated
-------- -------
that the Corporation would itself be a creator of content (other than with
respect to content created as part of the Corporation's navigation services
(such as the "video barker" and "templates" for the creation of navigation home
pages), the aggregation and organization of content created by third parties and
technological assistance to such third party creators), and (iii) systems for
(a) "backbone" transmission, (b) network management, and (c) billing and
associated support functions.
".COM AGREEMENT" means any agreement between the Corporation (or any
Cable Parent or a Controlled Affiliate thereof acting in the capacity of a sales
agent by and on behalf of the Corporation pursuant to a sales agency agreement
to be entered into by such Cable Parent or Controlled Affiliate and the
Corporation, which agreement will, among other things, specify the terms and
conditions upon which such Person may act as a sales agent for the Corporation,
including specification of the terms upon which such Person may enter into a
.Com Agreement on the Corporation's behalf) and a content provider which
provides (i) physical connectivity and access to the @Home Network (as defined
in the Master Distribution Agreement) and (ii) for compensation, if any, to the
Corporation in accordance with its charges therefor.
"BOARD ACTION" means, with respect to any matter considered by the
Board of Directors or any committee thereof, the action of the Board or such
committee with respect thereto for purposes of Section 141 of the DGCL, which
action shall be deemed taken:
(i) in the case of action by the Board of Directors, by the
approval of such action by:
(a) with respect to any matter that is not a Related
Party Transaction or a Related Party .Com Agreement or Related Party
Promotional Agreement, (x) a majority of the members of the Board present
at a meeting at which a quorum of the Board is present or a written consent
to such action executed by all the members of the Board and (y) so long as
the holders of any series of Common Stock or Preferred Stock are entitled
to elect a Special Director, (1) as to matters that are not Supermajority
Items or Unanimous Items, so long as the Special Directors are entitled to
exercise the Special Director Approval Right, a majority of the Special
Directors or (2) with respect to any matter that is a Supermajority Item or
a Unanimous Item, a Supermajority Vote or Unanimous Vote of the Special
Directors and the Special K Director, if any;
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(b) with respect to any matter that is a Related Party
Transaction, either (I)(x) a majority of the Disinterested Directors
present at a meeting at which a quorum of the Board is present or a written
consent to such action executed by all of the members of the Board; (y) a
majority of the members of the Board present at a meeting at which a quorum
of the Board is present or a written consent to such action executed by all
of the members of the Board; and (z) so long as the holders of any series
of Common Stock or Preferred Stock are entitled to elect a Special
Director, a majority of the Special Directors and Special K Director, if
any, who are Disinterested Directors; provided, however, that, so long as
the holders of any series of Common Stock or Preferred Stock are entitled
to elect a Special Director, in addition to the requirements set forth
above in this paragraph (b)(I), (A) if the Related Party Transaction is a
Supermajority Item, the approval of such Related Party Transaction shall
require the affirmative vote or written consent of seventy-five (75%)
(rounded up to the nearest whole number of directors) (or two-thirds if
there are only three such directors) of the total number of Special
Directors and Special K Director, if any, who are Disinterested Directors;
and (B) if the Related Party Transaction is a Unanimous Item, the approval
of such Related Party Transaction shall require the affirmative vote or
written consent of the total number of Special Directors and Special K
Director, if any (regardless of whether or not such directors are
Disinterested Directors); or (II)(x) a majority of the members of the Board
present at a meeting at which a quorum of the Board is present or a written
consent to such action executed by all of the members of the Board and (y)
so long as the holders of any series of Common Stock or Preferred Stock are
entitled to elect a Special Director, all of the Special Directors
(regardless of whether or not such Special Directors are Disinterested
Directors); or
(c) with respect to the approval of a Related Party .Com
Agreement or Related Party Promotional Agreement, approval in accordance
with clauses (y) or (z) of paragraph 5 below (but subject to paragraph 7
below), provided that no Board Action is required for such approval in the
circumstances specified in clause (x) of paragraph 5;
(ii) in the case of action by any committee of the Board of
Directors (other than the .Com Committee), by the approval of such action
by: (a) either a majority of the members of such committee present at a
meeting at which a quorum of such committee is present or a written consent
to such action executed by all the members of such committee; and (b) so
long as the holders of any series of Common Stock or Preferred Stock are
entitled to elect a Special Director and the Special Directors are entitled
to exercise the Special Director Approval Right, a majority of the Special
Directors; provided, however, that the approval of the Special Directors
-------- -------
shall not be required in connection with the approval of any matter as to
which the Board of Directors and the Special Directors have specifically
provided in the specification of powers and duties of such committee by
resolution or Bylaw approved by Board Action, that the approval of the
Special Directors shall not be required; and
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(iii) in the case of the .Com Committee, either (1) a majority of
the total number of members of the .Com Committee or (2) a written consent
to such action executed by all of the members of the .Com Committee.
"CLOSING AGREEMENTS" means the Stock Purchase and Exchange Agreement
among the Corporation and the purchasers that are parties thereto, the First
Amended and Restated Registration Rights Agreement among the Corporation and the
stockholders and investors that are parties thereto, each dated as of August 1,
1996, and the Stockholders' Agreement.
"DISINTERESTED DIRECTORS" means any member of the Board of Directors
who is not an interested director for purposes of DGCL Section 144(a); provided,
--------
however, that (i) any director who is an officer, director, employee or partner
- -------
of a Related Party shall, notwithstanding the fact that such director is not
otherwise personally interested in a Related Party Transaction, be deemed
interested in such Related Party Transaction and (ii) any Person elected
exclusively by the holders of a series of Convertible Preferred Stock shall be
considered to be a Disinterested Director unless such Person is an officer,
director, employee or partner of such Related Party or a Related Party Affiliate
or is otherwise personally interested in the Related Party Transaction.
"LCO AGREEMENT" means the provisions of Article VIII of the Term
Sheet, including any other provisions or definitions in other sections of the
Term Sheet which are referenced in Article VIII; provided that if the matters
set forth in Article VIII of the Term Sheet are superseded by a definitive
agreement which is executed by the applicable parties to the Term Sheet, such
definitive agreement will constitute the LCO Agreement for all purposes
hereunder.
"OUTSIDE DIRECTOR" means any director of the Corporation who (i) is
not any officer or director of, or employed by, the Corporation or its
Subsidiaries and (ii) is not an Affiliate or Associate of any of Cox
Enterprises, Inc., a Delaware corporation, Comcast or TCI or any of their
respective Controlled Affiliates (other than the Corporation and its
Subsidiaries).
"PROMOTIONAL AGREEMENT" means an agreement entered into between a
content provider and the Corporation (individually and not through an agency
relationship with a Cable Parent or any of its Controlled Affiliates) providing
for the promotion of such content or content provider on the @Home Services
(e.g., through button or hot link placement on the browsers, home pages or theme
pages in the National Area (as defined in the Master Distribution Agreement), by
the @Home video barker or otherwise) as the Corporation and such content
provider shall agree, at which point such promotional activity shall become a
part of the @Home Services, subject, however, to the Cable Parent Exclusion
Right (as defined in the Master Distribution Agreement).
"SPECIAL DIRECTOR APPROVAL RIGHT" means the requirement for certain
Board Actions that a majority of the Special Directors have approved such
matter, which requirement shall continue in effect so long as TCI Sub
beneficially owns at least (i) 385,000 shares of Series T Preferred Stock or
7,700,000 shares of Series B Common Stock (or any combination thereof
aggregating 7,700,000 shares of Series B Common Stock on an as converted basis)
(in each case, which shares are Company Securities and as adjusted for stock
splits, stock dividends and the
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like occurring after the Filing Date), and (ii) securities representing a
---
majority of the outstanding voting power of the Corporation.
2. Vote Required for Actions of the Board or Committees.
----------------------------------------------------
(a) Except as otherwise provided by law or this Certificate and
subject to the rights of approval set forth in paragraphs 3, 4, 5 and 7 below,
any action or approval by the Board of Directors or any committee thereof shall
require that approval therefor be obtained by Board Action.
(b) Any approval of the Special Directors may be evidenced by
the affirmative vote of such Special Directors (i) at the Board meeting or
committee meeting at which such action is approved, (ii) by unanimous written
consent of the Board or a committee thereof including such Special Directors, or
(iii) by a separate approval granted at a meeting of such Special Directors or
by written consent of a majority of such Special Directors. The requirements for
Special Director approval herein and the procedures thereof are included by
virtue of the authority contained in Section 141(a) of the DGCL.
(c) Except as specifically provided in paragraph 6 below with
respect to the powers of the .Com Committee, no committee of the Board shall
have the power to act on any Related Party Transaction, Supermajority Item,
Unanimous Item or any Related Party .Com Agreement or Related Party Promotional
Agreement .
3. Related Party Transactions.
--------------------------
(a) Any Related Party Transaction must be approved by a Board
Action.
(b) A "RELATED PARTY" shall mean (1) any holder of any series of
Convertible Preferred Stock or a Related Party Affiliate of such holder or (2)
any holder of more than 5% of the voting power of the Corporation (on an as-
converted into Common Stock (whichever series such security is initially
convertible into or exercisable or exchangeable for) basis) or a Related Party
Affiliate of such holder. The term "RELATED PARTY TRANSACTION" shall mean any
transaction between the Corporation and a Related Party; provided, however, that
the following transactions will not be Related Party Transactions: (i) any
transaction or series of related transactions, that (x) are in the ordinary
course of business, (y) are on arms' length terms, and (z) involve an aggregate
amount that is less than $1,000,000; (ii) the entering into of LCO Agreements
and other agreements for the provision of ancillary or related services by the
Corporation, between a Related Party or its Related Party Affiliates, on the one
hand, and the Corporation, on the other hand, provided that the terms of such
--------
LCO Agreements or such other agreements are no more favorable to such Related
Party and its Related Party Affiliates than the terms of similar agreements then
currently offered by or generally available from the Corporation to each other
Cable Parent or its Controlled Affiliates (without regard to the size (through
volume discounts or otherwise) or identity of such Cable Parent or its ownership
of securities of the Corporation); and (iii) the entering into or performance
under any .Com Agreement or Promotional Agreement. The term "RELATED PARTY
AFFILIATE" shall mean, with respect to any Person, any other Person that
directly or indirectly, through one or more intermediaries, Controls, is
Controlled by, or is under common Control with, such first Person; provided,
--------
that (i) any
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Person owning, directly or indirectly, in excess of 25% of the equity interests
(on a fully diluted basis) of any other Person shall be deemed to Control such
other Person, (ii) the Corporation will not be deemed to be a Related Party
Affiliate of any Parent or such Parent's Related Party Affiliates, and (iii) the
Microsoft Network, L.L.C. ("MSN") will be deemed a Related Party of TCI Sub so
long as a Related Party Affiliate of TCI Sub retains substantially all of its
current ownership interest in MSN.
4. Supermajority and Unanimous Approval Requirements.
-------------------------------------------------
(a) Supermajority Items. For purposes of determining whether or
-------------------
not there has been Board Action with respect to any of the following matters
("SUPERMAJORITY ITEMS"), so long as the holders of any series of Common Stock or
Preferred Stock are entitled to elect a Special Director or a Special K
Director, the affirmative vote or written consent of seventy-five percent (75%)
(rounded up to the nearest whole number of directors) of the total number of (x)
the Special Directors and (y) the Special K Director, if any, voting separately
from the other directors of the Corporation shall be required (such vote or
consent, a "SUPERMAJORITY VOTE"):
(1) The merger, consolidation or other business combination
by the Corporation or any Controlled Affiliate of the Corporation into or with
any other entity, other than any transaction involving only the Corporation
and/or one or more directly or indirectly wholly owned Subsidiaries of the
Corporation; provided, however, that the provisions of this paragraph shall not
-------- -------
apply to transactions which have been approved in accordance with subparagraphs
(2) or (4) below, or which would not otherwise require approval thereunder.
(2) The acquisition (other than an acquisition covered by
subparagraph (4) below) by the Corporation or any Controlled Affiliate of the
Corporation of any assets or properties (including stock or other equity
interests of a third party) in one transaction or a series of related
transactions, which assets or properties have an aggregate purchase price or
value in excess of 20% of the fair market value of the assets of the Corporation
(on a consolidated basis).
(3) The disposition by the Corporation or any Controlled
Affiliate of the Corporation of any assets or properties (including stock or
other equity interests of a third party) in one transaction or a series of
related transactions having an aggregate value in excess of fifty percent (50%)
of the fair market value of the assets of the Corporation (on a consolidated
basis).
(4) The acquisition by the Corporation or any Controlled
Affiliate of the Corporation of any assets or properties in exchange for or in
consideration of the sale or issuance to any Person of capital stock of the
Corporation which sale or issuance would constitute in excess of 16-2/3% of the
fully diluted shares of the Corporation (on a common stock equivalent basis)
(including such shares to be issued or sold); provided, however, that the
provisions of this subparagraph (4) shall not be deemed to apply to any
issuances or sales of capital stock solely for cash.
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(5) The approval of the Chief Executive Officer of the
Corporation, and the removal of any Chief Executive Officer and the appointment
of any successor thereto.
(6) Any actions resulting in the voluntary dissolution or
liquidation of the Corporation, or the initiation of any proceedings relating to
the voluntary bankruptcy of the Corporation.
(7) Any amendment, alteration or repeal of any provision of
this Certificate or the Bylaws of the Corporation, other than (A) the filing of
any Certificate of Designation or amendment to this Certificate establishing any
class or series of Series Preferred Stock of the Corporation, the establishment,
issuance and sale of which would not require a Supermajority Vote pursuant to
subparagraph (8) below, (B) any amendment to or a modification of this
Certificate which is necessary in order to implement any action which has been
otherwise approved by a Supermajority Vote, (C) any amendment to this
Certificate which is reasonably necessary in connection with the IPO and which
does not have an adverse effect upon the holders of any series of Convertible
Preferred Stock which effect is different from the effect of such an amendment
upon the holders of one or more other series of Convertible Preferred Stock.
(8) The (A) establishment, creation or designation of any
additional class or series of capital stock or any security having a direct or
indirect equity participation in the Corporation, (B) sale or issuance of (i)
shares of capital stock or securities having a direct or indirect equity
participation in the Corporation, or (ii) warrants, options or rights to acquire
shares of capital stock or securities having a direct or indirect equity
participation in the Corporation or securities convertible into or exchangeable
for capital stock or any security having a direct or indirect equity
participation in the Corporation, in each case, which capital stock or other
security constitutes Special Voting Stock; provided that subject to the
--------
requirements of law, this Certificate and the Bylaws of the Corporation, it is
intended that the Board of Directors would be entitled, without a Supermajority
Vote or a Unanimous Vote, to create, designate and issue shares of Series
Preferred Stock that are not Special Voting Stock which rank senior to or pari
----
passu with the Convertible Preferred Stock as to liquidation rights and rights
- -----
relating to dividends, distributions, repurchases and redemptions; and provided
--------
further, however, that no capital stock of the Corporation, the issuance of
- -------- -------
which would, in accordance with this paragraph 4, require a Unanimous Vote of
the Special Directors and the Special K Director, shall be issued without such
Unanimous Vote of the Special Directors and the Special K Director.
(9) Any increase in the aggregate number of shares of
Series A Common Stock issued or reserved for issuance to management (including
shares reserved for issuance upon exercise of options, warrants or other rights)
pursuant to all incentive compensation plans (collectively, the "MANAGEMENT
STOCK PLAN") in excess of an aggregate amount calculated at the time of such
proposed increase equal to (i) 16,000,000 (as adjusted for stock splits, stock
dividends and the like occurring after the Filing Date), plus (ii) the greater
----
of (x) 0.075 multiplied by the number of shares of Series A Common Stock (or
options, warrants or other rights to acquire shares) issued by the Corporation
subsequent to August 1, 1996 (other than shares (or options, warrants or other
rights to acquire shares) issued pursuant to the Management Stock Plan or shares
issued upon conversion of shares of Convertible Preferred
-38-
<PAGE>
Stock) and (y) the number of shares (or options, warrants or other rights to
acquire shares) the issuance of which would represent a dilution of the fully
diluted equity of the Corporation (including the assumed issuance of all shares
in the Management Stock Plan prior to such increase) of four percent (4%) per
year from August 1, 1996 to the date of such proposed increase.
(10) (A) The declaration or payment of any dividend on, or
the making of any distribution to holders of, Junior Stock or equity securities
of any Controlled Affiliate of the Corporation (other than a wholly owned
Subsidiary) or (B) the purchase, redemption or other acquisition for value of
any Junior Stock or equity securities of any Controlled Affiliate of the
Corporation or any options, warrants or other rights to acquire such securities
(other than a Permitted Repurchase).
(11) The adoption of any budget which is or contains a Non-
Pro Rata Roll-Out Budget (as defined in the Master Distribution Agreement).
(12) Any action by the Corporation which would have the
effect of increasing the percentage of (x) Basic Service Revenues (as defined in
the LCO Agreement) to which the Corporation is entitled under the LCO Agreement,
or (y) Premium Service Revenues (as defined in the LCO Agreement) to which the
Corporation is entitled under the LCO Agreement.
(13) The appointment of any Outside Directors to the .Com
Committee following the IPO (other than the Corporation's Chief Executive
Officer and the members of the .Com Committee immediately prior to the IPO).
(b) Unanimous Items. For purposes of determining whether or not
----------------
there has been Board Action with respect to the following matters ("UNANIMOUS
ITEMS"), so long as the holders of any series of Common Stock or Preferred
Stock are entitled to elect a Special Director or a Special K Director, the
affirmative vote or written consent of 100% of the total number of (x) the
Special Directors and (y) the Special K Director, if any, voting separately from
the other directors of the Corporation (such vote or consent, a "UNANIMOUS
VOTE") shall be required:
(1) The incurrence by the Corporation of any indebtedness
for borrowed money which provides for recourse against a Stockholder without the
consent of such Stockholder.
(2) The authorization or issuance of any shares of
Convertible Preferred Stock following consummation of the transactions
contemplated by the Closing Agreements.
(3) Any amendments to or modifications of the items listed
in this paragraph 4 or the requisite vote or consent for approval thereof.
-39-
<PAGE>
(4) Any increase in the number of the Series AM, Series AT,
Series AX, Series K, or Series T Preferred Stock Directors, or the Series B or
Series K Common Stock Directors.
(5) Any modification of the rights of the holders of the
Series AM, Series AT, Series AX, Series K or Series T Preferred Stock or Series
B or Series K Common Stock to designate and elect directors.
(6) The appointment of any directors (other than the
Corporation's Chief Executive Officer and the other initial members thereof
elected following the Filing Date or, following the IPO, any Outside Directors
elected in accordance with subparagraph (a)(13) above), to the .Com Committee.
(7) Any amendment or modification to the Specifications and
Standards (as defined in the Master Distribution Agreement) which would require
the Operator Facilities (as defined in the Master Distribution Agreement) of any
Cable Parent to be capable of delivering video clips in excess of ten (10)
minutes.
5. Approval of .Com and Promotional Agreements. The execution,
-------------------------------------------
delivery and performance of any .Com Agreement or Promotional Agreement between
a Related Party or its Related Party Affiliates, on the one hand, and the
Corporation or its Affiliates, on the other hand (a "RELATED PARTY .COM
AGREEMENT" or a "RELATED PARTY PROMOTIONAL AGREEMENT," respectively), may be
approved by the Corporation pursuant to any of the following methods: (x)
approval by the authorized officers of the Corporation (without the approval of
the Board of Directors) to the extent such agreement contains the Corporation's
standard terms and conditions for agreements of that sort to the extent such
standard terms and conditions exist (i.e., the Corporation's applicable "rate
card"), (y) approval of a majority of the total number of members of the .Com
Committee or (z) approval by a majority of the Board of Directors, including all
of the Special Directors so long as the holders of any series of Common Stock or
Preferred Stock are entitled to elect a Special Director. The Cable Parent
which is, or whose Related Party Affiliate is, such Related Party shall be
entitled to select which of the foregoing methods pursuant to which such
approval will be sought, or if more than one method is to be sought, the
priority therefor. All decisions of the .Com Committee shall be made in
accordance with the policies and provisions for the .Com Agreements and
Promotional Agreements set forth in the Stockholders' Agreement. A Stockholder
who is or whose Related Party Affiliate is the Related Party whose .Com
Agreement or Promotional Agreement has been disapproved by the .Com Committee or
the Board pursuant to clause (y) or (z) above, as the case may be, shall be
entitled to a written explanation from the members of the .Com Committee or the
Board, as the case may be, voting against such approval. Nothing contained in
this section shall limit the right of the Directors under applicable law to
inspect any .Com Agreements or Promotional Agreements.
6. .Com Committee. There is hereby established a .Com Committee,
--------------
which shall have the power and authority provided herein, and the Board of
Directors shall cause members to be elected thereto pursuant to paragraphs 2 and
4 above. The .Com Committee shall have the following powers: to approve the
execution, delivery and performance of any Related Party .Com Agreement or
Related Party Promotional Agreement submitted to the .Com Committee pursuant to
paragraph 5 above. The .Com Committee shall report all of its actions to
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<PAGE>
the Board of Directors. The authorization to the .Com Committee shall not extend
to the approval of any .Com Agreement or Promotional Agreement that is not a
Related Party .Com Agreement or Related Party Promotional Agreement.
7. Powers of Board with Respect to Certain Committees. Except upon
--------------------------------------------------
the vote of a majority of the Board of Directors (including, so long as the
holders of any series of Common Stock or Preferred Stock are entitled to elect a
Special Director, all of the Special Directors), the Board of Directors shall
not (i) rescind, amend, repeal, supplement or otherwise modify any action or
determination made by the .Com Committee, (ii) remove any member of the .Com
Committee, (iii) amend any of the provisions of this Certificate (including this
paragraph 7 and the preceding paragraph (6)) or the Bylaws of this Corporation
with respect to the .Com Committee, or (iv) dissolve or terminate the .Com
Committee.
SECTION C
LIMITATION ON LIABILITY AND INDEMNIFICATION
1. Limitation On Liability.
-----------------------
To the fullest extent permitted by the DGCL as the same exists or
may hereafter be amended, a director of the Corporation shall not be liable to
the Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director. Any repeal or modification of this paragraph 1
shall be prospective only and shall not adversely affect any limitation, right
or protection of a director of the Corporation existing at the time of such
repeal or modification.
2. Indemnification.
---------------
(a) Right to Indemnification. The Corporation shall indemnify
------------------------
and hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any Person who was or is made or
is threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"PROCEEDING") by reason of the fact that he, or a Person for whom he is the
legal representative, is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust, enterprise or nonprofit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
(including attorneys' fees) reasonably incurred by such Person. Such right of
indemnification shall inure whether or not the claim asserted is based on
matters which antedate the adoption of this Section C. The Corporation shall be
required to indemnify a Person in connection with a proceeding (or part thereof)
initiated by such Person only if the proceeding (or part thereof) was authorized
by the Board of Directors of the Corporation.
(b) Prepayment of Expenses. The Corporation shall pay the
----------------------
expenses (including attorneys' fees) incurred in defending any proceeding in
advance of its final disposition, provided, however, that the payment of
expenses incurred by a director or officer in advance of the final disposition
of the proceeding shall be made only upon receipt of an undertaking by the
director or officer to repay all amounts advanced if it should be ultimately
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<PAGE>
determined that the director or officer is not entitled to be indemnified under
this paragraph or otherwise.
(c) Claims. If a claim for indemnification or payment of
------
expenses under this paragraph is not paid in full within 60 days after a written
claim therefor has been received by the Corporation, the claimant may file suit
to recover the unpaid amount of such claim and, if successful in whole or in
part, shall be entitled to be paid the expense of prosecuting such claim. In any
such action the Corporation shall have the burden of proving that the claimant
was not entitled to the requested indemnification or payment of expenses under
applicable law.
(d) Non-Exclusivity of Rights. The rights conferred on any
-------------------------
Person by this paragraph shall not be exclusive of any other rights which such
Person may or hereafter acquire under any statute, provision of this
Certificate, the Bylaws of the Corporation, agreement, vote of stockholders or
disinterested directors or otherwise.
(e) Other Indemnification. The Corporation's obligation, if any,
---------------------
to indemnify any Person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such Person
may collect as indemnification from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit entity.
3. Amendment or Repeal.
-------------------
Any repeal or modification of the foregoing provisions of this
Section C shall not adversely affect any right or protection hereunder of any
Person in respect of any act or omission occurring prior to the time of such
repeal or modification.
SECTION D
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors, by action taken in
accordance with the provisions of the Bylaws of the Corporation is hereby
expressly authorized and empowered to adopt, amend or repeal any provision of
the Bylaws of the Corporation.
ARTICLE VI
TERM
The term of existence of the Corporation shall be perpetual.
ARTICLE VII
STOCK NOT ASSESSABLE
The capital stock of the Corporation shall not be assessable. It
shall be issued as fully paid, and the private property of the stockholders
shall not be liable for the debts, obligations or liabilities of the
Corporation. This Certificate shall not be subject to amendment in this
respect.
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<PAGE>
ARTICLE VIII
DGCL SECTION 203
The Corporation shall not be governed by Section 203 of the DGCL.
Upon the filing of this Certificate with the Secretary of State of the
State of Delaware, each share of Series A Common Stock outstanding immediately
before such time shall be automatically converted into two shares of Series A
Common Stock having the rights, preferences and privileges set forth herein.
The shares of Series AM Preferred Stock, Series AT Preferred Stock, Series AX
Preferred Stock, Series K Preferred Stock and Series T Preferred Stock
outstanding upon the filing of this Certificate shall remain unchanged following
the filing of this Certificate. The terms of the Corporation's capital stock
set forth in this Certificate reflect the reclassification of the outstanding
shares of Series A Common Stock effected hereby, and such reclassification will
not cause any change in the terms of this Certificate or any adjustments in
conversion, voting or other rights and powers of capital stock.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Amended and
Restated Certificate of Incorporation on this 13th day of August, 1996.
AT HOME CORPORATION
By: /s/ Thomas A. Jermoluk
-----------------------------------
Name: Thomas A. Jermoluk
Title: President
Attest: /s/ David G. Pine
----------------------------
Name: David G. Pine
Title: Secretary
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<PAGE>
EXHIBIT 3.02
CERTIFICATE OF AMENDMENT
OF
THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
AT HOME CORPORATION
(a Delaware corporation)
At Home Corporation, a Delaware corporation, does hereby certify that the
following amendment to the corporation's Third Amended and Restated Certificate
of Incorporation has been duly adopted in accordance with the provisions of
Section 242 of the Delaware General Corporation Law.
I.
Article IV, Section C, paragraph 3(a) is hereby amended to read in its
entirety as follows:
3. Distributions Upon Liquidation, Dissolution or Winding Up.
---------------------------------------------------------
(a) Liquidation Preference Prior to IPO. Prior to the IPO and
-----------------------------------
subject to the prior payment in full of the preferential amounts to which any
Senior Stock is entitled, in the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the holders of
Convertible Preferred Stock shall be entitled to receive from the assets of the
Corporation available for distribution to stockholders, before any payment or
distribution shall be made to the holders of any Junior Stock, an amount in cash
(and, to the extent sufficient cash is not available for such payment, property
at its fair market value) per share, equal to the Liquidation Price of such
share of Convertible Preferred Stock as of the date of payment or distribution,
which payment or distribution shall be made pari passu with any such payment or
distribution made to the holders of any Parity Stock ranking on a parity basis
with the Convertible Preferred Stock with respect to distributions upon
liquidation, dissolution or winding up of the Corporation. Except as provided in
paragraph 3(b) below, the holders of Convertible Preferred Stock shall be
entitled to no other or further distribution of or participation in any
remaining assets of the Corporation after receiving the Liquidation Price per
share. If, upon distribution of the Corporation's assets in liquidation,
dissolution or winding up, the assets of the Corporation to be distributed among
the holders of the Convertible Preferred Stock and to all holders of any Parity
Stock ranking on a parity basis with the Convertible Preferred Stock with
respect to distributions upon liquidation, dissolution or winding up shall be
insufficient to permit payment in full to such holders of the respective
preferential amounts to which they are entitled, then the entire assets of the
Corporation to be distributed to holders of the Convertible Preferred Stock and
such Parity Stock shall be distributed pro rata to such holders based upon the
aggregate of the full preferential amounts to which the shares of Convertible
Preferred Stock and such Parity Stock would otherwise respectively be entitled.
In the event of (i) a consolidation or merger of the Corporation with or into
any other corporation or other entity in which the holders of all of the
Corporation's outstanding shares of capital stock immediately before the
<PAGE>
effectiveness of such transaction do not, immediately after the effectiveness of
such transaction, own capital stock representing a majority of the voting power
of the surviving corporation or other entity of such transaction (or the
immediate parent of such surviving corporation or other entity), or (ii) a sale
of all or substantially all of the assets of the Corporation other than in
connection with a Related Business Transaction (as defined below), the holders
of a majority of the outstanding shares of each series of the Corporation's
Preferred Stock, voting separately as a series (or consenting in writing), shall
be entitled to deem, solely as to the series of Preferred Stock which has so
voted or consented, such merger, consolidation or sale of assets to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this paragraph 3, provided, that written notice of such vote or such written
consents must be received by the Corporation at least five (5) days prior to the
effectiveness of such transaction; and provided further, that the Corporation
shall have provided holders of Convertible Preferred Stock with the notice
required to be delivered to them pursuant to paragraph 6(g) of Section C of this
Article IV of such deemed liquidation, dissolution or winding up of the
Corporation. For purposes of this Certificate, a "RELATED BUSINESS TRANSACTION"
shall mean any sale or other disposition of all or substantially all of the
properties and assets of the Corporation in which (i) the Corporation receives
as proceeds of such disposition primarily equity securities (including, without
limitation, capital stock, convertible securities, partnership or limited
partnership interests and other types of equity securities, without regard to
the voting power or contractual or other management or governance rights related
to such equity securities) of the purchaser or acquiror of such properties and
assets of the Corporation, including but not limited to any entity which
succeeds (by merger, formation of a joint venture enterprise or otherwise) to
such properties and assets of the Corporation (or the immediate parent of such
purchaser or acquiror), and (ii) the securities received by the Corporation,
immediately after the effectiveness of such transaction, have a majority of the
voting power of the purchaser or acquiror of such properties and assets of the
Corporation, including but not limited to any entity which succeeds (by merger,
formation of a joint venture enterprise or otherwise) to such properties and
assets of the Corporation (or the immediate parent of such purchaser or
acquiror). Notice of the liquidation, dissolution or winding up of the
Corporation shall be given, not less than 20 days prior to the date on which
such liquidation, dissolution or winding up or merger or sale of assets is
expected to take place or become effective, to the holders of record of the
shares of Convertible Preferred Stock, during which 20 day period such holders
shall continue to be entitled to exercise their conversion rights as set forth
in paragraph 6 of this Section C.
II.
The last full paragraph of Article IV, Section B, paragraph 4(b) is hereby
amended to read in its entirety as follows:
The Corporation shall not reclassify, subdivide or combine any
series of Common Stock without reclassifying, subdividing or combining all other
series of Common Stock on an equal per share basis.
* * * * * * * * * *
-2-
<PAGE>
IN WITNESS WHEREOF, said corporation has caused this Certificate of
Amendment to be executed and attested by its duly authorized officers this 11th
day of April, 1997.
AT HOME CORPORATION.
By: /s/ Thomas A. Jermoluk
-------------------------------------
Thomas A. Jermoluk
President and Chief Executive Officer
ATTEST:
/s/ David G. Pine
- -------------------------------
David G. Pine, Secretary
-3-
<PAGE>
EXHIBIT 3.03
CERTIFICATE OF DESIGNATION
OF
SERIES C CONVERTIBLE
PARTICIPATING PREFERRED STOCK
OF
AT HOME CORPORATION
Pursuant to Section 151 of the
Delaware General Corporation Law
At Home Corporation, a Delaware corporation (the "Corporation"), does
-----------
hereby certify that, pursuant to the authority contained in Article IV, Section
D of its Third Amended and Restated Certificate of Incorporation, and in
accordance with the provisions of Section 151 of the Delaware General
Corporation Law, the Corporation's Board of Directors (the "BOARD") has duly
adopted the following resolution creating a series of Series Preferred Stock (as
defined in such Third Amended and Restated Certificate of Incorporation)
designated as Series C Convertible Participating Preferred Stock:
RESOLVED, that the Corporation does hereby designate and create a series of
the authorized Series Preferred Stock designated as Series C Convertible
Participating Preferred Stock as follows:
ARTICLE I
DESIGNATION AND AMOUNT
Of the 10,000,000 shares of Series Preferred Stock authorized to
be issued by the Corporation, 350,000 shares are hereby designated as
"Series C Convertible Participating Preferred Stock," par value of $.01 per
share (the "SERIES C PREFERRED STOCK"). The Series C Preferred Stock shall
rank on a parity basis with the Corporation's Series AM Convertible
Participating Preferred Stock, Series AT Convertible Participating Preferred
Stock, Series AX Convertible Participating Preferred Stock, Series K
Convertible Participating Preferred Stock and Series T Convertible
Participating Preferred Stock as to dividend rights, rights of redemption
and rights on liquidation, and shall be deemed to be Parity Stock (as
defined in the Corporation's Third Amended and Restated Certificate of
Incorporation) as to each of such series. The preferences, and relative,
participating, optional and other special rights and qualifications,
limitations and restrictions of the Series C Preferred Stock are as set
forth in Article II hereof.
<PAGE>
ARTICLE II
SERIES C PREFERRED STOCK
The Series C Preferred Stock shall have the following
preferences, limitations and relative rights:
1. Certain Definitions. Each capitalized term used without
-------------------
definition in the Certificate of Designation (as defined below) shall have
the meaning given in the Certificate (as defined below). Unless the
context otherwise requires, the terms defined in this paragraph 1 shall
have, for all purposes of the Certificate of Designation, the meanings
herein specified:
"CERTIFICATE" shall mean the Third Amended and Restated
Certificate of Incorporation of the Corporation filed on August 14, 1996,
as it may from time to time hereafter be amended or restated.
"CERTIFICATE OF DESIGNATION" shall mean the Certificate of
Designation filed with the Secretary of State of the State of Delaware
which includes these resolutions, as it may from time to time hereafter be
amended or restated.
"COMMON STOCK" shall mean any series of Common Stock of the
Corporation.
"CONVERSION PRICE" of the Series C Preferred Stock shall
initially be $10.00 per share, and shall be adjusted from time to time
cumulatively pursuant to the provisions of paragraph 6.
"FILING DATE" shall mean, with respect to the Series C Preferred
Stock, the date on which the Certificate of Designation is filed with the
Secretary of State of the State of Delaware.
"IPO" shall mean the closing of an initial public offering of the
Series A Common Stock.
"ISSUE PRICE" of a share of Series C Preferred Stock shall
initially be $200.00 and shall be appropriately adjusted to take into
account any stock splits, reverse splits and the like occurring after the
Filing Date.
"LIQUIDATION PRICE" measured per share of the Series C Preferred
Stock as of the date in question (the "DETERMINATION DATE"), shall mean an
amount equal to the sum of (a) $200.00, as appropriately adjusted to take
into account any stock splits, reverse splits and the like occurring after
the Filing Date, plus (b) an amount equal to all dividends which have
theretofore been declared but which are unpaid as of the Determination Date
on such share of Series C Preferred Stock. In connection with the
determination of the Liquidation Price of a share of Series C Preferred
Stock upon any liquidation, dissolution or winding up of the Corporation,
the Determination Date shall be
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<PAGE>
the record date for the distribution of amounts payable to stockholders in
connection with any such liquidation, dissolution or winding up.
"SERIES A COMMON STOCK" shall mean the Series A Common Stock, par
value $.01 per share, of the Corporation.
2. Dividends.
---------
(a) Dividend Rights; Dividend Payment Dates. Subject to the
---------------------------------------
prior preferences and other rights of any Senior Stock and the provisions
of Article IV of the Certificate and Article II of the Certificate of
Designation, the holders of Series C Preferred Stock shall be entitled to
receive, when, as and if declared by the Board, in its discretion, but
prior and in preference to any declaration or payment of dividends on any
Junior Stock, out of unrestricted funds legally available therefor,
quarterly cash dividends per share at the rate of 10.0% per annum of the
Issue Price (the "SERIES C PREFERRED DIVIDEND"). The Series C Preferred
Dividend shall be noncumulative; that is, the Series C Preferred Dividend
shall be paid only when, as and if declared by the Board, it being intended
that a Series C Preferred Dividend not declared in any quarter will not be
carried over to a future quarter.
(b) Dividends on Junior Stock. In addition, following the
-------------------------
payment of the Series C Preferred Dividend for any period, in the event
that the Board proposes, subject to the provisions of this paragraph, to
declare or pay a dividend on any Junior Stock in cash or consisting of
assets, property or securities other than Common Stock, then the holders of
Series C Preferred Stock shall be entitled to receive, when and as declared
by the Board, an additional dividend amount (the "SERIES C PARTICIPATING
DIVIDEND") determined as follows: (i) in the event that a dividend is
declared with respect to Junior Stock (other than Common Stock (or any
other security that is convertible into, or exercisable or exchangeable
for, Common Stock)), the Series C Participating Dividend payable to the
holders of the Series C Preferred Stock shall equal an amount per share
equal to the dividend to be paid on each share or other unit of Junior
Stock multiplied by a fraction, the numerator of which is the Liquidation
Price of a share of Series C Preferred Stock and the denominator of which
is the lowest of (x) the Liquidation Price (if applicable), (y) the
redemption price (if applicable) and (z) the price at which such share or
unit was originally purchased (as adjusted for stock splits, stock
dividends and the like occurring after the Filing Date), of a share or
other unit of such Junior Stock; or (ii) in the event that a dividend is
declared with respect to Junior Stock which is Common Stock or such Junior
Stock is convertible into, or exercisable or exchangeable for, Common
Stock, then the amount of the Series C Participating Dividend per share of
Series C Preferred Stock shall be (x) (1) the amount of the dividend to be
paid on a single share of Common Stock, or (2) if such Junior Stock is
convertible into, or exercisable or exchangeable for, Common Stock, such
amount as would be payable on each share of Common Stock into which such
Junior Stock is convertible into or exercisable or exchangeable for,
multiplied by (y) the number of shares of Common Stock into which a share
of Series C Preferred Stock may then be converted. Dividends payable on
the Series C Preferred Stock shall be calculated on the basis of a 360-day
year of twelve 30-day months. Dividends on the
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<PAGE>
Series C Preferred Stock will be payable, as provided in paragraph 2(e)
below, to the holders of record of the Series C Preferred Stock as of the
close of business on the Record Date for such dividend payment.
(c) Dividends on Parity Stock. So long as any shares of
-------------------------
Series C Preferred Stock are outstanding and dividends on such shares of
Series C Preferred Stock have not been (or are not contemporaneously)
declared and paid in full for the two immediately preceding Dividend
Periods, no dividends shall be declared or paid or set apart for payment by
the Corporation upon any Convertible Preferred Stock or Parity Stock;
provided, however, that a dividend may be declared and paid (regardless of
-------- -------
whether such dividends have been paid for any preceding Dividend Period)
pro rata with respect to all Series C Preferred Stock, Convertible
Preferred Stock and Parity Stock then outstanding such that the amounts of
any dividends declared per share on the Series C Preferred Stock and such
Convertible Preferred Stock and Parity Stock shall in all cases bear to
each other the same ratio that (i) the Series C Preferred Dividend
(assuming such dividend had been declared by the Board) and, if applicable,
any Series C Participating Dividend (collectively, the "SERIES C FULL
DIVIDEND") per share of Series C Preferred Stock for the then-current
Dividend Period, (ii) the Convertible Full Dividend per share of
Convertible Preferred Stock, and (iii) dividends on shares of such other
Parity Stock for the then-current Dividend Period (excluding any
accumulated or accrued dividends on such Parity Stock), respectively, bear
to each other.
(d) Other Limitations on Dividends and Repurchases. If the
-----------------------------------------------
Series C Full Dividend has not been declared and paid or set apart for
payment for the Dividend Payment Date falling in the then-current Dividend
Period, then, with respect to such then-current Dividend Period, (i) the
Corporation shall not declare or pay any dividend on, or make any
distribution with respect to, any Junior Stock or set aside any money or
assets for such purpose and (ii) the Corporation shall not repurchase,
redeem or otherwise acquire for value any shares of its Junior Stock, any
equity securities of any Subsidiary of the Corporation or any options,
warrants or other rights to acquire such securities; provided, however,
-------- -------
that the Corporation may at any time, out of funds legally available
therefor, make any Permitted Repurchase.
(e) Special Record Date. Dividends may be declared and paid
-------------------
at any time (subject to the rights of any Senior Stock and, if applicable,
to the concurrent satisfaction of any dividend arrearages then existing
with regard to any Convertible Preferred Stock and any Parity Stock which
ranks on a parity basis with the Series C Preferred Stock as to the payment
of dividends) without reference to the regular Dividend Payment Date, to
holders of record as of the close of business on any Special Record Date.
Notice of each Special Record Date shall be given, not more than 45 days
nor less than 10 days prior thereto, to the holders of record of the shares
of Series C Preferred Stock.
(f) Pro Rata Payment. All dividends paid with respect to
----------------
the shares of Series C Preferred Stock pursuant to this paragraph 2 shall
be paid pro rata to all
-4-
<PAGE>
the holders of shares of Series C Preferred Stock outstanding on the
applicable Record Date or Special Record Date, as the case may be.
3. Distributions Upon Liquidation, Dissolution or Winding Up.
---------------------------------------------------------
Subject to the prior payment in full of the preferential amounts to which
any Senior Stock is entitled, in the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, the
holders of Series C Preferred Stock shall be entitled to receive from the
assets of the Corporation available for distribution to stockholders,
before any payment or distribution shall be made to the holders of any
Junior Stock, an amount in cash (and, to the extent sufficient cash is not
available for such payment, property at its fair market value) per share,
equal to the Liquidation Price of such share of Series C Preferred Stock as
of the date of payment or distribution, which payment or distribution shall
be made pari passu with any such payment or distribution made to the
---- -----
holders of any Convertible Preferred Stock and any Parity Stock ranking on
a parity basis with the Series C Preferred Stock with respect to
distributions upon liquidation, dissolution or winding up of the
Corporation. The holders of Series C Preferred Stock shall be entitled to
no other or further distribution of or participation in any remaining
assets of the Corporation after receiving the Liquidation Price per share.
If, upon distribution of the Corporation's assets in liquidation,
dissolution or winding up, the assets of the Corporation to be distributed
among the holders of the Series C Preferred Stock, the Convertible
Preferred Stock and all holders of any Parity Stock ranking on a parity
basis with the Series C Preferred Stock with respect to distributions upon
liquidation, dissolution or winding up shall be insufficient to permit
payment in full to such holders of the respective preferential amounts to
which they are entitled, then the entire assets of the Corporation to be
distributed to holders of the Series C Preferred Stock, the Convertible
Preferred Stock and such Parity Stock shall be distributed pro rata to such
holders based upon the aggregate of the full preferential amounts to which
the shares of Series C Preferred Stock, Convertible Preferred Stock and
such Parity Stock would otherwise respectively be entitled. In the event
of (i) a consolidation or merger of the Corporation with or into any other
corporation or other entity in which the holders of all of the
Corporation's outstanding shares of capital stock immediately before the
effectiveness of such transaction do not, immediately after the
effectiveness of such transaction, own capital stock representing a
majority of the voting power of the surviving corporation or other entity
of such transaction (or the immediate parent of such surviving corporation
or other entity), or (ii) a sale of all or substantially all of the assets
of the Corporation other than in connection with a Related Business
Transaction (as defined below), the holders of a majority of the
outstanding shares of Series C Preferred Stock, voting separately as a
series (or consenting in writing), shall be entitled to deem, solely as to
the Series C Preferred Stock, such merger, consolidation or sale of assets
to be a liquidation, dissolution or winding up of the Corporation within
the meaning of this paragraph 3, provided, that written notice of such vote
or such written consents must be received by the Corporation at least five
(5) days prior to the effectiveness of such transaction; and provided
further, that the Corporation shall have provided holders of Series C
Preferred Stock with the notice required to be delivered to them pursuant
to paragraph 6(h) below of such deemed liquidation, dissolution or winding
up of the
-5-
<PAGE>
Corporation. For purposes of this Certificate, a "RELATED BUSINESS
TRANSACTION" shall mean any sale or other disposition of all or
substantially all of the properties and assets of the Corporation in which
(i) the Corporation receives as proceeds of such disposition primarily
equity securities (including, without limitation, capital stock,
convertible securities, partnership or limited partnership interests and
other types of equity securities, without regard to the voting power or
contractual or other management or governance rights related to such equity
securities) of the purchaser or acquiror of such properties and assets of
the Corporation, including but not limited to any entity which succeeds (by
merger, formation of a joint venture enterprise or otherwise) to such
properties and assets of the Corporation (or the immediate parent of such
purchaser or acquiror), and (ii) the securities received by the
Corporation, immediately after the effectiveness of such transaction, have
a majority of the voting power of the purchaser or acquiror of such
properties and assets of the Corporation, including but not limited to any
entity which succeeds (by merger, formation of a joint venture enterprise
or otherwise) to such properties and assets of the Corporation (or the
immediate parent of such purchaser or acquiror). Notice of the liquidation,
dissolution or winding up of the Corporation shall be given, not less than
20 days prior to the date on which such liquidation, dissolution or winding
up or merger or sale of assets is expected to take place or become
effective, to the holders of record of the shares of Series C Preferred
Stock, during which 20 day period such holders shall continue to be
entitled to exercise their conversion rights as set forth in paragraph 6 of
this Article II.
4. [Intentionally omitted]
5. Status of Reacquired Series C Preferred Stock. In the event
---------------------------------------------
that the Corporation repurchases or otherwise reacquires shares of Series C
Preferred Stock, such shares shall be retired and shall not be reissued.
6. Conversion.
----------
(a) Optional and Mandatory Conversion. Each outstanding
----------------------------------
share of Series C Preferred Stock shall be convertible at the option of the
holder at any time into fully paid and non-assessable full shares of Series
A Common Stock at the then effective Conversion Rate (as defined below) for
such shares. In addition, subject to the receipt of any required regulatory
consents or approvals or the filing of any required notices with any
governmental entities and the expiration of any waiting period related
thereto, the holders of all shares of Series C Preferred Stock that are
outstanding immediately prior to the IPO shall be deemed to have converted
such shares into shares of Series A Common Stock immediately prior to the
IPO (after giving effect to the adjustments in this paragraph 6 (such
conversion upon the IPO is referred to herein as the "MANDATORY
CONVERSION"). All such conversions of Series C Preferred Stock shall be
effected in such manner and upon such terms and conditions as hereinafter
provided in this paragraph 6. In case cash, securities or property other
than Series A Common Stock shall be payable, deliverable or issuable upon
conversion as provided herein, then all references to Series A Common Stock
in this paragraph 6 shall be deemed to apply, so far as appropriate and as
nearly as may be, to such cash, property or other securities.
-6-
<PAGE>
Notwithstanding anything to the contrary in this Article II, subject to the
provisions for adjustment hereinafter set forth in this paragraph 6, any
provisions in this Article II that refer to a conversion of the Series C
Preferred Stock shall mean the conversion of the Series C Preferred Stock
into the Series A Common Stock.
(b) Conversion Rate and Conversion Price. Subject to the
-------------------------------------
provisions for adjustment hereinafter set forth in this paragraph 6, the
Series C Preferred Stock may be converted into Series A Common Stock at a
conversion rate of that number of fully paid and non-assessable shares of
Series A Common Stock for each share of Series C Preferred Stock so
converted that is equal to the Issue Price of the Series C Preferred Stock
divided by the Conversion Price determined in accordance with this
paragraph 6. This conversion rate as from time to time adjusted
cumulatively pursuant to the provisions of this paragraph 6 is hereinafter
referred to as the "CONVERSION RATE."
(c) Adjustments for Stock Splits, Stock Dividends, Etc. In
---------------------------------------------------
case after the Filing Date the Corporation shall (i) pay a dividend or make
a distribution on its outstanding shares of Series A Common Stock in shares
of its Common Stock, (ii) subdivide the then outstanding shares of Series A
Common Stock into a greater number of shares of Series A Common Stock,
(iii) combine the then outstanding shares of Series A Common Stock into a
smaller number of shares of Series A Common Stock, or (iv) issue by
reclassification of its shares of Series A Common Stock any shares of any
other class of capital stock of the Corporation (including any such
reclassification in connection with a merger in which the Corporation is
the continuing corporation), then the Conversion Price in effect
immediately prior to the opening of business on the record date for such
dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be adjusted so that the holder of
each share of the Series C Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number and kind of shares of
capital stock of the Corporation that such holder would have owned or been
entitled to receive immediately following such action had such shares of
Series C Preferred Stock been converted immediately prior to such time into
shares of Series A Common Stock. An adjustment made pursuant to this
paragraph 6(c) for a dividend or distribution shall become effective
immediately after the record date for the dividend or distribution and an
adjustment made pursuant to this paragraph 6(c) for a subdivision,
combination or reclassification shall become effective immediately after
the effective date of the subdivision, combination or reclassification.
Such adjustment shall be made successively whenever any action listed above
shall be taken.
(d) Adjustments for Reclassification, Merger, Etc. In case
----------------------------------------------
of any reclassification or change in the Series A Common Stock (other than
any reclassification or change referred to in paragraph 6(c) and other than
a change in par value) or in case of any consolidation of the Corporation
with any other corporation or any merger of the Corporation into another
corporation or of another corporation into the Corporation (other than a
merger in which the Corporation is the continuing corporation and which
does not result in any reclassification or change (other than a change in
par value or any reclassification or change to which paragraph 6(c) is
applicable) in the outstanding Series A Common Stock), or in case of any
sale or transfer to another
-7-
<PAGE>
corporation or entity (other than by mortgage or pledge) of all or
substantially all of the properties and assets of the Corporation, in any
such case after the Filing Date, the Corporation (or its successor in such
consolidation or merger) or the purchaser of such properties and assets
shall make appropriate provision so that the holder of a share of the
Series C Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property that such holder would have owned immediately after such
reclassification, change, consolidation, merger, sale or transfer if such
holder had converted such share into Series A Common Stock, immediately
prior to the effective date of such reclassification, change,
consolidation, merger, sale or transfer (assuming for this purpose (to the
extent applicable) that such holder failed to exercise any rights of
election and received per share of Series A Common Stock the kind and
amount of shares of stock and other securities and property received per
share by a plurality of the non-electing shares), and the holders of the
Series C Preferred Stock shall have no other conversion rights under these
provisions; provided, that effective provision shall be made, in the
Articles or Certificate of Incorporation of the resulting or surviving
corporation or otherwise or in any contracts of sale or transfer, so that
the provisions set forth herein for the protection of the conversion rights
of the Series C Preferred Stock shall thereafter be made applicable, as
nearly as reasonably may be to any such other shares of stock and other
securities and property deliverable upon conversion of the Series C
Preferred Stock remaining outstanding or other convertible preferred stock
or other Convertible Securities received by the holders of Series C
Preferred Stock in place thereof; and provided, further, that any such
resulting or surviving corporation or purchaser shall expressly assume the
obligation to deliver, upon the exercise of the conversion privilege, such
shares, securities or property as the holders of the Series C Preferred
Stock remaining outstanding, or other convertible preferred stock or other
convertible securities received by the holders in place thereof, shall be
entitled to receive pursuant to the provisions hereof, and to make
provisions for the protection of the conversion rights as above provided.
(e) Sale of Shares Below Conversion Price.
-------------------------------------
(i) Adjustment Upon IPO. If the Corporation issues or
-------------------
sells shares of Series A Common Stock in the IPO for an IPO Effective Price
(as hereinafter defined) that is less than the Conversion Price for the
Series C Preferred Stock, then, and in such case, the Conversion Price for
the Series C Preferred Stock that is in effect immediately prior to the IPO
shall be reduced, immediately prior to the IPO, to the IPO Effective Price
at which such shares of Series A Common Stock are so issued or sold upon
the IPO. The "IPO EFFECTIVE PRICE" at which shares of Series A Common Stock
sold by the Corporation upon the IPO shall mean the quotient determined by
dividing the total number of shares of Series A Common Stock which are sold
by the Corporation upon the IPO, into the Aggregate Consideration Received
by the Corporation for the issue of such shares of Series A Common Stock.
The "AGGREGATE CONSIDERATION RECEIVED" by the Corporation for Series A
Common Stock in the IPO shall be computed at the gross amount of cash
received by the Corporation before deduction of any underwriting or similar
commissions, compensation or concessions paid or allowed by
-8-
<PAGE>
the Corporation in connection with such issue or sale and without deduction
of any expenses payable by the Corporation.
(ii) Weighted Average Adjustment Formula. If at any
-----------------------------------
time or from time to time after the Filing Date the Corporation issues or
sells, or is deemed by the provisions of this paragraph 6(e) to have issued
or sold, Additional Shares of Series A Common Stock (as hereinafter
defined), otherwise than in connection with an action as provided in
paragraph 6(c) or a reclassification, merger, IPO, other change or issuance
as provided in paragraph 6(d), at an Effective Price (as hereinafter
defined) that is less than the Conversion Price for the Series C Preferred
Stock in effect immediately prior to such issue or sale, then and in each
such case, the Conversion Price for the Series C Preferred Stock shall be
reduced, as of the close of business on the date of such issue or sale, to
the price obtained by multiplying such Conversion Price by a fraction (x)
the numerator of which shall be the sum of (I) the number of Series A
Common Stock Equivalents Outstanding (as hereinafter defined) immediately
prior to such issue or sale of Additional Shares of Series A Common Stock
plus (II) the quotient obtained by dividing the Aggregate Consideration
Received (as hereinafter defined) by the Corporation for the total number
of Additional Shares of Series A Common Stock so issued or sold (or deemed
so issued and sold), by the Conversion Price for the Series C Preferred
Stock in effect immediately prior to such issue or sale and (y) the
denominator of which shall be the sum of (I) the number of Series A Common
Stock Equivalents Outstanding immediately prior to such issue or sale plus
(II) the number of Additional Shares of Series A Common Stock so issued or
sold (or deemed so issued and sold).
(iii) Certain Definitions. For the purpose of making
-------------------
any adjustment required under this paragraph 6(e):
(A) "Additional Shares of Series A Common
------------------------------------
Stock" shall mean all shares of Series A Common Stock issued by the
-----
Corporation, other than: (I) shares of Series B Common Stock issuable upon
conversion of shares of Series T Preferred, shares of Series A Common Stock
issued or issuable upon conversion of shares of Series B Common Stock,
Series K Common Stock, Series AM Preferred Stock, Series AT Preferred
Stock, Series AX Preferred Stock or Series C Preferred Stock, shares of
Series K Common Stock issued or issuable upon the conversion of shares of
Series K Preferred, or any other shares of Series A Common Stock issuable
upon conversion or exercise of any subscription, option, warrant, right,
convertible security or other agreement, instrument, or commitment of any
character that is outstanding immediately after the date on which shares of
Series C Preferred Stock are first issued obligating (contingently or
absolutely) the Corporation to issue or sell any shares of Series A Common
Stock; (II) shares of Series A Common Stock (or options, warrants or rights
therefor) or other capital stock of the Corporation issued to employees,
officers, or directors of, or contractors, consultants, lenders, vendors or
advisors to, the Corporation, or to other persons with a similar business
relationship to the Corporation pursuant to stock purchase or stock option
plans, stock bonuses or awards, warrants, contracts or other arrangements
that are approved by the Board; (III) any options, stock or other
-9-
<PAGE>
securities issued by the Corporation to a business or corporation, or to
principals, officers, directors or stockholders of such business or
corporation (whether or not they are subsequently employed by the
Corporation), in connection with a joint venture or business combination or
the acquisition of another corporation, business, product or technology or
distribution commitment by the Corporation, whether by merger, purchase of
assets or stock, reorganization, or similar transaction, if approved by the
Board; and (IV) securities issued in a transaction which is not otherwise
included in (I), (II) or (III) above if the holders of a majority of the
outstanding Series C Preferred Stock agree in writing that the issuance of
such securities shall not result in an adjustment to the Conversion Price.
Notwithstanding the provision of clause (II) above, for purposes of clause
(II) above, Additional Shares of Series A Common Stock shall include shares
of Series A Common Stock or options, warrants or rights to acquire shares
of Series A Common Stock which are issued primarily for the purpose of
raising equity capital to fund the business of the Corporation, but shall
not include any such issuances made to provide inducements in connection
with bona fide debt financing transactions with banks, savings and loan
associations or other institutional lenders.
(B) The "Aggregate Consideration Received" by the
--------------------------------
Corporation for any issue or sale (or deemed issue or sale) of securities
shall (I) to the extent it consists of cash, be computed at the gross
amount of cash received by the Corporation before deduction of any
underwriting, broker, placement agency or similar commissions, compensation
or concessions paid or allowed by the Corporation in connection with such
issue or sale and without deduction of any expenses payable by the
Corporation; (II) to the extent it consists of property other than cash, be
computed at the fair value of that property as determined in good faith by
the Board; and (III) if Additional Shares of Series A Common Stock,
Convertible Securities or Rights or Options to purchase either Additional
Shares of Series A Common Stock or Convertible Securities are issued or
sold together with other stock or securities or other assets of the
Corporation for a consideration which covers both, be computed as the
portion of the consideration so received that may be reasonably determined
in good faith by the Board to be allocable to such Additional Shares of
Series A Common Stock, Convertible Securities or Rights or Options.
(C) "Series A Common Stock Equivalents
---------------------------------
Outstanding" shall mean the number of shares of Series A Common Stock that
-----------
is equal to the sum of (I) all shares of Series A Common Stock of the
Corporation that are outstanding at the time in question, plus (II) all
shares of Series A Common Stock of the Corporation issuable upon conversion
of all shares of Preferred Stock or other Convertible Securities that are
outstanding at the time in question, plus (III) all shares of Series A
Common Stock of the Corporation that are issuable upon the exercise of
Rights or Options that are outstanding at the time in question assuming the
full conversion or exchange into Series A Common Stock of all such Rights
or Options that are Rights or Options to purchase or acquire Convertible
Securities convertible into or exchangeable for Series A Common Stock.
-10-
<PAGE>
(D) "Convertible Securities" shall mean stock or
----------------------
other securities convertible directly or indirectly into or exchangeable
for shares of Series A Common Stock.
(E) The "Effective Price" of Additional Shares of
---------------
Series A Common Stock shall mean the quotient determined by dividing the
total number of Additional Shares of Series A Common Stock issued or sold,
or deemed to have been issued or sold, by the Corporation under this
paragraph (e), into the Aggregate Consideration Received, or deemed to have
been received, by the Corporation under this paragraph (e), for this issue
of such Additional Shares of Series A Common Stock; and
(F) "Rights or Options" shall mean warrants,
-----------------
options or other rights to purchase or acquire shares of Series A Common
Stock or Convertible Securities.
(iv) Deemed Issuances. For the purpose of making any
----------------
adjustment to the Conversion Price of the Series C Preferred Stock required
under this paragraph (e), if the Corporation issues or sells any Rights or
Options or Convertible Securities and if the Effective Price of the shares
of Series A Common Stock issuable upon exercise of such Rights or Options
and/or the conversion or exchange of Convertible Securities (computed
without reference to any additional or similar protective or antidilution
clauses) is less than the Conversion Price then in effect for the Series C
Preferred Stock, then the Corporation shall be deemed to have issued, at
the time of the issuance of such Rights or Options or Convertible
Securities, that number of Additional Shares of Series A Common Stock that
is equal to the maximum number of shares of Series A Common Stock issuable
upon exercise or conversion of such Rights or Options or Convertible
Securities upon their issuance and to have received, as the Aggregate
Consideration Received for the issuance of such shares, an amount equal to
the Aggregate Consideration Received, if any, by the Corporation for the
issuance of such Rights or Options or Convertible Securities, plus, in the
case of such Rights or Options, the minimum amount of consideration, if
any, payable to the Corporation upon the exercise in full of such Rights or
Options, plus, in the case of Convertible Securities, the minimum amounts
of consideration, if any, payable to the Corporation (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion or exchange thereof; provided that:
-------- ----
(A) if the minimum amounts of such consideration
cannot be ascertained, but are a function of antidilution or similar
protective clauses, then the Corporation shall be deemed to have received
the minimum amounts of consideration without reference to such clauses;
(B) if the minimum amount of consideration
payable to the Corporation upon the exercise of Rights or Options or the
conversion or exchange of Convertible Securities is reduced over time or
upon the occurrence or non-occurrence of specified events other than by
reason of antidilution or similar protective
-11-
<PAGE>
adjustments, then the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced; and
(C) if the minimum amount of consideration
payable to the Corporation upon the exercise of such Rights or Options or
the conversion or exchange of Convertible Securities is subsequently
increased, then the Effective Price shall again be recalculated using the
increased minimum amount of consideration payable to the Corporation upon
the exercise of such Rights or Options or the conversion or exchange of
such Convertible Securities.
No further adjustment of the Conversion Price, adjusted
upon the issuance of such Rights or Options or Convertible Securities,
shall be made as a result of the actual issuance of shares of Series A
Common Stock on the exercise of any such Rights or Options or the
conversion or exchange of any such Convertible Securities. If any such
Rights or Options or the conversion rights represented by any such
Convertible Securities shall expire without having been fully exercised,
then the Conversion Price as adjusted upon the issuance of such Rights or
Options or Convertible Securities shall be readjusted to the Conversion
Price which would have been in effect had an adjustment been made on the
basis that the only shares of Series A Common Stock so issued were the
shares of Series A Common Stock, if any, that were actually issued or sold
on the exercise of such Rights or Options or rights of conversion or
exchange of such Convertible Securities, and such shares of Series A Common
Stock, if any, were issued or sold for the consideration actually received
by the Corporation upon such exercise, plus the consideration, if any,
actually received by the Corporation for the granting of all such Rights or
Options, whether or not exercised, plus the consideration received for
issuing or selling all such Convertible Securities actually converted or
exchanged, plus the consideration, if any, actually received by the
Corporation (other than by cancellation of liabilities or obligations
evidenced by such Convertible Securities) on the conversion or exchange of
such Convertible Securities, provided that such readjustment shall not
apply to prior conversions of Series C Preferred Stock.
(f) Notice of Adjustments in Conversion Rates. Whenever the
------------------------------------------
Conversion Price or the Conversion Rate or the conversion privilege shall
be adjusted as provided in paragraphs 6(c) or (d), the Corporation shall
promptly cause a notice to be mailed to the holders of record of the Series
C Preferred Stock describing the nature of the event requiring such
adjustment, the Conversion Price and Conversion Rate in effect immediately
thereafter and the kind and amount of stock or other securities or property
into which the Series C Preferred Stock shall be convertible after such
event. Where appropriate, such notice may be given in advance and included
as a part of a notice required to be mailed under the provisions of
paragraph 6(g).
(g) Calculation and Timing of Adjustments. The Corporation
--------------------------------------
may, but shall not be required to, make any adjustment of the Conversion
Price if such adjustment would require an increase or decrease of less than
1% in such Conversion Price; provided, however, that any adjustments which
by reason of this paragraph 6(f) are not required to be made shall be
carried forward and taken into account in any subsequent
-12-
<PAGE>
adjustment. All calculations under this paragraph 6 shall be made to the
nearest 1/100th of a share. In any case in which this paragraph 6(f) shall
require that an adjustment shall become effective immediately after a
record date for such event, the Corporation may defer until the occurrence
of such event (x) issuing to the holder of any shares of Series C Preferred
Stock converted after such record date and before the occurrence of such
event the additional shares of Series A Common Stock or other capital stock
issuable upon such conversion by reason of the adjustment required by such
event over and above the shares of Series A Common Stock or other capital
stock issuable upon such conversion before giving effect to such adjustment
and (y) paying to such holder cash in lieu of any fractional interest to
which such holder is entitled pursuant to paragraph 6(l); provided,
however, that, if requested by such holder, the Corporation shall deliver
to such holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares of Series A Common Stock
or other capital stock, and such cash, upon the occurrence of the event
requiring such adjustment.
(h) Notice of Certain Events. In case at any time:
-------------------------
(i) the Corporation shall take any action which
would require an adjustment in the Conversion Price or Conversion Rate
pursuant to this paragraph 6;
(ii) there shall be any capital reorganization or
reclassification of the Common Stock (other than a change in par
value), or any consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of the Corporation is
required, or any sale, transfer or lease of all or substantially all
of the properties and assets of the Corporation, or a tender offer for
shares of Common Stock representing at least a majority of the total
voting power represented by the outstanding shares of Common Stock
which has been recommended by the Board as being in the best interests
of the holders of Common Stock; or
(iii) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, including
without limitation any consolidation or merger, or sale of all or
substantially all of the assets of the Corporation, that could entitle
a holder of Series C Preferred Stock to treat such transaction as a
liquidation under the provisions of paragraph 3;
then, in any such event, the Corporation shall give written notice to the
holders of the Series C Preferred Stock at their respective addresses as
the same appear on the books of the Corporation, at least twenty days (or
ten days in the case of a recommended tender offer as specified in clause
(ii) above) prior to any record date for such action, dividend or
distribution or the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock
for securities or other property, if any, deliverable upon such
reorganization, reclassification, consolidation, merger, sale, transfer,
lease, tender offer, dissolution, liquidation or winding up, during which
period such holders may exercise their conversion rights; provided,
however, that
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<PAGE>
any notice required by any event described in clause (ii) of this paragraph
6(g) shall be given in the manner and at the time that such notice is given
to the holders of Common Stock. Without limiting the obligations of the
Corporation to provide notice of corporate actions hereunder, the failure
to give the notice required by this paragraph 6(g) or any defect therein
shall not affect the legality or validity of any such corporate action of
the Corporation or the vote upon such action.
(i) Procedures for Conversion. Before any holder of Series
--------------------------
C Preferred Stock shall be entitled to convert the same into Series A
Common Stock (or, in the case of the Mandatory Conversion, before any
holder of Series C Preferred Stock so converted shall be entitled to
receive a certificate or certificates evidencing the shares of Series A
Common Stock issuable upon such conversion), such holder shall surrender
the certificate or certificates for such Series C Preferred Stock at the
office of the Corporation or at the office of the transfer agent for the
Series C Preferred Stock, which certificate or certificates, if the
Corporation shall so request, shall be duly endorsed to the Corporation or
in blank or accompanied by proper instruments of transfer to the
Corporation or in blank (such endorsements or instruments of transfer to be
in form satisfactory to the Corporation), and shall give written notice to
the Corporation at said office that such holder elects to convert all or a
part of the shares represented by said certificate or certificates (or, in
the case of the Mandatory Conversion, that such holder is surrendering the
same) in accordance with the terms of this paragraph 6, and shall state in
writing therein the name or names in which such holder wishes the
certificates for Series A Common Stock to be issued. Every such notice of
election to convert shall constitute a contract between the holder of such
Series C Preferred Stock and the Corporation, whereby the holder of such
Series C Preferred Stock shall be deemed to subscribe for the amount of
Series A Common Stock which such holder shall be entitled to receive upon
conversion of the number of shares of Series C Preferred Stock to be
converted, and, in satisfaction of such subscription, to deposit the shares
of Series C Preferred Stock to be converted, and thereby the Corporation
shall be deemed to agree that the surrender of the shares of Series C
Preferred Stock to be converted shall constitute full payment of such
subscription for Series A Common Stock to be issued upon such conversion.
The Corporation will as soon as practicable after such deposit of a
certificate or certificates for Series C Preferred Stock, accompanied by
the written notice and the statement above prescribed, issue and deliver at
the office of the Corporation or of said transfer agent to the Person for
whose account such Series C Preferred Stock was so surrendered, or to his
nominee(s) or, subject to compliance with applicable law, transferee(s), a
certificate or certificates for the number of full shares of Series A
Common Stock to which such holder shall be entitled, together with cash in
lieu of any fraction of a share as hereinafter provided together with an
amount in cash equal to the full amount of any cash dividend declared (or
required to be declared) on the Series C Preferred Stock which, as of the
date of such conversion, remains unpaid (provided that the Corporation will
use commercially reasonable efforts to make such delivery within two
Business Days after such deposit and such notice and statement). If
surrendered certificates for Series C Preferred Stock are converted only in
part, the Corporation will issue and deliver to the holder, or to his
nominee(s), without charge therefor, a new certificate or certificates
representing the
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<PAGE>
aggregate of the unconverted shares. Such conversion shall be deemed to
have been made as of the date of such surrender of the Series C Preferred
Stock to be converted or immediately prior to the Mandatory Conversion; and
the Person or Persons entitled to receive the Series A Common Stock
issuable upon conversion of such Series C Preferred Stock shall be treated
for all purposes as the record holder or holders of such Series A Common
Stock on such date; provided, however, that the conversion may, at the
-------- -------
option of any holder surrendering Series C Preferred Stock for conversion,
be conditioned upon the IPO or upon notice by such holder to the
Corporation of the occurrence of any other specified event, as the case may
be.
(j) Transfer Taxes. The issuance of certificates for shares
---------------
of Series A Common Stock upon conversion of shares of Series C Preferred
Stock shall be made without charge for any issue, stamp or other similar
tax in respect of such issuance, provided, however, if any such certificate
is to be issued in a name other than that of the registered holder of the
share or shares of Series C Preferred Stock converted, the Person or
Persons requesting the issuance thereof shall pay to the Corporation the
amount of any tax which may be payable in respect of any transfer involved
in such issuance or shall establish to the satisfaction of the Corporation
that such tax has been paid.
(k) Reservation of Shares. The Corporation shall reserve
----------------------
and keep available at all times thereafter, solely for the purpose of
issuance upon conversion of the outstanding shares of Series C Preferred
Stock, such number of shares of Series A Common Stock as shall be issuable
upon the conversion of all outstanding shares of Series C Preferred Stock,
provided that nothing contained herein shall be construed to preclude the
Corporation from satisfying its obligations in respect of the conversion of
the outstanding shares of Series C Preferred Stock by delivery of shares of
Series A Common Stock which are held in the treasury of the Corporation.
The Corporation shall take all such corporate and other actions as from
time to time may be necessary to insure that all shares of Series A Common
Stock issuable upon conversion of shares of outstanding Series C Preferred
Stock at the Conversion Rate in effect from time to time will, upon issue,
be duly and validly authorized and issued, fully paid and nonassessable and
free of any preemptive or similar rights.
(l) Retirement of Series C Preferred Stock. All shares of
---------------------------------------
Series C Preferred Stock received by the Corporation upon conversion
thereof into Series A Common Stock shall be retired and shall not be
reissued. All shares of Series C Preferred Stock that are authorized but
unissued as of the IPO shall be retired as of the IPO and the Mandatory
Conversion and shall not be reissued, and the Corporation shall use its
best efforts to file a certificate of elimination to eliminate all matters
set forth in the certificate of incorporation of the Corporation with
respect to the Series C Preferred Stock.
(m) Payment in Lieu of Fractional Shares. The Corporation
-------------------------------------
shall not be required to issue fractional shares of Series A Common Stock
or scrip upon conversion of the Series C Preferred Stock. As to any final
fraction of a share of Series A Common Stock which a holder of one or more
shares of Series C Preferred Stock would
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<PAGE>
otherwise be entitled to receive upon conversion of such shares in the same
transaction, the Corporation shall pay a cash adjustment in respect of such
final fraction in an amount equal (I) if the Corporation is a Public
Company, to the same fraction of the market value of a full share of Series
A Common Stock or (II) if the Corporation is not a Public Company, to the
same fraction of the fair market value of a share of Series A Common Stock
as determined in good faith by the Board. For the purpose of any
computation under this paragraph 6 requiring the determination of the
current market value per share of Series A Common Stock, if the Corporation
is a Public Company, such value at any date shall be deemed to be the
average of the daily closing prices for a share of Series A Common Stock
for the ten (10) consecutive trading days before the day in question. The
closing price for each day shall be the last reported sale price regular
way or, in case no such reported sale takes place on such day, the average
of the reported closing bid and asked prices regular way, in either case on
the composite tape, or if the shares of Series A Common Stock are not
quoted on the composite tape, on the principal United States securities
exchange registered under the Exchange Act, on which the shares of Series A
Common Stock are listed or admitted to trading, or if they are not listed
or admitted to trading on any such exchange, the last reported sale price
(or the average of the quoted closing bid and asked prices if there were no
reported sales) as reported by the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or any comparable system, or
if the Series A Common Stock is not quoted on Nasdaq or any comparable
system, the average of the closing bid and asked prices as furnished by any
member of the National Association of Securities Dealers, Inc. selected
from time to time by the Corporation for that purpose or, in the absence of
such quotations, such other method of determining market value as the Board
shall from time to time deem to be fair.
(n) Regulatory Matters. If any shares of Series A Common
------------------
Stock which would be issuable upon conversion of shares of Series C
Preferred Stock require registration with or approval of any governmental
authority before such shares may be issued upon conversion, the Corporation
will in good faith and as expeditiously as possible cause such shares to be
duly registered or approved, as the case may be. Without limiting the
foregoing, if the conversion of shares of Series C Preferred Stock shall be
subject to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder (the "HSR ACT
AND RULES"), the Corporation shall promptly comply with any applicable
filing or notice requirements under the HSR Act and Rules and use its
reasonable commercial efforts to furnish the information required in
connection therewith to the Federal Trade Commission and the Antitrust
Division of the Department of Justice. If applicable, the Corporation shall
use its reasonable commercial efforts to list the shares of Series A Common
Stock issuable upon conversion of the Series C Preferred Stock prior to
delivery of such shares of Series A Common Stock upon such conversion, on
the principal national securities exchange (including, but not limited to,
the Nasdaq National Market) on which the outstanding Series A Common Stock
is listed at the time of such delivery.
7. VOTING.
------
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<PAGE>
(a) General Voting Rights. In connection with any matter as
---------------------
to which the holders of Common Stock are entitled to vote including, but
not limited to, the election of Common Stock Directors, each share of
Series C Preferred Stock issued and outstanding as of the record date for
such meeting shall have (and the holder of record thereof shall be entitled
to cast) the number of votes equal to the number of votes such holder would
have been entitled to cast had it converted its shares of Series C
Preferred Stock into shares of Series A Common Stock immediately prior to
the record date for the determination of stockholders entitled to vote upon
such matter. Except as provided below and in paragraph 1 of Section B of
Article IV and paragraphs 7(b) and 7(c) of Section C of Article IV of the
Certificate and except as otherwise may be required by law, the holders of
Common Stock, the holders of Convertible Preferred Stock, the holders of
Series C Preferred Stock, and the holders of any other series of Series
Preferred Stock shall be entitled to notice of and to attend any meeting of
stockholders and to vote together as a single class.
(b) Election of Series C Preferred Director.
---------------------------------------
(i) The holders of the Series C Preferred Stock,
voting separately as a single series, shall have the exclusive right,
acting by written consent given in accordance with paragraph 7(b)(vi)
below or by vote at a meeting called for that purpose, to elect one
director to the Board so long as there are at least 100,000 shares of
Series C Preferred Stock (as adjusted for stock splits, stock
dividends and the like occurring after the Filing Date) outstanding
(such director elected by the holders of the Series C Preferred Stock
is hereinafter referred to as the "SERIES C PREFERRED STOCK
DIRECTOR").
(ii) The Series C Preferred Stock Director will be
that person elected, by written consent given in accordance with
paragraph 7(b)(vi) below or by vote at a meeting called for that
purpose, of the holders of the Series C Preferred Stock entitled to
vote for such director.
(iii) At any meeting having as a purpose the election
of a director by holders of the Series C Preferred Stock, the
presence, in person or by proxy, of the holders of a majority of
shares of Series C Preferred Stock entitled to vote in such election
then outstanding shall be required and be sufficient to constitute a
quorum of such series for the election of any director by such
holders. The Series C Preferred Stock Director to be elected at such
meeting shall be elected by a plurality of the votes of the shares of
Series C Preferred Stock present in person or represented by proxy at
such meeting and entitled to vote in the election of such Series C
Preferred Stock Director or by written consent of the holders of the
shares of Series C Preferred Stock given in accordance with paragraph
7(b)(vi) below. At any such meeting or adjournment thereof, (i) the
absence of a quorum of such holders of Series C Preferred Stock shall
not prevent the election of the directors to be elected by the holders
of shares other than the Series C Preferred Stock, and the absence of
a quorum of holders of shares other than the Series C Preferred Stock
shall not prevent the election of the director to
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<PAGE>
be elected by the holders of the Series C Preferred Stock, and (ii) in
the absence of a quorum of holders of shares of the Series C Preferred
Stock, holders of a majority of the shares of Series C Preferred
Stock, present in person or by proxy, shall have power to adjourn the
meeting for the election of the Series C Preferred Stock Director,
from time to time, without notice (subject to applicable law) other
than announcement at the meeting, until a quorum shall be present.
(iv) Except as provided in paragraph 7(b)(v), any
vacancy in the office of the Series C Preferred Stock Director
occurring during the effectiveness of the applicable provisions of
paragraph 7(b)(i) shall be filled solely by the holders of the Series
C Preferred Stock entitled to elect such Series C Preferred Stock
Director by vote of such holders as provided in paragraph 7(b)(iii)
above at a meeting called for such purpose or by written consent of
such holders given in accordance with paragraph 7(b)(vi) below.
(v) A Series C Preferred Stock Director may be removed
without cause by the vote or by written consent of the holders of a
majority of the outstanding shares of the Series C Preferred Stock.
Any vacancy in the office of the Series C Preferred Stock Director
shall be filled by the affirmative vote of the holders of a majority
of the outstanding shares of Series C Preferred Stock entitled to
elect the Series C Preferred Stock Director so removed at a meeting,
which may be the same meeting at which the removal of such Series C
Preferred Stock Director was voted upon, or by written consent of the
holders of Series C Preferred Stock given in accordance with paragraph
7(b)(vi) below. Any Series C Preferred Stock director elected to fill
a vacancy shall serve the same remaining term as that of his or her
predecessor and until his or her successor has been chosen and has
qualified.
(vi) With respect to actions by the holders of the
Series C Preferred Stock upon those matters on which such holders are
entitled to vote as a separate series, such actions 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 shares of Series C
Preferred Stock having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at
which all shares of such series of Series C Preferred Stock entitled
to vote thereon were present and voted, and shall be delivered to the
Corporation as provided in the Delaware General Corporation Law (the
"DGCL"). Notice shall be given in accordance with the applicable
provisions of the DGCL of the taking of corporate action without a
meeting by less than unanimous written consent.
(c) Protective Covenants. Notwithstanding the rights and
--------------------
privileges of any class or series of Preferred Stock then outstanding, so
long as any shares of Series C Preferred Stock shall remain outstanding,
the Corporation shall not, without first obtaining the affirmative vote (or
the written consent) of the holders of not less than a majority of the
outstanding shares of the Series C Preferred Stock, adopt, amend, alter
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<PAGE>
or repeal any provision of the Certificate of Designation or any resolution
of the Board or any other instrument establishing and designating the
Series C Preferred Stock and determining the relative voting powers,
designations, preferences, rights and qualifications, limitations and
restrictions thereof, so as to (i) effect any change in the voting powers,
designations, preferences, rights and qualifications, limitations and
restrictions of the shares of the Series C Preferred Stock that would
affect such shares adversely in a manner different from the shares of other
series of Preferred Stock, or (ii) increase the authorized number of shares
of Series C Preferred Stock.
8. Waiver. Unless otherwise provided in the Certificate of
------
Designation or the Certificate, any provision which, for the benefit of the
holders of the Series C Preferred Stock, prohibits, limits or restricts
actions by the Corporation, or imposes obligations on the Corporation, may
be waived in whole or in part, or the application of all or any part of
such provision in any particular circumstance or generally may be waived,
in each case only pursuant to the consent of the holders of a majority (or
such greater percentage thereof as may be required by applicable law or any
applicable rules of any national securities exchange or national
interdealer quotation system) of the outstanding shares of the Series C
Preferred Stock. Any such waiver shall be binding on all holders,
including any subsequent holders, of the Series C Preferred Stock.
9. Method of Giving Notices. Any notice required or permitted
------------------------
hereby to be given to the holders of shares of Series C Preferred Stock
shall be deemed duly given if deposited in the United States mail, first
class mail, postage prepaid, and addressed to each holder of record at the
holder's address appearing on the books of the Corporation or supplied by
the holder in writing to the Corporation for the purpose of such notice.
10. Exclusion of Other Rights. Except as provided in the Bylaws
-------------------------
of the Corporation or as may otherwise be required by law and except for
the equitable rights and remedies which may otherwise be available to
holders of Series C Preferred Stock, the shares of Series C Preferred Stock
shall not have any designations, preferences, limitations or relative
rights other than those specifically set forth in the Certificate and in
this Certificate of Designation.
11. Heading of Subdivisions. The headings of the various
-----------------------
subdivisions hereof are for convenience of reference only and shall not
affect the interpretation of any of the provisions hereof.
[Continued on next page]
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<PAGE>
IN WITNESS WHEREOF, said corporation has caused this Certificate of
Designation to be signed and attested by its duly authorized officers this 11th
day of April, 1997.
AT HOME CORPORATION
By: /s/ Thomas A. Jermoluk
-------------------------------------
Name: Thomas A. Jermoluk
Title: President
ATTEST:
By: /s/ David G. Pine
-------------------------------
Name: David G. Pine
Title: Secretary
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<PAGE>
EXHIBIT 4.01
THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the
"AGREEMENT") is dated as of April 11, 1997, and is entered into by and among AT
HOME CORPORATION, a Delaware corporation ("@HOME"), TCI INTERNET HOLDINGS, INC.,
a Colorado corporation ("TCI SUB"), KLEINER, PERKINS, CAUFIELD & BYERS VII, KPCB
INFORMATION SCIENCES ZAIBATSU FUND II, each a California limited partnership of
which KPCB VII Associates, a California limited partnership ("KPCB"), is the
general partner and JAMES CLARK (collectively, the "KPCB AFFILIATES"), COMCAST
PC INVESTMENTS, INC. ("COMCAST SUB"), a Delaware corporation and an indirect
wholly owned subsidiary of Comcast Corporation, COX TELEPORT PROVIDENCE, INC.
("COX SUB"), a Delaware corporation and a wholly owned subsidiary of Cox
Communications, Inc., MARTIN/CAMPUS ASSOCIATES, L.P., a Delaware limited
partnership ("DEVELOPER") and the purchasers of @Home's Series C Preferred Stock
and warrants to purchase @Home's Series C Preferred Stock listed on the
signature pages hereof. Capitalized terms not otherwise defined herein will
have the meaning given them in Section 1 of this Agreement.
BACKGROUND
----------
A. @Home, TCI Sub, and certain of the KPCB Affiliates are parties to the
1995 Purchase Agreement, which relates to the purchase (i) by certain of the
KPCB Affiliates of 2,300,000 shares of Series K Preferred and (ii) by TCI Sub of
7,700,000 shares of Series T Preferred.
B. @Home, TCI Sub and certain of the KPCB Affiliates are parties to the
May 1996 Purchase Agreement, which relates to the purchase (i) by certain of the
KPCB Affiliates of an additional 2,300,000 shares of Series K Preferred and (ii)
by TCI Sub of an additional 7,700,000 shares of Series T Preferred.
C. @Home, TCI Sub, the KPCB Affiliates, Comcast Sub and Cox Sub are also
parties to the August 1996 Purchase Agreement and certain other agreements dated
the same date as the August 1996 Purchase Agreement, providing for the purchase
of certain shares of Series K Preferred, Series T Preferred, and Series A
Preferred, as described in the August 1996 Purchase Agreement, and in connection
with that transaction, the shares of Series K Preferred and Series T Preferred
referred to in recitals A and B above were reverse split on a 1-for-10 basis.
D. The then-outstanding shares of Series A Common Stock were forward split
on a 2-for-1 basis on August 14, 1996.
E. @Home granted the Developer Warrant to Developer on October 17, 1996.
<PAGE>
F. @Home and each Series C Preferred Investor (as defined below) are
parties to the Series C Purchase Agreement, providing for the purchase of
certain shares of Series C Preferred.
G. @Home intends to issue the Canadian MSO Warrants (as defined below) to
the Canadian MSO's (as defined below), subject to their purchase of Series C
Preferred.
H. All of such shares of Preferred Stock and the shares of Series B Common
Stock, Series K Common Stock and Series A Common Stock issuable upon conversion
thereof or upon exercise of the Developer Warrant and the Canadian MSO Warrants
constitute "restricted securities" (as defined in Rule 144 under the Securities
Act), and @Home has agreed to provide the Stockholders and the members of each
Stockholder's Stockholder Group with the registration rights set forth herein.
In consideration of the premises and of the mutual agreements and covenants
hereinafter set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Certain Definitions.
-------------------
1995 PURCHASE AGREEMENT: The Stock Purchase Agreement, dated as of
August 29, 1995, entered into by and among @Home, TCI Sub and certain of the
KPCB Affiliates, providing for the purchase of shares of Series T Preferred and
Series K Preferred as described in recital A above.
@HOME: At Home Corporation, a Delaware corporation.
AGREEMENT: This Third Amended and Restated Registration Rights
Agreement.
APPLICABLE TIME PERIOD: As defined in Section 4(c)(iv).
AUGUST 1996 PURCHASE AGREEMENT: The Stock Purchase and Exchange
Agreement dated as of August 1, 1996 by and among @Home, the KPCB Affiliates,
TCI Sub, Comcast Sub, and Cox Sub, as described in recital C above, and as such
agreement may be amended from time to time.
BUSINESS DAY: Any day other than a Saturday, Sunday or other day on
which commercial banking institutions in New York, New York are required or
authorized by law to be closed.
CABLE PARENT: (i) With respect to TCI Sub, TCI Internet Services,
Inc., TCI Communications, Inc. and TCI Cable Investments Inc., (such entities
collectively being a single Cable Parent), (ii) with respect to Comcast Sub,
Comcast On-Line Communications, Inc. and Comcast Cable Communications, Inc.,
(such entities collectively being a single Cable Parent) and (iii) with respect
to Cox Sub, Cox Communications, Inc.
2
<PAGE>
CABLE PARTNER: Each of TCI Sub, Comcast Sub and Cox Sub. Such
entities are referred to collectively as the "CABLE PARTNERS."
CABLE PUT: As defined in the Stockholders' Agreement.
CANADIAN MSO'S: Each of Rogers Cablesystems Limited, a Canadian
corporation ("ROGERS") and Shaw Cablesystems Ltd., a Canadian corporation
("SHAW") or any other entity affiliated with Rogers and/or Shaw purchasing the
Canadian MSO Warrants directly from the Company in lieu of purchase by Rogers
and/or Shaw.
CANADIAN MSO WARRANTS: Those certain warrants to purchase up to an
aggregate of 2,000,000 shares of Series A Common Stock issuable upon conversion
of Series C Preferred (or, upon certain conditions, Series A Common Stock
directly) (subject to adjustment for stock splits, stock dividends, reverse
stock splits, recapitalizations and the like after the date hereof), dated the
date hereof, issued to the Canadian MSO's, and any warrant issued upon a partial
exercise or permitted assignment thereof.
COMCAST SUB: As defined in the Preamble.
COMMISSION: The Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act or the Exchange Act.
COMPANY INDEMNIFIED PARTIES: @Home, its officers, directors,
employees and agents, and each Person, if any, who controls @Home within the
meaning of either the Securities Act or the Exchange Act.
COMPANY NOTICE: As defined in Section 2(b)(i).
CONTROL: The direct or indirect power to direct the management and
policies of any Person, whether through the ownership of voting securities, by
contract, management agreement or otherwise.
CONTROLLED AFFILIATE: As to any Person, any other Person (i) which
now or in the future is Controlled by such Person, (ii) which now or in the
future (directly or indirectly through one or more wholly-owned subsidiaries)
owns 100% of the outstanding capital stock of such Person (a "PARENT"), or (iii)
of which now or in the future more than 50% of the equity interests and voting
power of its outstanding capital stock is owned by a Parent of such Person;
provided, however, that @Home will not be deemed to be a Controlled Affiliate of
any Parent or such Parent's Controlled Affiliates.
CONVERSION SHARES: As defined below in the definition of "Registrable
Shares."
COX SUB: As defined in the Preamble.
DEMAND NOTICE: As defined in Section 2(b)(i).
DEMAND REGISTRATION: As defined in Section 2(a).
3
<PAGE>
DEMAND REGISTRATION RIGHT: As defined in Section 2(a).
DESIGNATED REPRESENTATIVE: As defined in Section 9.2.
DEVELOPER: As defined in the Preamble.
DEVELOPER'S STOCKHOLDER GROUP: (i) Developer; (ii) Martin/Redwood
Partners, L.P., a California limited partnership ("REDWOOD"); (iii) J. David
Martin; (iv) Michael A. Covarrubias; (v) Cathy Greenwold; (vi) Richardson L.
Watkins; (vii) Edmund B. Taylor; (viii) Lynn M. Tolin; (ix) Daniel E. Siri; (x)
David Wright; (xi) Farallon/Campus Warrants, LLC, a Delaware limited liability
company (or if such entity is dissolved, the members of such entity); and (xii)
any revocable living trust established by any of the persons in the preceding
clauses (iii) to (x) inclusive for the benefit of any such person's immediate
family.
DEVELOPER WARRANT: That certain warrant to purchase up to 200,000
shares of Series A Common Stock (subject to adjustment for stock splits, stock
dividends, reverse stock splits, recapitalizations and the like after October
17, 1996), dated October 17, 1996, issued to Developer, and any warrant issued
upon a partial exercise or permitted assignment thereof.
DISADVANTAGEOUS CONDITION: The determination by @Home, in its
reasonable business judgment as set forth in a resolution of its Board of
Directors, that a registration, or offering or sale of shares pursuant to a
registration, would materially interfere with or otherwise adversely affect in
any material respect any financing, acquisition, corporate reorganization, or
other material transaction or development involving @Home, or would require the
disclosure of a previously undisclosed material development involving @Home
which disclosure would have a material adverse effect on @Home.
ELIGIBLE STOCKHOLDER: As defined in the Stockholders' Agreement.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, or any
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, as they each may, from time to time, be in effect.
INCIDENTAL REGISTRATION: As defined in Section 3(a).
INDEMNIFIED PARTY: A party claiming a right to indemnification
pursuant to Section 6 of this Agreement.
INDEMNIFYING PARTY: A party required to provide indemnification
pursuant to Section 6 of this Agreement.
INITIATING HOLDERS: The Original Initiating Holder, together with any
other Stockholders joining in the Demand Registration initiated by the Original
Initiating Holder, as described in Section 2(b) of this Agreement.
IPO: @Home's initial public offering of Series A Common Stock
registered under the Securities Act.
4
<PAGE>
IPO ELECTION: As defined in the Stockholders' Agreement.
KPCB: As defined in the Preamble.
KPCB AFFILIATES: As defined in the Preamble.
KPCB PUT: As defined in the Stockholders' Agreement.
LOSSES: Any losses, claims, damages or liabilities, and any related
legal or other fees and expenses.
MAY 1996 PURCHASE AGREEMENT: The letter purchase agreement, dated May
9, 1996, executed by @Home, TCI Sub and certain of the KPCB Affiliates providing
for the purchase of additional shares of Series T Preferred and Series K
Preferred as described in recital B above.
MINIMUM DEMAND SHARES: As defined in Section 5(a).
ORIGINAL INITIATING HOLDER: As defined in Section 2(b).
OTHER STOCKHOLDER GROUP: As defined in Section 2(b)(i).
PARENT: As defined in the Stockholders' Agreement.
PERSON: Any individual, corporation, partnership, limited
partnership, limited liability partnership, limited liability company, trust,
association, organization or other entity.
PREFERRED STOCK: The shares of Series A Preferred, Series C
Preferred, Series K Preferred and Series T Preferred.
PRIOR REGISTRATION AGREEMENT: The Second Amended and Restated
Registration Rights Agreement dated as of October 17, 1996, by and among @Home,
TCI Sub, the KPCB Affiliates, Comcast Sub, Cox Sub and Developer.
PROSPECTUS: The prospectus included in a Registration Statement as of
the date it becomes effective under the Securities Act and, in the case of
references to the Prospectus as of a date subsequent to the effective date of
the Registration Statement, as amended or supplemented as of such date,
including all documents incorporated by reference therein, each as amended, and
each applicable prospectus supplement relating to the offering and sale of any
of the Registrable Shares pursuant to such Registration Statement.
REGISTRABLE SHARES: (i) Shares of Series A Common Stock ("CONVERSION
SHARES") (u) issued or issuable upon conversion of shares of Series B Common
Stock issuable upon conversion of shares of Series T Preferred, (v) issued or
issuable upon conversion of shares of Series K Common Stock issuable upon
conversion of shares of Series K Preferred, (w) issued or issuable upon
conversion of shares of Series A Preferred, (x) except for purposes of Sections
7 and 8, issued or issuable upon conversion of shares of Series C Preferred
(including but not
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<PAGE>
limited to shares of Series C Preferred issued or issuable upon exercise of the
Canadian MSO Warrants), (y) except for purposes of Sections 7 and 8, issued or
issuable upon exercise of any of the Canadian MSO Warrants or (z) except for
purposes of Sections 2 and 8, issued or issuable upon exercise of the Developer
Warrant; (ii) any other shares of Series A Common Stock (including those shares
issued or issuable upon exercise or conversion of any securities exercisable for
or convertible into shares of Series A Common Stock) howsoever acquired by a
Stockholder's Stockholder Group (other than Developer's Stockholder Group or the
Series C Preferred Holders' Stockholder Group); and (iii) any other shares of
capital stock of @Home issued in respect of (or that become issuable upon
conversion of such shares of Series B Common Stock, Series K Common Stock (or
other such securities in lieu of)) such shares of Series A Common Stock issued
or issuable pursuant to the preceding clauses (i) and/or (ii) as a result of
stock splits, reverse stock splits, stock dividends or other distributions,
reclassifications, recapitalizations, mergers, consolidations, reorganizations
or similar events. References in this Agreement to amounts or percentages of
Registrable Shares as of or on any particular date shall be deemed to refer to
amounts or percentages after giving effect to any applicable events contemplated
by the preceding sentence. Any Registrable Share will cease to be a Registrable
Share when (i) a registration statement covering such Registrable Share has been
declared effective by the Commission and such Registrable Share has been
disposed of pursuant to such effective registration statement or (ii) such
Registrable Share is sold in a transaction in which such Stockholder's rights
hereunder with respect to such Registrable Share are not assigned to the
transferee thereof in accordance with the terms and provisions hereof.
REGISTRABLE SHARES THEN OUTSTANDING: The sum of (i) the number of
shares of Series A Common Stock (or other securities of @Home) outstanding that
are Registrable Shares and (ii) the number of shares of Series A Common Stock
(or other securities of @Home) that would be Registrable Shares upon the
exercise or conversion of other outstanding securities of @Home for or into
shares of such Series A Common Stock (or other securities of @Home).
REGISTRATION EXPENSES: As defined in Section 5(a).
REGISTRATION STATEMENT: A registration statement of @Home under the
Securities Act on any form for which @Home then qualifies and which permits the
sale thereunder of the number and type of Registrable Shares (and any other
securities of @Home) to be included therein in accordance with this Agreement by
the applicable sellers in the manner described therein. The term "Registration
Statement" shall also include all exhibits and financial statements and
schedules and documents incorporated by reference in such Registration Statement
when it becomes effective under the Securities Act, and in the case of the
references to the Registration Statement as of a date subsequent to the
effective date, as amended or supplemented as of such date.
SECURITIES ACT: The Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, as they each may, from time to time, be in effect.
SELLING STOCKHOLDER: Any Stockholder whose Registrable Shares are
included at the request of such Stockholder in any Registration Statement
pursuant to Section 2 or Section 3.
6
<PAGE>
SERIES A COMMON STOCK: The Series A Common Stock, par value $.01 per
share, of @Home.
SERIES A PREFERRED: Collectively, the Series AM Convertible
Participating Preferred Stock, the Series AT Convertible Participating Preferred
Stock and the Series AX Convertible Participating Preferred Stock, each par
value $.01 per share, of @Home.
SERIES B COMMON STOCK: The Series B Common Stock, par value $.01 per
share, of @Home.
SERIES C PREFERRED: The Series C Convertible Participating Preferred
Stock, par value $.01 per share, of @Home.
SERIES C PREFERRED HOLDERS: The Series C Preferred Investors and each
transferee thereof who becomes a party to this Agreement in accordance with the
terms hereof.
SERIES C PREFERRED INVESTORS: The purchasers of an aggregate of up to
$50,000,000 of Series C Preferred who become parties to a Series C Purchase
Agreement and who execute a counterpart signature page to this Agreement as a
"Series C Preferred Investor." A "Series C Preferred Investor" also includes
the Canadian MSO's as purchasers of Series C Preferred under such a Series C
Purchase Agreement and as purchasers of the Canadian MSO Warrants, who execute a
counterpart signature page to this Agreement as a "Series C Preferred Investor."
SERIES C PURCHASE AGREEMENT: The Stock Purchase Agreements, dated as
of even date herewith, entered into by and among @Home and any of the Series C
Preferred Investors, and any other substantially identical Stock Purchase
Agreement between @Home and any of the Series C Preferred Investors, for the
purchase collectively of an aggregate of up to $50,000,000 of Series C
Preferred, as such agreements may be amended from time to time.
SERIES K COMMON STOCK: The Series K Common Stock, par value $.01 per
share, of @Home.
SERIES K PREFERRED: The Series K Convertible Participating Preferred
Stock, par value $.01 per share, of @Home.
SERIES T PREFERRED: The Series T Convertible Participating Preferred
Stock, par value $.01 per share, of @Home.
SPECIAL DEMAND REGISTRATION RIGHT: As defined in Section 2(g).
STOCKHOLDER: Each of (i) TCI Sub, Cox Sub and Comcast Sub,
individually, and the KPCB Affiliates, collectively, (ii) except for purposes of
Sections 2 and 8, Developer and (iii) except for purposes of Sections 7 and 8,
the Series C Preferred Holders. In addition, the term "Stockholder" shall also
include any other person or entity to which Registrable Shares are transferred
(i) by any Stockholder (other than the Series C Preferred Holders and Developer
and their respective permitted transferees) in accordance with the applicable
provisions of the
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<PAGE>
Stockholders' Agreement (x) to which the applicable Stockholder has assigned its
rights hereunder in accordance with the provisions hereof with respect to such
Registrable Shares and (y) which has executed a counterpart hereof in connection
with the transfer of such Registrable Shares and (ii) by the Series C Preferred
Holders and Developer and their respective permitted transferees (x) to which
the applicable Stockholder has assigned its rights hereunder in accordance with
the provisions hereof with respect to such Registrable Shares and (y) which has
executed a counterpart hereof in connection with the transfer of such
Registrable Shares.
STOCKHOLDER GROUP: With respect to Comcast Sub, Cox Sub, the KPCB
Affiliates and TCI Sub, as defined in the Stockholders' Agreement; and, except
for purposes of Sections 2 and 8, with respect to Developer, Developer's
Stockholder Group; and, except for purposes of Sections 7 and 8, with respect to
the Series C Preferred Holders, all of the Series C Preferred Holders as a
single group.
STOCKHOLDER INDEMNIFIED PARTIES: Each Selling Stockholder, its
officers, directors, employees and agents, each Person (if any) who controls
such Selling Stockholder within the meaning of either the Securities Act or the
Exchange Act, and the officers, directors, employees and agents of the foregoing
parties.
STOCKHOLDERS' AGREEMENT: The Amended and Restated Stockholders'
Agreement, dated as of August 1, 1996, by and among @Home, the KPCB Affiliates,
TCI Sub, Cox Sub, Comcast Sub, and certain members of their respective
Stockholder Groups, as such agreement may be amended from time to time.
TCI SUB: As defined in the Preamble.
2. Demand Registration.
-------------------
(a) Demand Registration Rights. Subject to Section 2(g) below, at any
--------------------------
time on or after the first anniversary of the closing date of the IPO, each
Stockholder Group shall have the right (a "DEMAND REGISTRATION RIGHT") to
request that @Home register under the Securities Act all or a portion of the
Registrable Shares held by the Stockholder Group upon the terms and subject to
the conditions and limitations set forth herein (a "DEMAND REGISTRATION"). The
number of Demand Registrations to which each Stockholder Group shall be entitled
shall be as follows: TCI Sub's Stockholder Group shall be entitled to four
Demand Registrations, Comcast Sub's Stockholder Group shall be entitled to two
Demand Registrations, Cox Sub's Stockholder Group shall be entitled to two
Demand Registrations, the KPCB Affiliates' Stockholder Group shall be entitled
to two Demand Registrations, and the Series C Preferred Holders' Stockholder
Group shall be entitled to two Demand Registrations.
(b) Procedures for Demand Registrations.
-----------------------------------
(i) A Stockholder Group holding Registrable Shares (the
"ORIGINAL INITIATING HOLDER") may elect to exercise a Demand Registration Right
pursuant to this Section 2 by furnishing @Home with written notice of such
request (a "DEMAND NOTICE") which sets forth the number of Registrable Shares
requested to be so registered and such Stockholder Group's preferred method of
distribution of such Registrable Shares; provided, that a Demand
--------
8
<PAGE>
Registration may be made by the Series C Preferred Holders' Stockholder Group
only upon written request of the Series C Preferred Holders holding at least
twenty-five percent (25%) of the Registrable Shares issued or issuable upon
conversion of the Series C Preferred (including but not limited to shares of
Series C Preferred issued or issuable upon exercise of the Canadian MSO
Warrants) and requesting registration of Registrable Shares with an anticipated
aggregate public offering price (before any underwriting or brokerage discounts
and commissions) of not less than $10,000,000. Upon receipt by @Home of a Demand
Notice, @Home shall promptly notify the Designated Representative of each other
Stockholder Group (the "OTHER STOCKHOLDER GROUPS") in writing of such request
for registration and the Original Initiating Holder's preferred method of
distribution. Upon receipt of such notice from @Home (the "COMPANY NOTICE"), the
Designated Representative of each such Other Stockholder Group may give @Home a
written request to register in the registration described in the Company Notice
any or all of the Registrable Shares of the Stockholders in such Other
Stockholder Group; provided, that (i) such written request is given within ten
--------
(10) Business Days after the date on which the Company Notice is given (with
such request stating (A) the amount of Registrable Shares to be so included, (B)
such Other Stockholder Group's preferred method of distribution of such
Registrable Shares, and (C) any other information that the Company Notice
reasonably requests to be included in such notice from such Other Stockholder
Group), (ii) no Series C Preferred Holder may join as an Initiating Holder in
any Demand Registration initiated by any Stockholder Group other than the Series
C Preferred Holders' Stockholder Group (but nonetheless may exercise rights as
to an Incidental Registration with respect to such Demand Registration to the
extent permitted pursuant to Section 3) and (iii) no Stockholder that is not a
member of the Series C Preferred Holders' Stockholder Group may join as an
Initiating Holder in any Demand Registration initiated by the Series C Preferred
Holders' Stockholder Group (but nonetheless may exercise rights as to an
Incidental Registration with respect to such Demand Registration to the extent
permitted pursuant to Section 3).
(ii) @Home shall as soon as reasonably practicable after the
date on which the Company Notice is given, file with the Commission and use
commercially reasonable efforts to cause to become effective as promptly as
practicable (but in no event prior to the date agreed to in writing by the
Original Initiating Holder), a Registration Statement which shall cover the
Registrable Shares requested to be registered in the manner set forth above.
Subject to the provisions of Section 2(c) below, each Registration Statement may
also include securities to be sold for the account of @Home or for any other
stockholder not holding Registrable Shares.
(iii) Provided that at least 75% of the Registrable Shares
requested to be registered by the Original Initiating Holder are included in
such registration, such Original Initiating Holder shall be deemed to have
utilized one of its Demand Registration Rights in respect thereof. The
Initiating Holders other than the Original Initiating Holder shall not be deemed
to have exercised a Demand Registration Right; provided, however, that for
--------
purposes of determining the expenses of registration to be paid by the Selling
Stockholders, such registration shall be considered a Demand Registration with
respect to all of the Initiating Holders.
(c) Underwriters; Limitation on Inclusion of Registrable Shares. The
-----------------------------------------------------------
Original Initiating Holder shall have the right to select the managing
underwriter(s) for any underwritten public offering in connection with a Demand
Registration, which managing underwriter(s) shall
9
<PAGE>
be reasonably acceptable to @Home. Each Selling Stockholder electing to
participate in a Demand Registration involving an underwritten public offering
shall, as a condition to @Home's obligation hereunder to include such Selling
Stockholder's Registrable Shares in such Demand Registration, enter into and
perform its obligations under an underwriting agreement or other similar
arrangement in customary form with the managing underwriter(s) of such offering.
If the lead managing underwriter of any underwritten public offering in
connection with a Demand Registration determines in good faith that the
aggregate number of Registrable Shares to be offered exceeds the number of
shares that could be sold without having an adverse effect on such offering
(including the price at which the Registrable Shares may be sold), then the
number of Registrable Shares to be offered for the accounts of the Selling
Stockholders in such offering shall be reduced or limited on such basis as the
Selling Stockholders shall agree or, absent such an agreement, on a pro rata
basis in proportion to the respective numbers of Registrable Shares requested to
be included in such offering by such Selling Stockholders, to the extent
necessary to reduce the total number of shares to be included in such offering
to the amount recommended by such lead managing underwriter; provided, that if
--------
in connection with such Demand Registration, securities other than Registrable
Shares are being offered (whether for the account of @Home or for any
stockholder of @Home not exercising rights under this Section 2), such reduction
shall be made (i) first, from such securities held by Persons that are not
Initiating Holders (including without limitation securities being offered for
the account of @Home) and (ii) second, from the number of Registrable Shares
requested to be included in such offering by the applicable Initiating Holders,
on such basis as such Initiating Holders shall agree, or absent such an
agreement, on a pro rata basis, based on the number of Registrable Shares
requested to be included in the registration.
(d) Postponement of Registration. @Home shall be entitled to
----------------------------
postpone, for a reasonable period of time not in excess of one hundred twenty
(120) days after its receipt of a Demand Notice, the filing of any Registration
Statement, if (i) at any time prior to the filing of such Registration Statement
the Board of Directors of @Home determines that such registration, or offering
or sale of shares thereunder, would result in a Disadvantageous Condition, and
(ii) @Home gives the Selling Stockholders written notice of such postponement;
provided, that with respect to a particular registration pursuant to a Demand
Notice, @Home may postpone its obligations under this Agreement (whether before
the filing of the registration statement, pursuant to this Section 2(d), or
after the filing of the registration statement and/or following the declaration
of effectiveness of the registration statement, pursuant to Section 4(b)
hereof) by reason of the existence of one or more Disadvantageous Conditions
only once per period of twelve consecutive calendar months with respect to any
given Original Initiating Holder. In the event of such postponement, @Home shall
notify all Selling Stockholders and file such Registration Statement as soon as
practicable after the Board of Directors of @Home shall determine, in its
reasonable business judgment, that such registration, offering and sale would
not result in such Disadvantageous Condition (but in no event later than one
hundred twenty (120) days after the date of the applicable Demand Notice). If
@Home shall postpone its obligations under this Agreement by reason of a
Disadvantageous Condition as described above, the Original Initiating Holder
shall have the right to withdraw its request for such Demand Registration by
giving notice to @Home at any time following said notice by @Home. Such
withdrawal request shall be deemed to apply to all Selling Stockholders that had
requested to participate in such
10
<PAGE>
registration. No Stockholder Group shall make a demand for registration during
the period of any such postponement (or if the Original Initiating Holder should
withdraw its demand for registration, until the Company notifies all
Stockholders of the end of the Disadvantageous Condition). Notice from @Home of
the existence of a Disadvantageous Condition shall be limited to a certified
extract of the Board resolution declaring the existence of a Disadvantageous
Condition without further detail unless reasonable further detail is
specifically requested by a Selling Stockholder.
(e) Withdrawal. A Demand Registration shall not be deemed to have
----------
been effected until the applicable Registration Statement shall have been
effective under the Securities Act (and not subject to any stop order,
injunction or other order or requirement of the Commission or other governmental
agency or court for any reason) for the period specified in Section 2(f). Each
Selling Stockholder may, no less than five (5) Business Days before any
Registration Statement becomes effective, withdraw its Registrable Shares from
inclusion therein, should the terms of the proposed distribution not be
satisfactory to such Selling Stockholder. If the Original Initiating Holder
elects to withdraw such Registration Statement, such Registration Statement
shall be withdrawn (if necessary) and such registration shall not be deemed to
have been a Demand Registration for purposes of the limitations on the number of
Demand Registrations hereunder contained in this Section 2; provided, that the
--------
Original Initiating Holder agrees to bear the Registration Expenses incurred by
@Home in connection with such Demand Registration (unless at the time of such
withdrawal, the Original Initiating Holder has learned of a material adverse
change in the operating results, financial condition or business of @Home or
@Home has suspended its obligations under Section 4(b) as a result of a
Disadvantageous Condition, of which the Original Initiating Holder was not aware
as of the time of the Demand Notice and has withdrawn such request promptly
following the disclosure by @Home of such material adverse change or
Disadvantageous Condition, in which case, the Original Initiating Holder shall
not be obligated to pay such Registration Expenses in order to avoid being
deemed to have used a Demand Registration). If (i) the Registration Statement
does not remain effective under the Securities Act for the period specified in
the first sentence of this paragraph (e) due to a stop order, injunction or
other order of the Commission or other governmental agency, (ii) the Original
Initiating Holder has not sold at least 75% of the Registrable Shares registered
under such Registration Statement and (iii) such Registration Statement
continues not to be effective for such reasons for a period exceeding ten days,
then the Original Initiating Holder may elect to withdraw such Registration
Statement by prompt written notice to the Company; and in such an event, such
registration shall not be deemed to have been a Demand Registration for purposes
of the limitations on the number of Demand Registrations hereunder contained in
Section 2.1(a), and the Company shall bear the Registration Expenses incurred in
connection with such registration.
(f) Effectiveness of Registration Statement. In connection with any
---------------------------------------
Demand Registration pursuant to this Section 2, @Home will use commercially
reasonable efforts to prepare and file with the Commission any amendments and
supplements to the Registration Statement and to the Prospectus used in
connection therewith, and to take any other actions, as may be necessary to keep
the Registration Statement and the Prospectus current and in compliance with the
provisions of the Securities Act, until the sooner to occur of (i) the sale of
all of the Registrable Shares covered by such Registration Statement in
accordance with the
11
<PAGE>
intended methods of distribution thereof or (ii) the 120th day following the
effective date of such Registration Statement.
(g) Special Demand Registration Right. Notwithstanding the provisions
---------------------------------
of Section 2(a) hereof, in the event that TCI Sub has made the IPO Election in
accordance with the provisions of the Stockholders' Agreement, in addition to
any rights it may have under the Stockholders' Agreement with respect to causing
the Company to make an initial public offering of its Series A Common Stock, TCI
Sub shall have the right, exercisable during the time periods specified in the
Stockholders' Agreement for it to make the IPO Election, to exercise its Demand
Registration Right hereunder regardless of the condition set forth in Section
2(a) that a demand for registration may not be made prior to the first
anniversary of the IPO (the "SPECIAL DEMAND REGISTRATION RIGHT"). Such
registration shall not otherwise accelerate any Stockholder Group's right to
exercise a Demand Registration pursuant to this Agreement. In the case of the
exercise of the Special Demand Registration Right, TCI Sub shall be the Original
Initiating Holder pursuant to Section 2(b) and the other Stockholders (other
than the Series C Preferred Holders) shall have the rights granted to the Other
Stockholder Groups in accordance with Section 2(b), and the Company shall
otherwise comply with its obligations with respect to a Demand Registration in
accordance with the terms of this Agreement.
3. Incidental Registration.
------------------------
(a) Notice of Incidental Registration. If at any time following the
---------------------------------
closing date of the IPO, @Home proposes to register under the Securities Act any
shares of Series A Common Stock or other equity securities of @Home (whether in
an underwritten public offering or otherwise and whether or not for the account
of @Home or for any selling stockholder) (other than a registration statement on
Form S-4 or Form S-8 or any successor or comparable forms or a shelf
registration statement registering a continuous offering of securities pursuant
to Rule 415 or a registration pursuant to the Special Demand Registration Right)
in a manner which would permit the registration under the Securities Act of
Registrable Shares for sale to the public, @Home shall give written notice to
each Stockholder of its intention to do so not later than twenty (20) Business
Days prior to the anticipated filing date of the applicable Registration
Statement. Upon receipt of any such notice, each Stockholder may elect to
participate in such registration by giving @Home a written request to register
any or all of such Stockholder's Registrable Shares in connection with the
registration described in such written notice from @Home within ten (10)
Business Days after such notice has been given by @Home (with such request
stating (i) the amount of Registrable Shares to be included in such registration
by such Stockholder and (ii) any other information that @Home reasonably
requests be included in such registration statement) (such registration, an
"INCIDENTAL REGISTRATION"). Upon receipt of such request, @Home will, subject
to the provisions of Section 3(b) below, cause all such Registrable Shares
requested to be included in such Incidental Registration to be so included.
(b) Limitation on Inclusion of Registrable Shares. If the proposed
---------------------------------------------
method of distribution in connection with such an Incidental Registration is an
underwritten public offering and the managing underwriter thereof determines in
good faith that the number of such Registrable Shares to be included in such
offering would adversely affect such offering, the number of Registrable Shares
to be offered for the account of the Selling Stockholders shall be
12
<PAGE>
reduced or limited in proportion to the number of Registrable Shares to be so
offered by such Selling Stockholders to the extent necessary to reduce the total
number of shares to be included in such offering to the amount recommended by
such managing underwriter; provided, that (i) if securities are being offered
--------
for the account of other persons or entities (other than, or in addition to,
@Home) such reduction shall be made pro rata from the securities intended to be
offered by such other persons or entities and the Selling Stockholders, but no
such reduction shall be made from the securities to be offered for the account
of @Home, (ii) if securities are being offered in connection with a Demand
Registration for the account of Initiating Holders (other than any Series C
Preferred Holder), such reduction shall be made pro rata from the securities
intended to be offered by the Series C Preferred Holders before any such
reduction is made from the securities intended to be offered for the account of
such Initiating Holders and (iii) if securities are being offered in connection
with a Demand Registration for the account of any Series C Preferred Holders
that are Initiating Holders, such reduction shall be made pro rata from the
securities intended to be offered by the Selling Stockholders (other than such
Series C Preferred Holders) before any such reduction is made from the
securities intended to be offered for the account of such Initiating Holders.
(c) Delay or Withdrawal of Registration. @Home may, without the
-----------------------------------
consent of any Stockholder, delay, suspend, abandon or withdraw any Incidental
Registration and any related proposed offering or other distribution in which
any Stockholder has requested inclusion of such Stockholder's Registrable Shares
pursuant to this Section 3; provided, that the applicable Selling Stockholders
--------
shall be entitled to continue such registration as a Demand Registration
pursuant to Section 2 following any such withdrawal by @Home to the extent that
such registration by the Selling Stockholders making such election would
otherwise satisfy the requirements of Section 2.
(d) Withdrawal by Selling Stockholder. Any Selling Stockholder may
---------------------------------
elect to withdraw its respective Registrable Shares from inclusion in an
Incidental Registration at any time prior to five (5) Business Days prior to the
then anticipated effective date of the applicable Registration Statement. No
such withdrawal shall relieve any withdrawing Selling Stockholder of its
obligation to pay expenses under Section 5.
(e) Underwriting Agreement. In connection with any Incidental
----------------------
Registration involving an underwritten public offering of securities of @Home
for the account of @Home, each Selling Stockholder electing to participate in
such Incidental Registration shall, as a condition to @Home's obligation
hereunder with respect to such Selling Stockholder's Registrable Shares, enter
into and perform its obligations under an underwriting agreement or other
similar arrangement in customary form with the managing underwriter of such
offering.
4. Obligations with Respect to Registration.
----------------------------------------
(a) Obligations of @Home. Whenever @Home is obligated by the
--------------------
provisions of this Agreement to effect the registration of any Registrable
Shares under the Securities Act, @Home shall:
13
<PAGE>
(i) Subject to the provisions of Section 4(b), use
commercially reasonable efforts to cause the applicable Registration Statement
to become effective, and to prepare and file with the Commission any amendments
and supplements to the Registration Statement and to the Prospectus used in
connection therewith as may be necessary to keep the Registration Statement and
the Prospectus current and in compliance with the provisions of the Securities
Act, during the periods when @Home is required by this Agreement to keep the
Registration Statement effective and current.
(ii) At least three (3) Business Days prior to filing a
Registration Statement or Prospectus or any amendment or supplement thereto,
furnish to each Selling Stockholder and each underwriter, if any, of the
Registrable Shares covered by such Registration Statement copies of such
Registration Statement or Prospectus as proposed to be filed (including
documents to be incorporated by reference therein), which documents will be
subject to the reasonable review and comments of such Selling Stockholders (and
their respective counsel) during such three-Business-Day period, and @Home will
not file any Registration Statement or any Prospectus or any amendment or
supplement thereto (or any such documents incorporated by reference) containing
any statements with respect to such Selling Stockholders or the distribution of
the Registrable Shares to be included in such Registration Statement if a
Selling Stockholder shall reasonably object in writing. Thereafter, @Home will
furnish to such Selling Stockholder and each underwriter, if any, such number of
copies of such Registration Statement, each amendment and supplement thereto (in
each case including all exhibits thereto and documents incorporated by reference
therein), the Prospectus included in such Registration Statement (including each
preliminary Prospectus), and such other documents as such Selling Stockholder or
underwriter may reasonably request in order to facilitate the disposition of the
Registrable Shares owned by such Selling Stockholder.
(iii) After the filing of the Registration Statement, promptly
notify each Selling Stockholder of Registrable Shares covered by such
Registration Statement of the effectiveness thereof and of any stop order issued
or threatened by the Commission and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered and promptly
notify such Selling Stockholder of such lifting or withdrawal of such order.
(iv) Subject to the provisions of Section 4(c)(iv),
immediately notify each Selling Stockholder holding Registrable Shares covered
by the applicable Registration Statement at any time when a Prospectus relating
thereto is required to be delivered under the Securities Act, of (i) the
determination that a Disadvantageous Condition exists, or (ii) the occurrence of
an event requiring the preparation of a supplement or amendment to such
Prospectus so that, as thereafter delivered to the purchasers of such
Registrable Shares, such Prospectus will not contain an 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 and promptly make
available to each such Selling Stockholder any such supplement or amendment, and
subject to the provisions of this Agreement regarding the existence of a
Disadvantageous Condition, @Home will promptly prepare and furnish to each such
Selling Stockholder a supplement to or an amendment of such Prospectus so that,
as thereafter delivered to the purchasers of such Registrable Shares, such
Prospectus will not contain any untrue statement of
14
<PAGE>
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.
(v) Enter into customary agreements (including an
underwriting agreement in customary form including customary indemnification
provisions) and perform its obligations under any such agreement(s) and shall
take such other actions as are reasonably required in order to expedite or
facilitate the disposition of such Registrable Shares.
(vi) Make available for inspection by any Selling Stockholder
covered by such Registration Statement, any underwriter participating in any
disposition pursuant to such Registration Statement and any attorney, accountant
or other professional retained by any such Selling Stockholder or underwriter,
all financial and other records, pertinent corporate documents and properties of
@Home as shall be reasonably necessary to enable them to exercise their due
diligence responsibility in connection therewith, and cause @Home's officers,
directors and employees to supply all information reasonably requested by any of
such persons in connection with such Registration Statement. Information which
@Home determines, in good faith, to be confidential and which it notifies such
persons is confidential shall not be disclosed by such persons unless (i) the
disclosure of such information is necessary to avoid or correct a misstatement
or omission in such Registration Statement, (ii) the release of such information
is ordered pursuant to a subpoena or other order from a court of competent
jurisdiction or (iii) such information becomes public other than through a
breach by such persons of the confidentiality obligations of such persons. Each
such Selling Stockholder agrees that information obtained by it as a result of
such inspections shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of @Home unless and until
such information is made generally available to the public.
(vii) Furnish, in the case of an underwritten public offering,
to each Selling Stockholder and to each underwriter a signed counterpart of (A)
an opinion or opinions of counsel to @Home addressed to such Selling Stockholder
and underwriter (on which opinion both such Selling Stockholder and such
underwriter are entitled to rely) and (B) a comfort letter or comfort letters
from @Home's independent public accountants, each in customary form and covering
such matters of the type customarily covered by opinions or comfort letters, as
the case may be, as the holders of a majority of the Registrable Shares included
in such Registration Statement or the managing underwriter therefor reasonably
requests.
(viii) Prepare and file with the Commission promptly upon the
request of any Selling Stockholder, any amendments or supplements to such
Registration Statement or the applicable Prospectus which, in the reasonable
opinion of counsel for such Stockholders, is required under the Securities Act
or the rules and regulations thereunder in connection with the distribution of
the Registrable Shares by such Selling Stockholders.
(ix) Register or qualify the Registrable Shares covered by a
Registration Statement under the securities or blue sky laws of such
jurisdictions in the United States as the Selling Stockholders shall reasonably
request, and do any and all other acts and things which may be necessary to
enable each Selling Stockholder to consummate the disposition in such
jurisdictions of such Registrable Shares in accordance with a method of
distribution
15
<PAGE>
described in such Registration Statement; provided, however, that @Home shall in
-------- -------
no event be required to qualify to do business as a foreign corporation or as a
dealer in any jurisdiction where it is not otherwise required to be so
qualified, to conform its capitalization or the composition of its assets at the
time to the securities or blue sky laws of such jurisdiction, to execute or file
any general consent to service of process under the laws of any jurisdiction, to
take any action that would subject it to service of process in suits other than
those arising out of the offer and sale of the Registrable Shares covered by
such Registration Statement, or to subject itself to taxation in any
jurisdiction where it has not theretofore done so.
(x) Cause such Registrable Shares covered by a Registration
Statement to be listed on the principal exchange or exchanges or qualified for
trading on the principal over the counter market on which the Series A Common
Stock is then listed or traded upon the sale of such Registrable Shares pursuant
to such Registration Statement.
(xi) Following the date that securities of @Home become
registered under the Exchange Act, make and keep information publicly available
relating to @Home so as to satisfy the corresponding requirements of Rule 144
under the Securities Act (or any successor or corresponding rule) and file with
the Commission all reports and other documents required of @Home under the
Securities Act and the Exchange Act in a timely manner.
(b) Disadvantageous Conditions. Notwithstanding anything to the
--------------------------
contrary contained herein, if at any time after the filing of a Registration
Statement or after it is declared effective by the Commission, @Home determines,
in its reasonable business judgment, that such registration, or offering and
sale of shares pursuant thereto, would result in a Disadvantageous Condition,
then @Home may, subject to the limitations set forth in Section 2(d), require
the suspension by each Selling Stockholder of the distribution of any of the
Registrable Shares by giving notice to such effect to each Selling Stockholder.
In the event that such notice is given, then until @Home has determined that
such registration, offering and sale no longer would result in a Disadvantageous
Condition, @Home's obligations under Section 2(b) and Section 4(a)(i), if the
Registration Statement has not become effective, or under Section 4(a)(i) and
(iv), if the Registration Statement has become effective, will be suspended (for
a total period not to exceed 120 days in the case of a Demand Registration). In
the event of a suspension pursuant to this Section 4(b) or otherwise after a
Registration Statement has been declared effective, the period of effectiveness
of such Registration Statement referred to in Section 4(a)(i) will be extended
by a number of days equal to the total number of days for which the distribution
of Registrable Shares included in such Registration Statement by the Selling
Stockholder has been suspended under this Section 4(b) or otherwise. If @Home
suspends its obligations under Section 2(d) or the distribution of Registrable
Shares under this Section 4(b) as to any Selling Stockholder, @Home shall
suspend such obligations and distributions as to all Selling Stockholders.
(c) Selling Stockholders' Obligations. @Home's obligations under this
---------------------------------
Agreement to a Selling Stockholder shall be conditioned upon such Selling
Stockholder's compliance with the following:
(i) Such Selling Stockholder shall cooperate with @Home in
connection with the preparation of the Registration Statement, and for so long
as @Home is
16
<PAGE>
obligated to keep the Registration Statement effective, such Selling
Stockholder will provide to @Home, in writing, for use in the Registration
Statement, all information regarding such Selling Stockholder, its intended
method of disposition of the applicable Registrable Shares, and such other
information as @Home may reasonably request to prepare the Registration
Statement and Prospectus covering the Registrable Shares and to maintain the
currency and effectiveness thereof;
(ii) Such Selling Stockholder agrees that, upon receipt of any
notice from @Home of the happening of any event of the kind described in Section
4(a)(iv), such Selling Stockholder will forthwith discontinue disposition of
Registrable Shares pursuant to the applicable Registration Statement until such
Selling Stockholder's receipt of either notice from @Home that a Disadvantageous
Condition no longer exists (but for no longer than 120 days in the case of a
Demand Registration), or the copies of the supplemented or amended Prospectus
contemplated by Section 4(a)(iv), and, if so directed by @Home, such Stockholder
will deliver to @Home all copies in its possession of the most recent Prospectus
covering such Registrable Shares at the time of receipt of such notice.
(iii) Such Selling Stockholder agrees to convert all shares to
be sold by such Selling Stockholder pursuant to any Registration Statement filed
pursuant to this Agreement into shares of Series A Common Stock immediately
before the closing of such sale.
(iv) With respect to any sales of Registrable Shares made by a
Selling Stockholder more than sixty (60) days after the applicable Registration
Statement is declared effective, such Selling Stockholder shall give prior
written notice to @Home of any such proposed sale of Registrable Shares under
the Registration Statement and thereafter shall not sell any shares, if @Home
responds within the Applicable Time Period by delivering a notice pursuant to
Section 4(a)(iv), until @Home has notified such Selling Stockholder either that
the Disadvantageous Condition no longer exists or has made available copies of
the supplemented or amended Prospectus contemplated by Section 4(a)(iv). A sale
notice by a Selling Stockholder shall be effective for a period that ends at
5:00 p.m., New York time on the 10th business day after the end of the
Applicable Time Period. For purposes of this Section, the "APPLICABLE TIME
PERIOD" shall lapse (x) at 12:00 noon New York time on the second Business Day
after the Business Day on which the notice is delivered to @Home if such notice
is received by @Home at or before 12:00 noon New York time or (y) at 9:00 a.m.
New York time on the third Business Day after the Business Day on which the
notice is delivered to @Home if such notice is received by @Home after 12:00
noon New York time.
(d) Limits on Other Public Sales or Distributions. @Home agrees (i)
---------------------------------------------
not to effect any public sale or distribution of any of its equity securities or
of any security convertible into or exchangeable or exercisable for any equity
security of @Home during the fourteen (14) days prior to, and during the sixty
(60) day period beginning on, the effective date of any Demand Registration
(except as part of such registration) and (ii) that any agreement entered into
after the date of this Agreement pursuant to which @Home agrees to register or
to permit the participation in the registration of any securities of @Home shall
contain a provision under which holders of any such securities agree not to
effect any public sale or distribution of any such
17
<PAGE>
securities during the periods described in clause (i) above, in each case
including a sale pursuant to Rule 144.
(e) Underwriting Agreement. Neither @Home nor any Stockholder may
----------------------
participate in any underwritten public offering in connection with a Demand
Registration or an Incidental Registration unless such person or entity (i)
agrees to sell its securities on the basis provided in any underwriting
arrangements approved by the party selecting the managing underwriter for such
offering and (ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements and this Agreement.
(f) Stockholder Market Stand-Off Agreement. Each Stockholder hereby
--------------------------------------
agrees that (except as permitted herein in connection with any Special Demand
Registration Right) it shall not, to the extent specified by @Home and the
applicable managing underwriter(s) of Series A Common Stock (or other
securities) of @Home offered and sold in the IPO, sell, offer to sell, contract
to sell (including without limitation any short sale), grant any option to
purchase or otherwise transfer or dispose of any equity securities of @Home
(other than transfers of securities to a member of the Stockholder's Stockholder
Group or another Stockholder or members of its Stockholder Group; provided that
in each case, each transferee agrees in writing to be subject to the terms of
this Section 4(f) to the same extent as if the transferee were an original
Stockholder hereunder) during a reasonable and customary period of time
following the effective date of the IPO, as agreed to by @Home and the
applicable managing underwriter(s), not to exceed one (1) year following the
effective date of the IPO if the IPO occurs within four years after the date of
this Agreement or 180 days following the effective date of the IPO if the IPO
occurs more than four years after the date of this Agreement; provided that
(except as permitted herein in connection with any Special Demand Registration
Right) in no event shall such period of time with respect to the Series C
Preferred Holders' Stockholder Group, TCI Sub's Stockholder Group, Comcast Sub's
Stockholder Group, Cox Sub's Stockholder Group and the KPCB Affiliates'
Stockholder Group, respectively, be longer than such period of time with respect
to any other of such Stockholder Groups.
5. Expenses of Registration.
------------------------
(a) Registration Expenses. So long as the Original Initiating Holder
---------------------
requests registration of not less than 500,000 Registrable Shares, as adjusted
for stock splits, reverse stock splits, stock dividends, recapitalizations and
the like occurring after the date hereof (the "MINIMUM DEMAND SHARES"), then
except as provided in paragraphs (b) and (c) below, all Registration Expenses
incurred in connection with any Demand Registration or Incidental Registration
and the distribution of any Registrable Shares in connection therewith shall be
borne by @Home. For purposes of this Agreement, the term "REGISTRATION
EXPENSES" shall mean all (i) registration, qualification and filing fees, (ii)
fees and expenses of compliance with securities or blue sky laws, (iii) printing
expenses (or comparable duplication expenses) and escrow fees, (iv) fees and
disbursements of counsel for @Home, (v) customary fees and expenses for
independent certified public accountants retained by @Home (including the
expenses of any comfort letters or costs associated with the delivery by
independent certified public accountants of a comfort letter or comfort
letters), (vi) fees and expenses of any special experts retained by
18
<PAGE>
@Home in connection with such registration, (vii) fees and expenses of listing
the Registrable Shares on a securities exchange, and (viii) in the case of a
Demand Registration only, the fees and expenses of a single counsel for the
Selling Stockholders. If the Original Initiating Holder requests registration of
less than the Minimum Demand Shares, then all Registration Expenses (including,
without limitation, all fees and expenses of counsel to @Home) shall be borne by
the Initiating Holders in proportion to the number of shares held by each of
them with respect to which such Initiating Holders have requested registration;
provided, however, that @Home shall bear all Registration Expenses in connection
- --------
with the exercise of the Special Demand Registration Right regardless of the
number of Registrable Shares requested to be registered by the Original
Initiating Holder.
(b) Selling Stockholder Expenses. Each Selling Stockholder shall pay
----------------------------
all stock transfer fees or expenses (including the cost of all transfer tax
stamps), if any, and all underwriting or brokerage discounts and commissions
attributable to the distribution of the Registrable Shares of such Selling
Stockholder.
(c) Incidental Registrations. In connection with any Incidental
------------------------
Registration, each Selling Stockholder shall also pay its pro rata share (based
on the number of shares sold by such Selling Stockholder in the registration) of
the incremental filing fee under the Securities Act attributable to the
applicable Registrable Shares, and @Home shall not be responsible for the fees
and disbursements of counsel for the Selling Stockholders.
(d) Internal Expenses of @Home. Notwithstanding any other provision
--------------------------
of this Agreement, @Home shall be obligated to bear all internal expenses of
@Home in connection with any Demand Registration or Incidental Registration
(including, without limitation, all salaries of its officers and employees
performing accounting and legal functions and related expenses).
6. Indemnification.
---------------
(a) By @Home. @Home agrees to indemnify and hold harmless each
--------
Stockholder Indemnified Party from and against any Losses, joint or several, to
which such Stockholder Indemnified Party may become subject under the Securities
Act, state securities or blue sky laws, common law or otherwise, insofar as such
Losses (or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
applicable Registration Statement or Prospectus, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or the breach or violation of any common
law rule or regulation applicable to @Home and relating to action required of or
inaction by @Home in connection with such Registration Statement or Prospectus;
and @Home will reimburse each such Stockholder Indemnified Party for any
reasonable fees and expenses of a single outside legal counsel for all
Stockholder Indemnified Parties, or in the event any Stockholder is advised by
counsel that there may be a conflict of interest between Stockholders with
respect to such matter, two separate outside legal counsel for all Stockholder
Indemnified Parties, or other expenses reasonably incurred by them, as incurred,
in connection with investigating or defending any such claims; provided, that
--------
@Home will not
19
<PAGE>
indemnify or hold harmless any Stockholder Indemnified Party from or against any
such Losses (including any related expenses) to the extent the untrue statement,
omission or allegation thereof upon which such Losses (including any related
expenses) are based (x) was made in reliance upon and in conformity with written
information provided by or on behalf of the applicable Selling Stockholder
specifically for use or inclusion in the applicable Registration Statement or
Prospectus or (y) was made in any Prospectus used after such time as @Home
advised such Selling Stockholder that the filing of a post-effective amendment
or supplement thereto was required, except the Prospectus as so amended or
supplemented.
(b) By Selling Stockholders. Each Selling Stockholder, individually
-----------------------
and not jointly, agrees to indemnify and hold harmless each Company Indemnified
Party and each other Stockholder Indemnified Party from and against any Losses,
joint or several, to which such Company Indemnified Party or any other
Stockholder Indemnified Party may become subject, insofar as such Losses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the applicable
Registration Statement or the Prospectus, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, if the statement or omission was made in reliance upon and
in conformity with written information provided by or on behalf of such Selling
Stockholder or any person who controls such Selling Stockholder specifically for
use or inclusion in the applicable Registration Statement or Prospectus;
provided, that such Selling Stockholder will not indemnify or hold harmless any
- --------
Company Indemnified Party or other Stockholder Indemnified Party from or against
any such Losses (including any related expenses) (i) to the extent the untrue
statement, omission or allegation thereof upon which such Losses (including any
related expenses) are based was made in any Prospectus used after such time as
such Selling Stockholder advised @Home that the filing of a post-effective
amendment or supplement thereto was required, except the Prospectus as so
amended or supplemented, or (ii) in an amount that exceeds the net proceeds
received by such Selling Stockholder from the sale of Registrable Shares
pursuant to such Registration Statement.
(c) Procedures. Each Indemnified Party shall give notice to each
----------
Indemnifying Party promptly after such Indemnified Party has actual knowledge of
any claim as to which indemnity may be sought, and the Indemnifying Party may
participate at its own expense in the defense, or if it so elects, assume the
defense of any such claim and any action or proceeding resulting therefrom,
including the employment of counsel and the payment of all expenses. The
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party from its obligations to indemnify such
Indemnified Party, except to the extent the Indemnified Party's failure to so
notify actually prejudices the Indemnifying Party's ability to defend against
such claim, action or proceeding. In the event that the Indemnifying Party
elects to assume the defense in any action or proceeding, an Indemnified Party
shall have the right to employ separate counsel in any such action or proceeding
and to participate in the defense thereof, but such Indemnified Party shall pay
the fees and expenses of such separate counsel unless (i) the Indemnifying Party
has agreed to pay such fees and expenses or (ii) the named parties to any such
action or proceeding (including any impleaded parties) include such Indemnified
Party and the Indemnifying Party, and such Indemnified Party shall have been
advised by counsel that there may be a conflict of interest between such
Indemnified Party and
20
<PAGE>
the Indemnifying Party in the conduct of the defense of such action (in which
case, if such Indemnified Party notifies the Indemnifying Party in writing that
it elects to employ separate counsel at the expense of the Indemnifying Party,
the Indemnifying Party shall not assume the defense of such action or proceeding
on such Indemnified Party's behalf, it being understood, however, that the
Indemnifying Party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for all Indemnified Parties, which firm shall be
designated in writing by the applicable Indemnified Parties). No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of the Indemnified Party, consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation.
(d) Contribution. If the indemnification provided for under this
------------
Section 6 is unavailable to or insufficient to hold the Indemnified Party
harmless under subparagraphs (a) or (b) above in respect of any Losses referred
to therein for any reason other than as specified therein, then the Indemnifying
Party shall contribute to the amount paid or payable by such Indemnified Party
as a result of such Losses (i) in such proportion as is appropriate to reflect
the relative benefits received by the Indemnifying Party, on the one hand, and
such Indemnified Party, on the other, from the subject offering or distribution
and the relative fault of the Indemnifying Party, on the one hand, and such
Indemnified Party, on the other, in connection with the statements or omissions
which resulted in such Losses, as well as any other relevant equitable
considerations. The relative benefits received by the Indemnifying Party, on
the one hand, and the Indemnified Party, on the other, shall be deemed to be in
the same proportion as the net proceeds of the offering or other distribution
received by the Indemnifying Party bears to the net proceeds of the offering or
other distribution received by the Indemnified Party. 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 (or omitted to be supplied
by) the Indemnifying Parties or Indemnified Parties, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission, the relative benefits received by each party from
the sale of the Registrable Shares, and any other equitable considerations
appropriate under the circumstances. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
7. Limitation on Other Registration Rights. Notwithstanding any other
---------------------------------------
provision of this Agreement, without the prior written consent of Stockholders
holding in the aggregate 66-2/3% of the Registrable Shares then outstanding,
@Home shall not grant to any stockholder of @Home (or the holder of any
securities of @Home convertible into or exchangeable or exercisable for any
other securities) any "piggy-back" or other similar right to participate in any
Demand Registration, other than any rights specifically granted in this
Agreement.
8. Registration Rights Subject to Stockholders' Right of First Offer.
-----------------------------------------------------------------
Notwithstanding the foregoing, the exercise of a Stockholder's registration
rights with respect to
21
<PAGE>
Registrable Shares pursuant to this Agreement shall be subject to the other
Stockholders' Right of First Offer (as set forth in the Stockholders'
Agreement), unless specifically exempted therefrom in accordance with the terms
of the Stockholders' Right of First Offer (as set forth in the Stockholders'
Agreement).
9. Miscellaneous.
-------------
9.1 Notices. All notices, requests, demands, waivers and other
--------
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally, mailed, certified or registered mail with
postage prepaid, or sent by reliable overnight courier, or telecopier, as
follows:
(a) @Home:
At Home Corporation
385 Ravendale Drive
Mountain View, CA 94043
Attention: David G. Pine, General Counsel
Facsimile: (415) 944-8500
with a copy to:
Fenwick & West LLP
Two Palo Alto Square
Suite 800
Palo Alto, CA 94306
Attention: Gordon K. Davidson, Esq.
Facsimile: (415) 494-1417
(b) Stockholders:
(i) TCI Internet Holdings, Inc.
5750 DTC Parkway
Englewood, Colorado 80111
Attention: Bruce Ravenel
President
Facsimile: (303) 712-5707
with a copy to:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022-6030
Attention: Frederick H. McGrath, Esq.
Facsimile: (212) 705-5125
22
<PAGE>
(ii) Comcast PC Investments, Inc.
1105 North Market Street, Suite 1219
Wilmington, DE 19801
Attention: General Counsel
Facsimile: (302) 427-7664
with a copy to:
Comcast Corporation
1500 Market Street
Philadelphia, PA 19102-2148
Attention: Robert S. Pick
Vice President
Facsimile: (215) 981-7794
and to:
Wolf, Block, Schorr and Solis-Cohen
Packard Building, 7th Floor
15th and Chestnut Streets
Philadelphia, PA 19012
Attention: Jason M. Shargel, Esq.
Facsimile: (215) 977-2334
(iii) Cox Teleport Providence, Inc.
c/o Cox Communications, Inc.
1400 Lake Hearn Drive, NE
Atlanta, GA 30319
Attention: David M. Woodrow
Senior Vice President
Facsimile: (404) 843-6352
with a copy to:
Dow Lohnes & Albertson P.L.L.C.
1200 New Hampshire Ave., N.W.
Suite 800
Washington, D.C. 20036
Attention: Stuart A. Sheldon, Esq.
Facsimile: (202) 776-2222
23
<PAGE>
(vi) KPCB VII Associates
2750 Sand Hill Road
Menlo Park, CA 94205
Attention: L. John Doerr
Facsimile: (415) 233-0323
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attention: Allen Morgan, Esq.
Facsimile: (415) 496-4092
and to:
(vii) any other Stockholders, at the
address and the facsimile number
listed on the signature pages hereto.
or to such other person or address as any party shall specify by notice in
writing to the other party. All notices and other communications given to a
party in accordance with the provisions of this Agreement shall be deemed to
have been given (i) three Business Days after the same are sent by certified or
registered mail, postage prepaid, return receipt requested, (ii) when delivered
by hand or transmitted by telecopy (confirmation received) or (iii) one Business
Day after the same are sent by a reliable overnight courier service, with
acknowledgment of receipt requested. Notwithstanding the preceding sentence,
notice of change of address shall be effective only upon actual receipt thereof.
9.2 Actions by Members of a Stockholder Group. All actions and
-----------------------------------------
determinations by, and all notices by or to, a Stockholder Group or any member
thereof shall be deemed validly taken or made (in the case of actions or
determinations) or given (in the case of notices), if taken, made or given, as
the case may be, by or to the Designated Representative of its Stockholder
Group, which shall initially be (i) TCI Sub (in the case of its Stockholder
Group), (ii) KPCB VII Associates (in the case of its Stockholder Group), (iii)
Cox Sub (in the case of its Stockholder Group), (iv) Comcast Sub (in the case of
its Stockholder Group), (v) Redwood (in the case of Developer's Stockholder
Group), or (vi) the person named on the signature page hereof as the Designated
Representative of the Series C Preferred Holders (in the case of the Series C
Preferred Holders' Stockholder Group), and such actions, determinations and
notices shall be binding upon all members of any such Stockholder Group for all
purposes of this Agreement. If any of TCI Sub, KPCB VII Associates, Cox Sub or
Comcast Sub (or any successor thereto pursuant to this sentence) is no longer in
existence or no longer beneficially owns any Registrable Shares, but its
Stockholder Group (or a successor or permitted assign thereof) continues to have
rights and/or obligations hereunder, then such Stockholder shall appoint one
such continuing entity as its replacement as Designated Representative of its
Stockholder Group; provided that if no such appointment is made, such
Stockholder's Parent (as
24
<PAGE>
defined in the Stockholders' Agreement) shall be deemed to be such replacement.
The Designated Representative of Developer's Stockholder Group shall
automatically (without any further action) be: (i) Redwood for as long as
Redwood is the general partner of Developer, and (ii) when Redwood is no longer
the general partner of Developer, the person or entity which is from time to
time the general partner of Developer, upon such person's or entity's written
notice to @Home. If the Designated Representative of the Series C Preferred
Holders (or any successor thereto pursuant to this sentence) is no longer in
existence or no longer beneficially owns any Registrable Shares, but its
Stockholder Group (or a successor or permitted assign thereof) continues to have
rights and/or obligations hereunder, then such Stockholder Group shall appoint
one such continuing entity as the replacement Designated Representative of the
Series C Preferred Holders' Stockholder Group; provided that if no such
--------
appointment is made, then such continuing entity holding the greatest number of
Registrable Shares shall be deemed to be such replacement. The Designated
Representative of the Series C Preferred Holders' Stockholder Group shall act
only upon the written instructions of Series C Preferred Holders holding at
least a majority of the Registrable Shares issued or issuable upon conversion of
the Series C Preferred (including but not limited to shares of Series C
Preferred issued or issuable upon exercise of the Canadian MSO Warrants). Each
member of another Stockholder Group may rely upon the notification or advice of
a Designated Representative with respect to any matter relating to the members
of such Designated Representative's Stockholder Group. To the extent any party
to this Agreement is required to take any action hereunder, it agrees to use its
reasonable best efforts to cause the other members of its Stockholder Group to
take such action.
9.3 Amendment. Any provision of this Agreement may be amended or
----------
modified in whole or in part at any time by an agreement in writing among @Home
and the Designated Representatives of each of the parties hereto, executed in
the same manner as this Agreement (other than (i) the Designated Representative
of Developer and its permitted transferees hereunder, which, together with
@Home, shall have the right to amend, modify or waive only those provisions of
this Agreement applicable only to Developer and (ii) the Designated
Representative of the Series C Preferred Holders and their permitted transferees
hereunder, which, together with @Home, shall have the right to amend, modify or
waive only those provisions of this Agreement applicable only to the Series C
Preferred Holders and shall have no right to vote on any other amendments,
modifications or waivers under this Agreement); provided that the provisions of
--------
Section 4(f) of this Agreement may be amended to extend the time periods
specified therein (which extended time period shall be the same for each
Stockholder) by an agreement in writing among @Home and the Designated
Representative of the TCI Sub Stockholder Group and (x) so long as each of the
Comcast Sub Stockholder Group, the Cox Sub Stockholder Group and the KPCB
Stockholder Group include an Eligible Stockholder, the Designated
Representatives of any two of such three Stockholder Groups, (y) so long as only
two of such three Stockholder Groups include an Eligible Stockholder, the
Designated Representative of either one of such two Stockholder Groups which
contain an Eligible Stockholder, and (z) so long as only one of such three
Stockholder Groups includes an Eligible Stockholder, no approval of any of the
Designated Representatives of such Stockholder Groups will be required, and any
such amendment shall be binding on all holders of Registrable Shares. No
consent, waiver or similar act shall be effective unless in writing.
25
<PAGE>
9.4 Entire Agreement. This Agreement constitutes the entire
-----------------
agreement among the parties hereto and supersedes all prior agreements and
understandings, oral and written, among the parties hereto with respect to the
subject matter hereof, including without limitation the Prior Registration
Agreement, which shall be superseded in its entirety by this Agreement effective
upon execution of this Agreement.
9.5 Counterparts. This Agreement may be executed in two or more
-------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
9.6 Governing Law. This Agreement shall be governed by and
--------------
interpreted in accordance with the internal laws of the State of Delaware,
without giving effect to principles of conflicts of laws.
9.7 Assignment. No party hereto may assign its rights under this
-----------
Agreement without the prior written consent of @Home, other than (i) in the case
of parties other than the Series C Preferred Holders, to a member of the party's
Stockholder Group or to another Stockholder or members of its Stockholder Group,
(ii) in the case of any Series C Preferred Holder, to any transferee of such
Series C Preferred Holder (including without limitation a Controlled Affiliate
of the Series C Preferred Holder) receiving at least twenty-five percent (25%)
of the shares of Series C Preferred (or Series A Common Stock issued upon
conversion of the Series C Preferred) that were originally purchased, and/or
that were originally issuable upon exercise of the Canadian MSO Warrants, by the
relevant Series C Preferred Investor under the Series C Purchase Agreements and
the Canadian MSO Warrants, respectively or (iii) in connection with the transfer
by a Canadian MSO of Registrable Shares to Additional Canadian MSO's, as that
term is defined in the letter agreement, dated as of the date hereof among the
Company and the Canadian MSO's with respect to the sale of the Canadian MSO
Warrants; provided, however, that no Person may be assigned any of the foregoing
-------- -------
rights unless the Company is given written notice by the assigning party at the
time of such assignment stating the name and address of the assignee and
identifying the securities of the Company as to which the rights in question are
being assigned; and provided, further, that any such assignee shall receive such
-------- -------
assigned rights subject to all the terms and conditions of this Agreement,
including, without limitation, the provisions of this Section 9.7. Subject to
the foregoing, this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
9.8 Termination of Certain Company Obligations. The Company shall
------------------------------------------
have no obligations pursuant to Sections 2 and 3 with respect to any Registrable
Shares proposed to be registered or sold by a Series C Preferred Holder after
the fifth anniversary of the closing of the IPO.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
26
<PAGE>
IN WITNESS WHEREOF, @Home, the Series C Preferred Investors and each
of the required Designated Representatives of the other parties hereto have
executed this Agreement as of the date first above written.
AT HOME CORPORATION
By: /s/ Thomas A. Jermoluk
-------------------------------------
Name: Thomas A. Jermoluk
Title: President/CEO
TCI INTERNET HOLDINGS, INC.
By: /s/ Bruce W. Ravenel
-------------------------------------
Name: Bruce W. Ravenel
Title: President/CEO
KPCB VII ASSOCIATES
By: /s/ William R. Hearst, III
-------------------------------------
Name: William R. Hearst, III
Title: General Partner
COMCAST PC INVESTMENTS, INC.
By: /s/ Brian L. Roberts
-------------------------------------
Name: Brian L. Roberts
Title: President
COX TELEPORT PROVIDENCE, INC.
By: /s/ David M. Woodrow
-------------------------------------
Name: David M. Woodrow
Title: V.P.
[SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
27
<PAGE>
Series C Preferred Investors:
----------------------------
ROGERS CABLE SYSTEMS LIMITED
By: /s/ David Samuel
-------------------------------------
Name: David Samuel
Title: President, Rogers Wave
By: /s/ M.L. Daly
-------------------------------------
Name: M.L. Daly
Title: Vice President, Treasurer
Address of Series C Preferred Investor:
Address: Suite 6400 Scotia Plaza
40 King St. W. Toronto M5H 3Y2
Attention: Chief Executive Officer
Facsimile: (416) 864-2395
Designated Representative of the
Series C Preferred Holders:
ROGERS COMMUNICATIONS
Address: Ste. 6400 Scotia Plaza
40 King St. W. Box 1007 Toronto
M5H 3Y2
Attention: Vice President, Law and General
Counsel
Facsimile: (416) 864-2395
with a copy to:
David Miller, Esq.
Vice President, Law and General Counsel
Suite 6400, Scotia Plaza
40 King St. W.
Toronto, Ontario M5H 3Y2
[SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
28
<PAGE>
Series C Preferred Investors:
----------------------------
SHAW CABLESYSTEMS LTD.
By: /s/ Jim Shaw, Jr.
-------------------------------------
Name: Jim Shaw, Jr.
Title: President, Shaw CableSystems Ltd.
By: /s/ Margot M. Micallef
-------------------------------------
Name: Margot M. Micallef
Title: Secretary
Address of Series C Preferred Investor:
Address: Suite 900, 630-3rd Avenue S.W.
Calgary, Alberta T2P 4L4
Attention: Jim Shaw Jr., President
Facsimile: (403) 750-4531
Designated Representative of the
Series C Preferred Holders:
Name:___________________________________
Address:________________________________
________________________________________
Attention:______________________________
Facsimile:______________________________
With a copy to:
Margot M. Micallef, Esq.
Corporate Counsel
Shaw Cablesystem Ltd.
Suite 900, 630 3rd Avenue S.W.
Calgary, Alberta T2P4L4
[SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
29
<PAGE>
Series C Preferred Investors:
----------------------------
SUN MICROSYSTEMS, INC.
Name: /s/ Michael Lehman
-----------------------------------
By: Michael Lehman,
Title: Vice President & Chief Financial Officer
Address of Series C Preferred Investor:
Address: 2550 Garcia Avenue, MS PALI-530
Mt. View, CA 94043
Attention: General Counsel
Facsimile: (415) 336-0530
Designated Representative of the
Series C Preferred Holders:
Name:___________________________________
Address:________________________________
________________________________________
Attention:______________________________
Facsimile:______________________________
[SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
30
<PAGE>
Series C Preferred Investors:
----------------------------
Name: /s/ Peter Currie
-----------------------------------
By: SR. VP & CFO
-------------------------------------
Name: Peter Currie
Title: Senior Vice President & Chief
Financial Officer
Address of Series C Preferred Investor:
Address: Netscape Communications Corp.
501 E. Middlefield Rd.
Mt. View, CA 94043
Attention: Peter L.S. Currie
Facsimile: (415) 523-4139
Designated Representative of the
Series C Preferred Holders:
Name:___________________________________
Address:________________________________
_________________________________________
Attention:_______________________________
Facsimile:_______________________________
[SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
31
<PAGE>
Series C Preferred Investors:
----------------------------
Name: James Barksdale
-----------------------------------
By: /s/ James Barksdale
-------------------------------------
Name: James Barksdale
Title:
Address of Series C Preferred Investor:
Address: c/o Netscape Communications Corp.
487 E. Middlefield Rd.
Mt. View, CA 94043
Attention:______________________________
Facsimile: (415) 528-4126
Designated Representative of the
Series C Preferred Holders:
Name:___________________________________
Address:________________________________
________________________________________
Attention:______________________________
Facsimile:______________________________
[SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
32
<PAGE>
Series C Preferred Investors:
----------------------------
Motorola, Inc.
By: /s/ John W. Battin
-------------------------------------
Name: John W. Battin
Title: Senior Vice President and General
Manager, Multimedia Group
Address of Series C Preferred Investor:
Address: 3436 N. Kennicott, Suite 150
Arlington Heights, IL 60004
Attention: Douglas M. Robertson
Facsimile: (847) 632-3164
Designated Representative of the
Series C Preferred Holders:
Name:___________________________________
Address:________________________________
________________________________________
Attention:______________________________
Facsimile:______________________________
with a copy to:
Motorola, Inc.
Attn: General Counsel
1303 E. Algonquin Road
Schaumburg, IL 60196
[SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
33
<PAGE>
Series C Preferred Investors:
----------------------------
Name: Bay Networks, Inc.
By: /s/ David Rynne
-------------------------------------
Name: David Rynne
Title: Chief Financial Officer
Address of Series C Preferred Investor:
Address: 4401 Great America Parkway
Santa Clara, CA 95054
Attention: David Rynne
------------------------------
Facsimile: (408) 495-1400
------------------------------
Designated Representative of the
Series C Preferred Holders:
Name:___________________________________
Address:________________________________
________________________________________
Attention:______________________________
Facsimile:______________________________
[SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]
34
<PAGE>
EXHIBIT 4.02
TCI INTERNET HOLDINGS, INC. KLEINER PERKINS CAUFIELD & BYERS
COX TELEPORT PROVIDENCE, INC. COMCAST PC INVESTMENTS, INC.
April 11, 1997
Rogers Cablesystems Limited
Shaw Cablesystems Ltd.
James Barksdale
Netscape Communications Corporation
Sun Microsystems, Inc.
Bay Networks, Inc.
Motorola, Inc.
Re: Tag-Along/Drag-Along Agreement
------------------------------
Ladies and Gentlemen:
Reference is made to the Amended and Restated Stockholders' Agreement (the
"Stockholders Agreement"), dated as of August 1, 1996, among TCI Internet
Holdings, Inc. ("TCI Sub"), Comcast PC Investments, Inc. ("Comcast Sub"), Cox
Teleport Providence, Inc. ("Cox Sub", and together with TCI Sub and Comcast Sub,
the "Cable Stockholders"), Kleiner Perkins Caufield & Byers VII ("KPCB"),
certain of their respective affiliates, and At Home Corporation ("@Home").
@Home is entering into a stock purchase agreement (the "Stock Purchase
Agreement") with Rogers Cablesystems Limited ("Rogers"), Shaw Cablesystems Ltd.
("Shaw"), James Barksdale ("Barksdale"), Netscape Communications Corporation
("Netscape"), Bay Networks, Inc. ("Bay"), Motorola, Inc. ("Motorola") and Sun
Microsystems, Inc. ("Sun") (Rogers, Shaw, Barksdale, Netscape, Bay, Motorola and
Sun are each referred to herein as an "Original Investor"), and certain other
related agreements providing for among other things, the purchase by the
Original Investors of shares of @Home's Series C Convertible Preferred Stock,
par value $.01 per share (the "Series C Preferred Stock"). In addition,
pursuant to the term sheet, dated as of March 18, 1997, among Rogers, Shaw and
@Home (the "Term Sheet"), each of Rogers and Shaw have agreed, among other
things, to purchase certain warrants (the "Warrants") to purchase shares of
Series C Preferred Stock and to market and promote, on an exclusive basis,
@Home's Service in Canada. In order to induce (i) the Original Investors to
consummate the purchase of the shares of Series C Preferred Stock and (ii)
Rogers and Shaw to consummate the purchase of the shares of Series C Preferred
Stock and the transactions referred to in the Term Sheet, each of TCI Sub,
Comcast Sub, Cox Sub and KPCB is entering into this letter agreement
<PAGE>
and agreeing, on behalf of itself and its related Stockholder Group, to provide
to the Original Investors the rights set forth herein, and in consideration of
the grant to them of the rights and benefits specified herein, each Original
Investor, on behalf of itself and any Controlled Affiliate (as defined below) to
which such Original Investor transfers Subject Securities (as defined below) in
accordance with this letter agreement, is entering into this letter agreement
and providing the Cable Stockholders with the rights set forth herein.
Capitalized terms used but not defined herein shall have the meanings ascribed
to them in the Stockholders Agreement.
In consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. Participation Right. In the event of any Control Block Sale or other
-------------------
similar sale, transfer or other disposition of Company Securities by a Cable
Stockholder's Stockholder Group to an Unaffiliated Third Party, in which the
members of the TCI Stockholder Group, the Cox Stockholder Group or the Comcast
Stockholder Group are entitled to participate and sell Company Securities (other
than to the Company (or its designee) or to another Stockholder Group) pursuant
to the Tag-Along Right set forth in the Stockholders Agreement or, in the event
the Stockholders Agreement is no longer in effect, any similar provision
enabling a non-controlling Stockholder to participate in any such transaction
set forth in an agreement (such other agreement, a "Parties Agreement") relating
to the securities of @Home to which TCI Sub, Comcast Sub and Cox Sub, or the
members of their respective Stockholder Groups then owning Company Securities,
are parties (such Control Block Sale or such other sale, transfer or
disposition, a "Control Sale Transaction" which term shall not include (x) any
Qualified Spin Off Transaction or (y) any transaction which the holders of
Series C Preferred Stock elect to deem as a liquidation of @Home pursuant to
Section 3 of the Certificate of Designation for the Series C Preferred Stock),
then each of TCI Sub, on behalf of itself and the TCI Stockholder Group,
Comcast Sub, on behalf of itself and the Comcast Stockholder Group, and Cox Sub,
on behalf of itself and the Cox Stockholder Group, agree that, to the extent it
is a member of the Control Block Group, it will not participate in such Control
Sale Transaction unless each Qualified Investor (as defined below) is provided
with the right to participate with respect to its Subject Securities on a pro
rata basis in such transaction upon the same terms and conditions as the members
of the TCI Stockholder Group, the Comcast Stockholder Group and the Cox
Stockholder Group, as applicable, having Tag-Along Rights are entitled to
participate.
2. Drag-Along Right. In the event any of TCI Sub, Comcast Sub or Cox
----------------
Sub, or any member of its Stockholder Group to which Company Securities have
been transferred, has a right pursuant to the Stockholders Agreement or a
Parties Agreement to require any other Cable Stockholder (or the members of its
related Stockholder Group) to sell Company Securities in connection with a
Control Sale Transaction, then the Stockholder having the right to cause other
Stockholders to sell Company Securities in such transaction shall also have the
right to require each Original Investor and any Controlled Affiliate to which
such Original Investor has transferred Subject Securities, to sell a pro rata
portion of the Subject Securities beneficially owned by it in such transaction
upon the same terms and conditions as the other Stockholders so required to sell
are selling their Company Securities.
2
<PAGE>
3. Definitions. As used in this letter agreement, the following terms
-----------
shall have the following definitions:
(A) Subject Securities: Without duplication, (i) the shares of Series
------------------
C Preferred Stock purchased by each Original Investor at the closing
of the transactions contemplated by the Stock Purchase Agreement, (ii)
shares of Series C Preferred Stock issued upon exercise of the
Warrants, (iii) shares of Series A Common Stock issuable upon
conversion of the shares of Series C Preferred Stock described in
clauses (i) and (ii) above, (iv) any New Capital Stock (as defined in
the Stock Purchase Agreement) acquired by an Original Investor (or its
Controlled Affiliate) pursuant to the exercise of preemptive rights
granted pursuant to the Stock Purchase Agreement, but excluding any
Rights or Options which, as of the applicable date of determination,
have not been exercised, and (v) any Subject Securities acquired by an
Original Investor or its Controlled Affiliates directly from another
Original Investor or its Controlled Affiliate pursuant to clause (iii)
of Section 4.1(b) of the Stock Purchase Agreement.
(B) Qualified Investor: An Original Investor which owns, of record
------------------
and beneficially, not less than 50% of the shares of Series C
Preferred Stock originally purchased by it pursuant to the Stock
Purchase Agreement (or shares of Series A Common Stock issuable upon
conversion thereof), or any Controlled Affiliate of such Original
Investor to which such amount of securities have been transferred, so
long as such Controlled Affiliate (i) entered into, at the time of the
transfer of securities to it, an instrument agreeing to be bound
hereunder in accordance with Section 5 hereof and (ii) at all times
following the transfer of securities to it has continued to be, and at
the time of the Control Sale Transaction is, a Controlled Affiliate of
such Original Investor; provided, however, that for purposes of the
-------- -------
foregoing, each of Rogers and Shaw shall be deemed to be a Qualified
Investor so long as it owns, of record and beneficially, shares of
Series C Preferred Stock, Warrants or shares of Series A Common Stock
(either issued or issuable upon the conversion of shares of Series C
Preferred Stock or exercise of Warrants, whether or not then vested
and exercisable), equal to, on a Series A Common Stock equivalent
basis and without duplication, at least 50% of the shares originally
purchased by it pursuant to the Stock Purchase Agreement and the
Canadian Purchase Agreement (as defined in the Stock Purchase
Agreement) (on a fully diluted basis).
(C) Controlled Affiliate: A "Controlled Affiliate" of an Original
--------------------
Investor shall mean any Person (i) which is Controlled by such
Original Investor, (ii) which owns (directly or indirectly through one
or more wholly owned subsidiaries) 100% of the outstanding capital
stock of such Original Investor as of the date of
3
<PAGE>
this Agreement (a "Parent"), or (iii) of which more than 50% of the
equity interests and voting power of its outstanding capital stock is
owned by a Parent of such Original Investor. "Control" means the
possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract, management agreement
or otherwise.
4. Termination. This letter agreement and all of the rights and
-----------
obligations of the parties shall terminate and be of no further force and effect
upon the first to occur of (x) the closing of @Home's IPO and (y) such time as
neither Rogers nor Shaw is offering the Wave@Home Service on an exclusive basis
in accordance with the exclusive license referred to in Section 2.1(A) or (B),
as applicable, of the Term Sheet (or in accordance with any analogous provisions
with respect to distribution of the Wave@Home Service by Rogers and Shaw
contained in any definitive agreement superseding the Term Sheet).
5. Binding Effect. The terms and provisions of this letter agreement
--------------
shall be binding upon and enforceable against TCI Sub and each member of the TCI
Stockholder Group, Comcast Sub and each member of the Comcast Stockholder Group,
and Cox Sub and each member of the Cox Stockholder Group, and each of TCI Sub,
Comcast Sub and Cox Sub agrees that it will not sell, assign or transfer any
Company Securities to another member of its Stockholder Group unless such member
of its Stockholder Group agrees to be bound by the provisions of this letter
agreement. The provisions of this letter agreement shall be binding upon and
enforceable by and against each Original Investor and any Controlled Affiliate
of an Original Investor to which shares of Series C Preferred Stock, Warrants,
or shares of Series A Common Stock have been transferred, provided that at the
time of the transfer of securities to it such Controlled Affiliate enters into
an instrument, substantially in the form of Exhibit A hereto, agreeing to be
bound by the provisions of this letter agreement.
6. No Rights With Respect to Other Agreements. Each Original Investor,
------------------------------------------
by its execution and delivery of this letter agreement, acknowledges and agrees,
on behalf of itself and any transferee of shares of Series C Preferred Stock or
Series A Common Stock or Warrants, that neither such Original Investor nor any
such transferee shall have or obtain any rights or benefits (including as a
third party beneficiary) under the Stockholders Agreement or any Parties
Agreement entered into by the Cable Stockholders, and that the parties to the
Stockholders Agreement or any Parties Agreement shall have the right to amend,
modify or waive any rights or obligations thereunder, or terminate any such
agreement, without the consent or approval of any Original Investor or its
transferee, and that no Original Investor will have any rights to enforce any of
the terms and provisions of the Stockholders Agreement or any Parties Agreement,
as a third party beneficiary or otherwise. The agreements set forth in this
letter agreement shall be considered the separate and independent agreements and
undertaking of the parties hereto.
7. Miscellaneous. (A) This letter agreement will be governed by, and
-------------
construed in accordance with, the laws of the State of Delaware, without regard
to the conflicts of law rules of such state.
4
<PAGE>
(B) The parties hereto agree that irreparable damage would occur in
the event any provision of this letter agreement was not performed in accordance
with the terms hereof and that the parties shall be entitled to specific
performance of the terms hereof in addition to any other remedy at law or in
equity.
(C) This letter agreement may be executed in counterparts, each of
which shall be deemed an original and all of which shall constitute one and the
same instrument.
(D) Each party hereto severally represents to each of the other
parties hereto that this letter agreement has been duly authorized, executed and
delivered by such party and constitutes the legal, valid and binding obligation
of such party and the members of such party's Stockholder Group, as applicable,
enforceable against such party in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting the rights of creditors generally and by
general principles of equity.
(E) In connection with any of the transactions contemplated by
Sections 1 or 2 above, the Stockholder initiating such Control Sale Transaction
shall provide written notice of the proposed transaction to each Original
Investor at such time as notice is provided to the other Cable Stockholders,
which notice will set forth the relevant terms and conditions of such
transaction. In the case of any transaction which is subject to Section 1
above, any Original Investor desiring to participate in such transaction shall
deliver written notice to the Control Block Group accepting such offer within
the period specified in such first notice (which period shall be no less than
the number of days granted to the other Cable Stockholders for their acceptance
of such offer). In the case of any transaction which is subject to Section 2
above, the Cable Stockholder desiring to exercise the Drag-Along Right pursuant
thereto shall provide to each Original Investor required to sell Subject
Securities in such transaction notice of such exercise together with
instructions relating to the delivery of Subject Securities in connection with
such transaction.
(F) KPCB, on behalf of itself and the KPCB Stockholder Group, hereby
consents to the execution and delivery of this letter agreement by each of the
Cable Stockholders and to the transactions contemplated by this letter
agreement.
5
<PAGE>
If the foregoing is in accordance with your understanding please indicate
your agreement by signing below, at which time this letter will constitute a
binding agreement among us.
Very truly yours,
TCI INTERNET HOLDINGS, INC.
By: /s/ Bruce W. Ravenel
-------------------------------
Name: Bruce W. Ravenel
Title: President/CEO
COX TELEPORT PROVIDENCE, INC.
By:/s/ David M. Woodrow
-------------------------------
Name: David M. Woodrow
Title: VP
COMCAST PC INVESTMENTS, INC.
By:/s/ Brian L. Roberts
-------------------------------
Name: Brian L. Roberts
Title: President
KLEINER PERKINS CAUFIELD & BYERS VII
By: /s/ William R. Hearst, III
----------------------------
Name: William R. Hearst, III
Title: General Partner
Accepted and Agreed as of
this 11 day of April, 1997:
ROGERS CABLESYSTEMS LIMITED
By: /s/ David Miller and David Samuel
---------------------------------
Name: David Miller and David Samuel
Title: VP President Rogers Wave
SHAW CABLESYSTEMS LTD.
By: /s/ Jim Shaw, Jr.
------------------------------------
Name: Jim Shaw, Jr., President
By: /s/ Margot M. Micallef
------------------------------------
Name: Margot M. Micallef, Secretary
<PAGE>
JAMES BARKSDALE
By: /s/ JAMES BARKSDALE
-----------------------------
NETSCAPE COMMUNICATIONS CORPORATION
By: /s/ Peter Currie
---------------------------
Name: Peter Currie
Title: SVP & CFO
BAY NETWORKS, INC.
By: /s/ David Rynne
---------------------------
Name: David Rynne
Title: Executive Vice President and
Chief Financial Officer
SUN MICROSYSTEMS, INC.
By: /s/ Michael Lehman
---------------------------
Name: Michael Lehman
Title: Vice President & Chief Financial Officer
MOTOROLA, INC.
By: /s/ John W. Battin
---------------------------
Name: John W. Battin
Title: Senior Vice President and
General Manager, Multimedia Group
[SIGNATURE PAGE TO LETTER AGREEMENT]
<PAGE>
EXHIBIT 4.03
AT HOME CORPORATION
425 Broadway
Redwood City, CA 94063
April 11, 1997
Shaw Cablesystems Ltd.
Suite 900
630 Third Avenue SW
Calgary, Alberta
Canada T2P 4L4
Rogers Cablesystems Limited
Suite 6400, Scotia Plaza
40 King Street W
Toronto, Ontario
Canada M5H 3Y2
Re: Canadian Purchase Agreement
---------------------------
Ladies and Gentlemen:
Reference is made to that certain Stock Purchase Agreement, dated of even
date herewith, among At Home Corporation (the "COMPANY") and the purchasers
listed on Exhibit A thereto, which include Rogers Cablesystems Limited, a
corporation incorporated under the laws of Ontario ("ROGERS"), and Shaw
Cablesystems Ltd., a corporation incorporated under the federal laws of Canada
("SHAW"), with respect to the purchase by, and sale to, each of Rogers and Shaw
of $15,000,000 of Series C Convertible Preferred Stock, par value U.S. $0.01 per
share ("SERIES C PREFERRED") of the Company (the "PURCHASE AGREEMENT") out of a
total offering of up to $50,000,000. Capitalized terms used in this letter
agreement (this "AGREEMENT") without definition shall have the meanings given to
them in the Purchase Agreement.
In connection with the purchase of Series C Preferred by Rogers and Shaw,
the Company has agreed to grant certain warrants and provide certain rights to
Rogers and Shaw, as described below.
1. Purchase and Sale of Warrants. Subject to the terms and conditions of
-----------------------------
the Purchase Agreement and this Agreement, the Company agrees to issue and sell
to each of Rogers and Shaw, and each of Rogers and Shaw agrees, severally and
not jointly, to purchase from the Company, at the Closing, (i) a warrant in the
form attached hereto as Exhibit A (each, a "WARRANT 1") to purchase 32,500
---------
shares of Series C Preferred which are initially convertible into 650,000 shares
of Series A Common Stock; (ii) a warrant in the form attached hereto as Exhibit
-------
B (each, a "WARRANT 2") to purchase 4,000 shares of Series C Preferred which
- -
are initially convertible into 80,000 shares of Series A Common Stock; and (iii)
a warrant in the form
<PAGE>
attached hereto as Exhibit C (each, a "WARRANT 3") to purchase 13,500 shares of
---------
Series C Preferred which are initially convertible into 270,000 shares of Series
A Common Stock. The aggregate purchase price for each Warrant 1 will be $650.00.
The aggregate purchase price for each Warrant 2 will be $80.00. The aggregate
purchase price for each Warrant 3 will be $270.00. Each Warrant 1, Warrant 2 and
Warrant 3 are collectively referred to herein as the "WARRANTS."
2. Additional Representations, Warranties and Covenants of the Company.
-------------------------------------------------------------------
In addition to the Company's representations, warranties and covenants in
Section 2 of the Purchase Agreement, which are hereby incorporated herein by
reference with the same force and effect as if set forth herein, the Company
hereby represents and warrants to, and covenants with, each of Rogers and Shaw
(each, a "CANADIAN PURCHASER") as follows, except as set forth in the Additional
Schedule of Exceptions ("ADDITIONAL SCHEDULE OF EXCEPTIONS") attached to this
Agreement as Exhibit E (which Additional Schedule of Exceptions shall be deemed
---------
to be representations and warranties to the Canadian Purchasers by the Company
under this Section 2):
2.1 Authorization; Consents and Approvals; No Conflict. This
--------------------------------------------------
Agreement, the Warrants issued to such Canadian Purchaser, and the Canadian
Voting Agreement (as hereinafter defined) shall be deemed included within the
definition of "Transaction Agreements" with respect to such Canadian Purchaser
for purposes of Section 2.7 of the Purchase Agreement. This Agreement, the
Warrants issued to such Canadian Purchaser, the Canadian Voting Agreement and
that certain letter agreement of even date herewith among the Canadian
Purchasers, the Cable Stockholders (as hereinafter defined) and Kleiner,
Perkins, Caufield & Byers VII with respect to certain resales of the Company's
stock (the "TAG/DRAG AGREEMENT") shall be deemed included in the definition of
"Transaction Agreements" with respect to such Canadian Purchaser for purposes of
Section 2.8 of the Purchase Agreement.
2.2 Valid Issuance of Warrants and Warrant Stock. The Warrants, when
--------------------------------------------
issued, sold and delivered in accordance with the terms of this Agreement to
such Canadian Purchaser, will be duly authorized and validly issued, free of any
liens, claims, charges, security interests, pledges or encumbrances of any kind
(other than restrictions on transfer or voting created in this Agreement, the
Purchase Agreement, such Warrants, the Registration Rights Agreement, the
Canadian Voting Agreement or the Tag/Drag Agreement or by such Canadian
Purchaser or as a result of applicable state and federal securities laws). The
shares issuable upon exercise of the Warrants (the "WARRANT STOCK") will have
been duly and validly reserved for issuance prior to the Closing and, upon
issuance in accordance with the terms of the Warrants, the Certificate of
Designation and the Restated Certificate, will be duly authorized, validly
issued, fully paid and nonassessable, free of any liens, claims, charges,
security interests, pledges or encumbrances of any kind (other than restrictions
on transfer or voting created in this Agreement, the Purchase Agreement, such
Warrants, the Registration Rights Agreement, the Canadian Voting Agreement or
the Tag/Drag Agreement or by such Canadian Purchaser or as a result of
applicable state and federal securities laws).
2.3 No Registration Required. Based in part on the representations
------------------------
made by such Canadian Purchaser in Section 6 hereof, the Purchased Shares and
the Warrants and (assuming no change in applicable law and no unlawful
distribution of Purchased Shares or
-2-
<PAGE>
Warrants by such Canadian Purchaser or other parties) the Conversion Shares or
Warrant Stock, respectively, will be issued in full compliance with either (i)
Rule 903 of Regulation S under the U.S. Securities Act of 1933, as amended (the
"SECURITIES ACT") or (ii) another applicable exemption from the registration
requirements of the Securities Act, and the registration and qualification
requirements of the securities laws of the States of California and Delaware
(provided that, with respect to the Conversion Shares and Warrant Stock, no
-------- ----
commission or other remuneration is paid or given, directly or indirectly, for
soliciting the issuance of Conversion Shares upon the conversion of the
Purchased Shares or Warrant Stock upon the exercise of the Warrants and no
additional consideration is paid for the Conversion Shares other than surrender
of the applicable Purchased Shares upon conversion thereof in accordance with
the Certificate of Designation and the Restated Certificate or for the Warrant
Stock other than delivery of the applicable exercise price thereof).
3. Additional Representations, Warranties and Covenants of the
-----------------------------------------------------------
Purchasers. In addition to each Canadian Purchaser's representations, warranties
- ----------
and covenants in Section 3 of the Purchase Agreement, which are hereby
incorporated herein by reference with the same force and effect as if set forth
herein, each Canadian Purchaser, on behalf of itself and not jointly with the
other Canadian Purchaser, hereby represents and warrants to, and covenants with,
the Company as follows:
3.1 Authorization; Consents and Approvals; No Conflict. The Warrants
--------------------------------------------------
issued to such Canadian Purchaser, the Canadian Voting Agreement and the
Tag/Drag Agreement shall be deemed included within the definition of
"Transaction Agreements" with respect to such Canadian Purchaser for purposes of
Sections 3.5 and 3.6 of the Purchase Agreement.
3.2 Disclosure of Information. The Warrants issued to such Canadian
-------------------------
Purchaser shall be deemed included within the definition of "Purchased Shares"
with respect to such Canadian Purchaser for purposes of Section 3.7 of the
Purchase Agreement.
4. Conditions to Rogers' and Shaw's Obligations at Closing. In addition
-------------------------------------------------------
to the closing conditions in Section 6 of the Purchase Agreement, which are
hereby incorporated herein by reference with the same force and effect as if set
forth herein, the obligation of each Canadian Purchaser to purchase and/or
acquire Purchased Shares and Warrants at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following additional
conditions, any of which may be waived by such Canadian Purchaser, respectively,
by written notice to the Company pursuant to Section 10.6 of the Purchase
Agreement:
4.1 Correctness of Representations and Warranties. The
---------------------------------------------
representations and warranties of the Company set forth or incorporated by
reference in this Agreement shall, if specifically qualified by materiality, be
true and correct and, if not so qualified, be true and correct in all material
respects in each case as of the date of this Agreement and as of the Closing
Date with the same effect as if made on and as of the Closing Date, and such
Canadian Purchaser shall have received a certificate to such effect from the
Company, signed by its duly authorized officer.
-3-
<PAGE>
4.2 Performance of Agreements. The Company shall have performed and
-------------------------
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing Date, and such Canadian Purchaser shall have received a certificate
to such effect from the Company, signed by its duly authorized officer.
4.3 Securities Exemption. The offer and sale of the Purchased Shares
--------------------
and the Warrants to such Canadian Purchaser pursuant to this Agreement (and,
with respect to the Purchased Shares, pursuant to the Purchase Agreement) shall
be in compliance with Rule 903 of Regulation S under the Securities Act or
exempt from the registration requirements of the Securities Act, the
qualification requirements of the California Securities Law and the registration
and/or qualification requirements of all other applicable state securities laws.
4.4 No Material Litigation. There shall not be pending on the
----------------------
Closing Date any lawsuit, claim, proceeding or other legal action by or before
any court or other regulatory, administrative or governmental authority that
seeks to restrain, restrict or prohibit or impose substantial penalties or
damages with respect to (or any other materially adverse relief or remedy in
connection with), and there shall not be in effect on the Closing Date any
injunction or other order of any governmental authority or arbitration panel
that restrains, restricts, prohibits or imposes substantial penalties or damages
with respect to (or any other materially adverse relief or remedy in connection
with), the consummation of the transactions contemplated hereby.
4.5 Government Approvals and Consents. All governmental consents
---------------------------------
required in connection with the consummation of the transactions contemplated by
this Agreement shall have been obtained and shall be in full force and effect
and all governmental filings required in connection with the consummation of the
transactions contemplated by this Agreement shall have been made, and all
waiting periods, if any, applicable to the consummation of such transactions
imposed by any governmental entity shall have expired, other than those which,
if not obtained, in force or effect, made or expired (as the case may be) would
not, whether individually or in the aggregate, have a material adverse effect on
the transactions contemplated by the Purchase Agreement and this Agreement.
4.6 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated hereby at the Closing, and all
documents and instruments incident to these transactions, shall be reasonably
satisfactory in substance to such Canadian Purchaser and its counsel and such
Canadian Purchaser shall have received all such counterpart originals and
certified or other copies of such documents as such Canadian Purchaser may
reasonably request.
4.7 Delivery of Warrants. The Company shall have delivered to such
--------------------
Canadian Purchaser an original executed copy of each Warrant to be purchased by
such Canadian Purchaser pursuant to Section 1 of this Agreement.
4.8 Waiver of Existing Rights. On or before the Closing, any
-------------------------
preemptive rights, rights of first refusal and other rights (including but not
limited to, the right to receive notice of the transactions contemplated by this
Agreement) of the parties to the Stockholders'
-4-
<PAGE>
Agreement (and their respective Stockholder Groups, as defined in the
Stockholders' Agreement) under the Stockholders' Agreement shall have been
waived as and to the extent such rights apply to the issuance and sale of the
Warrants and the Warrant Stock hereunder and the other transactions contemplated
hereby and by the Transaction Agreements.
4.9 Board of Directors; Canadian Voting Agreement. At the Closing,
---------------------------------------------
the authorized number of directors of the Company shall be eleven, and such
Canadian Purchaser shall have received from TCI Internet Holdings, Inc., Cox
Teleport Providence, Inc. and Comcast PC Investments, Inc. (the "CABLE
STOCKHOLDERS"), the Company and the other Canadian Purchaser executed
counterparts of the Voting Agreement in the form attached as Exhibit D hereto
---------
(the "CANADIAN VOTING AGREEMENT").
4.10 Minimum Investment. The other Canadian Purchaser shall purchase
------------------
75,000 shares of Series C Preferred, a Warrant 1 to purchase 32,500 shares of
Series C Preferred, a Warrant 2 to purchase 4,000 shares of Series C Preferred
and a Warrant 3 to purchase 13,500 shares of Series C Preferred.
5. Conditions to the Company's Obligations at Closing. In addition to the
--------------------------------------------------
closing conditions in Section 7 of the Purchase Agreement, which are hereby
incorporated herein by reference with the same force and effect as if set forth
herein, the obligation of the Company to issue and sell the Purchased Shares and
the Warrants to each Canadian Purchaser at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following additional
conditions:
5.1 Correctness of Representations and Warranties. The
---------------------------------------------
representations and warranties of such Canadian Purchaser contained in this
Agreement and the Warrants shall, if specifically qualified by materiality, be
true and correct and, if not so qualified, be true and correct in all material
respects in each case as of the date of this Agreement and as of the Closing
Date with the same effect as if made on and as of the Closing Date, and the
Company shall have received a certificate to such effect from such Canadian
Purchaser, signed by its duly authorized officer.
5.2 Performance of Agreements. Such Canadian Purchaser shall have
-------------------------
performed and complied with all covenants, agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied with by it on or before the Closing Date, and the Company shall have
received a certificate to such effect from such Canadian Purchaser, signed by
its duly authorized officer.
5.3 No Material Litigation. There shall not be pending on the
----------------------
Closing Date any lawsuit, claim, proceeding or other legal action by or before
any court or other regulatory, administrative or governmental authority that
seeks to restrain, restrict or prohibit or impose substantial penalties or
damages with respect to (or any other materially adverse relief or remedy in
connection with), and there shall not be in effect on the Closing Date any
injunction or other order of any governmental authority or arbitration panel
that restrains, restricts, prohibits or imposes substantial penalties or damages
with respect to (or any other materially adverse relief or remedy in connection
with), the consummation of the transactions contemplated hereby.
-5-
<PAGE>
5.4 Securities Exemption. The offer and sale of the Purchased Shares
--------------------
and the Warrants to such Canadian Purchaser pursuant to this Agreement shall be
in compliance with Rule 903 of Regulation S under the Securities Act or exempt
from the registration requirements of the Securities Act, the qualification
requirements of the California Securities Law and the registration and/or
qualification requirements of all other applicable state securities laws,
provided that the Company shall be obligated to use its commercially reasonable
efforts to make all filings and take all such other actions required to perfect
such exemptions.
5.5 Government Approvals and Consents. All governmental consents
---------------------------------
required in connection with the consummation of the transactions contemplated by
this Agreement shall have been obtained and shall be in full force and effect
and all governmental filings required in connection with the consummation of the
transactions contemplated by this Agreement shall have been made, and all
waiting periods, if any, applicable to the consummation of such transactions
imposed by any governmental entity shall have expired, other than those which,
if not obtained, in force or effect, made or expired (as the case may be) would
not, whether individually or in the aggregate, have a material adverse effect on
the transactions contemplated by this Agreement and the Purchase Agreement.
5.6 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated hereby at the Closing, and all
documents and instruments incident to these transactions, shall be reasonably
satisfactory in substance to the Company and its counsel and they shall each
have received all such counterpart originals and certified or other copies of
such documents as they may reasonably request.
5.7 Payment of Purchase Price. Such Canadian Purchaser shall have
-------------------------
delivered to the Company the purchase price for each of the Warrants specified
in Section 1 of this Agreement.
5.8 Waiver of Existing Rights. On or before the Closing, any
-------------------------
preemptive rights, rights of first refusal and other rights (including but not
limited to, the right to receive notice of the transactions contemplated by this
Agreement) of the parties to the Stockholders' Agreement (and their respective
Stockholder Groups, as defined in the Stockholders' Agreement) under the
Stockholders' Agreement shall have been waived as and to the extent such rights
apply to the issuance and sale of the Warrants and the Warrant Stock hereunder
and the other transactions contemplated hereby and by the Transaction
Agreements.
5.9 Minimum Investment. Each of Rogers and Shaw shall purchase a
------------------
minimum of 75,000 shares of Series C Preferred, a Warrant 1 to purchase 32,500
shares of Series C Preferred, a Warrant 2 to purchase 4,000 shares of Series C
Preferred and a Warrant 3 to purchase 13,500 shares of Series C Preferred.
6. Compliance with U.S. Securities Laws.
------------------------------------
6.1 Compliance with Regulation S. Rogers and Shaw acknowledge that
----------------------------
the offer and sale by the Company to them of the Series C Preferred and the
Warrants, and the securities that are issuable upon exercise of the Warrants and
conversion of the Series C
-6-
<PAGE>
Preferred (collectively the "SECURITIES") are being made in part in reliance on
the parties' compliance with Rule 903 of Regulation S under the Securities Act,
which provides an exemption from the registration requirements of the Securities
Act for certain "offshore transactions" in which (i) the offer is not made to a
person in the United States, (ii) at the time the buy order is originated, the
buyer is outside the United States and is not a U.S. person within the meaning
of Regulation S, (iii) certain resale restrictions are imposed on the securities
being sold and (iv) the offer and sale is made pursuant to the conditions
specified in Rule 903(c)(3)(iii)(B) of Regulation S.
6.2 Representations of Rogers and Shaw. Each of Rogers and Shaw
----------------------------------
severally represents and agrees that:
a) It is not a "U.S. person" within the meaning of Regulation S;
b) It is not acquiring the Securities for the account of or
benefit of any U.S. person;
c) The offer to purchase the Securities was not made to it in
the United States;
d) To the best of its knowledge, the offer and sale of the
Securities is being made in an "offshore transaction" complying with the
provisions of Rule 903 of Regulation S under the Securities Act;
e) It is acquiring the Securities for investment and not with a
view to the sale or other distribution thereof within the meaning of the Act;
and
f) It will resell or transfer the Securities only in accordance
with the provisions of Regulation S, pursuant to registration under the
Securities Act, or pursuant to another available exemption from registration.
6.3 Restrictions on Resale. Notwithstanding anything to the contrary
----------------------
in the Purchase Agreement or the Warrants, each of Rogers and Shaw agrees
severally that until two years after the Closing or such earlier time as may be
permitted under Regulation S (the "RESTRICTED PERIOD"), it will not offer or
sell any of the Securities in the United States or to any U.S. person unless the
Securities are registered under the Securities Act or an exemption from the
registration requirements under the Securities Act is available. Rogers and
Shaw acknowledge that (i) any resale or transfer of the Securities during the
Restricted Period, unless registered under the Securities Act or made pursuant
to an applicable exemption from registration under the Securities Act, must be
made in an "offshore transaction" complying with the provisions of Rule 904 of
Regulation S, (ii) no directed selling efforts may be made in the United States
by the seller, an affiliate or any person acting on their behalf, and (iii) no
selling concession, fee or other remuneration may be paid in connection with any
such offer or sale except as permitted by Regulation S.
6.4 Refusal to Transfer. Rogers and Shaw acknowledge that the
-------------------
Company is required to refuse, and will refuse, to register any transfer of the
Securities not made in
-7-
<PAGE>
accordance with the provisions of Regulation S or pursuant to an applicable
exemption from registration under the Securities Act, and that the Securities
will bear a legend in substantially the following form (in lieu of the legend
required by Section 4.4(a) of the Purchase Agreement) stating that transfer of
the Securities is prohibited except in accordance with the provisions of
Regulation S or pursuant to an applicable exemption from registration under the
Securities Act:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
THE SECURITIES LAWS OF ANY STATES OF THE UNITED STATES. THESE SECURITIES ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD IN THE UNITED STATES OR TO U.S. PERSONS EXCEPT AS PERMITTED UNDER
REGULATION S PROMULGATED UNDER THE ACT, PURSUANT TO REGISTRATION UNDER THE ACT
OR PURSUANT TO ANOTHER EXEMPTION THEREFROM, AND EXCEPT AS PERMITTED UNDER
APPLICABLE STATE SECURITIES LAWS. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
In addition to the legends required by Section 4.4 of the Purchase
Agreement, the Securities shall include a conspicuously noted legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THAT CERTAIN
CANADIAN PURCHASE AGREEMENT DATED AS OF APRIL 11, 1997 AMONG THE COMPANY AND THE
OTHER PARTIES THERETO CONTAINING, AMONG OTHER THINGS, RESTRICTIONS ON THE SALE,
TRANSFER OR OTHER DISPOSITION OF SUCH SECURITIES. A COUNTERPART OF SUCH
AGREEMENT HAS BEEN DEPOSITED WITH THE COMPANY AT ITS PRINCIPAL PLACE OF
BUSINESS, AND THE COMPANY SHALL FURNISH A COPY OF SUCH AGREEMENT TO THE RECORD
HOLDER HEREOF, WITHOUT CHARGE, UPON WRITTEN REQUEST.
6.5 Binding on Transferees. The restrictions set forth in this
----------------------
Section 6 will be binding on any transferee of the Securities in the same manner
as set forth in this Section 6 with respect to Rogers and Shaw.
7. Exception to Transfer Restrictions.
----------------------------------
7.1 Exception. Notwithstanding the restrictions on dispositions of
---------
Purchased Shares and Conversion Shares set forth in Sections 4.1 and 4.2 of the
Purchase Agreement or on dispositions of Warrants and Warrant Stock set forth in
Sections 4.1 and 4.2 of each of the Warrants, but subject to compliance with
applicable securities laws and the provisions of Section 6 of this Agreement,
each of Rogers and Shaw may transfer the Purchased Shares, Conversion Shares,
Warrants, and Warrant Stock, in minimum amounts of 1,000 shares of Series
-8-
<PAGE>
C Preferred Stock (or 20,000 shares of Series A Common Stock) to, in the
aggregate for both Rogers and Shaw and their permitted transferees, up to twelve
Additional Canadian MSOs who are not "U.S. persons" within the meaning of
Regulation S; provided that in each case, each transferee agrees in writing to
--------
be subject to the terms of Section 4 of the Purchase Agreement or Section 4 of
the Warrant, as applicable, and Section 6 of this Agreement to the same extent
as if the transferee were Rogers or Shaw, as applicable, under the Purchase
Agreement and/or the Warrant and this Agreement.
7.2 Definitions. For purposes of this Section 7 and Section 8, the
-----------
following terms have the following meanings:
"ADDITIONAL CANADIAN MSO" means any cable system operator in Canada
(other than Rogers and Shaw and their respective Controlled Affiliates) who
agrees in writing with Rogers or Shaw, as applicable, to distribute the
Wave@Home Service on an exclusive basis in Canada in accordance with the
Canadian Distribution Agreement.
"CANADIAN DISTRIBUTION AGREEMENT" means the provisions of Articles 2,
3 and 6 of the Term Sheet, including any other provisions or definitions in
other sections of the Term Sheet which are referenced in Articles 2, 3 and 6;
provided that if the matters set forth in Articles 2, 3 and 6 of the Term Sheet
are superseded by a definitive agreement which is executed by the applicable
parties to the Term Sheet, such definitive agreement will constitute the
Canadian Distribution Agreement for all purposes hereunder.
"TERM SHEET" means the Term Sheet, dated March 18, 1997, among the
Company, Rogers and Shaw, as amended, modified or supplemented from time to
time.
"WAVE@HOME SERVICE" has the meaning given to such term in the Canadian
Distribution Agreement.
7.3 Covenant. In the event that Rogers or Shaw makes a permitted
--------
transfer of a Warrant that is not then fully exercisable at the time of
transfer, the Company and Rogers or Shaw as appropriate agree to negotiate in
good faith those adaptations to the exercisability provisions of such Warrant as
necessary for such Warrant to include performance criteria that are consistent
with the parties' shared objectives for distribution of the Company's service in
Canada.
8. Nomination of Canadian Purchasers' Board Designee; Board Observer
-----------------------------------------------------------------
Rights.
- ------
8.1 Ownership Condition. Certain of the rights of Rogers and Shaw
-------------------
specified in this Section 8 are subject to the condition (the "OWNERSHIP
CONDITION") that Rogers and Shaw (and/or Controlled Affiliates of either Rogers
or Shaw) collectively own beneficially (x) at least 2,000,000 shares of issued
and outstanding Series A Common Stock (and/or shares of Series C Preferred Stock
that is then convertible into such number of shares of Series A Common Stock)
and (y) in addition to (and without duplication of) the shares referred to in
clause (x) above, any one of the following (with the references in this Section
8 to numbers of shares appropriately adjusted to give effect to any stock
splits, reverse splits, stock dividends or similar events occurring after the
date hereof):
-9-
<PAGE>
(1) 500,000 or more shares of Series A Common Stock; or
(2) that number of shares of Series C Preferred Stock that is then
convertible into at least 500,000 shares of Series A Common Stock; or
(3) that number of Warrants which upon exercise will (either
immediately or upon conversion of shares of Series C Preferred Stock issuable
upon the exercise thereof) result in the issuance of at least 500,000 shares of
Series A Common Stock.
8.2 Nomination Rights.
-----------------
(a) Series C Preferred Director. The Company hereby covenants that,
---------------------------
for so long as the holders of Series C Preferred Stock are entitled as a
separate series, under the Company's Certificate of Incorporation or any
Certificate of Designation, to elect a member of the Board of Directors of the
Company (the "SERIES C PREFERRED DIRECTOR"), the Company will, in connection
with any meeting of stockholders held, or in connection with any written consent
of stockholders solicited, for the purpose of electing the Series C Preferred
Director, use its reasonable best efforts to cause to be nominated for election
to the Board the nominee designated in writing by holders of a majority of the
shares of Series C Preferred Stock issued and outstanding on the record date for
such meeting or written consent.
(b) Common Stock Director. The Company hereby covenants that from and
---------------------
after such time as there are no shares of Series C Preferred Stock outstanding,
for so long as (i) the Ownership Condition is satisfied and (ii) either Rogers
or Shaw or both hold the exclusive licenses referred to in Sections 2.1(A) and
(B), as applicable, of the Term Sheet (or in accordance with any analogous
provisions with respect to distribution of the Wave@Home Service by Rogers and
Shaw contained in the Canadian Distribution Agreement), the Company will, in
connection with any meeting of stockholders held, or in connection with any
written consent of stockholders solicited, for the purpose of electing any
Common Stock Directors (as defined in the Company's Certificate of
Incorporation), use its reasonable best efforts to cause to be nominated for
election to the Board as a Common Stock Director a nominee jointly designated by
Rogers and Shaw (the "ROGERS/SHAW DESIGNEE"). At such time as the foregoing
conditions are no longer satisfied, Rogers and Shaw will cause such person to
resign as a director and, if necessary or appropriate, request the Cable
Stockholders to cooperate in such person's removal. Rogers and Shaw agree to
provide promptly upon the reasonable request of the Company written notice to
the Company and to each of the Cable Stockholders of the name of the Rogers/Shaw
Designee and shall provide such information relating to such Rogers/Shaw
Designee as may be necessary to comply with applicable law in connection with
the IPO, subsequent proxy statements to be mailed to stockholders and other
securities filings to be made by the Company.
8.3 Observer Rights. In the event that Rogers and Shaw have exercised
---------------
their right to jointly designate a nominee in accordance with Section 8.2(b) but
such nominee is not elected as a Common Stock Director (an "ELECTION LOSS"), the
Company will use its reasonable best efforts to permit such jointly designated
nominee to attend, and participate in the discussion at, all meetings of the
Board in a non-voting observer capacity subject to the terms and conditions of
this Section 8.3. In addition, so long as (i) the Ownership Condition is
satisfied
-10-
<PAGE>
and (ii) both Rogers and Shaw hold the exclusive licenses referred to in
Sections 2.1(A) and (B), as applicable, of the Term Sheet (or in accordance with
any analogous provisions with respect to distribution of the Wave@Home Service
by Rogers and Shaw contained in the Canadian Distribution Agreement), then the
Company will use its reasonable best efforts to permit one additional
representative designated jointly by Rogers and Shaw to attend, and participate
in the discussion in, all meetings of the Board in a non-voting observer
capacity subject to the terms and conditions of this Section 8.3. Such non-
voting observer or observers (each, a "NON-VOTING OBSERVER") will, to the extent
permitted by law, have the right to participate fully in all aspects of meetings
of the Board and discussions among directors (other than the right to vote as a
director), including without limitation the right to be provided with copies of
all notices, minutes and other materials that the Company provides to its
directors with respect to such meetings subject to the following terms and
conditions:
(a) Rogers, Shaw and such Non-Voting Observer(s) shall
hold in strict confidence all information and materials that any of them may
receive or be given access to in connection with meetings of the Board and will
act in a fiduciary manner with respect to all information so provided;
(b) Such Non-Voting Observer(s) may be excluded from certain
sessions of the Board or certain portions of a Board meeting, or may not receive
certain documents otherwise provided to the Board, if the presence of such Non-
Voting Observer(s) or the delivery of such documents would, in the opinion of
the Company's legal counsel, jeopardize the Company's attorney-client privilege;
and
(c) Rogers, Shaw and such Non-Voting Observer(s) shall
comply with all policies of the Company with respect to "insider trading" of the
Company's securities that are applicable from time to time to the Company's
directors and affiliates.
In addition, the Company agrees that, at such future time as the
Company expands the authorized number of directors or establishes the authorized
number of directors as a number greater than the number of authorized directors
as of the date of the Closing, in exercising its reasonable best efforts to
cause to be determined the person to be nominated to fill any such vacancy or
vacancies, the Company will take into consideration the experience of the Non-
Voting Observer(s) concerning the Company and its business, together with the
other qualifications of such Non-Voting Observer(s) with the understanding that
the decision to nominate any person to fill such vacancy or vacancies shall
remain with the Company and the Board.
8.4 Qualification. Rogers and Shaw hereby agree that (i) the Series
-------------
C Preferred Director (so long as Rogers and/or Shaw hold a sufficient number of
shares of Series C Preferred Stock to elect the Series C Preferred Director),
(ii) the Rogers/Shaw Designee and (iii) any Non-Voting Observer, (x) shall, if
such person is a director, meet any legal requirements to serve on the Board and
(y) shall be, at the time of such designation and election and so long as such
person is the Series C Preferred Director elected by Rogers and/or Shaw, the
Rogers/Shaw Designee, or a Non-Voting Observer, respectively, an officer,
director, or employee of either Rogers or Shaw, and upon such person ceasing to
be an officer, director or employee of Rogers
-11-
<PAGE>
or Shaw, Rogers and Shaw will cause such person to resign as a Series C
Preferred Director, Rogers/Shaw Designee, or Non-Voting Observer, respectively,
and, if necessary or appropriate, request the Cable Stockholders to cooperate in
such person's removal or replacement, and thereafter Rogers and Shaw shall
designate a successor to such person, which person shall satisfy the foregoing
eligibility standards in accordance with the foregoing.
9. Miscellaneous.
-------------
9.1 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, in all respects the laws of the State of Delaware,
without regard to the conflicts of law rules of such State.
9.2 Survival. The representations and warranties made herein shall
--------
survive any investigation made by any Canadian Purchaser and the closing of the
transactions contemplated hereby for a period of fifteen (15) months after the
Closing.
9.3 Successors and Assigns. Except as provided in Section 7 with
----------------------
respect to a transfer of Purchased Shares, Conversion Shares, Warrants and
Warrant Stock, neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by the Company or a Canadian Purchaser
without the prior written consent of such Canadian Purchaser or the Company,
respectively. Any assignment or delegation in contravention of this Agreement
shall be void and shall not relieve the assigning or delegating party of any
obligation hereunder. Except as set forth in the preceding sentences, this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns.
9.4 Limitation on Rights of Others. Nothing in this Agreement,
------------------------------
whether express or implied, shall be construed to give any person, other than
the parties hereto, any legal or equitable right, remedy or claim under or in
respect of this Agreement.
9.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts with the same effect as if all parties hereto had signed the same
document. Each counterpart shall be enforceable against the parties actually
executing such counterpart, and all counterparts shall be construed together and
shall constitute one instrument.
9.6 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this letter agreement to any
party.
9.7 Obligations Several, Not Joint. Each of Rogers and Shaw shall be
------------------------------
obligated hereunder only with respect to the purchase of the number of Warrants
set forth in Section 1 of this Agreement, and neither Rogers and nor Shaw shall
have any liability with respect to the other's obligations hereunder.
9.8 Currency. All monetary amounts in this Agreement are stated in
--------
United States Dollars.
-12-
<PAGE>
9.9 Interpretation. In the event of any conflict or inconsistency
--------------
between this Agreement and the Purchase Agreement, the provisions of this
Agreement shall be controlling.
9.10 Integration. This Agreement and the Purchase Agreement supersede
-----------
Sections 1.0, 2.8 (except for the third sentence thereof), 4.0 and 7.0 (except
for Sections 7.1 and 7.5 to 7.10 inclusive), and Schedules B and C, of the Term
Sheet, dated March 18, 1997, among the Company, Rogers and Shaw.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-13-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
AT HOME CORPORATION
By: /s/ Thomas A.Jermoluk
-------------------------------
Name: Thomas A.Jermoluk
Title:President/CEO
ROGERS CABLESYSTEMS LIMITED
By: /s/ David Miller
-------------------------------
Name: D. Miller
Title: Vice President
By: /s/ D. Samuel
-------------------------------
Name: D. Samuel
Title: President, Rogers Wave
SHAW CABLESYSTEMS LTD.
By: /s/ Jim Shaw
-------------------------------
Name: Jim Shaw, Jr.
Title: President
By: /s/ Margot M. Micallef
-------------------------------
Name: Margot M. Micallef
Title: Secretary
Attachments:
- -----------
Exhibit A - Form of Warrant 1
Exhibit B - Form of Warrant 2
Exhibit C - Form of Warrant 3
Exhibit D - Voting Agreement
Exhibit E - Additional Schedule of Exceptions
-14-
<PAGE>
EXHIBIT 9.01
[LETTERHEAD APPEARS HERE]
April 11, 1997
Rogers Cablesystems Limited
Suite 6400, Scotia Plaza
40 King Street W
Toronto, Ontario
Canada M5H 3Y2
Shaw Cablesystems Ltd.
Suite 900
630 3rd Avenue S.W.
Calgary, Alberta
Canada T2P 4L4
Re: @Home Voting Agreement
----------------------
Ladies and Gentlemen:
Reference is made to the Term Sheet (the "Term Sheet"), dated March 18,
1997, among At Home Corporation ("@Home"), Rogers Cablesystems Limited
("Rogers") and Shaw Cablesystems Ltd. ("Shaw"), in which, among other things,
each of Rogers and Shaw have agreed to purchase shares of @Home's Series C
Convertible Preferred Stock, par value $.01 per share ("Series C Preferred
Stock"), and warrants (the "Warrants") to purchase shares of Series C Preferred
Stock, and to market and promote, on an exclusive basis, @Home's Service in
Canada, and @Home has agreed to sell such shares of Series C Preferred Stock and
Warrants to Rogers and Shaw and to grant each of them an exclusive license to
market and promote @Home's Service in Canada, all as more fully described in the
Term Sheet, and in each case, upon the terms and subject to the conditions set
forth therein or in any subsequent definitive agreements which supersede all or
a portion of the provisions of the Term Sheet. Capitalized terms used but not
defined herein shall have the meanings ascribed to them in the Term Sheet.
The Term Sheet provides that it is a condition to the obligation of Rogers
and Shaw to consummate the transactions contemplated by the Term Sheet that TCI
Internet Holdings, Inc. ("TCI Sub"), an indirect wholly owned subsidiary of
Tele-Communications, Inc., on behalf of the TCI Stockholder Group (as defined in
the Amended and Restated Stockholder Agreement dated as of August 1, 1996 (the
"Stockholders Agreement")), agree to vote any shares of @Home it
<PAGE>
may own in favor of and use commercially reasonable best efforts to cause to be
elected and maintained in office one person designated jointly by Rogers and
Shaw as a Common Stock Director (the "Rogers/Shaw Designee") of the Board of
Directors of @Home (the "Board") so long as Rogers and Shaw fulfill certain
requirements as set forth herein. Subsequent to the execution of the Term Sheet,
the parties have modified certain of their arrangements with respect to the
designee of Rogers and Shaw becoming a member of the Board to provide that prior
to the mandatory conversion of their shares of Series C Preferred Stock in
connection with the IPO (as defined in the Certificate of Designation of the
Series C Preferred Stock) the holders of the Series C Preferred Stock, voting as
a separate series, will be entitled to elect a separate member to the Board (the
"Series C Director"), and that following the IPO and such mandatory conversion,
each of TCI Sub, Cox Teleport Providence, Inc. ("Cox Sub"), an indirect wholly
owned subsidiary of Cox Communications, Inc., and Comcast PC Investments, Inc.
("Comcast Sub", and together with TCI Sub and Cox Sub, the "Cable
Stockholders"), an indirect wholly owned subsidiary of Comcast Corporation,
would, on behalf of itself and its related Stockholder Group, be obligated
subject to the terms and conditions set forth herein, to vote their respective
Voting Securities (as defined below) as provided in this letter agreement.
Currently, (i) TCI Sub is the record and beneficial owner of shares of
@Home's Series T Convertible Participating Preferred Stock, par value $.01 per
share, and Series AT Convertible Participating Preferred Stock, par value $.01
per share, (ii) Cox Sub is the record and beneficial owner of shares of @Home's
Series AX Convertible Participating Preferred Stock, par value $.01 per share
and (ii) Comcast Sub is the record and beneficial owner of shares of @Home's
Series AM Convertible Participating Preferred Stock, par value $.01 per share.
Subject to the conditions set forth in this letter agreement, each of TCI Sub,
Cox Sub and Comcast Sub agrees: (x) to use reasonable best efforts to cause
each of its Stockholder Designees (as defined in the Stockholders Agreement) to
vote in favor of the nomination of the Rogers/Shaw Designee as a Common Stock
Director at any Board meeting at which Common Stock Directors are to be
nominated in connection with the IPO and the mandatory conversion of the Series
C Preferred Stock and at meetings of the Board subsequent to the Trigger Date
(as defined below) at which Common Stock Directors are to be nominated; (y) to
use reasonable best efforts to cause each of its Stockholder Designees to permit
any Non-Voting Observer (as defined in the letter agreement dated of even date
herewith among @Home, Rogers, and Shaw with respect to purchase of the Warrants
and related matters (the "Canadian Purchase Agreement")) to attend all meetings
of the Board, and to participate fully in all aspects of meetings of the Board
and discussions among directors (other than the right to vote as a director), in
each case subject to the terms and conditions of Section 8.3 of the Canadian
Purchase Agreement; and (z) to the extent that such Cable Stockholder has the
power to vote or direct the voting of (or to consent or cause the holder to
consent with respect to) any Voting Securities beneficially owned by it, to (1)
vote all such Voting Securities at any annual or special meeting of stockholders
of @Home occurring subsequent to the date of the mandatory conversion of the
Series C Preferred Stock in connection with the IPO (the "Trigger Date") at
which Common Stock Directors are to be elected in favor of, or duly consent in
writing (in accordance with @Home's Certificate of Incorporation and Bylaws) to,
the election of the Rogers/Shaw Designee as a Common Stock Director, and (2) use
reasonable best efforts to cause the Rogers/Shaw Designee to be elected as a
Common Stock
2
<PAGE>
Director and to continue as a Common Stock Director, in each case subsequent to
the Trigger Date, unless otherwise requested by Rogers and Shaw and so long as
such Rogers/Shaw Designee fulfills the qualifications set forth below to be a
Common Stock Director. In addition, each of TCI Sub, Cox Sub and Comcast Sub
agrees to (A) use reasonable best efforts to cause each of its Stockholder
Designees to vote in favor of (i) the removal from nomination of such
Rogers/Shaw Designee in the event that Rogers and Shaw together request such
removal by written notice to each of the Cable Stockholders and (ii) the
nomination subsequent to the Trigger Date as a Common Stock Director of any
replacement or successor jointly designated by Rogers and Shaw to fill the
vacancy created by the removal of the Rogers/Shaw Designee or the death,
disability or registration of the Rogers/Shaw Designee, and (B) vote all such
Voting Securities in favor of, or to duly consent in writing (in accordance with
@Home's Certificate of Incorporation and Bylaws) to, in each case to the extent
permitted by @Home's Certificate of Incorporation and Bylaws, (i) the removal
(with or without cause) from the Board of Directors of such Rogers/Shaw Designee
in the event that Rogers and Shaw together request such removal by written
notice to each of the Cable Stockholders, and (ii) the election or appointment
subsequent to the Trigger Date as a Common Stock Director of any replacement or
successor jointly designated by Rogers and Shaw to fill the vacancy created by
the removal of the Rogers/Shaw Designee or the death, disability or resignation
of the Rogers/Shaw Designee. Rogers and Shaw hereby agree that (a) each person
designated by them as the Rogers/Shaw Designee shall meet any legal requirements
to serve on the @Home Board and shall be, at the time of such designation,
nomination and election and so long as such person is the Rogers/Shaw Designee,
an officer, director, or employee of either Rogers or Shaw, (b) any Non-Voting
Observer shall be, at the time of appointment, and so long as such person is the
Non-Voting Observer, an officer, director or employee of either Rogers or Shaw,
and (c) upon such Rogers/Shaw Designee or Non-Voting Observer, as the case may
be, ceasing to be an officer, director or employee of Rogers or Shaw, Rogers and
Shaw will (i) cause the Rogers/ Shaw Designee to resign as a director and, if
necessary or appropriate, request the Cable Stockholders to cooperate in such
person's removal or replacement, as provided above, and (ii) take such actions
(including requesting the Cable Stockholders to cooperate in the taking of any
action) as may be necessary to cause such Non-Voting Observer to cease to attend
Board meetings, as applicable, and thereafter Rogers and Shaw shall designate a
successor to such person, which person shall satisfy the foregoing eligibility
standards in accordance with the foregoing. Rogers and Shaw agree to provide
promptly upon the reasonable request of @Home written notice to @Home and to
each of the Cable Stockholders of the name of the Rogers/Shaw Designee and the
Non-Voting Observer and shall provide such information relating to such
Rogers/Shaw Designee and the Non-Voting Observer as may be necessary to comply
with applicable law in connection with the IPO, subsequent proxy statements to
be mailed to stockholders and other securities filings to be made by @Home. In
the event that both Rogers and Shaw (each, a "Canadian Purchaser") do not then
hold the exclusive licenses referred to in Sections 2.1(A) and (B), as
applicable, of the Term Sheet (or in accordance with any analogous provisions
with respect to distribution of the Wave@Home Service by Rogers and Shaw
contained in any definitive agreement superceding the relevant portions of the
Term Sheet), then the Canadian Purchaser that then holds one of such exclusive
licenses, if any, shall have the right, acting alone, to designate the
Rogers/Shaw Designee.
3
<PAGE>
The agreements set forth in this letter agreement and the Cable
Stockholders' obligations hereunder shall terminate on the earlier to occur of
the date that (i) neither Rogers nor Shaw continues to offer the Wave@Home
Service on an exclusive basis in accordance with the exclusive license referred
to in Section 2.1(A) or (B), as applicable, of the Term Sheet (or in accordance
with any analogous provisions with respect to distribution of the Wave@Home
Service by Rogers and Shaw contained in any Definitive Agreement) or (ii) Rogers
and Shaw together with their respective Controlled Affiliates (as such term is
defined in the Stock Purchase Agreement, of even date herewith, among @Home,
Rogers, Shaw and the other purchasers of Series C Preferred Stock) cease
collectively to own beneficially (x) at least 2,000,000 shares of issued and
outstanding Series A Common Stock (and/or shares of Series C Preferred Stock
convertible into such number of shares of Series A Common Stock) and (y) in
addition to (and without duplication of) the shares referred to in clause (x)
above, any one of the following:
(1) 500,000 or more shares of Series A Common Stock; or
(2) that number of shares of Series C Preferred Stock which upon
conversion will result in the issuance of at least 500,000 shares of
Series A Common Stock; or
(3) that number of Warrants which upon exercise will (either immediately
or upon conversion of shares of Series C Preferred Stock issuable upon
the exercise thereof) result in the issuance of at least 500,000
shares of Series A Common Stock.
The foregoing references to numbers of shares shall be appropriately
adjusted to give effect to any stock splits, reverse splits, stock dividends or
similar events occurring after the date hereof.
Each of Rogers and Shaw agrees to notify each of the Cable Stockholders
promptly upon (or to the extent practicable, in advance of) the occurrence of
any event which would result in the termination of Rogers' or Shaw's right to
designate the Rogers/Shaw Designee or the Non-voting Observer. Upon the
termination of this letter agreement and the Cable Stockholders' obligations
hereunder, each of Rogers and Shaw agrees to cooperate with @Home and the Cable
Stockholders in causing the Rogers/Shaw Designee to be removed from the Board
and the Non-Voting Observer to cease attending Board meetings.
As used herein the following terms shall have the following meanings: (i)
"Certificate of Incorporation" means @Home's Certificate of Incorporation, as
amended from time to time; (ii) "Bylaws" means @Home's Bylaws, as amended from
time to time; (iii) "Common Stock Director" means any member of the Board of
Directors of @Home who is not elected or appointed solely by the holders of a
specified class or series of Preferred Stock or by the holders of @Home's Series
B Common Stock or Series K Common Stock; (iv) "Voting Securities" means all
shares of Preferred Stock and Common Stock (each as defined in @Home's
Certificate of Incorporation) the holders of which are entitled to vote or
consent with respect to the election
4
<PAGE>
of Common Stock Directors; (v) "Series A Common Stock" means the Series A Common
Stock, par value $.01 per share, of @Home; and (vi) "owned beneficially" shall
have a meaning correlative to that of "beneficial owner" as set forth in Rule
13d-3 under the Securities Exchange Act of 1934, as amended. In addition, except
as expressly provided herein, any provision in this Agreement requiring a Cable
Stockholder to use its reasonable best efforts to cause its Stockholder
Designees to take any action shall require such Cable Stockholder to (i)
instruct each of its Stockholder Designees to vote in favor of such action, or
to consent in writing to the taking of such action, and (ii) take such other
actions (including without limitation the removal and replacement of its
Stockholder Designees) as may be reasonably necessary to cause such action to be
taken.
Each of TCI Sub, Cox Sub and Comcast Sub represents and warrants to each of
Rogers and Shaw that, as of the date hereof, it is the record and beneficial
owner of all Voting Securities held by its respective Stockholder Group (as
defined in the Stockholders Agreement). Each party hereto, severally,
represents to each of the other parties hereto that this letter agreement has
been duly authorized, executed and delivered by such party and constitutes the
legal, valid and binding obligation of such party, enforceable against such
party in accordance with its terms, except as such enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the rights of creditors generally and by general principals of equity.
The provisions of this agreement shall be binding upon and enforceable
against each member of the TCI Stockholder Group, the Cox Stockholder Group and
the Comcast Stockholder Group, in each case, holding Voting Securities of @Home,
and each of TCI Sub, Cox Sub and Comcast Sub agrees that it will not sell,
assign or transfer any Voting Securities to any member of its Stockholder Group
unless such member of its Stockholder Group assumes and agrees to perform the
obligations of such Cable Stockholder under this Agreement.
This letter agreement will be governed by, and construed in accordance
with, the laws of the State of Delaware, without regard to the conflicts of law
rules of such state.
The parties hereto agree that irreparable damage would occur in the event
any provision of this letter agreement was not performed in accordance with the
terms hereof and that the parties shall be entitled to specific performance of
the terms hereof in addition to any other remedy at law or in equity.
5
<PAGE>
This letter agreement may be executed in counterparts, each of which shall
be deemed an original and all of which shall constitute one and the same
instrument.
If the foregoing is in accordance with your understanding please indicate
your agreement by signing below, at which time this letter will constitute a
binding agreement among us.
Very truly yours,
TCI INTERNET HOLDINGS, INC.
By:/s/ Bruce W. Ravenel
-----------------------------------
Name: Bruce W. Ravenel
Title: President/CEO
COX TELEPORT PROVIDENCE, INC.
By:/s/ David M. Woodrow
-----------------------------------
Name: David M. Woodrow
Title: VP
COMCAST PC INVESTMENTS, INC.
By:/s/ Brian L. Roberts
-----------------------------------
Name: Brian L. Roberts
Title: President
Accepted and Agreed as of
this 11 day of April, 1997:
ROGERS CABLESYSTEMS LIMITED
By:/s/ D. Miller and D. Samuel
-------------------------------------
Name: D. Miller D. Samuel
Title: VP Pres. Rogers Wave
SHAW CABLESYSTEMS LTD.
By:/s/ Jim Shaw, Jr.
-------------------------------------
Name: Jim Shaw, Jr.
Title: President
SHAW CABLESYSTEMS LTD.
By:/s/ Margot M. Micallef
--------------------------------------
Name: Margot M. Micallef
Title: Secretary
<PAGE>
The modification to the Term Sheet
provided herein is hereby accepted and
agreed:
AT HOME CORPORATION
By:/s/ Thomas A. Jermoluk
----------------------
Name: Thomas A. Jermoluk
Title: President/CEO
<PAGE>
EXHIBIT 10.01
AT HOME CORPORATION
STOCK PURCHASE AGREEMENT
August 29, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Purchase and Sale of Stock ............................................................. 1
--------------------------
1.1 Sale and Issuance of Series K Convertible Preferred Stock and Series T
----------------------------------------------------------------------
Convertible Preferred Stock........................................................ 1
---------------------------
1.2 Closing............................................................................ 1
-------
2. Representations, Warranties and Covenants of the Company................................ 2
--------------------------------------------------------
2.1 Organization, Good Standing and Qualification..................................... 2
---------------------------------------------
2.2 Restated Certificate.............................................................. 2
--------------------
2.3 Capitalization.................................................................... 2
--------------
2.4 Initial Board..................................................................... 3
-------------
2.5 Authorization..................................................................... 3
-------------
2.6 Consents and Approvals; No Conflict............................................... 3
-----------------------------------
2.7 Valid Issuance of Preferred and Conversion Shares................................. 4
-------------------------------------------------
2.8 Litigation........................................................................ 4
----------
2.9 Brokers or Finders................................................................ 4
------------------
2.10 Registration Rights Agreement..................................................... 5
-----------------------------
2.11 Stockholders' Agreement........................................................... 5
-----------------------
2.12 Hart-Scott-Rodino Act............................................................. 5
---------------------
2.13 Reasonable Efforts................................................................ 5
------------------
2.14 Additional Issuances of Preferred Stock........................................... 5
---------------------------------------
3. Representations, Warranties and Covenants of the Purchasers............................. 5
-----------------------------------------------------------
3.1 Experience......................................................................... 6
----------
3.2 Investment......................................................................... 6
----------
3.3 Restricted Securities.............................................................. 6
---------------------
3.4 Authorization...................................................................... 6
-------------
3.5 Consents and Approvals; No Conflict................................................ 7
-----------------------------------
3.6 Brokers or Finders................................................................. 7
------------------
3.7 Registration Rights Agreement...................................................... 7
-----------------------------
3.8 Stockholders' Agreement............................................................ 7
-----------------------
3.9 Reasonable Efforts................................................................. 8
------------------
4. Additional Representations and Covenant of the KPCB Purchasers.......................... 8
--------------------------------------------------------------
5. Legends; Notations...................................................................... 8
------------------
6. Conditions to the Purchasers' Obligations at Closing.................................... 9
----------------------------------------------------
6.1 Correctness of Representations and Warranties...................................... 9
---------------------------------------------
6.2 Performance of Agreements.......................................................... 9
-------------------------
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
6.3 Registration Rights Agreement...................................................... 9
-----------------------------
6.4 Stockholders' Agreement............................................................ 9
-----------------------
6.5 Assignment Agreement............................................................... 9
--------------------
6.6 Restated Certificate............................................................... 10
--------------------
6.7 Proceedings and Documents.......................................................... 10
-------------------------
6.8 Other.............................................................................. 10
-----
6.9 Simultaneous Closing............................................................... 10
--------------------
7. Conditions to the Company's Obligations at Closing...................................... 10
--------------------------------------------------
7.1 Correctness of Representations and Warranties...................................... 10
---------------------------------------------
7.2 Performance of Agreements.......................................................... 10
-------------------------
7.3 No Material Litigation............................................................. 10
----------------------
7.4 Registration Rights Agreement...................................................... 11
-----------------------------
7.5 Stockholders' Agreement............................................................ 11
-----------------------
7.6 Assignment Agreement............................................................... 11
--------------------
7.7 Proceedings and Documents.......................................................... 11
-------------------------
8. Miscellaneous........................................................................... 11
-------------
8.1 Governing Law...................................................................... 11
-------------
8.2 Survival........................................................................... 11
--------
8.3 Successors and Assigns............................................................. 11
----------------------
8.4 Limitation on Rights of Others..................................................... 11
------------------------------
8.5 Entire Agreement; Amendment........................................................ 12
---------------------------
8.6 Notices, Etc....................................................................... 12
------------
8.7 Delays or Omissions................................................................ 13
-------------------
8.8 Expenses........................................................................... 13
--------
8.9 Counterparts....................................................................... 13
------------
8.10 Severability....................................................................... 13
------------
8.11 Obligations Several, Not Joint..................................................... 14
------------------------------
</TABLE>
Exhibit A Amended and Restated Certificate of Incorporation
Exhibit B Registration Rights Agreement
Exhibit C Stockholders' Agreement
Exhibit D Assignment Agreement
-ii-
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT is made as of the ____ day of August, 1995,
by and among AT HOME CORPORATION, a Delaware corporation (the "Company"), TCI
INTERNET SERVICES, INC., a Colorado corporation ("TCI Sub"), and KLEINER,
PERKINS, CAUFIELD & BYERS VII, KPCB VII FOUNDERS FUND and KPCB INFORMATION
SERVICES ZAIBATSU FUND II, each a California limited partnership (each, a "KPCB
Purchaser" and together, the "KPCB Purchasers") (TCI Sub, on one hand, and the
KPCB Purchasers (collectively), on the other hand, are referred to hereinafter
separately as a "Purchaser" or together as the "Purchasers").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
--------------------------
1.1 Sale and Issuance of Series K Convertible Preferred Stock and
-------------------------------------------------------------
Series T Convertible Preferred Stock.
------------------------------------
(a) Subject to the terms and conditions of this Agreement, (i)
the Company agrees to issue and sell to TCI Sub, and TCI Sub agrees to purchase
from the Company, at the Closing, 7,700,000 shares of the Company's Series T
Convertible Preferred Stock, par value $.01 per share (the "Series T
Preferred"), for an aggregate purchase price of $7,700,000 and (ii) the Company
agrees to issue and sell to the KPCB Purchasers, and the KPCB Purchasers,
jointly and severally, agree to purchase from the Company, at the Closing, an
aggregate of 2,300,000 shares of the Company's Series K Convertible Preferred
Stock, par value $.01 per share (the "Series K Preferred" and, together with the
Series T Preferred, sometimes referred to herein as the "Shares"), for an
aggregate purchase price of $2,300,000.
1.2 Closing. The closing of the purchase and sale of the Shares (the
-------
"Closing") shall take place at the offices of Baker & Botts, L.L.P., 885 Third
Avenue, Suite 1900, New York, New York, at 10:00 a.m., New York City time, on
August ___, 1995, or at such other time and place as the Company and the
Purchasers shall mutually agree. The date on which the Closing occurs is
referred to herein as the "Closing Date." At the Closing, the Company shall
deliver (a) to TCI Sub a certificate or certificates registered in the name of
TCI Sub representing 7,700,000 shares of Series T Preferred against payment of
the purchase price therefor in cash or by wire transfer in immediately available
funds and (b) to the KPCB Purchasers certificates registered in the name of the
KPCB Purchasers representing an aggregate of 2,300,000 shares of Series K
Preferred (in such relative amounts as the KPCB Purchasers may request) against
payment of the purchase price therefor in cash or by wire transfer in
immediately available funds.
-2-
<PAGE>
2. Representations, Warranties and Covenants of the Company. The Company
--------------------------------------------------------
hereby represents and warrants to, and covenants with, each of the Purchasers as
follows:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as currently conducted and as currently proposed to be
conducted. The Company agrees that it shall qualify to do business in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on its business, properties, prospects or financial condition. The
Company has delivered to each of the Purchasers true and accurate copies of the
Company's Certificate of Incorporation and Bylaws, each as amended through, and
in effect on, the date hereof. Other than the filing of the Restated Certificate
(as defined below), there shall be no amendments to, or other actions taken with
respect to, the Certificate of Incorporation or the Bylaws of the Company prior
to the Closing.
2.2 Restated Certificate. The Board of Directors of the Company has
--------------------
duly approved and adopted the Amended and Restated Certificate of Incorporation
of the Company in the form attached hereto as Exhibit A (the "Restated
---------
Certificate") pursuant to Section 241 of the Delaware General Corporation Law
(the "DGCL") and the Company agrees to cause the Restated Certificate to be duly
filed with the Secretary of State of Delaware prior to the Closing.
2.3 Capitalization. As of the date of this Agreement, the authorized
--------------
capital stock of the Company consists of 1,000 shares of common stock, par value
$1.00 per share, none of which shares are issued and outstanding. Upon the
filing of the Restated Certificate with the Secretary of State of Delaware
pursuant to Section 2.2 of this Agreement, the authorized capital stock of the
Company shall consist of 150,000,000 shares of common stock, par value $.01 per
share (the "Common Stock"), and 75,000,000 shares of preferred stock, par value
$.01 per share ("Preferred Stock"). The authorized shares of Common Stock shall
be allocated as follows: (i) 75,000,000 shares shall be designated as "Series A
Common Stock", and (ii) 75,000,000 shares shall be designated as "Series B
Common Stock". The authorized shares of Preferred Stock shall be allocated as
follows: (i) 7,000,000 shares shall be designated as Series K Preferred, (ii)
25,000,000 shares shall be designated as Series T Preferred and (iii) 43,000,000
shares shall be undesignated as to series and shall be issuable pursuant to
authority granted in the Restated Certificate to the Board of Directors (the
"Series Preferred Stock"). Prior to the Closing, the Company shall reserve and
at all times keep reserved such number of shares of Series B Common Stock as is
sufficient to provide for the conversion of the Shares outstanding from time to
time and shall reserve and at all times keep reserved such number of shares of
Series A Common Stock as is sufficient to provide for the conversion of the
shares of Series B Common Stock outstanding from time to time. Except as
expressly provided herein, in the Restated Certificate and in the other
Transaction Agreements, there are no other outstanding rights, options,
warrants, preemptive rights, rights of first refusal or similar rights for the
purchase or acquisition from the Company of any
-2-
<PAGE>
securities of the Company nor are there any commitments to issue or execute any
such rights, options, warrants, preemptive rights or rights of first refusal.
2.4 Initial Board. As of the date hereof, the Company's Board of
-------------
Directors consists of the following persons, each of whom has been duly elected
or appointed in accordance with the Bylaws of the Company: John Doerr, Bruce
Ravenel, Larry Romrell, Chris Coles, James Barksdale and William Randolph Hearst
III.
2.5 Authorization. The Company has full power and authority to
-------------
execute, deliver and perform its obligations under each of this Agreement, the
Registration Rights Agreement (as hereinafter defined), the Stockholders'
Agreement (as hereinafter defined) and the Assignment Agreement (as hereinafter
defined) (the Registration Rights Agreement, the Stockholders Agreement, the
Assignment Agreement and this Agreement are hereinafter referred to collectively
as the "Transaction Agreements"). All corporate action on the part of the
Company necessary for the authorization, execution and delivery of the
Transaction Agreements and the performance of all obligations of the Company
hereunder and thereunder have been taken or will be taken prior to Closing. Each
of the Transaction Agreements, when executed and delivered by the Company,
assuming the due execution and delivery thereof by the other parties hereto or
thereto, shall constitute a valid and legally binding obligation of the Company,
enforceable against it in accordance with its terms, subject to: (i) judicial
principles limiting the availability of specific performance, injunctive relief
and other equitable remedies and (ii) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect generally relating
to or affecting creditors' rights.
2.6 Consents and Approvals; No Conflict. Except as set forth on
-----------------------------------
Schedule 2.6 and except as could not reasonably be expected, individually or in
the aggregate, to have a material adverse effect on the Company, the execution,
delivery and performance of each of the Transaction Agreements and the
consummation of each of the transactions contemplated thereby (including the
offering, sale and issuance of the Shares and the issuance of the Conversion
Shares (as hereinafter defined)) do not and will not (a) conflict with or result
in a breach of the terms, conditions or provisions of, (b) constitute a default
under, (c) result in the creation of any lien, security interest, charge or
encumbrance upon the Company's capital stock or assets pursuant to, (d) give any
third party the right to accelerate any obligation under, (e) result in a
violation of, or (f) require any order, qualification, waiver, permit,
authorization, consent, approval, exemption or other action by or from, or any
registration, notice, declaration, application or filing to or with, any court
or administrative or governmental body pursuant to (i) the Restated Certificate
or the Bylaws of the Company, (ii) any agreement to which the Company is a party
or is bound or to which its assets are subject or (iii) any law, statute, rule
or regulation to which the Company is subject; provided, however, that with
-------- -------
respect to clause (f) of this Section 2.6, no representation or warranty is made
as to any such requirements applicable to the Company as a result of the
specific legal or regulatory status of any other party to this Agreement or as a
result of any other facts that specifically relate to any such party, any
business in which any such party has engaged or
-3-
<PAGE>
proposes to engage or any financing arrangements or transactions entered into or
proposed to be entered into by or on behalf of any such party.
2.7 Valid Issuance of Preferred and Conversion Shares. The Shares to
-------------------------------------------------
be purchased by the Purchasers hereunder, when issued, sold and delivered in
accordance with the terms of this Agreement will be duly authorized, validly
issued, fully paid and nonassessable, free of any liens, claims, charges,
security interests, pledges or encumbrances of any kind (other than any of the
foregoing created herein or by the applicable Purchaser or in the Stockholders'
Agreement or as a result of applicable state and federal securities laws) and
will possess all of the rights, privileges and preferences provided therefor in
the Restated Certificate. Each of the shares of Series B Common Stock issuable
upon conversion of the Shares, and the shares of Series A Common Stock issuable
upon conversion of such shares of Series B Common Stock (such shares of Series B
Common Stock issuable upon conversion of the Shares and the shares of Series A
Common Stock issuable upon the conversion of such shares of Series B Common
Stock are referred to collectively as the "Conversion Shares"), will have been
duly and validly reserved for issuance prior to the Closing and, upon issuance
in accordance with the terms of the Restated Certificate, will be duly
authorized, validly issued, fully paid and nonassessable, free of any liens,
claims, charges, security interests, pledges or encumbrances of any kind (other
than any of the foregoing created herein or by the applicable Purchaser, or in
the Stockholders' Agreement or as a result of applicable state and federal
securities laws) and will possess all of the rights and powers provided therefor
in the Restated Certificate.
2.8 Litigation. Except as set forth in Schedule 2.8, there is no
----------
action, suit or proceeding pending or, to the best of the Company's knowledge,
any investigation pending or any action, suit, proceeding or investigation
threatened against, involving or affecting the Company or any of its properties,
nor is there any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against the Company which questions the validity of any of the
Transaction Agreements or the right of the Company to enter into any of them, or
to consummate the transactions contemplated hereby or thereby, or which could
have, either individually or in the aggregate, a material adverse effect on the
condition (financial or otherwise), business, property, results of operations,
assets or liabilities of the Company.
2.9 Brokers or Finders. There is no investment banker, broker,
------------------
agent, financial advisor or other person or entity which has been retained by or
is authorized to act on behalf of the Company who is or will be entitled to any
fee, commission, reimbursement of expenses or other similar charge upon
consummation of or otherwise in connection with this Agreement or any of the
transactions contemplated hereby. The Company agrees to indemnify and hold each
of the Purchasers harmless from and against any and all claims, liabilities or
obligations with respect to any such fees, commissions, expenses or claims
(including the costs, expenses and legal fees of defending against such
liability) for which the Company, or any of its employees or representatives, is
responsible.
-4-
<PAGE>
2.10 Registration Rights Agreement. The Company agrees to enter into
-----------------------------
the Registration Rights Agreement in substantially the form attached hereto as
Exhibit B (the "Registration Rights Agreement") at or prior to the Closing.
- ------- -
2.11 Stockholders' Agreement. The Company agrees to enter into the
-----------------------
Stockholders' Agreement in substantially the form attached hereto as Exhibit C
------- -
(the "Stockholders' Agreement") at or prior to the Closing.
2.12 Hart-Scott-Rodino Act. If any Purchaser reasonably believes
---------------------
that its conversion of Shares would be subject to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the rules and regulations thereunder (the
"HSR Act and Rules"), the Company and such Purchaser shall promptly comply with
any applicable requirements under the HSR Act and Rules relating to filing and
furnishing of information (the "HSR Report") to the Federal Trade Commission
(the "FTC") and the Antitrust Division of the Department of Justice. Without
limiting the foregoing, such Purchaser and the Company shall file the HSR Report
and take all other action required by the HSR Act and Rules and shall use their
respective commercially reasonable efforts to (a) coordinate with respect to the
filing of the HSR Reports of such Purchaser and the Company (and exchanging
drafts thereof), so as to present all required HSR Reports to the FTC and the
Department of Justice at the time selected by such Purchaser, and to avoid
substantial errors or inconsistencies among such HSR Reports in the description
of the transaction, (b) comply with any additional request for documents or
information made by the FTC or the Department of Justice or by a court and to
assist the other parties to so comply and (c) cause all persons which are part
of the same "person" (as defined for purposes of the HSR Act and rules) as the
Company to cooperate and assist in such filing and compliance. Each of the
Company and such Purchaser shall bear and pay any costs or expenses that it
incurs in complying with this Section 2.12.
2.13 Reasonable Efforts. The Company agrees to use its commercially
------------------
reasonable efforts to cause each condition to the Closing set forth in Section 6
hereof, insofar as satisfaction of such condition requires any action by or
otherwise is in the control of the Company, to be satisfied as soon as
reasonably practicable and, in general, to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as reasonably practicable
the purchase and sale of the Shares in accordance with the terms of this
Agreement.
2.14 Additional Issuances of Preferred Stock. The Company agrees that
---------------------------------------
(i) no additional shares of Series T Preferred will be issued other than to TCI
Sub or its respective affiliates without the prior written consent of TCI Sub
and (ii) no additional shares of Series K Preferred will be issued without the
prior written consent of the KPCB Purchasers.
3. Representations, Warranties and Covenants of the Purchasers. Each
-----------------------------------------------------------
Purchaser, on behalf of itself and not jointly with the other Purchaser, hereby
represents and warrants to, and covenants with, the Company as follows:
-5-
<PAGE>
3.1 Experience. Such Purchaser is experienced in evaluating start-up
----------
companies such as the Company, and has such knowledge and experience in
financial and business matters to enable such Purchaser to evaluate the merits
and risks of Purchaser's prospective investment in the Company, and such
Purchaser has the ability to bear the economic risks of such investment.
3.2 Investment. Such Purchaser is acquiring the Shares and any
----------
Conversion Shares solely for the purpose of investment for such Purchaser's own
account and not with a view to, or for offer or sale in connection with, any
distribution thereof in any transaction which would be in violation of the
securities laws of the United States of America or any state thereof. Such
Purchaser does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participation to any third person with
respect to any of the Shares or the Conversion Shares. Such Purchaser
understands that the Shares and the Conversion Shares have not been registered
under the Securities Act of 1933, as amended (the "Securities Act") by reason of
a specific exemption from the registration provisions of the Securities Act
which depends upon, among other things, the bona fide nature of the investment
intent as expressed herein.
3.3 Restricted Securities. Such Purchaser understands that the
---------------------
Shares and any Conversion Shares may not be sold, transferred or otherwise
disposed of without registration under the Securities Act or the availability of
an exemption therefrom, and that in the absence of an effective registration
statement covering such stock or an available exemption from registration, the
Shares and any Conversion Shares must be held indefinitely. In the absence of an
effective registration statement under the Securities Act with respect to the
Shares or any Conversion Shares such Purchaser shall notify the Company of any
proposed disposition by such Purchaser of any Shares or any Conversion Shares,
shall furnish the Company with a statement of the circumstances surrounding the
proposed disposition and, if reasonably requested by the Company, shall furnish
the Company with an opinion of counsel, reasonably satisfactory to the Company,
that such disposition will not require the registration of such Shares or such
Conversion Shares under the Securities Act. Such Purchaser shall not sell,
transfer or otherwise dispose of any Shares or any Conversion Shares except in a
manner fully consistent with its representations contained in this Section 3 and
otherwise in full compliance with the terms and conditions of this Agreement and
the Stockholders' Agreement and the provisions of applicable law.
3.4 Authorization. Such Purchaser is a corporation or partnership
-------------
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has full power and authority to execute,
deliver and perform its obligations under each of the Transaction Agreements to
which it is a party. Such Purchaser has taken all corporate or partnership
action necessary to authorize the execution, delivery and performance of its
obligations under each of the Transaction Agreements to which it is a party, and
each such Transaction Agreement, when executed and delivered by such Purchaser,
assuming the due execution and delivery thereof by the other parties hereto or
thereto, shall constitute a
-6-
<PAGE>
valid and legally binding obligation of such Purchaser, enforceable against it
in accordance with its terms, subject to: (i) judicial principles respecting
election of remedies or limiting the availability of specific performance,
injunctive relief, and other equitable remedies; and (ii) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect generally relating to or affecting creditors' rights.
3.5 Consents and Approvals; No Conflict. Except as set forth on
-----------------------------------
Schedule 3.5 and except as could not reasonably be expected, individually or in
the aggregate, to have a material adverse effect on such Purchaser, the
execution, delivery and performance of each of the Transaction Agreements to
which such Purchaser is a party and the consummation of each of the transactions
contemplated hereby or thereby do not and will not (a) conflict with or result
in a breach of the terms, conditions or provisions of, (b) constitute a default
under, (c) result in the creation of any lien, security interest, charge or
encumbrance upon any material properties or assets pursuant to, (d) give any
third party the right to accelerate any obligation under, (e) result in a
violation of, or (f) require any order, qualification, waiver, permit,
authorization, consent, approval, exemption or other action by or from, or any
registration, notice, declaration, application or filing to or with, any court
or administrative or governmental body pursuant to (i) the Articles of
Incorporation, Bylaws, partnership agreement (or other governing documents) of
such Purchaser, (ii) any agreement to which such Purchaser is a party or is
bound or to which its assets are subject or (iii) any law, statute, rule or
regulation to which such Purchaser is subject; provided, however, that with
-------- -------
respect to clause (f) of this Section 3.5, no representation or warranty is made
as to any such requirements applicable to such Purchaser as a result of the
specific legal or regulatory status of any other party to this Agreement or as a
result of any other facts that specifically relate to any such other party, any
business in which any such party has engaged or proposes to engage or any
financing arrangements or transactions entered into or proposed to be entered
into by or on behalf of any such other party.
3.6 Brokers or Finders. There is no investment banker, broker,
------------------
agent, financial advisor or other person or entity which has been retained by or
is authorized to act on behalf of such Purchaser who is or will be entitled to
any fee, commission, reimbursement of expenses or other similar charge upon
consummation of or otherwise in connection with this Agreement or any of the
transactions contemplated hereby. Such Purchaser agrees to indemnify and hold
harmless the Company from and against any and all claims, liabilities or
obligations with respect to any such fees, commissions, expenses or claims
(including the costs, expenses and legal fees of defending against such
liability) for which such Purchaser, or any of its partners, employees or
representatives, is responsible.
3.7 Registration Rights Agreement. Such Purchaser agrees to enter
-----------------------------
into the Registration Rights Agreement at or prior to the Closing.
3.8 Stockholders' Agreement. Such Purchaser agrees to enter into the
-----------------------
Stockholders' Agreement at or prior to the Closing.
-7-
<PAGE>
3.9 Reasonable Efforts. Such Purchaser agrees to use its
------------------
commercially reasonable efforts to cause each condition to the Closing set forth
in Section 7 hereof, insofar as satisfaction of such condition requires any
action by or otherwise is in the control of such Purchaser, to be satisfied as
soon as reasonably practicable and, in general, to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as reasonably practicable
the purchase and sale of the Shares in accordance with the terms of this
Agreement.
4. Additional Representations and Covenant of the KPCB
---------------------------------------------------
Purchasers.
----------
(a) The KPCB Purchasers hereby covenant with the Company to use their
best efforts to cause to be executed and delivered by the appropriate parties,
the Assignment Agreement in substantially the form attached hereto as Exhibit D
------- -
(the "Assignment Agreement") at or prior to the Closing.
(b) Each KPCB Purchaser represents and warrants that KPCB VII
Associates, a California limited partnership (the "KPCB Partner"), is a general
partner of each of the KPCB Purchasers and that each of John Doerr and William
Randolph Hearst III is a general partner of the KPCB Partner.
5. Legends; Notations. The certificates evidencing the Shares or any
------------------
shares of Common Stock shall be endorsed with the legends set forth below:
(a) a conspicuously noted legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY, SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH THE
ACT AND SUCH LAWS";
(b) any legend required by any applicable state securities law; and
(c) a conspicuously noted legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THAT
CERTAIN STOCKHOLDERS' AGREEMENT, DATED AS OF _________________, 1995 (THE
"STOCKHOLDERS' AGREEMENT"), AMONG THE
-8-
<PAGE>
COMPANY AND THE OTHER PARTIES THERETO CONTAINING, AMONG OTHER THINGS,
RESTRICTIONS ON THE SALE, TRANSFER OR OTHER DISPOSITION OF SUCH SECURITIES. A
COUNTERPART OF SUCH AGREEMENT HAS BEEN DEPOSITED WITH THE COMPANY AT ITS
PRINCIPAL PLACE OF BUSINESS, AND THE COMPANY SHALL FURNISH A COPY OF SUCH
AGREEMENT TO THE RECORD HOLDER HEREOF WITHOUT CHARGE UPON WRITTEN REQUEST."
The Company shall make a notation on its stock books regarding the
restrictions on transfer of the Shares and any Conversion Shares and will
transfer securities on the books of the Company only to the extent not
inconsistent therewith.
6. Conditions to the Purchasers' Obligations at Closing. The obligation
----------------------------------------------------
of TCI Sub, on the one hand, and the KPCB Purchasers, on the other hand, to
purchase Shares at the Closing is several and not joint and such obligation as
to TCI Sub, on the one hand, and the KPCB Purchasers, on the other hand, is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions, any of which may be waived by TCI Sub, on the one hand, or
the KPCB Purchasers, on the other hand:
6.1 Correctness of Representations and Warranties. The
---------------------------------------------
representations and warranties of the Company set forth in this Agreement shall,
if specifically qualified by materiality, be true and correct and, if not so
qualified, be true and correct in all material respects in each case as of the
date of this Agreement and as of the Closing Date with the same effect as if
made on and as of the Closing Date, and such Purchaser shall have received a
certificate to such effect from the Company, signed by its duly authorized
officer.
6.2 Performance of Agreements. Each other party to this Agreement
-------------------------
shall have performed and complied with all agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied with by it on or before the Closing Date, and such Purchaser shall have
received a certificate to such effect from each such party, signed by its duly
authorized officer.
6.3 Registration Rights Agreement. The Registration Rights Agreement
-----------------------------
shall have been duly executed and delivered by each party thereto.
6.4 Stockholders' Agreement. The Stockholders' Agreement shall have
-----------------------
been duly executed and delivered by each party thereto.
6.5 Assignment Agreement. As to the obligation of TCI Sub only,
--------------------
the Assignment Agreement shall have been duly executed and delivered by the
applicable parties thereto, and the transactions contemplated thereby to be
consummated at or prior to the Closing shall have been consummated.
-9-
<PAGE>
6.6 Restated Certificate. The Restated Certificate shall have been
--------------------
filed with, and accepted for filing by, the Secretary of State of Delaware and
shall be in full force and effect under the Delaware General Corporation Law.
6.7 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated at the Closing hereby, and all
documents and instruments incident to these transactions, shall be reasonably
satisfactory in substance to such Purchaser and its counsel.
6.8 Other. TCI Sub, on the one hand, and the KPCB Purchasers, on
-----
the other hand, shall be reasonably satisfied that all conditions to (a) the
other Purchaser's obligation to purchase and pay for the Shares to be purchased
by such Purchaser and (b) the Company's obligation to sell the Shares to be sold
to the other Purchaser, shall have been satisfied or waived.
6.9 Simultaneous Closing. Each Purchaser shall purchase and pay for
--------------------
the Shares to be purchased by such Purchaser simultaneously with the purchase of
and payment for the Shares to be purchased by the other Purchaser.
7. Conditions to the Company's Obligations at Closing. The obligations
--------------------------------------------------
of the Company to issue and sell Shares to the Purchasers at the Closing is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions:
7.1 Correctness of Representations and Warranties. The
---------------------------------------------
representations and warranties of the Purchasers contained in this Agreement
shall, if specifically qualified by materiality, be true and correct and, if not
so qualified, be true and correct in all material respects in each case as of
the date of this Agreement and as of the Closing Date with the same effect as if
made on and as of the Closing Date, and the Company shall have received a
certificate to such effect from each Purchaser, signed by its duly authorized
officer.
7.2 Performance of Agreements. The Purchasers shall have performed
-------------------------
and complied with all covenants, agreements, obligations and conditions
contained in this Agreement that are required to be performed or complied with
by them on or before the Closing Date, and the Company shall have received a
certificate to such effect from each Purchaser, signed by its duly authorized
officer.
7.3 No Material Litigation. There shall not be pending on the
----------------------
Closing Date any lawsuit, claim, proceeding or other legal action by or before
any court or other regulatory, administrative or governmental authority that
seeks to restrain, restrict or prohibit or impose substantial penalties or
damages with respect to (or any other materially adverse relief or remedy in
connection with), and there shall not be in effect on the Closing Date any
injunction or other order of any governmental authority or arbitration panel
that restrains, restricts, prohibits or imposes substantial penalties or damages
with respect to (or any other materially
-11-
<PAGE>
adverse relief or remedy in connection with), the consummation of any of the
transactions contemplated hereby or by any of the other Transaction Agreements.
7.4 Registration Rights Agreement. The Registration Rights Agreement
-----------------------------
shall have been duly executed and delivered by each party hereto.
7.5 Stockholders' Agreement. The Stockholders' Agreement shall have
-----------------------
been duly executed and delivered by each party hereto.
7.6 Assignment Agreement. The Assignment Agreement shall have been
--------------------
duly executed and delivered by the applicable parties (other than the Company),
and the transactions contemplated thereby to be consummated at or prior to the
Closing shall have been consummated.
7.7 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated by this Agreement to occur at
or prior to the Closing, and all documents and instruments incident to these
transactions, shall be reasonably satisfactory in substance to the Company and
its counsel.
8. Miscellaneous.
-------------
8.1 Governing Law. This Agreement shall be governed by, and construed
-------------
in accordance with, in all respects the laws of the State of New York, without
regard to the conflicts of law rules of such State.
8.2 Survival. The representations, warranties, covenants and
--------
agreements made herein shall survive any investigation made by any Purchaser and
the closing of the transactions contemplated hereby.
8.3 Successors and Assigns. Neither this Agreement nor any of the
----------------------
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of each of the other parties hereto; provided, however, that a
-------- -------
Purchaser shall be entitled to assign its rights under Section 2.12 hereof to
any transferee of such Purchaser's Shares. Any assignment or delegation in
contravention of this Agreement shall be void and shall not relieve the
assigning or delegating party of any obligation hereunder. Subject to the
foregoing provisions of this Section 8.3, this Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns.
8.4 Limitation on Rights of Others. Nothing in this Agreement,
------------------------------
whether express or implied, shall be construed to give any person, other than
the parties hereto, any legal or equitable right, remedy or claim under or in
respect of this Agreement.
-11-
<PAGE>
8.5 Entire Agreement; Amendment. This Agreement and the other
---------------------------
documents delivered pursuant hereto constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and thereof
and supersede all prior agreements and understandings, both written and oral,
among the parties with regard to the subject matter hereof. Neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought.
8.6 Notices, Etc. All notices and other communications required or
------------
permitted to be given by any provision of this Agreement shall be in
writing and mailed (certified or registered mail, postage prepaid, return
receipt requested) or sent by hand or overnight courier, or by facsimile
transmission (with acknowledgment received), charges prepaid and addressed to
the intended recipient as follows, or to such other address or number as may be
specified from time to time by like notice to the parties:
(a) If to TCI Sub:
TCI Internet Services, Inc.
5619 DTC Parkway
Englewood, CO 80111
Telecopy: (303) 488-3221
Attention: Bruce Ravenel
with copies to:
Baker & Botts, L.L.P.
885 Third Avenue
New York, New York 10022-4834
Telecopy: (212) 705-5125
Attention: Frederick H. McGrath, Esq.
(b) If to the KPCB Purchasers or the Company:
Kleiner Perkins Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025
Telecopy: (415) 233-0323
Attention: John Doerr
-12-
<PAGE>
with copies to:
Fenwick & West
Two Palo Alto Square
Suite 800
Palo Alto, CA 94306
Telecopy: (415) 857-0361
Attention: Gordon K. Davidson, Esq.
Any party may from time to time specify a different address for notices by like
notice to the other parties. All notices and other communications given in
accordance with the provisions of this Agreement shall be deemed to have been
given and received (i) four (4) business days after the same are sent by
certified or registered mail, postage prepaid, return receipt requested, (ii)
when delivered by hand or transmitted by facsimile (with acknowledgment received
and, in the case of a facsimile only, a copy of such notice is sent no later
than the next business day by a reliable overnight courier service, with
acknowledgment or receipt) or (iii) one (1) business day after the same are sent
by a reliable overnight courier service, with acknowledgment of receipt.
8.7 Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy accruing to any holder of any Shares upon any breach or
default of the Company under this Agreement shall impair any such right, power
or remedy of such holder, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing or as provided in this
Agreement. All remedies, either under this Agreement or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.
8.8 Expenses. Each of the Company and each Purchaser shall bear its
--------
own expenses and legal fees incurred on its behalf in connection with this
Agreement and the transactions contemplated hereby.
8.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts with the same effect as if all parties hereto had signed the same
document. Each counterpart shall be enforceable against the parties actually
executing such counterpart, and all counterparts shall be construed together and
shall constitute one instrument.
8.10 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this
-13-
<PAGE>
Agreement shall continue in full force and effect without said provision;
provided that no such severability shall be effective if it materially changes
the economic benefit of this Agreement to any party.
8.11 Obligations Several, Not Joint. Each Purchaser shall be (i)
------------------------------
obligated hereunder only with respect to the purchase of the number and kind of
Shares set forth in Section 1.1 of this Agreement, and no Purchaser shall have
any liability with respect to the other Purchaser's obligations hereunder and
(ii) separately and independently entitled to rely on the representations and
warranties of the other Purchaser and the Company made to such Purchaser in this
Agreement and to the benefit of all covenants and agreements of the other
Purchaser and the Company made with such Purchaser herein.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
AT HOME CORPORATION
By:/s/ WILLIAM R. HEARST III
--------------------------
Name:
Title:
TCI INTERNET SERVICES, INC.
By:/s/ B. RAVENEL
----------------------------
Name: BRUCE RAVENEL
Title:SR. VP & COO
KLEINER, PERKINS, CAUFIELD
& BYERS VII
By: KPCB VII ASSOCIATES,
its General Partner
By:/s/ L. JOHN DOERR
----------------------------
Name:
Title:
KPCB VII FOUNDERS FUND
By: KPCB VII ASSOCIATES,
its General Partner
By:/s/ L. JOHN DOERR
-----------------------------
Name:
Title:
KPCB INFORMATION
SERVICES ZAIBATSU FUND II
By: KPCB VII ASSOCIATES,
its General Partner
By:/s/ L. JOHN DOERR
-----------------------------
Name:
Title:
-15-
<PAGE>
ASSIGNMENT AGREEMENT
--------------------
Effective as of August 29, 1995 (the "Effective Date"), at Home
Corporation, a Delaware corporation (the "Purchaser") has, pursuant to this
---------
Assignment Agreement (the "Agreement"), purchased from athome.net, a California
---------
corporation (the "Company") and the Company has sold, an aggregate of 1 share of
-------
the Company's common stock (the "Restricted Securities") for the aggregate
---------------------
purchase price of $2,500.00 in cash.
1. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
-------------------------------------------
Purchaser represents and warrants to the Company that:
(A) PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is purchasing
---------------------------------------
the Restricted Securities for Purchaser's own account for investment purposes
only and not with a view to, or for sale in connection with, a distribution of
the Restricted Securities within the meaning of the Securities Act of 1933, as
amended (the "1933 Act"). Purchaser has no present intention of selling or
--------
otherwise disposing of all or any portion of the Restricted Securities and no
one other than Purchaser has any beneficial ownership of any of the Restricted
Securities.
(B) UNDERSTANDING OF RISKS. Purchaser is fully aware of: (i) the
----------------------
highly speculative nature of the investment in the Restricted Securities; (ii)
the financial hazards involved; (iii) the lack of liquidity of the Restricted
Securities and the restrictions on transferability of the Restricted Securities
(e.g., that Purchaser may not be able to sell or dispose of the Restricted
----
Securities or use them as collateral for loans); (iv) the qualifications and
backgrounds of the management of the Company; and (v) the tax consequences of
investment in the Restricted Securities.
(C) PURCHASER'S QUALIFICATIONS. Purchaser has a preexisting personal
--------------------------
or business relationship with the Company and/or certain of its officers and/or
directors of a nature and duration sufficient to make Purchaser aware of the
character, business acumen and general business and financial circumstances of
the Company and/or such officers and directors. By reason of Purchaser's
business or financial experience, Purchaser is capable of evaluating the merits
and risks of this investment, has the ability to protect Purchaser's own
interests in this transaction and is financially capable of bearing a total loss
of this investment.
(D) NO GENERAL SOLICITATION. At no time was Purchaser presented with
-----------------------
or solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Restricted Securities.
(E) COMPLIANCE WITH SECURITIES LAWS. Purchaser understands and
-------------------------------
acknowledges that, in reliance upon the representations and warranties made by
Purchaser herein, the Restricted Securities are not being registered with the
Securities and Exchange Commission ("SEC") under the 1933 Act or being qualified
---
under the California Corporate Securities Law of 1968, as amended (the "Law"),
---
but instead are being issued under an exemption or exemptions from the
registration and qualification requirements of the 1933 Act
<PAGE>
and the Law or other applicable state securities laws which impose certain
restrictions on Purchaser's ability to transfer the Restricted Securities.
(F) RESTRICTIONS ON TRANSFER. Purchaser understands that Purchaser
------------------------
may not transfer any Restricted Securities unless such Restricted Securities are
registered under the 1933 Act or qualified under the Law or unless, in the
opinion of counsel to the Company, exemptions from such registration and
qualification requirements are available. Purchaser understands that only the
Company may file a registration statement with the SEC or the California
Commissioner of Corporations and that the Company is under no obligation to do
so with respect to the Restricted Securities. Purchaser has also been advised
that exemptions from registration and qualification may not be available or may
not permit Purchaser to transfer all or any of the Restricted Securities in the
amounts or at the times proposed by Purchaser.
(G) RULE 144. In addition, Purchaser has been advised that SEC Rule
--------
144 promulgated under the 1933 Act, which permits certain limited sales of
unregistered securities, is not presently available with respect to the
Restricted Securities and, in any event, requires that the Restricted Securities
be held for a minimum of two years, and in certain cases three years, after they
have been purchased and paid for (within the meaning of Rule 144), before they
------------
may be resold under Rule 144.
2. REPRESENTATIONSAND WARRANTIES OF COMPANY
----------------------------------------
Company represents and warrants to the Purchaser that:
(A) CAPITALIZATION. Immediately after the issuance of one share of
---------------
common stock contemplated by this Agreement: (a) the capitalization of the
Company will consist solely of ten million authorized shares of common stock, no
par value, of which one share will be issued and outstanding to Purchaser and a
total five million authorized shares of preferred stock, no par value, of which
no shares will be outstanding; and (b) except for the one share of common stock
to be issued pursuant to the Stock Purchase Agreement, there are no options,
warrants, or rights, or other shares of capital stock outstanding or issuable by
the Company, nor are there any rights of first refusal or other rights to
purchase any such option, warrant, right, or other share of capital stock
(whether in favor of the Company or any other person), pursuant to any agreement
or commitment of the Company.
3. LEGENDS AND STOP-TRANSFER ORDERS.
--------------------------------
Purchaser understands that certificates or other instruments
representing any of the Restricted Securities acquired by Purchaser will bear
legends substantially similar to the following, in addition to any other legends
required by federal or state laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY
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<PAGE>
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE
AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS
OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE
ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL
IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
A STATEMENT CONTAINING THE RIGHTS, PREFERENCES, PRIVILEGES
AND RESTRICTIONS OF THE CORPORATION'S PREFERRED AND COMMON
STOCK MAY BE OBTAINED, WITHOUT CHARGE, AT THE CORPORATION'S
OFFICE.
The undersigned agrees that, in order to ensure and enforce compliance with
the restrictions imposed by applicable law and those referred to in the
foregoing legends, or elsewhere herein, the Company may issue appropriate "stop
transfer" instructions to its transfer agent, if any, with respect to any
certificate or other instrument representing Restricted Securities, or if the
Company transfers its own securities, that it may make appropriate notations to
the same effect in the Company's records.
IN WITNESS WHEREOF, The Company has caused this Agreement to be executed by
its duly authorized representative and Purchaser has executed this Agreement as
of the Effective Date.
"COMPANY" "PURCHASER"
ATHOME.NET AT HOME CORPORATION
By: /s/ L. John Doerr By: /s/ Will Hearst
------------------------ ----------------------
L. John Doerr, President Will Hearst, President
Address:________________________ Address:__________________
________________________ __________________
________________________ __________________
Signature page to
athome.net
Stock Purchase Agreement
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<PAGE>
EXHIBIT 10.02
May 9, 1996
AT HOME CORPORATION
385 Ravendale Drive
Mountain View, CA 94043
TCI Internet Holdings, Inc.
5619 DTC Parkway
Terrace Tower II
Englewood, Colorado 80111-3000
Kleiner, Perkins, Caufield & Byers VII
KPCB VII Founders Fund
KPCB Information Services Zaibatsu Fund II
2750 Sand Hill Road
Menlo Park, CA 94025
Gentlemen:
Reference is made to the Stock Purchase Agreement, dated as of August
29, 1995 (the "Prior Agreement"), among (i) At Home Corporation, a Delaware
corporation (the "Company"), (ii) TCI Internet Holdings, Inc., a Delaware
corporation ("TCI Sub"), and (iii) Kleiner, Perkins, Caufield & Byers VII, KPCB
VII Founders Fund, and KPCB Information Services Zaibatsu Fund II, each of which
is a California limited partnership (such limited partnerships are hereinafter
referred to collectively as the "KPCB Purchasers" and individually as a "KPCB
Purchaser"), pursuant to which (a) TCI Sub purchased an aggregate of 7,700,000
shares (the "Initial TCI Shares") of the Company's Series T Convertible
Participating Preferred Stock, par value $.01 per share (the "Series T Preferred
Stock") and (b) the KPCB Purchasers purchased an aggregate of 2,300,000 shares
(the "Initial KPCB Shares") of the Company's Series K Convertible Participating
Preferred Stock, par value $.01 per share (the "Series K Preferred Stock"). In
order to provide additional funding to
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the Company to continue the expansion of its business, TCI Sub and the KPCB
Purchasers desire to purchase additional shares of the Series T Preferred Stock
and the Series K Preferred Stock, respectively, upon the terms and subject to
the conditions set forth, or incorporated by reference in, this letter agreement
(this "Agreement"). TCI Sub, on one hand, and the KPCB Purchasers
(collectively), on the other hand, are referred to hereinafter separately as a
"Purchaser" or together as the "Purchasers".
1. PURCHASE AND SALE OF STOCK.
--------------------------
(A) Sale and Issuance of Series T Preferred Stock and Series K
----------------------------------------------------------
Preferred Stock Subject to the terms and conditions of this Agreement, (I) the
- ---------------
Company agrees to issue and sell to TCI Sub, and TCI Sub agrees to purchase from
the Company, at the Closing (as defined below), 7,700,000 shares of the Series T
Preferred Stock, for an aggregate purchase price of $7,700,000 and (II) the
Company agrees to issue and sell to the KPCB Purchasers, and the KPCB
Purchasers, jointly and severally, agree to purchase from the Company, at the
Closing, an aggregate of 2,300,000 shares of the Series K Preferred Stock, for
an aggregate purchase price of $2,300,000. The Series K Preferred Stock and the
Series T Preferred Stock being purchased pursuant to this Agreement are
sometimes referred to herein as the "Shares." Upon the issuance and sale and
receipt of the purchase price therefor in accordance with the terms of this
Agreement, such Shares will be duly authorized, validly issued and outstanding
and will be fully paid and non-assessable.
(B) Closing. The closing of the purchase and sale of the
-------
Shares (the "Closing") shall take place at the offices of Baker & Botts, L.L.P.,
599 Lexington Avenue, New York, New York, at 10:00 a.m., New York City time, on
May 9, 1996, or at such other time and place as the Company and the Purchasers
shall mutually agree. The date on which the Closing occurs is referred to
herein as the "Closing Date." At the Closing, the Company shall deliver (I) to
TCI Sub a certificate or certificates registered in the name of TCI Sub
representing 7,700,000 shares of Series T Preferred Stock against payment of the
purchase price therefor in cash or by wire transfer in immediately available
funds and (II) to the KPCB Purchasers certificates registered in the name of the
KPCB Purchasers representing an aggregate of 2,300,000 shares of Series K
Preferred Stock (in such relative amounts as the KPCB Purchasers may request)
against payment of the purchase price therefor in cash or by wire transfer in
immediately available funds.
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<PAGE>
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
The Company hereby represents and warrants to, and covenants with, each of the
Purchasers as follows:
(A) Each of the representations and warranties of the Company
contained in Sections 2.4, 2.6, 2.7, 2.8, 2.9, 2.13 and 2.14 (the "Prior
Agreement Sections") of the Prior Agreement is true and correct, with the same
force and effect as if each of such representations and warranties (together,
subject to Section 2(b) hereof, with the definitions of all terms used therein
which are defined in the Prior Agreement) were set forth at length herein and
made directly to the Purchasers on and as of the date hereof and as if each
Exhibit and Appendix referred to therein and attached to the Prior Agreement
were attached to and made a part of this Agreement, except that for purposes of
this Agreement (i) all references to Schedules in the Prior Agreement Sections
shall be deemed to be references to Schedules to this Agreement and such
Schedules shall be prepared with respect to and attached to this Agreement
(labeled with the respective Prior Agreement Section number) and (ii) the
reference in Section 2.13 to "Section 6" shall be deemed to refer to Section 5
hereof. With respect to any covenants or agreements of the Company set forth in
the Prior Agreement Sections, the Company covenants and agrees to perform its
obligations related thereto in accordance with the terms of the Prior Agreement
Sections, as if such covenants and agreements were set forth at length herein,
and made directly to the Purchasers on and as of the date hereof.
(B) In the event that any term contained in any of the Prior
Agreement Sections is defined in the Prior Agreement (the "Incorporated
Definitions") and is also defined in this Agreement, then for purposes of this
Section 2 (but not for purposes of any other provision of this Agreement, except
as otherwise specifically provided herein) such term will have the meaning
assigned to it in the Prior Agreement, except that for purposes of this
Agreement all references in the Prior Agreement Sections and the Incorporated
Definitions to (i) the "Shares" will be deemed to be references to the Shares
(as defined in this Agreement), (ii) the "Transaction Agreements" will be deemed
to be references to the Transaction Agreements (as defined in this Agreement),
(iii) the "Closing" will be deemed to be references to the Closing (as defined
in this Agreement), and (iv) the "Restated Certificate" and the "Bylaws" will be
deemed to be references to the Restated Certificate and the Bylaws (each as
defined in this Agreement).
(C) In addition to the foregoing, the Company makes the
following representations and warranties to the Purchasers:
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<PAGE>
(I) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to carry on its
business as currently conducted and as currently proposed to be
conducted. The Company is qualified and in good standing to do
business in each jurisdiction in which the failure to so qualify would
have a material adverse effect on its business, properties, prospects
or financial condition. The Company has delivered to each of the
Purchasers true and accurate copies of the Company's Amended and
Restated Certificate of Incorporation and Bylaws, each as amended
through, and in effect on, the date hereof (the "Restated Certificate"
and the "Bylaws").
(II) The authorized capital stock of the Company consists of (x)
150,000,000 shares of common stock, par value $.01 per share (the
"Common Stock"), of which 75,000,000 shares have been designated as
Series A Common Stock (the "Series A Common Stock") and 75,000,000
shares have been designated as Series B Common Stock (the "Series B
Common Stock"), and (y) 75,000,000 shares of preferred stock, par
value $.01 per share (the "Preferred Stock"), of which (1) 25,000,000
shares have been designated as Series T Preferred Stock, (2) 7,000,000
shares have been designated as Series K Preferred Stock, and (3)
43,000,000 shares are undesignated as to series and shall be issuable
pursuant to authority granted in the Restated Certificate to the Board
of Directors (the "Series Preferred Stock"). As of the date hereof,
(x) no shares of Series A Common Stock or Series B Common Stock have
been issued or are outstanding, (y) other than the Initial TCI Shares
and the Initial KPCB Shares, no shares of Series T Preferred Stock or
Series K Preferred Stock have been issued or are outstanding, and (z)
no shares of Series Preferred Stock have been designated as a series
or class of Preferred Stock (nor has any action been taken to so
designate any shares of Series Preferred Stock), and no shares of
Series Preferred Stock have been issued or are outstanding. All such
issued and outstanding shares have been duly authorized and validly
issued and are fully paid and nonassessable and have been issued in
compliance with all applicable state and federal laws concerning the
issuance of securities. The Company has reserved, and agrees that it
will at
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<PAGE>
all times keep reserved, such number of shares of Series B Common
Stock as is sufficient to provide for the conversion of all shares of
the Series T and Series K Preferred Stock (including the Shares to be
issued pursuant to this Agreement) outstanding from time to time, and
has reserved, and agrees that it will at all times keep reserved, such
number of shares of Series A Common Stock as is sufficient to provide
for the conversion of all shares of Series B Common Stock then issued
and outstanding or issuable upon the conversion, exercise or exchange
of any security (including the shares of Series B Common Stock to be
issued upon conversion of the Shares) outstanding from time to time.
In addition to the foregoing, the Company has reserved for issuance
such number of shares of Series A Common Stock as are issuable upon
exercise of the stock options granted or to be granted as listed on
Schedule 2(c) hereto. Except for the transactions contemplated by this
Agreement or the Prior Agreement (including the transactions
contemplated by the Stockholders' Agreement and the Registration
Rights Agreement (each as defined in the Prior Agreement)), or as set
forth on Schedule 2(c) hereto, (x) there are: (i) no outstanding
warrants, options, rights (including conversion or preemptive rights),
or agreements to subscribe for or purchase any capital stock or other
securities from the Company; (ii) to the knowledge of the Company, no
voting trusts or voting agreements among, or irrevocable proxies
executed by, stockholders of the Company; (iii) no existing rights of
stockholders to require the Company to register any securities of the
Company or to participate with the Company in any registration by the
Company of its securities; and (iv) to the knowledge of the Company,
no agreements among stockholders providing for the purchase or sale of
the Company's capital stock, and (y) the Company has not taken any
action that would result in a stock split, stock dividend, reverse
split, recapitalization or reclassification affecting its capital
stock or the designation of the Series Preferred Stock as a series or
class of Preferred Stock of the Company.
(III) The Company has full power and authority to execute,
deliver and perform its obligations under this Agreement, the
Registration Rights Amendment (as defined below) and the Stockholders'
Agreement Amendment (as defined below) (collectively, the "Transaction
Agreements"). All
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<PAGE>
corporate action on the part of the Company, its directors and its
stockholders necessary for the authorization, execution, delivery and
performance of this Agreement and the other Transaction Agreements by
the Company, the authorization, sale, issuance and delivery of the
Shares, and the performance of all of the Company's obligations
hereunder and thereunder has been taken. Each of the Transaction
Agreements, when executed and delivered by the Company, and assuming
the due execution and delivery thereof by the other parties hereto or
thereto, shall constitute a valid and legally binding obligation of
the Company, enforceable against it in accordance with its terms,
subject to: (x) judicial principles limiting the availability of
specific performance, injunctive relief and other equitable remedies
and (y) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect generally relating to or
affecting creditors' rights.
(IV) Since August 29, 1995, neither the Restated Certificate, the
Bylaws, the Registration Rights Agreement, nor the Stockholders'
Agreement has been amended in any way, and except as specified in this
Agreement, no action has been taken and no action is contemplated to
be taken in respect of any amendment to the foregoing documents.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS.
-----------------------------------------------------------
Each Purchaser, on behalf of itself and not jointly with the other Purchaser,
hereby represents and warrants to, and covenants with, the Company as follows:
(A) Each of the representations and warranties of the Purchaser
contained in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6 and 3.9 of the Prior
Agreement (the "Purchaser Prior Agreement Sections") is true and correct, with
the same force and effect as if each of such representations and warranties
(together, subject to Section 3(b) hereof, with the definitions of all terms
used therein which are defined in the Prior Agreement) were set forth at length
herein and made directly to the Company on and as of the date hereof and as if
each Exhibit and Appendix referred to therein and attached to the Prior
Agreement were attached to and made a part of this Agreement, except that for
purposes of this Agreement (i) all references to Schedules in the Purchaser
Prior Agreement Sections shall be deemed to be references to Schedules to this
Agreement and such Schedules shall be prepared with respect to and attached to
this Agreement (labeled with the
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<PAGE>
respective Purchaser Prior Agreement Section number) and (ii) the reference in
Section 3.9 to "Section 7" shall be deemed to refer to Section 4 hereof. With
respect to any covenants or agreements of the Purchaser set forth in the
Purchaser Prior Agreement Sections, the Purchaser covenants and agrees to
perform its obligations related thereto in accordance with the terms of the
Purchaser Prior Agreement Sections, as if such covenants and agreements were set
forth at length herein and made directly to the Company on and as of the date
hereof.
(B) In the event that any term contained in any of the Purchaser
Prior Agreement Sections is defined in the Prior Agreement (the "Purchaser
Incorporated Definitions") and is also defined in this Agreement, then for
purposes of this Section 3 (but not for purposes of any other provision of this
Agreement, except as otherwise specifically provided herein) such term will have
the meaning assigned to it in the Prior Agreement, except that for purposes of
this Agreement all references in the Purchaser Prior Agreement Sections and the
Purchaser Incorporated Definitions (i) to the "Shares" will be deemed to be
references to the Shares (as defined in this Agreement), (ii) to the
"Transaction Agreements" will be deemed to be references to the Transaction
Agreements (as defined in this Agreement), (iii) to the "Closing" will be deemed
to be references to the Closing (as defined in this Agreement) and (iv) to the
"Restated Certificate" and the "Bylaws" will be deemed to be references to the
Restated Certificate and the Bylaws (each as defined in this Agreement).
(C) In addition to the foregoing, each KPCB Purchaser represents and
warrants to the Company that KPCB VII Associates, a California limited
partnership (the "KPCB Partner"), is a general partner of each of the KPCB
Purchasers and that each of L. John Doerr and William R. Hearst III is a general
partner of the KPCB Partner.
4. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligation
--------------------------------------------------
of the Company to issue and sell Shares to the Purchasers at the Closing is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions:
(A) Correctness of Representations and Warranties(a).Correctness of
---------------------------------------------
Representations and Warranties . The representations and warranties of the
Purchasers contained in this Agreement (including the representations and
warranties incorporated from the Prior Agreement) shall, if specifically
qualified by materiality, be true and correct and, if not so qualified, be true
and correct in all material respects in each case as of the date of this
Agreement and as of the Closing Date with the same effect as if made
-7-
<PAGE>
on and as of the Closing Date, and the Company shall have received a certificate
to such effect from each Purchaser, signed by its duly authorized officer.
(B) Performance of Agreements and Covenants The Purchasers shall
---------------------------------------
have performed and complied with all covenants, agreements, obligations and
conditions contained in this Agreement (including those incorporated from the
Prior Agreement) that are required to be performed or complied with by them on
or before the Closing Date, and the Company shall have received a certificate to
such effect from each Purchaser, signed by its duly authorized officer.
(C) No Material Litigation. There shall not be pending on the
-----------------------
Closing Date any lawsuit, claim, proceeding or other legal action by or before
any court or other regulatory, administrative or governmental authority that
seeks to restrain, restrict or prohibit or impose substantial penalties or
damages with respect to (or any other materially adverse relief or remedy in
connection with), and there shall not be in effect on the Closing Date any
injunction or other order of any governmental authority or arbitration panel
that restrains, restricts, prohibits or imposes substantial penalties or damages
with respect to (or any other materially adverse relief or remedy in connection
with), the consummation of any of the transactions contemplated hereby.
(D) Registration Rights Agreement. Each Purchaser shall have duly
------------------------------
executed and delivered the Amendment No. 1 to the Registration Rights Agreement,
substantially in the form of Exhibit A hereto (such amendment, the "Registration
Rights Amendment").
(E) Stockholders' Agreement(e).Stockholders' Agreement . Each
---------------------------------------------------
Purchaser shall have duly executed and delivered the Amendment No. 1 to the
Stockholders' Agreement, substantially in the form of Exhibit B hereto (such
amendment, the "Stockholders' Agreement Amendment").
(F) Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated by this Agreement to occur at
or prior to the Closing, and all documents and instruments incident to these
transactions, shall be reasonably satisfactory in substance to the Company and
its counsel.
5. CONDITIONS TO THE PURCHASERS' OBLIGATIONS AT CLOSING. The obligation
----------------------------------------------------
of TCI Sub, on the one hand, and the KPCB Purchasers, on the other hand, to
purchase Shares at the Closing is several and not joint and such obligation
-8-
<PAGE>
as to TCI Sub, on the one hand, and the KPCB Purchasers, on the other hand, is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions, any of which may be waived by TCI Sub, on the one hand, or
the KPCB Purchasers, on the other hand:
(A) Correctness of Representations and Warranties. The
---------------------------------------------
representations and warranties of the Company set forth in this Agreement
(including the representations and warranties incorporated from the Prior
Agreement) shall, if specifically qualified by materiality, be true and correct
and, if not so qualified, be true and correct in all material respects in each
case as of the date of this Agreement and as of the Closing Date with the same
effect as if made on and as of the Closing Date, and such Purchaser shall have
received a certificate to such effect from the Company, signed by its duly
authorized officer.
(B) Performance of Agreements and Covenants. Each other party to this
---------------------------------------
Agreement shall have performed and complied with all agreements, covenants,
obligations and conditions contained in this Agreement (including those
incorporated from the Prior Agreement) that are required to be performed or
complied with by it on or before the Closing Date, and such Purchaser shall have
received a certificate to such effect from each such party, signed by its duly
authorized officer.
(C) Registration Rights Amendment and Stockholders Agreement
--------------------------------------------------------
Amendment. Each of the Registration Rights Amendment and the Stockholders'
- ---------
Agreement Amendment shall have been duly executed and delivered by each other
party thereto.
(D) Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated at the Closing hereby, and all
documents and instruments incident to these transactions, shall be reasonably
satisfactory in substance to such Purchaser and its counsel.
(E) Other. TCI Sub, on the one hand, and the KPCB Purchasers, on the
-----
other hand, shall be reasonably satisfied that all conditions to (i) the other
Purchaser's obligation to purchase and pay for the Shares to be purchased by
such Purchaser and (ii) the Company's obligation to sell the Shares to be sold
to the other Purchaser, shall have been satisfied or waived.
(F) Simultaneous Closing. Each Purchaser shall purchase and pay for
--------------------
the Shares to be purchased by such Purchaser simultaneously with the purchase of
and payment for the Shares to be purchased by the other Purchaser.
-9-
<PAGE>
6. LEGENDS; NOTATIONS.The certificates evidencing the Shares and any
------------------
Conversion Shares (as defined in the Prior Agreement) shall be endorsed with the
legends set forth below:
(A) a conspicuously noted legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY, SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH THE
ACT AND SUCH LAWS";
(B) any legend required by any applicable state securities law; and
(C) a conspicuously noted legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THAT CERTAIN
STOCKHOLDERS' AGREEMENT, DATED AS OF AUGUST 29, 1995, AS AMENDED (THE
"STOCKHOLDERS' AGREEMENT"), AMONG THE COMPANY AND THE OTHER PARTIES THERETO
CONTAINING, AMONG OTHER THINGS, RESTRICTIONS ON THE SALE, TRANSFER OR OTHER
DISPOSITION OF SUCH SECURITIES. A COUNTERPART OF SUCH AGREEMENT HAS BEEN
DEPOSITED WITH THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS, AND THE COMPANY
SHALL FURNISH A COPY OF SUCH AGREEMENT TO THE RECORD HOLDER HEREOF WITHOUT
CHARGE UPON WRITTEN REQUEST."
The Company shall (or shall instruct its transfer agent to) make a notation
on the stock books regarding the restrictions on transfer of the Shares and the
Conversion Shares and will transfer (or will instruct its transfer agent to
transfer) securities on the books of the Company only to the extent not
inconsistent therewith. The legend will be removed by the Company (or, if
applicable, the
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<PAGE>
Company will instruct its transfer agent to remove the legend), upon delivery to
it of an opinion of counsel in form and substance reasonably satisfactory to the
Company that a registration statement under the Securities Act of 1933, as
amended, is at the time in effect with respect to the legend security or that
such security can be freely transferred without such registration statement
being in effect.
7. EXPENSES. Whether or not the transactions contemplated hereby are
--------
consummated, each of the Company and each Purchaser will bear its own expenses
incurred on its behalf with respect to this Agreement and the transactions
contemplated hereby.
8. SURVIVAL. The representations, warranties, covenants and agreements
--------
made herein, including the representations and warranties incorporated from the
Prior Agreement, will survive any investigation made by any Purchaser and will
survive the Closing.
9. SUCCESSORS AND ASSIGNS. Neither this Agreement nor any of the rights,
----------------------
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of each of the other parties hereto, provided, however, that any
-------- -------
Purchaser may assign this Agreement or any or all of its rights, interests, or
obligations hereunder to a wholly owned subsidiary of such party, but such
assignment shall not relieve such assigning party of its obligations hereunder
in the event such assignee fails to perform such obligations. Any assignment or
delegation in contravention of this Agreement shall be void and shall not
relieve the assigning or delegating party of any obligation hereunder. Subject
to the foregoing provisions of this Section 9, this Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns.
10. NOTICES, ETC. All notices and other communications required or
-------------
permitted to be given by any provision of this Agreement shall be in writing and
mailed (certified or registered mail, postage prepaid, return receipt requested)
or sent by hand or overnight courier, or by facsimile transmission (with
acknowledgment received), charges prepaid and addressed to the intended
recipient as follows, or to such other address or number as may be specified
from time to time by like notice to the parties:
(A) If to the Company:
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At Home Corporation
385 Ravendale Drive
Mountain View, CA 94043
Telecopy: (415) 944-8500
Attention: William R. Hearst III
with copies to:
Fenwick & West
Two Palo Alto Square
Suite 800
Palo Alto, CA 94306
Telecopy: (415) 857-0361
Attention: Gordon K. Davidson, Esq.
(B) If to the KPCB Purchasers:
Kleiner Perkins Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025
Telecopy: (415) 233-0323
Attention: L. John Doerr
(C) If to TCI Sub:
TCI Internet Holdings, Inc.
5619 DTC Parkway
Englewood, CO 80111
Telecopy: (303) 488-3221
Attention: Bruce W. Ravenel
with copies to:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022-6030
Telecopy: (212) 705-5125
Attention: Frederick H. McGrath, Esq.
Any party may from time to time specify a different address for notices by like
notice to the other parties. All notices and other communications given in
-12-
<PAGE>
accordance with the provisions of this Agreement shall be deemed to have been
given and received (i) four (4) business days after the same are sent by
certified or registered mail, postage prepaid, return receipt requested, (ii)
when delivered by hand or transmitted by facsimile (with acknowledgment received
and, in the case of a facsimile only, a copy of such notice is sent no later
than the next business day by a reliable overnight courier service, with
acknowledgment or receipt) or (iii) one (1) business day after the same are sent
by a reliable overnight courier service, with acknowledgment of receipt. The
names and addresses for notices set forth above shall be deemed to amend the
corresponding provisions of the Prior Agreement.
11. DELAYS OR OMISSIONS. Except as expressly provided herein, no delay
-------------------
or omission to exercise any right, power or remedy accruing to any holder of any
Shares, upon any breach or default of the Company under this Agreement, will
impair any such right, power or remedy of such holder nor will it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or in
any similar breach or default thereafter occurring; nor will any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any holder of any breach or default under
this Agreement, or waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and will be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, will be cumulative
and not alternative.
12. OBLIGATIONS SEVERAL, NOT JOINT. Each Purchaser shall be (i) obligated
------------------------------
hereunder only with respect to the purchase of the number and kind of Shares set
forth in Section 1(a) of this Agreement, and no Purchaser shall have any
liability with respect to the other Purchaser's obligations hereunder and (ii)
separately and independently entitled to rely on the representations and
warranties of the other Purchaser made to the Company in this Agreement and to
the benefit of all covenants and agreements of the other Purchaser made with the
Company herein.
13. COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which will be enforceable against the parties actually
executing such counterparts, and all of which together will constitute one
instrument.
14. SEVERABILITY. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement will continue in full force and effect
without
-13-
<PAGE>
said provision; provided, however, that no such severability will be effective
--------
if it materially changes the economic benefits of this Agreement to the Company
or to either Purchaser.
15. TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not considered in construing or
interpreting this Agreement.
16. ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Prior Agreement and
---------------------------
each of the other agreements and instruments contemplated by this Agreement and
the Prior Agreement, constitute the full and entire understanding and agreement
between the parties with regard to the subject hereof and thereof, and supersede
all prior agreements and understandings, both written and oral, among the
parties with regard to the subject matter hereof and thereof, and no party will
be liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.
Except as expressly provided herein, neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or termination is sought.
17. GOVERNING LAW. This Agreement will be governed by and construed in
-------------
all respects in accordance with the laws of the State of New York, without
regard to its principles of conflicts of laws.
-14-
<PAGE>
If the foregoing is acceptable to you, please execute the copy of this
Letter Agreement in the space below, at which time this letter will constitute a
binding agreement among us.
Very truly yours,
AT HOME CORPORATION
/s/ William Randolph Hearst, III
By: ----------------------------------
Name: William Randolph Hearst, III
Title: President
Accepted and agreed as of the
date first above written:
TCI INTERNET HOLDINGS, INC. KLEINER, PERKINS, CAUFIELD
& BYERS VII
By:/s/ Bruce W. Ravenel By: KPCB VII ASSOCIATES,
-----------------------------
Name: Bruce W. Ravenel its General Partner
Title: President and Chief Executive
Officer By:/s/ L. John Doerr
-------------------------------
Name: L. John Doerr
Title: Partner
KPCB VII FOUNDERS FUND KPCB INFORMATION
SERVICES ZAIBATSU FUND II
By: KPCB VII ASSOCIATES, By: KPCB VII ASSOCIATES,
its General Partner its General Partner
By: /s/ L. John Doerr By: /s/ L. John Doerr
------------------------- -------------------------
Name: L. John Doerr Name: L. John Doerr
Title: Partner Title: Partner
-15-
<PAGE>
EXHIBIT 10.03
AT HOME CORPORATION
STOCK PURCHASE AND EXCHANGE AGREEMENT
August 1, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Purchase, Sale and Exchange of Stock...............................................
1.1 Sale and Issuance of Series A Convertible Preferred...........................
Stock and Series K Convertible Preferred Stock................................
1.2 Exchange of Shares of Series T Preferred Stock for Series A Preferred.........
1.3 Closing.......................................................................
2. Representations, Warranties and Covenants of the Company...........................
2.1 Organization, Good Standing and Qualification.................................
2.2 Restated Certificate..........................................................
2.3 Restated Bylaws...............................................................
2.4 Capitalization................................................................
2.5 Outstanding Securities........................................................
2.6 Current Board.................................................................
2.7 Subsidiaries..................................................................
2.8 Authorization.................................................................
2.9 Consents and Approvals; No Conflict...........................................
2.10 Valid Issuance of Purchased and Conversion Shares.............................
2.11 No Registration Required......................................................
2.12 Litigation....................................................................
2.13 Status of Proprietary Assets and Agreements...................................
2.14 Registration Rights...........................................................
2.15 Title to Property and Assets..................................................
2.16 Financial Statements; Undisclosed Liabilities;................................
No Material Adverse Changes................................................
2.17 Disclosure....................................................................
2.18 ERISA Plans...................................................................
2.19 Tax Returns and Payments......................................................
2.20 Labor Agreements and Actions..................................................
2.21 Governmental Consents.........................................................
2.22 Actions Requiring Certain Pre-Closing Consents................................
2.23 Brokers or Finders............................................................
2.24 Registration Rights Agreement.................................................
2.25 Stockholders' Agreement.......................................................
2.26 Reasonable Efforts............................................................
2.27 Additional Issuances of Preferred Stock.......................................
2.28 Voting Agreements.............................................................
3. Representations, Warranties and Covenants of the Purchasers........................
3.1 Experience....................................................................
3.2 Investment....................................................................
3.3 Accredited Purchaser Status...................................................
3.4 Restricted Securities.........................................................
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
3.5 Authorization...................................................................
3.6 Consents and Approvals; No Conflict.............................................
3.7 Disclosure of Information.......................................................
3.8 Information Concerning Purchaser................................................
3.9 Brokers or Finders..............................................................
3.10 Registration Rights Agreement...................................................
3.11 Stockholders' Agreement.........................................................
3.12 Reasonable Efforts..............................................................
4. Additional Representations of the KPCB Purchasers....................................
5. Legends; Notations...................................................................
6. Hart-Scott-Rodino Act................................................................
7. Conditions to the Purchasers' Obligations at Closing.................................
7.1 Correctness of Representations and Warranties...................................
7.2 Performance of Agreements.......................................................
7.3 Restated Certificate............................................................
7.4 Restated Bylaws.................................................................
7.5 Securities Exemption............................................................
7.6 No Material Litigation..........................................................
7.7 Government Approvals and Consents...............................................
7.8 Proceedings and Documents.......................................................
7.9 Board of Directors..............................................................
7.10 Opinion of Company Counsel......................................................
7.11 Stockholders' Agreement.........................................................
7.12 Registration Rights Agreement...................................................
7.13 Other...........................................................................
7.14 Simultaneous Closing............................................................
7.15 Delivery of Stock Certificates..................................................
8. Conditions to Obligations of Comcast Sub and Cox Sub at Closing;.....................
Covenants of TCI Sub and the KPCB Purchasers........................................
9. Conditions to the Company's Obligations at Closing...................................
9.1 Correctness of Representations and Warranties...................................
9.2 Performance of Agreements.......................................................
9.3 No Material Litigation..........................................................
9.4 Restated Certificate............................................................
9.5 Restated Bylaws.................................................................
9.6 Securities Exemption............................................................
9.7 Government Approvals and Consents...............................................
9.8 Proceedings and Documents.......................................................
9.9 Stockholders' Agreement.........................................................
9.10 Registration Rights Agreement...................................................
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
9.11 Simultaneous Closing...........................................................
9.12 Payment of Purchase Price......................................................
10. Miscellaneous.......................................................................
10.1 Governing Law..................................................................
10.2 Survival.......................................................................
10.3 Successors and Assigns.........................................................
10.4 Limitation on Rights of Others.................................................
10.5 Entire Agreement; Amendment....................................................
10.6 Notices, Etc...................................................................
10.7 Delays or Omissions............................................................
10.8 Expenses.......................................................................
10.9 Counterparts...................................................................
10.10 Severability..................................................................
10.11 Obligations Several, Not Joint................................................
</TABLE>
iii
<PAGE>
EXHIBITS
- --------
Exhibit A Certificate of Retirement
Exhibit B Schedule of Exceptions
Exhibit C Second Amended and Restated Certificate of Incorporation
Exhibit D Amended and Restated Bylaws
Exhibit E First Amended and Restated Registration Rights Agreement
Exhibit F Financial Statements
Exhibit G Amended and Restated Stockholders' Agreement
Exhibit H-1 and H-2 Opinions of Counsel
Exhibit I Information Concerning Purchasers
Exhibit J Purchasers' Affiliates
Exhibit K Written Consent of Stockholders
SCHEDULES
- ---------
Schedule 3.6 Purchaser Consents, Approvals and Conflicts
iv
<PAGE>
STOCK PURCHASE AND EXCHANGE AGREEMENT
-------------------------------------
THIS STOCK PURCHASE AND EXCHANGE AGREEMENT ("AGREEMENT") is made as of
August 1, 1996, by and among AT HOME CORPORATION, a Delaware corporation (the
"COMPANY"), TCI INTERNET HOLDINGS, INC., a Colorado corporation ("TCI SUB"),
KLEINER, PERKINS, CAUFIELD & BYERS VII and KPCB INFORMATION SCIENCES ZAIBATSU
FUND II, each a California limited partnership and James Clark (each, a "KPCB
PURCHASER" and together, the "KPCB PURCHASERS"), COMCAST PC INVESTMENTS, INC., a
Delaware corporation ("COMCAST SUB"), and COX TELEPORT PROVIDENCE, INC., a
Delaware corporation ("COX SUB"). (Each of the KPCB Purchasers, TCI Sub,
Comcast Sub and Cox Sub is referred to hereinafter separately as a "PURCHASER"
or together as the "PURCHASERS".)
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase, Sale and Exchange of Stock.
------------------------------------
1.1 Sale and Issuance of Series AM, Series AT, Series AX and Series K
-----------------------------------------------------------------
Convertible Preferred Stock. Subject to the terms and conditions of this
- ---------------------------
Agreement, (a) the Company agrees to issue and sell to TCI Sub, and TCI Sub
agrees to purchase from the Company, at the Closing, 783,000 shares of the
Company's Series AT Convertible Participating Preferred Stock, par value $.01
per share (the "SERIES AT PREFERRED"), for an aggregate purchase price of
$7,830,000, (b) the Company agrees to issue and sell to the KPCB Purchasers, and
the KPCB Purchasers, jointly and severally, agree to purchase from the Company,
at the Closing, an aggregate of 233,883 shares/*/ of the Company's Series K
Convertible Participating Preferred Stock, par value $.01 per share (the "SERIES
K PREFERRED"), for an aggregate purchase price of $2,338,830, (c) the Company
agrees to issue and sell to Comcast Sub, and Comcast Sub agrees to purchase from
the Company, at the Closing, 727,865 shares of the Company's Series AM
Convertible Participating Preferred Stock, par value $.01 per share (the "SERIES
AM PREFERRED") for an aggregate purchase price of $7,278,650, and (d) the
Company agrees to issue and sell to Cox Sub, and Cox Sub agrees to purchase from
the Company, at the Closing, 727,865 shares of the Company's Series AX
Convertible Participating Preferred Stock, par value $.01 per share (the "SERIES
AX PREFERRED") for an aggregate purchase price of $7,278,650. The Series AM
Preferred, the Series AT Preferred and the Series AX Preferred are collectively
referred to herein as the "SERIES A PREFERRED."
1.2 Exchange of Shares of Series T Preferred Stock for Series AT
------------------------------------------------------------
Preferred. Subject to the terms and conditions of this Agreement, the Company
- ---------
agrees to issue to TCI Sub, and TCI Sub agrees to acquire from the Company, at
the Closing, 770,000 shares of Series AT Preferred in consideration of and in
exchange for 770,000 shares/*/ of Series T Preferred Stock, par value $.01 per
share ("SERIES T PREFERRED") owned by TCI Sub, which shares of Series T
Preferred shall be canceled and shall not be reissued by the Company.
Subsequent to the Closing, the Company shall promptly file a Certificate of
Retirement in the form of Exhibit A attached hereto (the "CERTIFICATE OF
---------
RETIREMENT") to reduce the number of authorized shares of Series T Preferred to
770,000 shares./*/ (The exchange of shares of Series T Preferred for shares
______________________
* After effecting a 10-to-1 reverse stock split of the Company's outstanding
Series T Preferred and Series K Preferred by filing the Second Amended and
Restated Certificate of Incorporation of the Company.
<PAGE>
of Series AT Preferred by TCI Sub is referred to herein as the "TCI EXCHANGE."
The shares of Series A Preferred and Series K Preferred being acquired pursuant
to this Agreement are collectively referred to herein as the "PURCHASED
SHARES.")
1.3 Closing. The closing of the purchase, sale and exchange of the
-------
Purchased Shares (the "CLOSING") shall take place at the offices of Baker &
Botts L.L.P., 599 Lexington Avenue, New York, New York, or such other place as
the Company and the Purchasers shall mutually agree, at 10:00 a.m., local time,
on a mutually agreed date occurring no later than the 10th day following the
satisfaction or waiver of the conditions to Closing set forth in Sections 7, 8
and 9 hereof (other than any such conditions which are capable of being
satisfied only as of the Closing), but in no event later than August 15, 1996.
The date on which the Closing occurs is referred to herein as the "CLOSING
DATE." At the Closing, the Company shall deliver (a) to TCI Sub a certificate
or certificates registered in the name of TCI Sub representing 783,000 shares of
Series AT Preferred against payment of the purchase price therefor in cash or by
wire transfer in immediately available funds and a certificate or certificates
registered in the name of TCI Sub representing 770,000 shares of Series AT
Preferred against delivery of a certificate or certificates representing 770,000
shares of Series T Preferred duly endorsed for transfer or accompanied by a duly
executed Stock Assignment Separate From Certificate, (b) to the KPCB Purchasers
certificates registered in the name of the KPCB Purchasers representing an
aggregate of 233,883 shares of Series K Preferred (in such relative amounts as
the KPCB Purchasers may request) against payment of the purchase price therefor
in cash or by wire transfer in immediately available funds, (c) to Comcast Sub a
certificate or certificates registered in the name of Comcast Sub representing
727,865 shares of Series AM Preferred against payment of the purchase price
therefor in cash or by wire transfer in immediately available funds, and (d) to
Cox Sub a certificate or certificates registered in the name of Cox Sub
representing 727,865 shares of Series AX Preferred against payment of the
purchase price therefor in cash or by wire transfer in immediately available
funds.
2. Representations, Warranties and Covenants of the Company. The Company
--------------------------------------------------------
hereby represents and warrants to, and covenants with, each of the Purchasers as
follows, except as set forth in the Schedule of Exceptions ("SCHEDULE OF
EXCEPTIONS") attached to this Agreement as Exhibit B (which Schedule of
---------
Exceptions shall be deemed to be representations and warranties to the
Purchasers by the Company under this Section 2):
2.1 Organization, Good Standing and Qualification. The Company and
---------------------------------------------
the Subsidiary (as hereinafter defined) are corporations duly organized, validly
existing and in good standing under the laws of the States of Delaware and
California, respectively, and have all requisite corporate power and authority
to carry on their respective businesses as currently conducted and as currently
proposed to be conducted. The Company and the Subsidiary each have qualified to
do business in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the business, properties, prospects or financial
condition of the Company and the Subsidiary taken as a whole. The Company has
delivered to each of the Purchasers true and accurate copies of (i) the
Company's Certificate of Incorporation and Bylaws, and (ii) the Subsidiary's
Articles of Incorporation and Bylaws, each as amended through, and in effect on,
the date hereof. Other than the filing of the Restated Certificate (as defined
below) and the adoption of the Restated Bylaws (as defined below), there shall
be no amendments to, or other actions taken with respect to, the Certificate of
Incorporation or the Bylaws of the Company prior to the Closing.
2
<PAGE>
2.2 Restated Certificate. The Board of Directors of the Company has
--------------------
duly approved and adopted the Second Amended and Restated Certificate of
Incorporation of the Company in the form attached hereto as Exhibit C (the
---------
"RESTATED CERTIFICATE") pursuant to Section 242 of the Delaware General
Corporation Law (the "DGCL") and has obtained or will obtain prior to the
Closing the approval of the Restated Certificate by the required vote of the
Company's stockholders.
2.3 Restated Bylaws. The Board of Directors of the Company has duly
---------------
approved and adopted the Amended and Restated Bylaws of the Company in the form
attached hereto as Exhibit D (the "RESTATED BYLAWS") pursuant to Section 109 of
---------
the DGCL and has obtained or will obtain prior to the Closing the approval of
the Restated Bylaws by the required vote of the Company's stockholders.
2.4 Capitalization. Upon the filing of the Restated Certificate with
--------------
the Secretary of State of Delaware, the authorized capital stock of the Company
shall consist of 90,138,830 shares of common stock, par value $.01 per share
(the "COMMON STOCK"), and 15,292,613 shares of preferred stock, par value $.01
per share ("PREFERRED STOCK"). The authorized shares of Common Stock shall be
allocated as follows: (a) 75,000,000 shares shall be designated as "Series A
Common Stock," (b) 7,700,000 shares shall be designated as "Series B Common
Stock," and (c) 7,438,830 shares shall be designated as "Series K Common Stock."
The authorized shares of Preferred Stock shall be allocated as follows: (i)
727,865 shares shall be designated as Series AM Preferred, (ii) 1,553,000 shares
shall be designated as Series AT Preferred, (iii) 727,865 shares shall be
designated as Series AX Preferred, (iv) 743,883 shares shall be designated as
Series K Preferred, (v) 1,540,000 shares shall be designated as Series T
Preferred and (vi) 10,000,000 shares shall be undesignated as to series and
shall be issuable pursuant to authority granted in the Restated Certificate to
the Board of Directors (the "SERIES PREFERRED STOCK"). Prior to the Closing,
the Company shall have reserved and shall thereafter at all times keep reserved
(x) such number of shares of Series B Common Stock as is sufficient to provide
for the conversion of the Series T Preferred outstanding from time to time, (y)
such number of shares of Series K Common Stock as is sufficient to provide for
the conversion of the Series K Preferred outstanding from time to time, and (z)
such number of shares of Series A Common Stock as is sufficient to provide for
the conversion of the Series A Preferred outstanding from time to time, the
Series B Common Stock outstanding from time to time or issuable upon conversion
of the Series T Preferred, and the Series K Common Stock outstanding from time
to time or issuable upon conversion of the Series K Preferred. (The shares of
Series A Common Stock, Series B Common Stock and Series K Common Stock issuable
upon conversion of the Purchased Shares and the shares of Series A Common Stock
issuable upon conversion of such shares of Series B Common Stock and Series K
Common Stock are sometimes referred to herein as the "CONVERSION SHARES.") The
authorized capital stock of the Subsidiary consists of 10,000,000 shares of
common stock, without par value, and 5,000,000 shares of preferred stock,
without par value.
2.5 Outstanding Securities. As of the date of this Agreement, the
----------------------
outstanding securities of the Company consist of 3,411,000 shares of Series A
Common Stock, 5,100,000 shares of Series K Preferred (before effecting a 10-to-1
reverse stock split by filing the Restated Certificate), 15,400,000 shares of
Series T Preferred (before effecting a 10-to-1 reverse stock split by filing the
Restated Certificate) and options to purchase an aggregate of 1,865,750 shares
of Series A Common Stock. The Company has reserved for issuance pursuant to its
1996
3
<PAGE>
Incentive Stock Option Plan and its 1996 Incentive Stock Option Plan No. 2
(collectively, the "OPTION PLANS") an aggregate of 6,500,000 shares of Series A
Common Stock for issuance to employees, officers, directors, consultants and
independent contractors of the Company (less the number of shares of Series A
----
Common Stock purchased outside the Option Plans by employees, officers,
directors, consultants and independent contractors of the Company, whether such
purchases occur before and after the dates of the Plans, unless specifically
provided otherwise in a resolution adopted by the Company's Board of Directors
at the time it approves the sale of Series A Common Stock to such employee,
officer, director, consultant or independent contractor, and plus the number of
----
shares of Series A Common Stock repurchased by the Company upon termination of
any such person's employment or service relationship with the Company or upon
exercise of the Company's right of first refusal upon transfers by such
persons); the number of shares available for issuance under the Option Plans as
of the date of this Agreement is 1,144,250 shares. As of the date of this
Agreement, the outstanding securities of the Subsidiary consist of one (1) share
of common stock, which is owned by the Company. Except as expressly provided
herein, in that certain August 29, 1995 Stockholders' Agreement among the
Company, TCI Sub and the KPCB Purchasers, as amended as of May 9, 1996 (the
"1995 STOCKHOLDERS' AGREEMENT"), in the Restated Certificate and in the other
Transaction Agreements (as defined below), there are no other outstanding
rights, options, warrants, preemptive rights, rights of first refusal or similar
rights for the purchase or acquisition from the Company or the Subsidiary of any
securities of the Company or the Subsidiary nor are there any commitments to
issue or execute any such rights, options, warrants, preemptive rights or rights
of first refusal.
2.6 Current Board. Immediately prior to the Closing, the Company's
--------------
Board of Directors consists of the following persons, each of whom has been duly
elected or appointed in accordance with the Bylaws of the Company: L. John
Doerr, Bruce Ravenel, Larry Romrell, Thomas A. Jermoluk, James Barksdale and
William Randolph Hearst III; and the Subsidiary's Board of Directors consists of
the following person who has been duly elected or appointed in accordance with
the Bylaws of the Subsidiary: Thomas A. Jermoluk.
2.7 Subsidiaries. Except for its wholly-owned subsidiary athome.net,
------------
a California corporation (the "SUBSIDIARY"), the Company does not presently own
or control, directly or indirectly, any interest in any other corporation,
partnership, trust, joint venture, association or other entity.
2.8 Authorization. The Company has full power and authority to
-------------
execute, deliver and perform its obligations under each of this Agreement, the
Registration Rights Agreement (as defined in Section 2.14 below), the
Stockholders' Agreement (as defined in Section 2.25 below), and those provisions
of Article VII of the Term Sheet, dated June 4, 1996, as amended as of the
Closing Date, among the parties hereto and certain of their affiliates (the
"TERM SHEET"), including any other provisions or definitions in other sections
of the Term Sheet which are referenced in Article VII (such provisions are
hereafter collectively the "MASTER DISTRIBUTION AGREEMENT"; provided that if the
matters set forth in Article VII of the Term Sheet are superseded by a
definitive agreement which is executed by the applicable parties to the Term
Sheet, such definitive agreement will constitute the Master Distribution
Agreement for all purposes hereunder) (the Registration Rights Agreement, the
Stockholders' Agreement, the Master Distribution Agreement and this Agreement
are hereinafter referred to collectively as the "TRANSACTION AGREEMENTS"). All
corporate action on the part of the Company necessary for the
4
<PAGE>
authorization, execution and delivery of the Transaction Agreements and the
performance of all obligations of the Company hereunder and thereunder has been
taken or will be taken prior to Closing. Each of the Transaction Agreements,
when executed and delivered by the Company, assuming the due execution and
delivery thereof by the other parties hereto or thereto, shall constitute a
valid and legally binding obligation of the Company, enforceable against it in
accordance with its terms, subject to: (a) judicial principles limiting the
availability of specific performance, injunctive relief and other equitable
remedies, (b) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect generally relating to or affecting
creditors' rights, and (c) limitations on the enforceability of the
indemnification and contribution provisions of the Registration Rights Agreement
imposed by law or public policy.
2.9 Consents and Approvals; No Conflict. The execution, delivery and
-----------------------------------
performance of each of the Transaction Agreements and the consummation of each
of the transactions contemplated hereby and thereby (including the offering,
sale and issuance of the Purchased Shares and the issuance of the Conversion
Shares) do not and will not (a) conflict with or result in a breach of the
terms, conditions or provisions of, (b) constitute a default under, (c) result
in the creation of any lien, security interest, charge or encumbrance upon the
Company's or the Subsidiary's capital stock or assets pursuant to, (d) give any
third party the right to accelerate any obligation under, (e) result in a
violation of, or (f) require any order, qualification, waiver, permit,
authorization, consent, approval, exemption or other action by or from, or any
registration, notice, declaration, application or filing to or with, any court
or administrative or governmental body pursuant to (i) the Restated Certificate
or the Restated Bylaws of the Company or the Articles of Incorporation or the
Bylaws of the Subsidiary, (ii) any agreement to which the Company or the
Subsidiary is a party or is bound or to which either of their assets are subject
or (iii) any law, statute, rule or regulation to which the Company or the
Subsidiary is subject; provided, however, that with respect to clause (f) of
-------- -------
this Section 2.9, no representation or warranty is made as to any such
requirements applicable to the Company as a result of the specific legal or
regulatory status of any Purchaser (including without limitation any agreements
between any Purchaser or its affiliate and any local or municipal government
related to the provision of cable television services within a local area) or as
a result of any other facts that specifically relate to any Purchaser, any
business in which any such Purchaser has engaged or proposes to engage or any
financing arrangements or transactions entered into or proposed to be entered
into by or on behalf of any such Purchaser.
2.10 Valid Issuance of Purchased and Conversion Shares. The Purchased
-------------------------------------------------
Shares, when issued, sold and delivered in accordance with the terms of this
Agreement will be duly authorized, validly issued, fully paid and nonassessable,
free of any liens, claims, charges, security interests, pledges or encumbrances
of any kind (other than any of the foregoing created herein or by the applicable
Purchaser or in the Stockholders' Agreement or the Master Distribution Agreement
or as a result of applicable state and federal securities laws) and will possess
all of the rights, privileges and preferences provided therefor in the Restated
Certificate. The Conversion Shares will have been duly and validly reserved for
issuance prior to the Closing and, upon issuance in accordance with the terms of
the Restated Certificate, will be duly authorized, validly issued, fully paid
and nonassessable, free of any liens, claims, charges, security interests,
pledges or encumbrances of any kind (other than any of the foregoing created
herein or by the applicable Purchaser, or in the Stockholders' Agreement or the
Master Distribution Agreement or as a result of applicable state and federal
securities laws) and will possess all of the rights and powers provided therefor
in the Restated Certificate.
5
<PAGE>
2.11 No Registration Required. Based in part on the representations
------------------------
made by the Purchasers in Section 3 hereof, the Purchased Shares and (assuming
no change in applicable law and no unlawful distribution of Purchased Shares by
Purchasers or other parties) the Conversion Shares will be issued in full
compliance with the registration and prospectus delivery requirements of the
U.S. Securities Act of 1933, as amended (the "SECURITIES ACT") and the
registration and qualification requirements of the securities laws of the States
of California, Colorado, Georgia and Delaware (provided that, with respect to
-------- ----
the Conversion Shares, no commission or other remuneration is paid or given,
directly or indirectly, for soliciting the issuance of Conversion Shares upon
the conversion of the Purchased Shares and no additional consideration is paid
for the Conversion Shares other than surrender of the applicable Purchased
Shares upon conversion thereof in accordance with the Restated Certificate).
2.12 Litigation. There is no action, suit or proceeding pending or,
----------
to the best of the Company's knowledge, any investigation pending or any action,
suit, proceeding or investigation threatened against, involving or affecting the
Company or the Subsidiary or any of their respective properties, nor is there
any judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against the Company or the Subsidiary, which questions the validity of any of
the Transaction Agreements or the right of the Company to enter into any of
them, or to consummate the transactions contemplated hereby or thereby, or which
could have, either individually or in the aggregate, a material adverse effect
on the condition (financial or otherwise), business, property, results of
operations, assets or liabilities of the Company and the Subsidiary taken as a
whole.
2.13 Status of Proprietary Assets and Agreements.
-------------------------------------------
(a) Status. To the best of the Company's knowledge, the Company
------
and the Subsidiary each have full title and ownership of, or are duly licensed
under or otherwise have the right to use, all patents, patent applications,
trademarks, service marks, trade names, copyrights, mask works, trade secrets,
confidential and proprietary information, designs and proprietary rights used in
their business as now conducted or as contemplated to be conducted (all of the
foregoing collectively hereinafter referred to as the "PROPRIETARY ASSETS")
without any conflict with or infringement of the rights of others. The Company
has not received any written notice asserting that it or the Subsidiary is
infringing any proprietary rights of any third party. Section 2.13(a) of the
Schedule of Exceptions sets forth a list of all pending applications for and
issued patents, trademark and service mark registrations and copyright
registrations.
(b) Licenses; Other Agreements Relating to Proprietary Assets.
---------------------------------------------------------
Neither the Company nor the Subsidiary has granted any options, licenses or
agreements relating to any Proprietary Asset of the Company or the Subsidiary,
nor is the Company or the Subsidiary obligated to pay any royalties or other
payments to third parties with respect to the marketing, sale, distribution,
manufacture, license or use of any Proprietary Asset.
(c) List of Other Agreements. Section 2.13(c) of the Schedule of
------------------------
Exceptions sets forth a complete list of all contracts, leases, licenses and
other agreements to which the Company or the Subsidiary is a party or by which
either of them is bound ("LISTED AGREEMENTS"); provided that for purposes of
--------
this Section 2.13(c) only, no agreement, other than a .Com Agreement or
Promotional Agreement (each as defined in the Restated Certificate), that
involves the receipt or payment of funds by the Company or the Subsidiary or a
liability, contingent or otherwise, of the Company or the Subsidiary, in the
amount of $100,000 or less
6
<PAGE>
will be required to be listed on Section 2.13(c) of the Schedule of Exceptions.
Section 2.13(c) of the Schedule of Exceptions separately identifies those Listed
Agreements entered into in respect of a Related Party Transaction (as defined in
the Restated Certificate).
2.14 Registration Rights. Except as provided in the First Amended
-------------------
and Restated Registration Rights Agreement, in the form of Exhibit E attached
---------
hereto (the "REGISTRATION RIGHTS AGREEMENT") to be entered into at or prior to
the Closing and except as provided in that certain August 29, 1995 Registration
Rights Agreement, as amended as of May 9, 1996, which is to be replaced and
superseded in its entirety by the Registration Rights Agreement, neither the
Company nor the Subsidiary has granted or agreed to grant to any person or
entity any rights (including piggyback registration rights) to have any
securities of the Company or the Subsidiary registered with the United States
Securities and Exchange Commission ("SEC") or any other governmental authority.
2.15 Title to Property and Assets. The properties and assets the
----------------------------
Company or the Subsidiary owns are owned by the Company or the Subsidiary,
respectively, free and clear of all mortgages, deeds of trust, liens,
encumbrances and security interests except for statutory liens for the payment
of current taxes that are not yet delinquent and liens, encumbrances and
security interests which arise in the ordinary course of business and which do
not materially affect properties and assets of the Company and the Subsidiary
taken as a whole. With respect to the property and assets they lease, the
Company and the Subsidiary each have a valid leasehold interest in such property
and assets and are in material compliance with such leases.
2.16 Financial Statements; Undisclosed Liabilities; No Material
----------------------------------------------------------
Adverse Changes.
---------------
(a) Financial Statements. Attached to this Agreement as Exhibit
-------------------- -------
F is an unaudited consolidated balance sheet of the Company dated June 30, 1996
- -
(the "BALANCE SHEET DATE") and an unaudited consolidated income statement of the
Company for the six-month period ended June 30, 1996 (such consolidated
financial statements being collectively referred to herein as the "FINANCIAL
STATEMENTS"). The Financial Statements (a) are in accordance with the books and
records of the Company, (b) are true, correct and complete and present fairly
the financial condition of the Company at the date or dates therein indicated
and the results of operations for the period or periods therein specified, and
(c) have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis, except for the omission of notes
thereto and normal year-end audit adjustments.
(b) No Material Undisclosed Liabilities. Neither the Company nor
-----------------------------------
the Subsidiary has any liability, contingent or otherwise, that is material to
the financial condition of the Company and the Subsidiary taken as a whole,
which is not reflected on or provided for in the Financial Statements, except as
set forth on the Schedule of Exceptions.
(c) No Material Adverse Changes. Since the Balance Sheet Date,
---------------------------
there has not been any event or change which materially and adversely affects
the financial condition of the Company and the Subsidiary taken as a whole,
except that, since the Balance Sheet Date, the Company has continued to incur
substantial expenses and operating losses in the ordinary course of its
business.
7
<PAGE>
2.17 Disclosure. The representations and warranties made by the
----------
Company in this Agreement, including the Exhibits hereto and the Schedule of
Exceptions (when read together), do not contain any untrue statement of a
material fact and do not omit to state a material fact necessary to make the
statements herein as a whole not misleading.
2.18 ERISA Plans. Neither the Company nor the Subsidiary has any
-----------
Employee Pension Benefit Plan as defined in Section 3 of the Employee Retirement
Income Security Act of 1974, as amended.
2.19 Tax Returns and Payments. The Company and the Subsidiary have
------------------------
timely filed all tax returns and reports required by law and have never been
audited by any state or federal taxing authority. All tax returns and reports
of the Company and the Subsidiary are true and correct in all material respects.
All taxes shown on such returns as due have been paid.
2.20 Labor Agreements and Actions. Neither the Company nor the
----------------------------
Subsidiary is bound by or subject to any contract, commitment or arrangement
with any labor union, and to the Company's best knowledge, no labor union has
requested, sought or attempted to represent any employees, representatives or
agents of the Company or the Subsidiary. There is no strike or other labor
dispute involving the Company or the Subsidiary pending nor, to the Company's
best knowledge, threatened, nor is the Company aware of any labor organization
activity involving its or the Subsidiary's employees. Neither the Company nor
the Subsidiary has committed any unfair labor practice.
2.21 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company or the Subsidiary is required in connection with the consummation of
the transactions contemplated by this Agreement, except for: (i) the filing of
------ ---
a Notice of Transaction pursuant to Section 25102(f) of the California Corporate
Securities Law of 1968, as amended, and the rules thereunder (the "CALIFORNIA
SECURITIES LAW"), which filing will be effected within the time prescribed by
law; (ii) such other qualifications or filings under the Securities Act and the
regulations thereunder and all other applicable securities laws as may be
required in connection with the transactions contemplated by this Agreement,
including, without limitation, filings under state "blue sky" securities laws in
connection with the conversion of the Purchased Shares and issuance of the
Conversion Shares; and (iii) any agreements between any Purchaser or its
affiliates and any local or municipal government related to the provision of
cable television services within a local area. All such qualifications and
filings will, in the case of qualifications, be effective on the Closing and
will, in the case of filings, be made within the time prescribed by law.
2.22 Actions Requiring Certain Pre-Closing Consents. No actions have
----------------------------------------------
been taken on or after June 4, 1996 and prior to the Closing by the Company or
the Subsidiary (other than adoption and approval of the Restated Certificate and
Restated Bylaws and the other Transaction Agreements) that, if taken after the
Closing, would have required the consent or approval of (a) either or both of
Comcast Sub and Cox Sub (as if the Closing had occurred and such Purchaser(s)
were then stockholders of the Company) or (b) the .Com Committee (as defined in
the Restated Certificate), unless such pre-Closing action was consented to or
approved by such of TCI Sub, the KPCB Purchasers, Comcast Sub and/or Cox Sub (or
their respective designees on the Company's Board of Directors) or by the .Com
Committee as would have been required had the Closing already occurred.
8
<PAGE>
2.23 Brokers or Finders. There is no investment banker, broker,
------------------
agent, financial advisor or other person or entity which has been retained by or
is authorized to act on behalf of the Company who is or will be entitled to any
fee, commission, reimbursement of expenses or other similar charge upon
consummation of or otherwise in connection with this Agreement or any of the
transactions contemplated hereby. The Company agrees to indemnify and hold each
of the Purchasers harmless from and against any and all claims, liabilities or
obligations with respect to any such fees, commissions, expenses or claims
(including the costs, expenses and legal fees of defending against such
liability) for which the Company or the Subsidiary, or any of the employees or
representatives thereof, is responsible.
2.24 Registration Rights Agreement. Subject to fulfillment of the
-----------------------------
applicable conditions to Closing, the Company agrees to enter into the
Registration Rights Agreement in the form attached hereto as Exhibit E at or
---------
prior to the Closing.
2.25 Stockholders' Agreement. Subject to fulfillment of the
-----------------------
applicable conditions to Closing, the Company agrees to enter into the Amended
and Restated Stockholders' Agreement in the form attached hereto as Exhibit G
---------
(the "STOCKHOLDERS' AGREEMENT") at or prior to the Closing.
2.26 Reasonable Efforts. The Company agrees to use its commercially
------------------
reasonable efforts to cause each condition to the Closing set forth in Sections
7 and 8 hereof, insofar as satisfaction of such condition requires any action by
or otherwise is in the control of the Company, to be satisfied as soon as
reasonably practicable and, in general, to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as reasonably practicable
the purchase and sale of the Purchased Shares in accordance with the terms of
this Agreement.
2.27 [Intentionally omitted]
2.28 Voting Agreements. In consideration of the purchase of the
-----------------
Purchased Shares by the Purchasers, the Company hereby covenants and agrees that
it will cause at any time and from time to time those officers and directors of
the Company holding not less than 50.1% of the outstanding shares of Series A
Common Stock (other than shares issued upon conversion of shares of Series A
Preferred, Series K Preferred, Series T Preferred, Series B Common Stock or
Series K Common Stock), to enter into a written agreement providing that with
respect to any matter upon which the separate vote of the holders of the
Company's Series A Common Stock is required under Section 242(b) of the Delaware
General Corporation law prior to the closing of the Company's initial public
offering of Series A Common Stock pursuant to a registration statement filed
with and declared effective by the SEC (the "COMPANY IPO"), each such individual
will cast all votes attributable to his shares in the same proportion as the
holders of the Company's outstanding shares of Series A, Series K and Series T
Preferred Stock cast their votes upon such matter, or, if there are no shares of
such Preferred Stock outstanding, in the same manner as the holders of the
Company's outstanding shares of Series B Common Stock cast their votes upon such
matter. Such agreements shall further provide that the obligations described in
this Section shall be binding on any transferee to whom the shares of Series A
Common Stock are transferred by such individual or any subsequent transferee and
that, as a condition of any transfer of the shares prior to the Company IPO,
such individual shall require any transferee, and any such transferee shall
require his transferee, to agree to be bound by the provisions of such agreement
in the same manner as such individual is bound.
9
<PAGE>
3. Representations, Warranties and Covenants of the Purchasers. Each
-----------------------------------------------------------
Purchaser, on behalf of itself and not jointly with the other Purchasers, hereby
represents and warrants to, and covenants with, the Company as follows:
3.1 Experience. Such Purchaser is experienced in evaluating start-
----------
up companies such as the Company, and has such knowledge and experience in
financial and business matters to enable such Purchaser to evaluate the merits
and risks of such Purchaser's prospective investment in the Company, and such
Purchaser has the ability to bear the economic risks of such investment.
3.2 Investment. Such Purchaser is acquiring the Purchased Shares and
----------
any Conversion Shares solely for the purpose of investment for such Purchaser's
own account, not as a nominee or agent, and not with a view to, or for offer or
sale in connection with, any distribution thereof in any transaction which would
be in violation of the securities laws of the United States of America or any
state thereof. Such Purchaser does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer or grant participation to any
third person with respect to any of the Purchased Shares or the Conversion
Shares. Such Purchaser understands that the Purchased Shares and the Conversion
Shares have not been registered under the Securities Act by reason of a specific
exemption from the registration provisions of the Securities Act which depends
upon, among other things, the bona fide nature of the investment intent as
expressed herein.
3.3 Accredited Purchaser Status. Such Purchaser is an "accredited
---------------------------
investor" within the meaning of Regulation D promulgated under the 1933 Act.
3.4 Restricted Securities. Such Purchaser understands that the
---------------------
Purchased Shares and any Conversion Shares may not be sold, transferred or
otherwise disposed of without registration under the Securities Act or the
availability of an exemption therefrom, and that in the absence of an effective
registration statement covering such stock or an available exemption from
registration, the Purchased Shares and any Conversion Shares must be held
indefinitely. In the absence of an effective registration statement under the
Securities Act with respect to the Purchased Shares or any Conversion Shares
such Purchaser shall notify the Company of any proposed disposition by such
Purchaser of any Purchased Shares or any Conversion Shares, shall furnish the
Company with a statement of the circumstances surrounding the proposed
disposition and, if reasonably requested by the Company, shall furnish the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require the registration of such Purchased Shares or
such Conversion Shares under the Securities Act. Such Purchaser shall not sell,
transfer or otherwise dispose of any Purchased Shares or any Conversion Shares
except in a manner fully consistent with its representations contained in this
Section 3 and otherwise in full compliance with the terms and conditions of this
Agreement and the Stockholders' Agreement and the provisions of applicable law.
Such Purchaser understands that no public market now exists for any of the
Purchased Shares and that the Company is under no obligation to register any of
the securities sold hereunder except as provided in the Registration Rights
Agreement.
3.5 Authorization. Such Purchaser is a corporation or partnership
-------------
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has full power and authority to execute,
deliver and perform its obligations under each of the Transaction Agreements to
which it is a party. Such Purchaser has taken all corporate or
10
<PAGE>
partnership action necessary to authorize the execution, delivery and
performance of its obligations under each of the Transaction Agreements to which
it is a party, and each such Transaction Agreement, when executed and delivered
by such Purchaser, assuming the due execution and delivery thereof by the other
parties hereto or thereto, shall constitute a valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, subject to: (i) judicial principles respecting election of remedies or
limiting the availability of specific performance, injunctive relief, and other
equitable remedies; and (ii) bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect generally relating to or
affecting creditors' rights.
3.6 Consents and Approvals; No Conflict. Except as set forth on
-----------------------------------
Schedule 3.6 and except as could not reasonably be expected, individually or in
the aggregate, to have a material adverse effect on such Purchaser, the
execution, delivery and performance of each of the Transaction Agreements to
which such Purchaser is a party and the consummation of each of the transactions
contemplated hereby or thereby do not and will not (a) conflict with or result
in a breach of the terms, conditions or provisions of, (b) constitute a default
under, (c) result in the creation of any lien, security interest, charge or
encumbrance upon any material properties or assets pursuant to, (d) give any
third party the right to accelerate any obligation under, (e) result in a
violation of, or (f) require any order, qualification, waiver, permit,
authorization, consent, approval, exemption or other action by or from, or any
registration, notice, declaration, application or filing to or with, any court
or administrative or governmental body pursuant to (i) the Certificate (or
Articles) of Incorporation, Bylaws, partnership agreement (or other governing
documents) of such Purchaser, (ii) any agreement to which such Purchaser is a
party or is bound or to which its assets are subject or (iii) any law, statute,
rule or regulation to which such Purchaser is subject; provided, however, that
-------- -------
with respect to clause (f) of this Section 3.6, no representation or warranty is
made as to any such requirements applicable to such Purchaser as a result of the
specific legal or regulatory status of any other party to this Agreement
(including without limitation any agreements between any Purchaser or its
affiliates and any local or municipal government related to the provision of
cable television services within a local area) or as a result of any other facts
that specifically relate to any such other party, any business in which any such
other party has engaged or proposes to engage or any financing arrangements or
transactions entered into or proposed to be entered into by or on behalf of any
such other party.
3.7 Disclosure of Information. Such Purchaser has received or has
-------------------------
had full access to all the information it considers necessary or appropriate to
make an informed investment decision with respect to the Purchased Shares to be
purchased by such Purchaser under this Agreement. Such Purchaser further has
had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Purchased Shares and
to obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to such Purchaser or to which such
Purchaser had access. The foregoing, however, does not in any way limit or
modify the representations and warranties made by the Company in Section 2.
3.8 Information Concerning Purchaser. Exhibit I hereto sets forth
-------------------------------- ---------
such Purchaser's jurisdiction of organization, the location of said Purchaser's
principal office and the jurisdiction in which such Purchaser will accept the
Company's offer to sell the Purchased Shares and will purchase the Purchased
Shares. Exhibit J also sets forth for each Purchaser (i) the
---------
11
<PAGE>
Purchaser's Parent and Ultimate Parent (each as defined in the Stockholders'
Agreement), (ii) if applicable, the Purchaser's Cable Parent (as defined in the
Stockholders' Agreement) and (iii) the ownership relationship among the
Purchaser, its Parent, its Ultimate Parent and its Cable Parent, if any.
3.9 Brokers or Finders. There is no investment banker, broker,
------------------
agent, financial advisor or other person or entity which has been retained by or
is authorized to act on behalf of such Purchaser who is or will be entitled to
any fee, commission, reimbursement of expenses or other similar charge upon
consummation of or otherwise in connection with this Agreement or any of the
transactions contemplated hereby. Such Purchaser agrees to indemnify and hold
harmless the Company from and against any and all claims, liabilities or
obligations with respect to any such fees, commissions, expenses or claims
(including the costs, expenses and legal fees of defending against such
liability) for which such Purchaser, or any of its partners, employees or
representatives, is responsible.
3.10 Registration Rights Agreement. Subject to fulfillment of the
-----------------------------
applicable conditions to Closing, such Purchaser agrees to enter into the
Registration Rights Agreement in the form attached hereto as Exhibit E at or
---------
prior to the Closing.
3.11 Stockholders' Agreement. Subject to fulfillment of the
-----------------------
applicable conditions to Closing, such Purchaser agrees to enter into the
Stockholders' Agreement in the form attached hereto as Exhibit G at or prior to
---------
the Closing.
3.12 Reasonable Efforts. Such Purchaser agrees to use its
------------------
commercially reasonable efforts to cause each condition to the Closing set forth
in Section 9 hereof, insofar as satisfaction of such condition requires any
action by or otherwise is in the control of such Purchaser, to be satisfied as
soon as reasonably practicable and, in general, to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as reasonably practicable
the purchase and sale of the Purchased Shares in accordance with the terms of
this Agreement.
4. Additional Representation of the KPCB Purchasers. Each KPCB Purchaser
------------------------------------------------
represents and warrants that KPCB VII Associates, a California limited
partnership (the "KPCB PARTNER"), is a general partner of each of the KPCB
Purchasers that is a partnership and that each of L. John Doerr and William
Randolph Hearst III is a general partner of the KPCB Partner.
5. Legends; Notations. The certificates evidencing the Purchased Shares
------------------
or any Conversion Shares shall be endorsed with the legends set forth below:
(a) a conspicuously noted legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANS FERRED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY, SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER
12
<PAGE>
DISPOSITION IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH THE
ACT AND SUCH LAWS";
(b) any legend required by any applicable state securities law;
and
(c) a conspicuously noted legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THAT
CERTAIN STOCKHOLDERS' AGREEMENT AND THAT CERTAIN STOCK PURCHASE AND EXCHANGE
AGREEMENT, EACH DATED AS OF AUGUST 1, 1996 AMONG THE COMPANY AND THE OTHER
PARTIES THERETO CONTAINING, AMONG OTHER THINGS, RESTRICTIONS ON THE SALE,
TRANSFER OR OTHER DISPOSITION OF SUCH SECURITIES AND RESTRICTIONS UPON AND
COMMITMENTS TO VOTE ON CERTAIN MATTERS. A COUNTERPART OF EACH SUCH AGREEMENT
HAS BEEN DEPOSITED WITH THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS, AND THE
COMPANY SHALL FURNISH A COPY OF EACH SUCH AGREEMENT TO THE RECORD HOLDER HEREOF
WITHOUT CHARGE UPON WRITTEN REQUEST."
The Company shall make a notation on its stock books regarding the
restrictions on transfer of the Purchased Shares and any Conversion Shares and
will transfer securities on the books of the Company only to the extent not
inconsistent therewith.
6. Hart-Scott-Rodino Act. If any Purchaser reasonably believes that its
---------------------
conversion of the Purchased Shares would be subject to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the rules and regulations thereunder (the
"HSR ACT AND RULES") prior to such conversion and following such Purchaser's
notice to the Company of such Purchaser's intention to convert, the Company and
such Purchaser shall promptly comply with any applicable requirements under the
HSR Act and Rules relating to filing and furnishing of information (the "HSR
REPORT") to the Federal Trade Commission (the "FTC") and the Antitrust Division
of the Department of Justice. Without limiting the foregoing, such Purchaser
and the Company shall file the HSR Report and take all other action required by
the HSR Act and Rules and shall use their respective commercially reasonable
efforts to (a) coordinate with respect to the filing of the HSR Reports of such
Purchaser and the Company (and exchanging drafts thereof), so as to present all
required HSR Reports to the FTC and the Department of Justice at the time
selected by such Purchaser, and to avoid substantial errors or inconsistencies
among such HSR Reports in the description of the transaction, (b) comply with
any additional request for documents or information made by the FTC or the
Department of Justice or by a court and to assist the other parties to so comply
and (c) cause all persons which are part of the same "person" (as defined for
purposes of the HSR Act and Rules) as the Company to cooperate and assist in
such filing and compliance. Each of the Company and such Purchaser shall bear
and pay any costs or expenses that it incurs in complying with this Section 6.
7. Conditions to the Purchasers' Obligations at Closing. The obligation
----------------------------------------------------
of each Purchaser to purchase and/or acquire Purchased Shares at the Closing is
several and not joint and such obligation is subject to the satisfaction, at or
prior to the Closing, of each of the following conditions, any of which may be
waived by a Purchaser by written notice to the Company pursuant to Section 10.6
of this Agreement, but any such waiver shall not be effective against a
Purchaser unless consented to by such Purchaser:
13
<PAGE>
7.1 Correctness of Representations and Warranties. The
---------------------------------------------
representations and warranties of the Company set forth in this Agreement shall,
if specifically qualified by materiality, be true and correct and, if not so
qualified, be true and correct in all material respects in each case as of the
date of this Agreement and as of the Closing Date with the same effect as if
made on and as of the Closing Date, and such Purchaser shall have received a
certificate to such effect from the Company, signed by its duly authorized
officer.
7.2 Performance of Agreements. Each other party to this Agreement
-------------------------
shall have performed and complied with all agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied with by it on or before the Closing Date, and such Purchaser shall have
received a certificate to such effect from each such party, signed by its duly
authorized officer.
7.3 Restated Certificate. The Restated Certificate shall have been
--------------------
duly adopted by the Company by all necessary corporate action of its Board of
Directors and stockholders, and shall have been duly filed with and accepted by
the Secretary of State of the State of Delaware and shall be in full force and
effect under the DGCL.
7.4 Restated Bylaws. The Restated Bylaws shall have been duly
---------------
adopted by the Company by all necessary corporate action of its Board of
Directors and stockholders and shall be in full force and effect under the DGCL.
7.5 Securities Exemption. The offer and sale of the Purchased
--------------------
Shares to the Purchasers pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act, the qualification requirements
of the California Securities Law and the registration and/or qualification
requirements of all other applicable state securities laws.
7.6 No Material Litigation. There shall not be pending on the
----------------------
Closing Date any lawsuit, claim, proceeding or other legal action by or before
any court or other regulatory, administrative or governmental authority that
seeks to restrain, restrict or prohibit or impose substantial penalties or
damages with respect to (or any other materially adverse relief or remedy in
connection with), and there shall not be in effect on the Closing Date any
injunction or other order of any governmental authority or arbitration panel
that restrains, restricts, prohibits or imposes substantial penalties or damages
with respect to (or any other materially adverse relief or remedy in connection
with), the consummation of any of the transactions contemplated hereby or by any
of the other Transaction Agreements.
7.7 Government Approvals and Consents. All governmental consents
---------------------------------
required in connection with the consummation of the transactions contemplated by
this Agreement shall have been obtained and shall be in full force and effect
and all governmental filings required in connection with the consummation of the
transactions contemplated by this Agreement shall have been made, and all
waiting periods, if any, applicable to the consummation of such transactions
imposed by any governmental entity shall have expired, other than those which,
if not obtained, in force or effect, made or expired (as the case may be) would
not, whether individually or in the aggregate, have a material adverse effect on
the transactions contemplated by this Agreement.
7.8 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated hereby at the Closing, and all
documents and
14
<PAGE>
instruments incident to these transactions, shall be reasonably satisfactory in
substance to such Purchaser and its counsel and each Purchaser shall have
received all such counterpart originals and certified or other copies of such
documents as such Purchaser may reasonably request. Such documents shall include
(but not be limited to) the following:
(a) Certified Charter Documents. A copy of the Restated
---------------------------
Certificate and the Restated Bylaws of the Company (as amended through the date
of the Closing), certified by the Secretary of the Company as true and correct
copies thereof as of the Closing.
(b) Corporate Actions. A copy of the resolutions of the Board
-----------------
of Directors and the stockholders of the Company evidencing the adoption and
approval of the Restated Certificate and the Restated Bylaws, the authorization
of issuance and sale of the Purchased Shares, the approval of this Agreement and
the other Transaction Agreements, and the other matters contemplated hereby and
thereby.
(c) Good Standing Certificates. Certificates of corporate
--------------------------
standing issued by the Secretary of State of the States of California and
Delaware.
7.9 Board of Directors. At the Closing, the authorized number of
------------------
directors of the Company shall be nine, and the holders of each series of
Convertible Preferred Stock shall have the right to elect its director by
executing the written consent of stockholders in substantially the form attached
hereto as Exhibit K.
---------
7.10 Opinion of Company Counsel. Each Purchaser shall have received
--------------------------
an opinion from Fenwick & West LLP, counsel for the Company, dated as of the
date of the Closing, in the form attached hereto as Exhibit H-1 and an opinion
-----------
from Richards, Layton & Finger, P.A., special counsel to the Company in
Delaware, dated as of the date of the Closing, in the form attached hereto as
Exhibit H-2.
- -----------
7.11 Stockholders' Agreement. The Company and each Purchaser (other
-----------------------
than the Purchaser whose obligation to perform is dependent upon satisfaction of
such condition) shall have executed and delivered the Stockholders' Agreement.
7.12 Registration Rights Agreement. The Company and each Purchaser
-----------------------------
(other than the Purchaser whose obligation to perform is dependent upon
satisfaction of such condition) shall have executed and delivered the
Registration Rights Agreement.
7.13 Other. Each Purchaser shall be reasonably satisfied that all
-----
conditions to (a) the other Purchasers' obligation to purchase and pay for the
Purchased Shares to be purchased by such other Purchasers, and (b) the Company's
obligation to sell the Purchased Shares to be sold to the other Purchasers,
shall have been satisfied or waived.
7.14 Simultaneous Closing. All Purchasers shall perform all of their
--------------------
respective covenants and obligations required to be performed under this
Agreement on or before the Closing and shall purchase and pay for the respective
Purchased Shares to be purchased by each Purchaser simultaneously with the
purchase of and payment for the Purchased Shares to be purchased by the other
Purchasers.
15
<PAGE>
7.15 Delivery of Stock Certificates. The Company shall have
------------------------------
delivered to each Purchaser the stock certificate specified for such Purchaser
in Section 1.1 and/or Section 1.2.
8. Condition to Obligations of Comcast Sub and Cox Sub at Closing;
---------------------------------------------------------------
Covenants of TCI Sub and the KPCB Purchasers. Comcast Sub and Cox Sub hereby
- --------------------------------------------
consent to and approve each of the actions set forth in Section 2.22 of the
Schedule of Exceptions. On or before the Closing, any preemptive rights, rights
of first refusal and other rights (including but not limited to, the right to
receive notice of the transactions contemplated by this Agreement) of TCI Sub,
and the KPCB Partner and the KPCB Purchasers, and their respective Stockholder
Groups (as defined in the Stockholders' Agreement) under the Stockholders'
Agreement, dated as of August 29, 1995, among the Company, the KPCB Partner, the
KPCB Purchasers, and TCI Sub, as amended as of May 9, 1996, or otherwise, shall
have been waived as and to the extent such rights apply to the TCI Exchange and
the issuance and sale of the Purchased Shares and the Conversion Shares
hereunder and the other transactions contemplated hereby.
9. Conditions to the Company's Obligations at Closing. The obligations
--------------------------------------------------
of the Company to issue and sell the Purchased Shares to the Purchasers at the
Closing is subject to the satisfaction, at or prior to the Closing, of each of
the following conditions:
9.1 Correctness of Representations and Warranties. The
---------------------------------------------
representations and warranties of the Purchasers contained in this Agreement
shall, if specifically qualified by materiality, be true and correct and, if not
so qualified, be true and correct in all material respects in each case as of
the date of this Agreement and as of the Closing Date with the same effect as if
made on and as of the Closing Date, and the Company shall have received a
certificate to such effect from each Purchaser, signed by its duly authorized
officer.
9.2 Performance of Agreements. The Purchasers shall have
-------------------------
performed and complied with all covenants, agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied with by them on or before the Closing Date, and the Company shall have
received a certificate to such effect from each Purchaser, signed by its duly
authorized officer.
9.3 No Material Litigation. There shall not be pending on the
----------------------
Closing Date any lawsuit, claim, proceeding or other legal action by or before
any court or other regulatory, administrative or governmental authority that
seeks to restrain, restrict or prohibit or impose substantial penalties or
damages with respect to (or any other materially adverse relief or remedy in
connection with), and there shall not be in effect on the Closing Date any
injunction or other order of any governmental authority or arbitration panel
that restrains, restricts, prohibits or imposes substantial penalties or damages
with respect to (or any other materially adverse relief or remedy in connection
with), the consummation of any of the transactions contemplated hereby or by any
of the other Transaction Agreements.
9.4 Restated Certificate. The Restated Certificate shall have
--------------------
been duly adopted by the Company by all necessary corporate action of its Board
of Directors and stockholders and shall have been duly filed with and accepted
by the Secretary of State of the State of Delaware and shall be in full force
and effect under the DGCL.
16
<PAGE>
9.5 Restated Bylaws. The Restated Bylaws shall have been duly
---------------
adopted by the Company by all necessary corporate action of its Board of
Directors and stockholders and shall be in full force and effect under the DGCL.
9.6 Securities Exemption. The offer and sale of the Purchased
--------------------
Shares to the Purchasers pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act, the qualification requirements
of the California Securities Law and the registration and/or qualification
requirements of all other applicable state securities laws, provided that the
Company shall be obligated to use its commercially reasonable efforts to make
all filings and take all such other actions required to perfect such exemptions.
9.7 Government Approvals and Consents. All governmental
---------------------------------
consents required in connection with the consummation of the transactions
contemplated by this Agreement shall have been obtained and shall be in full
force and effect and all governmental filings required in connection with the
consummation of the transactions contemplated by this Agreement shall have been
made, and all waiting periods, if any, applicable to the consummation of such
transactions imposed by any governmental entity shall have expired, other than
those which, if not obtained, in force or effect, made or expired (as the case
may be) would not, whether individually or in the aggregate, have a material
adverse effect on the transactions contemplated by this Agreement.
9.8 Proceedings and Documents. All corporate and other
-------------------------
proceedings in connection with the transactions contemplated hereby at the
Closing, and all documents and instruments incident to these transactions, shall
be reasonably satisfactory in substance to the Company and its counsel and they
shall each have received all such counterpart originals and certified or other
copies of such documents as they may reasonably request.
9.9 Stockholders' Agreement. The Stockholders' Agreement shall
-----------------------
have been duly executed and delivered by each party thereto other than the
Company.
9.10 Registration Rights Agreement. The Registration Rights
-----------------------------
Agreement shall have been duly executed and delivered by each party thereto
other than the Company.
9.11 Simultaneous Closing. All Purchasers shall perform all of
--------------------
their respective covenants and obligations required to be performed under this
Agreement on or before the Closing and shall purchase and pay for the respective
Purchased Shares to be purchased by each such Purchaser simultaneously with the
purchase of and payment for the Purchased Shares to be purchased by the other
Purchasers.
9.12 Payment of Purchase Price. Each Purchaser shall have
-------------------------
delivered to the Company the purchase price specified for such Purchaser in
Section 1.1 and TCI Sub shall have delivered the consideration described in
Section 1.2 with respect to the TCI Exchange.
10. Miscellaneous.
-------------
10.1 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, in all respects the laws of the State of Delaware,
without regard to the conflicts of law rules of such State.
17
<PAGE>
10.2 Survival. The representations and warranties made herein
--------
shall survive any investigation made by any Purchaser and the closing of the
transactions contemplated hereby for a period of fifteen (15) months after the
Closing.
10.3 Successors and Assigns. Neither this Agreement nor any of
----------------------
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of each of the other parties hereto. Any assignment or
delegation in contravention of this Agreement shall be void and shall not
relieve the assigning or delegating party of any obligation hereunder. Subject
to the foregoing provisions of this Section 10.3, this Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns.
10.4 Limitation on Rights of Others. Nothing in this Agreement,
------------------------------
whether express or implied, shall be construed to give any person, other than
the parties hereto, any legal or equitable right, remedy or claim under or in
respect of this Agreement.
10.5 Entire Agreement; Amendment. This Agreement and the other
---------------------------
Transaction Agreements supersede the provisions of the Term Sheet except as
specified in the Stockholders' Agreement. This Agreement, the other Transaction
Agreements and the other documents delivered pursuant hereto, constitute the
full and entire understanding and agreement among the parties with regard to the
subjects hereof and thereof and supersede all prior agreements and
understandings, both written and oral, among the parties with regard to the
subject matter hereof. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
10.6 Notices, Etc. All notices and other communications required
------------
or permitted to be given by any provision of this Agreement shall be in writing
and mailed (certified or registered mail, postage prepaid, return receipt
requested) or sent by hand or overnight courier, or by facsimile transmission
(with acknowledgment received), charges prepaid and addressed to the intended
recipient as follows, or to such other address or number as may be specified
from time to time by like notice to the parties:
(a) If to TCI Sub:
-------------
TCI Internet Holdings, Inc.
5750 DTC Parkway
Englewood, CO 80111
Telecopy: (303) 712-5707
Attention: Bruce W. Ravenel
President
with copies to:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022
Telecopy: (212) 705-5125
Attention: Frederick H. McGrath, Esq.
18
<PAGE>
(b) If to the KPCB Purchasers:
-------------------------
Kleiner Perkins Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025
Telecopy: (415) 233-0323
Attention: L. John Doerr
with copies to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Telecopy: (415) 496-4092
Attention: Allen Morgan, Esq.
(c) If to Comcast Sub:
-----------------
Comcast PC Investments, Inc.
1105 North Market Street
Suite 1219
Wilmington, DE 19801
Telecopy: (302) 427-7664
Attention: General Counsel
with copies to:
Comcast Corporation
1500 Market Street
Philadelphia, PA 19102-2148
Telecopy: (215) 981-7794
Attention: Robert S. Pick,
Vice President
and to:
Wolf, Block, Schorr and Solis-Cohen
Packard Building, 7th Floor
15th and Chestnut Streets
Philadelphia, PA 19012
Telecopy: (215) 977-2334
Attention: Jason M. Shargel, Esq.
19
<PAGE>
(d) If to Cox Sub:
-------------
Cox Teleport Providence, Inc.
c/o: Cox Communications, Inc.
1400 Lake Hearn Drive, NE
Atlanta, GA 30319
Telecopy: (404) 843-6352
Attention: David M. Woodrow
Senior Vice President
with copies to:
Dow Lohnes & Albertson P.L.L.C.
1200 New Hampshire Ave., N.W.
Suite 800
Washington, D.C. 20036
Telecopy: (202) 776-2222
Attention: Stuart A. Sheldon, Esq.
(e) If to the Company:
-----------------
At Home Corporation
385 Ravendale Drive
Mountain View, CA 94043
Telecopy: (415) 944-8500
Attention: David G. Pine, Esq.
with copies to:
Fenwick & West LLP
Two Palo Alto Square
Suite 800
Palo Alto, CA 94306
Telecopy: (415) 494-1417
Attention: Gordon K. Davidson, Esq.
Any party may from time to time specify a different address for notices by like
notice to the other parties. All notices and other communications given in
accordance with the provisions of this Agreement shall be deemed to have been
given and received (i) four (4) business days after the same are sent by
certified or registered mail, postage prepaid, return receipt requested, (ii)
when delivered by hand or transmitted by facsimile (with acknowledgment received
and, in the case of a facsimile only, a copy of such notice is sent no later
than the next business day by a reliable overnight courier service, with
acknowledgment of receipt) or (iii) one (1) business day after the same are sent
by a reliable overnight courier service, with acknowledgment of receipt.
10.7 Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy accruing to any party upon any breach or default of any
other party under this Agreement shall impair any such right, power or remedy of
such first party, nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any
20
<PAGE>
similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any party of any breach or default under
this Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing or as provided in this
Agreement. All remedies, either under this Agreement or by law or otherwise
afforded to any party, shall be cumulative and not alternative.
10.8 Expenses. Each of the Company and each Purchaser shall bear
--------
its own expenses and legal fees incurred on its behalf in connection with this
Agreement and the transactions contemplated hereby.
10.9 Counterparts. This Agreement may be executed in any number
------------
of counterparts with the same effect as if all parties hereto had signed the
same document. Each counterpart shall be enforceable against the parties
actually executing such counterpart, and all counterparts shall be construed
together and shall constitute one instrument.
10.10 Severability. In the event that any provision of this
------------
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
10.11 Obligations Several, Not Joint. Each Purchaser shall be (i)
------------------------------
obligated hereunder only with respect to the purchase of the number and kind of
Purchased Shares set forth in Section 1 of this Agreement, and no Purchaser
shall have any liability with respect to any other Purchaser's obligations
hereunder and (ii) separately and independently entitled to rely on the
representations and warranties of the other Purchasers and the Company made to
such Purchaser in this Agreement and to the benefit of all covenants and
agreements of the other Purchasers and the Company made with such Purchaser
herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
21
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
AT HOME CORPORATION
By: /s/ THOMAS A. JERMOLUK
-------------------------------------------
Name:THOMAS A JERMOLUK
Title: PRESIDENT AND CEO
TCI INTERNET HOLDINGS, INC.
By: /s/ B. RAVENEL
-------------------------------------------
Name:BRUCE W. RAVENEL
Title:PRESIDENT AND CEO
COMCAST PC INVESTMENTS, INC.
By: /s/ ARTHUR R. BLOCK
-------------------------------------------
Name: ARTHUR R. BLOCK
Title: VICE PRESIDENT
COX TELEPORT PROVIDENCE, INC.
By: /s/ DAVID M. WOODROW
-------------------------------------------
Name: DAVID M WOODROW
Title: PRES.
KLEINER, PERKINS, CAUFIELD & BYERS VII
By: KPCB VII ASSOCIATES,
its General Partner
By: /s/ L. JOHN DOERR
-------------------------------------------
Name: L. JOHN DOERR
Title: GENERAL PARTNER
KPCB INFORMATION SCIENCES ZAIBATSU FUND II
By: KPCB VII ASSOCIATES,
its General Partner
By: /s/ L. JOHN DOERR
-------------------------------------------
Name: L. JOHN DOERR
Title: GENERAL PARTNER
[SIGNATURE PAGE TO STOCK PURCHASE AND EXCHANGE AGREEMENT]
22
<PAGE>
/s/ JAMES CLARKE
-----------------------------------------
James Clark
[SIGNATURE PAGE TO STOCK PURCHASE AND EXCHANGE AGREEMENT]
23
<PAGE>
CERTIFICATE OF RETIREMENT
OF
SERIES T PREFERRED STOCK
OF
AT HOME CORPORATION
(PURSUANT TO SECTION 243(B) OF THE DELAWARE GENERAL CORPORATION LAW)
At Home Corporation, a Delaware corporation (the "Company"), hereby
certifies:
1. That the Board of Directors of the Company has duly adopted a
resolution retiring the following shares of capital stock of the Company which
are no longer outstanding:
770,000 shares of Series T Convertible Participating Preferred Stock,
par value of $0.01 per share.
2. That the Second Amended and Restated Certificate of Incorporation
("Restated Certificate") of the Company prohibits the reissuance of the shares
of Preferred Stock so retired; and pursuant to the provisions of Section 243 of
the Delaware General Corporation Law, upon the effective date of filing of this
certificate, the Certificate of Incorporation of the Company shall be amended so
as to effect a reduction in the authorized number of shares of the Company's
capital stock to the extent of 770,000 shares of Series T Preferred Stock so
that the total number of authorized shares of Series T Preferred Stock is
770,000 and the total number of authorized shares of Preferred Stock is
14,522,613.
Capitalized terms used herein and not defined herein shall have the
definitions set forth in the Restated Certificate.
IN WITNESS WHEREOF, said corporation has caused this Certificate of
Retirement to be signed by its duly authorized officer this 2nd day of
---
August, 1996.
At Home Corporation
By: /s/ Thomas A. Jermoluk
---------------------------
Thomas A. Jermoluk, President
<PAGE>
EXHIBIT I
INFORMATION CONCERNING PURCHASERS
<TABLE>
<CAPTION>
JURISDICTION IN
WHICH PURCHASER
WILL ACCEPT THE
LOCATION OF COMPANY'S OFFER TO
JURISDICTION OF PURCHASER'S PRINCIPAL SELL THE PURCHASED NUMBER OF SHARES
PURCHASER ORGANIZATION OFFICE SHARES PURCHASED
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Comcast PC Investments, Inc. Delaware Delaware Delaware 727,865 shares of Series AM
Preferred Stock
Cox Teleport Providence, Inc. Delaware Georgia Georgia 727,865 shares of Series AX
Preferred Stock
Kleiner, Perkins, Caufield & California California California 179,286 shares of Series K
Byers VII Preferred Stock
KPCB Information Sciences California California California 4,597 shares of Series K
Zaibatsu Fund II Preferred Stock
James Clark California California California 50,000 shares of Series K
Preferred Stock
TCI Internet Holdings, Inc. Colorado Colorado Colorado 783,000 shares of Series AT
Preferred Stock for
cash; and
770,000 shares of Series AT
Preferred Stock in
the Exchange
</TABLE>
<PAGE>
EXHIBIT J
PURCHASERS' AFFILIATES
<TABLE>
<CAPTION>
CABLE PARENT RELATIONSHIPS TO
PURCHASER (IF APPLICABLE) PARENT ULTIMATE PARENT PURCHASER
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Comcast PC Investments, Comcast Cable Comcast Corporation, a Comcast Comcast Cable and
Inc., a Delaware Communications, Inc., a Pennsylvania corporation Comcast On-Line
corporation ("COMCAST Delaware corporation ("COMCAST") directly own 0% and
SUB") ("COMCAST CABLE") and 100%, respectively, of
Comcast On-Line the voting equity
Communications, Inc., a securities of Comcast
Delaware corporation Sub. Comcast directly
("COMCAST ON-LINE") owns 100% and 100% of
(collectively being a the voting equity
single Cable Parent) securities of Comcast
Cable and Comcast
On-Line, respectively.
Cox Teleport Providence, Cox Communications, CCI Cox Enterprises, CCI directly owns 100%
Inc., a Delaware Inc., a Delaware Inc., a Delaware of the voting equity
corporation ("COX SUB") corporation ("CCI") corporation ("CEI") securities of Cox Sub.
CEI indirectly owns
through three
susbsidiaries 75.3% of
the voting equity
securities of CCI.
Kleiner, Perkins, Caufield N/A KPCB VII Associates, a N/A KPCB is the general
& Byers VII California partnership partner of the
("KPCB") Purchaser.
KPCB Information Sciences N/A KPCB N/A KPCB is the general
Zaibatsu Fund II partner of the
Purchaser.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
James Clark N/A N/A N/A N/A
TCI Internet Holdings, TCI Internet Services, Tele-Communications, Inc., TCI TCI Services, TCI
Inc., a Colorado Inc., a Colorado a Delaware corporation Communications and TCI
corporation (formerly corporation ("TCI ("TCI") Investments directly
named TCI Internet SERVICES"); TCI own 100%, 0% and 0%,
Services, Inc.) ("TCI Communications, Inc., a respectively, of the
SUB") Delaware corporation voting equity
("TCI COMMUNICATIONS"); securities of TCI Sub.
and TCI Cable TCI directly owns 100%
Investments, Inc., a and 100% of the voting
Delaware corporation equity securities of
("TCI INVESTMENTS") TCI Services and TCI
(collectively being a Investments,
single Cable Parent) respectively. TCI
owns 100% of the
outstanding common
stock of TCI
Communications, and
third parties own
preferred stock of TCI
Communications, which
preferred stock is
exchangeable into
stock of TCI and not
of TCI Communications.
</TABLE>
<PAGE>
EXHIBIT 10.04
AT HOME CORPORATION
385 RAVENDALE DRIVE
MOUNTAIN VIEW, CA 94043
June 4, 1996
To: The Persons Signatory hereto
Reference is made to the Term Sheet attached hereto regarding, among
other things the equity securities of At Home Corporation ("@Home"), the
stockholders agreement among us and certain arrangements relating to the
distribution of the @Home services, all as more fully described in the Term
Sheet.
The Term Sheet contemplates that the agreements contained therein will be
superseded by definitive agreements and instruments which will contain
provisions incorporating and expanding upon the agreements set forth therein,
together with other provisions customary in the case of transactions of this
type, and such other provisions as are reasonable and appropriate in the context
of the transactions contemplated hereby. Notwithstanding the foregoing, the
parties expressly acknowledge and agree that the Term Sheet and this letter will
constitute a binding agreement among them, subject to the terms and conditions
set forth in this letter agreement and the Term Sheet, until such definitive
agreements are executed and delivered. If such definitive agreements are not
executed and delivered within 60 days from the date of this letter agreement,
then the Term Sheet and this letter agreement shall constitute such definitive
agreements. Each party hereto shall use commercially reasonable efforts to
consummate the transactions contemplated by the Term Sheet, including, without
limitation, the satisfaction of the respective conditions to the parties'
obligations to consummate such transactions and the completion of such
definitive agreements. Notwithstanding the foregoing, this letter agreement and
the Term Sheet and the respective obligations of the parties hereunder shall
terminate in the event that the Additional Investors (as defined in the Term
Sheet) shall not have purchased shares hereunder on or before August 15, 1996,
but such termination shall not in any way limit or restrict the right of any
party hereto to pursue any and all of its remedies against any party hereto
which fails to perform any of its obligations or commitments under this letter
agreement or the Term Sheet.
This letter agreement and the Term Sheet attached hereto, shall be
governed by and construed in accordance with the laws of the State of New York
(without regard to its laws pertaining to conflicts of law) applicable to
agreements executed in and to be fully performed entirely in such state.
<PAGE>
June 4, 1996
If the foregoing is acceptable to you, please execute the copy of this
agreement in the space below, at which time this instrument will constitute a
binding agreement among us.
Very truly yours,
AT HOME CORPORATION
By: /s/ William R. Hearst, III
--------------------------
Name: William R. Hearst, III
Title: President
2
<PAGE>
June 4, 1996
ACCEPTED AND AGREED
this 4th day of June, 1996
Each of the following executes this letter agreement only in its capacity
as a Stockholder (as defined in the Term Sheet):
TCI INTERNET HOLDINGS, INC. COX TELEPORT PROVIDENCE, INC.
By: /s/Bruce W. Ravenel By: /s/David M. Woodrow
--------------------------------- ---------------------------
Name: Bruce W. Ravenel Name: David M. Woodrow
Title: President and Chief Executive Officer Title: Vice President
COMCAST PC INVESTMENTS, INC. KLEINER, PERKINS, CAUFIELD
& BYERS VII
By: KPCB VII Associates, its
General Partner
By: /s/ Brian L. Roberts By: /s/ L. John Doerr
--------------------------------- ---------------------------
Name: Brian L. Roberts Name: L. John Doerr
Title: President Title: Partner
KPCB VII FOUNDERS FUND KPCB INFORMATION SERVICES
ZAIBATSU FUND II
By: KPCB VII Associates, By: KPCB VII Associates,
its General Partner its General Partner
By: /s/ L. John Doerr By: /s/ L. John Doerr
--------------------------------- ---------------------------
Name: L. John Doerr Name: L. John Doerr
Title: Partner Title: Partner
3
<PAGE>
June 4, 1996
ACCEPTED AND AGREED
this 4th day of June, 1996
Each of the following executes this letter agreement only in its capacity
as a Cable Parent (as defined in the Term Sheet):
TCI INTERNET SERVICES, INC. TCI COMMUNICATIONS, INC.
By: /s/ Bruce W. Ravenel By: /s/ Brendan R. Clouston
--------------------------------- ---------------------------
Name: Bruce W. Ravenel Name: Brendan R. Clouston
Title: President and Chief Title: President and Chief
Executive Officer Executive Officer
TCI CABLE INVESTMENTS INC. COMCAST CABLE COMMUNICATIONS, INC.
By: /s/ Brendan R. Clouston By: /s/ Brian L. Roberts
--------------------------------- ---------------------------
Name: Brendan R. Clouston Name: Brian L. Roberts
Title: President Title: Vice Chairman
COX COMMUNICATIONS, INC.
By: /s/ David M. Woodrow
---------------------------------
Name: David M. Woodrow
Title: Senior Vice President
4
<PAGE>
EXHIBIT 10.04
AT HOME CORPORATION
TERM SHEET
JUNE 4, 1996
I. GENERAL.
-------
ISSUER: At Home Corporation ("@Home"), a Delaware corporation, the
stockholders of which are TCI Internet Holdings, Inc., a
Colorado corporation ("TCI Sub") and an indirect wholly
owned subsidiary of Tele-Communications, Inc. ("TCI"), and
certain affiliates of Kleiner, Perkins, Caufield & Byers, a
California partnership ("KPCB"). The affiliates (each of
which is a partnership of which KPCB VII Associates, a
California limited partnership, is the general partner) of
KPCB which purchased shares of @Home are hereinafter
referred to collectively as the "KPCB Affiliates" and TCI
Sub and the KPCB Affiliates are hereinafter referred to
collectively as the "Founders."
BUSINESS: @Home was formed primarily to engage in the business of
providing Internet connectivity service and Internet
"backbone" service. It is contemplated that such services
would include (without limitation) (i) direct connectivity
to the Internet through the development, packaging,
marketing and distribution of a suite of branded Internet
connectivity services and certain branded applications,
including one or more custom browsers, for use by
subscribers and information providers, together with
connections to various on-line hosting services (such as
America Online, Prodigy, CompuServe and The Microsoft
Network) and information providers, both in the United
States and internationally (in countries where @Home is
capable of providing such service), (ii) directory services
and navigation services to content created by third parties,
provided, however, that it is not contemplated that @Home
-------- -------
would itself be a creator of content (other than with
respect to content created as part of @Home's navigation
services (such as the "video barker" and "templates" for the
creation of navigation home pages), the aggregation and
organization of content created by third parties and
technological assistance to such third party creators), and
(iii) systems for (a) "backbone" transmission, (b) network
management, and (c) billing and associated support functions
(collectively, the "@Home Services"). The @Home Services
will be provided over cable, telephone or other wireline or
wireless delivery systems which would be accessible by
subscribers through personal computers and similar
electronic devices (such as PDAs), set-top boxes, dedicated
game platforms and other network termination devices.
FINANCING: It is presently intended that @Home would commence business
as a private company and initially finance its operations
through strategic
<PAGE>
investment by third parties and internally generated working
capital. At the earliest appropriate time (as determined by
the Board of Directors based upon, among other things,
market conditions and @Home's financing requirements), it is
anticipated that @Home would make an initial public offering
("IPO") of its Series A Common Stock and that the Series A
Common Stock would thereafter be listed and traded on a
national securities market.
II. PURCHASE OF SHARES.
------------------
CAPITALIZATION:/*/ Series A Common Stock: 75,000,000 shares authorized; no
shares issued and outstanding.
Series B Common Stock: 7,700,000 shares authorized; no
shares issued and outstanding.
Convertible Participating Preferred Stock, Series K (the
"Series K Preferred Stock"): 693,883 shares authorized;
460,000 shares issued and outstanding, all of which are held
by the KPCB Affiliates.
Convertible Participating Preferred Stock, Series T (the
"Series T Preferred Stock"): 1,540,000 shares authorized;
1,540,000 shares issued and outstanding, all of which are
held by TCI Sub.
Convertible Participating Preferred Stock, Series A (the
"Series A Preferred Stock"): 3,008,730 shares authorized; no
shares issued and outstanding.
Series Preferred Stock (blank check): 10,000,000 shares
authorized; no series designated and no shares issued and
outstanding.
The Series A Common Stock and the Series B Common Stock
(together, the "Common Stock") are identical in all
respects, except that the holders of shares of the Series B
Common Stock (i) generally will be entitled to ten (10)
votes per share on all matters with respect to which the
holders of the Common Stock of @Home are entitled to vote,
while the holders of the shares of Series A Common Stock
will be entitled to one vote per share upon such matters and
(ii) will be entitled to elect the Series B Common Directors
(as defined below). Except as may otherwise be required by
the Delaware General Corporation Law (the "DGCL"), the
holders of the Series A and Series B Common Stock will vote
together as a single class on all matters. Each share of
Series B Common Stock will be convertible at any time at the
option of the holder into one share of Series A Common
Stock.
Prior to the consummation of the purchase of the shares of
Series A Preferred Stock by the Additional Investors
described below, the Amended and Restated Certificate of
Incorporation of @Home will be
<PAGE>
amended (as amended, the "Charter") to (i) effect a reverse
split of the authorized and issued shares of Series K and
Series T Preferred Stock on a 10 to 1 basis, (ii) establish
the rights, designations and preferences of the Series A
Preferred Stock, (iii) amend the rights, designations and
preferences of the Series K Preferred Stock and Series T
Preferred Stock to make such rights, designations and
preferences identical to those of the Series A Preferred
Stock, except as otherwise specifically provided herein,
(iv) amend the rights, designations and preferences of the
Series K Preferred Stock to provide that the shares of
Series K Preferred Stock will be convertible only into
Series A Common Stock and (v) amend the rights, designations
and preferences of the Convertible Preferred Stock in
accordance with the provisions set forth opposite the
caption "Rights of Holders of Convertible Preferred Stock
following the IPO." In addition, simultaneously with the
purchase by the Additional Investors, TCI Sub will exchange
(the "TCI Exchange") 770,000 shares of its Series T
Preferred Stock for 770,000 newly-issued shares of Series A
Preferred Stock; the 770,000 shares of Series T Preferred
Stock received by @Home in such exchange shall be cancelled
and shall not be reissued as shares of Series T Preferred
Stock and @Home will thereafter promptly file a certificate
of retirement reducing the number of authorized shares of
Series T Preferred Stock to 770,000 shares. The Series K
Preferred Stock, the Series T Preferred Stock and the Series
A Preferred Stock are herein sometimes referred to
collectively as the "Convertible Preferred Stock." The
shares of Convertible Preferred Stock and the shares of any
series of Series Preferred Stock are hereinafter sometimes
referred to collectively as the "Preferred Stock".
The shares of Series T Preferred Stock will be initially
convertible at the option of the holder into shares of
Series B Common Stock of @Home, at an initial conversion
ratio of 10 shares of Series B Common Stock for each share
of Series T Preferred Stock, subject to anti-dilution
adjustments. The shares of Series K and Series A Preferred
Stock will be initially convertible at the option of the
holder into shares of Series A Common Stock of @Home, at an
initial conversion ratio of 10 shares of Series A Common
Stock for each share of Series K or Series A Preferred
Stock, as the case may be, subject to anti-dilution
adjustments. The anti-dilution adjustments for each series
of Convertible Preferred Stock will be identical (other than
with respect to the series of Common Stock into which such
series of Convertible Preferred Stock is initially
convertible).
The Series Preferred Stock would be issuable, from time to
time, in one or more series, with such designations,
preferences and relative participating, optional or other
special rights, qualifications, limitations or restrictions
as shall be stated in resolutions of the Board of Directors
setting forth the designation thereof or in an amendment to
the Charter establishing the terms of any such series of
Preferred Stock.
Unless the Series K and Series A Directors (each as defined
below) determine by a Supermajority Vote (as defined in
Exhibit A) to the
3
<PAGE>
contrary, subject to the receipt of any required regulatory
consents or approvals or the filing of any required notices
with any governmental entities and the expiration of any
waiting period related thereto, the holders of all shares of
Series T, Series A and Series K Preferred Stock and any
shares of any series of Series Preferred Stock then
outstanding which are convertible into Common Stock will be
required to convert such shares into shares of Series A
Common Stock or Series B Common Stock (whichever series such
shares are initially convertible into) in connection with
@Home's initial public offering.
No shares of Series B Common Stock shall be issued, except
upon conversion of shares of Series T Preferred Stock or
other shares of Series Preferred Stock (which have been
authorized in accordance with the provisions of Exhibit A)
having the right to convert into shares of Series B Common
Stock.
SECURITIES TO BE
PURCHASED BY
FOUNDERS
AND ADDITIONAL
INVESTORS:
Subject to the satisfaction or waiver of the conditions to
closing specified below, (i) the KPCB Affiliates will
purchase 233,883 additional shares of Series K Preferred
Stock, (ii) TCI Sub will effect the exchange referred to
above of 770,000 shares of Series T Preferred Stock for an
equal number of shares of Series A Preferred Stock and will
purchase an additional 783,000 shares of Series A Preferred
Stock, (iii) Comcast PC Investments, Inc., a wholly owned
subsidiary of Comcast Cable Communications Inc. ("Comcast
Sub") will purchase 727,865 shares of Series A Preferred
Stock and (iv) Cox Teleport Providence, Inc., a wholly owned
subsidiary of Cox Communications, Inc. ("Cox Sub"), will
purchase 727,865 shares of Series A Preferred Stock. The
purchase price for such shares of Series K or Series A
Preferred Stock, as the case may be, to be purchased shall
be $10 per share. The shares theretofore purchased by the
KPCB Affiliates and TCI Sub (other than the shares delivered
by TCI Sub in the TCI Exchange), together with the
additional shares to be purchased by the KPCB Affiliates and
TCI Sub referred to above (including, without duplication,
the shares received by TCI Sub in the TCI Exchange), shall
be considered to be the aggregate number of shares of
Convertible Preferred Stock originally purchased by such
entity for all purposes herein (including, but not limited
to, the calculation of such entity's "Original Amount").
Each of TCI Sub and KPCB will waive its preemptive rights
under the Stockholders Agreement (as defined below) in
connection with the proposed issuance and sale of shares of
Series A Preferred Stock and the TCI Exchange. The
additional shares purchased by TCI Sub and by the KPCB
Affiliates referred to above and the shares purchased by
Comcast Sub and Cox Sub are herein referred to as the
"Additional Shares." The consummation of the purchases of
Convertible Preferred Stock referred to above (the
"Closing") will occur on a mutually agreed date occurring no
later than the 10th day following the satisfaction or waiver
of the
4
<PAGE>
conditions to Closing set forth below (other than any such
conditions which are capable of being satisfied only as of
the Closing), but in no event later than August 15, 1996
(such date, the "Closing Date").
Comcast Sub and Cox Sub are referred to herein collectively
as the "Additional Investors," and individually as an
Additional Investor. TCI Sub, Comcast Sub and Cox Sub are
hereinafter referred to collectively as the "Cable Partners"
and individually as a "Cable Partner." "Cable Parent" shall
mean (i) TCI Internet Services, Inc. ("TCI Services"), TCI
Communications, Inc. and TCI Cable Investments Inc. (TCI
Communications, Inc. and TCI Cable Investments, Inc.
(collectively, "TCIC") and TCI Services collectively being a
single Cable Parent (of which TCI Sub is a wholly owned
subsidiary of TCI Services)), (ii) Comcast Cable
Communications, Inc. ("Comcast Cable"), and (iii) Cox
Communications, Inc. ("CCI"). TCI, Cox Enterprises, Inc.
("CEI"), Comcast Corporation ("Comcast") and KPCB are
hereinafter referred to collectively as the "Parents" and
individually as a "Parent". Each Cable Partner,
individually, and the KPCB Affiliates, collectively, are
referred to as a "Stockholder", which term shall also
include any transferee which is a member of such
Stockholder's Stockholder Group acquiring securities in
accordance with the provisions set forth in clause (iii) of
the first sentence of the section captioned "Transfer
Restrictions" contained herein which is, or is required to
become, a party to the Stockholders Agreement. Each
Stockholder and (except as to KPCB) its Cable Parent,
together with their respective Controlled Affiliates, is
hereinafter referred to collectively as a "Stockholder
Group". A chart outlining the foregoing relationships is
attached hereto as Schedule 1. A "Controlled Affiliate" of
any Person shall be any corporation, partnership or other
entity which is Controlled by such Person; provided,
--------
however, that @Home will not be deemed to be a Controlled
-------
Affiliate of any Parent or such Parent's Controlled
Affiliates. The term "Control" shall mean the direct or
indirect power to direct the management and policies of any
Person, whether through the ownership of voting securities,
by contract, management agreement or otherwise.
OWNERSHIP: Assuming consummation of the purchase of Additional Shares
by each of Comcast Sub and Cox Sub, and the purchase of the
Additional Shares by TCI Sub and the KPCB Affiliates, the
ownership of the outstanding equity interests of @Home
(determined after giving effect to the issuance of up to 6.5
million shares of Series A Common Stock or common stock
equivalents to management as incentive compensation (the
"Management Pool Shares")) would be as set forth on Schedule
2 hereto. As a condition to the grant of Management Pool
Shares, certain recipients thereof (who shall (i) be
executive officers of @Home and (ii) hold in the aggregate
no less than 50.1% of the outstanding shares of Series A
Common Stock) will be required to enter into an agreement
with @Home pursuant to which each such holder will agree
(and will agree to cause any transferee of its shares to
agree as a condition of any such transfer) that, with
respect to any matter upon which the vote of the
5
<PAGE>
holders of Series A Common Stock is required under Section
242(b) of the DGCL prior to the consummation of @Home's IPO,
such holder will cast all votes attributable to its shares
in the same proportion as the holders of the Convertible
Preferred Stock (or if there are no such shares outstanding,
the Series B Common Stock) cast their votes upon such
matter.
CLOSING CONDITIONS: The obligations of each of @Home, the Founders and the
Additional Investors to consummate the transactions
contemplated hereby are subject to the satisfaction at or
prior to the Closing of each of the following conditions
available to such Person, any or all of which may be waived
in whole or in part by such party, to the extent permitted
by applicable law:
1. Amendment of Charter. The Amended and Restated
--------------------
Certificate of Incorporation of @Home shall have been
amended as contemplated by this Term Sheet, and the
form and terms of such amendments shall be reasonably
satisfactory to each of @Home, the Founders and the
Additional Investors, and the Charter shall have been
filed with the Delaware Secretary of State in
accordance with the DGCL and become effective under the
DGCL.
2. Amendment of By-Laws. The By-Laws of @Home shall have
--------------------
been amended as contemplated by this Term Sheet, and
the form and terms of such amendments shall be
reasonably satisfactory to each of @Home, the Founders
and the Additional Investors.
3. Receipt of Governmental Approvals and Consents. All
----------------------------------------------
governmental consents as are required in connection
with the consummation of the transactions contemplated
hereby as to each of @Home, the Founders and the
Additional Investors shall have been obtained and shall
be in full force and effect and all governmental
filings as are required in connection with the
consummation of such transactions shall have been made,
and all waiting periods, if any, applicable to the
consummation of such transactions imposed by any
governmental entity shall have expired, other than
those which, if not obtained, in force or effect, made
or expired (as the case may be) would not, either
individually or in the aggregate, have a material
adverse effect on the transactions contemplated hereby.
4. No Unsatisfied Conditions. All other conditions herein
-------------------------
with respect to the obligation of each of @Home, the
Founders and the Additional Investors to consummate the
issuance and sale of the shares contemplated hereby
shall have been satisfied or waived by such party.
6
<PAGE>
5. Additional Matters. Each person purchasing @Home
------------------
securities hereunder shall have received (i) an
instrument containing such representations and (ii)
such closing certificates, in each case as may be
customary in transactions of this nature.
6. Each of the parties hereto shall have performed all of
its obligations and commitments hereunder including,
without limitation, those required to be performed at
the Closing.
In addition, it shall be a further condition of the
obligations of Cox Sub and Comcast Sub to close that no
actions have been taken by @Home (other than any actions
relating to the amendments to the Charter provided for in
the following paragraph), which actions, if taken after the
Closing, would have required the consent or approval of one
or more of the Additional Investors (as if the Closing had
occurred and such Additional Investors were then
Stockholders) or the .Com Committee, without the consent or
approval of such of TCI Sub, KPCB, Comcast Sub and/or Cox
Sub (or their respective designees on the Board of
Directors) or the .Com Committee as would have been required
had the Closing occurred. Each of TCI Sub and KPCB agrees
to cause @Home not to take any of such actions described in
the previous sentence without such consent or approval (to
the extent required).
Notwithstanding the foregoing, prior to the Closing, TCI Sub
and KPCB shall be entitled to purchase up to 783,000
additional shares of Series T Preferred Stock and 233,883
additional shares of Series K Preferred Stock, respectively,
on the terms described herein (determined after giving
effect to the amendments to the Amended and Restated
Certificate of Incorporation of @Home described herein), the
purchase of which shares shall reduce the obligation of such
parties to purchase shares from @Home at the Closing on a
share-for-share basis and, in the case of TCI Sub, which
shares of Series T Preferred Stock shall be exchanged on a
share-for-share basis as part of the TCI Exchange at the
Closing for shares of Series A Preferred Stock (such
purchase, the "Interim Financing").
III. RIGHTS, DESIGNATIONS AND PREFERENCES OF CONVERTIBLE PREFERRED
--------------------------------------------------------------
STOCK TO BE SET FORTH IN THE CHARTER.
------------------------------------
RANKING: The shares of Convertible Preferred Stock will rank pari
----
passu with the shares of any series of Series Preferred
-----
Stock which is not by its terms made senior to the
Convertible Preferred Stock, and senior to all other classes
and series of capital stock of @Home, with respect to, as
applicable, (y) payments upon the liquidation, dissolution
or winding up of @Home and (z) the payment of dividends or
the making of distributions on, or the repurchase or
redemption of, any other shares of capital stock of @Home.
In addition to the approval right of the holders of
Convertible Preferred Stock to be set forth in the Charter,
the
7
<PAGE>
By-Laws of @Home will provide that, without the approval by
a Supermajority Vote of the Series K and Series A Directors
(as defined below) (such approval, a "Supermajority
Approval"), @Home will not create, designate or issue any
class or series of capital stock having voting rights senior
to those of the holders of the Series A Preferred Stock or
Series K Preferred Stock (any such capital stock, the
"Special Voting Stock"). A class or series of capital stock
shall be deemed to be Special Voting Stock if the holders of
such security (x) are entitled to more than one vote per
share when voting with the holders of the Common Stock or
(y) are entitled to vote as a separate class or series upon
any matter presented to stockholders of @Home, other than
(i) as required by Section 242(b) of the DGCL, (ii) with
respect to the creation or issuance of any other class or
series of capital stock which is to rank senior to such
capital stock as to liquidation rights and rights relating
to dividends, distributions, repurchases and redemptions,
(iii) with respect to amendments to the terms or provisions
of such securities, or (iv) such additional matters as would
be customary or appropriate in the context of the issuance
of such class or series of capital stock in a financing
transaction with a third party (as opposed to a strategic
transaction) in light of the circumstances under which such
financing transaction is being consummated. Subject to the
requirements of this paragraph, it is intended that the
Board of Directors would be entitled to create, designate
and issue shares of Series Preferred Stock which rank senior
to or pari passu with the Convertible Preferred Stock as to
---- -----
liquidation rights and rights relating to dividends,
distributions, repurchases and redemptions. Notwithstanding
anything herein contained, no capital stock of @Home, the
issuance of which would, in accordance with Exhibit A,
require a Unanimous Vote of the Series K and Series A
Directors, shall be issued without such Unanimous Vote of
the Series K and Series A Directors.
LIQUIDATION Subject to the rights of any holders of capital stock
PREFERENCE: ranking senior to ("Senior Stock") or pari passu with
---- -----
("Parity Stock") the Convertible Preferred Stock, upon any
liquidation, dissolution or winding up of @Home, the holders
of the Convertible Preferred Stock, with equal priority
among shares of Series A, Series K and Series T Preferred
Stock, shall be entitled to receive from assets available
for distribution to stockholders, before any payment or
distribution to holders of any capital stock which is not
expressly made senior or pari passu with the Convertible
---- -----
Preferred Stock ("Junior Stock"), an amount in cash (and to
the extent sufficient cash is not available for such
payment, property at its fair market value) per share, equal
to the Liquidation Price of a share of Convertible Preferred
Stock as of the date of payment or distribution. The
"Liquidation Price" of any share of Convertible Preferred
Stock as of any date will be the sum of (i) the Issue Price
(which initially will be the $10 per share purchase price of
the Convertible Preferred Stock, and shall be appropriately
adjusted in the event of stock splits, reverse splits or
similar events affecting the Convertible Preferred Stock),
plus (ii) an amount equal to all dividends which have
theretofore been declared on
8
<PAGE>
such shares of Convertible Preferred Stock, but which are
unpaid as of the determination date.
DIVIDEND RATE AND
PAYMENT DATES: The dividend rate on the Convertible Preferred Stock, with
equal priority among shares of Series A, Series K and Series
T Preferred Stock, will be 10% per annum of the Issue Price.
Dividends (the "Preferred Dividend") will be payable
quarterly in cash as, when and if declared by the Board of
Directors of @Home (the "Board") in its discretion, and
shall not cumulate. Following the declaration and payment of
the Preferred Dividend for any quarter, and subject to the
provisions of this paragraph, @Home shall be permitted to
declare and pay dividends on any Junior Stock; provided,
however, that in addition to the foregoing quarterly
dividend, the holders of the Convertible Preferred Stock,
with equal priority among shares of Series A, Series K and
Series T Preferred Stock, shall be entitled to receive as an
additional dividend (a "Participating Dividend") the amount
of any dividend or any other distribution which is declared
and paid or made on the Junior Stock. In the event the
Junior Stock receiving such dividend is Common Stock (or
another security which is convertible into or exercisable or
exchangeable for Common Stock), the Participating Dividend
will equal the amount to be paid per share of Common Stock
or equivalent multiplied by the number of shares of Common
Stock into which a share of Convertible Preferred Stock is
then convertible. In the event the Junior Stock receiving
such dividend is a security other than Common Stock (and
which is not convertible into or exercisable or exchangeable
for Common Stock), the amount of the Participating Dividend
shall be an amount per share equal to the dividend to be
paid on each share of Junior Stock multiplied by a fraction,
the numerator of which is the Liquidation Price and the
denominator of which is the lowest of (x) the liquidation
price (if any), (y) the redemption price (if any) and (z)
the issue price (as adjusted for stock splits, stock
dividends and the like), of a share of such Junior Stock.
So long as any shares of Convertible Preferred Stock are
outstanding and dividends on such shares of Convertible
Preferred Stock have not been (or are not contemporaneously)
declared and paid in full for the two immediately preceding
quarters, no dividends shall be declared or paid upon any
Parity Stock; provided, however, that a dividend may be
-------- -------
declared and paid during any quarter (regardless of whether
such dividends have been paid for any preceding quarter) pro
rata with respect to the Convertible Preferred Stock and
Parity Stock then outstanding such that the amounts of any
dividends declared per share on the Convertible Preferred
Stock and such Parity Stock shall in all cases bear to each
other the same ratio that the Preferred Dividend (assuming
such dividend had been declared by the Board) and, if
applicable, any Participating Dividend per share of
Convertible Preferred Stock for such current quarter and
dividends on shares of such other Parity Stock for
9
<PAGE>
such quarter (excluding any accumulated or accrued dividends
on such Parity Stock) bear to each other.
If the Preferred Dividend and any Participating Dividend
have not been declared and paid for the then-current
quarter, then, with respect to such then-current quarter,
@Home shall not (i) declare or pay any dividend on, or make
any distribution with respect to, any Junior Stock or (ii)
repurchase, redeem, or otherwise acquire any shares of
Junior Stock (or options, warrants or other rights to
acquire Junior Stock), other than the repurchase, redemption
or other acquisition of such shares (or options, warrants or
other rights to acquire such shares) from employees,
directors or consultants pursuant to repurchase or
redemption rights contained in the instrument pursuant to
which such securities were originally issued.
VOTING RIGHTS: Holders of Convertible Preferred Stock will be entitled to
notice of and to attend all meetings of stockholders of
@Home. The Charter will provide that, except as otherwise
required by the DGCL, the holders of Convertible Preferred
Stock will be entitled to vote together, as a single class
and on an as-converted basis (in the case of the Series K
and Series A Preferred Stock, into Series A Common Stock,
and in the case of the Series T Preferred Stock, into Series
B Common Stock), with the holders of the Common Stock and
any other series of Series Preferred Stock entitled to vote
thereon upon any matters presented to the holders of the
Common Stock for their approval or consent, including, but
not limited to, the election of directors (other than those
directors to be elected by the holders of the Convertible
Preferred Stock).
RIGHTS OF HOLDERS
OF CONVERTIBLE
PREFERRED STOCK
FOLLOWING THE IPO: The Charter will provide that in the event the Series K and
Series A Directors determine by a Supermajority Vote not to
require all shares of Convertible Preferred Stock to be
converted into Common Stock in connection with the IPO,
then, unless the Series K and Series A Directors have also
determined by a Supermajority Vote not to implement the
following changes in the Convertible Preferred Stock, then
upon the IPO the rights, designations and preferences of the
Convertible Preferred Stock will be changed as follows: (i)
the Liquidation Price of a share of Convertible Preferred
Stock shall be reduced to $.01 per share, and, following the
payment in full of all amounts owing to the holders of
securities (including the Convertible Preferred Stock)
ranking senior to the Common Stock, the holders of the
Convertible Preferred Stock shall be entitled to share
ratably, on an as-converted basis, with the holders of the
Common Stock as to any amounts remaining for distribution to
such holders upon the liquidation, dissolution or winding up
of @Home and (ii) the Preferred Dividend shall be terminated
and cease to exist, and thereafter the holders of
Convertible Preferred Stock shall be entitled only to
receive dividends,
10
<PAGE>
on an as-converted basis, when, as and if such dividends are
declared and paid on the Common Stock. Except as provided
above, the other rights, designations and preferences of the
Convertible Preferred Stock set forth herein shall remain
unchanged.
CONVERTIBLE
PREFERRED
STOCK DIRECTORS: So long as there remain outstanding at least 250,000 shares
of Series K Preferred Stock, the holders of the Series K
Preferred Stock shall be entitled to elect one member of the
Board of Directors (the "Series K Director"). So long as
there remain outstanding at least 500,000 shares of the
Series T Preferred Stock, the holders of the Series T
Preferred Stock shall be entitled to elect two members of
the Board of Directors (the "Series T Directors"), provided,
--------
that at any time that there remain outstanding less than
500,000 shares of Series T Preferred Stock, then so long as
there remain outstanding at least 250,000 shares of Series T
Preferred Stock, the holders thereof will be entitled to
elect one Series T Director. The holders of Series A
Preferred Stock shall be entitled to elect a total of five
directors (each, a "Series A Director"); provided, however,
-------- -------
that with respect to Comcast Sub and Cox Sub, each such
holder shall be entitled to elect a director only so long as
it beneficially owns at least 250,000 shares of Series A
Preferred Stock; and provided, further, that TCI Sub shall
-------- -------
be entitled to elect three directors only so long as it
beneficially owns at least 750,000 shares of Series A
Preferred Stock; and if TCI Sub ceases to beneficially own
at least 750,000 shares of Series A Preferred Stock, then it
shall be entitled to elect two directors until such time as
it ceases to beneficially own at least 500,000 shares of
Series A Preferred Stock, and if it thereafter ceases to own
at least 500,000 such shares, it shall be entitled to elect
one director so long as it beneficially owns at least
250,000 shares of Series A Preferred Stock. In the event
that Comcast Sub, Cox Sub or TCI Sub should cease to be
entitled to elect a Series A Director (or, in the case of
TCI Sub, shall become entitled to elect a lesser number of
such directors), then the total number of Series A Directors
shall be appropriately reduced. With respect to the
foregoing Series A Preferred Stock ownership requirements,
the references to Comcast Sub, Cox Sub and TCI Sub as a
holder of Convertible Preferred Stock shall be deemed to
include transferees which are members of their respective
Stockholder Groups. The Charter will also provide that so
long as TCI Sub is entitled to elect a majority of the
Series A Directors, the Series A Directors will be the
Special Directors (as defined below) and will be entitled to
the special approval rights of the Special Directors with
respect to actions by the Board of Directors as described
opposite the caption "Management - Governance." The Series
K Director, the Series T Directors and the Series A
Directors are hereinafter sometimes referred to collectively
as the "Preferred Stock Directors." So long as TCI Sub is
entitled to elect a majority of the Series A Directors to
the Board, the term "Special Directors" as used herein shall
refer exclusively to the Series A Directors. At such time
as TCI Sub is no longer entitled to elect a majority of the
Series A Directors, then so long as TCI Sub beneficially
11
<PAGE>
owns securities of @Home constituting a majority of the
outstanding voting power of @Home on an as-converted into
Series A Common Stock or Series B Common Stock (whichever
series into which such shares are initially convertible)
basis and is entitled to elect any Series B Common
Directors, such Series B Common Directors shall be the
"Special Directors." The right of the holders of Convertible
Preferred Stock to elect the Preferred Stock Directors shall
be in addition to their right to vote, on an as-converted
basis (in the case of the Series K and Series A Preferred
Stock, into Series A Common Stock and in the case of the
Series T Preferred Stock, into Series B Common Stock), with
the holders of the Common Stock and any other series of
Series Preferred Stock so entitled to vote, together as a
single class, in the election of all other members of the
Board.
SERIES B COMMON
DIRECTORS: The Charter will provide that at any time following
@Home's IPO at which (x) there are not less than 3,850,000
shares of Series B Common Stock outstanding, (y) there are
no shares of Series T Preferred Stock outstanding and (z)
the holders of the Series A Preferred Stock are not entitled
to elect any Series A Directors, then the holders of the
Series B Common Stock will be entitled to elect (voting as a
separate series) two directors to the Board of Directors
(the "Series B Common Directors"). The right of the holders
of the Series B Common Stock to elect the Series B Common
Directors shall be in addition to their right to vote with
the holders of the Series A Common Stock and any series of
Series Preferred Stock so entitled to vote, together as a
single class, in the election of all other members of the
Board.
SPECIAL CONVERTIBLE
PREFERRED STOCK
VOTING RIGHTS: So long as any shares of Convertible Preferred Stock remain
outstanding, @Home shall not, without first obtaining the
affirmative vote (or, except with respect to clause (iii)
below, the written consent) of the holders of not less than
a majority of the outstanding shares of the Convertible
Preferred Stock, voting together as a single class:
(i) adopt, amend, alter or repeal any provision of the
Charter or any resolution of the Board of Directors
or any other instrument establishing and designating
the Convertible Preferred Stock, any series of Series
Preferred Stock or any Common Stock and determining
the relative rights and preferences thereof, so as to
effect any adverse change in the rights, privileges,
powers or preferences of the holders of the
Convertible Preferred Stock;
(ii) create, designate or issue any capital stock which is
Special Voting Stock;
(iii) (a) consolidate with, or merge with or into, any
person or entity or enter into a binding share
exchange or similar transaction
12
<PAGE>
with any person (other than a merger of @Home with a
wholly owned subsidiary thereof which does not effect
a change in the capital stock of @Home), (b) dispose
of assets or properties in one transaction or a
series of related transactions having an aggregate
value in excess of 50% of the fair market value of
the consolidated assets of @Home, or (c) consent to
any liquidation, dissolution or winding up of @Home
or any of its material subsidiaries; or
(iv) (a) declare or pay any dividend on, or make any
distribution to holders of, Junior Stock or equity
securities of any subsidiary of @Home or (b)
purchase, redeem or otherwise acquire for value any
Junior Stock or equity securities of any subsidiary
of @Home or any options, warrants or other rights to
acquire such securities (other than the repurchase by
@Home pursuant to repurchase rights contained in the
instrument pursuant to which such securities were
originally granted of shares of Junior Stock or
options, warrants or other rights to acquire shares
of Junior Stock, issued to employees, directors or
consultants of @Home).
Any approval obtained with respect to any matter described
in clause (iii) above shall not be valid unless such matter
shall have been presented to the holders of the Convertible
Preferred Stock for a vote at a meeting held on not less
than thirty (30) days' prior written notice, which notice
shall have described in detail each such matter to be voted
upon.
ANTI-DILUTION
RIGHTS: The "conversion ratio" of the Convertible Preferred Stock
shall be proportionately adjusted in the event of any stock
split, reverse split, combination, reclassification or
similar event.
IV. REGISTRATION RIGHTS AGREEMENT
-----------------------------
@Home and the Stockholders agree that upon the Closing, the existing
Registration Rights Agreement shall be deemed amended to provide that each
Stockholder and the members of its Stockholder Group shall have the following
rights to require (i) the shares of Series A Common Stock (or other securities)
(the "Conversion Shares") (x) issued or issuable upon conversion of the shares
of Series B Common Stock issuable upon conversion of the shares of Series T
Preferred Stock or (y) issued or issuable upon conversion of the shares of
Series K or Series A Preferred Stock, or (ii) any other shares of Series A
Common Stock (including those shares issued or issuable upon exercise or
conversion of any securities exercisable for or convertible into shares of
Series A Common Stock) howsoever acquired by such Stockholder's Stockholder
Group, to be registered under the Securities Act of 1933, as amended (the
"Securities Act"); provided, that in connection with any sale pursuant to such a
registration, the applicable Stockholder shall be required to convert all shares
to be sold into shares of Series A Common Stock immediately prior to the closing
of such sale:
(i) Commencing on or after the first anniversary of the
closing date of the IPO, TCI Sub shall be entitled to
four demand
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registrations, Comcast Sub shall be entitled to two
demand registrations, Cox Sub shall be entitled to two
demand registrations, and KPCB shall be entitled to
two demand registrations. Immediately following the
receipt of any request to exercise a demand
registration, @Home shall notify each other
Stockholder, and each such other Stockholder shall be
entitled to join in such demand (the Stockholder
originally initiating such demand (the "Original
Initiating Holder"), together with any other
Stockholders joining therein, are hereinafter referred
to collectively as the "Initiating Holders"). In the
event that any shares requested to be registered are
required to be excluded from such registration, the
determination of the number of shares to be excluded
from each Initiating Holder shall be made pro rata in
relation to the number of shares requested to be
registered. Provided that at least 75% of the shares
requested to be registered by the Original Initiating
Holder are included in such registration, such
Original Initiating Holder shall be deemed to have
utilized one of its demand registration rights in
respect thereof. The Initiating Holders other than the
Original Initiating Holder shall not be deemed to have
exercised a demand right, but instead shall be deemed
to have exercised their piggyback registration rights;
provided, however, that for purposes of determining
-------- -------
the expenses of registration to be paid by the selling
Stockholders, such registration shall be considered a
demand registration. The shares requested to be
registered by the Initiating Holders shall have
priority over the shares requested to be registered by
@Home or by any other holder, in that @Home or such
other holder shall not be permitted to include shares
in such registration if the effect of such inclusion
would be to cause any of the shares requested to be
registered by the Initiating Holders to be excluded
from such registration. @Home shall use its
commercially reasonable efforts to keep the
registration statement with respect to any such demand
registration effective until the first to occur of the
sale of all shares subject to such registration or 120
days following the effectiveness of such registration
statement.
(ii) Subject to the priorities set forth above and to any
"holdback" provisions agreed to between @Home and the
managing underwriter, following the date the IPO is
consummated, the Stockholders will have unlimited
piggyback registration rights with respect to all
primary and secondary registrations of equity
securities of @Home (other than any "shelf
registration" or registrations on Forms S-8 or S-4).
The foregoing registration rights will be subject to
customary terms and conditions, including certain "holdback"
provisions, if so requested by the managing underwriter. So
long as the Original Initiating Holder is seeking to
register not less than 250,000 (the "Minimum Demand
14
<PAGE>
Shares") Equivalent Shares (as defined below), then all
expenses of the registrations described in clause (i) above,
including securities and blue sky filing fees, the fees and
disbursements of a single counsel for the selling
stockholders, and printing, accounting and other customary
expenses, shall be borne by @Home; provided, that
--------
underwriting discounts and commissions and any transfer
taxes attributable to the shares sold by the selling
stockholders shall be borne by the stockholders selling
shares in such offering. In the event that the Original
Initiating Holder is seeking to register less than the
Minimum Demand Shares, then all such expenses (as well as
the fees and expenses of counsel to @Home) shall be borne by
such Initiating Holders in proportion to their pro rata
share of the number of shares with respect to which such
Initiating Holders have requested registration. In
connection with any registration pursuant to clause (ii)
above, the stockholders selling shares in such offering
shall pay the underwriting discounts and commissions and any
transfer taxes attributable to the shares sold by the
selling stockholders and shall pay their pro rata share of
the incremental registration filing fees attributable to
their shares being registered, and shall be responsible for
the fees and disbursements of counsel to the selling
stockholders. The term "Equivalent Shares" shall mean
shares of Series A Common Stock theretofore issued upon
conversion of shares of Convertible Preferred Stock (or
Series B Common Stock, as applicable) and shares issuable
upon the conversion of then outstanding shares of
Convertible Preferred Stock (or Series B Common Stock, as
applicable).
Notwithstanding the foregoing, the exercise of a
Stockholder's registration rights hereunder shall be subject
to the other Stockholders' Right of First Offer, unless
specifically exempted therefrom in accordance with the terms
thereof. In addition, notwithstanding the foregoing, TCI
Sub will not be deemed to have exercised a demand
registration right in the event that it makes the IPO
Election (as defined below) in response to an exercise of
the KPCB Put or the Cable Put.
V. MANAGEMENT.
----------
GOVERNANCE: The business of @Home will be managed and controlled by the
Board; subject, however, to the approval rights of the
------- -------
Special Directors specified herein and the special approval
requirements of the Series K and Series A Directors set
forth in Exhibit A. It is anticipated that the Board would
meet quarterly, and/or establish a regular meeting schedule.
The By-laws of @Home will provide that (i) (a) any director
who is an officer or director of, or otherwise affiliated
with or is elected or appointed by, (1) a holder of any
series of Preferred Stock (including the Convertible
Preferred Stock) or an affiliate of such holder or (2) any
holder of more than 5% of the voting power of @Home (on an
as-converted into Common Stock (whichever series such
security is initially convertible into or exercisable or
exchangeable for) basis) or an affiliate of such holder (any
such holder or affiliate referred to in clauses
15
<PAGE>
(1) or (2), a "Related Party") must abstain from voting with
respect to a Related Party Transaction involving such
Related Party, and (b) in the event that a majority of the
Special Directors would be required to abstain from voting
on such Related Party Transaction, then the separate
approval of the Special Directors shall not be required with
respect to the taking of any action regarding such Related
Party Transaction and (ii) those matters listed on Exhibit A
hereto must be approved by the percentage of Series K and
Series A Directors specified therein, in accordance with the
By-Laws and the special procedures set forth in Exhibit A.
Any such Related Party Transaction must be approved by a
majority of the Series A Directors, Series T Directors and
Series K Directors not required to abstain from voting with
respect thereto in accordance with the provisions of the
previous sentence. The term "Related Party Transaction"
shall mean any transaction between @Home and a Related
Party; provided, however, that the following transactions
-------- -------
will not be Related Party Transactions: (i) the entering
into and performance under agreements listed on Schedule X
attached hereto; (ii) any transaction or series of related
transactions, that (x) are in the ordinary course of
business, (y) are on arms' length terms, and (z) involve an
aggregate amount that is less than $1,000,000; (iii)
transactions in which all of the Series A Directors would
otherwise be required to abstain, which transaction is
approved by each Cable Partner; (iv) the entering into of
LCO Agreements (as defined below) and other agreements for
the provision of ancillary or related services by @Home,
between a Related Party and its affiliates, on the one hand,
and @Home, on the other hand, provided that the terms of
such LCO Agreements or such other agreements are no more
favorable to such Related Party and its affiliates than the
terms of similar agreements then currently offered by or
generally available from @Home to each other Cable Parent
and its Controlled Affiliates (without regard to the size
(through volume discounts or otherwise) or identity of such
Cable Parent or its ownership of @Home securities); and (v)
the entering into or performance under any .Com Agreement or
Promotional Agreement. For purposes of determining whether
any person is a Related Party, for purposes of the
definition of a Related Party Transaction, and with respect
to the entering into of .Com Agreements or Promotional
Agreements as provided in the following section, the term
"affiliate" shall mean, with respect to any Person, any
other Person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under
common control with, such first Person; provided, that (i)
--------
any Person owning, directly or indirectly, in excess of 25%
of the equity interests (on a fully diluted basis) of any
other Person shall be deemed to control such other Person,
(ii) @Home will not be deemed to be an affiliate of any
Parent or such Parent's affiliates and (iii) the Microsoft
Network, L.L.C. ("MSN") will be deemed a Related Party of
TCI Sub so long as an affiliate of TCI Sub retains
substantially all of its current ownership interest in MSN.
16
<PAGE>
CONTENT PROVIDER
AGREEMENTS: @Home acknowledges and agrees that its policy and practices
with respect to its willingness to negotiate and enter into
all .Com Agreements and all Promotional Agreements with
content providers that meet @Home's reasonable standards
relating to obscene or offensive material, is one of
openness and non-exclusion, regardless of the identity of
such content provider and its relationship with @Home, and
that it is in the best interest of @Home and its
stockholders for @Home to enter into as many such agreements
as is practicable. The terms and conditions of .Com
Agreements and Promotional Agreements shall not take into
account the identity of the affiliates or associates of such
content provider nor shall the identity of the affiliates or
associates of any such content provider result in either the
exclusion of such content provider or such content provider
gaining promotion at the expense of others. Therefore,
because the Parents and the Cable Parents each have
significant investments in a wide variety of content
providers and do not want such content providers' ability to
obtain carriage and promotion on the @Home Services to be
unfairly advantaged or disadvantaged, the parties have
determined that the entering into of .Com and Promotional
Agreements shall not be considered Related Party
Transactions regardless of the ownership of such content
provider or its relationship with any Stockholder or such
Stockholder's affiliates, but that the entering into of such
agreements shall be governed by the following procedure.
The execution, delivery and performance of any .Com
Agreement or Promotional Agreement between a Related Party
or its affiliates, on the one hand, and @Home or its
affiliates, on the other hand, may be approved by @Home
pursuant to any of the following methods (a) approval by the
authorized officers of @Home (without the approval of the
Board of Directors) to the extent such agreement contains
@Home's standard terms and conditions for agreements of that
sort to the extent such standard terms and conditions exist
(i.e., the applicable @Home "rate card"), (b) approval by a
majority vote of the ".Com Committee" or (c) approval by all
of the Series A Directors. The Cable Parent which is or
whose affiliate is, such Related Party shall be entitled to
select which of the foregoing methods pursuant to which such
approval will be sought, or if more than one method is to be
sought, the priority therefor. The .Com Committee shall be
a committee of the Board and shall consist of (i) the CEO,
(ii) the Series K Director (if any), (iii) Will Hearst and
James Barksdale (so long as such persons are directors and
are not affiliated with a Cable Parent or any of its
Controlled Affiliates other than @Home), (iv) following the
IPO, those "outside directors" appointed to the .Com
Committee by a Supermajority Vote of the Series A and Series
K Directors, and (v) such other directors as may be approved
from time to time by a Unanimous Vote of the Series A and
Series K Directors. All decisions of the .Com Committee
shall be made in accordance with the policies and provisions
of the preceding paragraph. A Stockholder whose .Com
Agreement or Promotional
17
<PAGE>
Agreement has been disapproved by the .Com Committee or the
Board of Directors pursuant to (b) or (c) above, as the case
may be, shall be entitled to a written explanation from the
members of the .Com Committee or the Board of Directors, as
the case may be, voting against such approval. Nothing
contained in this section shall limit the right of the
Directors under applicable law to inspect any .Com
Agreements or Promotional Agreements.
SPECIAL DIRECTORS
APPROVAL RIGHT: The Charter will provide generally that, so long as the
conditions relating to Special Directors set forth opposite
the caption "Convertible Preferred Stock Directors" are
satisfied, any action or approval by the Board of Directors
shall require the approval of both (i) either (x) a majority
of the members of the Board present at a meeting at which
there is a quorum or (y) a written consent to such action
executed by all of the members of the Board of Directors,
and (ii) a majority of the total number of Special
Directors; provided, however, that the approval of the
-------- -------
Special Directors shall not be required in connection with
the approval of (x) any Related Party Transaction in which a
majority of the Special Directors are required to abstain
from voting or (y) any of the actions specified in Exhibit A
(provided that such actions have been approved in accordance
with the other terms set forth herein). Such approval may
be evidenced by the affirmative vote of such Special
Directors (i) at the Board meeting at which such action is
approved, (ii) by written consent of the Board executed by
such Special Directors or (iii) by a separate approval
granted at a meeting of the Special Directors or by written
consent.
References herein to actions approved, taken or consented to
by the Board shall be deemed to refer to actions which have
been approved, taken or consented to by the Board and which
have also received the approval or consent of a majority of
the total number of the Special Directors, to the extent
required.
REVISED BUSINESS
PLAN AND BUDGETS: Prior to the date hereof, the Board has adopted an initial
business plan covering the initial three fiscal years of
@Home, including an actual budget ("Actual Budget") for the
first such fiscal year and projected budgets for the
following two such fiscal years ("Projected Budgets").
Prior to the start of each fiscal year after the first
fiscal year of the initial business plan, management of
@Home will prepare and the Board would approve, a revised
business plan for the succeeding three fiscal years which
would include an Actual Budget for the next fiscal year and
Projected Budgets for each of the two subsequent fiscal
years.
INITIAL BOARD: The By-Laws will specify that @Home will have a Board
consisting of not less than three (3) nor more than fifteen
(15) directors, with the exact number to be specified in a
resolution of the Board. The number of Directors
constituting the entire Board will initially be set at nine
(9), of
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which eight (8) shall be Preferred Stock Directors. The
parties anticipate that upon the purchase of the shares of
Convertible Preferred Stock by the Additional Investors, the
Board will consist of the following persons:
Series K Director: John Doerr
Series T Directors: Jim Barksdale
Will Hearst
Series A Directors: Bruce Ravenel
Larry Romrell
Brendan Clouston
Comcast Designee
David Woodrow
Common Stock Director: Permanent CEO
ADDITIONAL STRATEGIC
INVESTORS: Subject to the pre-emptive rights granted to the
Stockholders, @Home will be permitted to offer and sell
additional equity interests to third party investors,
strategic partners and/or other multiple cable system
operators in order to finance the expansion of the business
of @Home and to provide additional working capital. It is
anticipated that such additional equity interests will
consist of Series A Common Stock or one or more additional
series of Preferred Stock, each of which series of Preferred
Stock would have such rights, powers, privileges and
preferences as determined by the Board, subject to certain
limitations specified herein.
VI. STOCKHOLDERS AGREEMENT MATTERS.
------------------------------
Upon the Closing, the existing stockholders agreement among each of the Founders
and @Home shall be deemed to be amended in accordance with the provisions of
this Term Sheet (as so amended, the "Stockholders Agreement") to include Cox Sub
and Comcast Sub and their respective Stockholder Groups and make such changes to
the original stockholders agreement as are necessary and appropriate to provide
for the inclusion of such additional parties thereto, including, but not limited
to, the following:
TCI CALL: TCI Sub will have the right (the "TCI Call"), exercisable by
written notice (the "Call Notice") during the sixty-day
period following the fifth anniversary of the date of the
execution of this Term Sheet (the "Execution Date") or, if
not previously exercised, exercisable during the sixty-day
period following each subsequent anniversary thereof, to and
including the ninth anniversary of the Execution Date, to
purchase (or to cause its designee to purchase) all, but not
less than all, of the KPCB Constituents' equity interests in
@Home at the Fair Market Value (as defined below) thereof
determined as of the date of the Call Notice. The remaining
Eligible Stockholders (other than any Stockholder exercising
the Cable Put (as defined below) in connection with the
applicable Call Notice) shall have the right (but not the
obligation) to participate with
19
<PAGE>
TCI Sub (on a pro rata basis) in the purchase of shares
pursuant to the TCI Call. The term "KPCB Constituents" shall
mean each KPCB Affiliate, any wholly owned subsidiary to
which such KPCB Affiliate shall have transferred its shares
in accordance with the terms hereof and any general or
limited partners to whom such KPCB Affiliate or such
subsidiary shall have transferred shares in accordance with
the terms set forth opposite the caption "Transfer
Restrictions," below.
KPCB PUT: KPCB will have the right, exercisable by written notice (the
"KPCB Put Notice") during the sixty-day period following the
fifth anniversary of the Execution Date or, if not
previously exercised, exercisable during the sixty-day
period following each subsequent anniversary thereof, to and
including the ninth anniversary of the Execution Date, to
require TCI Sub to purchase all, but not less than all, of
the KPCB Constituents' equity interests in @Home at the Fair
Market Value thereof determined as of the date on which the
KPCB Put Notice is delivered to TCI Sub. In addition, in the
event that (x) any of the transactions described in
paragraph (iii) opposite the caption "Special Voting Rights
of Convertible Preferred Stock" have been approved by the
requisite vote(s) of the Convertible Preferred Stock and (y)
on the record date for the determination of stockholders
entitled to vote upon such matter and at the time of the
meeting at which such action is voted upon, the KPCB
Constituents collectively hold not less than 80% of the
aggregate amount of the shares of Series K Preferred Stock
sold to the KPCB Affiliates (including the purchase of
additional shares of Series K Preferred Stock made at the
time of the purchase of Series A Preferred Stock by the
Additional Investors) (as adjusted for stock splits,
recapitalizations and the like) (the "KPCB Original Amount")
and have voted all shares of Series K Preferred Stock held
by them "against" (with any failure to vote or abstention
from voting not considered a vote "against") such
transaction, KPCB will have the right (the "Special KPCB
Put"), exercisable by written notice to TCI Sub not later
than the close of business on the date of the meeting at
which such transactions are voted upon, to require TCI Sub
to purchase all, but not less than all, of the KPCB
Constituents' equity interests in @Home at the Fair Market
Value thereof determined on the date of such meeting. The
right of KPCB to require TCI Sub to purchase such equity
interests in @Home pursuant to this paragraph (including the
Special KPCB Put) is hereinafter referred to as the "KPCB
Put."
Notwithstanding the exercise of the KPCB Put (including the
Special KPCB Put), TCI Sub will be relieved of its
obligation to purchase any securities pursuant to the KPCB
Put (as well as pursuant to any exercise of the Cable Put in
connection therewith) in the event that @Home makes an
initial public offering of its Common Stock in accordance
with the provisions of this paragraph. TCI Sub may elect to
require @Home to make an initial public offering in lieu of
purchasing securities pursuant to the KPCB Put (the "IPO
Election") by delivering written notice to KPCB, each other
Stockholder, and @Home not later than 20
20
<PAGE>
business days following the determination of the Fair Market
Value of @Home (the "IPO Election Notice"). Following
delivery of the IPO Election Notice, the Stockholders agree
to use commercially reasonable efforts to cause @Home to
file with the Securities and Exchange Commission (the
"Commission") a registration statement in respect of the
registration of the Series A Common Stock under the
Securities Act. In such case, the Stockholders and @Home
agree to cooperate in all respects with the preparation and
filing of such registration statement with the Commission
and causing such registration statement to become and remain
effective during the time periods specified herein. If (x)
such registration is abandoned before it is declared
effective, (y) a registration statement has not been filed
on or before the 90th day after the delivery of the IPO
Election Notice, or (z) such registration statement is
filed, but the IPO has not been consummated on or before the
183rd day following the date of the IPO Election Notice,
then the IPO Election shall terminate and the KPCB Put
Notice shall be deemed to have been reinstated as of such
date of termination, and TCI Sub shall thereafter be
obligated to purchase the securities pursuant to the KPCB
Put; provided, however, that the minimum period in which
-------- -------
such sale shall be required to be consummated shall be 60
days from the date the KPCB Put Notice is deemed reinstated.
In the event the KPCB Put Notice is deemed reinstated
pursuant to the previous sentence, TCI Sub shall pay to KPCB
and to any Cable Partners which exercise the Cable Put, in
addition to the Fair Market Value of the shares to be
purchased, interest thereon at the prime rate, which shall
accrue from the date of reinstatement of the KPCB Put Notice
to the date immediately preceding the date of consummation
of such sale, and shall be payable upon consummation of such
sale.
In the event TCI Sub elects to purchase (or to cause its
designee to purchase) shares pursuant to the KPCB Put rather
than making an IPO Election, the remaining Eligible
Stockholders (other than any Stockholder exercising the
Cable Put in connection with the applicable KPCB Put Notice)
shall have the right (but not the obligation) to participate
with TCI Sub (on a pro rata basis) in the purchase of shares
pursuant to the KPCB Put; provided, however, that no
-------- -------
exercise of such right of participation shall have the
effect of extending any of the periods set forth in the
preceding paragraph.
CABLE PUT: In connection with the exercise of the TCI Call or the KPCB
Put (other than any exercise of the Special KPCB Put),
Comcast Sub and Cox Sub shall have the right, but not the
obligation, (the "Cable Put") to require TCI Sub to purchase
all, but not less than all, of the equity interests in @Home
held by such Stockholder's Stockholder Group simultaneously
with TCI Sub's purchase from the KPCB Constituents pursuant
to the KPCB Put or the TCI Call in the manner, upon the same
terms and conditions, and under the circumstances described
opposite the captions "TCI Call" and "KPCB Put" (including
TCI Sub's right to be released from its obligation to
purchase by making the IPO Election) by giving
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<PAGE>
written notice to such effect to each other Stockholder
during the ten day period following the giving of the KPCB
Put Notice or the Call Notice.
CONSIDERATION
PAYABLE IN RESPECT
OF TCI CALLOR
KPCB PUT: The purchase price for any equity securities to be purchased
by a Stockholder pursuant to the TCI Call or the KPCB Put
(as well as the Cable Put) shall be payable, at the option
of such Stockholder, in cash or in equity securities of (or
securities convertible into or exercisable for), as
applicable, TCI, in the case of TCI Sub, Comcast, in the
case of Comcast Sub or CCI, in the case of Cox Sub, or, in
any case, any subsidiary thereof; provided that securities
--------
of the same class or series as the class or series of equity
securities to be so issued, or the class or series of
securities which such security is convertible into or
exercisable for, are publicly traded on the Nasdaq National
Market or a national securities exchange at the time of such
delivery. Such equity securities shall be valued at the
average market price thereof over the period of twenty
trading days prior to their delivery. In the event a
Stockholder elects to pay such purchase price by delivering
equity securities, such Stockholder will cause the issuer of
such publicly traded securities to grant to KPCB, for the
benefit of the KPCB Constituents (and to any Cable Partner
exercising the Cable Put in connection therewith and
receiving such equity securities), customary rights with
respect to the registration of such securities under the
Securities Act. Such registration rights shall provide the
KPCB Constituents (and any such Cable Partner exercising the
Cable Put) with two demand registrations, one of which shall
be exercisable such that such registration statement would
be effective no later than the tenth day following the date
of delivery and each of which shall be (i) at the expense of
the applicable issuer and (ii) exercisable by KPCB (or by
any such Cable Partner exercising the Cable Put) with
respect to the registration of not less than 20% of the
equity securities of such issuer issued to KPCB (or to any
such Cable Partner exercising the Cable Put) in payment of
such purchase price; provided, however, that in lieu of
-------- -------
causing such shares to be registered pursuant to such demand
registration, such Stockholder (or the applicable issuer)
shall have the option to purchase all, but not less than
all, of the shares for which registration is requested, at a
price per share equal to the average market price of such
shares over the twenty trading days prior to the delivery of
the demand notice. The purchase price for such equity
securities to be purchased by a designee of a Cable Parent
shall be payable only in cash. In the event that the equity
securities to be purchased by a Stockholder pursuant to the
TCI Call, the KPCB Put or the Cable Put include options,
warrants or other rights to acquire securities of @Home
which require payment of additional consideration in respect
of the exercise thereof, the purchase price of such options,
warrants, or other rights shall equal the Fair Market Value
thereof, less the additional consideration payable in
respect of the exercise thereof.
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<PAGE>
TRANSFER
RESTRICTIONS: Prior to the earliest to occur of (I) the tenth anniversary
of the Execution Date, (II) the fifth anniversary of the
termination of the Restricted Period as to any Cable Parent
and (III) the sixth anniversary of the IPO, no Stockholder
shall assign, transfer, sell, distribute, pledge, encumber
or grant a security interest in (collectively, "Transfer")
its shares of Convertible Preferred Stock or any shares or
securities into which such Convertible Preferred Stock may
be convertible, as applicable, except for (i) a Transfer to
a third party or to members of one or more other
Stockholders' Stockholder Groups, in either case, pursuant
to the Right of First Offer procedure specified below, (ii)
a Transfer of a Controlling Interest (as defined below),
(iii) the Transfer of all, but not less than all, of such
Stockholder's equity interests in @Home to such
Stockholder's Parent or any of such Parent's Controlled
Affiliates, and (iv) in the case of KPCB only, Transfers
from a Stockholder to its general or limited partners (and
if such general or limited partners are partnerships or
limited partnerships, to the constituent general or limited
partners thereof), which Transfers constitute interim or
liquidating distributions to such partners; provided,
--------
however, that in connection with any Transfers pursuant to
clauses (iii) or (iv) above, (A) each transferee shall, as a
condition to such Transfer, become a party to the
Stockholders Agreement and (B) if such transferee ceases to
be a member of such Stockholder's Stockholder Group, such
transferee shall be required to transfer such shares to the
original Stockholder or another member of the original
Stockholder's Stockholder Group; provided, further, that
-------- -------
notwithstanding anything to the contrary contained herein,
(1) no KPCB Constituent which has received shares of
Convertible Preferred Stock in a Transfer permitted pursuant
to clause (iv) above shall make any further Transfer of such
shares unless it shall have first converted all such shares
to be so transferred into Series A Common Stock, and (2)
following both the IPO and the conversion of such shares to
Series A Common Stock, all restrictions upon Transfer set
forth in this Term Sheet shall terminate and cease to be
effective as to any KPCB Constituents which have received or
receive shares in a Transfer permitted pursuant to clause
(iv) above. For purposes of the Transfer Restrictions and
Rights of First Offer set forth herein, a Change of Control
of a Stockholder shall constitute a Transfer of such
Stockholder's shares. For purposes of this Term Sheet, a
"Change of Control of a Stockholder" shall be deemed to have
occurred at such time as such Stockholder's Parent ceases to
own, directly or indirectly, securities constituting a
majority of the outstanding voting power and equity
interests of such Stockholder, other than as a result of a
Qualified Spin Off Transaction. A "Qualified Spin Off
Transaction" shall mean any transaction or series of related
transactions in which (i) a majority of the outstanding
equity interests of the Stockholder are distributed,
directly or indirectly, to the stockholders of the Parent,
(ii) any Person or group of Persons which Controlled the
Parent immediately prior to such transaction Control the
Stockholder (or any successor entity) following such
transaction and (iii) the Persons or group of Persons which
Controlled the Parent immediately prior to such transaction
hold immediately after such transaction, a direct or
indirect proportionate
23
<PAGE>
equity interest in such Stockholder of more than 50% of the
proportionate equity interest that such Person or group of
Persons held in the Parent on the record date for such
distribution.
DEEMED TRANSFER: In the event that at any time during the Restricted Period
the number of Exclusive Homes Passed (as defined below) of a
Cable Parent fails to equal or exceed such Cable Parent's
Minimum Exclusive Homes Passed (as defined below), then such
Cable Parent shall be deemed to have made a Transfer (the
"Deemed Transfer") of a number of shares equal to the
Proportionate Transferred Shares (as defined below). Upon
the occurrence of a Deemed Transfer, the Cable Parent of
such Stockholder shall be required to cause the Stockholder
in question to offer to sell to the other Stockholders (on a
pro rata basis) a number of shares owned by such Stockholder
equal to the Proportionate Transferred Shares at a price per
share, payable in cash, equal to the Fair Market Value
thereof (which, if such offer occurs subsequent to the IPO,
shall mean the average trading price of a share of Series A
Common Stock over the twenty trading days ending on the day
prior to the occurrence of such Deemed Transfer). If all
such offered Proportionate Transferred Shares are not
accepted by such other Stockholders, any remaining shares
shall be offered pro rata to Stockholders electing to
purchase in such initial offering. Such other Stockholders
which elect to accept such offer shall purchase such
Proportionate Transferred Shares in accordance with mutually
acceptable procedures which are consistent with the
provisions of this Term Sheet; provided, however, that any
-------- -------
offered Proportionate Transferred Shares which are not
purchased by the Stockholders pursuant to this paragraph
shall thereafter cease to be Proportionate Transferred
Shares for this and any subsequent Deemed Transfer.
Following the first occurrence of circumstances giving rise
to a Stockholder's obligation to offer the Proportionate
Transferred Shares to the other Stockholders, successive
offerings of the Proportionate Transferred Shares shall be
made from time to time in accordance with the provisions of
this section; provided, that any such offering of
Proportionate Transferred Shares otherwise required hereby
shall be deferred until the number of Proportionate
Transferred Shares to be offered, together with any
Proportionate Transferred Shares whose offering has been
previously deferred, constitutes, in the aggregate, an
amount equal to at least 1% of the number of Total Shares
held by such Stockholder's Stockholder Group. For purposes
of the foregoing: (i) "Exclusive Homes Passed" means as of
the date of determination, the sum of (A) the number of
Homes Passed (as defined below) in cable systems of such
Cable Parent or its Controlled Affiliates which are subject
to the Cable Parent Exclusivity Provisions (as defined
below) or which are subject to any agreement requiring that
the Operator (or any other entity of which such Operator is
a Controlled Affiliate) thereof operate such cable system in
accordance with such Cable Parent Exclusivity Provisions
during the Restricted Period and (B) any Homes Passed of
such Cable Parent or its Controlled Affiliate located in an
Operator Territory (or portion thereof) which has been
released from the Cable Parent Exclusivity Provisions or
which is then entitled to be
24
<PAGE>
released from such provisions pursuant to the terms of any
LCO Agreement; (ii) "Minimum Exclusive Homes Passed" means a
number of Homes Passed which is equal to 80% of the number
of Homes Passed of the applicable Cable Parent and its
Controlled Affiliates as of the date of this Term Sheet (the
"Base Homes Passed"); and (iii) "Proportionate Transferred
Shares" means a number of Total Shares which is equal to (A)
the aggregate number of Total Shares held by such
Stockholder and its Stockholder Group, multiplied by (B) a
fraction, the numerator of which is the difference between
the Base Homes Passed and the Exclusive Homes Passed, and
the denominator of which is the Base Homes Passed, less (C)
any Total Shares of such Stockholder which have previously
been Proportionate Transferred Shares (whether such shares
were purchased by another Stockholder or released from the
provisions hereof). "Total Shares" shall mean the number of
shares of Convertible Preferred Stock (or shares of Series A
Common Stock or other securities issuable upon the
conversion of such shares of Convertible Preferred Stock)
together with all securities purchased pursuant to the
exercise of such Stockholder's Stockholder Group's pre-
emptive rights with respect thereto.
CONVERSION
RESTRICTIONS: Notwithstanding anything to the contrary contained herein,
prior to any Transfer permitted hereunder, other than
Transfers pursuant to clauses (ii) or (iii) set forth
opposite the caption "Transfer Restrictions" above, the
Stockholder transferring such securities shall be required
to convert any shares of Convertible Preferred Stock or
Series B Common Stock to be transferred into shares of
Series A Common Stock prior to such Transfer. In addition,
TCI Sub or its permitted transferee may convert shares of
Series T Preferred Stock into Series B Common Stock at its
option and without the consent of the other Stockholders,
but neither TCI Sub nor any permitted transferee thereof
shall convert shares of Series B Common Stock to Series A
Common Stock without first offering to exchange (the "Series
B Exchange") with the remaining Cable Partners (on a pro
rata basis) such shares of Series B Common Stock proposed to
be converted for an equal number of shares of Series A
Common Stock.
RIGHT OF FIRST
OFFER: In addition to the right described below opposite the
caption "Special Right of First Offer Procedure Following an
IPO," following the earlier to occur of (i) the fifth
anniversary of the Execution Date and (ii) the termination
of the Restricted Period as to any Cable Parent, each
Stockholder will be entitled to sell all but not less than
all of its equity interest in @Home to an unaffiliated third
party in a bona fide transaction, provided that such selling
Stockholder shall first have offered to sell its equity
interest in @Home to the other Stockholders (on a pro rata
basis) for cash and upon other customary terms and
conditions; provided, however, that the provisions of this
-------- -------
section shall not apply in the case of a Transfer of a
Controlling Interest. If all such offered securities are not
accepted by the other Stockholders, any remaining securities
shall be offered pro rata to Stockholders electing to
purchase in such initial offering. If the other Stockholders
elect to purchase such
25
<PAGE>
securities, the selling Stockholder shall not convert such
securities prior to the transfer thereof to the purchasing
Stockholders. In the event that such other Stockholders do
not elect to purchase all of such Stockholder's equity
interest in @Home, then such Stockholder shall be entitled
to sell all, and not less than all, of its equity interest
in @Home to an unaffiliated third party upon terms no more
beneficial to such third party than the terms upon which
such securities were offered to the other Stockholders (such
sale to be consummated within a period of 120 days following
the conclusion of the right of first offer procedure,
subject to extension (not to exceed an additional 60 days)
in connection with the receipt of regulatory approvals which
the purchaser is using commercially reasonable efforts to
obtain). In the event that such securities are to be sold to
an unaffiliated third party, the selling Stockholder will be
required, prior to the consummation of any such sale, to
convert all such securities to be sold into shares of Series
A Common Stock prior to any such sale, subject, however, in
the case of TCI Sub and its permitted transferees to its
obligation to offer to make the Series B Exchange. An
unaffiliated third party purchaser acquiring shares of
Series A Common Stock in accordance with the foregoing
procedures shall acquire such shares free and clear of any
obligations, and shall have no rights under, the
Stockholders Agreement.
For purposes of this Right of First Offer, upon a Change of
Control of a Stockholder, the Parent of such Stockholder
shall be required to cause all of the equity interests in
@Home held by such Stockholder to be offered to the other
Stockholders (on a pro rata basis) prior to the consummation
of the transaction resulting in such Change of Control at a
price equal to the Fair Market Value of such shares, payable
in cash and otherwise in the manner provided by the previous
paragraph, mutatis mutandis.
------- --------
SPECIAL RIGHT OF
FIRST OFFER
PROCEDURE FOLLOWING
AN IPO: In addition to the foregoing, following the first
anniversary of the IPO, a Stockholder shall be entitled to
sell all or a portion of its shares of Series A Common Stock
pursuant to the exercise of its registration rights or an
exemption from registration under the Securities Act
provided it has satisfied its obligations under this
section. In the event a Stockholder elects to exercise its
demand registration right, it shall, simultaneously with the
delivery of its notice to @Home requesting such
registration, offer to sell such shares proposed to be
registered to the other Stockholders on a pro rata basis,
with any shares remaining after the first such offer to be
offered to those Stockholders initially electing to so
purchase. Similarly, any Stockholder electing to exercise
its piggyback registration rights shall be deemed to have
offered to sell those shares for which it has requested
registration in accordance with the same procedure. The
shares shall be deemed to be offered to the other
Stockholders for a price in cash equal to (i) in the case of
a demand registration by any Initiating Holder, the closing
market price of a share of Series A Common Stock on the date
prior to the date the Original
26
<PAGE>
Initiating Holder elects to exercise such demand
registration right, and (ii) in the case of a piggyback
registration, the closing market price of a share of Series
A Common Stock on the date prior to the date that the
electing Stockholder elects to exercise its piggyback
registration right, in each case, less the anticipated
underwriting discounts or commissions or brokerage charges
(such market price less the related costs of sale, the "Net
Price"). If the other Stockholders fail to deliver written
notice of acceptance of such offer to purchase all such
offered shares within three business days following such
offer, then the registration of such shares shall proceed.
In the event a Stockholder seeks to sell shares of Series A
Common Stock following the first anniversary of the IPO
pursuant to Rule 144 or any similar exemption from
registration for sales of shares into a public market (an
"Exempt Offering"), then such selling Stockholder shall
first offer to sell such shares to the other Stockholders
(pro rata) at the Net Price (using the closing market price
on the date prior to the date such request is made) per
share, payable in cash, and, in order to exercise their
rights hereunder, such Stockholders shall be required to
deliver written notice of acceptance of such offer by 5:00
p.m. New York time on the business day following the
delivery of the sale notice. Such Stockholders shall be
entitled to accept such offer on a pro rata basis, with any
accepting Stockholders being entitled to purchase their pro
rata portion of any remaining shares. If the other
Stockholders fail to accept such offer to purchase all such
offered shares, then such right of first offer shall be
deemed satisfied and such selling Stockholder may sell such
offered shares in the Exempt Offering without regard to the
actual sale price of such shares, provided that such sale
takes place within five business days of the date the other
Stockholders fail to accept such offer to purchase.
RIGHTS OF
TRANSFEREE: Any third party acquiring shares of Series A Common Stock
from a Stockholder following the conclusion of the Right of
First Offer procedure set forth above shall acquire such
shares free and clear of any rights or obligations under the
Stockholders Agreement.
TAG-ALONG RIGHT: In the event that any Stockholder or group of Stockholders
proposes to sell a Controlling Interest (as defined below)
to an unaffiliated third party, such Stockholder(s) shall be
required, as a condition to such sale, to offer to each
other Stockholder that is an Exclusive Stockholder (as
defined below) or an Eligible Stockholder (as defined below)
the right to participate in such sale (on a pro rata basis)
on the same terms and conditions as were offered by such
unaffiliated third party including, without limitation,
direct and indirect forms of consideration offered by such
unaffiliated third party included in such terms and
conditions. An "Exclusive Stockholder" shall mean a Cable
Partner which is a Stockholder, whose Cable Parent has
complied with at all times since the Execution Date, and
remains in compliance with, the Cable Parent
27
<PAGE>
Exclusivity Provisions (without regard to whether the
Restricted Period has ended as to such Cable Partner).
DRAG-ALONG RIGHT: Any group of Stockholders composed of TCI Sub and any other
two Stockholders (so long as such Stockholders are Eligible
Stockholders and neither of such Stockholders is a member of
the same Stockholder Group as the other such Stockholder or
as TCI Sub) which proposes to sell a Controlling Interest in
@Home to any unaffiliated third party shall have the right
to require that each remaining Stockholder participate in
such sale to such third party (on a pro rata basis with
respect to the percentage of its securities to be sold) upon
terms and conditions no less favorable than those obtained
by such selling Stockholders including, without limitation,
direct and indirect consideration offered by such
unaffiliated third party included in such terms and
conditions.
A "Controlling Interest" sale shall mean the sale, in one
transaction or a series of related transactions by one or
more Stockholders and the other members (if any) of their
selling group, of equity securities of @Home which, together
with any equity securities of @Home owned by the purchaser
prior to such transaction or transactions, would result in
such purchaser owning securities representing a majority of
the outstanding voting power of @Home.
PRE-EMPTIVE RIGHTS: In the event that @Home proposes to issue, offer or sell
shares, or securities convertible into or exercisable or
exchangeable for shares (other than (w) in connection with
the exercise or conversion of outstanding securities of
@Home pursuant to the terms thereof, (x) pursuant to a
registered public offering by @Home, (y) in connection with
an acquisition of any assets or business or a joint venture,
business combination or acquisition, or (z) pursuant to
incentive stock plans or agreements for employees, directors
and consultants), of any class or series of its capital
stock, @Home shall first offer to each Eligible Stockholder
the right, on terms no less favorable to it than the terms
on which such shares (or other securities) are to be issued
or sold to third parties, to purchase such number of such
shares (or other securities) as is sufficient to permit it
to maintain its proportionate equity interest in @Home (on a
fully diluted basis).
DETERMINATION OF
FAIR MARKET VALUE: The applicable fair market value of @Home shall be
determined in accordance with the provisions set forth in
the Stockholders Agreement, which will generally provide
that the "Fair Market Value" of @Home will be the price at
which a willing seller would sell and a willing buyer would
buy a comparable business as an ongoing business in an arm's
length transaction (as a sale of all of the stock or, if
applicable, other equity interests), determined as if @Home
were a public company and the Series A Common Stock were
publicly traded and widely held at the time of such
determination and without consideration of any restrictions,
encumbrances or contractual rights relating to the equity
securities
28
<PAGE>
thereof and without consideration of the minority voting
position in @Home represented by the Series A Common Stock,
and assuming all of the outstanding stock, or if applicable,
other equity interests are to be sold in a single
transaction. The Fair Market Value will be determined by
agreement of the selling Stockholders and the remaining
Stockholders electing to purchase such shares, or if they
cannot agree, then by a mutually acceptable investment
banking firm (or if the parties cannot agree upon a single
investment banking firm, such Fair Market Value will be
determined by one investment banking firm selected by the
proposed buyer(s) in such transaction and one investment
banking firm selected by the proposed seller(s), and a third
investment banking firm selected by the first two such
investment banking firms). The purchase price of the equity
interest to be purchased shall be an amount equal to the
Fair Market Value of @Home multiplied by the percentage of
the fully diluted equity (which shall include in-the-money
options, warrants and other rights to acquire shares) of
@Home represented by such equity interest. Fair Market Value
will be determined as of the date of the notice which
requires such determination, except in the event of the
exercise of the Special KPCB Put, in which case the Fair
Market Value shall be determined as of the date the matter
in question is approved by the holders of the Convertible
Preferred Stock.
ELIGIBLE
STOCKHOLDER: Except as otherwise provided herein, a Stockholder and its
Stockholder Group will cease to have any rights under the
Stockholders Agreement, but will continue to be subject to
the obligations thereunder, at such time as such Stockholder
and its Stockholder Group cease to own an Attributable
Interest (as defined below) equal to (i) in the case of TCI
Sub, 5,807,500 Equivalent Shares, (ii) in the case of KPCB,
1,734,708 Equivalent Shares, or (iii) in the case of Cox Sub
or Comcast Sub, 1,819,617 Equivalent Shares. Any Stockholder
which is part of a Stockholder Group which possesses rights
under the Stockholders Agreement is herein referred to as an
"Eligible Stockholder." "Attributable Interest" shall mean,
with respect to any Stockholder Group, the sum of, without
duplication, (i) a Stockholder's direct equity economic
interest in equity securities of @Home and (ii) to the
extent the Parent of such Stockholder Group owns equity
securities of @Home indirectly, the sum of such Parent's
indirect equity economic interest in such securities through
one or more unbroken chains of subsidiaries, which interest
shall be quantified in amount by a series of percentage
multiplications commencing with the equity interest in
shares of the subsidiary of such Parent which holds the
equity securities of @Home directly and multiplying that by
the next most proximate equity interest in the entity which
is the parent entity of such subsidiary and multiplying in
turn each succeeding equity interest in the order of their
progression away from the entity directly holding equity
securities of @Home by the result of the immediately
preceding multiplication until the percentage interest of
such Parent in the equity securities of @Home is determined.
29
<PAGE>
PERMANENT CEO: The chief executive officer of @Home shall be selected by
the Board of Directors. Each Stockholder will agree to vote
in favor of the election of the chief executive officer to
the Board of Directors of @Home.
SERIES A DIRECTOR
DESIGNEES: So long as a holder of Series A Preferred Stock is entitled
to designate one or more Series A Directors, each
Stockholder owning Series A Preferred Stock agrees that it
shall vote all of its shares of Series A Preferred Stock in
favor of the election (and if the Stockholder designating
such Series A Director requests that such designee be
removed as a director, then in favor of such removal and the
election of a successor designated by such Stockholder) of
the Series A Director designees of the Stockholders holding
Series A Preferred Stock.
UNANIMOUS AND
SUPERMAJORITY
PROVISIONS: Prior to the consummation of @Home's IPO, none of the
actions set forth on Exhibit A hereto shall be taken unless
such action shall have been approved by the requisite
percentage of the Series K and Series A Directors as
provided in Exhibit A. In the event that the taking of any
such action also requires the approval of one or more
classes or series of the capital stock of @Home, each
Stockholder agrees to vote all shares of capital stock of
@Home owned by such Stockholder's Stockholder Group in a
manner consistent with the action approved by the Series K
and Series A Directors. Notwithstanding the foregoing, the
KPCB Affiliates shall be entitled to vote their shares of
Series K Preferred Stock against any of the actions
specified in paragraph (iii) of the matters set forth
opposite the caption "Special Convertible Preferred Stock
Voting Rights". Each Stockholder agrees that, until the
consummation of @Home's IPO, in the event that there are
less than two Series A Directors which are not elected by
TCI or its Controlled Affiliates, it will cause all of its
representatives on the Board of Directors not to vote for or
execute a written consent approving the taking of any action
by @Home with respect to any matter identified on Exhibit A
as requiring a Supermajority Vote unless the taking of such
action by @Home with respect to such matter is approved by
all Series A Directors.
BY-LAWS OF @HOME: In addition to setting forth the Unanimous and Supermajority
Provisions discussed above, the By-Laws of @Home shall also
contain such other provisions as may be reasonably necessary
to protect each Stockholder's rights under the Stockholders
Agreement, including but not limited to, requiring that the
notice of meeting for any Board meeting at which any of the
matters set forth on Exhibit A are to be considered shall so
state and include a reasonably detailed description of the
actions to be considered.
TERMINATION OF
CERTAIN PUT AND
CALL RIGHTS: Unless sooner terminated in connection with the termination
of the Stockholders Agreement, the TCI Call, the KPCB Put,
and the Cable Put will terminate upon the consummation of
@Home's IPO.
30
<PAGE>
AMENDMENT TO
STOCKHOLDERS
AGREEMENT FOLLOWING
@HOME IPO: The Stockholders Agreement shall be deemed amended upon
the consummation of @Home's IPO to reflect the following
agreements among the Stockholders:
(i) Directors. In the event that all shares of
---------
Convertible Preferred Stock are required to be
converted into Common Stock in connection with the
IPO, the Stockholders agree that:
(a) each Stockholder shall be entitled to nominate
for election a number of directors equal to the
number of Preferred Stock Directors such
Stockholder was entitled to designate
immediately prior to the IPO, which directors
shall be deemed Series A, Series K or Series T
Directors, as the case may be, for all purposes
under this Term Sheet and under such
Stockholders Agreement, as so amended;
(b) each Stockholder will vote all shares of Common
Stock owned by such Stockholder in favor of the
election of a number of designees of each other
Stockholder equal to the number of Preferred
Stock Directors which such Stockholder was
entitled to designate immediately prior to the
IPO, subject to reduction in such number of
directors to which such Stockholder is entitled
pursuant to subparagraph (c) below; and
(c) the provisions of the Charter relating to the
number of shares of Convertible Preferred Stock
which such Stockholder would be required to
continue to own in order to be entitled to
designate a Preferred Stock Director shall be
incorporated into the Stockholders Agreement so
as to require that such Stockholder continue to
own a number of shares of Common Stock equal to
the number of shares of Common Stock issuable
upon conversion of such shares of Convertible
Preferred Stock in order to maintain its right
to designate such number of directors and, with
respect to any Stockholder entitled to elect
more than one Preferred Stock Director, the
reduction in the number of such Preferred Stock
Directors as a result of dispositions of shares
shall also be appropriately adjusted.
(ii) Supermajority and Unanimous Vote; Required Vote to
--------------------------------------------------
Approve Related Party Transactions. The provisions
----------------------------------
in the Bylaws relating to the requirement that
certain actions be approved by a Supermajority or
Unanimous Vote, and that approval of Related
31
<PAGE>
Party Transactions requires a specified vote (the
"Related Party Vote"), shall be terminated, and the
Stockholders Agreement will be amended to provide
that prior to the taking of any action which would
have required a Supermajority or Unanimous Vote, or a
Related Party Vote, the Stockholders will hold a
meeting at which such action would be considered,
with each Stockholder entitled to cast a number of
votes equal to the number of Series A or Series K
Directors (and, if applicable, Series T Directors)
such Stockholder would have been entitled to
designate based upon the number of shares of Series
A, Series K or Series T Preferred Stock such
Stockholder would have owned had such shares of
Convertible Preferred Stock not been converted (such
determination to be based upon the number of shares
of Common Stock beneficially owned by it at such
time), and if such action is approved by the number
of votes which would otherwise be required for
passage upon a Supermajority or Unanimous Vote (or,
if applicable, a Related Party Vote) (assuming that
such Stockholders were then entitled to designate
Series A Directors or Series K Directors), then each
Stockholder shall be required to use its reasonable
best efforts to cause each of its designees on the
Board of Directors to vote in accordance with such
determination (subject to fiduciary duties) and, if
necessary, to vote all of its shares in favor of such
action, and if such action is not so approved, each
Stockholder will use its reasonable best efforts to
cause each of its designees on the Board of Directors
to vote against the taking of such action by @Home
(subject to fiduciary duties) and, if necessary, to
vote all of its shares against such taking of such
action by @Home. The Stockholders Agreement shall
also be amended to provide that after such time as
there are less than two Series A Directors which are
not elected by TCI or its Controlled Affiliates, each
Stockholder thereafter shall be required to use its
reasonable best efforts to cause each of its
designees on the Board of Directors to vote against
any matter that would have required a Supermajority
Vote or a Related Party Vote unless all Cable
Partners shall have consented to the taking of such
action with respect to such matter by @Home. For
purposes of this paragraph, a Stockholder's
"reasonable best efforts" shall include the
replacement of any director designee which does not
vote in accordance with such determination of the
Stockholders.
(iii) Voting Generally. Except as provided above with
----------------
respect to the election of directors and
Supermajority and Unanimous Vote and Related Party
Vote items, following the IPO, each Stockholder shall
be entitled to vote all of its shares of Common Stock
as it shall determine in its sole discretion.
(iv) Other Amendments. The Stockholders Agreement will be
----------------
further amended to reflect any other provisions
contained herein
32
<PAGE>
which specifically reference amendments or changes to
the Stockholders Agreement following the IPO.
In all other respects, the Stockholder's Agreement will be
deemed to be ratified and confirmed and will remain
enforceable in accordance with its terms.
In connection with @Home's IPO, the Stockholders agree to
take such other steps as may be reasonably necessary to
ensure that the Board includes at least two independent
directors.
TERMINATION OF
STOCKHOLDERS
AGREEMENT: The Stockholders Agreement will terminate on the twenty-
fifth anniversary of the Execution Date. Notwithstanding the
foregoing, immediately following consummation of the IPO,
all restrictions on transfers by a KPCB Constituent shall be
deemed terminated with respect to transfers by such Person
following the IPO.
VII. MASTER DISTRIBUTION AGREEMENT.
-----------------------------
The Cable Parents and @Home agree to the following terms and conditions relating
to the roll-out of the @Home Services in areas served by cable television
systems owned by the Cable Parents and their respective Controlled Affiliates:
DEFINITIONS: "Affiliated Operator" means an Operator which is a Cable
Parent or a Controlled Affiliate of a Cable Parent.
"@Home Facilities" means all equipment (including owned and
leased facilities), hardware, software and technology to the
Point of Demarcation at each Operator Facility; provided,
--------
however, that any software or technology licensed or leased
-------
by @Home to the Operator for use in the Operator Facilities
or within the customer premises of such Operator shall
remain the property of @Home.
"@Home First Page" means the home page of the @Home Service
as it appears to subscribers upon each start up of the @Home
Service.
"@Home Network" means the @Home Facilities and the
applicable Operator Facilities.
"@Home Specified Remedy" means the actual costs incurred by
@Home in connection with the Network Upgrade, which costs
are directly related to @Home's fulfillment of its
obligation to an Affiliated Operator to make the @Home
Services available to the Offered Homes Passed on the
Projected Commencement Date in accordance with the LCO
Agreement; provided, however, that @Home shall at all times
-------- -------
be required to mitigate any such damages to the extent
reasonably possible following notice to it by an Affiliated
Operator or Cable Parent as to any
34
<PAGE>
delay in making the Offered Homes Passed available by the
Projected Commencement Date in accordance with the LCO
Agreement and/or changes to the Master Roll-Out Schedule or
applicable LCO Agreement (including changes of the Projected
Commencement Date) subsequent to the date of adoption of the
Master Roll-Out Schedule or the execution of the LCO
Agreement, as applicable.
"Cable Parent Access Block Right" means the right of a Cable
Parent to block subscriber access to certain information
providers, which are otherwise accessible over the @Home
Service.
"Cable Parent Exclusion Right" means the right of any Cable
Parent to exclude from presentation in the National Area as
presented to the subscribers of such Cable Parent's
Affiliated Operators, promotional activities or
presentations relating to content providers, as set forth in
this Term Sheet.
"Cable System Upgrade" means the construction and upgrade of
the Operator Facilities required in order to distribute the
@Home Services in accordance with the Specifications and
Standards. A cable system which has been upgraded in
accordance with the Specifications and Standards is
hereinafter referred to as an "Upgraded System."
".Com Agreement" means any agreement between @Home (or any
Cable Parent or a Controlled Affiliate acting in the
capacity of a sales agent by and on behalf of @Home pursuant
to a sales agency agreement to be entered into by such Cable
Parent or Controlled Affiliate and @Home, which agreement
will, among other things, specify the terms and conditions
upon which such person may act as a sales agent for @Home,
including specification of the terms upon which such person
may enter into a .Com Agreement on @Home's behalf) and a
content provider which provides (i) physical connectivity
and access to the @Home Network and (ii) for compensation,
if any, to @Home in accordance with its charges therefor.
"Commencement Date" means the date upon which specified
Offered Homes Passed are actually made available for
distribution of the @Home Services.
"Homes Passed" means the number of residential homes that
can be connected to a cable distribution system (provided,
that each residential unit in a multiple dwelling unit shall
be counted as one Home Passed).
"Internet Backbone" means a network which (x) can or does
(i) assign IP addresses or manage IP address assignments for
machines or networks to which it is connected, (ii) accept
or deliver IP datagrams from machines or networks to which
it is connected, or (iii) maintain IP packet traffic to
other machines or networks; and (y) provides IP connectivity
on a regional, national or international basis, provided,
--------
however, that such a
-------
34
<PAGE>
network which provides connectivity solely within a single
metropolitan area shall not be deemed an Internet Backbone.
"Internet Backbone Service" means a communications service
provided over an Internet Backbone.
"Internet Service" means a communications service provided
over a network which can or does (i) assign IP addresses or
manage IP address assignments for machines or networks to
which it is connected, (ii) accept or deliver IP datagrams
from machines or networks to which it is connected, or (iii)
maintain IP packet traffic to other machines or networks.
"IP" means the Internet Protocols as defined by the document
titled RFC-791, by John Pastell of the University of
-------
Southern California, dated 1981, or subsequent revisions
thereof.
"Local Area" shall mean that portion of the @Home First Page
programmed by the Operator, which portion as to an
Affiliated Operator, shall consist of one browser user
interface button (the "BUI Button") and 50% of the area of
the @Home First Page (or such lesser portion as such
Affiliated Operator shall elect to program).
"Local Content" means any content offering which is
transported primarily on a Local Service.
"Local Service" means a communications service connected,
directly or indirectly, to the Operator's cable system by
means that do not use or require transmission, directly or
indirectly, over an Internet Backbone.
"National Area" shall mean the @Home First Page (other than
the Local Area) and the rest of the @Home web site,
including, without limitation, any thematic pages.
"Network Upgrade" means the construction or upgrade of the
@Home Facilities necessary to connect to a specific Upgraded
System at the Point of Demarcation in order to provide
delivery of the @Home Services, including, but not limited
to, the acquisition of hardware and software required in
order to distribute the @Home Services to such Upgraded
System, all in accordance with the Specifications and
Standards. The portion of the @Home Network which has been
so upgraded is referred to herein as the "Upgraded Network
Portion."
"Non-Pro Rata Roll-Out Budget" means any Roll-Out Budget
which fails to provide an allocation of funds or other
resources for the Network Upgrade reasonably necessary to
provide for the roll-out during the applicable planning
period (such planning period to be not greater than 12
months) (a "Planning Period") of the @Home Services to a
proportionate number of the Qualifying Offered Homes Passed
proposed by a Cable Parent in such Planning Period. The
determination as to
35
<PAGE>
whether such roll-out is proportionate to such Cable Parent
shall be made based upon (i) the relationship that the
Qualifying Offered Homes Passed by such Cable Parent bears
to the Qualifying Offered Homes Passed of all such Cable
Parents for such Planning Period and (ii) the relationship
of the projected date for the completion of the applicable
Network Upgrade to the date or dates projected by the
applicable Cable Parent for the availability of the
applicable Qualifying Offered Homes Passed during such
Planning Period.
"Offered Homes Passed" means, without duplication, the
number of Homes Passed which a Cable Parent proposes to
include in the Master Roll-Out Schedule for a given Planning
Period.
"Operator" means the corporation, partnership or other
entity which owns and operates a cable television system
that agrees to distribute the @Home Services in accordance
with the terms of an LCO Agreement.
"Operator Facilities" means the cable television system
facilities in an Upgraded System owned or leased by an
Operator from each Point of Demarcation to and including the
cable modem at the location of each subscriber (whether or
not such cable modem is owned by the Operator); provided,
--------
that Operator Facilities shall not include the ownership of
any software or other intellectual property rights licensed
by @Home to such Operator (other than rights related to such
license).
"Performance Default" shall occur if, as of the indicated
date, the High C Performance Ratio exceeds the product of
(I) two times (II) the TCI Performance Ratio. The "High C
Performance Ratio" shall be the greater of (i) the amount
equal to (x) the aggregate number of Residential Subscribers
to the @Home Service of Comcast Cable and its Controlled
Affiliates, divided by (y) the aggregate number of Homes
Passed by Qualifying Systems owned by Comcast Cable and its
Controlled Affiliates and (ii) the amount equal to (a) the
aggregate number of Residential Subscribers to the @Home
Service of CCI and its Controlled Affiliates, divided by (b)
the aggregate number of Homes Passed by Qualifying Systems
owned by CCI and its Controlled Affiliates, in each such
case as of the end of the calendar month preceding the date
of determination (the Cable Partner with respect to whom
such amount is greater as of the applicable date of
determination being referred to herein as the "High C").
The TCI Performance Ratio shall be an amount equal to (A)
the aggregate number of Residential Subscribers to the @Home
Service of TCI and its Controlled Affiliates, divided by (B)
the aggregate number of Homes Passed by Qualifying Systems
owned by TCI and its Controlled Affiliates, in each case as
of the end of the calendar month preceding the date of
determination.
"Point of Demarcation" means the interface between the
Operator Facilities and the @Home Facilities which interface
shall, unless otherwise agreed, be located on the @Home side
of the cable data router at each applicable cable system
head-end or regional head-end.
36
<PAGE>
"Pro Rata Roll-Out Budget" means any Roll-Out Budget which
is not a Non-Pro Rata Roll-Out Budget. "Projected
Commencement Date" means the date specified by a Cable
Parent as the date by which the Cable Parent proposes to
have completed the specified portions of the applicable
Cable System Upgrade and therefore make the related number
of Offered Homes Passed available for distribution of the
@Home Services for inclusion in the Master Roll-Out
Schedule.
"Promotional Agreement" means an agreement entered into
between a content provider and @Home (individually and not
through an agency relationship with a Cable Parent or any of
its Controlled Affiliates) providing for the promotion of
such content or content provider on the @Home Services
(e.g., through button or hot link placement on the browsers,
home pages or theme pages in the National Area, by the @Home
video barker or otherwise) as @Home and such content
provider shall agree, at which point such promotional
activity shall become a part of the @Home Services, subject,
however, to the Cable Parent Exclusion Right.
"Qualifying Offered Homes Passed" means, without
duplication, Offered Homes Passed located in Qualifying
Systems.
"Qualifying System" means one or more cable television
systems owned by a Cable Parent or any of its Controlled
Affiliates which are contiguous or clustered in an area and
which system or systems represent in the aggregate not less
than 50,000 Homes Passed, or such lesser number as the Board
shall hereafter establish as being the minimum number of
Homes Passed by such related cable systems as is necessary
in order to justify, on an economic and resource allocation
basis, a roll-out of the @Home Services solely to such cable
systems.
"Residential Subscriber" shall mean a residential subscriber
to the @Home Service (i) whose account is 60 days or less
past due, (ii) who has been receiving the @Home Service for
at least 60 consecutive days, and (iii) who has paid for at
least one month's @Home Service at standard rates.
"Restricted Period" means the period of time commencing on
the Execution Date and terminating upon the first to occur
of (w) as to each Cable Parent, the termination of the Cable
Parent Exclusivity Provisions as to such Cable Parent, (x)
the sixth anniversary of the Execution Date and (y) the
effectiveness of any change in law, statute or regulation or
the entering of any adverse judicial decision or injunction
or other action, in each case which materially impairs the
enforceability (in accordance with their respective terms)
of any of the Cable Parent Exclusivity Provisions, @Home
Exclusivity Provisions, MFN Provisions or the Content Tag-
Along Right.
37
<PAGE>
"Roll-Out Budget" means that portion of @Home's budget for
any applicable Planning Period relating to the costs and
expenses of the Network Upgrade committed to by @Home in
order to make the @Home Services available for distribution
by the Projected Commencement Dates of those Qualifying
Offered Homes Passed to which @Home is scheduled to commence
distribution within such Planning Period.
"Specifications and Standards" means, collectively, the
specifications and standards for the Operator Facilities and
the technical requirements for distribution of the @Home
Services as set forth in Exhibit C attached hereto.
"TCI Change of Control" shall be deemed to have occurred at
such time as (i) any Person or a group of Persons acting in
concert (including a natural person or any form of business
entity but excluding Bob Magness, John C. Malone, their
respective lineal descendants, any estate or trust for
beneficiaries of any of the foregoing or any stockholder
that was a member of the controlling group of stockholders
of TCI as of the date of this Term Sheet, and any employee
stock purchase or similar plan) owns an amount of stock
representing in excess of 50% of the voting power of the
outstanding common stock of TCI and, (ii) as a result of
achieving such ownership, at any time prior to the first
anniversary of achieving such ownership the Persons who were
members of the Board of Directors of TCI as of the date of
achieving such ownership, plus any additional directors not
designated by such Persons or group of Persons described in
clause (i) which are approved by a majority of the directors
who were directors as of the date of achieving such
ownership, no longer constitute a majority of the entire
Board of Directors of TCI.
CREATION OF
MASTER ROLL-OUT
SCHEDULE: In connection with the establishment of @Home's periodic
budget and business plan and the periodic amendments to
@Home's Business Plan contemplated hereby, each Cable Parent
shall deliver to @Home a list of Offered Homes Passed (and
the related cable systems) and Projected Commencement Dates
for such Offered Homes Passed. Such list shall include, by
separate designation, those Offered Homes Passed which are
Qualifying Offered Homes Passed. Thereafter, the Cable
Parents and @Home shall cooperate in good faith to establish
a timetable and schedule in order to coordinate the Cable
System Upgrade plans of each Cable Parent with the Network
Upgrade plans of @Home so as to attempt to make the @Home
Services available to the Offered Homes Passed on or before
the applicable Projected Commencement Date in an efficient
and economical manner; provided, however, that such
-------- -------
timetable and schedule shall be determined (i) by giving
priority to making the @Home Services available to those
Offered Homes Passed which are Qualifying Offered Homes
Passed, (ii) in accordance with the respective
38
<PAGE>
Projected Commencement Dates relating to such Qualifying
Offered Homes Passed and (iii) in proportion to the
respective number of Qualifying Offered Homes Passed of such
Cable Parents. The schedule determined and approved by the
Board of @Home in accordance with the foregoing criteria
shall be the "Master Roll-Out Schedule" (together with any
modifications and adjustments within the applicable Planning
Period agreed to by @Home and the applicable Cable Parent
following the adoption of the Master Roll-Out Schedule),
which shall include, for each Cable Partner, specific plans
related to the cable systems to be upgraded, the number of
Offered Homes Passed and Qualifying Offered Homes Passed
therein and the Proposed Commencement Date therefor,
together with such additional information as the parties may
agree. Subject to any subsequent adjustments within the
applicable Planning Period as may be agreed to by the
applicable Cable Parent and @Home, the information set forth
therein (x) as to a Cable Parent, shall constitute its
representation to @Home that such Cable Parent reasonably
believes that the applicable Offered Homes Passed will be
made available for distribution of the @Home Services by the
applicable Projected Commencement Dates, and (y) as to
@Home, shall constitute @Home's agreement to use
commercially reasonable efforts to cause the @Home Network
to be upgraded in such a way as is necessary in order to
cause the @Home Services to be available for distribution to
such Qualifying Offered Homes Passed by the applicable
Projected Commencement Dates.
EXECUTION OF LOCAL
CABLE OPERATOR
DISTRIBUTION
AGREEMENTS: Immediately following the establishment of the Master Roll-
Out Schedule for each Planning Period, each Cable Parent
shall cause those of its Affiliated Operators which own and
operate cable systems serving the Offered Homes Passed which
have a Projected Commencement Date during such Planning
Period to enter into a Local Cable Operator Distribution
Agreement ("LCO Agreement") with @Home. Each such LCO
Agreement shall incorporate therein the relevant matters
from the Master Roll-Out Schedule, including but not limited
to, the number of Offered Homes Passed for such Operator
Territory and the related Projected Commencement Dates. The
terms and provisions of the standard form of LCO Agreement
are set forth in Section VIII hereof.
BUDGETS: @Home will use commercially reasonable efforts to cause the
@Home Services to be available to all Qualifying Offered
Homes Passed of the Cable Parents having Projected
Commencement Dates within such Planning Period and will use
commercially reasonable efforts to comply with the Master
Roll-Out Schedule for such Planning Period.
The adoption of a Non-Pro Rata fRoll-Out Budget shall
require a Supermajority Vote. A Stockholder who has been
treated in a non-pro rata manner with respect to a Roll Out
Budget and has not voted in favor of such Non-Pro Rata Roll-
Out Budget, shall be entitled to a written
39
<PAGE>
explanation of such treatment from the Chief Executive
Officer and each director who has voted in favor of such Non
Pro Rata Roll-Out Budget.
In the event a Cable Parent believes that any Roll-Out
Budget approved by a majority of the Board of Directors
constitutes a Non-Pro Rata Roll-Out Budget, such Cable
Parent shall promptly notify the Board of Directors of @Home
of such belie and present evidence of such claim.
CABLE PARENT
EXCLUSIVITY
PROVISIONS: (a) During the Restricted Period, no Cable Parent will, and
each Cable Parent will cause any Person that is or shall
become a Controlled Affiliate not to, directly or indirectly
(i) conduct or engage in any Restricted Business (as defined
below), (ii) participate (whether by means of a management,
advisory, operating, consulting or similar agreement or
arrangement) in any Restricted Business, or (iii) have any
record or beneficial equity interest, either as a principal,
trustee, stockholder, partner, joint venturer or otherwise,
in any Person which so conducts, engages in or participates
in, any Restricted Business. Notwithstanding the foregoing,
(x) this section shall not prevent the beneficial ownership
for investment purposes of 10% or less of any class of
equity securities of any such Person which is registered
under the Exchange Act, (y) this section shall not prevent
any Exempt Acquisition (as defined below), the operation of
any Exempt Restricted Assets (as defined below) or any Non-
Control Acquisition (as defined below) (in each case,
subject to compliance with the other provisions hereof); and
(z) the provisions of this section shall not be applicable
to any Restricted Business in which a Cable Parent or its
Controlled Affiliate engages or participates in, or in which
such Cable Parent or Controlled Affiliate beneficially owns
any equity interests, in each case as of the date hereof,
provided that the level or scope that the level or scope of
--------
such person's engagement, participation or equity ownership
is not increased during the Restricted Period other than in
accordance with instruments or agreements which are in
effect on the date hereof, and provided, further, that the
--------
applicable Cable Parent shall have set forth on Schedule Z
details regarding such level and scope and other matters
regarding such Cable Parent's engagement, participation or
beneficial ownership thereof as of the date hereof. In
addition, the provisions of this section shall not be
applicable with respect to any Operator Territory to the
extent that the Cable Parent Exclusivity Provisions have
been terminated as to such Operator Territory or following
the expiration of the Term (as defined below) of the
applicable LCO Agreement; provided, however, that regardless
-------- -------
of any release of an Operator under an LCO Agreement, the
restrictions set forth in clause (iii) of the first sentence
of this paragraph (a) shall continue to be applicable to
such released Operator for the applicable Restricted Period.
For purposes of this section the term (i) "Non-Control
Acquisition" shall mean any acquisition of beneficial
ownership of equity securities of any Person which are
registered under the Exchange Act, if none of such Cable
Parent or any Controlled Affiliate of such Cable Parent
shall control or be under common control with such
40
<PAGE>
Person, (ii) "control" when used with respect to any
specified Person, means the power to direct the management
and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract,
management agreement or otherwise, and the terms
"controlling" and "controlled" shall have meanings
correlative to the foregoing, (iii) "Restricted Business"
shall mean (A) the provision of a residential Internet
Service over the cable television plant or equipment of any
Cable Parent or its Controlled Affiliates at bit rate speeds
greater than 128 kbps whose primary purpose is the provision
to consumers of entertainment, information content,
transactional services or e-mail, chat and news groups or
substantially similar services (a "Consumer Purpose"), (B)
the connection by any Cable Parent or any Controlled
Affiliate thereof of its cable television plant and
equipment directly or indirectly to any Internet Backbone
for a Consumer Purpose at bit rate speeds greater than 128
kbps, or (C) the business of providing or engaging in any
Internet Backbone Service, in each of the above cases of
clauses (A), (B) and (C), (x) other than any such service to
be offered by @Home and (y) within the United States of
America. Notwithstanding the provisions of clauses (A) and
(B) of subsection (iii) of the immediately preceding
sentence, the term "Restricted Business" shall not include:
(i) the creation or aggregation of content; (ii) the
provision by any Cable Parent of telephony services (i.e.,
the provision of conventional telephone service, including
POTS and ISDN) to its subscribers, provided that any use of
or connection to any Internet Service in connection with the
provision of such telephony services shall be (x) pursuant
to a subscriber dial-up of an Internet Service provider and
(y) at bit rate speeds of 128 kbps and below; (iii) the
provision of services which are primarily work-related; (iv)
the provision of any Internet Services not using a Cable
Parent's cable television plant; (v) the provision of any
Internet Service that is a Local Service; (vi) the provision
of services which are primarily utilized to connect students
to schools, colleges and universities; and (vii) the
provision of Internet telephony, Internet video telephony,
or Internet video conferencing.
(b) In the event that, during the Restricted Period, any
Cable Parent or any of its Controlled Affiliates desires to
enter into or conduct any business in the United States
which would not be a Restricted Business but which requires
the utilization or other implementation of both the cable
plant of such Cable Parent or its Controlled Affiliates and
an Internet Backbone Service, then such Cable Parent or its
Controlled Affiliate shall first offer to @Home the
opportunity to provide such Internet Backbone Service in
accordance with the provisions of this paragraph (b);
provided that neither such Cable Parent nor its Controlled
--------
Affiliate shall be obligated to make such offer if the
business to be conducted or entered into would involve
obtaining the Internet Backbone Service from a Person or
group of Persons that is offering to provide such service or
cause such service to be provided only in a package with
other products or services that are integral to such other
business. Notwithstanding the foregoing proviso, nothing
herein contained shall be deemed to modify any Cable
Parent's obligations pursuant to paragraph
41
<PAGE>
(a) of this section. Such offer shall include a
specification of the requirements for such Internet Backbone
Service and a good faith estimate of the most favorable
terms and conditions on which such Internet Backbone Service
is available to such Cable Parent or its Controlled
Affiliate from third parties. If @Home proposes to provide
such Internet Backbone Service within a reasonable period of
time following such offer, then, the Cable Parent or its
Controlled Affiliate and @Home will negotiate in good faith
the terms and conditions under which @Home would provide
such Internet Backbone Service. Unless the terms and
conditions upon which @Home is to provide such service
following such negotiation are less favorable to such Cable
Parent or its Controlled Affiliate than those available from
a third party, then such Cable Parent or Controlled
Affiliate shall select @Home to provide such Internet
Backbone Service on such terms and conditions so offered. In
consideration of the Cable Parent's agreement to provide
@Home such opportunity, @Home agrees that it will not
propose to provide such Internet Backbone Service unless it
reasonably believes that it is able to provide the Internet
Backbone Service so requested.
(c) (i) In the event that at any time during the
Restricted Period, a Cable Parent and/or any
Person that is or shall become a Controlled
Affiliate of such Cable Parent, shall acquire
beneficial ownership of at least a majority of the
then outstanding voting power of any Person, which
such Person is not principally engaged in any
Restricted Business, but nonetheless, directly or
indirectly, owns, leases or otherwise operates
facilities (the "Exempt Restricted Assets") which,
if operated independently, would constitute a
Restricted Business (an "Exempt Acquisition"), the
provisions of this subsection (c) shall be
applicable to such Exempt Restricted Assets. In
the event that at any time during the Restricted
Period, a Non-Control Acquisition shall occur and
if at any time during the Restricted Period the
beneficial ownership of equity securities giving
rise thereto shall cease to qualify as a Non-
Control Acquisition for any reason, a "Control
Acquisition" shall have occurred and then the
provisions of this subsection (c) shall be
applicable to the assets and business of the
Person which is the subject of such Control
Acquisition which, if operated independently would
constitute a Restricted Business (the "Control
Restricted Assets," and together with any Exempt
Restricted Assets, the "Restricted Assets").
(ii) In the event of any Exempt Acquisition or any
Control Acquisition, the applicable Cable Parent
will (and will cause any Person which is or shall
become a Controlled Affiliate of such Cable Parent
to) use reasonable commercial efforts to divest
any Restricted Assets so
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<PAGE>
acquired unless such divestiture would be adverse
to the tax structure of any Exempt Acquisition or
Control Acquisition; provided, however, that such
Cable Parent shall be required to use reasonable
commercial efforts to divest such assets within a
reasonable period following the time such
divestiture would not be adverse to the tax
structure of such acquisition, in which event all
parties would reasonably cooperate to cause such
divesture to be accomplished on a tax-efficient
basis. Such reasonable commercial efforts shall be
deemed to include an auction of such Restricted
Assets. Notwithstanding the foregoing, such Cable
Parent will not be required to dispose of such
Restricted Assets if it would not realize the fair
market value thereof (it being agreed that the
fair market value thereof will be computed by
reference to the overall acquisition price in the
Exempt Acquisition or Control Acquisition). The
provisions of clauses (iii), (iv) and (v) of this
subsection (c) shall apply to any such
disposition.
(iii) Such Cable Parent shall not, and shall not
permit any Person which is or shall become a
Controlled Affiliate of such Cable Parent to,
sell, transfer or otherwise dispose of all or any
substantial portion of such Restricted Assets,
unless prior to any such sale, transfer or other
disposition, such Cable Parent shall have offered
by written notice to sell to @Home (or its
Controlled Affiliate) all or such portion of the
Restricted Assets at a specified price (the "Offer
Price") and shall have allowed such offer to
remain open and available for acceptance for a
period of at least 30 calendar days. In the event
that such offer is not accepted within such 30-day
period, such Cable Parent or such Controlled
Affiliate shall be free to offer such Restricted
Assets to any other Person, provided, however,
-------- -------
that such Cable Parent shall not, and shall not
permit any Person which is or shall become a
Controlled Affiliate of such Cable Parent to,
offer to sell, transfer or otherwise dispose of
such Restricted Assets, and shall not sell,
transfer or otherwise dispose of any of such
Restricted Assets, for a price less than the Offer
Price or on terms which are more favorable to such
offeree than the terms on which such Restricted
Assets were offered to @Home, in either case
without first complying again with the provisions
of this clause (iii).
(iv) In the event that @Home shall accept any such
offer described in clause (iii), the closing of
the purchase of the Restricted Assets shall take
place at the principal office of such Cable Parent
on the later of (x) the fifth
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<PAGE>
business day after the expiration of the 30-day
period after the giving of the notice set forth in
clause (iii), and (y) the fifth business day after
the receipt of any required governmental approval
or the expiration or termination of any waiting
period, including any waiting period pursuant to
the HSR Act.
(v) The foregoing provisions of this subsection (c)
shall be applicable to successive transfers or
other dispositions of all or any portion of the
Restricted Assets by such Cable Parent or any
Person which is or shall become a Controlled
Affiliate of such Cable Parent.
The provisions of this section are referred to in this Term
Sheet as the "Cable Parent Exclusivity Provisions." The
obligations under the foregoing Cable Parent Exclusivity
Provisions shall automatically terminate as to the
applicable Operator Territory upon the consummation of the
sale or transfer of such cable television system by a Cable
Parent or its Controlled Affiliate to a third party (other
than a third party which is a Cable Parent or a Controlled
Affiliate of a Cable Parent).
COMCAST
NON-EXCLUSIVITY
PROVISIONS: At any time following the third anniversary of the Execution
Date, Comcast Cable, by 90 days advance written notice to
each other Stockholder and @Home, shall have the right
("Comcast Non-Exclusive Right") to terminate the Cable
Parent Exclusivity Provisions as to itself and its
Controlled Affiliates; provided, that in the event that
Comcast Cable exercises the Comcast Non-Exclusive Right,
@Home shall have the right (the "@Home Repurchase Right") to
repurchase from the Comcast Stockholder Group the Subject
Shares. The term "Subject Shares" shall mean, as of the time
periods specified below, the number of shares of Series A
Preferred Stock (or shares of Series A Common Stock or other
securities issuable upon the conversion of such shares of
Series A Preferred Stock) specified opposite such time
periods, together with the amount of securities which is
proportionate thereto and which were purchased pursuant to
the exercise of the Comcast Stockholder Group's pre-emptive
rights as set forth herein at the applicable Subject Shares
Purchase Price upon the exercise of the Comcast Non-
Exclusive Right during the periods indicated below:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
DATE OF EXERCISE OF COMCAST SERIES A PREFERRED
NON-EXCLUSIVE RIGHT SUBJECT TO REPURCHASE
------------------------------------ ---------------------
<S> <C>
After third anniversary until and 400,326
including fourth anniversary
After fourth anniversary until and 218,360
including fifth anniversary
After fifth anniversary until and 72,786
including sixth anniversary
</TABLE>
44
<PAGE>
The "Subject Shares Purchase Price" shall mean: (i) $10 per
share of Series A Preferred Stock, (ii) $1 per share of
Series A Common Stock, (iii) the price at which any Subject
Shares purchased pursuant to the Comcast Stockholder Group's
exercise of its pre-emptive rights were originally
purchased, (iv) with respect to any other securities issued
pursuant to the exercise of rights, options or warrants, the
exercise price thereof (together with any consideration paid
in respect of the grant of such option, warrant or right) or
(v) with respect to any securities received as a stock
dividend, the par value thereof. The number of Subject
Shares and the purchase price thereof shall be subject to
appropriate adjustment from time to time in the event of any
stock split, reverse split, stock dividend or other
reclassification of the capital stock of @Home.
The @Home Repurchase Right may only be exercised by @Home in
the event that Comcast Cable exercises the Comcast Non-
Exclusive Right; any other termination of the Cable Parent
Exclusivity Provisions shall not entitle @Home to exercise
the @Home Repurchase Right and such other termination of the
Cable Parent Exclusivity Provisions shall automatically
terminate the @Home Repurchase Right as to all Subject
Shares held by the Comcast Stockholder Group (except to the
extent that the @Home Repurchase Right has been previously
exercised or is then exercisable as to any of such Subject
Shares in connection with the exercise of the Comcast Non-
Exclusive Right). In the event that Comcast elects to
irrevocably terminate its right to exercise the Comcast Non-
Exclusive Right at any time prior to such time as the @Home
Repurchase Right has become exercisable as a result of the
exercise of the Comcast Non-Exclusive Right, it shall
deliver an instrument to such effect to @Home whereupon the
@Home Repurchase Right and Comcast's right to exercise the
Comcast Non-Exclusive Right shall terminate.
Notwithstanding any other provision contained in this Term
Sheet or in the Stockholders Agreement, until the earlier to
occur of (i) such time as none of the Subject Shares would
be subject to the @Home Repurchase Right in the event of an
exercise of the Comcast Non-Exclusive Right or (ii) such
time as Comcast irrevocably terminates its right to exercise
the Comcast Non-Exclusive Right pursuant to the previous
sentence, neither Comcast Sub nor any member of the Comcast
Stockholder Group shall be entitled to Transfer (other than
to another member of the Comcast Stockholder Group that
agrees to be bound by the provisions of this section and the
Stockholders Agreement) any Subject Shares that would be
subject to the @Home Repurchase Right were Comcast Cable to
exercise the Comcast Non-Exclusive Right.
Nothing herein shall limit the right of any member of the
Comcast Stockholder Group to sell shares of Series A
Preferred Stock or Series A Common Stock pursuant to the
provisions under the caption "Tag Along Right" without
regard to whether such shares are Subject Shares,
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and the @Home Repurchase Right shall terminate as to any
such shares so sold; provided, that the shares sold pursuant
to such tag-along right shall be deemed to be vested shares
that are not Subject Shares to the extent practicable. After
such a sale, the @Home Repurchase Right shall continue as to
any Subject Shares not so sold and the Comcast Non-Exclusive
Right shall remain in effect without modification.
@HOME EXCLUSIVITY
PROVISIONS: Until the later to occur of (i) such time as the applicable
Cable Partner ceases to be an Exclusive Stockholder (except
as a result of the event specified in clause (ii) below) or
(ii) in the event the applicable Cable Partner ceases to be
an Exclusive Stockholder as a direct result of a termination
of the Cable Parent Exclusivity Provisions in connection
with a TCI Performance Default, the sixth anniversary of the
Execution Date, but subject to the requirements of
applicable law and the other terms and conditions of the
Agreement, @Home agrees that neither it nor its Controlled
Affiliates will offer or provide Internet Services (or any
comparable services with comparable capabilities) at bit
rate speeds of greater than 128 kbps to residences in the
geographic area served by the cable systems owned by such
Cable Parent and its Controlled Affiliates other than
through the use of the Operator Facilities of such Cable
Parent and its Controlled Affiliates pursuant to, or as
otherwise contemplated by, this Term Sheet (the "@Home
Exclusivity Provisions"). In addition, the provisions of
this section shall not be applicable with respect to any
Operator Territory to the extent that the @Home Exclusivity
Provisions have been terminated as to such Operator
Territory or following the expiration of the Term (as
defined below) of the applicable LCO Agreement.
NON-PERFORMANCE
OF TCI: In the event that TCI shall be in Performance Default on the
third anniversary of the Execution Date (the "First
Determination Date"), then the applicable Triggering Cable
Parent (as defined below), if any, shall, by written notice
to @Home, TCI and each other Cable Parent, delivered within
60 days of the First Determination Date, be entitled to
terminate the Cable Parent Exclusivity Provisions as to all
Cable Parents and their Controlled Affiliates, such
termination to be effective as of the date of such notice.
In the event that there is a Performance Default on the
First Determination Date but the applicable Triggering Cable
Parent does not elect to terminate the Cable Parent
Exclusivity Provisions within the period specified above,
then following each succeeding anniversary thereafter during
the Restricted Period (each such anniversary, a "Subsequent
Determination Date") upon which TCI shall be in Performance
Default, the applicable Triggering Cable Parent, if an
Eligible Cable Parent, shall have the right, exercisable by
written notice to @Home, TCI and each other Cable Parent,
delivered within 60 days of such Subsequent Determination
Date to terminate the Cable Parent Exclusivity Provisions.
The term "Triggering Cable Parent" shall mean the High C as
of the applicable date of determination or, if one of
Comcast Cable or CCI (a) is no longer an Eligible Cable
Parent or (b) is
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acquired by TCI, the remaining Eligible Cable Parent or
Cable Parent not acquired by TCI, as the case may be,
between Comcast Cable and CCI. An "Eligible Cable Parent"
shall mean any Cable Parent which is a member of a
Stockholder Group which includes an Eligible Stockholder.
MOST FAVORED
NATIONS
PROVISIONS: Each Cable Parent (as defined below) and its Controlled
Affiliates will be entitled to "most favored nation" ("MFN")
terms and conditions of carriage with respect to the
distribution (which shall not include the distribution or
promotion of a content provider's services) of the @Home
Services and with respect to the terms and conditions of the
Trademark License Agreement (as defined below) and any
Ancillary Services Arrangements (as defined below), in each
case, including all direct and indirect benefits as a result
of a transaction with @Home that are no less favorable than
those offered to any other Operator, individually or
collectively from time to time. Such MFN status shall
require identical treatment of all Cable Parents and their
respective Controlled Affiliates (without regard to the size
(through volume discounts or otherwise) or identity of such
Cable Parent or its ownership of @Home securities) (x) with
respect to the terms of the distribution arrangements
(including the Trademark License Agreement and any Ancillary
Services Arrangements) (other than the duration of any
distribution agreement arising from the provisions of the
Term of the LCO Agreement) granted to any Cable Parent and
its Controlled Affiliates and (y) with respect to all of the
terms of such distribution arrangements provided to third
party providers which are not members of a Stockholder Group
(an "Unaffiliated Third Party"), other than with respect to
(i) whether @Home requires that an unaffiliated Operator
agree to provisions similar to the Cable Parent Exclusivity
Provisions as to the applicable Operator Territory, (ii) the
level of commitment related to the Cable System Upgrade and
the remedies of @Home in the event of any failure to upgrade
such systems by the Projected Commencement Date, (iii)
percentage splits granted to Unaffiliated Third Parties in
the event the Board of @Home, by Supermajority Vote, elects
to increase the percentage split to @Home (in which case the
percentage split to @Home would be so increased with respect
to all future periods with respect to all Operators which
are Cable Parents or Controlled Affiliates of a Cable Parent
with respect to any existing LCO Agreement (regardless of
the existing provisions thereof) or any LCO Agreement
entered into in the future, while the LCO Agreements of
Unaffiliated Third Parties in effect at the time of such
change would not be so affected), and (iv) the duration of
any distribution agreement. In addition, each Cable Parent
and its Controlled Affiliates shall be entitled to MFN
status with respect to the terms of any sales agency
agreement pursuant to which it is authorized to enter into
.Com Agreements on behalf of @Home.
CHANGE OF CONTROL
OF TCI: Following the occurrence of a TCI Change of Control, either
CCI or Comcast Cable, so long as it is an Exclusive
Stockholder, shall be
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entitled to elect to terminate the Restricted Period as to
all Cable Parents and their Controlled Affiliates by giving
written notice to such effect to each other Stockholder and
@Home, in which case no Cable Parent or its Controlled
Affiliate shall have any remaining obligations under the
Cable Parent Exclusivity Provisions.
CHANGES IN MASTER
ROLL-OUT SCHEDULE: If a Cable Parent determines that it or one of its
Controlled Affiliates will not be able to fulfill its
commitment with respect to the commencement of the
availability of the @Home Services as of the Projected
Commencement Date, it will immediately notify @Home, and, if
such notice is given at least 180 days prior to the
applicable Projected Commencement Date, the Cable Parent may
substitute one or more other cable systems having
substantially the same number of Homes Passed as were
required to be delivered by such date for commencement of
the @Home Services on that Projected Commencement Date,
subject to the approval of @Home, which will not be
unreasonably withheld so long as the substitute systems have
similar characteristics in terms of number of Homes Passed
and will not cause a material increase in @Home's expenses
or have a material adverse impact on @Home's ability to meet
its other commitments under the Master Roll-Out Schedule.
For purposes of the foregoing sentence, the substitution of
any cable systems that are not Qualifying Systems will be
deemed to have such an impact unless such cable systems are
located in an area included in the current Master Roll-Out
Schedule or in which @Home has already commenced offering
the @Home Services. Any changes to the Master Roll-Out
Schedule pursuant to this paragraph shall be incorporated in
the affected LCO Agreements, and the applicable Cable Parent
shall cause the Operator of any such substituted cable
system to enter into an LCO Agreement.
LOCAL CONTENT
PROGRAMMING: Each Operator, as to its cable system, or each Cable Parent,
as to one, several or all cable systems owned by it and its
Controlled Affiliates, shall be entitled to create, author,
promote and otherwise engage in the business related to
Local Content offerings. Within the @Home First Page, each
Affiliated Operator shall be allocated the Local Area. Each
Affiliated Operator or Cable Parent, as the case may be,
shall be entitled to program its Local Area as it shall
determine in its sole discretion, subject only to the Style
Guidelines (as defined below).
@HOME PROGRAMMING: @Home shall be entitled to create, author and promote such
content provider offerings as it shall determine, and shall
have the right to program the National Area in its sole
discretion, subject to the Cable Parent Exclusion Right and
the Cable Parent Access Blocking Right. @Home and each
Cable Parent will use commercially reasonable efforts to
cooperate with each other in the creation of the @Home First
Page (including the coordination of the programming of the
National Area and each Local Area) so as to optimize the
consumer appeal of the @Home web site.
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EXECUTION OF
PROMOTIONAL
AGREEMENTS AND
EXERCISE OF CABLE
PARENT EXCLUSION
RIGHT: Each Promotional Agreement shall provide that such content
provider's right to presentation on the National Area shall
be subject to the exercise of the Cable Parent's Exclusion
Right. Upon execution of a Promotional Agreement, @Home
shall provide written notice thereof by fax or e-mail to a
designated contact person at each Cable Parent. Such
written notice shall include (i) the identity of the content
provider, (ii) a description outlining in reasonable detail
the content to be offered by such provider, (iii) the
position in the National Area to be assigned to such content
provider, and (iv) an outline of the other terms and
conditions of such Promotional Agreement. Each Cable Parent
will thereafter have the right to exercise its Cable Parent
Exclusion Right with respect to Specified Promotions as to
some or all of its Affiliated Operators distributing the
@Home Service. In order to exercise such right, the Cable
Parent shall deliver reasonable notice of its exercise of
the Cable Parent Exclusion Right to @Home which will become
effective within a reasonable period of time after such
notice.
An exercise of the Cable Parent Exclusion Right shall result
in (x) the exclusion from the National Area of any or all
Specified Promotions (as defined below) with respect to a
Specified Brand (as designated by the applicable Cable
Parent) and (y) the replacement of such promotions (e.g.,
replacement of the excluded "button") by other promotions of
the same type (e.g., replacement of an excluded button with
another button) as selected by @Home.
The term "Specified Promotions" shall mean any or all
promotions in the National Area relating to the Specified
Brand of a content provider (as designated by the applicable
Cable Parent). A "Content Provider Group" shall mean a
content provider that has entered into one or more
Promotional Agreements for the purpose of placing Specified
Promotions in the National Area with respect to a number of
Specified Brands. The term "Specified Brand" means one or
more substantially similar brand names utilized by a content
provider in connection with the promotion of its business
identified by such brand name(s). By way of example, Turner
Broadcasting System, Inc. ("TBS") and its subsidiaries would
be considered a Content Provider Group; WTBS and TNT would
be considered to be two Specified Brands because they
represent distinct brand names (albeit in the same line of
business). A Cable Parent electing to exercise its Cable
Parent Exclusion Right with respect to WTBS and TNT would be
deemed to have excluded two Specified Promotions to the
extent that it elected to exclude both WTBS and TNT.
Similarly, a Cable Parent electing to exercise its Cable
Parent Exclusion Right with respect to a content provider
which elected to use only one Specified Brand to promote
several related sites using substantially similar brand
names (for example, QVC Diamonds, QVC Clothes, QVC
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Electronics, etc.) would be deemed to have exercised its
exclusion right with respect to one Specified Brand.
A Cable Parent shall be entitled to exercise its Cable
Parent Exclusion Right from time to time in its sole
discretion. In the event that the number of Specified Brands
excluded by a Cable Parent exceeds its Exclusion Limit, then
the Cable Parent Premium Service Revenue Split shall be
subject to adjustment as provided below. The exercise of the
Cable Parent Exclusion Right with respect to a Specified
Brand will be counted toward the Exclusion Limit regardless
of whether such Cable Parent exercises the exclusion right
with respect to some or all of its Affiliated Operators or
with respect to some or all of the Specified Promotions as
to such Specified Brand. For purposes of the determination
of whether or not a Cable Parent has exceeded its Exclusion
Limit, there shall not be included as Specified Brands (i) a
single Competitor Exclusion (as defined below) or (ii) any
exclusions which are Discretionary Exclusions (as defined
below). A "Competitor Exclusion" shall mean the exclusion of
the Specified Promotion(s) as to a single Specified Brand
provider or service which is a competitor to a content
provider or service which is an affiliate of such Cable
Parent; provided that, if Comcast Cable elects to use its
-------- ----
Competitor Exclusion with respect to Specified Promotions of
the Home Shopping Network, Inc. ("HSN"), such exclusion
shall be deemed to apply to all electronic retailing
businesses of HSN without regard to brand name. A
"Discretionary Exclusion" shall mean an exclusion based upon
(i) such Cable Parent's good faith determination that the
content to be offered constitutes pornographic or other
immoral or overly violent subject matter, (ii) such Cable
Parent's reasonable determination that the content to be
offered may adversely impact an Affiliated Operator's
franchise to deliver cable television service and/or the
@Home Service or (iii) the fact that such promotions relate
to video clips which exceed ten minutes in duration.
The "Exclusion Limit" of each Cable Parent shall be three
Specified Brands, which Specified Brands may be changed by
the applicable Cable Parent at any time upon reasonable
advance notice to @Home. In the event a Cable Parent exceeds
its Exclusion Limit, then during the monthly billing period
in which such Cable Parent has exceeded its Exclusion Limit
the Premium Service Revenue Split (as defined below) between
the Operators that are Controlled Affiliates of such Cable
Parent and @Home shall be adjusted to (x) decrease the
Premium Service Revenue Split to such Operators and (y)
increase the Premium Service Revenue Split to @Home from
such Affiliated Operators in accordance with the following
schedule:
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<PAGE>
<TABLE>
<CAPTION>
The Highest Number by Operator's @Home's
which such Cable Parent's Adjusted Adjusted
Exclusion of Specified Premium Premium
Brands Exceeds its Service Service
Exclusion Limit in a Revenue Revenue
billing month Split Split
------------------------- ----------- --------
<S> <C> <C>
1 56% 44%
2 51% 49%
3 45% 55%
4 38% 62%
5 29% 71%
6 17% 83%
7 6% 94%
8+ 0% 100%
</TABLE>
In connection with any change to the Premium Service Revenue
Splits which has been approved in accordance with the
provisions of this Term Sheet, the above revenue splits
shall be correspondingly adjusted.
EXECUTION OF .COM
AGREEMENTS AND
EXERCISE OF CABLE
PARENT ACCESS
BLOCKING RIGHT: Each .Com Agreement and Promotional Agreement shall provide
that the content provider's right to connectivity over the
@Home Service to subscribers of any Affiliated Operators
shall be subject to the exercise of the Cable Parent Access
Blocking Right. Upon execution of a .Com Agreement, @Home
or any Cable Parent or Controlled Affiliate acting as a
sales agent on behalf of @Home, shall provide written notice
thereof by fax or e-mail to a designated contact person at
@Home and each other Cable Parent, as applicable. Such
written notice shall include (i) the identity of the content
provider and (ii) a description outlining in reasonable
detail the content to be offered by such provider. Upon
exercise of its Cable Parent Access Blocking Right, such
Cable Parent shall deliver reasonable notice of its exercise
of such right to @Home and the other Cable Parents which
will become effective within a reasonable period of time
after such notice. Subject to the other terms of this
section, such Cable Parent shall thereafter have the right
to block the access by its subscribers of the @Home Service
to (i) any content offering with respect to which such Cable
Parent would have been entitled to exercise its Cable Parent
Exclusion Right as a Discretionary Exclusion (a
"Discretionary Access Exclusion") and (ii) any content
provider which is attempting to provide video clips
exceeding the duration limit set forth in the Specifications
and Standards. The exercise of the Cable Parent Access
Blocking Right shall be the sole responsibility of the Cable
Parent so exercising it (including, but not limited to, the
determination of the technological means to block such
access), and each Cable Parent agrees that its exercise of
such blocking right will be done in such a way that it does
not otherwise interfere in
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any significant way with the delivery and presentation of
the @Home Service.
Each Cable Parent agrees to indemnify and hold @Home and
each other Stockholder harmless from all damages, costs and
expenses (including reasonable legal fees) incurred by @Home
or each other Stockholder as a result of any claims,
actions, suits or other proceedings (including
investigations related thereto) of any third party or
governmental or regulatory entity (other than a party to a
.Com Agreement or a Promotional Agreement) arising out of or
relating to the exercise by such Cable Parent of the Cable
Parent Access Blocking Right with respect to a Discretionary
Access Exclusion. @Home shall assist the Cable Parent in
the exercise of such Cable Parent Access Blocking Right so
long as @Home is not required to expend substantial effort
in respect thereof.
@Home acknowledges and agrees that each .Com Agreement and
each Promotional Agreement entered into following the
Execution Date will contain a provision in which each
content provider acknowledges and agrees to the existence
and exercise of such Cable Parent Access Blocking Right and
Cable Parent Exclusion Right, and agrees that it will not
sue or threaten to sue, or seek or attempt to cause any
person to commence or threaten any governmental or
regulatory action or investigation against @Home or any
Cable Parent as a result of or in connection with the
exercise of the Cable Parent Access Blocking Right or Cable
Parent Exclusion Right.
CONTENT TAG-
ALONG RIGHT: Each Parent agrees that neither it nor any of its Controlled
Affiliates will obtain any Additional Benefit (as defined
below) unless it has complied with the provisions of this
section. In the event that any Parent or its Controlled
Affiliate seeks to enter into a transaction with a third
party in which such Parent or Controlled Affiliate may or
will receive any Additional Benefit as a condition of or as
a result of such third party's entering into a transaction
with @Home, then such Parent or Controlled Affiliate will
provide written notice to each Cable Parent thereof
describing such transaction and the Additional Benefit to be
received by such Parent or Controlled Affiliate. Such
written notice shall also constitute an offer by such Parent
(the "Offeror") to each Cable Parent (each, an "Offeree") to
participate in such transaction upon the same terms and
conditions as the Offeror (which, in the event any such
Additional Benefit is of a limited amount or type, shall
mean the right to participate in such transaction pro rata
based upon each such accepting Offeree's ownership of equity
securities of @Home and otherwise upon the same terms and
conditions as such Offeror), which offer may be accepted by
such Offeree by written notice to such Offeror, each other
Offeree and @Home delivered to such persons not later than
the twentieth business day following the date of receipt of
such notice; provided that the Offeror may require an
earlier response (but not less than five business days
following the receipt of such notice) by so
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specifying in the written notice to the extent such earlier
response is reasonably necessary.
In the event that it is not reasonably practicable to offer
participation in the Additional Benefit as described above,
the Offeror shall promptly make payments in cash to the
Offerees so that the Offeror and Offeree share in the value
of the Additional Benefit pro rata based solely upon their
respective ownership of equity securities of @Home.
In the event that the consideration to be paid (or
Additional Benefit to be received) by any Offeror in
connection with such transaction is to consist of assets,
securities or other property or services, then the price at
which any Offeree may accept such offer shall be or, if
applicable, the amount of cash payments by the Offeror, the
fair market value of such assets, securities, property or
services, which if the parties are unable to agree, shall be
the appraised value thereof as determined by a mutually
agreed upon investment banking firm. The term "Additional
Benefit" shall mean (i) securities or options, warrants or
rights to acquire securities, (ii) assets or (iii) other
property or benefits of any type, in each case to be
received by a Parent or a Controlled Affiliate thereof in a
transaction between such Parent or Controlled Affiliate and
such third party which transaction is conditioned upon or
otherwise contingent upon such third party's entering into
such transaction with @Home and is upon terms and conditions
which are less favorable to @Home than @Home's regular
charges or other terms for such services, or is otherwise on
terms which are not arm's-length.
The exercise of any rights by a Cable Parent under this
section shall be in addition to any rights that a Cable
Parent may have with respect to the applicable transaction
under the provisions opposite the caption "Most Favored
Nations Provisions."
PARENT UNDERTAKING: Each of TCI, as to TCIC and TCI Services, CEI, as to CCI,
and Comcast, as to Comcast Cable, hereby undertakes that, in
the event that such Parent entity acquires control of any
cable television systems which are not Controlled Affiliates
of the applicable Cable Parent, such Parent will cause such
cable television systems to comply with the terms of this
agreement, including the Cable Parent Exclusivity
Provisions, as if such cable television systems were
parties hereto; provided, that such Parent shall not be
obligated to terminate (other than in accordance with the
terms and provisions of the applicable agreement) the
distribution of any residential Internet Services
distributed by such cable system prior to such time as the
applicable agreement expires or otherwise may be terminated
by such Parent without the incurrence of any material
liability or additional obligations thereunder.
@Home hereby undertakes that, while the @Home Exclusivity
Provisions are in effect, in the event it provides Internet
Services (or any comparable services with comparable
capabilities) at bit rate speeds
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greater than 128 kbps through arrangements with an alternate
distribution provider (an "Alternative Arrangement") to
residences in a geographic area in which a Cable Parent or
its Controlled Affiliate subsequently acquires a cable
television system that is capable of distributing such
services in the geographic area, @Home will use commercially
reasonable efforts (i) to offer such services through such
cable television system when such system is upgraded in
accordance with the Specifications and Standards and
scheduled for commencement of service on the Master Roll-Out
Schedule and (ii) to terminate @Home's obligations under
such Alternative Arrangements in such geographic area;
provided, that @Home shall not be obligated to terminate
(other than in accordance with the terms and provisions of
the applicable agreement) the distribution of such services
under such Alternative Arrangements in such geographic area
prior to such time as the applicable agreement expires or
otherwise may be terminated by @Home (i) without the
incurrence of any material liability or additional
obligations thereunder and (ii) without any material adverse
impact on the economics to @Home of providing such services
to residences in the geographic area.
OTHER SERVICES: Any broadband local transport services provided by Operator
to @Home as part of the @Home Facilities, including
connectivity to content providers, will be the subject of a
separate agreement between the parties, the terms and
provisions of which (including the compensation payable
thereunder to Operator) shall be mutually agreeable to the
parties.
In addition, to the extent that new and different devices to
connect to the Internet are developed in the future, in the
event that any Cable Parent so requests, @Home and such
Cable Partner agree to enter into good faith negotiations
regarding modifications to the basic terms of the
distribution of the @Home Service as well as modifications
to the @Home Service itself in order to provide connectivity
through such devices upon terms which further the economic
benefits to both @Home and such Cable Partner.
TERM: The Master Distribution Agreement shall terminate as to each
Cable Parent at the end of the Term of the last to terminate
of the LCO Agreements in effect between @Home and such Cable
Parent or its Controlled Affiliates entered into pursuant to
the Master Distribution Agreement (including any extension
or renewal thereof).
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<PAGE>
VIII. TERMS OF LCO AGREEMENTS.
-----------------------
This Section VIII of the Term Sheet is intended to set forth the terms and
conditions of the LCO Agreements to be entered into between @Home and the
Affiliated Operators of the Cable Parents pursuant to which such Affiliated
Operators would distribute the @Home Service. These provisions are also
intended to serve as the basis upon which @Home would seek to negotiate LCO
Agreements with Operators which are not Controlled Affiliates of any Cable
Parent. With respect to LCO Agreements between @Home and such Affiliated
Operators, the following provisions are intended to provide a summary of the
terms and conditions of such LCO Agreements. With respect to LCO Agreements to
be entered into with Operators which are not Controlled Affiliates of any Cable
Parent, however, such terms and conditions are intended to form a basis upon
which @Home may negotiate such agreements, and therefore, subject to the MFN
provisions in the Master Distribution Agreement, @Home may vary such terms and
conditions granted to such Operators from the terms and conditions set forth
below.
A. ROLL-OUT OF THE @HOME SERVICES
OPERATOR TERRITORY: The LCO Agreement will provide that the @Home Services
initially will be made available as and to the extent
provided in the Master Roll-Out Schedule (the relevant
portions of which shall be incorporated into the LCO
Agreement (referred to below as the "Roll-Out Schedule")) in
that portion of the geographic area covered by the LCO
Agreement where Operator is providing cable television
service through Operator's distribution facilities (the
"Operator Territory").
@HOME ROLL OUT
COMMITMENT: @Home will use commercially reasonable efforts to complete
the Network Upgrade in the Operator Territory containing the
Offered Homes Passed set forth in the LCO Agreement on or
before the Projected Commencement Date in accordance with
the applicable provisions of the Roll-Out Schedule (and
thereafter as may be required to make available to Operator
the @Home Services (including at any additional applicable
Point of Demarcation) in connection with the commencement of
the provision of the @Home Services to subscribers in
additional portion(s) of the Operator Territory), in each
case subject to the Operator having completed the Cable
System Upgrade. Subject to the requirements of the Roll-Out
Schedule, @Home and Operator shall negotiate in good faith
and use commercially reasonable efforts to coordinate the
timing of the completion of the Cable System Upgrade and the
Network Upgrade in each applicable portion of the Operator
Territory.
FAILURE BY @HOME
TO ROLL-OUT: In the event that @Home does not complete the Network
Upgrade in the Operator Territory on or prior to the date
which is 120 days after the Projected Commencement Date,
then, Operator shall have the right to terminate the Cable
Parent Exclusivity Provisions as to the Operator Territory.
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<PAGE>
In the event that @Home does not complete the Network
Upgrade in the Operator Territory on or prior to the date
which is 180 days after the Projected Commencement Date,
then, Operator shall have the right to either (x) continue
the election made above and, at such time as the @Home
Services become available for distribution in such area,
distribute the @Home Services in accordance with the terms
of the LCO Agreement (other than the Cable Parent
Exclusivity Provisions as to the Operator Territory) or (y)
terminate the LCO Agreement; provided however, that if
-------- -------
Operator terminates the LCO Agreement and @Home completes
the Network Upgrade in the Operator Territory within the
otherwise applicable Term of such LCO Agreement had such LCO
Agreement not been terminated, Operator may then elect to
reinstate the LCO Agreement (without, however, giving effect
to the Cable Parent Exclusivity Provisions as to the
Operator Territory).
In the event that @Home fails to complete the Network
Upgrade with respect to any portion of the Operator
Territory, then Operator's remedies described above will
only be exercisable with respect to such portion of the
Operator Territory, unless such failure relates to a
material portion of the Operator Territory, in which case
such remedies shall apply to the entire Operator Territory.
The availability of remedies to Operator hereunder shall be
subject to Operator's satisfaction of its obligations set
forth below.
OPERATOR ROLL-OUT
COMMITMENT: Operator will use commercially reasonable efforts to
complete the Cable System Upgrade of the required Operator
Facilities no later than the Projected Commencement Date,
such that the number of Homes Passed in the Operator
Territory capable of receiving the @Home Services equals or
exceeds the number of Homes Passed specified in the Roll-Out
Schedule for the applicable Planning Period, subject to
@Home having completed the Network Upgrade in the applicable
portions of the Operator Territory. Notwithstanding any
other provisions contained herein, upon not less than 180
days notice prior to the Projected Commencement Date, an
Operator may terminate or defer the Projected Commencement
Date without any liability hereunder, as to the portion of
the Operator Territory applicable to such Projected
Commencement Date.
FAILURE BY OPERATOR
TO ROLL-OUT: Subject to the right to terminate or defer the Projected
Commencement Date set forth in the preceding paragraph, in
the event that Operator does not complete the Cable System
Upgrade of the required Operator Facilities on or prior to
the date which is 180 days after the Projected Commencement
Date set forth on the Roll-Out Schedule, then (i) Operator
shall be required to pay to @Home, as liquidated damages and
not as a penalty, the @Home Specified Remedy and (ii) @Home
shall be entitled to terminate its obligations under the
@Home Exclusivity
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Provisions with respect to those portions of the Operator
Territory where @Home reasonably determines, after
consultation with Operator, that Operator has ceased to use
commercially reasonable efforts to complete the Cable System
Upgrade so as to comply with the Roll-Out Schedule.
To the extent that any failure by Operator to complete a
Cable System Upgrade results from the failure by Operator to
timely obtain any regulatory or third party consent or
approval required on the part of Operator in order to so
complete the Cable System Upgrade in any portion of the
Operator Territory, the obligations of each party under the
LCO Agreement shall be suspended until such time as Operator
obtains any such regulatory or third party consent or
approval; provided, that Operator shall continue to use all
reasonable efforts to obtain any such consent or approval;
and provided further, that (i) the obligations of @Home
under the @Home Exclusivity Provisions with respect to any
affected portion(s) of the Operator Territory shall
terminate to the extent any such suspension lasts for more
than 180 days after the Projected Commencement Date and (ii)
either party shall be entitled to terminate the LCO
Agreement as to the affected portion(s) of the Operator
Territory in the event of any such suspension that lasts for
more than 270 days after the Projected Commencement Date.
EXTENSIONS OF TIME: The time for a party's performance (including any cure
period for a failure to perform) under the LCO Agreement
shall be extended day-for-day by (i) in the event of a
concurrent failure to perform by the other party, the number
of days of any resulting delay in such party's ability to
perform or (ii) the number of days such party's performance
was prevented or delayed by the occurrence of a Force
Majeure Event (as defined below).
SOLE REMEDIES: The remedies described herein will be the sole remedies
available to the parties with respect to a party's failure
to meet its obligations under the Roll-Out Schedule.
TESTING: As soon as practicable following notification by Operator to
@Home that the Cable System Upgrade has been completed in
any designated portion of the Operator Territory, @Home and
Operator shall agree upon a test date for such Operator
Facilities and the applicable @Home Facilities, if any,
which testing shall verify that the applicable Operator
Facilities and, if applicable, @Home Facilities, perform in
accordance with the Specifications and Standards.
COMMENCEMENT OF
SERVICES: Following such testing and the agreement of the parties that
the applicable Operator Facilities and @Home Facilities
comply with the Specifications and Standards, @Home shall
make the @Home Services available to Operator for
distribution by Operator to subscribers in those portions of
the Operator Territory served by such Operator Facilities,
and Operator shall commence offering and providing the @Home
Services to subscribers in such portions of the Operator
Territory.
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OWNERSHIP AND
MAINTENANCE: As between @Home and Operator, @Home will, at its own
expense, provide, install, maintain, repair, inspect,
replace or remove, operate and control the @Home Facilities
necessary to provide the @Home Services to subscribers in
the Operator Territory up to the Point of Demarcation in
accordance with the Specifications and Standards. As between
@Home and Operator, Operator will, at its own expense,
provide, install, maintain, repair, inspect, replace or
remove, operate and control the Operator Facilities
necessary to distribute the @Home Services from the Point of
Demarcation to subscribers in the Operator Territory in
accordance with the Specifications and Standards.
As between Operator and @Home (i) Operator shall retain full
ownership and operating control of, and will be fully
responsible for operating and maintaining, the Operator
Facilities, and (ii) @Home shall retain full ownership and
operating control of, and will be fully responsible for
operating and maintaining, the @Home Facilities. Subject to
the foregoing, @Home will be responsible for the management
of the @Home Network, including but not limited to, the
collection of data necessary to provide for the billing of
Premium Service Revenues and surveillance over the @Home
Network regarding hardware or software problems or failures.
Notwithstanding the foregoing and subject to all applicable
laws, all subscriber data shall remain the property of the
applicable Operator and @Home shall deliver to Operator, on
a regular basis, all subscriber data relating to subscribers
of the @Home Services located within the Operator Territory
collected by it in the course of its management of the @Home
Network, subject, however, to the right of @Home to
------- -------
aggregate and categorize such subscriber data (i.e., in a
manner which does not identify specific subscribers) for use
in promotional efforts and @Home Network management.
PERFORMANCE
STANDARDS: Operator shall operate and maintain the Operator Facilities
in accordance with the applicable requirements of the
Specifications and Standards. @Home shall operate and
maintain the @Home Facilities so that such facilities are
capable of delivering the @Home Services to Operator for
distribution to subscribers in the Operator Territory in
accordance with the applicable requirements of the
Specifications and Standards.
B. MARKETING; CUSTOMER SERVICE.
MARKETING: Operator and @Home will enter into a Joint Marketing
Agreement which will provide, among other things, that (i)
to the extent that @Home engages in any national marketing
campaign with respect to the @Home Services, @Home shall
provide marketing support of substantially similar quality
and quantity and on no less favorable terms and conditions
to Operator as provided to operators of similarly situated
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cable systems, (ii) Operator will use commercially
reasonable efforts to cooperate and participate in such
national marketing efforts, and (iii) Operator may engage in
local marketing efforts with respect to @Home and the @Home
Services, and @Home shall use its commercially reasonable
efforts to cooperate and participate in such efforts.
BRANDING: The @Home Services will be marketed and provided by @Home
and Operator under the @Home brands pursuant to the form of
trademark license agreement (the "Trademark License
Agreement") to be entered into between @Home and Operator
(such brands to be used alone or in conjunction with
Operator's "cable" brand), subject to the quality standards
and usage guidelines set forth in such agreement. The @Home
brands will be prominently displayed on the browsers.
HOME PAGE: @Home will provide Operator with a selection of first screen
templates for use in developing and configuring Operator's
local home page and any local "theme" pages. Operator may
customize these templates; provided, that the home page and
any such theme pages comply with the look and feel,
configuration and quality guidelines to be established by
@Home to insure a consistent image and quality standard for
the @Home Services to support national branding of the @Home
Services (the "Style Guidelines").
NATIONAL/LOCAL With the exception of the Local Area (including the BUI
CONTENT: Button), the content received by a subscriber upon startup
of the @Home Services, any thematic linked pages thereto,
the browsers and all related navigation devices shall be
programmed by @Home, and each Operator shall be required to
accept the @Home Services as so programmed (subject,
however, to the Specifications and Standards), including,
but not limited to, any promotional-type content, special
hot-links, video barker and the content and organization of
such pages, subject, however, to the Cable Parent Exclusion
Right and the Cable Parent Access Blocking Right.
CUSTOMER SERVICE: Operator shall have the exclusive first opportunity to
provide all customer service required in connection with the
provision of the @Home Services to subscribers in the
Operator Territory receiving the @Home Services through the
Operator Facilities.
At Operator's election (pursuant to procedures set forth in
the LCO Agreement), Operator may allocate all or part of
such customer service responsibility to @Home, in which case
@Home may be entitled to compensation from Operator as set
forth below for the provision of such services based on
standard charges established by the LCO Agreement (which
charges shall be based on @Home's cost of providing such
services, plus a reasonable return).
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C. COMPENSATION AND BILLING.
ALLOCATION OF
BILLING
RESPONSIBILITY: Operator shall be responsible for the billing and collection
of monthly subscription fees (including the allocable
portion of any charges related to bundled services) from
subscribers to the @Home Services in the Operator Territory
which receive the @Home Services through the Operator
Facilities. Notwithstanding the foregoing, as between @Home
and Operator, the collection of fees and charges relating to
the utilization by subscribers of Premium Services shall be
the responsibility of the party contracting with the
applicable provider of such Premium Services regarding the
provision of such services.
PRICING: Operator shall have complete discretion as to the pricing of
the @Home Services and any Premium Services (as to which
Operator is the contracting party) to subscribers in the
Operator Territory receiving the @Home Services through the
Operator Facilities.
COMPENSATION: Operator shall make monthly payments (the "Monthly
Payments") to @Home in respect of each month during the Term
in an amount equal to (i) 35% of aggregate Basic Service
Revenues collected by Operator during such month from the
provision of the @Home Services to subscribers using the
Operator Facilities (the "Basic Service Revenue Split") plus
(ii) 35% of Premium Service Revenues collected by Operator
during such month from the provision of Premium Services to
subscribers accessing such services using the Operator
Facilities (to the extent that Operator is responsible for
the collection of such charges). Exhibit B sets forth the
services @Home shall provide to the Operator in return for
the Basic Service Revenue Split.
The Basic Service Revenue Split is based on the assumption
that Operator will provide Tier I customer service and that
@Home will provide Tier II and Tier III customer service (as
such terms are defined in Exhibit B). To the extent that
such customer service is provided other than in accordance
with the foregoing allocation, and Operator directs @Home to
provide all or any portion of Tier I customer service, @Home
will be entitled to compensation from Operator for the
provision of such services based on standard charges
established by the LCO Agreement, which charges shall be
based on @Home's cost of providing such services plus a
reasonable return. In the event that Operator elects to
perform all or part of Tier II customer service, such
Operator will receive a credit against the amount it would
otherwise owe to @Home pursuant to this paragraph equal to
@Home's cost of providing such services plus a reasonable
return.
@Home shall make payments to Operator on a monthly basis in
an amount equal to 65% of Premium Service Revenues collected
by @Home during such month from the provision of Premium
Services to subscribers in the Operator Territory accessing
such services using the
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Operator Facilities (to the extent that @Home is responsible
for the collection of such charges).
The percentage of Premium Service Revenues to which Operator
is entitled pursuant to the preceding two paragraphs is
referred to herein as the "Premium Service Revenue Split."
The Premium Service Revenue Split will be subject to
adjustment in accordance with the provisions under the
caption "Execution of Promotional Agreements and Exercise of
Cable Parent Exclusion Right."
As used herein, "Basic Service Revenues" means revenues from
the @Home Services collected by Operator (other than Premium
Service Revenues) including any amounts received by Operator
in respect of the provision of cable modems to subscribers
but excluding any fees collected for installation, and
"Premium Service Revenues" means the net revenues retained
by Operator or @Home, as the case may be, derived from its
performance pursuant to .Com Agreements and Promotional
Agreements, including service fees, content provider
charges, transaction fees, subscriber fees, advertising and
promotional revenue or other transaction value (including
barter payments or advertising avails), from the provision
of the @Home Services to customers in the Operator
Territory.
Notwithstanding the foregoing, any fees or other amounts
received by @Home which relate to the programming of the
National Area, including service fees, content provider
charges, transaction fees, advertising and promotional
revenue or other transaction value (including barter
payments or advertising avails) shall not be included within
the definition of either Basic Service Revenues or Premium
Service Revenues, and @Home shall be entitled to retain all
amounts collected by it in respect of such activities.
The foregoing Basic Service Revenue Split and Premium
Service Revenue Split (collectively the "Revenue Splits")
shall be subject to adjustment from time to time by the
Board of Directors of @Home as provided below:
1. The Revenue Splits to @Home may be decreased by the
Board and increased by a Supermajority Vote of the
Board with respect to all existing LCO Agreements with
an Affiliated Operator and all LCO Agreements to be
entered into with an Affiliated Operator.
2. In connection with the @Home IPO, the Board will review
the Revenue Splits in connection with @Home's
preparations for the IPO.
Notwithstanding the foregoing, any fees or other amounts
received by Operator which relate to, the programming of the
Local Area or the provision of Local Service, including
service fees, content provider
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charges, transaction fees, advertising and promotional
revenue or other transaction value (including advertising
avails and barter payments) shall not be included within the
definition of either Basic Service Revenues or Premium
Service Revenues, and Operator shall be entitled to retain
all amounts collected by it in respect of such activities;
provided, that @Home shall be entitled to reasonable
compensation for network management services provided by
@Home and any caching and replicating (including, but not
limited to, technical assistance and, if applicable, the
lease of capacity in the @Home Facilities) provided by @Home
with respect to such Local Service in connection with the
provision of such Local Service and/or the connection of
such Local Content provider to the @Home Network (based on
@Home's cost of providing such services, plus a reasonable
return) for such services requested by Operator.
In the event that Operator makes the Operator Facilities
available to @Home in connection with the provision of
Internet Services to large business customers, the revenues
attributable to the provision of such services using
Operator's HFC plant (e.g., "Work @Home" revenues) ("@Work
Service Revenues") shall be allocated 70% to Operator and
30% to @Home.
MONTHLY PAYMENT
PROCEDURES: Not later than 30 days following the last day of each month,
Operator shall deliver to @Home a certificate containing
Operator's calculation of the amount of the Monthly Payment
due to @Home in respect of such month and the basis for such
calculation, which calculation shall have been certified by
an officer or authorized designee of Operator as true and
correct and as having been made in accordance with the
provisions set forth above. Not later than 30 days after
the last day of each month Operator shall deliver to @Home
the Monthly Payment in respect of such month. Operator
shall maintain detailed records relating to the
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usage of the Premium Services and the calculation of Premium
Service Revenues, and shall permit Operator access to such
records at reasonable times upon reasonable notice to make
copies of such records and to discuss the calculation of the
Premium Service Revenues with officers and employees of
@Home. Operator and @Home shall meet in good faith to
resolve any disagreements regarding the calculations of all
such amounts.
ANCILLARY SERVICES: @Home shall provide Operator with a schedule of its charges
related to the provision by it of ancillary services to
Operators, such as customer support and service, network
management, and Local Service-related fees, which schedule
shall be updated periodically. With respect to those
services which Operator may elect to purchase, Operator
shall notify @Home of such election and agreement to pay
such fees, and @Home shall as soon as practicable thereafter
and as agreed with Operator, commence providing such
services to Operator in accordance with such schedule of
fees. @Home shall bill Operator on a regular basis for such
optional services elected by Operator and for those
services, such as fees for network management, which are
required to be purchased by Operator, and Operator shall
remit such payment promptly to @Home. The arrangements
contemplated by the foregoing paragraph are referred to in
this Term Sheet as the "Ancillary Services Arrangements."
Ancillary Service Arrangements do not include those services
specified in Exhibit B that are provided to the Operator in
return for the Basic Service Revenue Split.
TAXES: The billing party agrees to pay any sales, use, gross
receipts, excise or other local, state and federal taxes,
fees or charges, however designated (excluding taxes on the
other party's income) imposed on or based upon the
provision, sale or use of Basic Services, Premium Services
or @Work Service Revenues, if any; provided, that such
amounts will not be included in Basic Service Revenues,
Premium Service Revenues or @Work Service Revenues, but will
be separately stated on each monthly statement to the other
party.
D. MISCELLANEOUS.
REGULATORY: Each party will at its own expense use all commercially
reasonable efforts to obtain all regulatory consents,
authorizations and approvals that are necessary for it to
obtain in connection with its execution and performance of
the LCO Agreement and the provision of the @Home Services
using the Operator Facilities in the Operator Territory.
CONFIDENTIALITY: Each party will, and will cause its respective officers,
directors, employees and advisors to, maintain in confidence
all confidential and proprietary information and data of the
other party ("Confidential Information"), and will not
disclose Confidential Information to any other person,
subject to customary exceptions.
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INDEMNIFICATION: Each party shall indemnify the other party against, and hold
the other party harmless from, any claim, demand, loss,
damage, liability or expense (including reasonable
attorneys' fees and disbursements) arising out of or
resulting from such party's breach of this Term Sheet or
negligence or intentional act committed in connection with
the transactions contemplated by this Term Sheet.
FORCE MAJEURE: The parties agree that upon the occurrence of events making
a party's timely performance under this Term Sheet
impracticable due to, among other matters, hardware or
software shortages, equipment shortages or failures (in each
case resulting other than from such party's negligence), or
through acts of God or other events beyond its control (a
"Force Majeure Event"), such party's performance of its
obligations hereunder shall be suspended during such period;
provided, that each party shall be obligated to use
commercially reasonable efforts to cure any such failure to
perform as promptly as possible to the extent it relates to
its portion of the @Home Network; and, provided further,
that either party shall be entitled to terminate its
obligations as to the affected portions of the Operator
Territory in the event any such failure to perform is not
cured in all material respects so as to permit the
resumption of the provision of the @Home Services in the
affected portion of the Operator Territory within 180 days.
CONDEMNATION: If all or any portion of the Operator's Facilities are taken
or proposed to be taken for any public or quasi-public
purpose by any governmental authority by the exercise of
right of eminent domain, Operator will so notify @Home, and
will use commercially reasonable efforts to reroute or
replace the affected area in accordance with the
Specifications and Standards within 180 days of the taking.
In the event the affected facilities are not so rerouted or
replaced within such 180 day period, @Home or Operator (but
only to the extent Operator has used commercially reasonable
efforts in accordance with the previous sentence) will be
entitled to terminate its obligations as to the affected
portions of the Operator Territory without further liability
or obligation to either party.
TERM: The term (the "Term") of an LCO Agreement entered into with
any Affiliated Operator (including any Operators which have
entered into LCO Agreements prior to the date such Operator
becomes a Controlled Affiliate, provided that such
Operator's original LCO Agreement does not specify a longer
term) shall begin on the Commencement Date and shall end on
the latest to occur of (i) the third anniversary of the
applicable Commencement Date, (ii) the earlier to occur of
(A) the sixth anniversary of the Execution Date and (B) 90
days following the termination of the Restricted Period as
to the Cable Parent of the applicable Affiliated Operator,
and (iii) 90 days following written notice from the
applicable Stockholder that it has ceased to be an Exclusive
Stockholder; provided, that, at any time following the
effectiveness of its
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exercise of the Comcast Non-Exclusive Right, Comcast Cable,
by 90 days written notice, shall have the right to terminate
all LCO Agreements entered into by it and its Controlled
Affiliates (in which case either of @Home or Comcast Cable
shall have the right to extend the Term for an additional 90
days by written notice to such effect given to the other
party within 30 days following Comcast Cable's notice of its
exercise of its right pursuant to this proviso). Operator
shall also have the right to renew the term of the LCO
Agreement for an additional period of three years by written
notice to such effect given to @Home not later than 90 days
prior to the end of the Term.
TERMINATION: Each party may terminate the LCO Agreement (i) following a
material breach by the other party that has not been cured
after 30 days written notice thereof (other than a breach
for which the applicable remedies available to the non-
breaching party are otherwise specified by the LCO
Agreement), (ii) upon the occurrence of events specified
herein granting a party the right to terminate such
agreement, or (iii) upon the bankruptcy or insolvency of the
other party.
REPRESENTATIONS: The LCO Agreement shall contain representations and
warranties of the parties that are customary and appropriate
in the context of the transactions contemplated thereby.
IX. GENERAL
-------
REASONABLE
COMMERCIAL
EFFORTS: Any reference in this Term Sheet to an obligation to use
"all commercially reasonable efforts," "reasonable
commercial efforts" or any similar level of effort shall
mean an obligation to use commercially reasonable efforts,
and no difference in the language expressing any such level
of effort shall imply any substantively different
obligation.
AMENDMENTS TO
THIS TERM SHEET: The provisions of this Term Sheet may not be amended,
modified, supplemented or superseded unless approved in
writing by each Stockholder and @Home.
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EXHIBIT A
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SUPERMAJORITY ITEMS
- -------------------
The By-Laws of @Home shall provide that no action may be taken with
respect to any of the following matters without the affirmative vote or written
consent of 75% (rounded up to the nearest whole number of Directors) of the
total number of Series K and Series A Directors, voting as a separate class of
Directors (such vote or consent, a "Supermajority Vote"); provided, however,
that any action with respect to the following matters which would also
constitute a Related Party Transaction shall require the affirmative vote or
written consent of 75% (rounded up to the nearest whole number of Directors) (or
two-thirds if there are only three such Directors) of the total number of Series
K, Series T, and Series A Directors not required to abstain with respect to such
matter, voting as a separate class of Directors.
1. The merger, consolidation or other business combination by @Home
or any subsidiary of @Home into or with any other entity, other than any
transaction involving only @Home and/or one or more directly or indirectly
wholly owned subsidiaries of @Home; provided, however, that the provisions of
-------- -------
this paragraph shall not apply to transactions which have been approved in
accordance with paragraphs 2 and 4 below, or which would not otherwise require
approval thereunder.
2. The acquisition (other than an acquisition covered by paragraph 4
below) by @Home or any subsidiary of @Home of any assets or properties
(including stock or other equity interests of a third party) in one transaction
or a series of related transactions, which assets or properties have an
aggregate purchase price or value in excess of twenty percent (20%) of the fair
market value of the consolidated assets of @Home.
3. The disposition by @Home or any subsidiary of @Home of any assets
or properties (including stock or other equity interests of a third party) in
one transaction or a series of related transactions having an aggregate value in
excess of fifty percent (50%) of the fair market value of the consolidated
assets of @Home.
4. The acquisition by @Home or any subsidiary of @Home of any assets
or properties in exchange for or in consideration of the sale or issuance to any
person of capital stock of @Home which sale or issuance would constitute in
excess of 16b% of the fully diluted shares of @Home (on a common stock
equivalent basis) (including such shares to be issued or sold).
5. If a person other than the person previously interviewed by Cox
and Comcast is appointed prior to Closing, the approval of the Chief Executive
Officer and, thereafter, the removal of any Chief Executive Officer and the
appointment of any successor thereto.
6. Any actions resulting in the voluntary dissolution or liquidation
of @Home, or the initiation of any proceedings relating to the voluntary
bankruptcy of @Home.
7. Any amendment to or modification of any provision of the Charter
or By-Laws, other than (a) the filing of any Certificate of Designation or
amendment to the Charter establishing any class or series of preferred stock of
@Home, the establishment, issuance and sale of which would not violate paragraph
8 below, (b) any amendment to or a modification of the Charter which is
necessary in order to implement any action which has been otherwise approved by
a Supermajority Vote, (c) any amendment to the Charter which is reasonably
necessary in connection with @Home's IPO and which does not have an adverse
effect upon a holder of Convertible Preferred Stock which effect is different
from the effect of
<PAGE>
such amendment upon other holders of Convertible Preferred Stock and (d) any
amendments to the Charter which are specifically contemplated by the provisions
of the Term Sheet (including in connection with any Interim Financing).
8. The (a) establishment or creation of any additional class of
capital stock or any security having a direct or indirect equity participation
in @Home, (b) sale or issuance of (i) shares of capital stock or securities
having a direct or indirect equity participation in @Home, or (ii) warrants,
options or rights to acquire shares of capital stock or securities having a
direct or indirect equity participation in @Home or securities convertible into
or exchangeable for capital stock or any security having a direct or indirect
equity participation in @Home, in each case, which capital stock or other
security constitutes Special Voting Stock.
9. Any increase in the aggregate number of Management Pool Shares
issued or reserved for issuance to management (including shares reserved for
issuance upon exercise of options, warrants or other rights) pursuant to all
incentive compensation plans (collectively, the "Management Stock Plan") in
excess of an aggregate amount calculated at the time of such proposed increase
equal to (i) 8,000,000, plus (ii) the greater of (x) 0.075 multiplied by the
----
number of shares of Series A Common Stock (or options, warrants or other rights
to acquire shares) issued by @Home subsequent to the closing of the transaction
contemplated by this Term Sheet (other than shares (or options, warrants or
other rights to acquire shares) issued pursuant to the Management Stock Plan or
shares issued upon conversion of shares of Convertible Preferred Stock) and (y)
the number of shares (or options, warrants or other rights to acquire shares)
the issuance of which would represent a dilution of the fully diluted equity of
@Home (including the assumed issuance of all shares in the Management Stock Plan
prior to such increase) of 4% per year from the closing of the transaction
contemplated by this Term Sheet to the date of such proposed increase.
10. (a) The declaration or payment of any dividend on, or the making
of any distribution to holders of, Junior Stock or equity securities of any
subsidiary of @Home (other than a wholly owned subsidiary) or (b) the purchase,
redemption or other acquisition for value of any Junior Stock or equity
securities of any subsidiary of @Home or any options, warrants or other rights
to acquire such securities (other than the repurchase by @Home of shares of
Junior Stock, or options, warrants or other rights to acquire shares of Junior
Stock, issued to employees, directors or consultants pursuant to repurchase
rights contained in the instrument pursuant to which such securities were
originally granted).
11. The adoption of any budget which is or contains a Non-Pro Rata
Roll-out Budget.
12. Any action by @Home which would have the effect of increasing the
percentage of (x) Basic Service Revenues payable by an Operator to @Home or (y)
Premium Service Revenues payable by an Operator to @Home pursuant to @Home's
standard form of LCO Agreement.
13. The appointment of any outside directors to the .Com Committee
following the IPO (other than CEO, the Series K Director, Will Hearst and Jim
Barksdale).
UNANIMOUS ITEMS
- ---------------
The following items are required to be approved by all of the Series K
and Series A Directors:
1. The incurrence by @Home of any indebtedness for borrowed money
which provides for recourse against a Stockholder without the consent of such
Stockholder.
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2. The authorization or issuance of any shares of Convertible
Preferred Stock following consummation of the transactions contemplated by this
Term Sheet.
3. Any amendments to or modifications of the items listed on this
Exhibit or the requisite vote or consent for approval thereof.
4. Any increase in the number of Series A or Series K Directors.
5. Any modification of the rights of the holders of the Series A or
Series K Preferred Stock to designate and elect directors, except for any
amendments or modifications contemplated by the Term Sheet.
6. Any amendments to or modifications of any provision of the By-Laws
which set forth the Supermajority Voting and Unanimous Voting provisions set
forth on this Exhibit, except for any amendments or modifications contemplated
by the Term Sheet.
7. The appointment of any directors (other than the CEO, the Series K
Director, Will Hearst, Jim Barksdale or any outside directors) to the .Com
Committee.
8. Any amendment or modification to the Specifications and Standards
which would require the Operator Facilities of any Cable Parent to be capable of
delivering video clips in excess of 10 minutes.
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EXHIBIT B
@HOME RESPONSIBILITIES
Below is a list of the responsibilities of @Home.
1. NATIONAL BACKBONE AND REGIONAL DATA CENTER
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a. Provide interconnection of headends/hubs to the RDC. The
expected speed of interconnection will be equal to or greater
than 45 Mbps (DS3) speeds or equivalent bandwidth capable of
creating the same user experience.
b. Connect RDC with the @Home Internet Backbone.
c. Develop the Internet Backbone.
d. Provide network management to include elements of the cable
plant including the cable modem. Also included is the integration
of the network management, provisioning, and subscriber
management systems.
e. Provide technical support for backbone (7x24).
f. Provide outage statistics coming from network management
including, to the extent practicable, real time notification to
the Operator.
g. Provide Quality of Service capability at the backbone level
when available.
2. CONNECTIVITY SERVICES
---------------------
a. Provide Internet IP addresses for @Home service users.
b. Interconnect the @Home backbone to the rest of the Internet
through a high speed connection to certain Network Access Points
(NAPs). The speed of the connection is expected to be equal to
or greater than 45 Mbps.
c. Provide peering agreements for NAP interconnection.
d. Provide Internet mail (IMAP compatible) and chat service
(IRC compatible).
e. Provide connectivity to other on-line hosting services.
f. Provide dial-up access for traveling subscribers at an
additional cost to the subscriber based on usage above a minimum.
3. SOFTWARE
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a. Provide client software to include the following:
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* Browsers with free upgrades.
* TCP/IP stack (where needed) that is multicast
enabled.
* Application Plug-ins to enhance the surfing
experience (i.e., AVI, Real Audio, VRML viewer).
b. Provide IMAP or POP compatible mail services including an
email server.
c. Provide DNS service.
d. Provide software for caching, replication and proxy servers.
e. Provide single copies of client and server documentation for
training of cable personnel.
f. Provide installation scripts.
g. Provide a customized, broadbanded browser.
4. HARDWARE
--------
a. Provides all hardware required for the @Home broadband
service on @Home's side of the Point of Demarcation as set forth
in the Term Sheet.
b. Authorize, where possible, MSO to purchase hardware
collectively with @Home.
c. Provide necessary hardware for interconnection of
headends/hubs and the RDC and for the routers that enable
connectivity to the Internet at large, including security.
d. Provide project cutover team for new market launches.
e. Integration of HE cable data router and customer modem into
customer network management and provisioning. MSO will cover the
headend modem costs.
5. CONTENT AND MARKETING
---------------------
a. Provide all funds for national marketing in accordance with
the Term Sheet.
b. Provide support and tie-ins for local marketing in
accordance with the Term Sheet.
c. Negotiate all national content agreements.
2
<PAGE>
6. CUSTOMER SERVICE
----------------
a. Provide 7X24 technical support for Tier II and Tier III.
b. Provide software and documentation for @Home installation
(including guidelines for modem & AO installation).
c. Provide technical support for MSO technicians.
d. Work with MSO to design and specify the interface for
billing and MSO Tier I customer support.
3
<PAGE>
@HOME CUSTOMER SERVICE TIER DESCRIPTIONS
TIER I
- ------
Tier I customer service is the "front line" of the @Home/MSO product offerings.
The responsibility of Tier I service is to provide information to the customer,
initiation and changes of service, billing inquiries and some low-level trouble
shooting, and frequently asked questions. Tier I will include the following:
. Start, stop and changes of service.
. Determination of service eligibility.
. Product information.
. Provisioning and initial setup script - IP address generation, logins,
email setup, password capturing, etc.
. Service installation and dispatch scheduling and setup.
. Trouble ticket status reporting.
. Initial problem resolution. Tier I will include reasonably simple scripted
troubleshooting (based on script provided by @Home) and cable network
related problem diagnosis.
. Billing and pricing questions.
TIER II
- -------
Tier II customer service is the diagnostic and problem resolution layer of the
@Home/MSO customer service offering. In this layer, the symptoms of the
problems are understood and recorded, the problem(s) are determined and action
is taken to resolve problem(s). This group will have advanced technical
troubleshooting skills and tools. Support from this group will include:
. Desktop OS support.
. @Home network information.
. @Home delivered software support.
. Problem diagnosis and resolution.
. Build knowledge base and on-line information systems.
. Handle Web and E-mail support.
4
<PAGE>
TIER III
- --------
Tier III will provide customer service and network operations support. This
group will handle any call not able to be resolved by Tier II. In addition to
resolving the more difficult customer problems, this group will be doing ongoing
network monitoring.
5
<PAGE>
Schedule 1
<TABLE>
<CAPTION>
FOUNDERS ADDITIONAL CABLE CABLE PARENT STOCKHOLDER STOCKHOLDER GROUP
- -------- ----- ----- ------ ----------- -----------------
INVESTORS PARTNERS PARENT
--------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
TCI Sub Comcast Sub TCI Sub TCI Services and TCI TCI Sub TCI Sub, TCI
TCIC Services and TCIC
and their respective
controlled affiliates
KPCB Cox Sub Comcastub Comcast Cable Comc ast Comcast Sub Comcast Sub, Comcast Cable
and their respective
controlled affiliates
Cox Sub CCI CEI Cox Sub Cox Sub, CCI and their respective
controlled affiliates
KPCB KPCB KPCB Affiliates,
Affiliates KPCB and their respective
(collectively) controlled affiliates
</TABLE>
<PAGE>
Schedule 2
@ HOME EQUITY & VOTING
<TABLE>
<CAPTION>
Investor Series T Percent of Series K Percent of Series A Percent of
Preferred Series T Preferred Series K Preferred Series A
<S> <C> <C> <C> <C> <C> <C>
TCI Sub * 770,000.00 100.00% 1,553,000.00 51.62%
KPCB Affiliates ** 693,883.00 100.00% 0.00 0.00%
Comcast Sub 727,865.00 24.19%
Cox Sub 727,865.00 24.19%
Management
Total Shares 770,000.00 100.00% 693,883.00 100.00% 3,008,730.00 100.00%
<CAPTION>
Shares of Con. Percent of Common Percent of Voting Percent No. of
Pref. Con. Pref. Equivalent Equity Directors
<S> <C> <C> <C> <C> <C> <C>
TCI Sub 2,323,000.00 51.94% 23,230,000.00 45.35% 76.77% 5
KPCB Affiliates 693,883.00 15.51% 6,938,883.00 13.55% 5.76% 1
Comcast Sub 727,865.00 16.27% 7,278,650.00 14.21% 6.04% 1
Cox Sub 727,865.00 16.27% 7,278,650.00 14.21% 6.04% 1
Management 6,500,000.00 12.69% 5.39% 1
Total Shares 4,472,613.00 100.00% 51,226,183.00 100.00% 100.00% 9
</TABLE>
* Currently owns 15.4 mill.; to be reverse split 10 to 1 and 770,000 shares of
Series T Preferred to be exchanged for Series A Preferred. TCI Sub to buy
additional 783,000 shares of Series A Preferred.
** Currently owns 4.6 mill.; to be reverse split to 460,000; KPCB Affiliates to
purchase additional 233,883 shares; Series K to convert into Series A Common.
<PAGE>
Schedule X
1. Master Services Agreement dated August 21, 1995 entered into between
SSDS, Inc. and At Home Corporation concerning the development and system
integration of back office systems for @Home.
2. Invoice issued by AND Interactive Communications Corporation to At Home
Corporation dated December 14, 1995 to provide prototype development of
the @Home user interface.
<PAGE>
Exhibit C
Standards and Specifications
I. Objective
This document is to provide a baseline criteria for the @Home Cable
Partners to identify qualified systems for submission to the Master Roll-
Out Schedule.
II. Standards and Specifications
1. Cable network architecture will be based on Hybrid Fiber
Coax; with fiber optic facilities feeding distribution nodes that
revert to coaxial cable in to the home.
2. Bandwidth allocation for the service will be at least one 6
MHz channel in the downstream direction.
3. MSO will test and provide performance information as to the
condition of the plant.
4. MSO will provide a minimum rack space configuration of
three six foot racks for cable data router equipment and servers;
totaling 180" to 200" for this launch configuration.
5. MSO will take reasonable steps to protect the headend from
fire, loss of power, deviations in climate requirements and
intrusion.
6. MSO will not be required to carry video clips in excess of
10 minutes.
<PAGE>
Schedule Z
A. Cox Restricted Businesses
High Speed Internet Access operations in Phoenix, AZ
B. TCI Restricted Businesses
The TCI cable system in East Lansing, Michigan is offering consumer
Internet services on a commercial basis. This system has been providing these
services since April of 1995 and currently has a subscriber count of almost
400; 65% of whom are residential users. The service is priced in two tiers;
tier 1 is $44.95 per month on Zenith cable modems and tier 2 is $69.95 on
LANcity cable modems.
C. Comcast Restricted Businesses
Trials in Philadelphia, PA
Sarasota on-line in Sarasota, Florida
Work at home trial in Northern, New Jersey.
<PAGE>
Table of Contents
Page
----
I.General1
-------
Issuer1
Business1
Financing2
II.Purchase of Shares2
------------------
Capitalization2
Securities to be Purchased by Founders and Additional Investors5
Ownership7
Closing Conditions8
III.Rights, Designations and Preferences of Convertible Preferred Stock to be
-------------------------------------------------------------------------
Set Forth in the Charter.10
------------------------
Ranking10
Liquidation Preference11
Dividend Rate and Payment Dates12
Voting Rights14
Rights of Holders of Convertible Preferred Stock Following the IPO14
Convertible Preferred Stock Directors15
Series B Common Directors16
Special Convertible Preferred Stock Voting Rights17
Anti-Dilution Rights18
IV. Registration Rights Agreement18
-----------------------------
V.Management.21
----------
Governance21
Content Provider Agreements23
Special Directors Approval Right24
Revised Business Plan and Budgets25
Initial Board25
Additional Strategic Investors26
VI.Stockholders Agreement Matters.26
------------------------------
TCI Call26
KPCB Put27
Cable Put29
Consideration Payable in Respect of TCI Call or KPCB Put30
Transfer Restrictions31
Deemed Transfer32
Conversion Restrictions34
Right of First Offer35
Special Right of First Offer Procedure Following an IPO36
Rights of Transferee37
Tag-Along Right38
Drag-Along Right38
<PAGE>
Pre-Emptive Rights39
Determination of Fair Market Value39
Eligible Stockholder40
Permanent CEO41
Series A Director Designees41
Unanimous and Supermajority Provisions41
By-Laws of @Home42
Termination of Certain Put and Call Rights42
Amendment to Stockholders Agreement Following @Home IPO42
Termination of Stockholders Agreement45
VII.Master Distribution Agreement46
-----------------------------
Definitions46
Creation of Master Roll-Out Schedule53
Execution of Local Cable Operator Distribution Agreements54
Budgets54
Cable Parent Exclusivity Provisions55
Comcast Non-Exclusivity Provisions61
@Home Exclusivity Provisions63
Non-Performance of TCI64
Most Favored Nations Provisions64
Change of Control of TCI66
Changes in Master Roll-Out Schedule66
Local Content Programming66
@Home Programming67
Execution of Promotional Agreements and Exercise of Cable Parent
Exclusion Right67
Execution of .Com Agreements and Exercise of Cable Parent Access
Blocking Right70
Content Tag-Along Right72
Parent Undertaking73
Other Services74
VIII.Terms of LCO Agreements75
-----------------------
A.Roll-Out of the @Home Services75
Operator Territory75
@Home Roll Out Commitment:75
Failure by @Home to Roll-Out76
Operator Roll-Out Commitment77
Failure by Operator to Roll-Out77
Extensions of Time78
Sole Remedies78
Testing78
Commencement of Services78
Ownership and Maintenance79
Performance Standards80
B.Marketing; Customer Service.80
Marketing80
Branding80
Home Page80
ii
<PAGE>
National/Local Content81
Customer Service81
C.Compensation and Billing.81
Allocation of Billing Responsibility81
Pricing82
Compensation82
Monthly Payment Procedures85
Ancillary Services86
Taxes86
D.Miscellaneous.86
Regulatory86
Confidentiality87
Indemnification87
Force Majeure87
Condemnation87
Term88
Termination88
Representations89
IX.General89
-------
Reasonable Commercial Efforts89
Index of Defined Terms
.Com Agreement47
.Com Committee24
@Home1, 1
@Home Exclusivity Provisions63
@Home Facilities46
@Home First Page46
@Home Network46
@Home Repurchase Right61
@Home Services2
@Home Specified Remedy46
@Work Service Revenues85
Actual Budget25
Additional Benefit73
Additional Investors6
Additional Shares6
affiliate22
Affiliated Operator46
against27, 28
all commercially reasonable efforts89
Alternative Arrangement74
Ancillary Services Arrangements86
Attributable Interest40
backbone1, 2
iii
<PAGE>
Base Homes Passed34
Basic Service Revenue Split82
Basic Service Revenues83
Board12
BUI Button48
button68
cable80
Cable Parent6
Cable Parent Access Block Right47
Cable Parent Exclusion Right47
Cable Parent Exclusivity Provisions60
Cable Partner6
Cable Partners6
Cable Put29
Cable System Upgrade47
Call Notice26
CCI7
CEI7
Change of Control of a Stockholder32
Charter3
Closing6
Closing Date6
Comcast7
Comcast Cable6
Comcast Non-Exclusive Right61
Comcast Sub5
Commencement Date47
Commission28
Common Stock3
Competitor Exclusion69
Confidential Information87
Consumer Purpose56
Content Provider Group68
control56
Control 7
Control Acquisition58
Control Restricted Assets58
controlled56
Controlled Affiliate7
controlling56
Controlling Interest38
conversion ratio18
Conversion Shares18
Convertible Preferred Stock4
Cox Sub6
Deemed Transfer32
DGCL3
Discretionary Access Exclusion71
Discretionary Exclusion69
Eligible Cable Parent64
iv
<PAGE>
Eligible Stockholder40
Equivalent Shares20
Exclusion Limit69
Exclusive Homes Passed33
Exclusive Stockholder38
Execution Date26
Exempt Acquisition58
Exempt Offering37
Exempt Restricted Assets58
Fair Market Value39
First Determination Date64
Force Majeure Event87
Founders1
front line4
High C50
High C Performance Ratio50
holdback20
Homes Passed47
HSN69
Initiating Holders19
Interim Financing10
Internet Backbone48
Internet Backbone Service48
Internet Service48
IP48
IPO2
IPO Election28
IPO Election Notice28
Junior Stock11
KPCB1
KPCB Affiliates1
KPCB Constituents27
KPCB Original Amount27
KPCB Put28, 29
KPCB Put Notice27
LCO Agreement54
Liquidation Price12
Local Area48
Local Content48
Local Service48
Management Pool Shares7
Management Stock PlanA-2
Master Roll-Out Schedule53
MFN64
Minimum Demand Shares20
Minimum Exclusive Homes Passed34
Monthly Payments82
most favored nation64
Most Favored Nations Provisions73
MSN23
v
<PAGE>
National Area49
Net Price37
Network Upgrade49
Non-Control Acquisition56
Non-Pro Rata Roll-Out Budget49
Offer Price59
Offered Homes Passed49
Offeree72
Offeror72
Operator49
Operator Facilities50
Operator Territory75
Original Amount6
Original Initiating Holder19
outside directors24
Parent7
Parents7
Parity Stock11
Participating Dividend12
Performance Default50
Planning Period49
Point of Demarcation50
Preferred Dividend12
Preferred Stock4
Preferred Stock Directors16
Premium Service Revenue Split83
Premium Service Revenues83
Pro Rata Roll-Out Budget50
Projected Budgets25
Projected Commencement Date51
Promotional Agreement51
Proportionate Transferred Shares34
Qualified Spin Off Transaction32
Qualifying Offered Homes Passed51
Qualifying System51
rate card24
reasonable best efforts45
reasonable commercial efforts89
Related Party21
Related Party Transaction22
Related Party Vote43
Residential Subscriber51
Restricted Assets59
Restricted Business56
Restricted Period52
Revenue Splits84
Roll-Out Budget52
Roll-Out Schedule75
Securities Act18
Senior Stock11
vi
<PAGE>
Series A Director15
Series A Preferred Stock3
Series B Common Directors16
Series B Exchange35
Series K Director15
Series K Preferred Stock2
Series T Directors15
Series T Preferred Stock3
shelf registration20
Special Directors16
Special KPCB Put28
Special Voting Stock10
Specifications and Standards52
Specified Brand68
Specified Promotions68
Stockholder7
Stockholder Group7
Stockholders Agreement26
Style Guidelines81
Subject Shares61
Subject Shares Purchase Price61
Subsequent Determination Date64
Supermajority Approval10
Supermajority VoteA-1
TBS68
TCI1
TCI Call26, 29
TCI Change of Control52
TCI Exchange4
TCI Services6
TCI Sub1
TCIC6
templates1
Term88
theme80
Total Shares34
Trademark License Agreement80
Transfer31
Transfer Restrictions7, 27
Triggering Cable Parent64
Unaffiliated Third Party65
Upgraded Network Portion49
Upgraded System47
video barker1
Work @Home84
vii
<PAGE>
EXHIBIT 10.05
AT HOME CORPORATION
STOCK PURCHASE AGREEMENT
April 11, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Purchase and Sale of Stock.............................................. 1
1.1 Sale and Issuance of Series C Convertible Preferred Stock........ 1
1.2 Closing.......................................................... 1
2. Representations, Warranties and Covenants of the Company................ 1
2.1 Organization, Good Standing and Qualification.................... 1
2.2 Certificate of Designation and Certificate of Amendment.......... 2
2.3 Capitalization................................................... 2
2.4 Outstanding Securities........................................... 3
2.5 Current Board.................................................... 3
2.6 Subsidiaries..................................................... 4
2.7 Authorization.................................................... 4
2.8 Consents and Approvals; No Conflict.............................. 4
2.9 Valid Issuance of Purchased and Conversion Shares................ 5
2.10 No Registration Required......................................... 5
2.11 Litigation....................................................... 5
2.12 Status of Proprietary Assets..................................... 6
2.13 Registration Rights.............................................. 6
2.14 Title to Property and Assets..................................... 6
2.15 Financial Statements; Undisclosed Liabilities;
No Material Adverse Changes.................................... 7
2.16 Disclosure....................................................... 7
2.17 ERISA Plans...................................................... 7
2.18 Tax Returns and Payments......................................... 8
2.19 Labor Agreements and Actions..................................... 8
2.20 Governmental Consents............................................ 8
2.21 Brokers or Finders............................................... 8
2.22 Registration Rights Agreement.................................... 9
2.23 Reasonable Efforts............................................... 9
2.24 Material Agreements.............................................. 9
2.25 Compliance with Law.............................................. 9
2.26 Environmental Matters............................................ 9
2.27 Insurance........................................................ 10
2.28 Employee Confidentiality Agreement............................... 10
2.29 Dividends........................................................ 10
3. Representations, Warranties and Covenants of the Purchasers............. 10
3.1 Experience....................................................... 10
3.2 Investment....................................................... 10
3.3 Accredited Purchaser Status...................................... 11
3.4 Restricted Securities............................................ 11
3.5 Authorization.................................................... 11
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
-----------------
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
3.6 Consents and Approvals; No Conflict.............................. 12
3.7 Disclosure of Information........................................ 12
3.8 Information Concerning Purchaser................................. 12
3.9 Brokers or Finders............................................... 12
3.10 Registration Rights Agreement.................................... 13
3.11 Reasonable Efforts............................................... 13
4. Transfer Restrictions; Preferred Stockholder's Right of First Refusal;
Company Right of First Offer; Legends; Notations........................ 13
4.1 Transfer Restrictions............................................ 13
4.2 Company Right of First Offer..................................... 15
4.3 Voting Agreement................................................. 16
4.4 Legends; Notations............................................... 16
5. Hart-Scott-Rodino Act................................................... 17
6. Conditions to the Purchasers' Obligations at Closing.................... 17
6.1 Correctness of Representations and Warranties.................... 18
6.2 Performance of Agreements........................................ 18
6.3 Certificate of Designation and Certificate of Amendment.......... 18
6.4 Securities Exemption............................................. 18
6.5 No Material Litigation........................................... 18
6.6 Government Approvals and Consents................................ 18
6.7 Proceedings and Documents........................................ 18
6.8 Opinion of Company Counsel....................................... 19
6.9 Registration Rights Agreement.................................... 19
6.10 Delivery of Stock Certificates................................... 19
6.11 Waiver of Existing Rights........................................ 19
6.12 Minimum Investment............................................... 19
7. Conditions to the Company's Obligations at Closing...................... 19
7.1 Correctness of Representations and Warranties.................... 19
7.2 Performance of Agreements........................................ 20
7.3 No Material Litigation........................................... 20
7.4 Securities Exemption............................................. 20
7.5 Government Approvals and Consents................................ 20
7.6 Proceedings and Documents........................................ 20
7.7 Registration Rights Agreement.................................... 20
7.8 Payment of Purchase Price........................................ 21
7.9 Minimum Investment............................................... 21
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
-----------------
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
8. Preemptive Rights....................................................... 21
8.1 Certain Definitions.............................................. 21
8.2 Preemptive Rights................................................ 22
8.3 Termination of Preemptive Rights................................. 24
9. Certain Agreements of the Company....................................... 24
9.1 Information Rights............................................... 24
9.2 Support for Rule 144 Transfers................................... 25
9.3 Issuances to Officers............................................ 25
10.Miscellaneous........................................................... 25
10.1 Governing Law.................................................... 25
10.2 Survival......................................................... 25
10.3 Successors and Assigns........................................... 25
10.4 Limitation on Rights of Others................................... 26
10.5 Entire Agreement; Amendment...................................... 26
10.6 Notices, Etc..................................................... 27
10.7 Delays or Omissions.............................................. 27
10.8 Expenses......................................................... 27
10.9 Counterparts..................................................... 28
10.10 Severability..................................................... 28
10.11 Obligations Several, Not Joint................................... 28
10.12 Currency......................................................... 28
</TABLE>
iii
<PAGE>
EXHIBITS
- --------
Exhibit A Schedule of Purchasers
Exhibit B-1 Certificate of Designation
Exhibit B-2 Certificate of Amendment
Exhibit C Third Amended and Restated Registration Rights Agreement
Exhibit D Information Concerning Purchasers
Exhibit E Opinion of Counsel
Exhibit F Opinion of Richards, Layton & Finger, P.A.
SCHEDULES
- ---------
Schedule 3.6 Purchaser Consents, Approvals and Conflicts
iv
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT ("AGREEMENT") is made as of April 11, 1997,
by and among AT HOME CORPORATION, a Delaware corporation (the "COMPANY"), and
the parties listed on Exhibit A to this Agreement (each, a "PURCHASER" and
---------
collectively, the "PURCHASERS").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
--------------------------
1.1 Sale and Issuance of Series C Convertible Preferred Stock.
---------------------------------------------------------
Subject to the terms and conditions of this Agreement, (a) the Company agrees to
issue and sell to each Purchaser, and each Purchaser agrees, severally and not
jointly, to purchase from the Company, at the Closing, the number of shares of
the Company's Series C Convertible Participating Preferred Stock, par value $.01
per share (the "SERIES C PREFERRED"), set forth beside each Purchaser's name on
Exhibit A, at a price of $200.00 per share. (The shares of Series C Preferred
- ---------
being acquired pursuant to this Agreement are collectively referred to herein as
the "PURCHASED SHARES").
1.2 Closing. The closing of the purchase and sale of the Purchased
-------
Shares (the "CLOSING") shall take place at the offices of Fenwick & West LLP, 2
Palo Alto Square, Palo Alto, California 94306, or such other place as the
Company and the Purchasers who have agreed to purchase a majority of the
Purchased Shares listed on Exhibit A shall mutually agree, at 10:00 a.m., local
---------
time, on a mutually agreed date occurring no later than the 10th day following
the satisfaction or waiver of the conditions to Closing set forth in Sections 6
and 7 hereof (other than any such conditions which are capable of being
satisfied only as of the Closing), but in no event later than April 16, 1997.
The date on which the Closing occurs is referred to herein as the "CLOSING
DATE." At the Closing, the Company shall deliver to each Purchaser a
certificate or certificates registered in the name of such Purchaser
representing the number of Purchased Shares that such Purchaser has agreed to
purchase hereunder as shown in Exhibit A against payment of the purchase price
---------
therefor in cash or by wire transfer in immediately available funds.
2. Representations, Warranties and Covenants of the Company. The Company
--------------------------------------------------------
hereby represents and warrants to, and covenants with, each of the Purchasers as
follows, except as set forth in the Schedule of Exceptions ("SCHEDULE OF
EXCEPTIONS") delivered to the Purchasers (which Schedule of Exceptions shall be
deemed to be representations and warranties to the Purchasers by the Company
under this Section 2):
2.1 Organization, Good Standing and Qualification. The Company and
---------------------------------------------
the Subsidiary (as hereinafter defined) are corporations duly organized, validly
existing and in good standing under the laws of the States of Delaware and
California, respectively, and have all requisite corporate power and authority
to carry on their respective businesses as currently conducted and as currently
proposed to be conducted. The Company and the Subsidiary each have qualified to
do business and are in good standing for tax purposes in each jurisdiction in
which the failure to so qualify and remain in good standing for tax purposes
would have a material adverse effect on the business, properties, prospects or
financial condition of the Company and the Subsidiary taken as a whole. The
Company has delivered to each of the
<PAGE>
Purchasers true and accurate copies of (i) the Company's Third Amended and
Restated Certificate of Incorporation, as amended by the Certificate of
Amendment to Third Amended and Restated Certificate of Incorporation in the form
delivered to the Purchasers, which will be filed before the Closing
(collectively, the "RESTATED CERTIFICATE") and Amended and Restated Bylaws (the
"RESTATED BYLAWS"), and (ii) the Subsidiary's Articles of Incorporation and
Bylaws, each as amended through, and in effect on, the date hereof. Other than
the filing of the Certificate of Designation (as defined below) and the
Certificate of Amendment (as defined below), there shall be no amendments to, or
other actions taken with respect to, the Restated Certificate or the Restated
Bylaws prior to the Closing.
2.2 Certificate of Designation and Certificate of Amendment. The
-------------------------------------------------------
Board of Directors and the stockholders of the Company have duly approved and
adopted the Certificate of Designation of the Company attached hereto as Exhibit
-------
B-1 setting forth the preferences, and relative, participating, optional and
- ---
other special rights and qualifications, limitations and restrictions of the
Series C Preferred (the "CERTIFICATE OF DESIGNATION") pursuant to the Restated
Certificate and Section 151 of the Delaware General Corporation Law (the "DGCL")
and the Board of Directors and stockholders of the Company have duly approved
and adopted the Certificate of Amendment attached hereto as Exhibit B-2 pursuant
-----------
to Section 242 of the DGCL (the "CERTIFICATE OF AMENDMENT").
2.3 Capitalization. Upon the filing of the Certificate of
--------------
Designation with the Secretary of State of Delaware, the authorized capital
stock of the Company shall consist of 180,277,660 shares of common stock, par
value $.01 per share (the "COMMON STOCK"), and 14,522,613 shares of preferred
stock, par value $.01 per share (the "PREFERRED STOCK"). The authorized shares
of Common Stock shall be allocated as follows: (a) 150,000,000 shares shall be
designated as "Series A Common Stock," (b) 15,400,000 shares shall be designated
as "Series B Common Stock," and (c) 14,877,660 shares shall be designated as
"Series K Common Stock." The authorized shares of Preferred Stock shall be
allocated as follows: (i) 727,865 shares shall be designated as Series AM
Convertible Participating Preferred Stock, par value $.01 per share (the "SERIES
AM PREFERRED"), (ii) 1,553,000 shares shall be designated as Series AT
Convertible Participating Preferred Stock, par value $.01 per share (the "SERIES
AT PREFERRED"), (iii) 727,865 shares shall be designated as Series AX
Convertible Participating Preferred Stock, par value $.01 per share (the "SERIES
AX PREFERRED" and together with the Series AM Preferred and the Series AT
Preferred, the "SERIES A PREFERRED"), (iv) 350,000 shares shall be designated as
Series C Preferred, (v) 743,883 shares shall be designated as Series K
Convertible Participating Preferred Stock, par value $.01 per share (the "SERIES
K PREFERRED"), (vi) 770,000 shares shall be designated as Series T Convertible
Participating Preferred Stock (the "SERIES T PREFERRED") and (vii) 9,650,000
shares shall be undesignated as to series and shall be issuable pursuant to
authority granted in the Restated Certificate to the Board of Directors (the
"SERIES PREFERRED STOCK"). Prior to the Closing, the Company shall have
reserved and shall thereafter at all times keep reserved (x) such number of
shares of Series B Common Stock as is sufficient to provide for the conversion
of the Series T Preferred outstanding from time to time, (y) such number of
shares of Series K Common Stock as is sufficient to provide for the conversion
of the Series K Preferred outstanding from time to time, and (z) such number of
shares of Series A Common Stock as is sufficient to provide for the conversion
of the Series A Preferred and the Series C Preferred outstanding from time to
time, the Series B Common Stock outstanding from time to time or issuable upon
conversion of the Series T Preferred, and the Series K Common Stock outstanding
from time to time or issuable upon conversion of the Series K Preferred. (The
shares
2
<PAGE>
of Series A Common Stock issuable upon conversion of the Purchased Shares are
sometimes referred to herein as the "CONVERSION SHARES.") The authorized capital
stock of the Subsidiary consists of 10,000,000 shares of common stock, without
par value, and 5,000,000 shares of preferred stock, without par value.
2.4 Outstanding Securities. As of the date of this Agreement, the
----------------------
outstanding securities of the Company consist of 13,356,327 shares of Series A
Common Stock, 727,865 shares of the Series AM Preferred, 1,553,000 shares of the
Series AT Preferred, 727,865 shares of the Series AX Preferred, 743,883 shares
of the Series K Preferred, 770,000 shares of the Series T Preferred, options to
purchase an aggregate of 737,500 shares of Series A Common Stock, a warrant to
purchase 200,000 shares of Series A Common Stock and warrants to be sold to
Rogers Cablesystems Limited ("ROGERS") and Shaw Cablesystems Ltd. ("SHAW") or
any other entity affiliated with Rogers and/or Shaw (collectively, the "CANADIAN
PURCHASERS") to purchase 100,000 shares of the Series C Preferred initially
convertible into an aggregate of 2,000,000 shares of Series A Common Stock (the
"CANADIAN MSO WARRANTS"), subject to purchase by the Canadian Purchasers of
Series C Preferred hereunder. The Company has reserved for issuance pursuant to
its 1996 Incentive Stock Option Plan and its 1996 Incentive Stock Option Plan
No. 2 (collectively, the "OPTION PLANS") an aggregate of 16,000,000 shares of
Series A Common Stock for issuance to employees, officers, directors,
consultants and independent contractors of the Company (less the number of
----
shares of Series A Common Stock purchased outside the Option Plans by employees,
officers, directors, consultants and independent contractors of the Company,
whether such purchases occur before or after the dates of the Plans, unless
specifically provided otherwise in a resolution adopted by the Company's Board
of Directors at the time it approves the sale of Series A Common Stock to such
employee, officer, director, consultant or independent contractor, and plus the
----
number of shares of Series A Common Stock repurchased by the Company upon
termination of any such person's employment or service relationship with the
Company or upon exercise of the Company's right of first refusal upon transfers
by such persons); the number of shares available for issuance under the Option
Plans as of the date of this Agreement is 1,709,423 shares. As of the date of
this Agreement, the outstanding securities of the Subsidiary consist of one (1)
share of common stock, which is owned by the Company. Except as expressly
provided herein, in that certain August 1, 1996 Amended and Restated
Stockholders' Agreement among the Company, the stockholders of the Company set
forth on Schedule I attached thereto and certain affiliates of such stockholders
which are signatories thereto (the "STOCKHOLDERS' AGREEMENT"), in the Restated
Certificate, in the Certificate of Amendment and in the Certificate of
Designation, there are no other outstanding rights, options, warrants,
preemptive rights, rights of first refusal or similar rights for the purchase or
acquisition from the Company or the Subsidiary of any securities of the Company
or the Subsidiary nor are there any commitments to issue or execute any such
rights, options, warrants, preemptive rights, rights of first refusal or similar
rights. The Company has delivered to the Purchasers a true and complete listing
of the holders of the Company's outstanding stock, options, warrants and other
securities, including the number of shares held, or issuable upon exercise, by
each holder as of the date of this Agreement.
2.5 Current Board. Immediately prior to the Closing, the Company's
--------------
Board of Directors consists of the following persons, each of whom has been duly
elected or appointed in accordance with the Restated Bylaws: James Barksdale,
Brendan Clouston, L. John Doerr, William Randolph Hearst III, Thomas A.
Jermoluk, Bruce Ravenel, Brian L. Roberts, Larry Romrell and David Woodrow.
Effective upon the Closing, subject to the purchase by the
3
<PAGE>
Canadian Purchasers of an aggregate of $30,000,000 of Series C Preferred, the
Company's Board of Directors shall consist of eleven members, which shall
consist of the individuals listed in the immediately preceding sentence, plus
one nominee of TCI Internet Holdings, Inc. and one nominee of Rogers and Shaw
jointly. Immediately prior to the Closing, the Subsidiary's Board of Directors
consists of the following person who has been duly elected or appointed in
accordance with the Bylaws of the Subsidiary: Thomas A. Jermoluk.
2.6 Subsidiaries. Except for its wholly-owned subsidiary athome.net,
------------
a California corporation (the "SUBSIDIARY"), the Company does not presently own
or control, directly or indirectly, any interest in any other corporation,
partnership, trust, joint venture, association or other entity.
2.7 Authorization. The Company has full power and authority to
-------------
execute, deliver and perform its obligations under each of this Agreement and
the Registration Rights Agreement (as defined in Section 2.13 below) (the
Registration Rights Agreement and this Agreement are hereinafter referred to
collectively as the "TRANSACTION AGREEMENTS"). All corporate action on the part
of the Company necessary for the authorization, execution and delivery of the
Transaction Agreements and the performance of all obligations of the Company
hereunder and thereunder has been taken or will be taken prior to Closing. Each
of the Transaction Agreements, when executed and delivered by the Company,
assuming the due execution and delivery thereof by the other parties hereto or
thereto, shall constitute a valid and legally binding obligation of the Company,
enforceable against it in accordance with its terms, subject to: (a) judicial
principles limiting the availability of specific performance, injunctive relief
and other equitable remedies, (b) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect generally relating
to or affecting creditors' rights, and (c) limitations on the enforceability of
the indemnification and contribution provisions of the Registration Rights
Agreement imposed by law or public policy.
2.8 Consents and Approvals; No Conflict. The execution, delivery and
-----------------------------------
performance of each of the Transaction Agreements and the consummation of each
of the transactions contemplated hereby and thereby (including the offering,
sale and issuance of the Purchased Shares and the issuance of the Conversion
Shares) do not and will not (a) conflict with or result in a breach of the
terms, conditions or provisions of, (b) with or without notice or lapse of time
or both, constitute a default under, (c) result in the creation of any lien,
security interest, charge or encumbrance upon the Company's or the Subsidiary's
capital stock or assets pursuant to, (d) with or without notice or lapse of time
or both, give any third party the right to accelerate, cancel or terminate any
obligation under, (e) result in a violation of, or (f) require any order,
qualification, waiver, permit, authorization, consent, approval, exemption or
other action by or from, or any registration, notice, declaration, application
or filing to or with, any court or administrative or governmental body or any
other person or entity pursuant to (i) the Restated Certificate, the Certificate
of Amendment, the Certificate of Designation or the Restated Bylaws of the
Company or the Articles of Incorporation or the Bylaws of the Subsidiary, (ii)
any agreement to which the Company or the Subsidiary is a party or is bound or
to which either of their assets are subject or (iii) any law, statute, rule or
regulation to which the Company or the Subsidiary is subject; provided, however,
-------- -------
that with respect to clause (f) of this Section 2.8, such representation and
warranty is made to the actual knowledge of the Company (without any
investigation) as to any such requirements applicable to the Company as a result
of the specific legal or regulatory status of any Purchaser or as a result of
any other facts that specifically relate
4
<PAGE>
to any Purchaser, any business in which any such Purchaser has engaged or
proposes to engage or any financing arrangements or transactions entered into or
proposed to be entered into by or on behalf of any such Purchaser.
2.9 Valid Issuance of Purchased and Conversion Shares. The Purchased
-------------------------------------------------
Shares, when issued, sold and delivered in accordance with the terms of this
Agreement will be duly authorized, validly issued, fully paid and nonassessable,
free of any liens, claims, charges, security interests, pledges or encumbrances
of any kind (other than restrictions on voting or transfer created herein and in
the Registration Rights Agreement, or created by the applicable Purchaser or as
a result of applicable state and federal securities laws) and will possess all
of the rights, privileges and preferences provided therefor in the Certificate
of Designation, the Certificate of Amendment and the Restated Certificate. The
Conversion Shares will have been duly and validly reserved for issuance prior to
the Closing and, upon issuance in accordance with the terms of the Certificate
of Designation, the Certificate of Amendment and the Restated Certificate, will
be duly authorized, validly issued, fully paid and nonassessable, free of any
liens, claims, charges, security interests, pledges or encumbrances of any kind
(other than restrictions on voting or transfer created herein and in the
Registration Rights Agreement, or created by the applicable Purchaser or as a
result of applicable state and federal securities laws) and will possess all of
the rights and powers provided therefor in the Certificate of Designation, the
Certificate of Amendment and the Restated Certificate.
2.10 No Registration Required. Based in part on the representations
------------------------
made by the Purchasers in Section 3 hereof, the Purchased Shares and (assuming
no change in applicable law and no unlawful distribution of Purchased Shares by
Purchasers or other parties) the Conversion Shares will be issued in full
compliance with the registration and prospectus delivery requirements of the
U.S. Securities Act of 1933, as amended (the "SECURITIES ACT") and the
registration and qualification requirements of the securities laws of the States
of California, Delaware and the appropriate U.S. jurisdictions listed on Exhibit
-------
D (provided that, with respect to the Conversion Shares, no commission or other
- - -------- ----
remuneration is paid or given, directly or indirectly, for soliciting the
issuance of Conversion Shares upon the conversion of the Purchased Shares and no
additional consideration is paid for the Conversion Shares other than surrender
of the applicable Purchased Shares upon conversion thereof in accordance with
the Certificate of Designation, the Certificate of Amendment and the Restated
Certificate).
2.11 Litigation. The Schedule of Exceptions sets forth any action,
----------
suit or proceeding pending or, to the best of the Company's knowledge, any
investigation pending or any action, suit, proceeding or investigation
threatened against, involving or affecting the Company or the Subsidiary or
either of their respective properties. There is no action, suit or proceeding
pending or, to the best of the Company's knowledge, any investigation pending or
any action, suit, proceeding or investigation threatened against, involving or
affecting the Company or the Subsidiary or any of their respective properties,
nor is there any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against the Company or the Subsidiary, which questions the validity
of any of the Transaction Agreements or the right of Company to enter into any
of them, or to consummate the transactions contemplated hereby or thereby, or
which could have, either individually or in the aggregate, a material adverse
effect on the condition (financial or otherwise), business, property, results of
operations, assets or liabilities of the Company and the Subsidiary taken as a
whole.
5
<PAGE>
2.12 Status of Proprietary Assets.
----------------------------
(a) Status. To the best of the Company's knowledge, the Company
------
and the Subsidiary each have full title and ownership of, or are duly licensed
under or otherwise have the right to use, all patents, patent applications,
trademarks, service marks, trade names, copyrights, mask works, trade secrets,
confidential and proprietary information, designs and proprietary rights
material to and used in their business as now conducted or as contemplated to be
conducted (all of the foregoing collectively hereinafter referred to as the
"PROPRIETARY ASSETS"), free and clear of any adverse claims, liens or
encumbrances of any kind (except for statutory liens for the payment of current
taxes that are not yet delinquent and liens, encumbrances and security interests
which arise in the ordinary course of business and which do not materially
affect the Proprietary Assets of the Company and the Subsidiary taken as a
whole), without any conflict with or infringement of the rights of others, and
such Proprietary Assets are sufficient to allow the Company to conduct its
business as now conducted and as contemplated to be conducted. The Company has
not received any notice asserting that it or the Subsidiary is infringing any
proprietary rights of any third party. To the best of the Company's knowledge
without having made any independent investigation, no third party is infringing
any Proprietary Asset, except for such infringements, if any, as would not,
either individually or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), business, property, results of operations,
assets or liabilities of the Company and the Subsidiary taken as a whole.
Section 2.12(a) of the Schedule of Exceptions sets forth a list of all pending
applications for and issued patents, trademark and service mark registrations
and copyright registrations that are material to the Company and the Subsidiary
taken as a whole.
(b) Licenses; Other Agreements Relating to Proprietary Assets.
---------------------------------------------------------
Neither the Company nor the Subsidiary has granted any material options,
licenses or agreements relating to any Proprietary Asset of the Company or the
Subsidiary, nor is the Company or the Subsidiary obligated to pay any royalties
or other payments to third parties with respect to the marketing, sale,
distribution, manufacture, license or use of any Proprietary Asset.
2.13 Registration Rights. Except as provided in the Third Amended
-------------------
and Restated Registration Rights Agreement, in the form of Exhibit C attached
---------
hereto (the "REGISTRATION RIGHTS AGREEMENT") to be entered into at or prior to
the Closing and except as provided in that certain October 17, 1996 Second
Amended and Restated Registration Rights Agreement (the "PRIOR REGISTRATION
RIGHTS AGREEMENT"), which is to be replaced and superseded in its entirety by
the Registration Rights Agreement, neither the Company nor the Subsidiary has
granted or agreed to grant to any person or entity any rights (including
piggyback registration rights) to have any securities of the Company or the
Subsidiary registered with the United States Securities and Exchange Commission
("SEC") or any other governmental authority.
2.14 Title to Property and Assets. The properties and assets the
----------------------------
Company or the Subsidiary owns are owned by the Company or the Subsidiary,
respectively, free and clear of all adverse claims, mortgages, deeds of trust,
liens, encumbrances and security interests except for statutory liens for the
payment of current taxes that are not yet delinquent and liens, encumbrances and
security interests which arise in the ordinary course of business and which do
not materially affect properties and assets of the Company and the Subsidiary
taken as a whole, and such properties and assets are, to the best of the
Company's knowledge, sufficient to allow the Company to conduct its business as
now conducted and as contemplated to be conducted.
6
<PAGE>
With respect to the property and assets they lease, the Company and the
Subsidiary each have a valid leasehold interest in such property and assets and
are in material compliance with such leases.
2.15 Financial Statements; Undisclosed Liabilities; No Material
----------------------------------------------------------
Adverse Changes.
---------------
(a) Financial Statements. The Company has separately delivered
--------------------
to the Purchasers an unaudited consolidated balance sheet of the Company dated
December 31, 1996 (the "BALANCE SHEET DATE"), an unaudited consolidated balance
sheet of the Company dated December 31, 1996, an audited consolidated balance
sheet of the Company dated December 31, 1995, an unaudited consolidated income
statement of the Company for the year ended December 31, 1996 and an audited
consolidated income statement of the Company for the year ended December 31,
1995 (such consolidated financial statements being collectively referred to
herein as the "FINANCIAL STATEMENTS"). The Financial Statements (a) are in
accordance with the books and records of the Company, (b) are true, correct and
complete and present fairly the financial condition of the Company and the
Subsidiary at the date or dates therein indicated and the results of operations
for the period or periods therein specified, and (c) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis, except, as to the unaudited financial statements, for the omission of
notes thereto and normal year-end audit adjustments which in the aggregate will
not be material.
(b) No Material Undisclosed Liabilities. Neither the Company
-----------------------------------
nor the Subsidiary has any liability, individually or in the aggregate,
contingent or otherwise, that is material to the financial condition of the
Company and the Subsidiary taken as a whole, which is not reflected on or
provided for in the Financial Statements, except as set forth on the Schedule of
Exceptions.
(c) No Material Adverse Changes. Since the Balance Sheet Date,
---------------------------
there has not been any event or change which could reasonably be expected to
materially and adversely affect the condition (financial or otherwise),
business, property, results of operations, assets or liabilities of the Company
and the Subsidiary taken as a whole, except that since the Balance Sheet Date,
the Company has continued to incur substantial expenses and operating losses in
the ordinary course of its business.
2.16 Disclosure. The representations and warranties made by the
----------
Company in this Agreement, including the Exhibits hereto, the Schedule of
Exceptions and the Confidential Offering Memorandum dated January 13, 1997 (the
"OFFERING MEMORANDUM") and the Supplement to Confidential Offering Memorandum
dated April 1, 1997 (the "SUPPLEMENT"), when read together, do not contain any
untrue statement of a material fact and do not omit to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading.
2.17 ERISA Plans. Neither the Company nor the Subsidiary has any
-----------
Employee Pension Benefit Plan as defined in Section 3 of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). The Company is not, nor was
it at any time, obligated to contribute to any employee pension benefit plan
which is or was a multi-employer plan within the meaning of Section 3(37) of
ERISA.
7
<PAGE>
2.18 Tax Returns and Payments. The Company and the Subsidiary have
------------------------
timely filed all tax returns and reports required by law that are material to
the Company and the Subsidiary taken as a whole and have never been audited as
to any material matter by any state or federal taxing authority. All tax
returns and reports of the Company and the Subsidiary are true and correct in
all material respects. The Company and the Subsidiary have paid all taxes
required by law, except for such, if any, as, together with any related
interests or penalties, could not, either individually or in the aggregate,
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), business, property, results of operations, assets or
liabilities of the Company and the Subsidiary taken as a whole.
2.19 Labor Agreements and Actions. Neither the Company nor the
----------------------------
Subsidiary is bound by or subject to any contract, commitment or arrangement
with any labor union, and to the best of the Company's knowledge, no labor union
has requested, sought or attempted to represent any employees, representatives
or agents of the Company or the Subsidiary. There is no strike or other labor
dispute involving the Company or the Subsidiary pending nor, to the best of the
Company's knowledge, threatened, nor is the Company aware of any labor
organization activity involving its or the Subsidiary's employees. Neither the
Company nor the Subsidiary has committed any unfair labor practice.
2.20 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company or the Subsidiary is required in connection with the consummation of
the transactions contemplated by this Agreement, except for: (i) the filing of
------ ---
a Notice of Transaction pursuant to Section 25102(f) of the California Corporate
Securities Law of 1968, as amended, and the rules thereunder (the "CALIFORNIA
SECURITIES LAW"), which filing will be effected within the time prescribed by
law; and (ii) such other qualifications or filings under the Securities Act and
the regulations thereunder and all other applicable securities laws as may be
required in connection with the transactions contemplated by this Agreement,
including, without limitation, filings under state "blue sky" securities laws in
connection with the conversion of the Purchased Shares and issuance of the
Conversion Shares. All such qualifications and filings will, in the case of
qualifications, be effective on the Closing and will, in the case of filings, be
made within the time prescribed by law.
2.21 Brokers or Finders. There is no investment banker, broker,
------------------
agent, financial advisor or other person or entity which has been retained by or
is authorized to act on behalf of the Company who is or will be entitled to any
fee, commission, reimbursement of expenses or other similar charge upon
consummation of or otherwise in connection with this Agreement or any of the
transactions contemplated hereby, other than Deutsche Morgan Grenfell. The
Company agrees to indemnify and hold each of the Purchasers and their respective
agents, officers, directors and employees harmless from and against any and all
claims, liabilities or obligations with respect to any such fees, commissions,
expenses or claims (including the costs, expenses and legal fees of defending
against such liability) for which the Company or the Subsidiary, or any of the
employees or representatives thereof, is responsible, including all amounts
payable to Deutsche Morgan Grenfell in connection with the consummation of the
transactions contemplated hereby.
8
<PAGE>
2.22 Registration Rights Agreement. Subject to fulfillment of the
-----------------------------
applicable conditions to Closing set forth in Section 7, the Company agrees to
enter into the Registration Rights Agreement in the form attached hereto as
Exhibit C at or prior to the Closing.
- ---------
2.23 Reasonable Efforts. The Company agrees to use its commercially
------------------
reasonable efforts to cause each condition to the Closing set forth in Sections
6 and 7 hereof, insofar as satisfaction of such condition requires any action by
or otherwise is in the control of the Company, to be satisfied as soon as
reasonably practicable and, in general, to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as reasonably practicable
the purchase and sale of the Purchased Shares in accordance with the terms of
this Agreement.
2.24 Material Agreements. Section 2.24 of the Schedule of Exceptions
-------------------
sets forth each contract, lease, license and other agreement to which the
Company or the Subsidiary is a party or by which either of them is bound that is
material to the business of the Company, including without limitation any
employment, consulting or other agreement between the Company and any of its
directors or executive officers in which the annual amount involved exceeds
$60,000.00 ("MATERIAL AGREEMENTS") (i) that has not previously been delivered to
special counsel to the Purchasers, or (ii) that, if based on a form of agreement
previously delivered to special counsel to the Purchasers, contains different
terms resulting in a materially different economic effect from the terms set
forth in such forms of agreement. To the best of the Company's knowledge, there
is no written contract currently under negotiation by the Company (i) as to
which the Company believes negotiations are substantially complete and (ii)
which, when entered into, could reasonably be expected to have a material effect
on the condition (financial or otherwise), business, property, results of
operations, assets or liabilities of the Company and the Subsidiary taken as a
whole, other than those contracts under negotiation that have been disclosed to
special counsel for the Purchasers.
To the best of the Company's knowledge, the Company has not breached,
nor does the Company have any knowledge of any claim or threat by a third party
that the Company has breached, any term or condition of (i) any Material
Agreement, or (ii) any other agreement, contract, lease, license, instrument or
commitment which breaches, individually or in the aggregate, would have a
material adverse effect on the condition (financial or otherwise), business,
property, results of operations, assets or liabilities of the Company and the
Subsidiary taken as a whole. Each Material Agreement is in full force and
effect and, to the best of the Company's knowledge, no other party to such
Material Agreement is in material default thereunder.
2.25 Compliance with Law. The Company is in compliance with all
-------------------
applicable statutes, laws, regulations and executive orders of the United States
of America and all states, foreign countries or other governmental bodies and
agencies having jurisdiction over the Company's business or properties except
for any violations that could not, individually or in the aggregate, reasonably
be expected to have a material adverse effect on the condition (financial or
otherwise), business, property, results of operations, assets or liabilities of
the Company and the Subsidiary, taken as a whole.
2.26 Environmental Matters. To the best of the Company's knowledge,
---------------------
throughout its existence, the Company has, in all material respects, (i)
complied with, and continues to comply with, all applicable local, state and
federal environmental laws, ordinances,
9
<PAGE>
regulations and orders (collectively, "ENVIRONMENTAL LAWS"), (ii) disposed of
its waste products and effluents in accordance with all applicable Environmental
Laws, and (iii) distributed its products in accordance with all Environmental
Laws. During the time that the Company has owned or leased its properties and
facilities, there has been no litigation brought or threatened against the
Company, or any settlement reached by the Company with any party or parties,
alleging the presence, disposal, release or threatened release of any Hazardous
Materials (as defined below) on, from or under any of such properties or
facilities.
For the purpose of this Section, "Hazardous Materials" shall
mean any hazardous or toxic substance, material or waste which is or becomes
prior to the Closing regulated under, or defined as a "hazardous substance,"
"pollutant," "contaminant," "toxic chemical," "hazardous material," "toxic
substance," or "hazardous chemical" under (1) the Comprehensive Environment
Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et
--
seq., as amended ("CERCLA"); (2) the Emergency Planning and Community
- ---
Right-to-Know Act, 42 U.S.C. Section 1801, et seq.; (3) the Toxic Substances
-- ---
Control Act, 14 U.S.C. Section 2601 et seq.; (4) the Occupational Safety and
-- ---
Health Act of 1970, 27 U.S.C. Section 651 et seq.; (5) regulations promulgated
-- ---
under any of the above statutes; or (6) any applicable state or local statute,
ordinance, rule, or regulation that has a scope or purpose similar to those
statutes identified above.
2.27 Insurance. The Schedule of Exceptions sets forth a list of the
---------
material policies of insurance that are applicable to the Company or the
Subsidiary. The Company has made available to counsel to the Purchasers true
and complete copies of such insurance policies.
2.28 Employee Confidentiality Agreement. The Company has obtained
----------------------------------
from each employee with access to confidential or proprietary information of the
Company a confidentiality agreement substantially in the form made available to
special counsel to the Purchasers, except for such failures, if any, to obtain
such agreements from such employees as could not, either individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
condition (financial or otherwise), business, property, results of operations,
assets or liabilities of the Company and the Subsidiary taken as a whole.
2.29 Dividends. The Company has not declared or paid any dividends,
---------
or authorized or made any distributions upon or with respect to, any class or
series of its capital stock.
3. Representations, Warranties and Covenants of the Purchasers. Each
-----------------------------------------------------------
Purchaser, on behalf of itself and not jointly with the other Purchasers, hereby
represents and warrants to, and covenants with, the Company as follows:
3.1 Experience. Such Purchaser is experienced in evaluating start-up
----------
companies such as the Company, and has such knowledge and experience in
financial and business matters to enable such Purchaser to evaluate the merits
and risks of such Purchaser's prospective investment in the Company, and such
Purchaser has the ability to bear the economic risks of such investment.
3.2 Investment. Such Purchaser is acquiring the Purchased Shares and
----------
any Conversion Shares solely for the purpose of investment for such Purchaser's
own account, not as a nominee or agent, and not with a view to, or for offer or
sale in connection with, any
10
<PAGE>
distribution thereof in any transaction which would be in violation of the
securities laws of the United States of America or any state thereof. Such
Purchaser does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participation to any third person with
respect to any of the Purchased Shares or the Conversion Shares. Such Purchaser
understands that the Purchased Shares and the Conversion Shares have not been
registered under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of the investment intent as expressed herein.
3.3 Accredited Purchaser Status. Such Purchaser is an "accredited
---------------------------
investor" within the meaning of Regulation D promulgated under the 1933 Act.
3.4 Restricted Securities. Such Purchaser understands that the
---------------------
Purchased Shares and any Conversion Shares may not be sold, transferred or
otherwise disposed of without registration under the Securities Act or the
availability of an exemption therefrom, and that in the absence of an effective
registration statement covering such stock or an available exemption from
registration, the Purchased Shares and any Conversion Shares must be held
indefinitely. In the absence of an effective registration statement under the
Securities Act with respect to the Purchased Shares or any Conversion Shares
such Purchaser shall notify the Company of any proposed disposition by such
Purchaser of any Purchased Shares or any Conversion Shares, shall furnish the
Company with a statement of the circumstances surrounding the proposed
disposition and, if reasonably requested by the Company, shall furnish the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require the registration of such Purchased Shares or
such Conversion Shares under the Securities Act. Such Purchaser shall not sell,
transfer or otherwise dispose of any Purchased Shares or any Conversion Shares
except in a manner fully consistent with its representations contained in this
Section 3 and otherwise in full compliance with the terms and conditions of this
Agreement and the provisions of applicable law. Such Purchaser understands that
no public market now exists for any of the Purchased Shares and that the Company
is under no obligation to register any of the securities sold hereunder except
as provided in the Registration Rights Agreement.
3.5 Authorization. Such Purchaser is a corporation or partnership
-------------
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has full corporate or partnership power and
authority to execute, deliver and perform its obligations under each of the
Transaction Agreements to which it is a party. Such Purchaser has taken all
corporate or partnership action necessary to authorize the execution, delivery
and performance of its obligations under each of the Transaction Agreements to
which it is a party, and each such Transaction Agreement, when executed and
delivered by such Purchaser, assuming the due execution and delivery thereof by
the other parties hereto or thereto, shall constitute a valid and legally
binding obligation of such Purchaser, enforceable against it in accordance with
its terms, subject to: (i) judicial principles respecting election of remedies
or limiting the availability of specific performance, injunctive relief, and
other equitable remedies; (ii) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect generally relating
to or affecting creditors' rights; and (iii) limitations on the enforceability
of the indemnification and contribution provisions of the Registration Rights
Agreement imposed by law or public policy.
11
<PAGE>
3.6 Consents and Approvals; No Conflict. Except as set forth on
-----------------------------------
Schedule 3.6 and except as could not reasonably be expected, individually or in
the aggregate, to have a material adverse effect on such Purchaser's ability to
perform its obligations hereunder, the execution, delivery and performance of
each of the Transaction Agreements to which such Purchaser is a party and the
consummation of each of the transactions contemplated hereby or thereby do not
and will not (a) conflict with or result in a breach of the terms, conditions or
provisions of, (b) with or without notice or lapse of time or both, constitute a
default under, (c) result in the creation of any lien, security interest, charge
or encumbrance upon any material properties or assets pursuant to, (d) with or
without notice or lapse of time or both, give any third party the right to
accelerate, cancel or terminate any obligation under, (e) result in a violation
of, or (f) require any order, qualification, waiver, permit, authorization,
consent, approval, exemption or other action by or from, or any registration,
notice, declaration, application or filing to or with, any court or
administrative or governmental body or any other person or entity pursuant to
(i) the Certificate (or Articles) of Incorporation, Bylaws, partnership
agreement (or other governing documents) of such Purchaser, (ii) any agreement
to which such Purchaser is a party or is bound or to which its assets are
subject or (iii) any law, statute, rule or regulation to which such Purchaser is
subject; provided, however, that with respect to clause (f) of this Section 3.6,
-------- -------
such representation and warranty is made to the actual knowledge of such
Purchaser as to any such requirements applicable to such Purchaser as a result
of the specific legal or regulatory status of any other party to this Agreement
or as a result of any other facts that specifically relate to any such other
party, any business in which any such other party has engaged or proposes to
engage or any financing arrangements or transactions entered into or proposed to
be entered into by or on behalf of any such other party.
3.7 Disclosure of Information. Such Purchaser has received or has
-------------------------
had full access to all the information it considers necessary or appropriate to
make an informed investment decision with respect to the Purchased Shares to be
purchased by such Purchaser under this Agreement, including but not limited to
the Term Sheet dated as of June 4, 1996, the Stock Purchase and Exchange
Agreement, dated as of August 1, 1996, and the Amended and Restated
Stockholders' Agreement, dated as of August 1, 1996, in each case among the
Company, certain of its stockholders and certain affiliates of such
stockholders, the Prior Registration Rights Agreement, the Offering Memorandum
and the Supplement. Such Purchaser further has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the offering of the Purchased Shares and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify any
information furnished to such Purchaser or to which such Purchaser had access.
The foregoing, however, does not in any way limit or modify the representations
and warranties made by the Company in Section 2 or any of the other Transaction
Agreements.
3.8 Information Concerning Purchaser. Exhibit D hereto sets forth
-------------------------------- ---------
such Purchaser's jurisdiction of organization, the location of said Purchaser's
principal office and the jurisdiction in which such Purchaser will accept the
Company's offer to sell the Purchased Shares and will purchase the Purchased
Shares.
3.9 Brokers or Finders. There is no investment banker, broker,
------------------
agent, financial advisor or other person or entity which has been retained by or
is authorized to act on behalf of such Purchaser who is or will be entitled to
any fee, commission, reimbursement of
12
<PAGE>
expenses or other similar charge upon consummation of or otherwise in connection
with this Agreement or any of the transactions contemplated hereby. Such
Purchaser agrees to indemnify and hold harmless the Company and its agents,
officers, directors and employees from and against any and all claims,
liabilities or obligations with respect to any such fees, commissions, expenses
or claims (including the costs, expenses and legal fees of defending against
such liability) for which such Purchaser, or any of its partners, employees or
representatives, is responsible.
3.10 Registration Rights Agreement. Subject to fulfillment of the
-----------------------------
applicable conditions to Closing set forth in Section 6, such Purchaser agrees
to enter into the Registration Rights Agreement in the form attached hereto as
Exhibit C at or prior to the Closing.
- ---------
3.11 Reasonable Efforts. Such Purchaser agrees to use its
------------------
commercially reasonable efforts to cause each condition to the Closing set forth
in Sections 6 and 7 hereof, insofar as satisfaction of such condition requires
any action by or otherwise is in the control of such Purchaser, to be satisfied
as soon as reasonably practicable and, in general, to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective as promptly as reasonably
practicable the purchase and sale of the Purchased Shares in accordance with the
terms of this Agreement.
4. Transfer Restrictions; Preferred Stockholders' Right of First Refusal;
----------------------------------------------------------------------
Company Right of First Offer; Voting; Legends; Notations.
- --------------------------------------------------------
4.1 Transfer Restrictions.
---------------------
(a) Subject to the terms of the Canadian Purchase Agreement (as
defined in the Schedule of Exceptions) with respect to the Purchased Shares and
Conversion Shares held by the Canadian Purchasers and their permitted
transferees, in consideration for the issuance of the Purchased Shares, each
Purchaser shall not sell, transfer or otherwise dispose of all or any portion of
the Purchased Shares or the Conversion Shares until the earlier of:
(i) the closing of the Company's initial public offering of
Series A Common Stock (or any other equity security) pursuant to a registration
statement filed with and declared effective by the SEC (the "COMPANY IPO"); or
(ii) June 4, 2001; provided, however that if the Company IPO
has not occurred prior to June 4, 2001, from June 4, 2001 to the earlier of (A)
the Company IPO or (B) June 4, 2006, then any transfer of Purchased Shares or
Conversion Shares by a Purchaser shall be subject to a right of first offer in
favor of the Company or the Company's assignee, as more fully described in
Section 4.2.
(b) Notwithstanding the restrictions on disposition set forth above
in this Section 4.1, a Purchaser may without complying with Sections 4.1 and
4.2, make a disposition of all or any portion of the Purchased Shares or the
Conversion Shares (i) to any Controlled Affiliate of such Purchaser, (ii) in
connection with a merger of the Company in which the outstanding securities of
the Company are converted into or exchanged for securities of the acquiring
entity (or its parent), (iii) subject to compliance with the procedures
described in Section 4.1(c) below, to one or more other stockholders of the
Company, or (iv) in connection with the liquidation or sale of all or
substantially all of the assets of such Purchaser; provided,
--------
13
<PAGE>
that in each case, each transferee agrees in writing to be subject to the terms
of this Section 4 to the same extent as if the transferee were an original
Purchaser hereunder. A "CONTROLLED AFFILIATE" of a Purchaser shall mean any
Person (i) which now or in the future is Controlled by such Purchaser, (ii)
which now or in the future owns (directly or indirectly through one or more
wholly owned subsidiaries) 100% of the outstanding capital stock of such
Purchaser as of the date of this Agreement (a "PARENT"), or (iii) of which now
or in the future more than 50% of the equity interests and voting power of its
outstanding capital stock is owned by a Parent of such Purchaser. "CONTROL"
means the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, management agreement or otherwise.
(c) If at any time after the Closing a Purchaser proposes to make a
sale, transfer or other disposition of the Purchased Shares or Conversion Shares
pursuant to clause (iii) of Section 4.1(b) above to another stockholder of the
Company who is not a Purchaser of Purchased Shares, the Purchaser shall first
notify the Company of its desire to enter into such a transaction (such notice,
a "ROFR NOTICE"). Each ROFR Notice shall constitute an offer by such Purchaser
to sell to the other holders of Preferred Stock of the Company (the "ROFR
STOCKHOLDERS") all of the Purchased Shares and/or Conversion Shares such
Purchaser proposes to sell, transfer or otherwise dispose of (such securities,
the "ROFR SHARES"). The Company shall promptly deliver the ROFR Notice to each
ROFR Stockholder, together with a statement of such ROFR Stockholder's pro rata
portion of the ROFR Shares. Each ROFR Notice shall set forth the type and
amount of ROFR Shares such Purchaser proposes to sell, transfer or otherwise
dispose of and shall specify the price per share (determined on an as converted
into Series A Common Stock basis) and other terms at which such Purchaser will
sell, transfer or otherwise dispose of the ROFR Shares. The price for the ROFR
Shares shall be payable in cash.
(d) Each ROFR Stockholder shall have the right to purchase all of
such ROFR Stockholder's pro rata portion of the ROFR Shares, based on the
proportion that the number of shares of Series A Common Stock held by such ROFR
Stockholder (determined on an as-converted basis) bears to the total number of
shares of Series A Common Stock (determined on an as-converted basis) held by
all ROFR Stockholders. If a ROFR Stockholder desires to accept the offer set
forth in the ROFR Notice, the ROFR Stockholder shall deliver a notice (the "ROFR
ACCEPTANCE NOTICE") to the Company within twenty (20) days after the date the
Company delivers the ROFR Notice. The ROFR Acceptance Notice shall constitute
the ROFR Stockholder's binding agreement to purchase the amount of its pro rata
portion of the ROFR Shares set forth in such ROFR Stockholder's ROFR Acceptance
Notice on the terms set forth in the ROFR Notice.
(e) The closing of the purchase and sale of the ROFR Shares with
respect to which ROFR Acceptance Notices have been received shall take place at
a time and place determined by the Company within forty-five (45) days after
expiration of the twenty (20) day period referred to in the preceding paragraph
(subject to extension for a maximum of sixty (60) additional days to the extent
required to obtain all required governmental, regulatory and other third party
consents and approvals, provided the parties to such transaction are each using
commercially reasonable efforts to obtain such consents and approvals). As to
ROFR Shares which are not purchased pursuant to such ROFR Acceptance Notices,
the Purchaser shall have the right, at any time during the ninety (90) day
period beginning after expiration of the twenty (20) day period referred to in
the preceding paragraph, to enter into a binding agreement to sell
14
<PAGE>
all of such ROFR Shares to a third party purchaser on terms and conditions no
more favorable to such third party purchaser than those set forth in the ROFR
Notice, and thereafter (within the period specified below) to sell all of the
ROFR Shares to such third party purchaser pursuant to such agreement. If the
Purchaser does not enter into such an agreement during such ninety (90) day
period, or does not close the sale thereunder within one hundred twenty (120)
days from the expiration of the twenty (20) day period referred to in the
preceding paragraph (subject to extension for a maximum of sixty (60) additional
days to the extent required to obtain all required governmental, regulatory and
other third party consents and approvals, provided the parties to such
transaction are each using commercially reasonable efforts to obtain such
consents and approvals), the procedure set forth above with respect to the ROFR
Notice shall be repeated with respect to any subsequent proposed transfer of
Purchased Shares or Conversion Shares pursuant to clause (C) of the second
paragraph of Section 4.1(b) above to another stockholder of the Company who is
not a Purchaser of Purchased Shares.
4.2 Company Right of First Offer.
----------------------------
(a) In the event a Purchaser proposes to make a sale, transfer or
other disposition of the Purchased Shares or Conversion Shares, which sale,
transfer or other disposition is subject to the Company's right of first offer
pursuant to the proviso to Section 4.1(a)(ii) above, the Purchaser shall first
notify the Company of its desire to enter into such a transaction (such notice,
a "ROFO NOTICE"). Each ROFO Notice shall constitute an offer by such Purchaser
to sell to the Company, or the Company's assignee, all of the Purchased Shares
and/or Conversion Shares such Purchaser proposes to sell, transfer or otherwise
dispose of (such securities, the "ROFO SHARES"). Each ROFO Notice shall set
forth the type and amount of ROFO Shares such Purchaser proposes to sell,
transfer or otherwise dispose of and shall specify the price per share
(determined on an as converted into Series A Common Stock basis) at which such
Purchaser will sell, transfer or otherwise dispose of the ROFO Shares. Unless
otherwise agreed by the Purchaser and the Company (or its assignee), the price
for the ROFO Shares shall be payable in cash.
(b) If the Company (or its assignee) desires to accept the offer set
forth in the ROFO Notice as to all but not less than all of the ROFO Shares, the
Company (or its assignee) shall, within ten Business Days (as defined in Section
8.1, below) of its receipt of the ROFO Notice, notify the Purchaser in writing
of its agreement to acquire the ROFO Shares.
(c) In the event the Company (or its assignee) rejects the offer
contained in the ROFO Notice, which rejection shall be deemed to have occurred
in the event the Company (or its assignee) (i) has not accepted the offer
contained in the ROFO Notice within ten (10) Business Days following its receipt
of the ROFO Notice, or (ii) if the Company is not able to close the sale
pursuant to the ROFO Notice after timely accepting the offer contained in the
ROFO Notice, within one hundred twenty (120) days from acceptance (subject to
extension for a maximum of sixty (60) additional days to the extent required to
obtain all required governmental, regulatory and other third party consents and
approvals, provided the Purchaser and the Company are each using commercially
reasonable efforts to obtain such consents and approvals), then the Purchaser
shall have the right, at any time during the sixty (60) day period beginning on
the date that the Purchaser's offer of the ROFO Shares is, or is deemed,
rejected or the expiration date of such 120-day period (as may be extended)
above (such applicable date, the "ROFO DATE"), to enter into a binding agreement
to sell all of the ROFO Shares to a third party purchaser on terms
15
<PAGE>
conditions no more favorable to such third party purchaser than those set forth
in the ROFO Notice, and thereafter (within the period specified below in this
Section 4.2(c)) to sell all of the ROFO Shares to such third party purchaser
pursuant to such agreement. If the Purchaser does not enter into such an
agreement during such sixty (60) day period, or does not close the sale
thereunder within one hundred twenty (120) days from the ROFO Date (subject to
extension for a maximum of sixty (60) additional days to the extent required to
obtain all required governmental, regulatory and other third party consents and
approvals, provided the Purchaser and the third party purchaser are each using
commercially reasonable efforts to obtain such consents and approvals), the
procedure set forth above with respect to the ROFO Notice shall be repeated with
respect to any subsequent proposed transfer of Purchased Shares or Conversion
Shares.
(d) An unaffiliated third party purchaser acquiring Purchased
Shares or Conversion Shares in accordance with the foregoing procedures shall
acquire such shares free and clear of any obligations under this Section 4.2 but
subject to the other obligations of transferees under this Agreement.
4.3 Voting Agreement. In consideration of the sale of the Purchased
----------------
Shares by the Company to each Purchaser, such Purchaser hereby agrees that, with
respect to any matter upon which the separate vote of the holders of the
Company's Series A Common Stock is required under Section 242(b) of the Delaware
General Corporation Law prior to the closing of the Company IPO, such Purchaser
will cast all votes attributable to such Purchaser's shares of Series A Common
Stock in the same proportion as the holders of the Company's outstanding shares
of such Series AM, Series AT, Series AX, Series K and Series T Preferred Stock
or any other series of stock designated in the Restated Certificate, as amended
from time to time, as Convertible Preferred Stock (the "CONVERTIBLE PREFERRED
STOCK") cast their votes upon such matter, or, if there are no such shares of
Convertible Preferred Stock outstanding, in the same manner as the holders of
the Company's outstanding shares of Series B Common Stock cast their votes upon
such matter. Each Purchaser hereby irrevocably appoints the Secretary of the
Company, or any other person designated by the Secretary of the Company, to act
as such Purchaser's proxy until the Company IPO to cast all votes attributable
to such Purchaser's shares of Series A Common Stock as specified in this Section
4.3. The obligations of this Section 4.3 shall be binding on any transferee to
whom the Purchased Shares or such shares of Series A Common Stock are
transferred by such Purchaser and any subsequent transferee. As a condition of
any transfer of the Purchased Shares or Conversion Shares prior to the Company
IPO, each Purchaser shall require its transferee, and any such transferee shall
require its transferee, to agree to be bound by the provisions of this Section
4.3 in the same manner as such Purchaser is bound.
4.4 Legends; Notations. The certificates evidencing the Purchased
------------------
Shares or any Conversion Shares shall be endorsed with the legends set forth
below:
(a) a conspicuously noted legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL REASONABLY
SATISFACTORY
16
<PAGE>
TO THE COMPANY, SUCH SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION
IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH THE ACT AND SUCH
LAWS";
(b) any legend required by any applicable state securities law;
and
(c) a conspicuously noted legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THAT
CERTAIN STOCK PURCHASE AGREEMENT DATED AS OF APRIL 11, 1997 AMONG THE COMPANY
AND THE OTHER PARTIES THERETO CONTAINING, AMONG OTHER THINGS, RESTRICTIONS ON
THE SALE, TRANSFER OR OTHER DISPOSITION OF SUCH SECURITIES AND RESTRICTIONS UPON
AND COMMITMENTS TO VOTE ON CERTAIN MATTERS. A COUNTERPART OF SUCH AGREEMENT HAS
BEEN DEPOSITED WITH THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS, AND THE
COMPANY SHALL FURNISH A COPY OF EACH SUCH AGREEMENT TO THE RECORD HOLDER HEREOF,
WITHOUT CHARGE, UPON WRITTEN REQUEST."
The Company shall make a notation on its stock books regarding the
restrictions on transfer of the Purchased Shares and any Conversion Shares and
will transfer securities on the books of the Company only to the extent not
inconsistent therewith.
5. Hart-Scott-Rodino Act. If any Purchaser, or in the case of a
---------------------
mandatory conversion of the Purchased Shares, the Purchaser or the Company,
reasonably believes that such Purchaser's conversion of the Purchased Shares
would be subject to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and
the rules and regulations thereunder (the "HSR ACT AND RULES") prior to such
conversion and following such Purchaser's notice to the Company of such
Purchaser's intention to convert or the Company's notice to such Purchaser of
such a mandatory conversion, the Company and such Purchaser shall promptly
comply with any applicable requirements under the HSR Act and Rules relating to
filing and furnishing of information (the "HSR REPORT") to the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice.
Without limiting the foregoing, such Purchaser and the Company shall file the
HSR Report and take all other action required by the HSR Act and Rules and shall
use their respective commercially reasonable efforts to (a) coordinate with
respect to the filing of the HSR Reports of such Purchaser and the Company (and
exchanging drafts thereof), so as to present all required HSR Reports to the FTC
and the Department of Justice at the time selected by such Purchaser, or in the
case of such a mandatory conversion, the Company, and to avoid substantial
errors or inconsistencies among such HSR Reports in the description of the
transaction, (b) comply with any additional request for documents or information
made by the FTC or the Department of Justice or by a court and to assist the
other parties to so comply and (c) cause all persons which are part of the same
"person" (as defined for purposes of the HSR Act and Rules) to cooperate and
assist in such filing and compliance. Each of the Company and such Purchaser
shall bear and pay any costs or expenses that it incurs in complying with this
Section 5.
6. Conditions to the Purchasers' Obligations at Closing. The obligation
----------------------------------------------------
of each Purchaser to purchase and/or acquire Purchased Shares at the Closing is
several and not joint and such obligation is subject to the satisfaction, at or
prior to the Closing, of each of the following
17
<PAGE>
conditions, any of which may be waived by a Purchaser by written notice to the
Company, but no such waiver shall be effective against a Purchaser unless
consented to by such Purchaser.
6.1 Correctness of Representations and Warranties. The
---------------------------------------------
representations and warranties of the Company set forth in this Agreement shall,
if specifically qualified by materiality, be true and correct and, if not so
qualified, be true and correct in all material respects in each case as of the
date of this Agreement and as of the Closing Date with the same effect as if
made on and as of the Closing Date, and such Purchaser shall have received a
certificate to such effect from the Company, signed by its duly authorized
officer.
6.2 Performance of Agreements. The Company shall have performed and
-------------------------
complied with all agreements, obligations and conditions contained in this
Agreement and in the other Transaction Agreement that are required to be
performed or complied with by it on or before the Closing Date, and such
Purchaser shall have received a certificate to such effect from the Company,
signed by its duly authorized officer.
6.3 Certificate of Designation and Certificate of Amendment. The
-------------------------------------------------------
Certificate of Designation and the Certificate of Amendment shall have been duly
adopted by the Company by all necessary corporate action of its Board of
Directors and stockholders, as applicable, and shall have been duly filed with
and accepted by the Secretary of State of the State of Delaware and shall be in
full force and effect under the DGCL.
6.4 Securities Exemption. The offer and sale of the Purchased Shares
--------------------
to the Purchasers pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act, the qualification requirements
of the California Securities Law and the registration and/or qualification
requirements of all other applicable state securities laws.
6.5 No Material Litigation. There shall not be pending on the
----------------------
Closing Date any lawsuit, claim, proceeding or other legal action by or before
any court or other regulatory, administrative or governmental authority that
seeks to restrain, restrict or prohibit or impose penalties or damages with
respect to (or any other materially adverse relief or remedy in connection
with), and there shall not be in effect on the Closing Date any injunction or
other order of any governmental authority or arbitration panel that restrains,
restricts, prohibits or imposes substantial penalties or damages with respect to
(or any other materially adverse relief or remedy in connection with), the
consummation of the transactions contemplated hereby or by the other Transaction
Agreement.
6.6 Government Approvals and Consents. All governmental consents
---------------------------------
required in connection with the consummation of the transactions contemplated by
this Agreement shall have been obtained and shall be in full force and effect
and all governmental filings required in connection with the consummation of the
transactions contemplated by this Agreement shall have been made, and all
waiting periods, if any, applicable to the consummation of such transactions
imposed by any governmental entity shall have expired.
6.7 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated hereby at the Closing, and all
documents and instruments incident to these transactions, shall be reasonably
satisfactory in substance to such Purchaser and its counsel and such Purchaser
shall have received all such counterpart originals
18
<PAGE>
and certified or other copies of such documents as they may reasonably request.
Such documents shall include (but not be limited to) the following:
(a) Certified Charter Documents. A copy of the Restated
---------------------------
Certificate, the Certificate of Amendment, the Certificate of Designation and
the Restated Bylaws, certified by the Secretary of the Company as true and
correct copies thereof as of the Closing.
(b) Corporate Actions. A copy of the resolutions of the Board
-----------------
of Directors and, as applicable, the stockholders, of the Company evidencing the
adoption and approval of the Certificate of Designation and the Certificate of
Amendment, the authorization of issuance and sale of the Purchased Shares, the
issuance of the Conversion Shares, the approval of this Agreement and the other
Transaction Agreement, and the other matters contemplated hereby and thereby.
(c) Good Standing Certificates. Certificates of corporate
--------------------------
standing and payment of franchise taxes issued by the Secretary of State of the
States of California and Delaware with respect to the Company and the
Subsidiary.
6.8 Opinion of Company Counsel. Each Purchaser shall have received
--------------------------
an opinion from Fenwick & West LLP, counsel for the Company, dated as of the
date of the Closing, in the form attached hereto as Exhibit E, and an opinion
---------
from Richards, Layton & Finger, P.A., special Delaware counsel for the Company,
dated as of the date of the Closing, the form attached hereto as Exhibit F.
---------
6.9 Registration Rights Agreement. The Company and the requisite
-----------------------------
parties to the Prior Registration Rights Agreement shall have executed and
delivered the Registration Rights Agreement as necessary to amend and restate
the Prior Registration Rights Agreement.
6.10 Delivery of Stock Certificates. The Company shall have
------------------------------
delivered to such Purchaser the stock certificate specified for such Purchaser
in Section 1.1.
6.11 Waiver of Existing Rights. On or before the Closing, any
-------------------------
preemptive rights, rights of first refusal and other rights (including but not
limited to, the right to receive notice of the transactions contemplated by this
Agreement) of the parties to the Stockholders' Agreement (and their respective
Stockholder Groups, as defined in the Stockholders' Agreement) under the
Stockholders' Agreement shall have been waived as and to the extent such rights
apply to the issuance and sale of the Purchased Shares and the Conversion Shares
hereunder and the other transactions contemplated hereby and by the other
Transaction Agreement.
6.12 Minimum Investment. The Purchasers shall purchase a minimum of
------------------
at least 150,000 shares of Series C Preferred at the Closing.
7. Conditions to the Company's Obligations at Closing. The obligations
--------------------------------------------------
of the Company to issue and sell the Purchased Shares to each of the Purchasers
at the Closing is subject to the satisfaction, at or prior to the Closing, of
each of the following conditions:
7.1 Correctness of Representations and Warranties. The
---------------------------------------------
representations and warranties of such Purchaser contained in this Agreement
shall, if specifically qualified by materiality, be true and correct and, if not
so qualified, be true and correct in all material respects
19
<PAGE>
in each case as of the date of this Agreement and as of the Closing Date with
the same effect as if made on and as of the Closing Date, and the Company shall
have received a certificate to such effect from such Purchaser, signed by its
duly authorized officer or other duly authorized representative of any Purchaser
that is not a corporation.
7.2 Performance of Agreements. Such Purchaser shall have performed
-------------------------
and complied with all covenants, agreements, obligations and conditions
contained in this Agreement that are required to be performed or complied with
by it on or before the Closing Date, and the Company shall have received a
certificate to such effect from such Purchaser, signed by its duly authorized
officer.
7.3 No Material Litigation. There shall not be pending on the
----------------------
Closing Date any lawsuit, claim, proceeding or other legal action by or before
any court or other regulatory, administrative or governmental authority that
seeks to restrain, restrict or prohibit or impose substantial penalties or
damages with respect to (or any other materially adverse relief or remedy in
connection with), and there shall not be in effect on the Closing Date any
injunction or other order of any governmental authority or arbitration panel
that restrains, restricts, prohibits or imposes substantial penalties or damages
with respect to (or any other materially adverse relief or remedy in connection
with), the consummation of the transactions contemplated hereby or by the other
Transaction Agreement.
7.4 Securities Exemption. The offer and sale of the Purchased Shares
--------------------
to such Purchaser pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act, the qualification requirements
of the California Securities Law and the registration and/or qualification
requirements of all other applicable state securities laws, provided that the
Company shall be obligated to use its commercially reasonable efforts to make
all filings and take all such other actions required to perfect such exemptions.
7.5 Government Approvals and Consents. All governmental consents
---------------------------------
required in connection with the consummation of the transactions contemplated by
this Agreement shall have been obtained and shall be in full force and effect
and all governmental filings required in connection with the consummation of the
transactions contemplated by this Agreement shall have been made, and all
waiting periods, if any, applicable to the consummation of such transactions
imposed by any governmental entity shall have expired, other than those which,
if not obtained, in force or effect, made or expired (as the case may be) would
not, whether individually or in the aggregate, have a material adverse effect on
the transactions contemplated by this Agreement.
7.6 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated hereby at the Closing, and all
documents and instruments incident to these transactions, shall be reasonably
satisfactory in substance to the Company and its counsel and they shall each
have received all such counterpart originals and certified or other copies of
such documents as they may reasonably request.
7.7 Registration Rights Agreement. The Registration Rights Agreement
-----------------------------
shall have been duly executed and delivered by such Purchaser and the requisite
parties to the Prior Registration Rights Agreement necessary to amend and
restate the Prior Registration Rights Agreement.
20
<PAGE>
7.8 Payment of Purchase Price. Such Purchaser shall have delivered
-------------------------
to the Company the purchase price specified for such Purchaser in Section 1.1.
7.9 Minimum Investment. The Purchasers shall purchase a minimum of
------------------
at least 150,000 shares of Series C Preferred at the Closing.
8. Preemptive Rights.
-----------------
8.1 Certain Definitions. For the purposes of this Section 8 only
-------------------
(and, for "Business Day" and "Person," Section 4), the following terms have the
following meanings:
"BUSINESS DAY" means any day other than a Saturday, Sunday or a day on
which banking institutions in New York, New York are not required to be open.
"COMMON STOCK" means any of the Series A Common Stock, the Series B
Common Stock or the Series K Common Stock.
"NEW CAPITAL STOCK" means shares of Common Stock, Preferred Stock or
other equity securities of the Company (including Rights) which the Company
proposes to offer, issue or sell following the Closing; provided, however, that
-------- -------
the following shall be excluded from the definition of "New Capital Stock": (i)
shares of Series B Common Stock issuable upon conversion of shares of Series T
Preferred, shares of Series A Common Stock issued or issuable upon conversion of
shares of Series B Common Stock, Series K Common Stock, Series AM Preferred,
Series AT Preferred, Series AX Preferred or Series C Preferred, or shares of
Series K Common Stock issued or issuable upon the conversion of shares of Series
K Preferred, or any other securities issuable upon conversion or exercise of
Rights of the Company outstanding as of the Closing; (ii) securities to be
issued pursuant to any public offering by the Company registered with the SEC or
any other Federal agency at the time administering the Securities Act or the
Securities Exchange Act of 1934, as amended; (iii) securities to be issued in
accordance with the Restated Certificate, the Certificate of Amendment, the
Certificate of Designation and the Restated Bylaws (each as amended to the date
in question) pursuant to any incentive stock or other plan or agreement of the
Company for the benefit of its employees, directors or consultants, including
any securities issuable pursuant to the exercise of any Rights issued pursuant
to such plans or agreements; (iv) securities to be issued by the Company in
connection with an acquisition (including, without limitation, by way of merger,
consolidation or binding share exchange) by the Company of the capital stock,
other equity interests or assets of another Person in a transaction pursuant to
which all or part of the consideration payable in connection with such
acquisition consists of securities of the Company or Rights to acquire
securities of the Company; (v) securities to be issued by the Company in
exchange for the receipt of equity interests in another entity in connection
with a joint venture or other business combination; (vi) securities to be issued
upon any exercise or conversion of Rights the issuance of which was subject to
or exempt from the preemptive rights set forth in this Section 8; (vii)
securities issued by the Company in connection with any stock split, stock
dividend, reverse stock split, recapitalization or the like occurring after the
Closing; or (viii) securities issuable upon exercise of the Canadian MSO
Warrants or upon conversion of the shares of Series C Preferred issuable upon
exercise of the Canadian MSO Warrants.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization,
21
<PAGE>
government or agency or political subdivision thereof, or other entity, whether
acting in an individual, fiduciary or other capacity.
"PREFERRED STOCK" means the Preferred Stock of the Company authorized
for issuance pursuant to the Restated Certificate (as amended to the date in
question), and shall, unless the context otherwise requires, include the Series
AM Preferred, the Series AT Preferred, the Series AX Preferred, the Series C
Preferred, Series K Preferred and the Series T Preferred.
"RIGHTS" means, with respect to any Person, any subscription, option,
warrant, right, convertible security or other agreement, instrument, or
commitment of any character obligating (contingently or absolutely) such Person
to issue or sell any capital stock or other securities.
8.2 Preemptive Rights.
-----------------
(a) If at any time after the Closing, the Company at any time or
from time to time makes any public or non-public offering of New Capital Stock,
each Purchaser shall first be offered the opportunity to acquire from the
Company for the same price and on the same terms as such securities are proposed
to be offered to others, up to the amount of New Capital Stock as is required to
enable it to maintain its proportionate interest in the Company. The amount of
New Capital Stock each Purchaser shall be entitled to purchase (or, in the case
of Rights, Rights to acquire a number of shares of New Capital Stock) shall be
determined by multiplying (x) the total number of such offered shares, or, in
the case of Rights, the total number of such shares covered by Rights, by (y) a
fraction, the numerator of which is the number of shares of Purchased Shares
(determined on an as converted into Series A Common Stock basis) and Conversion
Shares held by such Purchaser and, if such Purchaser is a Canadian Purchaser,
the number of shares of Series C Preferred (determined on an as converted into
Series A Common Stock basis) and Series A Common Stock issued upon exercise of
the Canadian MSO Warrants, and the denominator of which is the number of shares
of Common Stock then outstanding; provided, however, that for purposes of
-------- -------
determining the number of shares of Common Stock outstanding, such amount shall
include, without duplication, shares of Common Stock issuable upon the
conversion of outstanding shares of Preferred Stock or other outstanding
convertible equity securities of the Company and shares of Common Stock issuable
upon the exercise of outstanding Rights to purchase Common Stock (or other
securities of the Company).
(b) Notwithstanding the foregoing, no Person shall be entitled
to any preemptive rights in respect of the issuance of shares of New Capital
Stock issued to satisfy Rights theretofore issued and as to which such Person
theretofore had the opportunity to exercise preemptive rights pursuant to this
Section 8.
(c) In the event the Company proposes to offer New Capital
Stock, it shall give each Purchaser written notice of its intention, describing
the type of New Capital Stock to be offered, and the price and other terms upon
which the Company proposes to offer the same. Such notice shall constitute an
offer to each Purchaser to purchase such New Capital Stock. Each Purchaser shall
have twenty (20) days from the date of receipt of any such notice to notify the
Company in writing that it intends to exercise such preemptive rights and as to
the amount of New Capital Stock such Purchaser desires to purchase, up to the
maximum amount calculated pursuant to subsection (a). Such notice shall
constitute an agreement of such Purchaser to
22
<PAGE>
purchase the amount of New Capital Stock so specified upon the price and other
terms set forth in the Company's notice to it.
(d) If any Purchaser exercises its preemptive right hereunder,
the closing of the purchase of the New Capital Stock with respect to which such
right has been exercised shall take place within forty-five (45) calendar days
after the Purchaser's giving of notice of such exercise, which period of time
shall be extended for a maximum of one hundred thirty-five (135) days in order
to comply with applicable laws and regulations. Each of the Company and any
Purchaser which has agreed to purchase New Capital Stock agrees to use its
commercially reasonable efforts to secure any regulatory approvals or other
consents, and to comply with any law or regulation necessary in connection with
the offer, sale and purchase of, such New Capital Stock.
(e) In the event any Purchaser fails to exercise its preemptive
rights provided in this Section 8.2 within said twenty (20) day period or, if so
exercised, such Purchaser is unable to consummate such purchase within the time
period specified in paragraph (d) above because of its failure to obtain any
required regulatory consent or approval, the Company shall thereafter be
entitled during the period of ninety (90) days following the conclusion of the
applicable period to sell or enter into an agreement (pursuant to which the sale
of the New Capital Stock covered thereby shall be consummated, if at all, within
thirty (30) days from the date of said agreement) to sell the New Capital Stock
or Rights not elected to be purchased pursuant to this Section 8.2 or which such
electing Purchaser is unable to purchase because of such failure to obtain any
such consent or approval, at a price and upon terms no more favorable to the
purchasers of such securities than were specified in the Company's notice to the
Purchasers. Notwithstanding the foregoing, if such sale is subject to the
receipt of any regulatory approval or expiration of any waiting period, the time
period during which such sale may be consummated shall be extended until the
expiration of five Business Days after all such approvals have been obtained or
waiting periods expired, but in no event shall such time period exceed one
hundred eighty (180) days from the date of the applicable agreement with respect
to such sale. In the event the Company has not sold the New Capital Stock or
entered into an agreement to sell the New Capital Stock within said ninety (90)
day period (or sold and issued New Capital Stock in accordance with the
foregoing within thirty (30) days from the date of said agreement (as such
period may be extended in the manner described above for a period not to exceed
180 days from the date of said agreement)), the Company shall not thereafter
offer, issue or sell such New Capital Stock without again offering such
securities to the Purchasers in the manner provided above.
(f) All actions and determinations by, and all notices by or to,
any Controlled Affiliate of a Canadian Purchaser, or Additional Canadian MSO,
that is a permitted transferee of Rogers or Shaw, respectively, with respect to
the preemptive rights in this Section 8 shall be deemed validly taken or made
(in the case of actions or determinations) or given (in the case of notices), if
taken, made or given, as the case may be, by or to Rogers or Shaw, respectively
(or their respective successors), and such actions, determinations and notices
shall be binding upon all such Controlled Affiliates or Additional Canadian
MSO's for all purposes of this Section 8.
23
<PAGE>
8.3 Termination of Preemptive Rights.
--------------------------------
The rights granted to each Purchaser pursuant to Section 8.2
shall terminate as to a Purchaser upon the earliest to occur of: (i) such time
as such Purchaser (together with such Purchaser's Controlled Affiliates) ceases
to be the record or beneficial owner of at least twenty-five percent (25%) of
the shares of Series C Preferred (or Series A Common Stock issued upon
conversion of Series C Preferred) originally purchased by such Purchaser under
this Agreement (until such time, an "ELIGIBLE HOLDER"); and (ii) immediately
prior to the closing of the Company IPO.
9. Certain Agreements of the Company.
---------------------------------
9.1 Information Rights.
------------------
(a) Financial Information. The Company covenants and agrees
---------------------
that, commencing on the date of this Agreement, for so long as any Purchaser
remains an Eligible Holder, the Company will: (i) furnish to such Purchaser, as
soon as practicable and in any event within 120 days after the end of each
fiscal year of the Company, a consolidated Balance Sheet as of the end of such
fiscal year, a consolidated Statement of Income and a consolidated Statement of
Cash Flows of the Company and its subsidiaries for such year, setting forth in
each case in comparative form the figures from the Company's previous fiscal
year, all prepared in accordance with generally accepted accounting principles
and practices and audited by nationally recognized independent certified public
accountants; and (ii) furnish to such Purchaser as soon as practicable, and in
any event within forty-five (45) days of the end of each fiscal quarter of the
Company (except the last quarter of the Company's fiscal year), quarterly
unaudited financial statements, including an unaudited Balance Sheet, an
unaudited Statement of Income and an unaudited Statement of Cash Flows of the
Company and its subsidiaries, all prepared in accordance with generally accepted
accounting principles and practices and certified by the chief financial officer
of the Company.
(b) Investor Meetings. The Company covenants and agrees that,
-----------------
commencing on the Closing, for so long as any Purchaser remains an Eligible
Holder, such Purchaser shall be entitled to attend a quarterly investor meeting
(the "INVESTOR MEETING"), at which the management of the Company will review the
operational plans and financial results of the Company, the Company's customer
demographics and usage patterns, the Company's product architecture and the
Company's hardware and software requirements. Investor Meetings shall be held
within sixty days following the end of each fiscal quarter of the Company,
except for the Investor Meeting following the last quarter of the Company's
fiscal year, which shall be held within 135 days after the end of such fiscal
year. The date, time and location of each Investor Meeting shall be set by the
Company, which shall give written notice to each Purchaser entitled to attend
the Investor Meeting no less than ten days prior to such Investor Meeting.
(c) Confidentiality. Each Purchaser agrees to hold all
---------------
information received pursuant to this Section 9 in confidence, and not to use or
disclose any of such information to any third party (other than a Controlled
Affiliate of the Purchaser or counsel, a financial advisor or similar agent of
the Purchaser or a permitted transferee pursuant to Section 10.3(a)), except to
the extent such information (i) is not confidential or proprietary (provided
that tangible embodiments received of such information shall be deemed non-
confidential unless the same are marked to indicate that they are confidential
or proprietary), (ii) has been made publicly
24
<PAGE>
available by the Company, or (iii) is being disclosed by Purchaser after
Purchaser has been advised by its outside legal counsel that such disclosure is
compelled by applicable legal requirements; provided that such Controlled
Affiliates, agents and permitted transferees shall be informed of the
confidential nature of such information and the Purchaser shall cause such
persons to observe the provisions of this Section 9.1(c) and shall remain
responsible and be liable for any failure of such persons to comply with this
Section 9.1(c). Before a Purchaser discloses any such information pursuant to
clause (iii) of the preceding sentence, Purchaser shall use commercially
reasonable efforts to give prior notice to the Company concerning the
circumstances of the intended disclosure and shall use commercially reasonable
efforts to attempt to cooperate with the Company to minimize the amount and
nature of disclosure of such information, consistent with such Purchaser's legal
obligations.
(d) Termination of Information Rights. The Company's
---------------------------------
obligations under Section 9.1(a) and (b) above shall terminate upon the closing
of the Company IPO.
9.2 Support for Rule 144 Transfers. At such time as any of the
------------------------------
Purchased Shares or Conversion Shares is eligible for transfer under Rule 144(k)
promulgated under the Securities Act, the Company will remove any restrictive
legend relating to resale under the Securities Act from the certificates
evidencing such shares upon request and at no cost to the holder of such shares
upon such holder's presentation to the Company of a written statement of
circumstances reasonably satisfactory to the Company and its counsel that
indicates that Rule 144(k) is available for such holder.
9.3 Issuances to Officers. The Company covenants and agrees that,
---------------------
commencing on the date of this Agreement, any shares of Series A Common Stock or
options, warrants or other rights to acquire Series A Common Stock issued to any
officers of the Company shall be subject to (i) vesting restrictions as
determined by the Company's Board of Directors and (ii) until the Company IPO, a
right of first refusal held by the Company.
10. Miscellaneous.
-------------
10.1 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, in all respects the laws of the State of Delaware,
without regard to the conflicts of law rules of such State.
10.2 Survival. The representations and warranties made herein shall
--------
survive any investigation made by any Purchaser and the closing of the
transactions contemplated hereby for a period of fifteen (15) months after the
Closing, except that the representations and warranties set forth in Sections
2.18 and 2.26 shall survive for the applicable limitations periods set forth in
applicable tax and environmental statutes, respectively.
10.3 Successors and Assigns.
----------------------
(a) Transfer of Preemptive Rights, Information Rights and
-----------------------------------------------------
Meeting Rights. Each Purchaser shall be entitled to transfer its rights to
- --------------
receive financial information pursuant to Section 9.1(a) to any transferee of
such Purchaser receiving at least twenty-five percent (25%) of the shares of
Series C Preferred (or Series A Common Stock issued upon conversion of Series C
Preferred) originally purchased by such Purchaser under this Agreement;
provided, however, that no person may be assigned any of the foregoing rights
- -------- -------
unless the
25
<PAGE>
Company is given written notice by the assigning party at the time of such
assignment stating the name and address of the assignee and identifying the
securities of the Company as to which the rights in question are being assigned;
and provided, further, that any such assignee shall receive such assigned rights
-------- -------
subject to all the terms and conditions of this Agreement, including, without
limitation, the provisions of this Section 10.3. No Purchaser shall be entitled
to transfer its preemptive rights pursuant to Section 8, other than (i) to a
Controlled Affiliate of such Purchaser in connection with a transfer of
Purchased Shares or Conversion Shares to such Controlled Affiliate, provided
--------
that such Controlled Affiliate agrees in writing to be bound by this Section
10.3 and provided further that such Controlled Affiliate shall not be entitled
----------------
to such rights at such time as it is no longer a Controlled Affiliate of such
Purchaser, and (ii) as to the Canadian Purchasers, to any Additional Canadian
MSO (as defined in the Canadian Purchase Agreement) receiving in a transfer
permitted by the Canadian Purchase Agreement at least twenty-five percent (25%)
of the shares of Series C Preferred (or Series A Common Stock issued upon
conversion of Series C Preferred) originally purchased by such Canadian
Purchaser under this Agreement and issuable under the Canadian MSO Warrants
issued to such Canadian Purchaser, provided that such Additional Canadian MSO
--------
agrees in writing to be bound by this Section 10.3. No Purchaser shall be
entitled to transfer its rights to attend quarterly investor meetings pursuant
to Section 9.1(b), other than to a Controlled Affiliate of such Purchaser in
connection with a transfer of Purchased Shares or Conversion Shares to such
Controlled Affiliate; provided that such Controlled Affiliate agrees in writing
--------
to be bound by this Section 10.3 and provided further that such Controlled
----------------
Affiliate shall not be entitled to such rights at such time as it is no longer a
Controlled Affiliate of such Purchaser.
(b) Assignment. Except as provided in Section 4 with respect to
----------
a transfer of Purchased Shares or Conversion Shares, or in Section 10.3(a),
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by the Company or any Purchaser, respectively, (whether by
operation of law or otherwise) without the prior written consent of such
Purchaser or the Company, respectively. Any assignment or delegation in
contravention of this Agreement shall be void and shall not relieve the
assigning or delegating party of any obligation hereunder.
(c) Except as set forth in Sections 10.3(a) and 10.3(b), this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns.
10.4 Limitation on Rights of Others. Except as provided pursuant to
------------------------------
Section 10.3(a), nothing in this Agreement, whether express or implied, shall be
construed to give any person, other than the parties hereto, any legal or
equitable right, remedy or claim under or in respect of this Agreement.
10.5 Entire Agreement; Amendment. This Agreement, the other
---------------------------
Transaction Agreement, the other documents delivered pursuant hereto, any non-
disclosure agreements between the Company and any Purchaser, the Canadian MSO
Warrants and other written agreements between the Company and the Canadian
Purchasers effective at the Closing constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and thereof
and supersede all prior agreements and understandings, both written and oral,
among the parties with regard to the subject matter hereof. Neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written
26
<PAGE>
instrument signed by the Company and the holders of a majority of the aggregate
number of shares of Series A Common Stock into which the Purchased Shares then
are convertible and/or have been converted (excluding any of such shares that
have been sold to the public (including those sold pursuant to SEC Rule 144
promulgated under the Securities Act)); provided, however, that no amendment,
-------- -------
waiver, discharge or termination of this Agreement that affects a Purchaser
adversely in a manner different from other Purchasers (other than due to the
nature of the entity of the Purchaser) may be enforced against such Purchaser
without the written consent of such Purchaser.
10.6 Notices, Etc. All notices and other communications required or
------------
permitted to be given by any provision of this Agreement shall be in writing and
mailed (certified or registered mail, postage prepaid, return receipt requested)
or sent by hand or overnight courier, or by facsimile transmission (with
acknowledgment received), charges prepaid and addressed to the intended
recipient to the address indicated for such party on Exhibit A or, in the case
---------
of the Company, to At Home Corporation, 425 Broadway, Redwood City, CA 94063,
Telecopy: (415) 944-8500, Attention: David G. Pine, Esq., with a copy to Fenwick
& West LLP, Two Palo Alto Square, Suite 800, Palo Alto, CA 94306, Telecopy:
(415) 494-1417, Attention: Gordon K. Davidson, Esq., and with a copy to Wilson
Sonsoni Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo
Alto, CA 94304, Telecopy: (415) 493-6811, Attention: Allen Morgan, Esq., or to
such other address or number as may be specified from time to time by like
notice to the parties. Any party may from time to time specify a different
address for notices by like notice to the other parties. All notices and other
communications given in accordance with the provisions of this Agreement shall
be deemed to have been given and received (i) four (4) business days after the
same are sent by certified or registered mail, postage prepaid, return receipt
requested, (ii) when delivered by hand or transmitted by facsimile (with
acknowledgment received and, in the case of a facsimile only, a copy of such
notice is sent no later than the next business day by a reliable overnight
courier service, with acknowledgment of receipt) or (iii) one (1) business day
after the same are sent by a reliable overnight courier service, with
acknowledgment of receipt.
10.7 Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy accruing to any party upon any breach or default of any
other party under this Agreement shall impair any such right, power or remedy of
such first party, nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any party of any breach or default under this Agreement, or any
waiver on the part of any party of any provisions or conditions of this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing or as provided in this Agreement. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
10.8 Expenses. Each of the Company and each of the Purchasers shall
--------
bear its own expenses and legal fees incurred on its behalf in connection with
this Agreement and the transactions contemplated hereby; provided, however, that
if the Closing is consummated, the Company shall pay the reasonable legal fees
and expenses of Wilson Sonsini Goodrich & Rosati,
27
<PAGE>
Professional Corporation, special counsel to the Purchasers, incurred by that
firm in connection with this Agreement and the transactions contemplated hereby.
10.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts with the same effect as if all parties hereto had signed the same
document. Each counterpart shall be enforceable against the parties actually
executing such counterpart, and all counterparts shall be construed together and
shall constitute one instrument.
10.10 Severability. In the event that any provision of this
------------
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
10.11 Obligations Several, Not Joint. Each Purchaser shall be (i)
------------------------------
obligated hereunder only with respect to the purchase of the number of Purchased
Shares set forth on Exhibit A beside such Purchaser's name, and no Purchaser
shall have any liability with respect to any other Purchaser's obligations
hereunder, and (ii) separately and independently entitled to rely on the
representations and warranties of the other Purchasers and of the Company made
to such Purchaser in this Agreement and to the benefit of all covenants and
agreements of the other Purchasers and the Company made with such Purchaser
herein.
10.12 Currency. All monetary amounts in this Agreement are stated in
--------
United States Dollars.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
28
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
--------
AT HOME CORPORATION
By: /s/ Thomas A. Jermoluk
------------------------------
Name: Thomas A. Jermoluk
Title: President/CEO
PURCHASERS:
-----------
ROGERS CABLESYSTEMS LIMITED
By: /s/ David Samuel
------------------------------
Name: David Samuel
Title: President, Rogers Wave
By: /s/ M. L. Daly
-----------------------------
Name: M.L. Daly
Title: Vice President, Treasurer
SHAW CABLESYSTEMS LTD.
By: /s/ Jim Shaw
-----------------------------
Name: Jim Shaw, Jr.
Title: President
By: /s/ Margot M. Micallef
-----------------------------
Name: Margot M. Micallef
Title: Secretary
SUN MICROSYSTEMS, INC.
By: /s/ Michael Lehman
-----------------------------
Name: Michael Lehman
Title: Vice President & Chief
Financial Officer
NETSCAPE COMMUNICATIONS
CORPORATION
By: /s/ Peter L.S. Currie
-----------------------------
Name: Peter L.S. Currie
Title: SVP & CFO
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
29
<PAGE>
PURCHASERS
By: /s/ James Barksdale
-----------------------------
Name: James Barksdale
Title:
MOTOROLA, INC.
By: /s/ John W. Battin
-----------------------------
Name: John W. Battin
Title: Senior Vice President and
General Manager, Multimedia
Group
BAY NETWORKS, INC.
By: /s/ David Rynne
-----------------------------
Name: David Rynne
Title: Chief Financial Officer
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
30
<PAGE>
EXHIBIT A
---------
PURCHASERS
----------
<TABLE>
<CAPTION>
Name and Address of Purchaser Number of Shares of Series Aggregate
- ----------------------------- C Preferred to be Purchased Purchase Price
--------------------------- --------------
<S> <C> <C>
ROGERS CABLESYSTEMS LIMITED 75,000 $15,000,000.00
Suite 6400, Scotia Plaza
40 King Street W
Toronto, Ontario
Canada M5H 3Y2
Attn: Chief Executive Officer
Fax: (416) 864-2395
SHAW CABLESYSTEMS LTD. 75,000 $15,000,000.00
Suite 900
630 Third Avenue SW
Calgary, Alberta
Canada T2P 4L4
Attn: Mr. Jim Shaw Jr. and
Margot M. Micallef, Esq.
Fax: (403) 750-4531
SUN MICROSYSTEMS, INC. 25,000 $ 5,000,000.00
2550 Garcia Avenue, MS PALI-530
Mountain View, CA 94043
Attn: General Counsel
Fax: (415) 336-0530
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
NETSCAPE COMMUNICATIONS CORPORATION 20,000 $ 4,000,000.00
487 E. Middlefield Road
Mountain View, CA 94043
Attn: Mr. Peter Currie
Chief Financial Officer
and Mr. J. Quincy Smith
Fax: (415) 528-4139
and to
Attn: Roberta R. Katz, Esq.
Fax: (415) 528-4132
and to
Attn: Larry W. Sonsini, Esq.
and Jim Strawbridge, Esq.
Wilson, Sonsini, Goodrich
and Rosati
Fax: (415) 493-6811
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Purchaser Number of Shares of Series Aggregate
- ----------------------------- C Preferred to be Purchased Purchase Price
--------------------------- --------------
<S> <C> <C>
JAMES BARKSDALE 5,000 $ 1,000,000.00
c/o Netscape Communications
Corporation
487 E. Middlefield Road
Mountain View, CA 94043
Fax: (415) 528-4126
MOTOROLA, INC. 25,000 $ 5,000,000.00
Multimedia Group
1303 East Algonquin Road
Schaumburg, IL 60196-1065
Attn: General Counsel
Fax: (847) 576-3628
and to
Attn: Mr. Douglas M. Robertson
Director of Business
Development and Marketing
Fax: (847) 632-3164
BAY NETWORKS, INC. 15,000 $ 3,000,000.00
------ --------------
4401 Great America Parkway
Santa Clara, CA 95054
Attn: Mr. David Rynne
Fax: (408) 495-1400
TOTAL 240,000 $48,000,000.00
</TABLE>
<PAGE>
EXHIBIT D
---------
INFORMATION CONCERNING PURCHASERS
<TABLE>
<CAPTION>
Jurisdiction in which Purchaser
Jurisdiction of Location of Purchaser's will accept the Company's Offer to
Purchaser Organization Principal Office Sell the Purchased Shares
--------- ------------ ----------------------- ----------------------------------
<S> <C> <C> <C>
Rogers Cablesystems Ontario Ontario, Canada Ontario, Canada
Limited
Shaw Cablesystems Ltd. Federal law of Alberta, Canada Alberta, Canada
Canada
Sun Microsystems, Inc. Delaware California California
Netscape Communications Delaware California California
Corporation
James Barksdale California N/A California
Resident
Motorola, Inc. Delaware Illinois Illinois
Bay Networks, Inc. Delaware California California
</TABLE>
<PAGE>
EXHIBIT 10.06
** Confidential treatment has been
requested with respect to certain
information contained in this
document. Confidential portions
have been omitted from the public
filing and have been filed
separately with the Securities
and Exchange Commission.
TERM SHEET
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BETWEEN AT HOME CORPORATION AND
SHAW CABLESYSTEMS LTD. AND ROGERS CABLESYSTEMS LIMITED
March 18, 1997
INTRODUCTION
A. This term sheet sets out the terms under which the parties have agreed that
Shaw Cablesystems Ltd. ("Shaw") and Rogers Cablesystems Ltd. ("Rogers")
will distribute in Canada under the co-brand name Wave@Home or at their
option jointly exercised by Rogers and Shaw under the brand name @Home, a
high speed residential Internet service which shall be created by At Home
Corporation ("@Home"), Rogers and Shaw and which shall be based on the
Residential Internet Service (the "Service") created and to be provided by
@ Home which includes the @Home division and the @Media division as
described in the Confidential Offering Memorandum (as defined below);
B. The parties acknowledge that Canada offers a unique opportunity which the
parties wish to jointly develop by licensing Rogers and Shaw to create a
service (the "Wave@Home Service") based on the Service and developing a
business relationship that will ensure the success of the Wave@Home Service
in Canada taking into consideration Canada's unique market, geographic and
regulatory characteristics; and
C. Terms commencing with capital letters and not defined in the body of this
Term Sheet or in any schedule shall bear the meaning ascribed to them in
Schedule "A" attached hereto.
1.0 EQUITY INVESTMENT
1.1 PURCHASE OF SHARES AND WARRANTS: Rogers and Shaw shall each purchase
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U.S.$15,000,000 of Series C Convertible Preferred Stock (the "Series C
Shares") of @Home as outlined in the confidential offering memorandum
related to the Series C Shares ("Confidential Offering Memorandum") in
respect of the Series C Shares as amended by a supplementary offering
memorandum providing that each of the Series C Shares shall be convertible
into 20 shares of Series A Common Stock and the purchase price per Series C
Share shall be $200.00. As a result of the purchase of such Series C
Shares, Rogers and Shaw will purchase the warrants as outlined in Schedule
"B" (the "Warrants"). The stock purchase agreement of the Series C Shares
will provide that such shares are transferable to Canadian MSO's who are
sub-distributors of Wave@Home.
1.2 RESTRICTIONS ON THE TRANSFER OF SERIES C SHARES: The parties recognize
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that restrictions on transfer of the Series C Shares and Series A Shares
into which they may be converted and restrictions on exercise of the
Warrants may be required by U.S. securities laws to enable @Home to fulfill
its financing plans as disclosed to Rogers and Shaw. The parties agree to
negotiate the terms of such restrictions in good faith prior to the closing
with a view to facilitating both @ Home's financing plans and Rogers' and
Shaw's marketing and
<PAGE>
distribution plans for the Wave@Home Service, including the entering into
of sub-distribution agreements.
1.3 BOARD REPRESENTATION AND OBSERVER STATUS: As part of the closing
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procedures @Home shall take such actions as are necessary to enable it to
comply with Schedule "C".
2.0 GRANT OF LICENSE AND TERMS OF DISTRIBUTION AGREEMENT
2.1 EXCLUSIVE LICENSE: Subject to the proviso set out below, effective at the
-----------------
closing contemplated by Section 4 @Home hereby grants, solely for Canada,
to:
(A) Rogers, an exclusive license to distribute, market and promote that
portion of the Service which as contemplated in paragraph A above
forms part of the Wave@Home Service in those jurisdictions in which
Rogers is licensed from time to time by the Canadian Radio-television
and Telecommunications Commission (the "CRTC") to operate a cable
distribution undertaking;
(B) Shaw, an exclusive license to distribute, market and promote that
portion of the Service which as contemplated in paragraph A above
forms part of the Wave@Home Service in those jurisdictions in which
Shaw is licensed from time to time by the CRTC to operate a cable
distribution undertaking; and
(C) Rogers and Shaw jointly, an exclusive license to distribute, market
and promote directly or through the grant of sub-licenses, that
portion of the Service which as contemplated in paragraph A above
forms part of the Wave@Home Service in Canada in addition to those
jurisdictions referred to in sub-paragraph 2.1(A) and (B) above.
The licenses referred to above are individually referred to as a "License"
and collectively as the "Licenses". The Licenses shall include the
exclusive, nontransferable (except as permitted by this term sheet) right
and license to use all present and future @Home trade marks, technology,
processes, know-how, documentation and techniques together with all related
Intellectual Property Rights as may be developed, owned, acquired or
licensed by @Home and as may be necessary in providing the Wave@Home
Service in accordance with this term sheet and the right to use such trade
marks with any other trade mark owned by Rogers or Shaw, or their sub-
distributors, including the trade mark "Wave"; all in accordance with
@Home's written trade mark standards and customary licensing guidelines a
copy of which shall be appended to the definitive agreement to be entered
into by the parties as contemplated in paragraph 7.1 below. Provided that,
the exclusivity of the Licenses shall terminate at @Home's option to be
exercised within 90 days of the relevant event (such loss of exclusivity
shall be @Home's sole remedy):
(i) in the case of the License granted to Rogers, if:
1. Rogers fails to reach the number of Homes Passed provided for in
Schedule "D" attached hereto; or
2
<PAGE>
** Confidential treatment has been
requested with respect to certain
information contained in this
document. Confidential portions
have been omitted from the public
filing and have been filed
separately with the Securities
and Exchange Commission.
2. of the number of Homes Passed provided for in Schedule "D" Rogers
has not attained subscribers to the Wave@Home Service equal to the
Penetration Percentage set out in Schedule "D"
by the end of the relevant year set out opposite thereto;
(ii) in the case of the License granted to Shaw, if:
1. Shaw fails to reach the number of Homes Passed provided for in
Schedule "D" attached hereto; or
2. of the number of Homes Passed provided for in Schedule "D" Shaw
has not attained subscribers to the Wave@Home Service equal to the
Penetration Percentage set out in Schedule "D",
by the end of the relevant year set out opposite thereto;
(iii) [**]
The time for performance of Rogers' and/or Shaw's obligations as set out
above, shall be extended day-for-day by (1) to the extent that such failure
is as a result of a failure by @Home to complete its obligations set out in
this term sheet, the number of days of any resulting delay in Rogers'
and/or Shaw's performance of its obligations set out above; or (2) the
number of days Rogers' or Shaw's performance was prevented or delayed by
the occurrence of a Force Majeure event; or (3) a cure period of six (6)
months following notice by @Home to Rogers or Shaw as applicable in the
event of the failure to meet the levels referred to above. In the event of
a loss of the exclusivity of the License, there shall be a three (3) month
transitional period following such loss of exclusivity during which period
@Home shall not use or license any third party to use the trade mark @Home
but may work with other service providers.
2.2 MASTER ROLL-OUT PLAN: Rogers and Shaw shall distribute the Wave@Home
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Service in accordance with the terms of the Licenses and substantially as
determined by agreement of @Home, Rogers and Shaw in the Master Roll-Out
Plan. The "Master Roll-Out Plan" means the plan of the parties which sets
forth the first commercial deployment date, the upgrade schedule and the
network architecture to enable the launch of the Wave@Home Service by
Rogers and Shaw. @Home, Rogers and Shaw shall prepare the Master Roll-Out
Plan taking into account the particular characteristics of the Canadian
market which in their respective view is relevant to the distribution of
the Wave@Home Service.
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2.3 SUB-DISTRIBUTION AGREEMENTS: Any agreement entered into by Rogers or Shaw
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(directly or indirectly through an entity controlled by Rogers and Shaw)
with a sub-distributor shall:
(A) be substantially in the standard form of sub-distributor or
affiliation agreement to be approved by the parties hereto and shall
not be altered in any material respect without the prior written
consent of @Home, which consent shall not be unreasonably withheld.
Provided that, such sub-distribution agreements shall be entered into
only with sub-distributors in accordance with sub-distribution
guidelines, which shall be mutually agreed upon by the parties hereto;
(B) provide for such management fees to be paid by such sub-distributor to
Rogers and/or Shaw, as applicable, for establishing and managing the
relationship with such sub-distributor. Such management fee will be
set by the Rogers and Shaw and shall be approved by @Home, acting
reasonably, and shall be sufficient to cover at least Rogers' and
Shaw's costs and investment in connection with such establishment and
management. Rogers and/or Shaw, as applicable, may charge additional
fees to the sub-distributors for additional or incremental services
such as billing or customer support; and
(C) provide that the rights granted to sub-distributors which require
performance by @Home, shall be no greater than the rights granted to
Rogers and Shaw by @Home and that such sub-distributors shall be
subject to performance standards in order to maintain exclusivity.
Rogers and Shaw shall promptly notify @Home of any material breach under
any such sub-distributor or affiliation agreement. Each of Rogers and Shaw
(directly or indirectly through an entity controlled by Rogers and Shaw)
will diligently enforce the provisions of any sub-distributor or
affiliation agreement.
2.4 REGULATORY CONSIDERATIONS: Rogers and Shaw will distribute the Service in
-------------------------
accordance with all applicable laws, ordinances, regulations and policies
of any governmental agency or regulatory authority having jurisdiction.
The parties acknowledge that Rogers and Shaw are required by the CRTC to
provide access to their respective networks to third party Internet Service
providers. @Home shall provide to each of Rogers and Shaw, as applicable,
at @Home's cost, system upgrades such as introduction of source based
routing to enable Rogers and Shaw to provide such access to such third
parties and Rogers and/or Shaw, as applicable, shall pay a reasonable fee
to @Home for the use of any of @Home's technology related to such system
upgrades by Rogers and/or Shaw to enable them to provide such access to
third parties. Nothing in this paragraph is intended to derogate from any
benefit to which @Home is entitled pursuant to the terms hereof nor from
the obligation of Rogers and Shaw to use its commercially reasonable
efforts to distribute, market and promote the Wave@Home Service.
2.5 RECIPROCAL EXCLUSIVITY: During the term of the exclusivity of the
----------------------
respective Licenses, other than the provision of the Wave@Home Service, and
provided that @Home is not in default of its obligation under the Master
Roll-Out Plan, Rogers and Shaw, as applicable,
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<PAGE>
** Confidential treatment has been
requested with respect to certain
information contained in this
document. Confidential portions
have been omitted from the public
filing and have been filed
separately with the Securities
and Exchange Commission.
shall not [**] However, nothing in this paragraph is intended to and
does not restrict either Rogers or Shaw or their sub-distributors from
promoting, over an Internet Backbone, programming and content (such as
Yahoo, YTV Canada Inc. and Canoe). Provided that, the time for performance
of @Home's obligation set out in the Master Roll-Out Plan shall be extended
day-for-day by (1) to the extent that such failure is as a result of a
failure by Rogers and/or Shaw to complete its obligations set out in the
Master Roll-Out Plan; the number of days of any resulting delay in @Home's
performance of its obligations set out in this term sheet; or (2) the
number of days @Home's performance was prevented or delayed by the
occurrence of a Force Majeure event; or (3) a cure period of six (6) months
following notice by Rogers and/or Shaw as applicable in the event of the
failure by @Home to perform its obligations under the Master Roll-Out Plan.
2.6 COVENANTS OF ROGERS AND SHAW: Rogers and Shaw, each individually with
----------------------------
respect to its own facilities and systems, and severally with respect to
the obligation to include the same in agreements with sub-distributors,
covenant and agree with @Home that it will:
(A) upgrade and maintain its respective HFC plant to enable it to operate
two-way data transmission services in accordance with the Master Roll-
Out Plan and the Standards and Specifications;
(B) acquire, install and maintain cable modem termination system (also
known as a cable data router) and cable modems necessary to provide
the Wave@Home Service;
(C) provide such telecommunications facilities necessary to connect their
respective subscribers to headends and/or fibre nodes, connect such
headends and/or fibre nodes to @Home's Regional Data Centres ("RDC")
in Canada and to connect these RDC's to the nearest POP on the U.S.
side of the border (the "U.S. POP");
(D) be solely responsible for its customers and will provide in any sub-
distributor agreements that the sub-distributors shall be responsible
for such sub-distributor's customers including responsibility for
billing, installation of the hardware and software required to enable
the customer to receive and use the Wave@Home Service, Tier I Customer
Support and Tier II Technical Support. Provided that Rogers and Shaw
may retain @Home to assist it in providing any of the above services
on terms and at such reasonable fees as the parties shall agree;
(E) allow @Home to co-locate RDC's, proxy servers and related equipment at
such of Rogers' and Shaw's network distribution facilities at no
charge for the use of such space to @Home. Provided that @Home will
use commercially reasonable efforts to optimize space and other
requirements consistent with its practice with its U.S. Cable
Partners;
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<PAGE>
(F) subject to @Home complying with sub-paragraph 2.7(I) provide necessary
modifications to its billing, subscriber management, and network
management systems to adequately interface with @Home's support and
network management system. @Home shall work with Rogers and Shaw to
help them, to at least the same degree as the level of assistance
given by @Home to its U.S. Cable Partners, to minimize their costs for
the foregoing; and
(G) use commercially reasonable, diligent efforts to distribute, market
and promote the Wave@Home Service, on a local, regional and national
level including promoting the Wave@Home Service to potential sub-
distributors.
2.7 COVENANTS OF @HOME: In order to facilitate the distribution of the
------------------
Wave@Home Service by Rogers, Shaw and the sub-distributors, in accordance
with the Master Roll-out Plan, @Home covenants and agrees with each of
Rogers and Shaw that in addition to the grant of the Licenses, it will, in
Canada, subject to the other terms and conditions herein:
(A) grant access to Shaw, Rogers and the sub-distributors and their
respective subscribers customers or content providers to @Home's
broadband network;
(B) install and maintain IP data routers and proxy servers as mutually
agreed upon;
(C) install and maintain that number of RDCs that the parties mutually
agree is required to maximize the efficient use of Rogers', Shaw's and
the sub-distributors' transport infrastructure but in any event such
number of RDC's shall, together with the proxy servers installed,
deliver the same level of performance as enjoyed by the U.S. Cable
Partners;
(D) provide the software necessary for use by and to enable Rogers',
Shaw's and the sub-distributors' Wave@Home subscribers to receive and
use the Wave@Home Service, including the customized Internet browser,
TCP\IP stack and application plug-ins;
(E) provide all of the telecommunications facilities connecting the U.S.
POP to the @Home Network;
(F) provide Tier III Network Support;
(G) provide such general engineering, operations, marketing and
management, consultation and support to Rogers, Shaw and the sub-
distributors when reasonably requested;
(H) provide training programs to train personnel from or determined by
Rogers and Shaw to enable such persons to then train others, provide
scripts and other materials designed to assist Rogers, Shaw and the
sub-distributors with Tier I Customer Support and Tier II Technical
Support;
(I) provide access to @Home's subscriber management systems and the API's
reasonably necessary to automate the exchange of data from such
systems
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<PAGE>
to Rogers, Shaw and the sub-distributors (such as IP addresses, log-in
names, computer configuration, etc.) that are necessary for billing
and subscriber management;`
(J) work with Rogers and Shaw to develop network architecture that
minimizes inter-city data transport within Rogers' Shaw's and the sub-
distributors' networks.
In carrying out its obligations @Home shall treat Rogers, Shaw and the sub-
distributors in a manner and with a priority that is equal to that afforded
to its U.S. Cable Partners.
2.8 DUE DILIGENCE AND ACCESS: Following the execution of this term sheet by
------------------------
all parties, the parties shall conduct their respective due diligence
review of the assets, operations and the capital structure, as applicable,
of the other. The parties shall coordinate closely with the officers of
the other all such activities and shall conduct any such inquiries with
appropriate discretion and sensitivity to the relationships of the other;
employees, customers, suppliers and distributors. The parties agree to
hold information obtained in confidence in accordance with the terms of the
confidentiality agreement entered into between each of Shaw and Rogers and
@Home and to use the information so obtained only for the purpose of
evaluating efficacy of the transaction contemplated herein. During this
time the parties and their advisors and representatives shall, subject to
confidentiality obligations to third parties, have access during normal
business hours to such of the other's properties, books, contracts,
documents, records and personnel related to the Service and the ability of
any of the parties to fulfill their respective obligations under this term
sheet and the other may reasonably request. In the event that the
transactions contemplated herein are not completed, the parties shall
return all such information in written form and any copies thereof to its
owner, and destroy all notes, working papers and schedules based on such
confidential information. @Home, Rogers and Shaw shall complete their due
diligence within a reasonable time, which shall not exceed 20 business days
following execution of this term sheet by all parties. In the event that
the results of the due diligence conducted by parties gives rise to the
condition set out under paragraphs 4.1(E), 4.2(E) or 4.3(C), the applicable
party shall be entitled to terminate the arrangements contemplated herein.
2.9 STANDARDS AND SPECIFICATIONS: The parties will comply with mutually agreed
----------------------------
to Specifications and Standards that will include minimum cable plant
performance standards, @Home Network infrastructure standards, and
certification criteria. In particular, Rogers and Shaw will meet certain
minimum requirements for upstream and downstream bandwidth and @Home will
provide for certain minimum caching rates assuming a specified subscriber
level.
2.10 RIGHTS TO PURCHASE FROM @HOME VENDORS: @Home will use reasonable
-------------------------------------
commercial efforts to allow Rogers, Shaw and their sub-distributors to
purchase hardware and software for Wave@Home on an aggregate basis with
@Home and/or the U.S. Cable Partners so that Rogers, Shaw and the sub-
distributors can thereby enjoy advantageous terms and pricing.
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<PAGE>
2.11 @MEDIA PROGRAMMING RESPONSIBILITIES: The parties envision that the user
-----------------------------------
interface for Wave@Home will feature a Local Area and a National Area as
follows:
(A) Rogers, Shaw or a sub-distributor, as the case may be, will program
the Local Area and all Local Content. Local Content shall consist
solely of content that is intended for a specific geographic area,
such as a city, town, municipality or metropolitan area (a "Geographic
Area") (for example, a local restaurant guide or real estate listing
service). Shaw and Rogers will program the Local Area only with Local
Content; and
(B) Content that is promoted in more than one Geographic Area will be
included in the National Area. Rogers, Shaw and @Home will jointly
program the National Area and all National Content in accordance with
paragraph 2.12 below. Rogers and Shaw and the sub-distributors will
develop relationships with Canadian content partners to provide
National Content and @Home will utilize its relationships with U.S.
content partners for the same purpose.
2.12 PROGRAMMING THE NATIONAL AREA: The following principles shall apply:
-----------------------------
(A) The parties acknowledge the desire to present a distinctly Canadian
service consistent with the spirit of Canadian cultural policy while
balancing the desire to use as much of the content forming part of the
Service as is possible. Accordingly, Rogers and Shaw at their cost
shall be entitled to modify, augment, or replace National Content
programmed by @Home in order to comply with Canadian law, cultural
policies and/or industry requirements or expectations and to ensure
that it is relevant to the Canadian market. Provided that Rogers and
Shaw shall act reasonably and in good faith in order to minimize such
changes. The principles described in this paragraph 2.12(A) shall be
referred to as the "Programming Principles";
(B) Rogers and Shaw at their cost may make editorial changes in the
National Area and in the National Content as either of them determines
is appropriate for the Wave@Home Service, consistent with the
Programming Principles. For example, the parties will frequently
change the lead news story, sports scores, weather conditions and
other editorial content appearing on the news, sports and business
guide pages so that it is oriented toward the Canadian market;
(C) Rogers and Shaw at their cost may supplement or replace third party
content provided by @Home as it determines is appropriate for the
Wave@Home Service consistent with the Programming Principles. For
example, Rogers and Shaw may elect to add TSN to supplement or replace
ESPN. Rogers and Shaw will first use commercially reasonable efforts
to supplement such content provided by @Home by adding additional
third party content of its choice. If this approach is inadequate or
is not practical, Rogers and Shaw may replace such content but will
consult with @Home prior to doing so;
(D) @Home shall develop and maintain the underlying user interface and
page templates for the Wave@Home Service (the "Programming
Structure"). @Home
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<PAGE>
** Confidential treatment has been
requested with respect to certain
information contained in this
document. Confidential portions
have been omitted from the public
filing and have been filed
separately with the Securities
and Exchange Commission.
will use commercially reasonable efforts to make the Programming
Structure as flexible as possible so that Rogers and Shaw can achieve
the Programming Principles without a need for modifications to the
Programming Structure. A change to a Programming Structure would for
example be replacing a shopping page which features an anchor tenant
and four other vendors with a page modified to feature only the anchor
tenant. If Rogers and Shaw believe that such a modification is
necessary to achieve the Programming Principles, Rogers and Shaw will
request that @Home implement the same, at Rogers' and Shaw's cost.
@Home agrees that it will implement such modifications unless such
modifications would jeopardize the technological integrity of the
overall Programming Structure; in which case, @Home shall endeavour to
recommend reasonable alternatives to achieve the goals or satisfy the
concerns of Rogers and Shaw. Such requests for modifications are
anticipated to be infrequent and normally not necessary to achieve the
Programming Principles;
(E) Except as may be otherwise required by any regulatory authority,
Rogers and Shaw will have the limited right to block the promotion of
any programming forming part of the National Content provided by @Home
which is competitive with any form of programming service owned or
controlled by Rogers or Shaw (e.g.: YTV vs. Nickelodeon) without
reference to the Programming Principles; provided however that Rogers
and Shaw may each block the promotion of only two such programs, in
their respective licensed territories, at any given time; and
(F) @Home will make available to Rogers and Shaw the same content platform
technologies that it makes available to its U.S. Cable Partners,
including multi casting and replication technologies. To the extent
that Rogers and Shaw require content platform technologies (such as
advertising insertion tools) that are not required by the U.S. Cable
Partners, @Home will license such content platform technologies to
Rogers and to Shaw on commercially reasonable terms.
2.13 @MEDIA REVENUE: All revenue derived from the Local Area will be retained
--------------
by Rogers, Shaw or the sub-distributor responsible for programming the
Local Area. All revenue derived from the National Area will be allocated
as follows:
(A) The party responsible for generating the revenue from advertising, a
promotional link, an on-line transaction or other @Media services (the
"Additional Revenue") shall retain [**]% of such Additional Revenue as
a sourcing commission. The remaining Additional Revenue (i.e. [**]% of
the Additional Revenue) will be aggregated on a quarterly basis and
allocated in proportion to the Additional Revenue (less the sourcing
commission) generated by each party in that quarter. However, in no
event shall any party be entitled to less than [**]% nor more than
[**]% of the remaining Additional Revenue; and
(B) Revenue from Premium Services will be allocated on a case by case
basis in proportion to the contributions made by each party. "Premium
Services" are services that require Rogers' and/or Shaw's active
participation in marketing, sales, billing and/or customer support.
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<PAGE>
The parties shall reassess the above allocations following the third
anniversary of the execution of this term sheet.
2.14 ADVERTISING PRACTICES:
---------------------
(A) Rogers and Shaw shall schedule all advertising content forming part of
the National Area on a non-discriminatory manner and so as to maximize
overall advertising revenue. Rogers and Shaw shall sell advertising
to businesses in Canada for insertion in the Wave@Home Service and
@Home shall sell advertising to businesses in the United States for
insertion in the Wave@Home Service. Rogers and Shaw on the one hand
and @Home on the other shall share leads (for which an appropriate
commission shall be paid) but shall not sell any such advertising to
businesses operating in the other's territory. All sales of
advertising to be inserted in the Wave@Home Service shall be made in
accordance with an advertising rate card for the Wave@Home Service;
and
(B) From time to time Rogers and/or Shaw may bundle advertising on the
Wave@Home Service with other media offerings by entities which it
controls. In such instance, any discount from the applicable rate
card associated with bundling shall be allocated on an equitable
basis.
2.15 RESEARCH & DEVELOPMENT: @Home shall use its commercially reasonable
----------------------
efforts to conduct Canadian based research and development in matters
regarding the Service and the Wave@Home Service.
2.16 BRANDING: The Service will be marketed and distributed by Rogers and Shaw
--------
under the co-brand "Wave@Home" or the brand "@Home". Rogers' and Shaw's
local loop (i.e. the infrastructure required to deliver the Wave@Home
Service to the subscriber from the RDC's) will be referred to as the
"Wave". Rogers and Shaw and the sub-distributor may use a tag line to
identify Wave@Home as a product of Rogers, Shaw or the sub-distributor.
Rogers and Shaw shall grant to @Home a non-exclusive license to use the
appropriate trade marks owned by either of them to market and promote the
Wave@Home Service. Provided that nothing set out in this paragraph shall
give Rogers or Shaw any ownership rights to the trade mark "@Home".
2.17 FEES: The following fees shall apply to the Licenses:
----
(A) Wave@Home will be offered to Rogers' and Shaw's and their sub-
distributors' subscribers at basic subscription rates (which may be
based on a month-to-month or longer term subscriptions), cable modem
rates, and installation rates determined by Rogers, Shaw and their
sub-distributors in their sole discretion. The basic subscription
rate shall include local loop transport fees and Internet Service
provider fees and may be allocated between local loop transport fees
and Internet Service provider fees in any manner that Rogers and Shaw
deem appropriate subject to any applicable legal requirements relating
to the pricing of these services; and
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<PAGE>
** Confidential treatment has been
requested with respect to certain
information contained in this
document. Confidential portions
have been omitted from the public
filing and have been filed
separately with the Securities
and Exchange Commission.
(B) In consideration of the License granted hereunder and the performance
of @Home's obligations, Rogers and Shaw will pay @Home [**]% (the "Fee
Percentage") of the Wave@Home basic subscription rate revenue,
including any portion allocated to local loop transport (the
"Wave@Home Services Revenue") billed by Rogers, Shaw and its sub-
distributors. The parties acknowledge that the Wave@Home Service
Revenue is presently set out in the High Speed Internet Access Tariff
filed by each of Rogers and Shaw with the CRTC. The tariffs do not
include installation charges, any sales, use, gross receipts, excise,
franchise or other local, provincial and federal taxes, fees or
charges, however designated (excluding taxes on the other party's
income) imposed on or based upon the provision or use of Wave@Home
Services, management fees described in paragraph 2.3(B), @Media
revenue described in paragraph 2.13, or any incremental fees collected
for additional content or programming or the fees charged for the sale
or rental of cable modems, all of which amounts shall in all cases be
excluded from the calculation of the Wave@Home Service Revenue.
Rogers and Shaw will not and the sub-distribution agreements will
provide that the sub-distributors shall not artificially allocate
costs between the Wave@Home Service Revenue and the other fee
categories excluded above in order to lower Rogers' and Shaw's
payments to @Home. All payments under this term sheet will be net 30
days from the calendar month end; and
(C) Rogers, Shaw or any sub-distributor will be entitled to include the
Wave@Home Service in a bundled offer with other products or services
offered by such party or other ("Bundled Offer") and sold to
subscribers at a single discounted price. If Rogers or Shaw wish to
include that Wave@Home in a Bundled Offer such party may request that
@Home agree that the Wave@Home Service Revenue for the purpose of
section 2.17(B) will be equal to the discounted price for the
Wave@Home Service included in the Bundled Offer. The discounted price
will be determined by dividing (i) the price for the Bundled Offer by
(ii) the sum of the standard price for each service included in the
Bundled Offer and multiplying the resulting percentage by the un-
discounted Wave@Home Service Revenue. @Home will act reasonably in
giving its consent and will take into consideration the likely
benefits of the Wave@Home Service being included in the Bundled Offer.
Failing such consent if Rogers or Shaw proceeds with the Bundled
Offer, the Wave@Home Service Revenue will be calculated without
reference to any discount.
All fees or other payments by one party to the other as contemplated herein
shall be reduced by all statutory withholding obligations imposed on such
party including any taxes required to be withheld pursuant to Canadian or
U.S. laws.
2.18 PERFORMANCE BASED INCREASE IN @HOME SERVICE FEES: The fees payable to
------------------------------------------------
@Home shall be increased in the manner set out in Schedule "E" attached
hereto.
2.19 TERM: The initial terms of the Licenses and this term sheet (or the
----
definitive distribution agreement if executed and as such supersedes the
term sheet) will be six years. Rogers and Shaw shall each have the right
to renew this agreement for two additional six year
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terms subject to reaching agreement with @Home with respect to the overall
economics of the contractual arrangements for any such renewal period. At
the end of the fifth and eleventh year the parties will review the overall
economics of the contractual arrangements and negotiate in good faith any
amendments sought to the contractual arrangements by any of the parties for
any renewal term.
2.20 TRANSITION PERIOD: If the contractual arrangements set out herein
-----------------
terminate as a result of the:
(A) failure of the parties to reach agreement on the economic terms to
take effect on renewal as contemplated in paragraph 2.19 above, there
will be a twelve month transitional period following such termination
or such shorter period of time as shall be agreed upon by the parties;
and
(B) the breach of one of the parties, and subject to the requirements of
Section 2.1(i), (ii) and (iii), there will be a transition period of
such duration as shall be mutually agreed upon, not to exceed nine
months provided however that the party in breach shall use all its
reasonable commercial efforts to remedy the breach and shall continue
to fulfill its other contractual obligations.
During the transitional periods described above Rogers and Shaw may, but
need not, continue to use the "Wave@Home" co-brand or "@Home" brand, as the
case may be. During the transition period the parties will otherwise be
bound by their obligations set out in this term sheet including the payment
of fees and the exclusivity obligation of the parties (subject to the right
of the parties to prepare to contract with an alternative provider). In
addition during the transition period, the parties will co-operate and work
together in good faith to effect a smooth and orderly transition from the
facilities, networks, technology and services provided by each of the
parties hereunder to the separate facilities, networks, technology and
services required by each of the parties after the end of the transition
period.
3.0 ADDITIONAL VENTURES
3.1 @HOME COMMERCIAL SERVICES: @Home, Rogers and Shaw will negotiate in good
-------------------------
faith until December 31, 1997 with a view to signing a distribution
agreement granting Rogers and Shaw an exclusive license in Canada covering
@Home's commercial services (such as @Work Remote for telecommuters and
@Work Internet access service). Nothing in this paragraph is intended to
prohibit either party from entering into any arrangement with any other
party to provide such commercial services in Canada. However, in the event
that @Home offers a commercial product with another Internet Service
provider, @Home shall not use "@Home" as the product name for such service
and shall use its good faith efforts to disassociate the @Home name or
trade mark with such service. It being agreed that regardless of the
success of the negotiations regarding these @Home commercial services,
nothing herein shall limit the ability of Rogers and Shaw to distribute,
market and promote the Wave@Home Service to any residence in Canada even if
such customer might also work from his or her residence.
12
<PAGE>
4.0 CONDITIONS PRECEDENT TO CLOSING
4.1 The obligation of Rogers to complete the transactions referred to above is
conditional on the following:
(A) the representations and warranties of @Home set out in Part 5 below
shall be true on the closing date as if made at and as of such date;
(B) Obtaining the approval of the board of directors of Rogers on or
before March 17,1997;
(C) No action or proceeding shall be pending or threatened by any person,
company, firm, governmental authority, regulatory body or agency to
enjoin or prohibit the purchase by Rogers or the sale by @Home of the
Series C Shares and the Warrants or the grant of the Licenses to
Rogers;
(D) As part of the closing procedures regarding the transactions
contemplated herein, @Home shall execute and deliver the form of stock
purchase agreement distributed in connection with @Home's Series C
Convertible Preferred Stock offering for the purchase of the Series C
Shares and the Warrants and related documents providing the customary
representations and warranties and covenants generally provided to a
purchaser of shares from an issuer provided that the form of stock
purchase agreement and other definitive documents for the sale and
issuance of the Series C Shares and the Warrants are subject to the
final approval of the Board of Directors of Rogers;
(E) Rogers shall have completed its due diligence to the extent set out in
paragraph 2.8 above and the due diligence shall not have revealed any
fact, matter, omission or misstatement of such a material nature as to
lead a prudent person operating an Internet Service in circumstances
similar to those of Rogers and involved in a transaction such as the
one contemplated herein to conclude in its own best interests, that
the transaction should not be completed; and
(F) Simultaneously with the closing of the transactions set out herein by
Rogers, Shaw shall complete its obligations set out herein.
4.2 The obligation of Shaw to complete the transactions referred to above is
conditional upon:
(A) the representations and warranties of @Home set out in Part 5 below
shall be true on closing date as if made at and as of such date;
(B) Obtaining the approval of the board of directors of Shaw on or before
March 17, 1997;
(C) No action or proceeding shall be pending or threatened by any person,
company, firm, governmental authority, regulatory body or agency to
enjoin or prohibit the
13
<PAGE>
purchase by Shaw or the sale by @Home of the Series C Shares and the
Warrants or the grant of the Licenses to Shaw;
(D) As part of the closing procedures regarding the transactions
contemplated herein, @Home shall execute and deliver the form of stock
purchase agreement distributed in connection with @Home's Series C
Convertible Preferred Stock offering for the purchase of the Series C
shares and the Warrants and related documents providing the customary
representations and warranties and covenants generally provided to a
purchaser of shares from an issuer provided that the form of stock
purchase agreement and other definitive documents for the sale and
issuance of the Series C Shares and the Warrants are subject to the
final approval of the Board of Directors of Shaw;
(E) Shaw shall have completed its due diligence to the extent set out in
paragraph 2.8 above and the due diligence shall not have revealed any
fact, matter, omission or misstatement of such a material nature as to
lead a prudent person operating an Internet Service in circumstances
similar to those of Shaw and involved in a transaction such as the one
contemplated herein to conclude in its own best interests, that the
transaction should not be completed; and
(F) Simultaneously with the closing of the transactions set out herein by
Shaw, Rogers shall complete its obligations set out herein.
4.3 The obligation of @Home to complete the transactions referred to above is
conditional upon:
(A) Obtaining the approval of the board of directors of @Home on or before
March 20, 1997;
(B) No action or proceeding shall be pending or threatened by any person,
company, firm, government authority, regulatory body or agency to
enjoin or prohibit the purchase by Rogers or Shaw or the sale by @Home
of the Series C Shares and the Warrants or the grant of the Licenses
to Rogers and Shaw;
(C) @Home shall have completed its due diligence to the extent set out in
paragraph 2.8 above and the due diligence shall not have revealed any
fact, matter, omission or misstatement of such a material nature as to
lead a prudent person operating an Internet Service in circumstances
similar to those of @Home and involved in a transaction such as the
one contemplated herein to conclude in its own best interests, that
the transaction should not be completed;
(D) the representations and warranties of Rogers and Shaw set out in Part
5 below shall be true on the closing date as if made at and as of such
date;
(E) Simultaneously with the closing of the transactions set out herein by
@Home, Rogers and Shaw shall complete their respective obligations set
out herein; and
14
<PAGE>
(F) As part of the closing procedures regarding the transaction
contemplated herein, Rogers and Shaw shall execute and deliver the
form of stock purchase agreement distributed in connection with
@Home's Series C Convertible Preferred Stock offering for the purchase
of the Series C Shares and Warrants and related documents providing
customary representations and warranties and covenants generally
provided by a purchaser to an issuer of shares, provided that the
definitive documents for the sale and issuance of the Series C Shares
and related documents of the Warrants are subject to final approval of
@Home's Board of Directors prior to the closing.
4.4 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ALL OF THE PARTIES: The
-------------------------------------------------------------
obligations of the parties to complete the transactions contemplated herein
is conditional upon the receipt on or before closing of all necessary
approvals from all regulatory authorities having jurisdiction with respect
to the subject matter hereof.
5.0 REPRESENTATIONS AND WARRANTIES
5.1 REPRESENTATIONS AND WARRANTIES OF @HOME: @Home represents and warrants to
---------------------------------------
each of Rogers and Shaw that:
(A) @Home has the power and authority to enter into this term sheet and to
fully perform its respective obligations hereunder, including the
right to grant the Licenses in Canada on the terms set out in this
term sheet;
(B) @Home is not under any contractual or other legal obligation which
will in any way interfere with the full, prompt and complete
performance of its obligations pursuant to this term sheet; and
(C) The @Home Facilities and the Services (collectively called the "@Home
Property") are and will remain the sole and exclusive property of
@Home and its suppliers (and where the @Home Property is the sole and
exclusive property of @Home's suppliers, @Home has the necessary
license to use such property for the purposes contemplated in this
term sheet). @Home's ownership rights include but are not limited to:
1. Intellectual Property Rights held by @Home in the @Home Property;
and
2. All modifications to and derivative works based upon such
Intellectual Property Rights.
5.2 REPRESENTATIONS AND WARRANTIES OF ROGERS AND SHAW: Each of Rogers and Shaw
-------------------------------------------------
severally represent and warrant to @Home that:
(A) Each of Rogers and Shaw has the power and authority to enter into this
term sheet and to fully perform its respective obligations hereunder;
15
<PAGE>
(B) Neither Rogers nor Shaw is under any contractual or other legal
obligation which will in any way interfere with the full, prompt and
complete performance of its obligations pursuant to this term sheet;
and
(C) Rogers' and Shaw's facilities and all Intellectual Property Rights
therein are and will remain the sole and exclusive property of each of
Rogers and Shaw, as applicable, and their respective suppliers (and
where the Rogers or Shaw Facilities or Intellectual Property Rights
are the sole and exclusive property of Rogers' or Shaw's suppliers,
Rogers or Shaw has the necessary license to use such Facilities or
Intellectual Property Rights for the purposes contemplated in this
term sheet). Rogers' and Shaw's respective ownership rights include
but are not limited to:
1. Intellectual Property Rights held by Rogers or Shaw, as
applicable, in the facilities;
2. All modifications to and derivative works based upon such
Intellectual Property Rights.
6.0 INDEMNITIES
6.1 INDEMNITY OF @HOME: @Home will defend, indemnify and hold harmless each of
------------------
Rogers and Shaw, their respective affiliated companies and partners and
their respective officers, directors, employees and agents from all
liabilities, damages, costs and expenses (including without limitation,
reasonable counsel fees and expenses) incurred in connection with any third
party claim against Rogers or Shaw relating to the use by either Rogers or
Shaw of the Intellectual Property Rights of @Home which results or may
result in the infringement of any Intellectual Property Rights of any third
party.
6.2 INDEMNITY OF ROGERS AND SHAW: Each of Rogers and Shaw severally only agree
----------------------------
that they shall defend, indemnify and hold harmless @Home, its affiliated
companies and partners and their respective officers, directors, employees
and agents from all liabilities, damages, costs and expenses (including
without limitation, reasonable counsel fees and expenses) incurred in
connection with any third party claim against @Home relating to the use by
@Home of the Intellectual Property Rights of either Rogers or Shaw, which
results or may result in the infringement of any Intellectual Property
Rights of any third party.
6.3 CONSEQUENTIAL DAMAGES: NONE OF THE PARTIES HERETO WILL BE LIABLE TO ANY OF
---------------------
THE OTHER PARTIES FOR ANY INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES
(SUCH AS, BUT NOT LIMITED TO, LOSS OF PROFITS OR REVENUE AND DAMAGE TO OR
LOSS OF PERSON PROPERTY), WHETHER ARISING IN CONTRACT, TORT (INCLUDING
NEGLIGENCE) OR OTHERWISE.
7.0 CLOSING PROCEDURES
7.1 BINDING NATURE OF AGREEMENT: The term sheet is binding on the parties.
---------------------------
The parties shall acting in good faith complete and execute all formal
documentation customary in a transaction of this nature, all of which must
be satisfactory to each of Rogers, Shaw and
16
<PAGE>
@Home, acting reasonably, including without limitation, a stock purchase, a
distribution and trade mark licence agreement which shall be consistent
with and reflect the terms of this term sheet and shall contain the usual
covenants, indemnities, warranties and representations with respect to
certain matters affecting @Home, its capital and the Service.
7.2 THE COMPLETION DATE: The transactions contemplated herein shall be
-------------------
completed two business days following the completion of due diligence.
Provided that the parties shall extend the time for completion to enable
the parties to obtain any required approvals.
7.3 STRUCTURES OF THE TRANSACTION: The parties agree that Rogers and Shaw have
-----------------------------
yet to determine the structure of the entity which will conclude the
transactions contemplated herein with @Home. The parties agree to
cooperate with each other to determine and establish the structure entity
which will conclude the transactions contemplated herein in such a manner
so as to enable Rogers and Shaw to minimize the taxes otherwise payable, as
a result of this transaction, by each of them without altering the economic
substance of the transactions to @Home. Rogers and Shaw shall determine
and advise @Home of the proposed structure of the transactions by April 5,
1997. If Rogers and Shaw create a new entity to be owned by them jointly
aimed at exploiting the License referred to in paragraph 2.1(C) or
facilitating the programming of National Content they shall discuss with
@Home its possible equity or warrant participation in such entity.
7.4 ESCROW CLOSING: If it is reasonably determined by a responsible senior
--------------
officer of @Home that the Series C Convertible Preferred Stock offering
proposed by @Home will likely close prior to the date established herein
for completion of due diligence, Rogers and Shaw shall on the date
established pursuant to the stock purchase agreement as the completion
date, purchase the Series C Shares in escrow, by depositing with an escrow
agent, acceptable to all of the parties, an amount equal to the purchase
price for such Series C Shares and the Warrants described in Schedule "B"
and @Home shall deposit with the same escrow agent the corresponding
certificates for the Series C Shares and Warrants, to be released to the
appropriate party upon completion of due diligence and satisfaction of the
conditions precedent or termination of the contractual obligations set out
herein.
7.5 PUBLIC DISCLOSURE: Each of Rogers, Shaw and @Home shall maintain in
-----------------
confidence the matters referred to in this term sheet and shall not make
any public disclosure, except to the extent required by applicable law,
regulation, or policies of any governmental or regulatory authority
(including the TSE and applicable U.S. securities exchanges) of the terms
of this term sheet without the consent of the other, such consent not to be
unreasonably withheld. The parties shall consult with each other regarding
the wording of all press announcements.
7.6 ASSIGNMENT: Except as otherwise provided in this term sheet, (i) each of
----------
Rogers and Shaw may assign their respective rights and obligations, in
whole or in part, under this term sheet to one of their wholly-owned direct
or indirect subsidiaries or to an entity owned jointly by Rogers and Shaw
(whether now existing or created subsequent to the date of this term sheet)
and (ii) @Home may assign its rights and obligations, in whole or
17
<PAGE>
in part, under this term sheet to a wholly owned direct or indirect
Canadian subsidiary created subsequent to the date of this term sheet but,
if such assignment takes place, the assignor shall continue to be liable to
the other parties hereunder for any default in the performance of the
assignee. This term sheet shall not otherwise be assignable by any party
hereto.
7.7 ENUREMENT: The term sheet shall be binding upon and shall enure to the
---------
benefit of and be enforceable by Rogers, Shaw and @Home and their
respective successors and Rogers' and Shaw's permitted assigns.
7.8 NOTICES: Any notice, direction or other instrument required or permitted
-------
to be given or made hereunder shall be in writing and shall be sufficiently
given or made if delivered in person to the address set forth below or if
telecopied or sent by other means of recorded electronic communication
confirmed by delivery as soon as practicable or if dispatched, fees
prepaid, by overnight courier.
Notices to @Home shall be addressed as follows:
At Home Corporation
425 Broadway
Redwood City, CA 94063
Attention: Tom Jermoluk, Chairman and CEO
Fax: 415-944-8500
with a copy to:
David Pine, General Counsel
Fax: 415-944-8500
Notices to Rogers shall be addressed as follows:
Rogers Cablesystems Limited
Suite 6400 Scotia Plaza
40 King Street W
Toronto, Ontario
Attention: Chief Executive Officer
With a copy to: David Miller, Vice-President Law and General Counsel
Fax: 416-864-2395
18
<PAGE>
Notice to Shaw shall be addressed as follows:
Shaw Cablesystems Ltd.
Suite 900, 630 - 3rd Avenue S.W.
Calgary, Alberta
T2P 4L4
Attention: The President
with a copy to:
Margot M. Micallef, Corporate Counsel
Fax: (403) 750-4531
Any notice, direction or other communication so given or made shall be
deemed to have been given or made and to have been received on the day of
delivery, if delivered, or on the day of sending if sent by telecopier or
other means of recorded electronic communications (provided such day of
delivery or sending is a business day and, if not, then on the first
business day thereafter). Either party hereto may change its address for
notice to the other party by notice given in the manner aforesaid.
7.8 GOVERNING LAW: This term sheet and the rights and obligations of the
-------------
parties hereto shall be governed and construed in accordance with the laws
of the Province of Ontario.
7.10 COUNTERPART: This term sheet may be signed in counterparts that together
-----------
shall be deemed to constitute one valid and binding document with effect
from the date the last of the counterpart copies is signed and returned in
accordance with the delivery provisions set out below and delivery of the
counterparts may be effected by means of facsimile transmission.
19
<PAGE>
7.11 TERMINATION: The contractual obligations set out in this term sheet shall
-----------
terminate and be of no further force and effect if the conditions
precedents set out herein are not satisfied or waived on or before June 15,
1997.
AT HOME CORPORATION
PER:
/s/ Thomas A. Jermoluk
- -------------------------------
/s/ David G. Pine
- -------------------------------
ROGERS CABLESYSTEMS LIMITED
PER:
/s/ David Samuel
- -------------------------------
/s/ David Miller
- -------------------------------
SHAW CABLESYSTEMS LTD.
PER:
/s/ Michael D. [ILLEGIBLE]
- -------------------------------
/s/ R.D. [ILLEGIBLE]
- -------------------------------
20
<PAGE>
SCHEDULE A
DEFINITIONS
To the extent not inconsistent with this term sheet, terms with initial capital
letters not defined in the body of the term sheet shall have the meaning set
forth below. All references to "MSO" in the term sheet and these definitions
shall refer to each of Rogers, Shaw, and the sub-distributors, as applicable.
1. Definitions
(a) "@HOME FIRST PAGE" means the first page of the Wave@Home Service
user interface as it appears to subscribers upon the "start up" of the Wave@Home
Service.
(b) "DATA-READY CABLE SYSTEM" means the construction or upgrade of MSO
Facilities to allow distribution of Wave@Home Service in accordance with the
Specifications and Standards.
(c) "FACILITIES" means any and all facilities, equipment, and
technology that is owned, leased or licensed by a party hereto that is necessary
to deliver the Wave@Home Service.
(d) "FORCE MAJEURE" event means any of the following events: (i) the
failure of any equipment or software under the control of a person, firm or
entity not affiliated with such party; (ii) fire, flood, earthquake, or other
natural disaster; (iii) a change in law or governmental regulation; or (iv) any
other cause beyond the reasonable control of such party. In any such case, the
parties' time for performance under the term sheet, to the extent affected by
any of the foregoing, will be correspondingly extended.
(e) "HOMES PASSED" means the number of residential dwelling units that
are or can be connected to the MSO's Data-Ready Cable System. For the purposes
of this paragraph, a residential dwelling unit "can be connected" to the MSO's
Data-Ready Cable System if the residential dwelling unit is located within 250
feet of an upgraded data-ready distribution line. Each residential unit in a
multiple dwelling unit shall be counted as one Home Passed.
(f) "IP" means the Internet Protocols as defined by the document
titled RFC-91, by John Postell of the University of Southern California, dated
1981, or subsequent revisions thereof.
(g) "INTELLECTUAL PROPERTY RIGHTS" means all patent rights, copyright
rights (including, but not limited to, rights in music and audiovisual works and
moral rights), trademark rights, trade secret rights, and any other intellectual
property rights recognized by the law of each applicable jurisdiction.
(h) "INTERNET BACKBONE" means a wireline or wireless network which:
(i) can or does (a) assign IP addresses or manage IP address assignments for
machines or networks
<PAGE>
to which it is connected, (b) accept or deliver IP datagrams from machines or
networks to which it is connected, or (c) maintain IP packet traffic to other
machines or networks; and (ii) provides IP connectivity on a regional, national
or international basis.
(i) "INTERNET SERVICE" means any information, entertainment or
communication service provided over an Internet Backbone regardless of the
method by which it is accessed by the user (i.e. personal computer, set top box,
television, hand held device, etc.).
(j) "LOCAL AREA" shall mean that area (or channel(s)) of the @Home
First Page customarily designated by @Home for programming by an MSO.
(k) "LOCAL CONTENT" means any and all content that may be accessed on-
line by customers through the Local Area.
(l) "NATIONAL AREA" shall mean that area (or channel(s)) of the @Home
First Page other than the Local Area.
(m) "NATIONAL CONTENT" means any and all content that may be accessed
on-line by customers through the National Area.
(n) "RESIDENTIAL INTERNET SERVICE" means an Internet Service that is
sold to residential subscribers; even if such subscribers might also work from
their residences.
(o) "SPECIFICATIONS AND STANDARDS" means, collectively, the
specifications and standards for the MSO Facilities and the @Home Facilities and
the technical requirements for distribution of the Wave@Home Service, as are
mutually agreed to in writing by Rogers, Shaw and @Home.
(p) "TIER I CUSTOMER SUPPORT," "TIER II TECHNICAL SUPPORT," and "TIER
III NETWORK SUPPORT" shall have the meaning set forth in Schedule "A-1" attached
hereto.
(q) "U.S. CABLE PARTNERS" means any of Comcast PC Investments, Inc.,
Cox Teleport Providence, Inc., and TCI Internet Holdings, Inc.
2
<PAGE>
SCHEDULE B
----------
SUMMARY OF TERMS
----------------
WARRANTS TO PURCHASE SERIES C CONVERTIBLE PREFERRED STOCK
Issuer: At Home Corporation, a Delaware corporation (the "Company").
Assumptions: The following terms assume (a) the purchase by each of
Rogers and Shaw of US $15,000,000 of the Company's Series C
Preferred Stock ("Series C Preferred Stock") at $200 per
share in connection with the issuance of the Warrants
described below and (b) that each share of Series C
Preferred Stock shall, as presently constituted, be
convertible into 20 shares of Series A Common Stock of the
Company ("Series A Common Stock") at an effective price of
$10 per share of Series A Common Stock. If Rogers or Shaw
purchases less than $15,000,000 of Series C Preferred Stock
each, the number of shares subject to the Warrants will be
reduced as may be agreed by the parties.
Exercise Price: The Exercise Price of each Warrant shall equal the original
issue price of the Series C Preferred Stock ($200 per share
of Series C Preferred Stock, which is equivalent to $10 per
share of Series A Common Stock), and shall be appropriately
adjusted to maintain a constant total exercise price in the
event such Warrant becomes exercisable for Series A Common
Stock or some other series or class of the Company's capital
stock.
Purchase Price: The purchase price of each Warrant shall be 0.01% of the
aggregate Exercise Price of such Warrant. Such purchase
price shall be paid in cash at the Closing.
Warrants: Warrant 1: Rogers and Shaw will each be granted such
---------
number of warrants so as to entitle each of Rogers and Shaw
to purchase shares of Series C Preferred Stock convertible
into 650,000 shares of Series A Common Stock ("Warrant 1").
Warrant 2: Rogers and Shaw will each be granted such number
---------
of warrants so as to entitle each of Rogers and Shaw to
purchase shares of Series C Preferred Stock convertible into
80,000 shares of Series A Common Stock ("Warrant 2").
Warrant 3: Rogers and Shaw will each be granted such number
---------
of warrants so as to entitle each of Rogers and Shaw to
purchase shares of Series C Preferred Stock convertible into
270,000 shares of Series A Common Stock ("Warrant 3").
<PAGE>
** Confidential treatment has been
requested with respect to certain
information contained in this
document. Confidential portions
have been omitted from the public
filing and have been filed
separately with the Securities
and Exchange Commission.
The foregoing Warrants, which represent the right to
purchase shares of Series C Preferred Stock that are
convertible into an aggregate of 2,000,000 shares of Series
A Common Stock, are collectively referred to as the
"Warrants." The number of shares of Series A Common Stock
that are issuable upon exercise of a Warrant and conversion
of the Series C Preferred Stock are referred to as "Series A
Common Stock equivalent shares."
Exercisability: Warrant 1: Each Warrant 1 will become exercisable with
---------
respect to that number of Series A Common Stock equivalent
shares equal to the product of [**] Notwithstanding the
foregoing, each Warrant 1 shall become fully exercisable in
any event on the seventh anniversary of issuance thereof.
Warrant 2: Each Warrant 2 shall become exercisable with
---------
respect to [**] Notwithstanding the foregoing, each Warrant
2 will become fully exercisable in any event on the seventh
anniversary of issuance thereof.
Warrant 3: Each Warrant 3 shall become exercisable with
---------
respect to that number of shares equal to the product of
[**] Notwithstanding the foregoing, each Warrant 3 shall
become fully exercisable in any event on the seventh
anniversary of issuance thereof.
Term: Each Warrant will expire sixty days after the seventh
anniversary of issuance of the Warrant.
Transfer Warrants (and underlying Series C Preferred Stock and
Restrictions: Series A Common Stock) will not be transferable until the
earlier of June 4, 2001 or the closing date of the Company's
IPO, subject to
2
<PAGE>
exceptions for transfers to controlled affiliates or
transfers in connection with liquidation of an Investor. If
the IPO has not occurred on or before June 4, 2001, any
transfer by an Investor will be subject to a right of first
offer in favor of the Company or the Company's assignee
until the earlier of June 4, 2006 or the IPO.
Notwithstanding the foregoing two sentences each Warrant 1,
Warrant 2 and Warrant 3 (and the underlying Series C
Preferred Stock or Series A Common Stock) may be transferred
free of such restrictions, subject to compliance with
applicable securities laws, in minimums of 1,000 shares of
Series C Preferred Stock (20,000 shares of Series A Common
Stock), to up to six Additional Canadian MSOs who are
"accredited investors" within the meaning of Regulation D
under the U.S. Securities Act of 1933, as amended.
Transferees will be bound by the transfer restrictions.
Underwriter Lockup: The shares issued directly or indirectly upon exercise of
the Warrants will be subject to an underwriter lockup of up
to one year following the IPO and if transferred to such
Additional Canadian MSO such shares shall be transferred
subject to such lockup.
Registration Shares of Series A Common Stock issued upon conversion of
Rights: Series C Preferred Stock issued upon exercise of the
Warrants by the original holders of the Warrants shall have
the same registration rights provided to the other holders
of Series C Preferred Stock. Such registration rights will
be transferable only to persons acquiring at least 25% of
the number of shares of Series C Preferred Stock originally
issuable upon exercise of the Warrants issued to Rogers or
Shaw, respectively, plus the number of shares of Series C
Preferred Stock purchased by Rogers or Shaw, respectively,
at the closing.
Effect of Conversion
of Series C
Preferred Stock: Upon any conversion of all outstanding shares of
Series C Preferred Stock into shares of Series A Common
Stock, whether as a result of the Company's initial public
offering or otherwise, each Warrant shall thereafter be
exercisable (but shall remain subject o the exercisability
conditions described above) only for shares of Series A
Common Stock as if the then-unexercised portion of such
Warrant were exercised for shares of Series C Preferred
Stock and such shares were immediately converted into Series
A Common Stock at the rate of 20 shares of Series A Common
Stock per share of Series C Preferred Stock.
Regulatory If any Warrant holder or holder of Series C Preferred
Compliance: Stock issued upon exercise of any Warrant, or in the case of
a mandatory conversion of the Series C Preferred Stock, such
holder or the Company, reasonably believes that exercise of
the Warrant or
3
<PAGE>
conversion of such Series C Preferred Stock would be subject
to the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
any relevant Canadian antitrust legislation and the rules
and regulations thereunder (the "Antitrust Law") prior to
such exercise or conversion and following such holder's
notice to the Company of such holder's intention to exercise
or convert or the Company's notice to such holder of such a
mandatory conversions, the Company and such holder shall
promptly use commercially reasonable efforts to comply with
any applicable requirements under the Antitrust Law relating
to filing and furnishing of information to the Federal Trade
Commission, the Antitrust Division of the Department of
Justice and Canadian antitrust authorities. Each of the
Company and such holder shall bear and pay any costs or
expenses that it incurs in compliance with this requirement.
Definitions: "Upgraded Homes Passed" means the number of residential
dwelling units that are or can be connected to the MSO's
Data-Ready Cable System (as defined in the term sheet for
distribution of the Wave@Home Service). For purposes of this
paragraph, a residential dwelling unit "can be connected" to
the MSO's Data-Ready Cable System if the residential
dwelling unit is located within 250 feet of an upgraded
data-ready distribution line. Each residential unit in a
multiple dwelling unit shall be counted as one Upgraded Home
Passed.
4
<PAGE>
SCHEDULE A-1
WAVE@HOME CUSTOMER SERVICE TIER DESCRIPTIONS
Tier I Customer Support
- -----------------------
Tier I customer service is the "front line" of the Wave@Home Service. All
customer inquiries initially will be directed to Tier I customer service
representatives ("CSRs").
The tasks listed below are typically provided by Tier I CSRs. However, if the
MSO delegates Tier I service responsibility to @Home, MSO and @Home will review
these tasks to determine whether MSO can perform some of these functions without
the assistance of @Home technical service representatives ("TSRs").
Providing information about the Wave@Home Service.
Determining service eligibility (i.e. correct geographic location and
computer configuration) of potential subscribers.
Providing support for Data and RF technicians during the installation
process at the subscriber's home.
Processing all start, stop and change requests for the Wave@Home Service.
Establishing IP addresses, logins, email, passwords, and related customer
identifications and other records for use by @Home and MSO as permitted by
the Agreement.
Addressing billing and pricing questions.
Responding to all customer problems relating to basic desktop support:
-----
. All desktop hardware and software support will be handled by Tier
I CSRs.
. Such support will be provided via email, phone and on-site
visits.
. By way of example, all known "bugs", operating system
configuration issues, and @Home software installation and upgrade
questions would be handled by Tier I CSRs.
. MSO and @Home anticipate that in excess of 80% of all customer
calls relating to desktop problems will be resolved by Tier I
CSRs without the assistance of Tier II TSRs.
Maintaining trouble ticket status reports and cataloging customer problems
and problem resolutions.
Tier II Technical Support
- -------------------------
Tier II customer service is the advanced diagnostic and problem resolution layer
of the Wave@Home Service and includes the tasks set forth below. Tier II TSRs
are not responsible for answering initial customer inquiries but may from time-
to-time have customer calls transferred to them. The tasks listed below are
typically provided by Tier II TSRs:
<PAGE>
Collecting network information and informing Tier I CSRs of service outages
caused by network problems.
Providing advanced desktop support by assisting Tier I CSRs with
--------
approximately 20% of the customer calls that require additional problem
diagnosis and resolution.
Developing and maintaining an on-line information system for Tier I CSRs.
Tier III Network Support
- ------------------------
Tier III customer service will address Tier II escalations from TSRs relating to
network problems and perform ongoing network monitoring and maintenance. Tier
III technicians will not interact with subscribers directly.
2
<PAGE>
SCHEDULE C
BOARD REPRESENTATIONS:
TCI Internet Holdings, Inc. ("TCI Sub") (on behalf of itself and the "TCI"
Stockholder Group" as defined in the Company's Stockholders' Agreement dated as
of August 1, 1996) will enter into a voting agreement with Rogers and Shaw,
pursuant to which TCI Sub on behalf of the TCI Stockholder Group will agree to
vote any shares of @Home they may own in favour of and use commercially
reasonable best efforts to cause to be elected and maintained in office one
Common Stock Director nominated jointly by Rogers and Shaw, so long as Rogers
and/or Shaw continues to offer the Wave@Home Service on an exclusive basis in
accordance with their distribution agreement with the company and (ii) Rogers
and Shaw collectively beneficially own at least 2,000,000 Series A Common Shares
or that number of Series C Shares which upon conversion will equal at least
2,000,000 Series A Common Shares; and (b) in addition to the shares described in
subparagraph (a) above, any one of the following:
1. 500,000 Series A Common Shares; or
2. That number of Series C Shares which upon conversion will equal at
least 500,000 Series A Common Shares; or
3. That number of Warrants which upon conversion will (immediately or if
converted into Series C Shares upon conversion of those shares) equal
at least 500,000 Series A Common Shares.
The party that continues to hold the exclusive license contemplated in either
paragraph 2.1(A) or 2.1(B) of the term sheet shall have the right to designate
the Board nominee. If both Rogers and Shaw hold both of the exclusive licenses
referred to above, they shall determine their board nominee in such manner as
they may determine.
In addition, so long as Rogers and Shaw have the right to a Board nominee under
the preceding paragraph and both Rogers and Shaw continue to hold the exclusive
licenses referred to above, they shall also have the joint right to designate a
single observer who will have the right to receive notice of an attend and
participate in the discussion in all meetings of the Board of Directors of the
Company.
<PAGE>
** Confidential treatment has been
requested with respect to certain
information contained in this
document. Confidential portions
have been omitted from the public
filing and have been filed
separately with the Securities
and Exchange Commission.
SCHEDULE D
EXCLUSIVITY
1. In order to retain the exclusivity of the license granted to Rogers in
Paragraph 2.1 (A) of the Term Sheet, Rogers shall reach the number of Homes
Passed (HHP) and the Penetration Percentages set out in Table 1 and Table 3.
<TABLE>
<CAPTION>
YEAR TOTAL CABLED % REBUILT HOMES PASSED YE PENETRATION
END HOMES PERCENTAGE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 2,774,000 [**]% [**] [**]%
- -------------------------------------------------------------------------------
2000 2,816,000 [**]% [**] [**]%
- -------------------------------------------------------------------------------
2001 2,856,000 [**]% [**] [**]%
- -------------------------------------------------------------------------------
2002 2,901,000 [**]% [**] [**]%
- -------------------------------------------------------------------------------
</TABLE>
TABLE 1: ROGERS HHP AND PENETRATION PERCENTAGE TARGETS
2. In order to retain the exclusivity of the license granted to Shaw in
Paragraph 2.1 (B) of the Term Sheet, Shaw shall reach the number of Homes Passed
and the Penetration Percentages set out in Table 2 and Table 3.
<TABLE>
<CAPTION>
YEAR TOTAL CABLED % REBUILT HOMES PASSED YE PENETRATION
END HOMES PERCENTAGE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 2,029,000 [**]% [**] [**]%
- -------------------------------------------------------------------------------
2000 2,060,000 [**]% [**] [**]%
- -------------------------------------------------------------------------------
2001 2,091,000 [**]% [**] [**]%
- -------------------------------------------------------------------------------
2002 2,122,000 [**]% [**] [**]%
- -------------------------------------------------------------------------------
</TABLE>
TABLE 2: SHAW HHP AND PENETRATION PERCENTAGE TARGETS
<TABLE>
<CAPTION>
YEAR ROGERS INCREMENTAL YE SHAW INCREMENTAL YE
END HOMES PASSED PENETRATION HOMES PASSED PENETRATION
PERCENTAGE PERCENTAGE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 [**] [**]% [**] [**]%
- --------------------------------------------------------------------------------
2000 [**] [**]% [**] [**]%
- --------------------------------------------------------------------------------
2001 [**] [**]% [**] [**]%
- --------------------------------------------------------------------------------
2002 [**] [**]% [**] [**]%
- --------------------------------------------------------------------------------
</TABLE>
TABLE 3: INCREMENTAL HHP AND PENETRATION PERCENTAGE TARGETS
<PAGE>
3. Provided that, in determining if Rogers and/or Shaw, as applicable, has
reached the number of Homes Passed and the Penetration Percentages set out in
Table 3, the following shall apply:
(a) that number of Homes Passed and Penetration Percentages reached by Rogers
in excess of those numbers and percentages set out in Table 1, and reached
by Shaw in excess of those numbers and percentages set out in Table 2,
shall be attributed to the numbers of Homes Passed and Penetration
Percentages for the purpose of determining compliance with Table 3; and
(b) that number of Homes Passed and Penetration Percentages reached by the sub-
distributors or others in Canada (whether or not their relationship with
@Home is direct or indirect) shall be attributed to the number of Homes
Passed and Penetration Percentages set out in Table 3 as if 60% of such
Homes Passed and 60% of such Penetration Percentages reached by such
persons were reached by Rogers and as if 40% of such Homes Passed and 40%
of such Penetration Percentages reached by such persons were reached by
Shaw; and
(c) if after making the calculations set out in sub-paragraph 3 (a) and (b)
above, it is determined that either Rogers or Shaw has satisfied the
performance obligations set out in, the case of Rogers in Tables 1 and 3,
and in the case of Shaw in Tables 2 and 3, but the other has not, that
number of Homes Passed and the Penetration Percentage in excess of the
targets imposed shall be attributed to such of the parties who has failed
to meet the required number of Homes Passed and Penetration Percentages;
and
(d) further, homes which are fully 2way capable or telco return capable will be
included as if such homes were Homes Passed, and any subscriber to the
WAVE@Home Service, whether on 2way cable or telco return, will be counted
as a subscriber to the WAVE@Home Service, for the purpose of calculating
the Penetration Percentages set out in Table 3.
4. The number of Homes Passed above will be adjusted for any system divestiture
by Rogers or Shaw over the course of the term of the term sheet or any renewal
thereof. The % Rebuilt specified in Tables 1 and 2 above will remain constant in
the event of any system divestiture. In the event of a substantial divestiture,
Rogers and Shaw will use all reasonable efforts to appoint such purchaser as a
subdistributor of the WAVE@Home Service in the purchased systems.
<PAGE>
** Confidential treatment has been
requested with respect to certain
information contained in this
document. Confidential portions
have been omitted from the public
filing and have been filed
separately with the Securities
and Exchange Commission.
SCHEDULE E
PERFORMANCE BASED PAYMENTS TO @HOME
(1) The performance based payments to @Home will be based on actual year-over-
year growth in monthly average subscriber penetration in excess of the
year-over-year monthly average subscriber growth contained in the WAVE Base
Case set out below. These performance payments will be calculated
separately for Rogers and Shaw. Subject to the limits in section 3 below,
@Home will receive a one-time payment of $[**] for each WAVE@Home
subscriber above the WAVE Year-Over-Year Target Subscriber growth
contemplated in the WAVE Base Case for the years 2000, 2001 and 2002.
<TABLE>
<CAPTION>
WAVE BASE CASE
- -------------------------------------------------------------------------------
YEAR WAVE MONTHLY AVERAGE WAVE YEAR-OVER-YEAR
PENETRATION ASSUMPTIONS TARGET SUBSCRIBER GROWTH
- -------------------------------------------------------------------------------
<S> <C> <C>
1999 [**]% --
- -------------------------------------------------------------------------------
2000 [**]% [**]%
- -------------------------------------------------------------------------------
2001 [**]% [**]%
- -------------------------------------------------------------------------------
2002 [**]% [**]%
- -------------------------------------------------------------------------------
</TABLE>
(2) Two sample performance payment calculations for the year 2001 are
calculated below for illustrative purposes only.
EXAMPLE 1
[**]
EXAMPLE 2
[**]
<PAGE>
** Confidential treatment has been
requested with respect to certain
information contained in this
document. Confidential portions
have been omitted from the public
filing and have been filed
separately with the Securities
and Exchange Commission.
[**]
(3) This performance payment will be subject to each of the following
conditions:
[**]
(4) The performance payment, if any, will be paid by April 30 of the year
following the year in which the performance payment is earned.
(5) Monthly average subscribers will be determined by adding the total number
of subscribers at the end of each month in the relevant year and dividing
the total by 12.
All amounts are in Canadian dollars.
<PAGE>
EXHIBIT 10.7
** Confidential treatment has been
requested with respect to certain
information contained in this
document. Confidential portions
have been omitted from the public
filing and have been filed
separately with the Securities
and Exchange Commission.
MASTER COMMUNICATIONS
---------------------
SERVICES AGREEMENT
------------------
THIS AGREEMENT made this 2nd day of April, 1997 between Teleport Communications
Group Inc., a Delaware corporation, with a place of business at 429 Ridge Road,
Dayton, NJ 08810 ("TCG") and At Home Corporation, a Delaware corporation having
a place of business located at 385 Ravendale Drive, Mountain View, CA 94043
("Customer").
PRELIMINARY STATEMENT
---------------------
TCG is an authorized provider of telecommunications services which may be
provided and used separately or in combination with the telecommunications
services provided by other entities.
Customer and TCG wish to set forth terms and conditions which will be applicable
to such telecommunications services of TCG as may be ordered and furnished from
time to time as herein provided.
NOW THEREFORE, in consideration of the promises and the mutual covenants herein
contained, the parties agree as follows:
1. Communication Service.
---------------------
(a) Addendum A, attached hereto and by this reference specifically
incorporated herein, sets forth certain telecommunications services generally
offered by TCG (the "Services"). TCG agrees to provide the Services, as
requested by Customer, at the prices for such services set forth in Addendum A
(the "Standard Pricing Principles"). Addendum A may be modified by mutual
agreement of the parties to list additional services to be made available by TCG
to Customer pursuant to this Agreement. The Services will be provided in
various metropolitan areas by an entity that is either an affiliate or
subsidiary of TCG and/or which TCG manages or is otherwise contractually
affiliated with, and by the employees, consultants, agents and contractors of
such affiliates or subsidiaries.
(b) Some Services offered under this Agreement may be offered by TCG
pursuant to effective tariffs filed with the state Public Service or Public
Utility Commissions (each a "PSC") and the Federal Communications Commission
("FCC") ("Tariffed Services"). Orders for Tariffed Services shall be made in
accordance with the applicable provisions of the tariffs. In the event that
provisions set forth in this Agreement, including any Addendums hereto, differ
from those set forth in the applicable federal and/or state tariffs, the terms
of this Agreement shall be deemed to waive or modify the terms of the applicable
tariff, to the extent permitted by law; provided, however, TCG shall not, unless
required by law, apply for any tariff or take any intentional action that shall
cause the applicable tariff to affect the Terms of this Agreement, and
-1-
<PAGE>
TCG shall cooperate with Customer in objecting to any petition or other action
intended to cause the terms herein to be modified by any applicable State or
Federal tariffs.
2. Service Supplements and Collocation Agreements.
----------------------------------------------
(a) The Services provided to Customer shall be set forth in Service
Supplement(s), in the form of Addendum B, Collocation Agreement(s), in the form
of Addendum C, such Addenda attached hereto and by this reference specifically
incorporated herein, executed by Customer and accepted by TCG from time to time
during the Term. Each Service Supplement shall include a description of the
Services, the location(s) which they are going to serve or at which they are to
be provided, the charges, the estimated service commencement date, the period
for which they are to be provided and such other terms and conditions as maybe
set forth therein. Each Collocation Agreement shall set forth the site of the
requested collocation, the rack, space and power requirements, the requested
service commencement date, the period for which the collocation is to be
provided, and such other terms and conditions as maybe set forth therein
(b) When executed by Customer and TCG, each Service Supplement and
Collocation Agreement shall be deemed a separate contract with all the rights
and obligations as provided for herein. All provisions of this Agreement
applicable to the Services described in each Service Supplement and Collocation
Agreement shall be incorporated into and made part of each such Services
Supplement and Collocation Agreement, except as may be otherwise expressly
provided in such Service Supplement and Collocation Agreement.
(c) In the event of a conflict or inconsistency between the provisions set
forth in this Agreement, and those set forth in a Service Supplement or
Collocation Agreement, the provisions of the Service Supplement or Collocation
Agreement shall be given precedence.
3. Service Date.
------------
At such time as TCG completes installation or connection of the necessary
fiber optic facilities and/or equipment to provide the Services, TCG shall
conduct appropriate tests thereon. Upon successful completion of such tests TCG
shall notify Customer that such Services are available for use, and the date of
such notice shall be called the "Service Date". TCG shall use reasonable
efforts, subject to the other provisions hereof, to make the Services available
by the estimated service date specified in the Service Supplement or Collocation
Agreement. TCG shall not be liable for any damages whatsoever resulting from
delays in meeting any Service Dates due to delays resulting from normal
construction procedures and otherwise not within the control of TCG; provided,
---------
however the terms of any Service Supplement or Collocation Agreement shall
- -------
provide that Customer may elect to terminate such agreement without penalty at
any time after thirty (30) days following the Service Date but prior to the date
such Services are made available. Such delays shall include, but not be limited
to, delays in obtaining necessary regulatory approvals for construction, delays
in obtaining right-of-way approvals and delays in actual construction work. In
the event that there is a Customer delay, and such delay continues for thirty
(30) days after the estimated service date for any Services, TCG may commence
billing Customer for the Services effective on such a date.
-2-
<PAGE>
4. Payment.
-------
(a) TCG will provide Customer with an itemized monthly bill (each an
"Invoice") which separately lists all charges for Service provided during the
periods covered by such Invoice. Customer shall pay all charges listed on any
Invoice within thirty (30) days of the date of the Invoice; billing shall
commence upon installation. Any amount not received within thirty (30) days of
the date of the Invoice will be subject to TCG's standard late charge of 1 1/2%
per month. Customer agrees to review each Invoice promptly and to notify TCG of
any discrepancies within 45 days of receipt of each Invoice. If Customer
delivers to TCG a notice of objection to all or any portion of an Invoice within
thirty (30) days following the receipt of such Invoice, the amount in question
will not be subject to TCG's standard late charge until forty-five (45) days
following the parties resolution of such objection. Following any such
objection, the parties shall work in good faith to promptly resolve such
objection and shall determine the applicability of any late fee to the disputed
amount. Customer shall timely pay any portion of each Invoice that is not
disputed.
(b) Customer shall pay all sales, use, gross receipts, excise, access,
bypass or other local, state and Federal taxes or charges, however designated,
imposed on or based upon the provision, sale or use of the Services (excluding
taxes on any income of TCG, TCG subsidiaries or TCG Affiliates). Such taxes
shall be separately stated on the applicable Invoice.
5. Term.
----
This Agreement shall commence as of the date hereof and continue for an
initial period of five (5) years and shall thereafter continue in effect for
additional one (1) year period(s) unless terminated by either applicable party
by written notice given to the other party no less than one hundred twenty (120)
days prior to the expiration of such initial period or any addition period
("Term"). In no event shall the minimum term of any Service Supplement be less
than three (3) months.
6. Use.
---
(a) Subject to the provisions hereof, Customer may use the Services for any
lawful purpose for which they are intended, provided that Customer and TCG will
not use the Services (i) so as to unreasonably interfere with or impair service
over any of the facilities and associated equipment of the other, or so as to
impair the privacy of any communications over such facilities and associated
equipment, (ii) so as to interfere with or impair service over any of the
facilities and associated equipment comprising the fiber optic cable network and
associated equipment utilized by TCG in the provision of the Services, or (iii)
so as to impair the privacy of any communications over such network and
equipment. In the case of local and regional services resold by TCG, Customer's
use of such Services shall also be subject to any applicable restrictions in the
underlying providers' publicly available tariffs. TCG will not provide, offer
or
-3-
<PAGE>
promote Services that would violate TCG's Amended and Restated Articles of
Incorporation.
(b) Customer may only use the Services for its own internal purposes or for
the purpose of providing Customer's own service to its customers, which shall
include without limitation, providing @Home and @Work enhanced Internet access
and services via cable and telecommunications systems, together with any and all
content, products or services of Customer and third parties as Customer may from
time to time provide in connection with providing such enhanced Internet access
and services. Customer shall not resell any Service provided hereto.
7. Maintenance.
-----------
TCG's maintenance services of its facilities and equipment are included in
the monthly recurring charges. At Customer's request, and to the extent
possible, TCG shall perform diagnostic or troubleshooting maintenance services
by telephone at no additional charge. TCG shall have no responsibility for
nonstandard maintenance and repair, i.e., repair and maintenance of any kind
with respect to equipment and facilities not provided by TCG. TCG will assess
Customer its standard charges for any maintenance visits with respect to Service
problems which are determined to arise from equipment or facilities not provided
by TCG.
8. Rights-of-Way.
-------------
(a) TCG shall directly or through third parties use its best efforts to
obtain where economically feasible, and, subject to clause (b) below, maintain
all rights-of-way necessary for installation of fiber optic facilities used to
provide the Services. Except as otherwise provided herein, any and all costs
associated with acquiring the rights-of-way up to the termination point,
including but not limited to, the costs of installing conduit or of altering the
structure to permit installation of TCG provided facilities, shall be borne
entirely by TCG. If TCG does not have adequate rights of way to install and
maintain the TCG equipment and facilities necessary to provide Services at any
commercial site owned or controlled by a customer of Customer and TCG cannot
acquire such right, then Customer shall obtain and be responsible for any and
all costs associated with obtaining and maintaining the rights-of-way from the
point of entry to the termination point of such sites, provided that TCG shall
be responsible for the costs of installing conduit or of altering the structure
to permit installation of TCG provided facilities.
(b) Customer may use TCG's rights-of-way , provided that Customer's use of
such rights-of-way shall in all respects be subject to the terms, conditions and
restrictions of such rights-of-way and of agreements between TCG and such third
parties relating thereto, including without limitation, the duration applicable
to and the condemnation of such rights-of-way, and shall not be in violation of
any applicable governmental ordinance, law, rule, regulation or restriction.
Where applicable, Customer agrees that it shall assist TCG in the procurement
and maintenance of such right-of-way, provided that Customer shall not be
required to incur an additional cost or liability in doing so.
9. Access to Site.
--------------
-4-
<PAGE>
At sites where both (i) TCG does not have and cannot acquire access and
(ii) Customer is responsible for obtaining the rights-of-way pursuant to
Sections 8 above. Customer shall also arrange access to such rights of way so
that TCG's authorized personnel, employees, or agents may install, repair,
maintain inspect, replace or remove any and all facilities and associated
equipment provided by TCG. Access to such sites shall be made available at a
time mutually agreeable to Customer and TCG. Customer acknowledges that, when
repair work is required to restore Services after interruption, such repairs may
require access on a twenty-four hour, seven day a week basis. Subject to any
necessary third party consents, TCG shall also have the right to obtain access
to the cable installed in Customer provided conduit at any splice or junction
box.
10. Provision of Safe Place to Work.
-------------------------------
Customer shall provide a safe place to work which complies with all laws
and regulations regarding the working conditions along the rights-of-way and in
the equipment space that (i) Customer is responsible for obtaining pursuant to
Section 11, below (and to the extent that Customer controls third party space,
pursuant to Section 8, above), and (ii) TCG authorized personnel, employees, or
agents may be installing, inspecting, maintaining, replacing, repairing or
removing the fiber optic cable of the other facilities and equipment.
11. Provision of Equipment Space, Conduit, and Electrical Power.
-----------------------------------------------------------
Customer shall provide the necessary equipment space, conduit, electrical
power and suitable environmental conditions required to provide the Services, as
specified by TCG, at each Customer termination point owned or controlled by
Customer without charge or cost to TCG. Customer agrees to take good care of
premise equipment and building wiring provided by TCG as part of the Services
(the "TCG Equipment"). Customer agrees to return such TCG Equipment to TCG at
the expiration of the applicable term in its original condition, ordinary wear
and tear excepted. Customer shall bear the risk of any loss or damage to any TCG
Equipment located in Customer's premise, except where such loss or damage is
caused by TCG. Customer shall be responsible for insuring that the TCG
Equipment and any other equipment, wiring, space and associated facilities,
conduit and rights-of-way located at each Customer termination point is
protected against fire, theft, vandalism or other casualty, and that the use
thereof complies with the applicable laws, rules and regulations and with all
applicable lease or other contractual agreements. TCG shall install such TCG
Equipment as reasonably directed by Customer to comply with lease or other
contractual obligations to which Customer is a party, and Customer shall bear
the cost of installation for any such requested TCG Equipment.
12. Credit Allowances.
-----------------
A credit allowance will be given on a per line basis for any period
during which any line subscribed to by Customer hereunder and/or, if applicable,
-------------
TCG provided station equipment attached thereto is Out of Service, except as
specified below. Out of Service conditions are defined as complete loss of call
origination and/or receipt capability. Additionally, for Teleport
-5-
<PAGE>
Centrex-type services, the loss of feature capability exceeding 50% of
contracted-for lines will constitute an Out of Service condition. Credit
allowances, if any, shall be deducted from the charges payable by Customer
hereunder and shall be expressly indicated on the next bill to Customer. An
interruption period begins when Customer reports a malfunction in service to TCG
or TCG otherwise actually becomes aware of such malfunction. A malfunction
period ends when the affected line and/or associated station equipment is fully
operative.
(a) Credit Allowances do not apply to interruptions (I) caused by Customer;
(ii) due to failure of power or equipment provided by Customer or others; (iii)
during any period in which TCG is not given access to the service premises if
such access is necessary to diagnose or repair the interruption; and (iv) due to
scheduled maintenance and repair, provided that TCG shall make best efforts to
give Customer advance written notice of such maintenance and repair.
(b) The following table sets forth the credit allowances for interruptions
of 24 Hours or Less for Switched Services:
Length of Service Interruption Credit
------------------------------ ------
Less than 4 hours None
4 hours up to but not
including 8 hours 1/3 of a day
8 hours up to but not
including 12 hours 1/2 of a day
12 hours up to but not
including 16 hours 2/3 of a day
16 hours up to but not
including 24 hours One day
Two or more service interruptions of the same type to the same
line/equipment which in the aggregate constitute 2 hours or more during any one
twenty-four hour period shall be considered as one interruption. In no event
shall such interruption credits for any one line/equipment exceed one day's
fixed recurring charges for such line/equipment in any 24-hour period.
(c) Service interruptions of Switched Services over 24 hours will be
credited 4 hours for each 4 hour period or fraction thereof. No more than one
full day's credit will be allowed in any 24 hour period.
(d) The following table sets forth the credit allowances for interruptions
of 24 Hours or Less for Private Line Services (except Video):
Interruption Length Credit
------------------- ------
-6-
<PAGE>
Less than 30 min None
30 min - 2 hr 59 min 1/10
3 hr - 5 hr 59 min 1/5
6 hr - 8 hr 59 min 2/5 day
9 hr - 11 hr 59 min 3/5 day
12 hr - 14 hr 59 min 4/5 day
15 hr - 23 hr 59 min one day
(e) Interruption of 24 Hours or Less for Video Services:
Video Services Credit
-------------- ------
Less than 5 minutes None
5 minutes 1/12 of hourly charge
Each additional minute 1/60 of hourly charge
(f) Interruptions over 24 hours for private line and video services will be
credited 1/5 day for each 3 hour period or fraction thereof. No more than one
full day's credit will be allowed in any 24 hour period.
13. Title.
-----
Except as to their use for the Services, Customer shall not have, nor shall
it assert, any right, title or interest in all the fiber optic or other
facilities and associated equipment provided by TCG hereunder.
14. Exclusivity.
-----------
The arrangement described herein between TCG and Customer is non-exclusive.
Notwithstanding the foregoing, Customer agrees that it will utilize the
Services of TCG for its telecommunication needs into and out of TCG sites
subject to a Collocation Agreement, except to the extent that MSO facilities or
services are available or otherwise exist at such site. Nothing in this
Agreement shall prevent TCG from entering into identical or similar arrangements
with any other entity or otherwise providing Services to any other entity. For
purposes of this Section 14, "MSO" shall mean a multiple cable system operator
whom Customer has contracted with to provide @Home Network services.
-7-
<PAGE>
15. Other Carriers.
--------------
TCG shall have no responsibility with respect to billings, charges or
disputes related to services used by Customer which are not included in the
Services herein, including, without limitation, any local, regional and long
distance services not offered by TCG. Customer shall be fully responsible for
the payment of any bills for such services and for the resolution of any
disputes or discrepancies with the service provider.
16. Moves, Adds and Changes.
-----------------------
Upon receipt of written notice from Customer, TCG will add, delete or
change locations or features of specific telephone lines and station equipment.
TCG shall charge Customer at its current rates for such service. In the event
and to the extent that in excess of 10% of the lines and equipment that were
installed are deleted, Customer will be subject to TCG's standard termination
charges.
17. Customer Equipment Compatibility.
--------------------------------
Subject to any applicable rules and regulations of the FCC and PSC,
Customer hereby agrees that it will submit to TCG a complete manufacturer's
specification sheet for each item of equipment that is not provided by TCG and
which shall be attached to TCG's facilities. TCG shall approve the use of such
item(s) of equipment unless such item is technically incompatible with TCG's
facilities.
18. Governmental Authorizations.
---------------------------
(a) The provision of the Services is contingent upon the obtaining and
retaining such approvals, consents, governmental authorizations, licenses and
permits, including those of the FCC and PSC, as may be required or be deemed
necessary by TCG in order to effectuate this Agreement. TCG shall use best
efforts to obtain and keep in effect all such approvals, consents,
authorizations, licenses and permits that may be required to be obtained by it.
TCG shall be entitled to take, and shall have no liability whatsoever for, any
action necessary to bring the Services into conformance with any FCC and PSC
rules, regulations, orders, decisions, or directives. However, TCG shall make
best efforts to notify Customer prior to any required modification to or
disconnection of Customer's equipment, and Customer shall fully cooperate in and
take such action as may be requested by TCG to comply with any FCC or PSC rules,
regulations, orders, decisions or directives.
(b) Customer shall be responsible for obtaining and continuing in effect
all approvals, consents, authorizations, licenses, and permits as may be
required to permit Customer to comply with its obligations hereunder.
19. Interface and Resale of Local and Intra LATA Long Distance Services.
-------------------------------------------------------------------
-8-
<PAGE>
(a) TCG will use reasonable efforts to obtain and monitor services which
are requested by Customer and which are obtainable only from a dominate local
exchange carrier ("LEC").
(b) TCG will use commercially reasonable efforts to obtain a sufficient
quantity of telephone numbers to meet Customer's requirements. Should Customer
request that TCG reserve additional numbers for future requirements regarding
Centrex services, Customer shall pay associated reservation charges imposed by
TCG until such time as those numbers are in actual use. If Customer uses DID
trunking, Customer shall pay the associated reservation charges imposed by TCG
throughout the Term of this Agreement.
(c) The pricing structure for this Agreement shall be as set forth in
Addendum A hereto. In the event and to the extent that certain pricing matters
are not addressed by Addendum A, the following special provisions shall apply to
TCG's resale to Customer and Customer's use of local and intra LATA long
distance communications services obtained from the LEC (the "Resale Services"):
(i) Customer's use of the Resale Services shall be subject to all applicable
terms and provisions contained in the applicable LEC tariffs as the same may be
amended from time to time (the "Tariffs") to the same extent as if the Tariffs
were those of TCG. (ii) In the event of a rate increases in the Tariffs for
Resale Services, TCG shall have the option to increase its rates to Customer to
recover fully such rate increase from Customer, notwithstanding anything to the
contrary in any other agreement between Customer and TCG. (iii) In the event of
a rate decrease in the Tariffs for Resale Services, TCG shall decrease its rates
to Customer to permit Customer to fully enjoy such rate decrease,
notwithstanding anything to the contrary in any other agreement between Customer
and TCG. (iv) TCG explicitly makes no representations, warranties or guarantees
regarding the quality, availability or restoration of the Resale Services.
Customer's sole remedy in the event that such Resale Services are of poor
quality, are unavailable, or are not installed or repaired on a timely basis are
such credits as TCG actually recovers from the LEC in respect of the Resale
Services. Any special termination rights contained in this Master Services
relating to quality or availability or maintenance shall not apply to the Resale
Services; provided however, such termination rights in any Service Supplement
and Collocation Agreements shall so apply.
20. Defaults.
--------
If Customer (a) fails to pay any amount required under this Agreement and
such failure continues for ten (10) days after written notice thereof to
Customer, or (b) fails to comply with any other provision of this Agreement and
such noncompliance continues for thirty (30) days after written notice thereof
to Customer, or (c) then, as to the applicable Services, TCG, at its sole
discretion, may elect to pursue one or more of the following courses of action:
(i) terminate this Agreement whereupon all future payments hereunder shall
become immediately due and payable (discounted to present value at 6%), (ii)
take appropriate action to enforce payment, including suspension of all or any
part of the applicable Services, and/or (iii) pursue any other remedies as may
be provided at law or in equity.
-9-
<PAGE>
21. Events of Termination.
---------------------
(a) Condemnation. If at any time during the Term all or any significant
------------
portion of the fiber optic or other facilities or associated equipment used to
provide the Services to Customer shall be taken for any public or quasi-public
purpose by any lawful power or authority by the exercise of the right of
condemnation or eminent domain, TCG shall be entitled to elect to terminate this
Agreement or the applicable portions hereof upon written notice to Customer.
(b) Casualty. If at any time during the Term all or any significant
--------
portion of the fiber optic or other facilities or associated equipment used to
provide the Services to Customer shall, in TCG's judgment, be made inoperable
and beyond economically or technologically feasible repair, TCG shall promptly
inform Customer thereof in writing and TCG shall be entitled to elect to
terminate this Agreement or the applicable portions hereof. In the event that
the casualty is capable of repair, TCG shall effect such repair as soon as
reasonably possible. Such repairs shall be at TCG's sole expense, except that
if such casualty is caused by the willful misconduct or negligence of Customer
or by Customer's noncompliance with its obligations under this Agreement, then
such repairs shall be at Customer's expense.
22. Limitation of Liability.
-----------------------
(a) Liability for Service Interruptions. To the extent that all or part or
-----------------------------------
portion of the Services is unavailable, interrupted, degraded or otherwise
unsatisfactory for any reason, TCG's sole and exclusive responsibility shall be
that which is set forth Section 12.
(b) Liability for Damages to Property. TCG and Customer shall each not be
---------------------------------
liable for any damages whatsoever to property resulting from the installation,
maintenance, repair or removal of equipment and associated wiring unless the
damage is caused by such party's willful misconduct or negligence.
(c) Liability for Services and Equipment Not Provided by the Parties. TCG
-----------------------------------------------------------------
and Customer shall not be liable to the other for any damages whatsoever
associated with service, facilities, or equipment not furnished by them,
respectively, or for any act or omission of the other party or any other entity
furnishing service, facilities or equipment used for or in conjunction the
Services.
(d) Liability for Force Majeure Events. TCG and Customer shall not be
----------------------------------
liable to the other for any failure of performance due to causes beyond its
control, including but not limited to: acts of God, fire, flood or other
catastrophes; any law, order regulation, direction, action or request of the
United States Government, or of any other government, including state and local
governments having or claiming jurisdiction over either or both of them or of
any department, agency, commission, bureau, corporation, or other
instrumentality of any federal, state, or local government, or of any civil or
military authority; national emergencies; unavailability of materials or rights-
of-way; insurrections; riots; wars; or strikes, lock-outs, work stoppages, or
other labor difficulties.
-10-
<PAGE>
(e) Liability for Negligence or Fault of other Party. TCG and Customer
------------------------------------------------
each shall not be liable for any interruptions or damages or losses due to the
fault or negligence of the other party or equipment or services provided by the
other party.
(f) Liability for Other Carriers. TCG shall have no responsibility with
----------------------------
respect to billings, charges or disputes related to services used by Customer
which are not included in the Services provided by TCG hereunder, including,
without limitation, any local, regional or long distance services not offered by
TCG. Customer shall be fully responsible for the resolution of any dispute or
discrepancies with such service providers. Customer shall have no
responsibility with respect to billings, charges or disputes related to services
used by TCG, except as expressly agreed otherwise in writing. Unless so agreed,
TCG shall be fully responsible for the resolution of any dispute or
discrepancies with such service providers .
(g) NO SPECIAL DAMAGES. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
------------------
SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES AS A RESULT OF ITS
PERFORMANCE OR NONPERFORMANCE OF THIS AGREEMENT.
23. Nondisclosure of Confidential and Proprietary Information.
---------------------------------------------------------
Each party acknowledges that, in the course of the performance of this
Agreement, it may have access to confidential or proprietary information claimed
to be unique, secret, and confidential, and which constitutes the exclusive
property and trade secrets of the other party ("Proprietary Information"). This
information may be presented in documents or during oral discussions, at which
time representatives of the disclosing party shall specify that the information
is confidential or proprietary. Each party agrees to maintain the
confidentiality of the Proprietary Information and to use the same degree of
care as it uses with regard to its own confidential and proprietary information
to prevent the disclosure, publication or unauthorized use of the Proprietary
Information. Neither party may duplicate or copy Proprietary Information of the
other party other than to the extent necessary for legitimate business uses in
connection with this Agreement. Upon request of either party, the other party
shall be excused from these nondisclosure provisions if the Proprietary
Information has been, or is subsequently, made public by the other party or is
independently developed by such party or if the other party gives its express,
prior written consent to the disclosure of the Proprietary Information.
24. Indemnification.
---------------
(a) Customer shall indemnify, defend and hold TCG and its directors,
officers, employees, affiliates and agents harmless from and against and in
respect of any and all claims, suits, proceedings, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries and deficiencies,
including, without limitation, interest, penalties, court costs and attorneys'
fees, that any such person shall incur or suffer, which arise, result from or
relate to any claim, litigation, investigation or proceeding (whether or not
such person is a party thereto) relating to any breach of this Agreement by
Customer; provided, however, that in no event shall Customer
-------- -------
-11-
<PAGE>
be liable for special, consequential, exemplary or punitive damages under this
Section 24(a).
(b) TCG shall indemnify, defend and hold Customer and its directors,
officers, employees, affiliates and agents harmless from and against and in
respect of any and all claims, suits, proceedings, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries and deficiencies,
including, without limitation, interest, penalties, court costs and attorneys'
fees, that any such person shall incur or suffer, which arise, result from or
relate to any claim, litigation, investigation or proceeding (whether or not
such person is a party thereto) relating to any breach by TCG of this Agreement;
provided, however, that in no event shall TCG be liable for special,
- -------- -------
consequential, exemplary or punitive damages under this Section 24(b); and,
provided, further, that in no event shall TCG be liable for any service
- -------- -------
interruptions except as set forth in Section 22 (a).
(c) Each person entitled to indemnification under this Section 24 (the
"Indemnified Person") shall give notice to the person required to provide
indemnification (the "Indemnifying Person") promptly after such Indemnified
Person has actual knowledge of any claim as to which indemnify may be sought,
and shall permit the Indemnifying Person has actual knowledge of any claim as to
which indemnity may be sought, and shall permit the Indemnifying Person, who
shall conduct the defense of such claim or litigation, shall be approved by the
Indemnified Person (whose approval shall not unreasonably be withheld). The
Indemnified Person may participate in such defense at such person's expense;
provided, however, that the Indemnifying Person shall bear the expense of such
- -------- -------
defense of the Indemnified Person if, in the reasonable opinion of the
Indemnified Person, representation of both parties by the same counsel would be
inappropriate due to actual or potential conflicts of interest. The failure of
any Indemnified Person to give notice as provided herein shall not relieve the
Indemnifying Person of its obligations under this Agreement, unless such failure
is prejudicial to the ability of the Indemnifying Person to defend the action.
No Indemnifying Person, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Person, consent to entry of any
judgement or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Person of a release from all liability in respect of such claim or
litigation.
25. Waiver of Terms or Consent to Breach Must be in Writing.
-------------------------------------------------------
No term or provision of this Agreement shall be waived and no breach
excused, unless such waiver or consent shall be in writing and signed by duly
authorized officer of the waiving party. Any consent by either party to, or
waiver of, a breach by the other party shall not constitute a waiver or consent
to any subsequent or different breach. If either party shall fail to enforce a
breach of this Agreement by the other party, such failure to enforce shall not
be considered a consent to, or a waiver of, said breach or any subsequential
breach for any purpose whatsoever.
26. Assignment.
----------
Either party may assign this Agreement to (i) an entity owned and
controlled by or
-12-
<PAGE>
owning and controlling the original party to this Agreement, (ii) an entity that
is owned and controlled by the party or parties that own or control the original
party to this Agreement, or (iii) any entity in connection with the sale of
substantially all of the assets of such party. Other than as set forth in the
preceding sentence, TCG shall not, without prior written consent of Customer,
which consent shall not be unreasonably withheld, assign, transfer, or in any
other manner dispose of, any of its rights, privileges, or obligations under
this Agreement, and any attempt to make such an assignment, transfer,
disposition without such consent shall be null and void. Other than as set forth
in the first sentence of this Section 26, Customer shall not, without prior
written consent of TCG, which consent shall not be unreasonably withheld,
assign, transfer, or in any other manner dispose of, any of its rights,
privileges, or obligations under this Agreement, and any attempt to make such an
assignment, transfer, disposition without such consent shall be null and void.
27. Binding Effect.
--------------
All representations, covenants and agreements contained in this Agreement
by and on behalf of either party shall bind and inure to the benefit of the
respective successors and permitted assigns of the parties hereto, whether so
expressed or not. Except as otherwise expressly provided herein, nothing in
this Agreement is intended to confer upon any other person or entity any rights
or remedies hereunder.
28. Relationship Not Partnership or an Agency.
-----------------------------------------
The relationship between TCG and Customer shall not be that of partners or
agents for one or the other obtained through this Agreement, and shall not be
deemed to constitute a partnership or agency agreement between them.
29. Notices.
-------
All notices, requests, demands, statements, reports and other
communications under this Agreement shall be in writing and deemed to be duly
delivered, if delivered in person or by certified or registered mail:
a. If to TCG, to:
Teleport Communications Group Inc.
429 Ridge Road
Dayton, NJ 08810
Attention: Senior Vice President, Operations
b. with a copy to:
Teleport Communications Group Inc.
429 Ridge Road
Dayton, NJ 08810
-13-
<PAGE>
Attention: Vice President and General Counsel
c. If to Customer, to:
@ Home Network__
385 Ravendale Drive
Mountain View, CA 94043
Attention: David Pine, Vice President and General Counsel
Either party hereto may change its mailing address by giving notice to the other
pursuant to the provisions of this Section.
30. Miscellaneous.
-------------
(a) WARRANTIES. THERE ARE NO AGREEMENTS, WARRANTIES, OR REPRESENTATIONS,
----------
EXPRESS OR IMPLIED EITHER IN FACT OR BY OPERATION OF LAW, STATUTORY OR
OTHERWISE, INCLUDING WARRANTIES OR MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE OR USE, EXCEPT THOSE EXPRESSLY SET FORTH HEREIN
(b) Interpretation. This Agreement has been negotiated at arm's length
--------------
and each party has had an opportunity to be represented by independent counsel.
Therefore, each party hereby waives any benefit under any rule of law or legal
decision that would require interpretation of any ambiguities in this Agreement
against the party drafting it. The provisions of this Agreement shall be
interpreted in a reasonable manner to effect the purposes of the parties to this
Agreement.
(c) Entire Agreement. This Agreement, including the Addendums hereto,
----------------
constitutes the sole and entire agreement of the parties with respect to the
subject matter hereof. All Addendums hereto are hereby incorporated herein by
reference.
(d) Governing Law. This Agreement and the rights and obligations of the
-------------
parties hereunder shall be governed by and construed and enforced in accordance
with the laws of the State of New York.
(e) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(f) Severability. If any provision of this Agreement shall be declared
------------
void or unenforceable by a judicial or administrative authority, the validity of
any other provision and of the entire Agreement shall not be affected thereby.
(g) Gender. All pronouns and all variations thereof shall be deemed to
------
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons, thing or entity may require.
-14-
<PAGE>
(h) Headings. The headings contained in this Agreement are for reference
--------
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
SIGNED by the parties on the dates below indicated.
AT HOME CORPORATION TELEPORT COMMUNICATIONS
GROUP INC.
BY: Donald P. Hutchison BY: Terry Wingfield
------------------------------ -----------------------------
TITLE:Sr. VP and General Manager TITLE: Vice President
----------------------------- ----------------------------
DATE: 4/2/97 DATE: 4/2/97
------------------------------ ----------------------------
-15-
<PAGE>
** Confidential treatment has been
requested with respect to certain
information contained in this
document. Confidential portions
have been omitted from the public
filing and have been filed
separately with the Securities
and Exchange Commission.
ADDENDUM A
I. SERVICES
1. In markets served by TCG networks, TCG will provide (i) Collocation Space,
including all environmentals (power, AC, heat, etc.) and (ii) all intralata and
interlata transport access facilities to or from the Collocation Space,
including all "type 1" services (completely on TCG's network) and "type 2"
services (a combination of TCG network and resold LEC network). TCG will be
responsible for the maintenance and repair as necessary of all transport access
facilities.
2. In market areas not served by TCG, TCG will serve as a facility manager to
procure Collocation Space and intralata and interlata transport facilities.
3. The attached diagrams illustrate the pricing elements referred to below
(said diagrams are based upon Pacific Bell rates as of April 1997, but are
intended to have general applicability) .
4. In addition, TCG will provide to Customer all other telecommunications
services offered by TCG at rates to e determined on an individual case basis,
but in no event greater than the LEC tariffed rate.
II. STANDARD PRICING
1. In markets served by TCG networks, TCG will provide all DS1 or higher
speed, intralata channel terminations at rates based on the LEC tariffed
rate discounted according to the following monthly volume discount table.
Monthly volume refers to all monthly recurring transport service billing by
TCG to Customer:
<TABLE>
<CAPTION>
Discount from LEC
Month-to-Month
Monthly Volume ($000) Tariff Rates
<S> <C>
[ ** ] [**]%
[ ** ] [ **]%
[ ** ] [ **]%
[ ** ] [ **]%
[ ** ] [ **]%
</TABLE>
DS0 services in these markets will be billed at LEC tariffed rates; however, all
DS1 to DS0 multiplexing requirements will be billed on a per DS0 basis as they
are required (i.e., DS1/0 mux rate divided by 24).
2. In markets served by TCG networks, TCG will provide Collocation Space at a
per year, per square foot rate of $[ ** ].
3. In market areas not served by TCG, TCG will (i) provide intralata
transport services (DS0 or higher speed) at the LEC tariffed rates and (ii)
provide facility management services for [ ** ] percent ([**]%) of the LEC
tariffed rate for the service provided. The rate for Collocation Space will be
developed on an individual case basis (ICB). Price principle is that TCG will
pass through its
1.
<PAGE>
** Confidential treatment has been
requested with respect to certain
information contained in this
document. Confidential portions
have been omitted from the public
filing and have been filed
separately with the Securities
and Exchange Commission.
cost for such space to Customer.
4. TCG will match the LEC tariffed rates for all interoffice channel services
in all markets.
5. TCG will match LEC tariffed rates for non-recurring installation charges
in all markets.
6. TCG will provide all interlata transport services at [ ** ] percent ([**])
less than [**] tariffed rate.
III. FIRST YEAR PROMOTIONAL PRICING
For a period of one year from the initial turnup of Service in each TCG market,
TCG agrees to offer the following monthly recurring price principles for
intercity, intralata DS1 and DS0 services in markets served by TCG networks:
<TABLE>
<CAPTION>
Price Principle vs. LEC
DS1 Rate Element Month-to-Month Tariffed Rate
<S> <C>
Intercity DS1 [ ** ]
DS1 Chan Term [ ** ]
DS1 Local Miles [ ** ]
</TABLE>
DS1 local miles refers to mileage between TCG's node in which Customer is
collocated (collocated node) and the Customer termination point. Intercity DS1
refers to the DS1 channel between a collocated node and a Customer RDC.
<TABLE>
<CAPTION>
Price Principle vs. LEC
DS0 Rate Element Month-to-Month Tariffed Rate
<S> <C>
Intercity DS0 [ ** ]
DS0 Chan Term [ ** ]
DS1 Local Miles [ ** ]
</TABLE>
Standard pricing would apply for all DS3 or higher speed services.
This offer is contingent upon TCG having type 1 service capacity available
between the collocated node and the existing Customer node (see Diagrams 2, 3
and 4). The promotional pricing will be extended after the expiration of the
one year period if and only as long as the volume of services between the
Customer node and the designated collocated node is equal to or greater than
[**].
2.
<PAGE>
** Confidential treatment has been
requested with respect to certain
information contained in this
document. Confidential portions
have been omitted from the public
filing and have been filed
separately with the Securities
and Exchange Commission.
PHASE I
TCG REFERENCE DIAGRAM - BACKHAUL
Graphic follows: a diagram of a typical backhaul with example of the
pricing calculation using specified rates and other assumptions. Confidential
treatment is requested for this calculation.
3.
<PAGE>
** Confidential treatment has been
requested with respect to certain
information contained in this
document. Confidential portions
have been omitted from the public
filing and have been filed
separately with the Securities
and Exchange Commission.
PHASE II
TCG REFERENCE DIAGRAM - CO-LOCATION
Graphic follows: a diagram of a typical co-location with example of the
pricing calculation using specified rates and other assumptions. Confidential
treatment is requested for this calculation.
4.
<PAGE>
** Confidential treatment has been
requested with respect to certain
information contained in this
document. Confidential portions
have been omitted from the public
filing and have been filed
separately with the Securities
and Exchange Commission.
PHASE II
TCG REFERENCE DIAGRAM - CO-LOCATION BACKHAUL
Graphic follows: a diagram of a typical co-location backhaul with example of
the pricing calculation using specified rates and other assumptions.
Confidential treatment is requested for this calculation.
5.
<PAGE>
** Confidential treatment has been
requested with respect to certain
information contained in this
document. Confidential portions
have been omitted from the public
filing and have been filed
separately with the Securities
and Exchange Commission.
EXAMPLE "TYPE I CUSTOMER + CO-LO NODE-TO NODE"
Graphic follows: a diagram of a typical customer and co-lo node to node
with example of the pricing calculation using specified rates and other
assumptions. Confidential treatment is requested for this calculation.
6.
<PAGE>
ADDENDUM B
================================================================================
TCG
SERVICE SUPPLEMENT
to the Master Service Agreement dated ___________
- --------------------------------------------------------------------------------
CUSTOMER INFORMATION
- --------------------------------------------------------------------------------
Company Name: Contact Name:
- --------------------------------------------------------------------------------
Address: Phone Number:
City/State/Zip PO #:
- --------------------------------------------------------------------------------
SERVICE INFORMATION
- --------------------------------------------------------------------------------
Customer Desired Due Date: Regulatory Jurisdiction: Service/Subservice Code:
Quantity: [_] Interstate [_] Intrastate ____ ____ - ____ ____
- --------------------------------------------------------------------------------
Service Type: [_] DS3 [_] DS1 [_] DS0 [_] E1 [_] Video Other:
[_] OC3 [_] OC3C [_] OC12 [_] OC48 (Requires Approval)
- --------------------------------------------------------------------------------
SPECIAL INSTRUCTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please see the attached Circuit Feature Sheet for technical detail.
To ensure an accurate installation, this form must be completed
before an order can be processed.
- --------------------------------------------------------------------------------
SERVICE LOCATION INFORMATION
(TERMINATION POINTS)
- --------------------------------------------------------------------------------
FROM (ACTL) TO (SPOT)
- --------------------------------------------------------------------------------
[_] New [_] Existing [_] Common Space CLLI:_____ [_] New [_] Existing
[_] Common Space CLLI:_____
- --------------------------------------------------------------------------------
[_] Type I Capacity: Y or N "T" Job___ [_] Type I Capacity: Y or N "T" Job___
[_] Type II Colo:__________ [_] Type II Colo:________
- --------------------------------------------------------------------------------
Company Name: Company Name:
- --------------------------------------------------------------------------------
Address: Address:
- --------------------------------------------------------------------------------
Floor/Room Floor/Room
- --------------------------------------------------------------------------------
City/State/Zip: City/State/Zip:
- --------------------------------------------------------------------------------
NPA/NSS Zone: NPA/NSS Zone:
- --------------------------------------------------------------------------------
CONTACT INFORMATION
- --------------------------------------------------------------------------------
Initiator: Phone: Fax:
- --------------------------------------------------------------------------------
Design: Phone: Fax:
- --------------------------------------------------------------------------------
Location 1 (From): Phone: Fax:
- --------------------------------------------------------------------------------
Location 2 (To): Phone: Fax:
================================================================================
<PAGE>
================================================================================
TCG
SERVICE SUPPLEMENT
(Continued)
- --------------------------------------------------------------------------------
CHARGES / TERM
- --------------------------------------------------------------------------------
CHARGES: Mileage: EXPLANATION:
- --------------------------------------------------------------------------------
Monthly Recurring:
- --------------------------------------------------------------------------------
Installation:
- --------------------------------------------------------------------------------
Expedite:
- --------------------------------------------------------------------------------
Other: (Please explain)
- --------------------------------------------------------------------------------
TERM: [_] 12 Month [_] 36 Month [_] 60 Month [_] Other (Requires Approval)
================================================================================
AUTHORIZATIONS
- --------------------------------------------------------------------------------
This Agreement is a Service Supplement as defined in the Master Services
Agreement dated _______, 19___, entered into between the parties and is subject
to all the terms and conditions thereof. Upon expiration of the term set forth
above, Customer shall continue to receive services on a month-to-month basis
(subject to termination by either party 30 day prior written notice) at the
monthly charges set forth herein.
- --------------------------------------------------------------------------------
CUSTOMER TCG
- --------------------------------------------------------------------------------
Signature: Signature:
- --------------------------------------------------------------------------------
Print Name: Date: Print Name: Date:
- --------------------------------------------------------------------------------
Title: Title:
- --------------------------------------------------------------------------------
TCG TECHNICAL SUPPORT AUTHORIZATION
- --------------------------------------------------------------------------------
Signature:
- --------------------------------------------------------------------------------
Print Name: Title: Date:
- --------------------------------------------------------------------------------
Telephone Number: ( )
================================================================================
For TCG Internal Use Only
- --------------------------------------------------------------------------------
ASR Number: Account Executive:
- --------------------------------------------------------------------------------
TCG Account Number (BAN): Account Executive ID#:
- --------------------------------------------------------------------------------
Secondary Account Number (SAN) Phone Number:
- --------------------------------------------------------------------------------
CONTRACT: [_] MMG001 [_] MVP001 [_] MRV001 [_] MO9999 [_]___________ (Enter
6 character Rate Plan)
================================================================================
Please be sure to attach Circuit Feature Sheet Effective as of: 2/21/97
2
<PAGE>
ADDENDUM C
TCG MASTER COLLOCATION AGREEMENT
--------------------------------
This TCG Master Collocation Agreement (the "Agreement") is made as of the
________ day of April, 1997 by and between TCG __________, a ________________
having an office and place of business at
___________________________________________("TCG"), and At Home Corporation, a
Delaware corporation having an office and place of business at 285 Ravendale
Road, Mountain View, California 94043 ("Customer").
WHEREAS, by certain leases (the "Leases") by and between certain landlords
(the "Landlords") and TCG, TCG is leasing from the Landlords certain premises in
certain cities and states (the "Premises"); and
WHEREAS, Customer and TCG entered into a Master Communications Services
Agreement on the _________ day of March, 1997, (the "MSA") setting forth the
terms and conditions under which TCG would provide certain telecommunications
services to Customer; and
WHEREAS, Pursuant to said MSA, Customer and TCG desire to enter into an
agreement so that Customer may place certain equipment in a portion of the
Premises (the "Space");
NOW, THEREFORE, in consideration of the mutual covenants herein, it is
agreed as follows:
1. SPACE.
-----
(a) This Agreement shall become effective between Customer and TCG only
upon both parties' execution of a "Collocation Schedule," the form of which is
--------------------
attached hereto as Exhibit A (as it may be amended), which sets forth the terms
---------
and conditions applicable to an individual Space. Each Collocation Schedule,
when dated and signed by Customer and TCG, will be deemed to incorporate the
terms and conditions of this Agreement. In the event of any conflict or
inconsistency between this Agreement and the terms set forth in a Collection
Schedule, the terms of the Collocation Schedule shall govern, but only for the
Space identified in such Collocation Schedule.
(b) TCG agrees to allow Customer to place certain equipment (the
"Equipment") as defined in Exhibit A, attached hereto and made a part hereof, in
the Space subject and subordinate to the terms and provisions of the applicable
Lease and the applicable Collocation Schedule. Such Equipment shall be approved
or rejected by TCG, in TCG's reasonable business discretion, within three (3)
business days of submission by Customer to TCG of a list of Equipment and prior
to installation in the Space and shall not exceed the Standard Dimensions
identified on Exhibit A. The Equipment placed in the Space shall be limited to
no more than requested or reserved.
<PAGE>
(c) Upon sixty 60 days' prior written notice or less in the event of an
emergency, TCG may require Customer to relocate the Equipment within the
Premises; provided, however, the site of relocation shall afford comparable
technical and environmental conditions for the Equipment and comparable
accessibility to the Equipment. All costs of relocating the Equipment shall be
borne by TCG. TCG and Customer will cooperate to minimize any disruption of
Customer's services as a result of such relocation. If, in the reasonable
judgment of Customer, improvements need to be made to the space to which the
Equipment is relocated in order for the new space to be technically and
environmentally comparable to the existing Space, Customer will have the right
to terminate the applicable Collocation Schedule between TCG and Customer.
2. TERM.
----
(a) The date on which the Customer's license to occupy the Space commences
and the term of the Customer's license to occupy the Space are set forth in the
Collocation Schedule(s) (the "Initial Term") and is subject to earlier
termination as may be provided herein and/or in the applicable Lease.
(b) Subject to the conditions specified in Paragraphs (c) and (d) below,
Customer shall have the option, upon ninety (90) days' prior written notice to
TCG, to renew its license to occupy the Space for the period of time (the
"Renewal Periods") and on the terms and conditions which are set forth in this
Agreement and the Collocation Schedule relevant thereto. The Initial Term and
any Renewal Period(s) are sometimes collectively referred to as the "Term."
(c) Customer's option to renew its license to occupy the Space shall be
contingent on the election by TCG to continue to lease the Premises in which the
Space is located for the duration of the Renewal Period(s) and such election to
be exercised at the sole discretion of TCG.
(d) Following the expiration of the Initial terms or any renewal periods
stated in the Collocation Schedule(s), or failure of the parties to enter into
any Renewal Periods, Customer's license shall continue in effect on a month-to-
month basis upon the same terms and conditions specified herein, unless
terminated by either Customer or TCG upon thirty (30) days' prior written
notice.
(e) Notwithstanding the foregoing, TCG reserves the right in its sole
discretion to terminate this Agreement upon sixty (60) days written notice to
Customer.
3. CONSIDERATION. Customer agrees to pay TCG at the address first stated
-------------
above, the amount described in the applicable Collocation Schedule, attached
hereto and incorporated herein. This amount is payable on the first day of each
month.
4. CONDITION OF PREMISES. Customer acknowledges that, except as provided in
---------------------
this Agreement, TCG has no obligation to make alterations, improvements or
additions, decorations or changes within the Premises, Space or any part
thereof.
5. ASSIGNMENT. Except for assignment to a subsidiary or an entity
----------
controlling, controlled by, or under common control with Customer or to an
entity that acquires all or
4
<PAGE>
substantially all of the assets of Customer, Customer agrees that it will not in
any way assign or transfer this Agreement and that, except as provided in this
Agreement, it will not permit the Space to be used by others without prior
written consent of TCG.
6. TERMINATION OR EXPIRATION. Customer shall leave the Space in as good
-------------------------
condition (except for normal wear and tear) as it was in the beginning of the
term of this Agreement, and shall remove any property which it is obligated or
permitted to remove pursuant to the terms of the applicable Lease on or before
the termination or expiration thereof.
7. SERVICES.
--------
(a) Network Traffic: TCG shall serve as the Customer's supplier for all
---------------
IntraLATA and InterLATA transport and switched telephone services originating
from or terminating in the Space.
(b) Services. TCG shall provide to Customer:
--------
i. The Space as set forth in Exhibit A.
ii. Access to 110V AC power outlet for test equipment.
iii. Transmission cabling to the Space. TCG will be responsible for
wiring to a common DSX cross connect. This will serve as the demarcation point
between the TCG network and the Customer's network. TCG will then extend
Customer's demarcation point within the Space to Customer's racks using modular
RJ484 patch panels to be rack-mounted in Customer's racks.
iv. Grounding for racks.
v. Labor required to anchor racks to floor.
vi. Labor required to run power feeds to rack; and
vii. Environmental conditions of approximately 70 degrees (F) and a
50% humidity level.
(c) Electricity: TCG shall supply Customer with two (2), twenty (20) amp
-----------
AC power feeds per rack at no additional cost. Power requirements in excess
shall be charged to Customer at the rate of $6.00 per amp per month.
(d) Treatment of Customer Equipment. TCG shall not remove any labels from,
-------------------------------
touch, move, disturb, block access to, rearrange, alter, modify, add to or grant
a lien or security interest in the Equipment without Customer's written consent;
provided that, in the event of an emergency during which the Equipment or its
condition is threatened, and notwithstanding the terms of Section 4, TCG agrees
to inform Customer immediately about the emergency and the protective steps
taken.
(e) Maintenance; Power Outages.
--------------------------
i. Scheduled Maintenance and Planned Power Outages. TCG shall
-----------------------------------------------
provide Customer with at least ten (10) calendar days advance notice for (A)
scheduled maintenance that could result in a noticeable loss of power, service,
or connectivity and (B) planned power outages.
5
<PAGE>
ii. Unscheduled Maintenance and Unplanned Power Outages. If TCG (A)
---------------------------------------------------
must engage in unscheduled maintenance work, or (B) has an unplanned power
outage, TCG shall notify Customer's Network Operations Center immediately upon
determining that such maintenance is necessary or that such outage has occurred.
8. DEFAULT. In the event of either party's breach of any term or condition
-------
under this Agreement, and if the defaulting party has not cured the breach
within thirty (30) days after receipt of written notice from the non-defaulting
party, the non-defaulting party shall have the right in its sole discretion to
immediately terminate this Agreement and/or any of the other agreements between
the parties in additional to any and all other remedies afforded to the non-
defaulting party under the law or equity.
9. INDEMNIFICATION. In addition to and not in lieu of the provisions
---------------
contained in the MSA, Customer covenants and agrees to indemnify and hold TCG
harmless from and against any and all suits, actions, claims, damages, charges
and expenses, including reasonable attorney fees, for damages or injuries to the
Space or premises, and/or for any personal injury or loss of life occurring or
claimed to have occurred in, upon, or about the Space or Premises as a result of
Customer's negligence or willful misconduct either in operating its Equipment or
in use of the Space, unless arising from the negligence or willful misconduct of
TCG. TCG shall be liable to Customer for any damages or losses due to the
failure or malfunction of any Equipment or facilities located in the Space only
if such damages are caused by TCG's negligence or willful misconduct.
10. CASUALTY OR EMINENT DOMAIN. In the event of any taking of eminent domain
--------------------------
or damage by fire or other casualty to the Premises and/or Space, Customer shall
acquiesce and be bound by any action taken by or agreement entered into between
TCG and Landlord with respect thereto.
11. NO BROKER. Customer represents that it has not dealt with any broker in
---------
connection with this Agreement and that Customer shall hold TCG harmless from
and against any and all claims for brokerage commissions in connection
therewith.
12. NOTICES. Any and all legal notices or communications which either party
-------
may desire or be required to give to the other shall be provided as set forth in
the MSA.
13. GOVERNING LAW. This Agreement shall be governed by the laws of the state
-------------
in which the applicable Space is located.
14. INSURANCE. Customer covenants and agrees to provide, on or before the date
---------
of the commencement of the terms of this Agreement, and to keep in force and
effect during the terms thereof for the benefit of Customer and TCG, a policy of
comprehensive liability insurance or a certificate evidencing the existence
thereof, conforming to the requirements of the applicable provisions of the
applicable Lease.
6
<PAGE>
15. LIMITATION OF LIABILITY. In no event will either party be liable for
-----------------------
special, consequential, incidental, lost profit, exemplary, or punitive damages
as a result of its performance or nonperformance under this Agreement.
16. INCORPORATION. Except as specifically provided for herein, the MSA and all
-------------
provisions contained therein are by reference specifically incorporated herein
and made a part hereof as if restated herein.
IN WITNESS WHEREOF, Customer and TCG have respectively signed this
Agreement as of the day and year first above written.
TCG ________________________________ Customer: ________________________________
Sign:_______________________________ Sign:_____________________________________
Name: ______________________________ Name: ____________________________________
Title: VP/GM Title: ___________________________________
-----------------------------
7
<PAGE>
EXHIBIT A TO TCG MASTER COLLOCATION AGREEMENT BETWEEN
AT HOME CORPORATION AND TCG _________
COLLOCATION SCHEDULE
This Collocation Schedule is made as of _____________ (the "Effective Date") and
incorporates all definitions, terms and conditions of that certain TCG Master
Collocation Agreement, dated ____________ (the "Agreement") by and between TCG
_______________ ("TCG"), and At Home Corporation ("Customer").
1. Address of TCG Space: _____________________________________________________
_______________________________________________________________________________
2. TCG Landlord and Lease Information, if applicable: ________________________
_______________________________________________________________________________
_______________________________________________________________________________
3. Initial Term: ________ Months
4. Renewal Period: ____________
5. Requested Service Date: _________
6. Description of Equipment to be Installed: (List of Equipment to be attached
to this Collocation Schedule by Customer)
7. Delineation of Space: (Floor plan to be attached to this Collocation
Schedule by TCG)
8. Customer 24 Hour Maintenance Number:
9. Estd. start date: __________ Estd. completion date: __________
10. Rack/Space/Power and MDF Requirements:
RACK/SPACE REQUIREMENTS POWER & MDF REQUIREMENTS
Number of Racks requested:_______ Is -48 VDC required? [_] Yes [_] No
Does Customer wish to (TCG provides two, 20-amp AC power feeds per
reserve rack space? rack)
(Rack reservation charge applies)
[_] Yes [_] No Current:_____________amps
Number of Racks reserved_________ Does equipment require 120 VAC?
Customer [will/will not] have [_] Yes [_] No
first right of refusal for any Current:_____________amps
space that is contiguous with the
Space. Number of Demarc positions required:
Dimensions of Equipment (Standard __________________.
Dimensions)
Width: ________
Height" ________
Depth: ________
Weight: ________
*Cabinet requires TCG prior
approval.
Cage Required? [_] Yes [_] No
(min: 5 racks/max: 9 racks)
(floor space charges apply)
8
<PAGE>
11. Customer's forecast of capacity for DS1s, DS3s, etc. in year 1, and in
years 3 and 5 if applicable.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
12. Access to Space. TCG shall allow Customer and Customer's designees
unimpeded access to the Space via two (2) electronic card keys twenty four (24)
hours per day, seven (7) days per week, for Customer and Customer's designees to
provide installation, testing, and ongoing and emergency maintenance. Such
access will be provided at no charge to Customer. Customer shall report a card
lost or stolen to TCG as soon as discovered.
13. General Description of Work Tasks:
a. TCG Work Tasks
b. Customer Work Tasks
NOTE: Installation and material charges apply to equipment installed by TCG.
All installations must meet TCG Installation Standards. All customer
specifications or drawings must be attached to this form.
Customer TCG _______________________
By:_________________________ By: ______________________________
Title:______________________ VP/GM
_______
Initials
TCG VP/Ops
9
<PAGE>
EXHIBIT 10.08
LEASE
-----
by and between
MARTIN/CAMPUS ASSOCIATES, L.P.
"Landlord"
and
AT HOME CORPORATION
"Tenant"
For the approximately 133,632 Premises at
425 Broadway,
Redwood City, CA 94063
<PAGE>
LEASE SUMMARY
-------------
Lease Date: October 17, 1996
Landlord: Martin/Campus Associates, L.P.
Address of Landlord: 100 Bush Street, 26th Floor
San Francisco, CA 94104
Tenant: At Home Corporation
Address of Tenant: Before Commencement Date
385 Ravendale Drive
Mountain View, CA 94043
After Commencement Date
At Home Corporation
401 Broadway
Redwood City, CA
Contact: Kenneth Goldman
Telephone: (408) 944-7200
Building Addresses: 425 Broadway
Redwood City, California
Total Building Square Footage: Approximately 135,284 square feet
Anticipated Commencement Date: March 15, 1997
Term: approximately twelve (12)
years (see Paragraph 4.A.)
--------------
<PAGE>
Monthly Rent: Months 1-6: $ 94,698.80
Months 7-12: $189,397.60
Remainder of Term, subject to
adjustment; see Paragraphs 4.C and 5.B
Security Deposit: $568,192.80
(see Paragraph 7)
Exhibit A Initial Premises
Exhibit B: Work Letter Agreement
Exhibit C: Site Plan for Project
Exhibit D: Commencement Date Memorandum
Exhibit E: Floor Plan of Early Occupancy Premises
Exhibit F: Sears Site
Exhibit G: Subordination, Nondisturbance and Attornment Agreement
Exhibit H: Option to Purchase Terms
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Parties............................................................... 5
2. Premises.............................................................. 5
A. Description.................................................... 5
B. Initial Occupancy.............................................. 5
3. Definitions........................................................... 6
A. Affiliate...................................................... 6
B. Alterations.................................................... 6
C. Building....................................................... 6
D. Capital Improvements........................................... 6
E. CC&Rs.......................................................... 6
F. Collateral Agreements.......................................... 6
G. Commencement Date.............................................. 7
H. Common Area.................................................... 7
I. Common Area Maintenance Costs.................................. 7
J. Existing Buildings............................................. 10
K. Existing Project Space......................................... 10
L. Final Plans.................................................... 10
M. Fixed Charge Ratio............................................. 10
N. HVAC........................................................... 10
O. Impositions.................................................... 10
P. Improvements................................................... 11
Q. Index.......................................................... 11
R. Interest Rate.................................................. 11
S. Landlord Delay................................................. 11
T. Landlord's Agents.............................................. 12
U. Monthly Rent................................................... 12
V. Parking Area................................................... 12
W. INTENTIONALLY OMITTED.......................................... 12
X. Person......................................................... 12
Y. Premises....................................................... 12
Z. Project........................................................ 13
AA Real Property Taxes............................................ 13
BB Rent........................................................... 14
CC. Rentable Area.................................................. 14
DD. Second Half Commencement Date.................................. 14
EE. Security Deposit............................................... 14
FF. Sublet......................................................... 14
GG. Subrent........................................................ 15
</TABLE>
i
<PAGE>
TABLE OF CONTENTS (CONT'D)
--------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HH. Subtenant...................................................... 15
II. Tenant Delay................................................... 15
JJ. Tenant Improvements............................................ 15
KK. Tenant's Percentage Share...................................... 15
LL. Tenant's Personal Property..................................... 16
MM. Term........................................................... 16
4. Lease Term............................................................ 16
A. Term........................................................... 16
B. Delays in Completion........................................... 16
C. Options to Extend.............................................. 17
(i) Grant to Options......................................... 17
(ii) Manner of Exercise....................................... 17
(iii) Terms and Rent........................................... 18
(iv) Determination of Rent.................................... 18
(v) Landlord's Initial Determination......................... 19
(vi) Arbitration.............................................. 19
D. Early Occupancy................................................ 21
(i) Early Occupancy Period; Expansion........................ 21
(ii) Terms of Early Occupancy................................. 21
5. Rent and Additional Charges........................................... 22
A. Monthly Rent................................................... 22
B. Adjustments to Monthly Rent.................................... 23
C. Management Fee................................................. 23
D. Common Area Maintenance Costs.................................. 23
(i) Estimated Payments....................................... 23
(ii) Adjustment............................................... 24
(iii) Last Year................................................ 24
(iv) Audit.................................................... 25
E. Additional Rent................................................ 25
F. INTENTIONALLY OMITTED.......................................... 25
G. Prorations..................................................... 25
H. Interest....................................................... 25
6. Late Payment Charges.................................................. 25
7. Security Deposit...................................................... 26
A. Deposit Required............................................... 26
(i) Reduction or Replacement................................. 26
(ii) Consequences of Default.................................. 27
(iii) Form of L-C.............................................. 27
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS (CONT'D)
--------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
8. Holding Over.......................................................... 28
A. General Provisions............................................. 28
B. Holdover Extension............................................. 28
9. Tenant Improvements................................................... 29
10. Condition of Premises................................................. 29
A. Capital Improvements........................................... 29
B. Acceptance of Premises......................................... 29
C. Landlord's Representations and Warranties...................... 30
11. Use of the Premises and Common Area................................... 31
A. Tenant's Use................................................... 31
B. Hazardous Materials............................................ 31
(i) Hazardous Materials Defined.............................. 31
(ii) Environmental Laws Defined............................... 32
(iii) Use of Hazardous Materials............................... 32
(iv) Hazardous Materials Report; When Required................ 33
(v) Hazardous Materials Report; Contents..................... 33
(vi) Release of Hazardous Materials;
Notification and Cleanup................................. 34
(vii) Inspection and Testing by Landlord....................... 35
(viii)Indemnity................................................ 36
(ix)Survival................................................... 37
C. Specific Provisions Relating to The Americans With
Disabilities Act of 1990....................................... 37
(i) Allocation of Responsibility to Landlord................. 37
(ii) Allocation of Responsibility to Tenant................... 37
(iii) General.................................................. 38
D. Use and Maintenance of Common Areas............................ 38
12. Quiet Enjoyment....................................................... 38
13. Alterations........................................................... 38
A. Alteration Rights.............................................. 38
B. Performance of Alterations..................................... 39
C. Trade Fixtures................................................. 39
14. Surrender of the Premises............................................. 40
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS (CONT'D)
--------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
15. Impositions and Real Property Taxes................................... 40
A. Payment by Tenant.............................................. 40
(i) Tax Parcels.............................................. 41
(ii) Payment.................................................. 41
B. Taxes on Tenant Improvements and
Personal Property.............................................. 42
C. Proration...................................................... 42
16. Utilities and Services................................................ 42
17. Repair and Maintenance................................................ 43
A. Landlord's Obligations......................................... 43
B. Tenant's Obligations........................................... 44
C. Conditions Applicable to Repairs............................... 45
D. Landlord's Rights.............................................. 45
E. Compliance with Governmental Regulations....................... 45
18. Liens................................................................. 45
19. Landlord's Right to Enter the Premises................................ 46
20. Signs................................................................. 46
21. Insurance............................................................. 47
A. Indemnification................................................ 47
B. Tenant's Insurance............................................. 48
C. Premises Insurance............................................. 48
D. Increased Coverage............................................. 49
E. Failure to Maintain............................................ 49
F. Insurance Requirements......................................... 50
G. Waiver and Release............................................. 50
22. Waiver of Subrogation................................................. 50
23. Damage or Destruction................................................. 51
A. Landlord's Obligation to Rebuild............................... 51
B. Right to Terminate............................................. 51
C. Limited Obligation to Repair................................... 52
D. Abatement of Rent.............................................. 52
E. Damage Near End of Term........................................ 52
24. Condemnation.......................................................... 53
</TABLE>
iv
<PAGE>
TABLE OF CONTENTS (CONT'D)
--------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
25. Assignment and Subletting............................................. 54
A. Landlord's Consent.............................................. 54
B. Tenant's Notice................................................. 54
C. Information to be Furnished..................................... 54
D. Landlord's Alternatives......................................... 54
E. Proration....................................................... 55
F. Parameters of Landlord's Consent................................ 55
G. Permitted Transfers............................................. 56
26. Default............................................................... 56
A. Tenant's Default................................................ 56
B. Remedies........................................................ 57
C. Landlord's Default.............................................. 59
27. Subordination......................................................... 59
A. Subordination................................................... 59
B. Attornment...................................................... 60
C. Non-Disturbance................................................. 60
28. Notices............................................................... 61
29. Attorneys' Fees....................................................... 61
30. Estoppel Certificates................................................. 61
31. Transfer of the Premises by Landlord.................................. 62
32. Landlord's Right to Perform Tenant's Covenants........................ 62
33. Tenant's Remedy....................................................... 63
34. Mortgage Protection................................................... 63
35. Brokers............................................................... 63
36. Acceptance............................................................ 63
37. Parking............................................................... 64
38. INTENTIONALLY OMITTED................................................. 64
39. INTENTIONALLY OMITTED................................................. 64
</TABLE>
v
<PAGE>
TABLE OF CONTENTS (CONT'D)
--------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
40. Option to Purchase.................................................... 64
A. Option to Purchase Premises..................................... 64
B. Process......................................................... 65
C. Option and Rights Personal...................................... 65
41. General............................................................... 65
A. Captions........................................................ 65
B. Executed Copy................................................... 65
C. Time............................................................ 66
D. Separability.................................................... 66
E. Choice of Law................................................... 66
F. Gender; Singular, Plural........................................ 66
G. Binding Effect.................................................. 66
H. Waiver.......................................................... 66
I. Entire Agreement................................................ 66
J. Authority....................................................... 66
K. Exhibits........................................................ 67
L. Lease Summary................................................... 67
</TABLE>
vi
<PAGE>
LEASE
-----
1. Parties.
-------
THIS LEASE (the "Lease"), dated as of October 8, 1996, is entered into
-----
by and between MARTIN/CAMPUS ASSOCIATES, L.P., a Delaware limited partnership
("Landlord"), whose address is 100 Bush Street, San Francisco, CA 94104, and AT
- ----------
HOME CORPORATION, a Delaware corporation ("Tenant"), whose address is 385
------
Ravendale Drive, Mountain View, CA 94043.
2. Premises.
--------
A. Description. Landlord hereby leases to Tenant and Tenant hereby
-----------
leases from Landlord those certain premises consisting of a total area of
approximately One Hundred Thirty-Five Thousand Two Hundred Eighty-Four (135,284)
square feet, which comprises the entire Rentable Area (as defined below) of that
certain building commonly known as 401 Broadway (the "Building"), in the City of
--------
Redwood City, County of San Mateo, State of California, as more particularly
shown on Exhibit A (the "Premises"). On or before the Commencement Date,
--------- --------
Landlord shall measure the Rentable Area of the Premises in accordance with BOMA
Standard (ANSI Z65.1 1980) for full floor office occupancy, and Landlord and
Tenant shall amend this Lease if necessary to reflect any discrepancy in the
size of the Premises disclosed by Landlord's measurement of the Premises by
Landlord's architect. The Premises also includes the appurtenant right to use
in common with other tenants of the Project (as defined below) the Common Area
(as defined below) of the Project owned by Landlord.
B. Initial Occupancy. As of the Commencement Date, Tenant shall
-----------------
occupy that area of the Premises that is hatched on Exhibit A (the "First Half
--------- ----------
Space"). On or after the ninetieth (90th) day following the Commencement Date,
- -----
Tenant may, upon not less than one hundred twenty (120) days' prior written
notice to Landlord, elect to occupy that area of the Premises that is cross-
hatched on Exhibit A (the "Second Half Space"), but only if the Final Plans for
--------- -----------------
the Improvements to the Second Half Space have previously been approved by
Landlord and Tenant pursuant to the Work Letter. Tenant's occupancy of the
Second Half Space prior to the Second Half Commencement Date shall be subject to
all of the terms and conditions of this Lease, except for the payment of Monthly
Rent under Paragraph 5.A; except as set forth in Paragraph 4.D, Tenant shall not
------------- -------------
be required to pay Monthly Rent for the Second Half Space until the Second Half
Commencement Date. If Tenant occupies any portion of the Second Half Space
prior to the Second Half Commencement Date, then commencing on the date that
Tenant first occupies all or any portion of the Second Half Space, Tenant's
Percentage Share shall be adjusted as provided in Paragraph 3.KK below.
--------------
Landlord shall use reasonable
5
<PAGE>
efforts to deliver the Second Half Space to Tenant within one hundred twenty
(120) days after Tenant delivers to Landlord written notice of its election to
occupy the Second Half Space.
3. Definitions.
-----------
The following terms shall have the following meanings in this Lease:
A. Affiliate. Any Person that controls, or is controlled by or is
---------
under common control with, Landlord or Tenant. No Person shall be deemed in
control of another simply by virtue of being a partner, director, officer or
holder of voting securities of any Person. For purposes of this Paragraph 3.A,
-------------
"control" shall mean the ownership of, and/or the right to vote, stock,
partnership interests, membership interests, or other indicia of ownership
possessing at least fifty-one percent (51%) of either the total combined
interests in a Person, or the voting power of all classes of a Person's capital
stock, partnership interests, membership interests, or other indicia of
ownership, that have been issued, outstanding, and (if applicable) are entitled
to vote.
B. Alterations. Any alterations, additions or improvements made in,
-----------
on or about the Premises after the substantial completion of the Improvements,
including, but not limited to, lighting, heating, ventilating, air conditioning,
electrical, partitioning, drapery and carpentry installations.
C. Building. The term "Building" shall have the meaning set forth in
--------
Paragraph 2.A above.
- -------------
D. Capital Improvements. Those certain improvements to the Building
--------------------
to be constructed by Landlord pursuant to Paragraph 10.A and the Work Letter
--------------
Agreement attached to this Lease as Exhibit B (the "Work Letter").
--------- -----------
E. CC&Rs. Any declaration of conditions, covenants and/or
-----
restrictions, or similar instrument, that now encumbers, or may in the future
encumber the Project or the Premises, as adopted by Landlord or its successors
in interest from time to time, and any modifications or amendments thereto.
F. Collateral Agreements. The following agreements: (i) that certain
---------------------
Option Agreement (Bay Road) by and between Landlord and Tenant, dated as of the
date of this Lease, (ii) that certain Option Agreement (build-to-suit) by and
between Landlord and Tenant, dated as of the date of this Lease, (iii) that
certain Agreement Granting Rights of First Offer, by and between Landlord and
Tenant dated as of the date of this Lease, (iv) that certain Warrant to Purchase
Series A Common Stock of At Home Corporation and that certain Second Amended and
Restated
6
<PAGE>
Registration Rights Agreement, executed by Landlord, Tenant and certain
other parties (collectively, the "Warrant Agreement"), and (v) any leases at any
time executed by Tenant arising out of Tenant's exercise of any of its rights
set forth in the agreements described in items (i) - (iii) above.
G. Commencement Date. The Commencement Date of this Lease shall be
-----------------
the first day of the Term determined in accordance with Paragraph 4.A.
-------------
H. Common Area. All areas and facilities within the Project not
-----------
appropriated to the exclusive occupancy of tenants, including the Parking Area,
the sidewalks, pedestrian ways, driveways, signs, pools, ponds, service delivery
facilities, common storage areas, common utility facilities and all other areas
in the Project established by Landlord and/or its successors for non-exclusive
use. Landlord may, by written notice to Tenant, elect in its sole discretion to
increase and/or decrease the Common Area from time to time during the Term for
any reason whatsoever (including without limitation an election by Landlord
and/or its successors in their sole discretion to make changes to the buildings
situated in the Project, and/or to subdivide, sell, exchange, dispose of,
transfer, or change the configuration of all or any portion of the Common Area
from time to time), so long as Landlord neither unreasonably interferes with
ingress to or egress from the Building, nor permanently reduces the number of
parking spaces available for Tenant's use below the minimum requirements set
forth in Paragraph 37. No such subdivision, sale, exchange, disposition,
------------
transfer, or change to the configuration of all or any portion of the Common
Area shall cause the Common Area to be increased or decreased unless and until
Landlord has given Tenant written notice of such increase or decrease.
I. Common Area Maintenance Costs. The total of all costs and
-----------------------------
expenses paid or incurred by Landlord in connection with the operation,
maintenance, ownership and repair of the Common Area, and the performance of
Landlord's obligations under Paragraphs 17.A and 17.E. Without limiting the
--------------- ----
generality of the foregoing, Common Area Maintenance Costs include all costs of
and expense for: (i) maintenance and repairs of the Common Area; (ii)
resurfacing, resealing, remarking, painting, repainting, striping or restriping
the Parking Area; (iii) maintenance and repair of all public or common
facilities; (iv) maintenance, repair and replacement of sidewalks, curbs,
paving, walkways, Parking Area, Project signs, landscaping, planting and
irrigation systems, trash facilities, loading and delivery areas, lighting,
drainage and common utility facilities, directional or other signs, markers and
bumpers, and any fixtures, equipment and personal property located on the Common
Area; (v) wages, salaries, benefits, payroll burden fees and charges of
personnel employed by Landlord and the charges of all independent
7
<PAGE>
contractors retained by Landlord (to the extent that such personnel and
contractors are utilized by Landlord) for the maintenance, repair, management
and/or supervision of the Project, and of any security personnel retained by
Landlord in connection with the operation and maintenance of the Common Area
(although Landlord shall not be required to obtain security services); (vi)
maintenance, repair and replacement of security systems and alarms installed by
Landlord (if any); (vii) depreciation or amortization (or in lieu thereof,
rental payments) on all tools, equipment and machinery used in the operation and
maintenance of the Common Area; (viii) premiums for Comprehensive General
Liability Insurance or Commercial General Liability Insurance, casualty
insurance, workers compensation insurance or other insurance on the Common Area,
or any portion thereof or interest therein, and any deductibles payable with
respect to such insurance policies; (ix) all personal property or real property
taxes and assessments levied or assessed on the Project, or any portion thereof
or interest therein, including without limitation the Real Property Taxes for
the Project, if applicable under Paragraph 15.A; (x) cleaning, collection,
--------------
storage and removal of trash, rubbish, dirt and debris, and sweeping and
cleaning the Common Area; (xi) legal, accounting and other professional services
for the Project, including costs, fees and expenses of contesting the validity
or applicability of any law, ordinance, rule, regulation or order relating to
the Building, and of contesting, appealing or otherwise attempting to reduce any
Real Property Taxes assessed against the Project; (xii) any alterations,
additions or improvements required to be made to the Common Area in order to
reduce Common Area Maintenance Costs or to protect the health or safety of
occupants of the Project, provided that the cost of any such alterations,
additions, improvements or capital improvements, together with interest at the
Interest Rate, shall be amortized over the useful life of the alteration,
addition, improvement or capital improvement in question and included in Common
Area Maintenance Costs for each year over which such costs are amortized; (xiii)
all costs and expenses of providing, creating, maintaining, repairing, managing,
operating, and supervising an amenity center for the Project, which may include
without limitation a dining facility (provided, however, that Landlord shall not
be required to provide or create such an amenity center), which costs and
expenses may include without limitation rent charged by Landlord for the space
occupied by such amenity center; (xiv) all costs and expenses incurred by
Landlord in performing its obligations under Paragraphs 17.A or 17.E, including
-----------------------
without limitation all costs and expenses incurred in performing any
alterations, additions or improvements required to be made to the Building in
order to comply with applicable laws, ordinances, rules, regulations and orders
and all capital improvements required to made in connection with the operation,
maintenance and repair of the Building, provided that the cost of any such
alterations, additions, improvements or capital improvements, together with
8
<PAGE>
interest at the Interest Rate, shall be amortized over the useful life of the
alteration, addition, improvement or capital improvement in question and
included in Common Area Maintenance Costs for each year over which such costs
are amortized; (xv) all costs and expenses incurred in performing any
alterations, additions or improvements required to be made to the Common Area in
order to comply with applicable laws, ordinances, rules, regulations and orders
and all capital improvements required to made in connection with the operation,
maintenance and repair of the Common Area, provided that the cost of any such
alterations, additions, improvements or capital improvements, together with
interest at the Interest Rate, shall be amortized over the useful life of the
alteration, addition, improvement or capital improvement in question and
included in Common Area Maintenance Costs for each year over which such costs
are amortized; (xvi) any and all payments due and owing on behalf of the Project
or any portion thereof with respect to any CC&Rs, including without limitation
any and all assessments and association dues; and (xvii) any other cost or
expense which this Lease expressly characterizes as a Common Area Maintenance
Cost. However, notwithstanding the foregoing or anything to the contrary in this
Lease, Common Area Maintenance Costs shall not include the cost of or expenses
for the following: (A) leasing commissions, attorneys' fees or other costs or
expenses incurred in connection with negotiations or disputes with other tenants
of the Project; (B) depreciation of buildings in the Project; (C) payments of
principal, interest, late fees, prepayment fees or other charges on any debt
secured by a mortgage covering the Project, or rental payments under any ground
lease or underlying lease; (D) any penalties incurred due to Landlord's
violation of any governmental rule or authority (but not excluding the cost of
compliance therewith, if such cost is chargeable to Tenant pursuant to this
Lease); (E) any Real Property Taxes or costs for which Landlord is separately
and directly reimbursed by Tenant or any other tenant of the Project which are
assessed against the Premises or the premises leased by such other tenant(s);
(F) items for which Landlord is reimbursed by insurance; (G) all costs arising
from monitoring, cleaning up and otherwise remediating any release of Hazardous
Materials at the Premises that has been specifically identified by Landlord and
Tenant in writing as of the date of the Lease; (H) all costs associated with the
operation of the business of the entity which constitutes "Landlord", as
distinguished from the costs of operations, including, but not limited to, costs
of partnership accounting and legal matters, costs of defending any lawsuits
with any mortgagee (except as the actions of Tenant may be in issue), costs of
selling, syndicating, financing, mortgaging, or hypothecating any of the
Landlord's interest in the Project and/or Common Area, or any portion thereof,
costs of any disputes between Landlord and its employees, costs of disputes of
Landlord with Building management or costs paid in connection with disputes with
Tenant or any other tenants; (I) all costs
9
<PAGE>
(including permit, license and inspection fees) incurred in renovating or
otherwise improving or decorating, painting or redecorating space for other
tenants in the Project; (J) the creation of any reserves for equipment or
capital replacement (but not the expenditure of any funds from such reserves);
and (K) all costs arising from monitoring, cleaning up and otherwise remediating
any release of Hazardous Materials at the Premises to the extent that Landlord
(who shall use reasonable efforts to obtain reimbursement) is actually
reimbursed by third parties for such costs (but not the costs of collection
incurred by Landlord, unless such costs of collection are also reimbursed by
third parties).
J. Existing Buildings. Those buildings currently situated within
------------------
the Project and commonly known as 401 Broadway, 525-555 Broadway, 565 Broadway,
575-595 Broadway, 475 Broadway and 2945 Bay Road; provided, however, that if at
any time Landlord sells, exchanges, disposes of, or otherwise transfers its
interest in any such building, then effective upon the date of such sale,
exchange, disposition, or other transfer, the building shall cease to be an
Existing Building for the purposes of this Lease; and provided further, that if
at any time Landlord demolishes any Existing Building, neither the demolished
building nor any new building constructed on or about the location of the
demolished building (even if such new building uses the same address as the
demolished building) shall be considered to be an Existing Building for the
purposes of this Lease.
K. Existing Project Space. All Rentable Area located within the
----------------------
Existing Buildings.
L. Final Plans. As defined in the Work Letter.
-----------
M. Fixed Charge Ratio. Tenant's consolidated earnings before income
------------------
taxes, depreciation and amortization during the fiscal year in question, divided
by the sum of (i) all interest charges occurring during the fiscal year in
question, and (ii) all of Tenant's scheduled debt amortization payable during
the fiscal year in question.
N. HVAC. Heating, ventilating and air conditioning.
----
O. Impositions. Taxes, assessments, charges, excises and levies,
-----------
business taxes, license, permit, inspection and other authorization fees,
transit development fees, assessments or charges for housing funds, service
payments in lieu of taxes and any other fees or charges of any kind at any time
levied, assessed, charged or imposed by any federal, state or local entity, (i)
upon, measured by or reasonably attributable to the cost or value of Tenant's
equipment, furniture, fixtures or other personal property located in the
Premises, or the cost or value of any Alterations; (ii) upon, or measured by,
any Rent payable
10
<PAGE>
hereunder, including any gross receipts tax; (iii) upon, with respect to or by
reason of the development, possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or
any portion thereof; or (iv) upon this Lease transaction, or any document to
which Tenant is a party creating or transferring any interest or estate in the
Premises. Impositions do not include franchise, transfer, inheritance or capital
stock taxes, or income taxes measured by the net income of Landlord from all
sources, except to the extent any such taxes are levied or assessed against
Landlord as a substitute for, in whole or in part, any item that would otherwise
be deemed an Imposition under this paragraph.
P. Improvements. Collectively, the Tenant Improvements and the
------------
Capital Improvements.
Q. Index. The Consumer Price Index, All Urban Consumers, All Items,
-----
published by the U.S. Department of Labor, Bureau of Labor Statistics for the
San Francisco-Oakland-San Jose Metropolitan Area (1982-84=100). If the Base
Year of the Index is changed, then all calculations pursuant to this Lease which
require the use of the Index shall be made by using the appropriate conversion
factor published by the Bureau of Labor Statistics (or successor agency) to
correlate to the Base Year of the Index herein specified. If no such conversion
factor is published, then Landlord shall, if possible, make the necessary
calculation to achieve such conversion. If such conversion is not in Landlord's
good-faith, business judgment possible, or if publication of the Index is
discontinued, or if the basis of calculating the Index is materially changed,
then the term "Index" shall mean comparable statistics on the cost of living, as
-----
computed either (i) by an agency of the United States Government performing a
function similar to the Bureau of Labor Statistics, or (ii) if no such agency
performs such function, by a substantial and responsible periodical or
publication of recognized authority most closely approximating the result which
would have been achieved by the Index, as may be determined by Landlord in the
exercise of its reasonable good faith business judgment.
R. Interest Rate. Either (i) the greater of (a) twelve percent
-------------
(12%) per annum, or (b) the reference rate, or succeeding similar index,
announced from time to time by the Bank of America's main San Francisco office,
plus three percent (3%) per annum; or (ii) the maximum rate of interest
permitted by law, whichever is less.
S. Landlord Delay. The term "Landlord Delay" shall mean only the
--------------
following: (i) a delay specifically described as a Landlord Delay in the Work
Letter, or (ii) an actual delay in the completion of construction of the
Improvements caused solely by Landlord's failure to perform any provision of
this Lease or the
11
<PAGE>
Work Letter. Notwithstanding any provision of this Lease to the contrary (except
as expressly set forth in the Work Letter), no Landlord Delay shall be deemed to
have occurred under this Lease unless and until Tenant has given written notice
to Landlord specifying the action or inaction which Tenant contends constitutes
a Landlord Delay (a "Delay Notice"). If such action or inaction does in fact
constitute a Landlord Delay and is not cured within two (2) business days after
Landlord's receipt of such Delay Notice, then a Landlord Delay, as set forth in
such Delay Notice, shall be deemed to have occurred commencing as of the date
Landlord received such Delay Notice and continuing for the number of days the
substantial completion of the Improvements was in fact delayed as a direct
result of such action or inaction.
T. Landlord's Agents. Landlord's authorized agents, partners,
-----------------
subsidiaries, directors, officers, and employees.
U. Monthly Rent. The rent payable pursuant to Paragraphs 4.D and
------------ ------------------
5.A., as adjusted from time to time pursuant to the terms of this Lease.
- ----
V. Parking Area. All Common Area (except sidewalks and service
------------
delivery facilities) now or hereafter designated by Landlord for the parking or
access of motor vehicles, including roads, traffic lanes, vehicular parking
spaces, landscaped areas and walkways, and including any parking structure
constructed during the Term. Landlord and/or its successors may, by written
notice to Tenant, elect in their sole discretion to increase and/or decrease the
Parking Area from time to time during the Term for any reason whatsoever
(including without limitation an election by Landlord and/or its successors in
their sole discretion to make changes to the buildings situated in the Project,
and/or to subdivide, sell, exchange, dispose of, transfer, or change the
configuration of all or any portion of the Parking Area from time to time), so
long as such changes to the Parking Area do not permanently reduce the number of
parking spaces available for Tenant's use below the minimum requirements set
forth in Paragraph 37. No such subdivision, sale, exchange, disposition,
------------
transfer, or change to the configuration of all or any portion of the Parking
Area shall cause the Parking Area to be increased or decreased unless and until
Landlord has given Tenant written notice of such increase or decrease.
W. INTENTIONALLY OMITTED
X. Person. Any individual, partnership, firm, association,
------
corporation, limited liability company, trust, or other form of business or
legal entity.
Y. Premises. The term "Premises" shall have the meaning set forth
--------
in Paragraph 2 above.
-----------
12
<PAGE>
Z. Project. That certain real property shown on Exhibit C, upon
------- ---------
which are currently located the Building and five (5) other buildings, currently
consisting of a total building square footage of approximately Four Hundred Four
Thousand Seven Hundred Ten (404,710) square feet of Rentable Area. Landlord
and/or its successors may, by written notice to Tenant, elect in their sole
discretion to increase and/or decrease the number of buildings and/or the amount
of Rentable Area situated in the Project from time to time during the Term for
any reason whatsoever.
AA. Real Property Taxes. Taxes, assessments and charges now or
-------------------
hereafter levied or assessed upon, or with respect to, the Project, or any
personal property of Landlord used in the operation thereof or located therein,
or Landlord's interest in the Project or such personal property, by any federal,
state or local entity, including: (i) all real property taxes and general and
special assessments; (ii) charges, fees or assessments for transit, housing, day
care, open space, art, police, fire or other governmental services or benefits
to the Project, including assessments, taxes, fees, levies and charges imposed
by governmental agencies for such purposes as street, sidewalk, road, utility
construction and maintenance, refuse removal and for other governmental
services; (iii) service payments in lieu of taxes; (iv) any tax, fee or excise
on the use or occupancy of any part of the Project, or on rent for space in the
Project; (v) any other tax, fee or excise, however described, that may be levied
or assessed as a substitute for, or as an addition to, in whole or in part, any
other Real Property Taxes; and (vi) reasonable consultants' and attorneys' fees
and expenses incurred in connection with proceedings to contest, determine or
reduce Real Property Taxes. Real Property Taxes do not include: (A) franchise,
transfer, inheritance or capital stock taxes, or income taxes measured by the
net income of Landlord from all sources, unless any such taxes are levied or
assessed against Landlord as a substitute for, in whole or in part, any Real
Property Tax; (B) Impositions and all similar amounts payable by tenants of the
Project under their leases; and (C) penalties, fines, interest or charges due
for late payment of Real Property Taxes by Landlord. If any Real Property Taxes
are payable, or may at the option of the taxpayer be paid, in installments, such
Real Property Taxes shall, together with any interest that would otherwise be
payable with such installment, be deemed to have been paid in installments,
amortized over the maximum time period allowed by applicable law. If the tax
statement from a taxing authority does not allocate Real Property Taxes to the
Building, Landlord shall make the determination of the proper allocation of such
Real Property Taxes based, to the extent possible, upon records of the taxing
authority and, if not so available, then on an equitable basis.
13
<PAGE>
BB. Rent. Monthly Rent plus the Additional Rent as defined in
----
Paragraph 5.E.
- -------------
CC. Rentable Area. The aggregate square footage in any one or more
-------------
buildings in the Project, as appropriate, as reasonably determined by Landlord's
architect from time to time in accordance with BOMA Standard (ANSI Z65.1 1980)
for full floor office occupancy.
DD. Second Half Commencement Date. The date defined in Paragraph
----------------------------- ---------
5.A.
- ---
EE. Security Deposit. That amount paid by Tenant pursuant to
----------------
Paragraph 7.
- -----------
FF. Sublet. Any transfer, sublet, assignment, license or concession
------
agreement, change of ownership, mortgage, or hypothecation of this Lease or the
Tenant's interest in the Lease or in and to all or a portion of the Premises.
As used herein, a Sublet includes the following: (i) if Tenant is a partnership
or a limited liability company, a transfer, voluntary or involuntary, of all or
any part of any interest in such partnership or limited liability company, or
the dissolution of the partnership or limited liability company, 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 (except that a Sublet shall not include any
such transfer of a controlling percentage of the stock of Tenant occurring at a
time when the stock of Tenant is publicly traded on a nationally recognized
stock exchange or over the counter), 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
(except in connection with an initial public offering of the stock of Tenant on
a nationally recognized stock exchange or over the counter); (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 phrases "controlling percentage" and
"controlling interest" means the ownership of, and/or the right to vote, stock,
partnership interests, membership interests, or other indicia of ownership
possessing at least fifty-one percent (51%) of either the total combined
interests in Tenant, or the voting power of all classes of Tenant's capital
stock, partnership interests, membership interests, or other indicia of
ownership, that have been issued, outstanding, and (if applicable) are entitled
to vote.
14
<PAGE>
GG. Subrent. Any consideration of any kind received, or to be
-------
received, by Tenant from a subtenant if such sums are related to Tenant's
interest in this Lease or in the Premises, including without limitation bonus
money and payments (in excess of book value) for Tenant's assets, including
without limitation its trade fixtures, equipment and other personal property,
goodwill, general intangibles, and any capital stock or other equity ownership
of Tenant.
HH. Subtenant. The person or entity with whom a Sublet agreement is
---------
proposed to be or is made.
II. Tenant Delay. Any delay that Landlord may encounter in the
------------
performance of Landlord's obligations under the Lease because of any act or
omission of any nature by Tenant or its agents or contractors, including without
limitation any (i) delay attributable to the postponement of any Improvements at
the request of Tenant; (ii) delay by Tenant in the submission of information or
the giving of authorizations or approvals within the time limits set forth in
the Lease or the Work Letter; (iii) delay attributable to the failure of Tenant
to pay, when due, any amounts required to be paid by Tenant pursuant to the
Lease or the Work Letter; and (iv) delay resulting from any change order request
initiated or requested by Tenant.
JJ. Tenant Improvements. Those certain improvements to the Premises
-------------------
to be constructed by Landlord pursuant to Exhibit B, other than the Capital
---------
Improvements. The Tenant Improvements shall at all times be the property of
Landlord and shall not be deemed Tenant's Personal Property.
KK. Tenant's Percentage Share. The ratio (expressed as a percentage)
-------------------------
of the total Rentable Area of the Premises to the total Rentable Area of all of
the buildings at the Project owned by Landlord from time to time, which as of
the Commencement Date shall equal 16.6% (i.e., the Rentable Area of the First
Half Space divided by the Rentable Area of the buildings at the Project owned by
Landlord as of the date of this Lease). Tenant's Percentage Share shall be
recalculated each and every time that the amount of Rentable Area contained in
Premises is adjusted, or the Premises is expanded, or Tenant occupies the Second
Half Space, or there is a change in the total Rentable Area of those buildings
in the Project owned by Landlord, or Landlord sells, exchanges, or otherwise
transfers any or all of the buildings situated in the Project (including without
limitation the Building). The parties acknowledge and agree that the total
Rentable Area of all of the buildings in the Project owned by Landlord may
increase and/or decrease from time to time during the Term, since Landlord may
elect in its sole discretion to sell a building or buildings or to make changes
to the buildings it owns in the Project (so long as Landlord does not
15
<PAGE>
unreasonably interfere with ingress to or egress from the Premises).
LL. Tenant's Personal Property. Tenant's trade fixtures, furniture,
--------------------------
equipment and other personal property in the Premises.
MM. Term. The Term of this Lease set forth in Paragraph 4.A., as it
---- --------------
may be extended hereunder pursuant to any options to extend granted herein.
4. Lease Term.
----------
A. Term. The Term shall commence on March 15, 1997 (the
----
"Commencement Date"), and shall terminate on the date which is twelve (12) years
- ------------------
from the Commencement Date. Notwithstanding the foregoing, if the date of
substantial completion of the Improvements for the First Half Space is delayed
solely as a result of a Landlord Delay, then the Commencement Date shall be
extended one (1) day for each one (1) day of such Landlord Delay.
B. Delays in Completion. Tenant agrees that if Landlord, for any
--------------------
reason whatsoever, is unable to substantially complete the Improvements in the
First Half Space on or before the Estimated Commencement Date, Landlord shall
not be liable to Tenant for any loss or damage therefrom, nor shall this Lease
be void or voidable. In such event, the Commencement Date, the termination date
and all other dates of this Lease shall not be extended and Tenant shall be
--- -----
obligated to pay Monthly Rent and all other sums allocable to the Premises and
due to Landlord hereunder, except as expressly set forth in Paragraph 5.A with
-------------
respect to a delay of the Commencement Date solely attributable to a Landlord
Delay, in which event the Commencement Date and the termination date shall be
calculated in the manner set forth in Paragraph 5.A above. Landlord and Tenant
-------------
estimate that the Commencement Date shall be March 15, 1997 (the "Estimated
---------
Commencement Date"). Upon the establishment of the actual Commencement Date,
- -----------------
Landlord and Tenant shall execute a Commencement Date Memorandum in the form set
forth in Exhibit D. Notwithstanding the foregoing, if Landlord has not
---------
commenced construction of the Improvements with respect to the First Half Space
on or before April 1, 1997, except as a result of Tenant Delays or causes beyond
the reasonable control of Landlord, then Tenant shall have the right to
terminate the Lease by delivering written notice to Landlord (a "Termination
Notice") at any time before commencement of construction of such Improvements,
which termination shall be effective upon Landlord's receipt of such Termination
Notice; provided, however, that Tenant shall have no right to deliver a
Termination Notice to Landlord pursuant to this sentence at any time after
Landlord has commenced construction of the Improvements in the First Half Space.
Tenant shall pay any and all costs and expenses incurred by Landlord
16
<PAGE>
which result from any Tenant Delay, including, without limitation, any and all
costs and expenses attributable to increases in the cost of labor or materials.
C. Options to Extend.
-----------------
(i) Grant of Options. Landlord hereby grants to Tenant two
----------------
(2) options (each, an "Option to Extend", and together, the "Options to Extend")
---------------- -----------------
to extend the Term of this Lease, for an additional term of five (5) years each.
The first five-year option term (the "First Extended Term") shall commence upon
-------------------
the expiration of the initial Term, and the second five-year option term (the
"Second Extended Term") shall commence upon the expiration of the First Extended
- ---------------------
Term. The First Extended Term and the Second Extended Term shall hereafter each
be referred to from time to time as an "Extended Term". The Options to Extend
-------------
are each expressly conditioned upon Tenant's not being in default under any term
or condition of this Lease after the expiration of any applicable cure period
granted by this Lease, either at the time the Option to Extend is exercised or
at the time the applicable Extended Term would commence. Tenant may not
exercise the Option to Extend the Term for the Second Extended Term unless it
has previously exercised the Option to Extend the Term for the First Extended
Term in compliance with the provisions of this Paragraph 4.C. The Options to
-------------
Extend shall be personal to the Tenant originally named in this Lease, and shall
not be assigned, sold, conveyed or otherwise transferred to any other party
(including without limitation any assignee or sublessee of such Tenant) without
the prior written consent of Landlord, which consent may be withheld in
Landlord's sole discretion; provided, however, that the Options to Extend may be
transferred to the transferee pursuant to a Permitted Transfer without
Landlord's consent. The Options to Extend shall be exercisable only so long as
the Lease remains in full force and effect and shall be an interest appurtenant
to and not separable from Tenant's estate under the Lease. Under no
circumstances shall Landlord be required to pay any real estate commission to
any party with respect to Tenant's exercise of the Options to Extend.
(ii) Manner of Exercise. Tenant may exercise the Option to
------------------
Extend the Lease for the First Extended Term only by giving Landlord written
notice not less than one (1) year prior to the expiration of the Term. Tenant
may exercise the Option to Extend the Lease for the Second Extended Term only by
giving Landlord written notice not less than one (1) year prior to the
expiration of the First Extended Term. If Tenant fails to exercise an Option to
Extend prior to the applicable 12-month period, then such Option to Extend
automatically shall lapse and thereafter Tenant shall have no right to exercise
such Option to Extend.
17
<PAGE>
(iii) Terms and Rent. The initial Monthly Rent for the Premises
--------------
for the First Extended Term shall be equal to the greater of (w) ninety-five
percent (95%) of the fair market rent, as determined below, for the Premises as
of the commencement of the First Extended Term, or (x) an amount equal to the
Monthly Rent payable during the eleventh (11th) year of the Term, multiplied by
the greater of (A) the lesser of (I) a fraction, the numerator of which is the
Index published most recently before the eleventh (11th) anniversary of the
Commencement Date, and the denominator of which is the Index published most
recently before the tenth (10th) anniversary of the Commencement Date, or (II)
one hundred sixteen percent (116%), or (B) one hundred seven percent (107%). The
initial Monthly Rent for the Premises for the Second Extended Term shall be
equal to the greater of (y) ninety-five percent (95%) of the fair market rent,
as determined below, for the Premises as of the commencement of the Second
Extended Term, or (z) an amount equal to the Monthly Rent payable during the
seventeenth (17th) year of the Term, multiplied by the greater of (A) the lesser
of (I) a fraction, the numerator of which is the Index published most recently
before the seventeenth (17th) anniversary of the Commencement Date, and the
denominator of which is the Index published most recently before the sixteenth
(16th) anniversary of the Commencement Date, or (II) one hundred sixteen percent
(116%), or (B) one hundred seven percent (107%). During the Extended Terms the
Monthly Rent shall continue to be subject to adjustment in accordance with the
provisions of Paragraph 5.B below. All other terms and conditions of the Lease,
-------------
as amended from time to time by the parties in accordance with the provisions of
the Lease, shall remain in full force and effect and shall apply during the
Extended Terms; provided, however, that neither the Option to Extend the Term
for the First Extended Term nor Landlord's obligations under the Work Letter
shall be of any force or effect during the First Extended Term; and provided
further, that neither the Options to Extend nor Landlord's obligations under the
Work Letter shall be of any force or effect during the Second Extended Term.
(iv) Determination of Rent. For the purposes of calculating
---------------------
the Monthly Rent for the Extended Terms, the fair market rent shall be equal to
the net effective rent per rentable square foot being charged for leases
executed within the preceding twelve (12) months for comparable space (in
buildings with 2 - 4 stories) at either the Project (if any), or if there are
none, for comparable space (in buildings with 2 - 4 stories) in office and
research and development complexes located in the Redwood Shores area or the
Menlo Oaks Business Park (located in Menlo Park, California), with terms
comparable to the terms contained in this Lease, taking into consideration
relevant factors such as the presence or absence of tenant improvement
contributions by the lessor, and the fact that the Monthly Rent during the
Extended Terms shall be subject to adjustment under
18
<PAGE>
Paragraph 5.B. Any value added to the Premises by the Tenant Improvements and
- -------------
any Alterations paid for by Tenant shall not be considered or included in the
determination of the fair market rent. The fair market rent shall be determined
by mutual agreement of the parties or, if the parties are unable to agree within
thirty (30) days after Tenant's exercise of an Option, then fair market rent
shall be determined pursuant to the procedure set forth in Paragraphs 4.C.(v)
------------------
and 4.C.(vi).
- ------------
(v) Landlord's Initial Determination. If the parties are unable
--------------------------------
mutually to agree upon the fair market rent pursuant to Paragraph 4.C.(iv), then
------------------
the fair market rent initially shall be determined by Landlord by written notice
("Landlord's Notice") given to Tenant promptly following the expiration of the
-----------------
30-day period set forth in Paragraph 4.C.(iv). If Tenant disputes the amount of
------------------
fair market rent set forth in Landlord's Notice, then, within thirty (30) days
after the date of Landlord's Notice, Tenant shall send Landlord a written notice
("Tenant's Notice") which specifically (a) disputes the fair market rent set
---------------
forth in Landlord's Notice, (b) demands arbitration pursuant to Paragraph
---------
4.C.(vi), and (c) states the name and address of the person who shall act as
- --------
arbitrator on Tenant's behalf. Tenant's Notice shall be deemed defective, and
not given to Landlord, if it fails strictly to comply with the requirements and
time period set forth above. If Tenant does not send Tenant's Notice within
thirty (30) days after the date of Landlord's Notice, or if Tenant's Notice
fails to contain all of the required information, then the Monthly Rent for that
Extended Term shall equal ninety-five percent (95%) of the fair market rent
specified in Landlord's Notice. If Tenant sends Tenant's Notice in the proper
form within thirty (30) days after the date of Landlord's Notice, then the
Monthly Rent for that Extended Term shall be determined by arbitration pursuant
to Paragraph 4.C(vi) below. If the arbitration is not concluded prior to the
-----------------
commencement of the applicable Extended Term, then Tenant shall pay Monthly Rent
equal to one hundred twenty-five percent (125%) of the Monthly Rent payable
immediately prior to the commencement of the applicable Extended Term. If the
fair market rent determined by arbitration differs from that paid by Tenant
pending the results of arbitration, then any adjustment required to adjust the
amount previously paid shall be made by payment by the appropriate party within
ten (10) days after the determination of fair market rent.
(vi) Arbitration. The arbitration shall be conducted in the
-----------
City of San Francisco in accordance with the then prevailing rules of the
American Arbitration Association (or its successor) for the arbitration of
commercial disputes, except that the procedures mandated by such rules shall be
modified as follows:
19
<PAGE>
(a) Each arbitrator must be a real estate appraiser with at
least five (5) years of full-time commercial appraisal experience who is
familiar with the fair market rent of office and research and development
complexes located in the vicinity of the Premises. Within ten (10) business days
after receipt of Tenant's Notice, Landlord shall notify Tenant of the name and
address of the person designated by Landlord to act as arbitrator on Landlord's
behalf.
(b) The two arbitrators chosen pursuant to Paragraph
---------
4.C.(vi)(a) shall meet within ten (10) business days after the second arbitrator
- -----------
is appointed and shall either agree upon the fair market rent or appoint a third
arbitrator possessing the qualifications set forth in Paragraph 4.C.(vi)(a). If
---------------------
the two arbitrators agree upon the fair market rent within such ten (10)
business day period, the Monthly Rent for the applicable Extended Term shall
equal ninety-five percent (95%) of such fair market rent. If the two
arbitrators are unable to agree upon the fair market rent and are unable to
agree upon the third arbitrator within five (5) business days after the
expiration of such ten (10) business day period, the third arbitrator shall be
selected by the parties themselves. If the parties do not agree on the third
arbitrator within five (5) business days after the expiration of such five (5)
business day period, then either party, on behalf of both, may request
appointment of the third arbitrator by the Association of South Bay Brokers.
The three arbitrators shall decide the dispute, if it has not been previously
resolved, by following the procedures set forth in Paragraph 4.C.(vi)(c). Each
---------------------
party shall pay the fees and expenses of its respective arbitrator and both
shall share the fees and expenses of the third arbitrator. Each party shall pay
its own attorneys' fees and costs of witnesses.
(c) The three arbitrators shall determine the fair market
rent in accordance with the following procedures. Each of Landlord's arbitrator
and Tenant's arbitrator shall state, in writing, his or her determination of the
fair market rent, supported by the reasons therefor, and shall make counterpart
copies for the other arbitrators. All of the arbitrators shall arrange for a
simultaneous exchange of the proposed resolutions within ten (10) business days
after appointment of the third arbitrator. If any arbitrator fails to deliver
his or her own determination to the other arbitrators within such ten (10)
business day period, then the fair market rent shall equal the average of the
resolutions submitted by the other arbitrators. If all three (3) arbitrators
deliver their determinations to the other arbitrators within such ten (10)
business day period, then the two (2) closest determinations of the arbitrators
shall be averaged, and the resulting quotient shall be the fair market rent, and
the Monthly Rent for the applicable Extended Term shall equal ninety-five
percent (95%) of such fair market rent; provided, however, that if the
20
<PAGE>
determination of one (1) of the arbitrators (the "Average Determination") is
---------------------
equal to the average of the determinations of the other two (2) arbitrators,
then the Average Determination shall be the fair market rent. However, the
arbitrators shall not attempt to reach a mutual agreement of the fair market
rent; each arbitrator shall independently arrive at his or her proposed
resolution.
(d) The arbitrators shall have the right to consult experts
and competent authorities for factual information or evidence pertaining to a
determination of fair market rent, but any such consultation shall be made in
the presence of both parties with full right on their part to cross-examine. The
arbitrators shall render the decision and award in writing with counterpart
copies to each party. The arbitrators shall have no power to modify the
provisions of this Lease. In the event of a failure, refusal or inability of any
arbitrator to act, his or her successor shall be appointed by him or her, but in
the case of the third arbitrator, his or her successor shall be appointed in the
same manner as that set forth herein with respect to the appointment of the
original third arbitrator.
D. Early Occupancy. During the Early Occupancy Period (as defined
---------------
below), Tenant shall be permitted to occupy up to Thirty Thousand (30,000)
square feet of Rentable Area within that portion of the Building cross-hatched
on Exhibit E attached hereto (the "Potential Early Occupancy Premises"). Tenant
--------- ----------------------------------
shall give Landlord written notice specifying that portion of the Potential
Early Occupancy Premises that Tenant desires to occupy (the "Early Occupancy
---------------
Premises"), and the date on which the Early Occupancy Period shall commence,
- --------
which date (the "Early Occupancy Commencement Date") shall not be less than
---------------------------------
thirty (30) days after Landlord receives Tenant's notice.
(i) Early Occupancy Period; Expansion. Tenant shall be
---------------------------------
permitted to occupy the Early Occupancy Premises during the period of time
commencing on the Early Occupancy Commencement Date and continuing until Tenant
fully vacates the Early Occupancy Premises (the "Early Occupancy Period"). As of
----------------------
February 15, 1997, Tenant shall be permitted to expand the Early Occupancy
Premises to an aggregate of up to Sixty Thousand (60,000) square feet of
Rentable Area within the Potential Early Occupancy Premises. Tenant shall give
Landlord written notice specifying that additional portion of the Potential
Early Occupancy Premises that Tenant desires to occupy pursuant to this
Paragraph 4.D.(i) (if any), and the date on which Tenant desires to occupy such
- -----------------
additional portion of the Potential Early Occupancy Premises, which date shall
not be less than thirty (30) days after Landlord receives Tenant's notice.
(ii) Terms of Early Occupancy. Tenant's occupancy of the Early
------------------------
Occupancy Premises during the Early
21
<PAGE>
Occupancy Period shall be subject to all of the terms and conditions of this
Lease, except for the payment of Monthly Rent under Paragraph 5.A; provided,
-------------
however, that no such early occupancy by Tenant shall have any effect upon the
Commencement Date or the Second Half Commencement Date, which shall continue to
be governed by the definition thereof set forth in Paragraphs 4.A and 5.A.
----------------------
Tenant shall not occupy or use the Early Occupancy Premises in a manner that
interferes with or impedes the construction of Landlord's Work. Tenant shall
occupy the Early Occupancy Premises in its then condition, "AS IS, WHERE IS" and
with all faults, and Landlord shall have no obligation to make any alterations,
improvements, repairs or changes to the Early Occupancy Premises by reason of,
or to accommodate, Tenant's early occupancy thereof pursuant to this Paragraph
---------
4.D. Without reduction or offset in any other Rent payable by Tenant under the
- ---
Lease, commencing on the later of April 15, 1997 or the substantial completion
of construction of the Improvements for the First Half Space, and continuing
until the expiration of the Early Occupancy Period, Tenant shall be required to
pay to Landlord as Monthly Rent, in addition to Monthly Rent payable pursuant to
Paragraph 5.A, an amount equal to One and 40/100ths Dollars ($1.40) multiplied
- -------------
by the greater of (x) the amount of Rentable Area actually occupied by Tenant in
the Early Occupancy Premises, as reasonably estimated by Landlord, or (y) Sixty
Thousand (60,000) square feet; provided, however, that if the Early Occupancy
Premises contain only space on one (1) floor of the Building, then the amount
set forth in this item (y) shall be deemed to be Thirty Thousand (30,000) square
feet.
5. Rent and Additional Charges.
---------------------------
A. Monthly Rent. Tenant shall pay to Landlord, in lawful money of
------------
the United States, Monthly Rent as follows: commencing on the Commencement Date,
and continuing through the Second Half Commencement Date, defined below, the
Monthly Rent shall equal Ninety-Four Thousand Six Hundred Ninety-Eight and
80/100ths Dollars ($94,698.80); and, commencing on the Second Half Commencement
Date, and continuing throughout the balance of the Term (subject to adjustment
pursuant to Paragraph 5.B), the Monthly Rent shall equal One Hundred Eighty-Nine
-------------
Thousand Three Hundred Ninety-Seven and 60/100ths Dollars ($189,397.60). The
term "Second Half Commencement Date" shall mean September 15, 1997, provided,
however, that if the date of substantial completion of the Improvements for the
Second Half Space is delayed solely as a result of a Landlord Delay, then the
Second Half Commencement Date shall be extended for one (1) day for each one (1)
day of such Landlord Delay.
Monthly Rent shall be paid in advance, on the first day of each
calendar month during the Term, without abatement, deduction, claim, offset,
prior notice or demand. The sum of Ninety-Four Thousand Six Hundred Ninety-
Eight and 80/100ths
22
<PAGE>
Dollars ($94,698.80), representing an advance payment of Monthly Rent for the
Premises, shall be paid by Tenant to Landlord upon the execution of this Lease
by Landlord and Tenant. Additionally, Tenant shall pay, as and with the Monthly
Rent, the management fee described in Paragraph 5.C., Tenant's Percentage Share
--------------
of Common Area Maintenance Costs pursuant to Paragraph 5.D, the Real Property
-------------
Taxes and Impositions payable by Tenant pursuant to Paragraph 15, and the
--------------
monthly cost of insurance premiums required pursuant to Paragraph 21.C.
B. Adjustments to Monthly Rent. The Monthly Rent shall be increased,
---------------------------
but not decreased, as of the first day of the month which is twenty-five (25)
months from the Commencement Date and every twenty-four (24) months thereafter
during the Term (including without limitation the Extended Terms) (each, an
"Adjustment Date") by the greater of (i) the percentage increase in the Index
- ----------------
from the previous Adjustment Date (or, for the first Adjustment Date, from the
Commencement Date), up to a maximum of sixteen percent (16%), or (ii) seven
percent (7%). If, however, the last Adjustment Date occurs at any time after
the first day of a calendar month, the first Adjustment Date shall be the first
day of the immediately following calendar month. On each Adjustment Date, the
total aggregate amount of Monthly Rent then in effect shall be multiplied by the
greater of (x) the lesser of (A) a fraction, the numerator of which is the Index
published most recently before the applicable Adjustment Date, and the
denominator of which is the Index published most recently before the prior
Adjustment Date (or, in the case of the first Adjustment Date, the Index
published most recently before the Commencement Date), or (B) one hundred
sixteen percent (116%), or (y) one hundred seven percent (107%); and the
corresponding product shall be the Monthly Rent in effect until the next
Adjustment Date. In no event shall the Monthly Rent in effect after an
Adjustment Date be less than one hundred seven percent (107%) of the Monthly
Rent in effect immediately prior to such Adjustment Date. If no Index is
published for either of the months set forth above, the Index for the next
preceding month shall be used.
C. Management Fee. Tenant shall pay to Landlord monthly, as
--------------
Additional Rent, a management fee equal to three and one-half percent (3.5%) of
the then Monthly Rent.
D. Common Area Maintenance Costs.
-----------------------------
(i) Estimated Payments. Commencing on the Commencement Date
------------------
and continuing throughout the entire Term, Tenant shall pay Tenant's Percentage
Share of all Common Area Maintenance Costs paid or payable by Landlord in each
year; provided, however, that Tenant shall pay one hundred percent (100%) of
those Common Area Maintenance Costs arising from Landlord's performance of its
obligations under Paragraphs 17.A
---------------
23
<PAGE>
and Tenant's obligations under Paragraph 17.D. Before commencement of the Term
--------------
and during December of each calendar year or as soon thereafter as practicable,
Landlord shall give Tenant notice of its estimate of amounts payable under this
Paragraph 5.D.(i) for the ensuing calendar year. Such notice shall show in
- -----------------
reasonable detail the basis on which the estimate was determined. On or before
the first day of each month during the ensuing calendar year, Tenant shall pay
to Landlord one-twelfth (1/12th) of such estimated amounts, provided that if
such notice is not given in December, Tenant shall continue to pay on the basis
of the prior year's estimate until the month after such notice is given. If at
any time or times it appears to Landlord, in its reasonable judgment, that the
amounts payable under this Paragraph 5.D.(i) for the current calendar year will
-----------------
vary from its then-current estimate by more than five percent (5%), Landlord
may, in its sole discretion, by notice to Tenant, showing in reasonable detail
the basis for such variance, revise its estimate for such year, in which case
subsequent payments by Tenant for such year shall be based upon such revised
estimate. Landlord's election not to give the notice described in the foregoing
sentence shall not affect Landlord's ability to charge Tenant for, nor Tenant's
liability to pay for, any shortfall in the estimated payments for such calendar
year previously made by Tenant, as set forth in Paragraph 5.D.(ii).
------------------
(ii) Adjustment. Within one hundred twenty (120) days after the
----------
close of each calendar year or as soon after such 120-day period as reasonably
practicable, Landlord shall deliver to Tenant a reasonably detailed statement of
Common Area Maintenance Costs for such calendar year, certified by Landlord or
its property manager, subject to Tenant's right to audit as hereinafter
provided. At that time, Landlord shall also deliver to Tenant a statement,
certified as correct by Landlord, of the adjustments to be made pursuant to
Paragraph 5.D.(i) above. If Landlord's statement shows that Tenant owes an
- -----------------
amount that is less than the estimated payments for such calendar year
previously made by Tenant, Landlord may elect, in its sole discretion, to either
refund such excess to Tenant within thirty (30) days after delivery of the
statement, or offset such overpayment against Rent due or remaining due under
this Lease; provided that if no Rent remains due, Landlord shall refund such
excess to Tenant within thirty (30) days after delivery of the statement. If
such statement shows that Tenant owes an amount that is more than the estimated
payments for such calendar year previously made by Tenant, Tenant shall pay the
deficiency to Landlord within thirty (30) days after delivery of the statement.
(iii) Last Year. If this Lease shall terminate on a day other
---------
than the last day of a calendar year, the adjustment in Rent applicable to the
calendar year in which such termination shall occur shall be prorated on the
basis which the number of days from the commencement of such calendar year to
and
24
<PAGE>
including such termination date bears to three hundred sixty (360). The
termination of this Lease shall not affect the obligations of Landlord and
Tenant pursuant to Paragraph 5.D.(ii) to be performed after such termination.
------------------
(iv) Audit. Within one hundred eighty (180) days after receipt
-----
of Landlord's statement of Common Area Maintenance Costs as provided in
Paragraph 5.D.(ii), Tenant or its designee, on not less than five (5) days'
- ------------------
prior written notice to Landlord, shall have the right to, at Tenant's sole cost
and expense, audit, examine and copy Landlord's books and records with respect
to the Common Area Maintenance Costs for the calendar year pertaining to the
year for which the Landlord's statement pertains. Landlord shall cooperate with
Tenant in any such examination of its books and records.
E. Additional Rent. All monies required to be paid by Tenant under
---------------
this Lease, including, without limitation, the Tenant Improvement costs
pursuant to Exhibit B, the management fee described in Paragraph 5.D, Tenant's
--------- -------------
Percentage Share of Common Area Maintenance Costs pursuant to Paragraph 5.D,
-------------
Real Property Taxes and Impositions pursuant to Paragraph 15, and the monthly
------------
cost of insurance premiums required pursuant to Paragraph 21.C, shall be deemed
--------------
Additional Rent.
F. INTENTIONALLY OMITTED
G. Prorations. If the Commencement Date or the Second Half
----------
Commencement Date is not the first (1st) day of a month, or if the termination
date of this Lease is not the last day of a month, a prorated installment of
Monthly Rent based on a 30-day month shall be paid for the fractional month
during which such date occurs or the Lease terminates.
H. Interest. Any amount of Rent or other charges provided for under
--------
this Lease due and payable to Landlord which is not paid when due shall bear
interest at the Interest Rate from the date that is (i) five (5) days after the
date such Rent is due until such Rent is paid, or (ii) ten (10) days after
Tenant receives written notice from Landlord that any other charge provided for
under this Lease (other than Rent) is due and payable, until such other charge
is paid.
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 (excluding late release of the
Set-Aside Funds pursuant to the Work Letter) is not received by Landlord within
three (3) days after the date such Rent or other charge is due, Tenant shall pay
to Landlord an additional
25
<PAGE>
sum equal to seven percent (7%) 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.
----------------
A. Deposit Required. Tenant shall deposit with Landlord upon the
----------------
execution of this Lease by Landlord and Tenant, the sum of Sixty-Eight Thousand
One Hundred Ninety-Two and 80/100ths Dollars ($68,192.80) as the "Security
--------
Deposit" for the full and faithful performance of every provision of this Lease
- -------
to be performed by Tenant. For the purposes of this Lease, the term "Security
Deposit" shall include the initial sum deposited by Tenant as the Security
Deposit and any other sum deposited by Tenant as the Security Deposit and any
other sum deposited by Tenant towards the Security Deposit pursuant to this
Paragraph 7.A. At Tenant's option, the Security Deposit may be in the form of
- -------------
an irrevocable standby letter of credit ("L-C"). On or before the first to
---
occur of (x) October 1, 1997, or (y) Landlord's delivery to Tenant of written
notice that Tenant has committed a default with respect to any provision of this
Lease, Tenant shall increase the Security Deposit to a total aggregate sum of
Five Hundred Sixty-Eight Thousand One Hundred Ninety-Two and 80/100ths Dollars
($568,192.80), by depositing with Landlord the amount of Five Hundred Thousand
Dollars ($500,000.00) as an addition to the Security Deposit. Landlord shall
not be required to segregate the Security Deposit from Landlord's general funds;
Landlord's obligations with respect to the Security Deposit shall be those of a
debtor and not a trustee, and Tenant shall not be entitled to any interest on
the Security Deposit. Invocation by Landlord of its rights hereunder shall not
constitute a waiver of nor relieve Tenant from any liability or obligation for
any default by Tenant under this Lease.
(i) Reduction or Replacement. So long as Tenant has not
------------------------
committed any default under this Lease, then if Tenant can demonstrate to the
reasonable satisfaction of Landlord that Tenant has maintained a Fixed Charge
Ratio of at least 1.25 to 1 for a period of four (4) consecutive fiscal years at
any time after the Commencement Date, then Tenant may elect to reduce the
Security Deposit to a sum equal to the then-current amount of Monthly Rent. For
the purposes of this Paragraph 7, in order for Tenant to demonstrate that it has
maintained the required Fixed
26
<PAGE>
Charge Ratio for the fiscal year or years in question, Tenant must at a minimum
deliver to Landlord an audited financial statement of Tenant, showing that
Tenant has maintained the required Fixed Charge Ratio for the fiscal year or
years in question.
If Tenant is entitled to and does elect to reduce the amount of
the Security Deposit pursuant to this Paragraph 7.A.(i), and Tenant delivers to
-----------------
Landlord written notice of its election to so reduce the amount of the Security
Deposit and the financial statement described in the foregoing grammatical
paragraph, then either (x) if the Security Deposit is in the form of cash,
Landlord shall pay to Tenant the excess amount of the Security Deposit, without
interest, within thirty (30) days after Landlord's receipt of such notice and
statement; or (y) if the Security Deposit is in the form of an L-C, then Tenant
may, not less than ten (10) days after Landlord's receipt of such notice and
statement, replace the L-C with an L-C in an amount equal to the reduced amount
of the Security Deposit.
(iii) Consequences of Default. If Tenant defaults with respect
-----------------------
to any provision of this Lease, after the expiration of any applicable cure or
grace periods expressly provided for in 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 a cash Security Deposit is so applied, or any portion
of an L-C posted as the Security Deposit, if applicable, is drawn upon, by
Landlord for such purposes, Tenant shall either, 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 or deposit a replacement L-C
with Landlord in the amount of the original L-C. If Tenant is not otherwise in
default, the Security Deposit or any balance thereof shall be returned to Tenant
within thirty (30) days of termination of the Lease.
(iv) Form of L-C. If at any time Tenant elects to deposit
-----------
an L-C as the Security Deposit, the L-C shall be issued by a bank reasonably
acceptable to Landlord, shall be issued for a term of at least twelve (12)
months and shall be in a form and with such content reasonably acceptable to
Landlord. Tenant shall either replace the expiring L-C with an L-C in an amount
equal to the original L-C or renew the expiring L-C, in any event no later than
thirty (30) days prior to the expiration of the term of the L-C then in effect.
If Tenant fails to deposit a replacement L-C or renew the expiring L-C, Landlord
shall have the right to draw upon the expiring L-C for the full amount
27
<PAGE>
thereof and hold the same as the Security Deposit; provided, however, that if
Tenant provides a replacement L-C that meets the requirements of this Paragraph,
then Landlord shall return to Tenant promptly in cash that amount of the L-C
that had been drawn upon by Landlord. Drawing upon the L-C shall be conditioned
upon the presentation to the issuer of the L-C of a certified statement executed
by a general partner of Landlord that (i) Tenant is in default under the Lease
and Landlord is exercising its right to draw upon so much of the L-C as is
necessary to cure Tenant's default, or (ii) Tenant has not renewed or replaced
an expiring L-C as required by this Lease and Landlord is authorized to draw
upon the L-C prior to its expiration. The L-C shall not be mortgaged, assigned
or encumbered in any manner whatsoever by Tenant without the prior written
consent of Landlord. The use, application or retention of the L-C, or any
portion thereof, by Landlord shall not prevent Landlord from exercising any
other right or remedy provided by this Lease or by law, it being intended that
Landlord shall not first be required to proceed against the L-C, and such use,
application or retention shall not operate as a limitation on any recovery to
which Landlord may otherwise be entitled.
8. Holding Over.
------------
A. General Provisions. 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 at sufferance only, and shall
not constitute a renewal or extension for any further term. If Tenant remains in
possession after the expiration of the Term, either with or without Landlord's
consent, Rent shall be payable at a rental equal to one hundred thirty percent
(130%) of the Monthly Rent payable during the last month of the Term (which
rental shall be due and payable at the same time as Monthly Rent is due under
this Lease), and any other sums due under this Lease shall be payable in the
amount and at the times specified in this Lease. Such holdover tenancy shall be
subject to every other term, condition, and covenant contained herein; provided,
however, that neither the Holdover Option (as defined below) nor Landlord's
obligations under the Work Letter shall be of any force or effect during any
such holdover tenancy.
B. Holdover Extension. Notwithstanding anything to the contrary set
------------------
forth in Paragraph 8.A, Tenant may extend the Term of this Lease for up to a
-------------
maximum of six (6) months (the "Holdover Option") under the following terms and
---------------
conditions: (i) the Holdover Option is expressly conditioned upon Tenant's not
being in default under any term or condition of this Lease after the expiration
of any applicable cure period granted by this Lease, either at the time the
Holdover Option is exercised or at the time the Holdover Option term would
commence; (ii) the Holdover Option shall be personal to the Tenant originally
named
28
<PAGE>
in this Lease, and shall not be assigned, sold, conveyed or otherwise
transferred to any other party (including without limitation any assignee or
sublessee of such Tenant) without the prior written consent of Landlord, which
consent may be withheld in Landlord's sole discretion (provided, however, that
the Holdover Option may be transferred to the transferee pursuant to a Permitted
Transfer without Landlord's consent), and the Holdover Option shall be
exercisable only so long as the Lease remains in full force and effect and shall
be an interest appurtenant to and not separable from Tenant's estate under the
Lease; (iii) under no circumstances shall Landlord be required to pay any real
estate commission to any party with respect to Tenant's exercise of the Holdover
Option; (iv) Tenant may exercise the Holdover Option to extend the Lease only by
giving Landlord written notice not less than twelve (12) months prior to the
expiration of the Term, which notice shall specify the length of time of the
Holdover Option term (up to a maximum of six (6) months); (v) if Tenant fails to
exercise the Holdover Option prior to the applicable twelve (12) month period,
then the Holdover Option automatically shall lapse and thereafter Tenant shall
have no right to exercise the Holdover Option; (vi) Monthly Rent shall be
increased to an amount equal to one hundred thirty percent (130%) of the Monthly
Rent payable during the last month of the Term; and (vii) all other terms and
conditions of the Lease, as amended from time to time by the parties in
accordance with the provisions of the Lease, shall remain in full force and
effect and shall apply during the Holdover Option term, provided, however, that
neither the Holdover Option nor Landlord's obligations under the Work Letter
shall be of any force or effect during the Holdover Option term.
9. Tenant Improvements.
-------------------
Landlord agrees to construct the Tenant Improvements pursuant to the
terms of Exhibit B.
---------
10. Condition of Premises.
---------------------
A. Capital Improvements. Landlord shall complete the Capital
--------------------
Improvements to the First Half Space, and Landlord shall complete the Capital
Improvements to the Second Half Space, all in accordance with the terms of
Exhibit B. Except for its obligation to perform the Capital Improvements and
- ---------
the Tenant Improvements as set forth in this Lease and the Work Letter, Landlord
shall have no obligation whatsoever to do any work or perform any improvements
whatsoever to any portion of the Premises or the Building.
B. Acceptance of Premises. Within ten (10) days after completion of
----------------------
the Tenant Improvements with respect to the First Half Space or with respect to
the Second Half Space, as the case may be, Tenant shall conduct a walk-through
inspection of the
29
<PAGE>
Premises with Landlord and complete a punch list of items needing additional
work. Other than the items specified in the punch list, if any, and subject to
Landlord's representations and warranties described below, by taking possession
of the Premises, Tenant shall be deemed to have accepted the Premises in good,
clean and completed condition and repair, subject to all applicable laws, codes
and ordinances. Any damage to the Premises caused by Tenant's move-in shall be
repaired or corrected by Tenant, at its sole cost and expense, which repair or
corrective work shall not be paid for out of the Tenant Improvements Allowance.
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 or for any other purpose, 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. If
Tenant fails to submit a punch-list to Landlord within such 10-day period, it
shall be deemed that there are no Improvement items 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 such completed items in writing to Landlord. If Tenant fails to approve
such items within fourteen (14) days of completion, such items shall be deemed
approved by Tenant.
C. Landlord's Representations and Warranties. Landlord represents
-----------------------------------------
and warrants to Tenant as follows: (i) Landlord is the fee simple owner of all
the buildings and the land included in the Project; (ii) Landlord holds an
unconditional option to purchase the so-called "Sears site," as further
described on Exhibit F attached to this Lease; and (iii) Landlord has delivered
---------
to Tenant copies of, or made available for Tenant's inspection, all relevant and
material documents in Landlord's possession or under Landlord's control
regarding the environmental condition of the Project. In addition to the
foregoing, Landlord represents and warrants (the "Condition Warranties") to
Tenant that as of the Commencement Date the following portions of the Building
shall be in good condition (i.e. in an operable (but not new) state of repair,
free of defects that would adversely affect Tenant's operation of its business
in the Premises): (i) the curtain wall and exterior windows of the Building,
(ii) the roof of the Building, (iii) the main electrical supply to a main
distribution point in the Building, (iv) the working sanitary sewer stub to the
Building, (v) water service to the Building, and (vi) the existing elevator in
the Building. The Condition Warranties shall terminate on a date thirty (30)
days after the Commencement Date, except to the extent that Tenant has delivered
to Landlord within such 30-day period a written notice specifying in detail any
defaults by Landlord under the Condition Warranties (a "Violation Notice"),
20
<PAGE>
and Landlord shall thereafter have absolutely no liability to Tenant for the
inaccuracy of any Condition Warranty, except to the extent set forth in a
Violation Notice. Landlord's liability for the correction of any defects
described in a Violation Notice shall be subject to Landlord's reasonable right
to dispute the claims set forth in any Violation Notice. Landlord's sole
liability with respect to any breach of any Condition Warranty that is properly
set forth in a timely delivered Violation Notice shall be to promptly correct
such defect; Landlord shall have no liability for any other loss, cost, damage,
expense or lost profit in connection with such breach, and Tenant shall have no
right to any abatement or offset of Rent in connection with such breach.
11. Use of the Premises and Common Area.
-----------------------------------
A. Tenant's Use. Tenant shall use the Premises only for general
------------
office, research and development, marketing, sales, and storage related to such
activities, and any other legal use consistent with any CC&Rs. Tenant shall not
use the Premises or suffer or permit anything to be done in or about the
Premises 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. 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 Landlord 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 a licensed
structural engineer or which endanger the structure; nor place any harmful
liquids in the drainage systems; nor dump or store waste materials or refuse or
allow waste materials or refuse 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, except on a temporary basis.
B. Hazardous Materials.
-------------------
(i) Hazardous Materials Defined. As used herein, the term
---------------------------
"Hazardous Materials" shall mean any wastes, materials or substances (whether in
-------------------
the form of liquids, solids or gases, and whether or not air-borne), which are
or are deemed to be (a) pollutants or contaminants, or which are or are deemed
to be hazardous, toxic, ignitable, reactive, corrosive, dangerous, harmful or
injurious, or which present a risk to public health or to the environment, or
which are or may become regulated by or under the authority of any applicable
local, state or federal laws, judgments, ordinances, orders, rules, regulations,
codes or other governmental restrictions, guidelines or requirements, any
31
<PAGE>
amendments or successor(s) thereto, replacements thereof or publications
promulgated pursuant thereto, including, without limitation, any such items or
substances which are or may become regulated by any of the Environmental Laws
(as hereinafter defined); (b) listed as a chemical known to the State of
California to cause cancer or reproductive toxicity pursuant to Section 25249.8
of the California Health and Safety Code, Division 20, Chapter 6.6 (Safe
Drinking Water and Toxic Enforcement Act of 1986); or (c) a pesticide,
petroleum, including crude oil or any fraction thereof, asbestos or any
asbestos-containing material, a polychlorinated biphenyl, radioactive material,
or urea formaldehyde.
(ii) Environmental Laws Defined. In addition to the laws
--------------------------
referred to in Paragraph 11.B.(i) above, the term "Environmental Laws" shall be
------------------ ------------------
deemed to include, without limitation, 33 U.S.C. Section 1251 et seq., 42 U.S.C.
------
Section 6901 et seq., 42 U.S.C. Section 7401 et seq., 42 U.S.C. Section 9601 et
------ ------ --
seq., and California Health and Safety Code Section 25100 et seq., and 25300 et
- --- ------
seq., California Water Code, Section 13020 et seq., or any successor(s) thereto,
- --- ------
all local, state and federal laws, judgments, ordinances, orders, rules,
regulations, codes and other governmental restrictions, guidelines and
requirements, any amendments and successors thereto, replacements thereof and
publications promulgated pursuant thereto, which deal with or otherwise in any
manner relate to, air or water quality, air emissions, soil or ground conditions
or other environmental matters of any kind.
(iii) Use of Hazardous Materials. Tenant agrees that during the
--------------------------
Term of this Lease, Tenant shall not use, or permit the use of, nor store,
generate, treat, manufacture or dispose of Hazardous Materials on, from or under
the Premises (individually and collectively, "Hazardous Use") except to the
-------------
extent that, and in accordance with such conditions as, Landlord may have
previously approved in writing in its sole and absolute discretion.
Notwithstanding the foregoing, Tenant shall be entitled to use and store only
those Hazardous Materials which are (a) set forth in a list prepared by Tenant
and approved in writing by Landlord, which shall be deemed given with respect to
the Approved Hazardous Materials (hereinafter defined), (b) necessary for
Tenant's business, but then only in the amounts and for the purposes previously
disclosed in writing to and approved in writing by Landlord, and (c) in full
compliance with Environmental Laws, and all judicial and administrative
decisions pertaining thereto. All Hazardous Materials approved in writing by
Landlord as provided in the preceding sentence shall collectively be referred to
as the "Approved Hazardous Materials". Within thirty (30) days after request by
----------------------------
Landlord, Tenant shall deliver to Landlord a list of the Approved Hazardous
Materials. Tenant shall not be entitled to install any tanks under, on or about
the Premises for the storage of Hazardous
32
<PAGE>
Materials without the express written consent of Landlord, which may be given or
withheld in Landlord's sole discretion. For the purposes of this Paragraph
---------
11.B.(iii), the term Hazardous Use shall include Hazardous Use(s) on, from or
- ----------
under the Premises by Tenant, any Subtenant occupying all or any portion of the
Premises during the Term, or any of their directors, officers, employees,
shareholders, partners, invitees, agents, contractors or occupants
(collectively, "Tenant's Parties"), whether known or unknown to Tenant,
----------------
occurring during the Term of this Lease. The term "Tenant's Parties" shall not
----------------
include any tenants of the Project other than Tenant, except that the term
"Tenant's Parties" shall include any Subtenant occupying all or portion of the
----------------
Premises during the Term.
(iv) Hazardous Materials Report; When Required. Tenant shall
-----------------------------------------
submit to Landlord a written report with respect to Hazardous Materials
("Report") in the form prescribed in Paragraph 11.B.(v) below on the following
------ ------------------
dates:
(a) At any time within ten (10) days after written
request by Landlord, and
(b) At any time when there has been a violation of any
Environmental Law, or in connection with any proposed request for Landlord's
consent to any change in the list of Approved Hazardous Materials or for an
increase in the intensity of usage or storage of such Approved Hazardous
Materials.
(v) Hazardous Materials Report; Contents. The Report shall
------------------------------------
contain, without limitation, the following information:
(a) Whether on the date of the Report and (if applicable)
during the period since the last Report there has been any Hazardous Use on,
from or under the Premises, other than the use of Approved Hazardous Materials.
(b) If there was such Hazardous Use, the exact identity
of the Hazardous Materials (other than the Approved Hazardous Materials), the
dates upon which such materials were brought upon the Premises, the dates upon
which such Hazardous Materials were removed therefrom, and the quantity,
location, use and purpose thereof.
(c) If there was such Hazardous Use, any governmental
permits maintained by Tenant with respect to such Hazardous Materials, the
issuing agency, original date of issue, renewal dates (if any) and expiration
date. Copies of any such permits and applications therefor shall be attached.
33
<PAGE>
(d) If there was such Hazardous Use, any governmental
reporting or inspection requirements with respect to such Hazardous Materials,
the governmental agency to which reports are made and/or which conducts
inspections, and the dates of all such reports and/or inspections (if
applicable) since the last Report. Copies of any such Reports shall be attached.
(e) If there was such Hazardous Use, identification of
any operation or business plan prepared for any government agency with respect
to Hazardous Use.
(f) Any liability insurance carried by Tenant with
respect to Hazardous Materials, if any, the insurer, policy number, date of
issue, coverage amounts, and date of expiration. Copies of any such policies or
certificates of coverage shall be attached.
(g) Any notices of violation of Environmental Laws,
written or oral, received by Tenant from any governmental agency since the last
Report, the date, name of agency, and description of violation. Copies of any
such written notices shall be attached.
(h) Any knowledge, information or communication which
Tenant has acquired or received relating to (x) any enforcement, cleanup,
removal or other governmental or regulatory action threatened or commenced
against Tenant or with respect to the Premises pursuant to any Environmental
Laws; (y) any claim made or threatened by any person or entity against Tenant or
the Premises on account of any alleged loss or injury claimed to result from any
alleged Hazardous Use on or about the Premises; or (z) any report, notice or
complaint made to or filed with any governmental agency concerning any Hazardous
Use on or about the Premises. The Report shall be accompanied by copies of any
such claim, report, complaint, notice, warning or other communication that is in
the possession of or is available to Tenant.
(i) Such other pertinent information or documents as are
reasonably requested by Landlord in writing.
(vi) Release of Hazardous Materials; Notification and Cleanup.
--------------------------------------------------------
(a) At any time during the Term, if Tenant knows or
believes that any release of any Hazardous Materials has come or will come to be
located upon, about or beneath the Premises, then Tenant shall immediately,
either prior to the release or following the discovery thereof by Tenant, give
verbal and follow-up written notice of that condition to Landlord.
34
<PAGE>
(b) At its sole cost and expense, Tenant covenants to
investigate, clean up and otherwise remediate any release of Hazardous Materials
which were caused or created by Tenant or any of Tenant's Parties. Such
investigation, clean-up and remediation shall be performed only after Tenant has
obtained, if practicable, Landlord's written consent, which shall not be
unreasonably withheld; provided, however, that Tenant shall be entitled to
respond immediately to an emergency without first obtaining Landlord's written
consent. All clean-up and remediation shall be done in compliance with
Environmental Laws and to the reasonable satisfaction of Landlord.
(c) Notwithstanding the foregoing, Landlord shall have
the right, but not the obligation, in Landlord's sole and absolute discretion,
exercisable by written notice to Tenant, to undertake within or outside the
Premises all or any portion of any reasonable investigation, clean-up or
remediation with respect to any Hazardous Use of such Hazardous Materials by
Tenant or any of Tenant's Parties (or, once having undertaken any of such work,
to cease same, in which case Tenant shall perform the work), all at Tenant's
sole cost and expense, which shall be paid by Tenant as Additional Rent within
ten (10) days after receipt of written request therefor by Landlord (and which
Landlord may require to be paid prior to commencement of any work by Landlord);
provided, however, that Tenant's obligation to pay for such work shall only be
applicable if Tenant fails to perform its obligations under this Paragraph 11
------------
(including without limitation the obligations described in Paragraph
---------
11.B.(vi)(b)). No such work by Landlord shall create any liability on the part
- -------------
of Landlord to Tenant or any other party in connection with such Hazardous
Materials by Tenant or any of Tenant's Parties or constitute an admission by
Landlord of any responsibility with respect to such Hazardous Materials.
(d) It is the express intention of the parties hereto
that Tenant shall be liable under this Paragraph 11.B.(vi) for any and all
-------------------
conditions covered hereby which were or are caused or created by Tenant or any
of Tenant's Parties, whether occurring prior to, on, or after the Commencement
Date. Tenant shall not enter into any settlement agreement, consent decree or
other compromise with respect to any claims relating to any Hazardous Materials
in any way connected to the Premises without first (x) notifying Landlord of
Tenant's intention to do so and affording Landlord the opportunity to
participate in any such proceedings, and (y) obtaining Landlord's written
consent, which shall not be unreasonably withheld.
(vii) Inspection and Testing by Landlord. Landlord shall have
----------------------------------
the right at all times during the Term of this Lease to (a) inspect the
Premises, as well as such of Tenant's books and records pertaining to the
Premises and the conduct of Tenant's business therein, and to (b) conduct tests
35
<PAGE>
and investigations to determine whether Tenant is in compliance with the
provisions of this Paragraph 11.B. Except in case of emergency, Landlord shall
--------------
give reasonable notice to Tenant before conducting any inspections, tests, or
investigations in accordance with Paragraph 19, shall provide Tenant with a work
plan describing any testing that shall be performed at the Premises, and shall
use reasonable efforts to minimize interference with the conduct of Tenant's
business at the Premises caused by any such inspections, tests, or
investigations. The cost of all such inspections, tests and investigations shall
be borne by Tenant. Neither any action nor inaction on the part of Landlord
pursuant to this Paragraph 11.B.(vii) shall be deemed in any way to release
--------------------
Tenant from, or in any way modify or alter, Tenant's responsibilities,
obligations, and liabilities incurred pursuant to Paragraph 11.B hereof.
--------------
(viii) Indemnity. Tenant shall indemnify, defend, protect, hold
---------
harmless, and, at Landlord's option (with such attorneys as Landlord may approve
in advance and in writing), defend Landlord, Landlord's Agents, and Landlord's
officers, directors, shareholders, partners, employees, contractors, property
managers, agents and mortgagees and other lien holders, from and against any and
all Losses (as defined below), whenever such Losses arise, arising from or
related to: (a) any violation or alleged violation by Tenant or any of Tenant's
Parties of any of the requirements, ordinances, statutes, regulations or other
laws referred to in this Paragraph 11.B, including, without limitation, the
--------------
Environmental Laws, whether such violation or alleged violation occurred prior
to, on, or after the Commencement Date; (b) any breach of the provisions of this
Paragraph 11.B by Tenant or any of Tenant's Parties; or (c) any Hazardous Use
- --------------
on, about or from the Premises by Tenant or any of Tenant's Parties of any
Hazardous Materials (whether or not approved by Landlord under this Lease),
whether such Hazardous Use occurred prior to, on, or after the Commencement
Date. The term "Losses" shall mean all claims, demands, expenses, actions,
------
judgments, damages (whether consequential, direct or indirect, known or unknown,
foreseen or unforeseen), penalties, fines, liabilities, losses of every kind and
nature (including, without limitation, property damage, diminution in value of
Landlord's interest in the Premises, damages for the loss of restriction on use
of any space or amenity within the Premises, damages arising from any adverse
impact on marketing space in the Premises, sums paid in settlement of claims and
any costs and expenses associated with injury, illness or death to or of any
person), suits, administrative proceedings, costs and fees, including, but not
limited to, attorneys' and consultants' fees and expenses, and the costs of
cleanup, remediation, removal and restoration, that are in any way related to
any matter covered by the foregoing indemnity.
36
<PAGE>
(ix) Survival. The provisions of this Paragraph 11.B shall
-------- --------------
survive the expiration or earlier termination of this Lease.
C. Special Provisions Relating to The Americans With Disabilities Act of
---------------------------------------------------------------------
1990.
- ----
(i) Allocation of Responsibility to Landlord. As between Landlord and
----------------------------------------
Tenant, Landlord shall be responsible that the Common Area owned by Landlord
complies with the requirements of Title III of the Americans with Disabilities
Act of 1990 (42 U.S.C. 12181, et seq., The Provisions Governing Public
Accommodations and Services Operated by Private Entities), and all regulations
promulgated thereunder, and all amendments, revisions or modifications thereto
now or hereafter adopted or in effect in connection therewith (hereinafter
collectively referred to as the "ADA"), and to take such actions and make such
---
alterations and improvements as are necessary for such compliance; provided,
however, that to the extent such requirements arise from the construction of any
Alterations to the Premises made by or on behalf of Tenant, then as between
Landlord and Tenant, Tenant shall be responsible that the Common Area complies
with the requirements of the ADA, and to take such actions and make such
alterations and improvements as are necessary for such compliance.
(ii) Allocation of Responsibility to Tenant. Except as expressly
--------------------------------------
provided in the Work Letter, as between Landlord and Tenant, Tenant, at its sole
cost and expense, shall be responsible that the Premises (and all modifications
made by Tenant of access to the Premises from the street), and all alterations
and improvements in the Premises (including without limitation the Tenant
Improvements), and Tenant's use and occupancy of the Premises, and Tenant's
performance of its obligations under this Lease, comply with the requirements of
the ADA, and to take such actions and make such alterations and improvements as
are necessary for such compliance; provided, however, that Tenant shall not make
any such alterations or improvements except upon Landlord's prior written
consent (which shall not be unreasonably withheld) pursuant to the terms and
conditions of this Lease. If Tenant fails diligently to take such actions or
make such alterations or improvements as are necessary for such compliance,
Landlord may, but shall not be obligated to, take such actions and make such
alterations and improvements and may recover all of the costs and expenses of
such actions, alterations and improvements from Tenant as Additional Rent.
Tenant shall be entitled to utilize the Tenant Improvements Allowance to pay for
the cost of any improvements required by ADA that are triggered by the
construction of the Tenant Improvements.
37
<PAGE>
(iii) General. Notwithstanding anything in this Lease contained
-------
to the contrary, no act or omission of either party, including any approval,
consent or acceptance by it or its agents, employees or other representatives,
shall be deemed an agreement, acknowledgment, warranty, or other representation
by it that the other party has complied with the ADA as provided under
Paragraphs 11.C.(i) or 11.C.(ii) or that any action, alteration or improvement
- ------------------- ---------
by it complies or will comply with the ADA as provided under Paragraphs 11.C.(i)
-------------------
or 11.C.(ii) or constitutes a waiver by it of the other party's obligations to
---------
comply with the ADA under Paragraphs 11.C.(i) or 11.C.(ii) of this Lease or
------------------- ---------
otherwise. Any failure of either party to comply with its obligations of the
ADA under Paragraphs 11.C.(i) or 11.C.(ii) shall not relieve such party from any
------------------- ---------
obligations under this Lease or in the case of Landlord's failure to comply
under Paragraph 11.C.(i), constitute or be construed as a constructive or other
------------------
eviction of Tenant or disturbance of Tenant's use and possession of the
Premises.
D. Use and Maintenance of Common Area. Tenant and its employees and
----------------------------------
invitees shall have the non-exclusive right to use the Common Area in common
with other persons during the Term of this Lease, subject to the CC&Rs and such
reasonable rules and regulations as may from time to time be deemed necessary or
advisable in Landlord's reasonable discretion for the proper and efficient
operation and maintenance of the Common Area. Such rules and regulations may
include, among other things, the hours during which the Common Area shall be
open for use. Landlord shall maintain and operate the Common Area from time to
time owned by Landlord in good condition, provided that any damage thereto,
other than normal wear and tear, occasioned by the act of Tenant or its
employees or invitees shall be paid by Tenant upon demand by Landlord.
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.
-----------
A. Alteration Rights. After the Commencement Date, Tenant shall not
-----------------
make or permit any Alterations in, on or about the Premises, except for
nonstructural Alterations (which shall not include any modifications to the
mechanical or electrical systems of the Building, nor any penetration of the
Building's roof) not exceeding Ten Thousand Dollars ($10,000.00) in aggregate
cost during any period of twelve (12) consecutive months, without the prior
written consent of Landlord, and according to plans and specifications approved
in writing by
38
<PAGE>
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 exterior of the Building;
(ii) Alterations to the roof of the Building; and
(iii) Alterations visible from outside the Building, to which
Landlord may withhold Landlord's consent on wholly aesthetic grounds.
B. Performance of Alterations. All Alterations shall be installed at
--------------------------
Tenant's sole expense, in compliance with all applicable laws, 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 Commencement Date, and shall not
diminish the value of either the Building or the Premises. All Alterations made
by Tenant shall be and become the property of Landlord upon installation and
shall not be deemed Tenant's Personal Property, and Tenant shall not remove any
Alterations from the Premises unless Tenant has first obtained Landlord's
written consent to such removal. Landlord may require Tenant to remove, at
Tenant's expense, any Alterations from the Premises at the expiration or earlier
termination of this Lease; provided, however, that at the time any Alterations
are constructed, Tenant shall have the right to request Landlord's written
approval (which shall not be unreasonably withheld or delayed) that Landlord
will not require the removal of such Alterations at the expiration or earlier
termination of this Lease. 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 at least ten (10)
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.
C. Trade Fixtures. Landlord acknowledges that Tenant may lease from
--------------
or finance with a third party (collectively, a "Trade Fixture Lessor") all or a
portion of Tenant's Personal Property. Landlord shall duly execute and properly
deliver any waivers or consents which may reasonably be required by any proposed
Trade Fixture Lessor in connection with the leasing or financing of such
Tenant's Personal Property, so long as such waivers and consents shall include
the following: (i) the Trade Fixture Lessor shall agree to repair any damage to
the Premises caused by the Trade Fixtures Lessor's removal of Tenant's Personal
Property from the Premises, and (ii) Landlord's waiver and consent shall be of
no force or effect after the thirtieth
39
<PAGE>
(30th) day following the end of the Term or earlier termination of this Lease.
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 date of
substantial completion of the Improvements, normal wear and tear and fire or
other casualty excepted, with all interior walls repaired if damaged, 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 bulbs or
ballasts, the HVAC equipment serviced and repaired by a reputable and licensed
service firm, and all floors cleaned, 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 expiration or earlier termination
of this Lease, Landlord may retain such Alterations and Tenant's Property and
all rights of Tenant with respect to it shall cease, or Landlord may place all
or any portion of such Alterations and Tenant's 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 Landlord
and Landlord's Agents against all loss or liability, including reasonable
attorneys' fees and costs, resulting from delay by Tenant in so surrendering the
Premises.
Normal wear and tear, for the purposes of this Lease, shall be
construed to mean wear and tear caused to the Premises by a natural aging
process which occurs in spite of prudent application of the best standards for
maintenance, repair and janitorial practices. It is not intended, nor shall it
be construed, to include items of neglected or deferred maintenance which would
have or should have been attended to during the Term of the Lease if the best
standards had been applied to properly maintain and keep the Premises at all
times in good condition and repair.
15. Impositions and Real Property Taxes.
-----------------------------------
A. Payment by Tenant. Tenant shall pay all Impositions prior to
-----------------
delinquency. If billed directly, Tenant
40
<PAGE>
shall pay such Impositions and concurrently present to Landlord satisfactory
evidence of such payments. If any Impositions are billed to Landlord or included
in bills to Landlord for Real Property Taxes, then Tenant shall pay to Landlord
all such amounts within fifteen (15) days after receipt of Landlord's invoice
therefor. If applicable law prohibits Tenant from reimbursing Landlord for an
Imposition, but Landlord may lawfully increase the Monthly Rent to account for
Landlord's payment of such Imposition, the Monthly Rent payable to Landlord
shall be increased so that the amount of such increased Monthly Rent, together
with any accompanying increases in the Real Property Taxes payable by Tenant
with respect to such Imposition, are sufficient to net to Landlord the same
return without reimbursement of such Imposition as would have been received by
Landlord with reimbursement of such Imposition. In addition, on or before April
10 and December 10 of each year of the Term, Tenant shall pay directly to the
San Mateo County assessor the Real Property Taxes for the Premises as set forth
on the assessor's tax bill for the Premises. If, however, the Premises are not a
separate parcel for tax purposes but constitute a portion of a larger tax parcel
or parcels, the Real Property Taxes payable by Tenant under this Lease shall be
a percentage of the Real Property Taxes payable for such parcel or parcels,
which percentage shall be determined by dividing the Rentable Area of the
Building by the total Rentable Area of all buildings on such parcel or parcels
and multiplying the result by 100, which Real Property Taxes shall be payable by
Tenant to Landlord monthly as part of the Common Area Maintenance Costs.
(i) Tax Parcels. If Landlord determines in its reasonable discretion
-----------
that the configuration of tax parcels within the Project (including without
limitation the tax parcel on which the Premises is situated) causes the
allocation of Real Property Taxes between the affected tax parcels to be unfair
or inequitable, Landlord reserves the right to internally reallocate the Real
Property Taxes assessed against such affected tax parcels in a manner that
reasonably addresses such unfairness or inequity. If Landlord effects any such
reallocation, then the Real Property Taxes payable by Tenant under this Lease
shall be those Real Property Taxes allocated to the Premises pursuant to this
Paragraph 15.A.(i).
- ------------------
(ii) Payment. Promptly following payment of the Real Property Taxes,
-------
Tenant shall provide Landlord with copies of paid receipts or other documentary
evidence that the Real Property Taxes have been paid by Tenant. If Tenant fails
to pay the Real Property Taxes on or before April 10 and December 10,
respectively, or if Tenant fails to pay its share of Real Property Taxes as part
of the Common Area Maintenance Costs, Tenant shall pay to Landlord any penalty
incurred by such late payment. In addition, Tenant shall pay any Real Property
Tax not included within the county tax assessor's tax bill within ten
41
<PAGE>
(10) days after being billed for same by Landlord. The foregoing dates are based
on the dates established by the county as the dates on which Real Property Taxes
become delinquent if not paid. If such delinquency dates change, the dates on
which Tenant must pay the Real Property Taxes for the Premises shall be at least
ten (10) days prior to the new delinquency dates. Assessments, taxes, fees,
levies and charges may be imposed by governmental agencies for such purposes as
fire protection, street, sidewalk, road, utility construction and maintenance,
refuse removal and for other governmental services which may formerly have been
provided without charge to property owners or occupants. It is the intention of
the parties that all new and increased assessments, taxes, fees, levies and
charges are to be included within the definition of Real Property Taxes for the
purposes of this Lease.
B. Taxes on Tenant Improvements and Personal Property. Tenant shall
--------------------------------------------------
pay any increase in Real Property Taxes resulting from any and all Alterations
and Tenant Improvements of any kind whatsoever placed in, on or about the
Premises for the benefit of, at the request of, or by Tenant. 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
Premises and the real property or Personal Property of Landlord.
C. Proration. Tenant's liability to pay Real Property Taxes shall be
---------
prorated on the basis of a 360-day year to account for any fractional portion of
a fiscal tax year included at the commencement or expiration of the Term. In
addition, before the Second Half Commencement Date, Tenant's liability to pay
Real Property Taxes shall be prorated based on the Rentable Area of the First
Half Space divided by the Rentable Area of the entire Premises. With respect to
any assessments which may be levied against or upon the Premises on all or any
portion of the Project, or which under the laws then in force may be evidenced
by improvements or other bonds or may be paid in annual installments, only the
amount of such annual installment (with appropriate proration for any partial
year) and interest due thereon shall be included within the computation of the
annual Real Property Taxes levied against the Premises or such portion of the
Project, as applicable.
16. Utilities and Services.
----------------------
Tenant shall be responsible for and shall pay promptly all charges for
water, gas, electricity, telephone, refuse pick-up, janitorial service and all
other utilities, materials and services furnished directly to or used by Tenant
in, on or about the Premises during the Term, together with any taxes thereon.
If any utility, material or service is not separately
42
<PAGE>
charged or metered to any portion of the Premises, Tenant shall pay to Landlord,
within ten (10) days after written demand therefor, Tenant's pro rata share of
the total cost thereof as may be determined by 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 that resulting from
the gross negligence or willful misconduct of Landlord. Tenant shall have the
right to contract directly with vendors for janitorial and maintenance services,
provided such vendors must be approved in advance by Landlord, which approval
shall not be unreasonably withheld; and provided further, that Tenant shall have
no right to contract with any vendor to maintain the Building's HVAC system,
which shall be the sole responsibility of Landlord as set forth in Paragraph
---------
17.A.
- ----
17. Repair and Maintenance.
----------------------
A. Landlord's Obligations. Landlord shall keep in good order,
----------------------
condition and repair the structural parts of the Building, which structural
parts consist only of the foundation, subflooring, exterior walls (excluding the
interior of all walls and the exterior and interior of all windows, doors,
ceilings, and plate glass), and roof of the Building, and all plumbing and
electrical facilities leading up to (but not situated within) the Building,
except for any damage thereto caused by the negligence or willful acts or
omissions of Tenant or of Tenant's agents, employees or invitees, 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, employees or
contractors. It is an express condition precedent to all obligations of
Landlord to repair and maintain that Tenant shall have notified Landlord of the
need for such repairs or maintenance. 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. Landlord shall keep in good order,
condition, repair and maintenance the Building's HVAC system and roof, and shall
maintain an HVAC system preventive maintenance service contract from a qualified
vendor for the purpose of maintaining the Building's HVAC system, and a roof
maintenance service contract from a qualified vendor for the purpose of
maintaining the Building's roof. Landlord shall determine in its sole
discretion whether any such vendor is qualified. Any and all costs of any
maintenance or repair of the HVAC system or the roof (including without
limitation the cost of maintaining HVAC system preventative maintenance
contracts and roof maintenance service contracts) shall be included in the
Common Area Maintenance Costs payable solely by Tenant for the year in which
such cost is incurred. Landlord may elect, in its sole discretion, to paint the
exterior of the Building and/or to replace or perform capital improvements to
any area or aspect of the Building which Landlord
43
<PAGE>
is required keep in good order, condition and repair. If Landlord decides, in
its sole discretion, to replace the roof of the Building during the Term, then
the cost of so replacing the roof, together with interest at the Interest Rate,
shall be amortized on a straight-line basis over the useful life of the roof (as
determined by Landlord in its sole discretion) (the "Useful Life"), and the
-----------
entire amount of such amortized costs and interest shall be included in the
monthly Common Area Maintenance Costs payable solely by Tenant during the entire
period over which such costs are amortized, until Tenant has paid to Landlord
that proportion of the total amount of such amortized costs equal to (a) the
number of months remaining during the Term as of the date such roof replacement
was completed, divided by (b) the number of months of the Useful Life; provided
that in no event shall such proportion exceed one hundred percent (100%). For
the purposes of example only and not by way of limitation, if the Building's
roof is replaced twenty-four (24) months before the end of the Term, at a cost
of Fifty Thousand Dollars ($50,000.00), and the Useful Life is one hundred
twenty (120) months, then (a) the cost of such replacement shall be amortized at
the rate of Four Hundred Sixteen and 67/100ths Dollars ($416.67) per month, with
interest at the Interest Rate, and (b) the amount to be included in the monthly
Common Area Maintenance Costs payable solely by Tenant for the balance of the
Term shall equal Four Hundred Sixteen and 67/100ths Dollars ($416.67), with
interest at the Interest Rate, until Tenant has paid to Landlord a total
aggregate amount of Ten Thousand Dollars ($10,000.00), together with interest at
the Interest Rate, towards such amortized costs (i.e., Fifty Thousand Dollars
($50,000.00) multiplied by [Twenty-Four (24) months divided by One Hundred
Twenty (120) months]). If Tenant exercises an Option to Extend, the total length
of the Term (i.e., the initial Term and each Extended Term) shall be utilized to
calculate the maximum amount of such amortized costs that shall be includable in
the monthly Common Area Maintenance Costs payable solely by Tenant pursuant to
this Paragraph 17.A.
--------------
It is the express intent of the parties that except as specifically
set forth in this Paragraph 17.A, Landlord shall have no obligation whatsoever
--------------
to repair or maintain the Building, and that Tenant shall be responsible for
performing all repair, operation, and maintenance of the Building except for
those tasks specifically described in this Paragraph 17.A.
--------------
B. Tenant's Obligations. Tenant shall at all times and at its sole
--------------------
cost and expense clean, keep and maintain in good order, condition and repair
(and replace, if necessary) 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 without limitation all plumbing and
electrical facilities situated within the Building, fixtures, interior walls and
ceiling, floors, windows, window frames,
44
<PAGE>
doors, entrances, plate glass, showcases, skylights, all lighting fixtures,
lamps, fans and any exhaust equipment and systems, all mechanical systems (but
not the HVAC system), any automatic fire extinguisher equipment within the
Building, all security systems and alarms, all electrical motors and all other
appliances and equipment of every kind and nature located in, upon or about the
Building or the Premises. Tenant shall also be responsible for all pest control
within the Premises.
C. Conditions Applicable to Repairs. All repairs, replacements and
--------------------------------
reconstruction made by or on behalf of Tenant or any person claiming through or
under Tenant shall be made and performed (i) at Tenant's sole cost and expense,
in a good and workmanlike manner and at such time and in such manner as Landlord
may reasonably designate, (ii) by contractors approved in advance by Landlord,
(iii) so that the repairs, replacements or reconstruction shall be at least
equal in quality, value and utility to the original work or installation, (iv)
in accordance with such reasonable requirements as Landlord may impose with
respect to insurance and bonds to be obtained by Tenant in connection with the
proposed work, and (v) in accordance with any rules and regulations for the
Building as may be adopted by Landlord from time to time and in accordance with
all applicable laws and regulations of governmental authorities having
jurisdiction over the Premises.
D. Landlord's Rights. If Tenant fails to perform Tenant's
-----------------
obligations under Paragraph 17.B, Landlord may in its sole discretion give
--------------
Tenant notice of such work as is reasonably required to fulfill such
obligations. If Tenant fails to commence the work within thirty (30) days after
receipt of such notice and diligently prosecute the work to completion, then
Landlord shall have the right (but not the obligation) to do such acts or expend
such funds at the expense of Tenant as are reasonably required to perform such
work. Any amount so expended by Landlord shall be paid by Tenant to Landlord
promptly after demand with interest at the Interest Rate. Landlord shall have
no liability to Tenant for any damage to, or interference with Tenant's use of,
the Premises, or inconvenience to Tenant as a result of performing any such
work.
E. Compliance with Governmental Regulations. Tenant shall, at its
----------------------------------------
sole cost and expense, 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) applicable to the Premises or the
Building.
18. Liens.
-----
45
<PAGE>
Tenant shall keep the Building and the Premises free from any liens
arising out of any work performed, materials furnished or obligations incurred
by or on behalf of Tenant and hereby agrees to indemnify, defend, protect and
hold Landlord and Landlord's Agents harmless from and against any and all loss,
claim, damage, liability, cost and expense, 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 or any such other
notice(s) as Landlord may deem appropriate. 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 with reasonable notice, except for emergencies
in which case no notice shall be required, to inspect the same, to post Notices
of Nonresponsibility and similar notices, and real estate "For Sale" signs, to
show the Premises to interested parties such as prospective lenders and
purchasers, to make necessary repairs, to discharge Landlord's obligations under
this Lease, to discharge Tenant's obligations under this Lease when Tenant has
failed to do so within a reasonable time after written notice from Landlord, and
at any reasonable time within one hundred and eighty (180) days prior to the
expiration of the Term, to place upon the Building ordinary "For Lease" signs
and to show the Premises to prospective tenants.
20. Signs.
-----
Subject to Tenant obtaining all necessary approvals from the City of
Redwood City and subject to Landlord's review and approval of plans and
specifications for any proposed signage, which approval may be withheld only in
Landlord's commercially reasonable judgment, Tenant shall have the exclusive
right to install identification signage on the exterior of the Building, so long
as such signage complies with Landlord's project sign program. Tenant shall
have no right to maintain any Tenant identification sign in any other location
in, on or about the Building or the Premises and shall not display or erect any
other Tenant identification sign, display or other advertising
46
<PAGE>
material that is visible from the exterior of the Building. Any changes to the
size, design, color or other physical aspects of Tenant's identification sign(s)
shall be subject to the Landlord's prior written approval, which shall not be
unreasonably withheld, and any appropriate municipal or other governmental
approvals. The cost of Tenant's sign(s) and their installation, maintenance and
removal shall be Tenant's sole cost and expense. If Tenant fails to maintain its
sign(s), or, if Tenant fails to remove its sign(s) upon termination of this
Lease, Landlord may do so at Tenant's expense and the amounts expended by
Landlord in doing so shall be immediately payable by Tenant to Landlord as
Additional Rent.
21. Insurance.
---------
A. Indemnification. Tenant shall indemnify, defend, protect and hold
---------------
Landlord harmless of and from any and all loss, liens, liability, claims, causes
of action, damage, injury, cost or expense arising out of or in connection with,
or related to (i) the making of Alterations, or (ii) injury to or death of
persons or damage to property occurring or resulting directly or indirectly
from: (A) the use or occupancy of, or the conduct of business in, the Premises;
(B) the use, storage, release or disposal by Tenant or Tenant's employees,
agents, contractors, licensees or invitees, of any Hazardous Materials in or
about the Premises or any other portion of the Project; (C) any other occurrence
or condition in or on the Premises; and (D) acts, neglect or omissions of
Tenant, its officers, directors, agents, employees, invitees or licensees in or
about any portion of the Project. Tenant's indemnity obligation includes
reasonable attorneys' fees and costs, investigation costs and all other
reasonable costs and expenses incurred by Landlord. If Landlord disapproves the
legal counsel proposed by Tenant for the defense of any claim indemnified
against hereunder, Landlord shall have the right to appoint its own legal
counsel, the reasonable fees, costs and expenses of which shall be included as
part of Tenant's indemnity obligation hereunder. The indemnification contained
in this Section 21.A shall extend to the officers, directors, shareholders,
------------
partners, employees, agents and representatives of Landlord. The obligations
assumed by Tenant herein shall survive this Lease. Notwithstanding the
foregoing, Landlord shall have the right, in its sole discretion, but without
being required to do so, to defend, adjust, settle or compromise any claim,
obligation, debt, demand, suit or judgment against Landlord arising out of or in
connection with the matters covered by the foregoing indemnity and, in such
event, Tenant shall reimburse Landlord for all reasonable charges and expenses
incurred by Landlord in connection therewith, including reasonable attorneys'
fees; provided, however, that Landlord shall not undertake any unilateral action
or settlement so long as Tenant or an insurance company, at its or their sole
expense, is contesting in good faith, diligently and with continuity such claim,
action, obligation, demand or suit, and so long as such claim, action,
47
<PAGE>
obligation, demand or suit does not have or threaten to have a material adverse
impact on Landlord's assets, reputation or business affairs.
B. Tenant's Insurance. Tenant agrees to maintain in full force and
------------------
effect at all times during the Term, at its sole cost and 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 Three Million and no/100ths Dollars ($3,000,000.00) 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, which policy shall name Landlord and Landlord's Agents as
additional insureds and shall contain a provision that "the insurance provided
Landlord hereunder shall be primary and non-contributing with any other
insurance available to Landlord with respect to any damage, loss, liability or
expense covered by Tenant's indemnity obligations under Paragraph 21.A of the
--------------
Lease."
(ii) Causes of loss-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. As long as this Lease is in effect, the proceeds 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.
Notwithstanding the foregoing, Tenant shall have the right, at its election, to
self-insure with respect to any loss or damage to Tenant's Personal Property.
(iii) Boiler and machinery insurance, including steam pipes,
pressure pipes, condensation return pipes and other pressure vessels and HVAC
equipment, including miscellaneous electrical apparatus, in an amount
satisfactory to Landlord.
(iv) Workers compensation insurance in the manner and to the
extent required by applicable law and with limits of liability not less than the
minimum required under applicable law, covering all employees of Tenant having
any duties or responsibilities in or about the Premises.
C. Premises Insurance. During the Term Landlord shall maintain
------------------
causes of loss-special form property insurance (including inflation endorsement,
sprinkler leakage endorsement,
<PAGE>
and, at Landlord's option, earthquake and flood coverage) on the Building,
excluding coverage of all Tenant's Personal Property located on or in the
Premises, but including the Tenant Improvements. Such insurance shall also
include insurance against loss of rents, including, at Landlord's option,
coverage for 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). Tenant shall reimburse Landlord monthly, as Additional Rent, for
one-twelfth (12th) of the annual cost of such insurance on the first day of each
calendar month of the Term, prorated for any partial month, or on such other
periodic basis as Landlord shall elect. If the insurance premiums are increased
after the Commencement Date for any reason, including without limitation due to
an increase in the value of the Building or its replacement cost, or due to
Tenant's use of the Premises or any improvements installed by Tenant, Tenant
shall pay such increase within ten (10) days of notice of such increase.
Landlord may, in its sole discretion, maintain the insurance coverage described
in this Paragraph 21.C as part of an umbrella insurance policy covering other
--------------
properties owned by Landlord. Notwithstanding the foregoing, so long as the
original Landlord under this Lease continues to be the Landlord under this
Lease, and subject to the following conditions, Tenant may elect to carry the
insurance required by this Paragraph 21.C if Tenant is able to obtain the
--------------
coverage required hereunder at a cost less than that charged by Landlord's
insurer. Tenant's right to carry such insurance shall be subject to the
following conditions: (i) all Holders, defined below, shall have approved
Tenant's right to carry such insurance, (ii) such insurance shall name Landlord,
and all parties designated by Landlord, as additional insureds, and (iii) such
insurance shall provide Landlord with at least the same coverage and rights as
Landlord would be entitled to receive if Landlord had obtained such insurance.
D. Increased Coverage. Upon demand, Tenant shall provide Landlord,
------------------
at 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.
E. Failure to Maintain. If Tenant fails to maintain any insurance
-------------------
coverage that Tenant is required to maintain under this Paragraph 21, and
------------
Landlord incurs any liability to its insurance carrier arising out of Tenant's
failure to so maintain such insurance coverage, then any and all 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 its
receipt of a bill therefor and evidence of such
49
<PAGE>
loss. Nothing contained in this Paragraph 21.E shall be deemed to limit or
--------------
affect any other remedies or rights available to Landlord under this Lease that
arise from Tenant's failure to so maintain such insurance coverage.
F. Insurance Requirements. All insurance shall be in a form
----------------------
satisfactory to Landlord and shall be carried in 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; and
------------------------
shall provide that such policies shall not be subject to material alteration or
cancellation except after at least thirty (30) days' prior written notice to
Landlord. The policy or policies, or duly executed certificates for them,
together with satisfactory evidence of payment of the premiums 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 it is
required to maintain under this Paragraph 21, Landlord may, but shall not be
------------
required to, order such insurance at Tenant's expense and Tenant shall reimburse
Landlord therefor. Such reimbursement shall include all costs incurred by
Landlord in obtaining such insurance including Landlord's reasonable attorneys'
fees, with interest thereon at the Interest Rate.
G. Waiver and Release. Except to the extent due to the negligence or
------------------
willful misconduct of Landlord, Landlord shall not be liable to Tenant or
Tenant's employees, agents, contractors, licenses or invitees for, and Tenant
waives as against and releases Landlord and Landlord's Agents from, all claims
for loss or damage to any property or injury, illness or death of any person in,
upon or about the Premises and/or any other portion of the Project, arising at
any time and from any cause whatsoever (including without limitation any claim
caused in whole or in part by the act, omission, or neglect of other tenants,
contractors, licensees, invitees or other occupants of the Project or their
agents or employees; and any claim arising from any construction activities
taking place in, upon or about the Premises and/or any other portion of the
Project). Landlord and Landlord's Agents shall not be liable for any latent
defect in the Premises.
22. Waiver of Subrogation.
---------------------
Landlord and Tenant each hereby waive all rights of recovery against
the other on account of loss or damage occasioned by such waiving party to its
property or the property of others under its control, to the extent that such
loss or damage would be covered by any causes of loss-special form policy of
insurance or its equivalent required to be or actually carried under Paragraph
21. Tenant and Landlord shall, upon obtaining
50
<PAGE>
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.
23. Damage or Destruction.
---------------------
A. Landlord's Obligation to Rebuild. If all or any part of the
--------------------------------
Building is damaged or destroyed, Landlord shall promptly and diligently repair
the same unless it has the right to terminate this Lease as provided herein and
it elects to so terminate.
B. Right to Terminate. Landlord shall have the right to terminate
------------------
this Lease in the event any of the following events occur:
(i) insurance proceeds from the insurance Landlord is required to
carry pursuant to Paragraph 21.C, or that Landlord actually carries, are not
--------------
available to pay one hundred percent (100%) of the cost of such repair,
excluding the deductible for which Tenant shall be responsible; provided,
however, that if Tenant pays to Landlord, in immediately available funds, within
thirty (30) days after such casualty, any shortfall in such insurance proceeds,
as reasonably determined by Landlord, then Landlord shall have no right to
terminate the Lease pursuant to this item (i);
(ii) the Building cannot, with reasonable diligence, be fully
repaired by Landlord within three hundred sixty (360) days after the date of the
damage or destruction; or
(iii) the Building cannot be safely repaired because of the
presence of hazardous factors, including, but not limited to, earthquake faults,
radiation, Hazardous Materials and other similar dangers.
If Landlord elects to terminate this Lease, Landlord may give Tenant
written notice of its election to terminate within thirty (30) days after such
damage or destruction, and this Lease shall terminate fifteen (15) days after
the date Tenant receives such notice and both Landlord and Tenant shall be
released of all further liability under this Lease (except to the extent any
provision of this Lease expressly survives termination and except that Landlord
shall return to Tenant the Security Deposit). If Landlord elects not to
terminate the Lease, subject to Tenant's termination right set forth below,
Landlord shall promptly commence the process of obtaining necessary permits and
approvals and repair of the Building as soon as practicable, and
51
<PAGE>
this Lease will continue in full force and affect. All insurance proceeds from
insurance under Paragraph 21, excluding proceeds for Tenant's Personal Property,
------------
shall be disbursed and paid to Landlord. Tenant shall be required to pay to
Landlord the amount of any deductibles payable in connection with any insured
casualties, unless the casualty was caused by the sole negligence or willful
misconduct of Landlord.
Tenant shall have the right to terminate this Lease if the Building
cannot, with reasonable diligence, be fully repaired within three hundred sixty
(360) days from the date of damage or destruction. The determination of the
estimated repair periods in this Paragraph 23 shall be made by an independent,
------------
licensed contractor or engineer within thirty (30) days after such damage or
destruction. Landlord shall deliver written notice of the repair period to
Tenant after such determination has been made and Tenant shall exercise its
right to terminate this Lease, if at all, within ten (10) days of receipt of
such notice from Landlord. Upon such termination both Landlord and Tenant shall
be released of all further liability under this Lease (except to the extent any
provision of this Lease expressly survives termination).
C. Limited Obligation to Repair. Landlord's obligation, should it
----------------------------
elect or be obligated to repair or rebuild, shall be limited to the basic
Building and the Tenant Improvements and shall not include any Alterations made
by Tenant.
D. Abatement of Rent. Rent shall be temporarily abated
-----------------
proportionately, during any period when, by reason of such damage or destruction
there is substantial interference with Tenant's use of the Premises, having
regard to the extent to which Tenant may be required to discontinue Tenant's use
of the Premises. Such abatement of Rent shall be proportional to the extent of
such interference with Tenant's use of the Premises reasonably attributable to
such damage or destruction (with the extent of such interference to be
reasonably determined by Landlord), and shall commence upon such damage or
destruction and end upon substantial completion by Landlord of the repair or
reconstruction which Landlord is obligated or undertakes to perform. Tenant
shall not be entitled to any compensation or damages from Landlord for loss of
the use of the Premises, damage to Tenant's Personal Property or any
inconvenience occasioned by such damage, repair or restoration. Tenant hereby
waives the provisions of Section 1932, Subdivision 2, and Section 1933,
Subdivision 4, of the California Civil Code, and the provisions of any similar
law hereinafter enacted.
E. Damage Near End of Term. Anything herein to the contrary
-----------------------
notwithstanding, if the Building is destroyed or materially damaged during the
last twelve (12) months of the Term
52
<PAGE>
(unless Tenant has properly exercised an Option to Extend), then either Landlord
or Tenant may, at its option, cancel and terminate this Lease as of the date of
the occurrence of such damage, by delivery of written notice to the other party
and, in such event, upon such termination both Landlord and Tenant shall be
released of all further liability under this Lease (except to the extent any
provision of this Lease expressly survives termination). If neither Landlord nor
Tenant elects to terminate this Lease, the repair of such damage shall be
governed by Paragraphs 23.A and 23.B.
--------------- ----
24. Condemnation.
------------
If title to all of the Premises is taken for any public or quasi-
public use under any statute or by right of eminent domain, or so much thereof
is so taken so that reconstruction of the Premises will not, in Landlord's sole
discretion, 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 part
thereof is taken, and upon such termination both Landlord and Tenant shall be
released of all further liability under this Lease (except to the extent any
provision of this Lease expressly survives termination). 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 24.
------------
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, and upon such
termination both Landlord and Tenant shall be released of all further liability
under this Lease with respect to that portion of the Premises that is taken
(except to the extent any provision of this Lease expressly survives termination
and except that Landlord shall return to Tenant the Security Deposit). 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 any portion of the
Common Area is taken, Tenant's Rent shall be reduced only if such taking
materially interferes with Tenant's use of the Common Area and then only to the
extent that the fair market rental value of the Premises is diminished by such
partial taking. If the parties disagree as to the 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
53
<PAGE>
terminate this Lease in the event of a partial taking of the Premises.
All compensation or damages awarded or paid for any taking hereunder
shall belong to and be the property of Landlord, whether such compensation or
damages are awarded or paid as compensation for diminution in value of the
leasehold, the fee or otherwise, except that Tenant shall be entitled to any
award allowed to Tenant for the taking of Tenant's Personal Property, for the
interruption of Tenant's business, for its moving costs, or for the loss of its
good will. Except for the foregoing allocation, no award for any partial or
entire taking of the Premises shall be apportioned between Landlord and Tenant,
and Tenant assigns to Landlord its interest in the balance of any award which
may be made for the taking or condemnation of the Premises, together with any
and all rights of Tenant arising in or to the same or any part thereof.
25. Assignment and Subletting.
-------------------------
A. Landlord's Consent. Subject to the provisions of Paragraph 25.G
------------------ --------------
below, Tenant shall not enter into a Sublet without Landlord's prior written
consent, which consent shall not be unreasonably withheld. Any attempted or
purported Sublet without Landlord's prior written consent shall be void and
confer no rights upon any third person and, at Landlord's election, shall
terminate this Lease. Each Subtenant shall agree in writing, for the benefit of
Landlord, to assume, to be bound by, and to perform the terms, conditions and
covenants of this Lease to be performed by Tenant, as such terms, conditions and
covenants apply to the Sublet premises. Notwithstanding anything contained
herein, Tenant shall not be released from liability for the performance of each
term, condition and covenant of this Lease by reason of Landlord's consent to a
Sublet unless Landlord specifically grants such release in writing.
B. Tenant's Notice. If Tenant desires at any time to Sublet all or
---------------
any portion of the Premises, Tenant shall first notify Landlord in writing of
its desire to do so.
C. Information to be Furnished. If Tenant desires at any time to
---------------------------
Sublet all or any portion of the Premises, then Tenant shall submit in writing
to Landlord: (i) the name of the proposed Subtenant; (ii) the nature of the
proposed Subtenant's business to be carried on in the Premises; (iii) the terms
and provisions of the proposed Sublet and a copy of the proposed form of Sublet
agreement containing a description of the subject premises; and (iv) such
financial information, including financial statements, as Landlord may
reasonably request concerning the proposed Subtenant.
54
<PAGE>
D. Landlord's Alternatives. At any time within ten (10) days after
-----------------------
Landlord's receipt of the information specified in Paragraph 25.C., Landlord
---------------
may, by written notice to Tenant, elect: (i) to consent to the Sublet by Tenant;
or (ii) to refuse its consent to the Sublet. If Landlord consents to the
Sublet, Tenant may thereafter enter into a valid Sublet of the Premises or
applicable portion thereof, upon the terms and conditions and with the proposed
Subtenant set forth in the information furnished by Tenant to Landlord, subject,
however, at Landlord's election, to the condition that the following percentages
of any excess of the Subrent (the "Excess Subrent") over the Rent required to be
paid by Tenant under this Lease (or, if only a portion of the Premises is
Sublet, the pro rata share of the Rent attributable to the portion of the
Premises being Sublet) less reasonable attorneys' fees, leasing commissions,
improvement costs required for such Sublet (which shall not include the cost of
any trade fixtures, equipment or personal property) and other reasonable
subletting costs paid by Tenant on the Sublet, shall be paid to Landlord.
Tenant shall pay the following percentages of Excess Subrent to Landlord in the
following circumstances: (i) to the extent the Excess Subrent (for the entire
term of the applicable Sublet) is payable on a monthly basis (as opposed to one
or more lump sums) and to the extent the Excess Subrent is less than or equal to
$0.25/month/square foot of Rentable Area of the portion of the Premises being
Sublet, then Tenant shall pay to Landlord one-third (1/3) of the Excess Subrent;
(ii) to the extent the Excess Subrent (for the entire term of the applicable
Sublet) is payable on a monthly basis (as opposed to one or more lump sums) and
to the extent the Excess Subrent is greater than $0.25/month/square foot of
Rentable Area of the portion of the Premises being Sublet, then Tenant shall pay
to Landlord fifty percent (50%) of the Excess Subrent; (iii) to the extent the
Excess Subrent (for the entire term of the applicable Sublet) is not payable on
a monthly basis, then Tenant shall pay to Landlord fifty percent (50%) of the
Excess Subrent; and (iv) to the extent the Excess Subrent is applicable to any
period during an Extended Term, then Tenant shall pay to Landlord fifty percent
(50%) of the Excess Subrent.
E. Proration. If a portion of the Premises is Sublet, the pro rata
---------
share of the Rent attributable to such partial area of the Premises shall be
determined by Landlord by dividing the Rent payable by Tenant hereunder by the
total square footage of the Premises and multiplying the resulting quotient (the
per square foot rent) by the number of square feet of the Premises which are
Sublet.
F. Parameters of Landlord's Consent. Landlord shall have the right
--------------------------------
to base its consent to any Sublet hereunder upon such factors and considerations
as Landlord reasonably deems relevant or material to the proposed Sublet and the
best interests of the Project's operations. Without limiting the
55
<PAGE>
generality of the foregoing, Tenant acknowledges that it shall be reasonable for
Landlord to withhold its consent to any Sublet hereunder if Tenant has not
demonstrated that: (i) the proposed Subtenant 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 Subtenant 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; and (iii) the use of the
--------------
Premises proposed by such Subtenant conforms to the permitted uses specified
under Paragraph 11.A, and involves either no Hazardous Use or only such
--------------
Hazardous Use as shall be acceptable to Landlord in its sole discretion.
G. Permitted Transfers. Notwithstanding the provisions of Paragraph
------------------- ---------
25.A above, Tenant shall have the right to enter into a Sublet, and Landlord
- ----
shall not withhold its consent thereto (provided that all of the conditions set
forth in clauses (A) and (B) below shall be met), if such Sublet is one of the
following "Permitted Transfers": (i) a Sublet to the surviving entity of a
merger or consolidation involving the corporate entity constituting the Tenant
under this Lease; or (ii) a Sublet to any subsidiary or Affiliate of the Tenant
originally named in this Lease. However, the foregoing Permitted Transfers
shall be exempt from the requirement of Landlord's consent only if all of the
following conditions shall be met: (A) there shall be no change in the use or
operation of the Premises; (B) Tenant shall have provided to Landlord all
information to allow Landlord to determine, and Landlord shall have determined,
that the proposed transfer is a Permitted Transfer which is exempt from the
requirement of Landlord's consent; and (C) as of the effective date of such
Sublet, the proposed Subtenant has a net worth and net current assets equal to
or greater than those of the original Tenant under this Lease as of the date of
this Lease. No Sublet of the type described in this Paragraph 25.G, nor any
--------------
other transfer of all or any portion of Tenant's interest in the Lease or the
Premises, shall release Tenant of its obligations under this Lease.
26. 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 within five (5) days after written
notice from Landlord any Rent or any other sum required to be paid hereunder
when due, including, without limitation, any Tenant Improvement costs payable by
Tenant under Exhibit B; or
---------
56
<PAGE>
(ii) If Tenant fails to perform any term, covenant or condition
of this Lease except those requiring the payment of money, 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 30-day period; provided,
however, that where such failure could not reasonably be cured within the 30-day
period, that Tenant shall not be in default if it commences such performance
within the 30-day period and diligently thereafter prosecutes the same to
completion; or
(iii) If Tenant assigns its assets for the benefit of its
creditors; or
(iv) 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 Tenant's
Personal Property within thirty (30) days thereafter, or prior to sale pursuant
to such sequestration, attachment or levy, whichever is earlier; or
(v) If Tenant vacates or abandons the Premises; or
(vi) 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 sixty (60) days; or
(vii) If Tenant fails to cure within any applicable grace period
any default by Tenant under any of the Collateral Agreements.
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. Without limiting the foregoing, Landlord has the remedy set forth in
Section 1951.4 of the California Civil Code.
(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,
57
<PAGE>
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 of termination to Tenant shall
terminate this Lease. Neither acts of maintenance, nor efforts to relet the
Premises, nor 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 sole cost and
expense and to recover from Tenant as damages:
(a) The worth at the time of award of the 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 proves 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 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 26.B.(ii)(a) and 26.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 26.B.(ii)(c) is computed by
----------------------
58
<PAGE>
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 reentry or taking possession of the
Premises by Landlord pursuant to this Paragraph 26.B.(iii) shall be construed as
--------------------
an election to terminate this Lease unless a written notice of such intention is
given to Tenant .
C. 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 30-day period and thereafter diligently prosecute the
same to completion.
27. Subordination.
-------------
A. Subordination. This Lease is or may become subject and
-------------
subordinate to underlying leases, mortgages, deeds of trust, easements, and
CC&Rs (collectively, "Encumbrances") which may now or hereafter affect the
------------
Premises, and to all renewals, amendments, modifications, consolidations,
replacements and extensions thereof; provided, however, if the holder or holders
of any such Encumbrance (collectively, "Holder") shall require that this Lease
------
be prior and superior thereto, within fifteen (15) days of written request of
Landlord to Tenant, Tenant shall execute, have acknowledged and deliver any and
all documents or instruments, in the form presented to Tenant, which Landlord or
Holder deems reasonably necessary or desirable for such purposes. Subject to
Paragraph 27.C below, Landlord shall have the right to cause this Lease to be
- --------------
and become and remain subject and subordinate to any and all Encumbrances which
are now or may hereafter be executed covering the Premises 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 in the event of
59
<PAGE>
termination of any such lease or upon the foreclosure of any such mortgage or
deed of trust, 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 fifteen (15) days after Landlord's written request,
Tenant shall execute any and all documents reasonably required by Landlord or
the Holder to make this Lease subordinate to any lien of the Encumbrance
(including, without limitation, subordination to all CC&Rs), including without
limitation a Subordination, Non-Disturbance and Attornment Agreement in the form
attached hereto as Exhibit G ("SNDA"). Subject to Paragraph 27.C below, if
--------- --------------
Tenant fails to do so, such failure shall constitute a default under this Lease,
and it shall be deemed that this Lease is subordinated to such Encumbrance.
B. Attornment. Notwithstanding anything to the contrary set forth in
----------
this Paragraph 27, Tenant hereby attorns and agrees to attorn to any entity
------------
purchasing or otherwise acquiring the Premises at any sale or other proceeding
or pursuant to the exercise of any other rights, powers or remedies under such
Encumbrance; provided only, that so long as Tenant is not in default, any such
purchasing or acquiring entity 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.
C. Non-Disturbance. Notwithstanding anything to the contrary in this
---------------
Lease, if an Encumbrance, other than any CC&R's, is created after the execution
of this Lease, as a condition to the subordination of this Lease thereto under
Paragraph 27.A above, Landlord shall obtain from the Holder of such Encumbrance,
- --------------
other than CC&R's, a SNDA in a form reasonably requested by such Holder.
Without in any way limiting the type or form of SNDA that may be required by
such Holder, Tenant hereby agrees that a SNDA in the form attached to this Lease
as Exhibit G shall be reasonable. Only upon Landlord's delivery of a SNDA in
---------
the form of Exhibit G or in a form reasonably requested by the Holder, shall
---------
this Lease be automatically subject and subordinate to such Encumbrance, other
than CC&R's. Within fifteen (15) days after full execution of this Lease,
Landlord shall use reasonable efforts to provide Tenant with a SNDA in a form
reasonably requested by each Holder of any Encumbrance in effect as of the date
of this Lease. If Landlord fails to deliver the required SNDA(s) within the 15-
day period, then, as Tenant's sole and exclusive remedy, Tenant shall have the
one-time right to terminate this Lease by giving Landlord a written notice of
termination within three (3) business days after expiration of such 15-day
period, upon which Landlord shall promptly return to Tenant any Rent paid in
advance, the Security Deposit and any warrants delivered pursuant to the Warrant
Agreement. If Tenant does not exercise such termination right within such 3-
business
60
<PAGE>
day period, then Tenant shall have no further right to terminate this Lease
pursuant to this Paragraph 27.C and Tenant shall have no other rights or
--------------
remedies with respect to Landlord's failure to deliver such SNDA(s).
28. 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 certified mail, facsimile, or overnight courier service.
All notices or demands under this Lease shall be deemed given, received, made or
communicated on the date personal delivery is effected; or, if sent by certified
mail, on the delivery date or attempted delivery date shown on the return
receipt; or, if sent by facsimile, on the date sent by the sender; or, if sent
by overnight courier service, on the delivery date or attempted delivery date
shown on such service's records. 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.
------------
29. 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, including without limitation any and all
costs and expenses arising from (i) collection efforts, (ii) any appellate
proceedings, and (iii) any bankruptcy, insolvency or arbitration proceedings.
30. Estoppel Certificates.
---------------------
Tenant shall within fifteen (15) 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
61
<PAGE>
of the Landlord, stating the nature of such uncured defaults, (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 Premises or a
purchaser of the Premises from Landlord, and (d) such other matters as may be
reasonably requested by Landlord. Tenant's failure to deliver an estoppel
certificate within fifteen (15) 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 this Lease is
unmodified and in full force and effect except as represented by Landlord.
(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, 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.
31. Transfer of the Premises by Landlord.
------------------------------------
In the event of any conveyance of the Premises 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.
32. 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, and such failure
shall continue after the expiration of any applicable grace or cure periods
provided in this Lease, Landlord may, but shall not be obligated to (and without
waiving or releasing Tenant from any obligation of Tenant under this Lease),
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, expenses 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
62
<PAGE>
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.
33. Tenant's Remedy.
---------------
Landlord shall never be personally liable under this Lease, and Tenant
shall look solely to the net cash flow received by Landlord from its ownership
of the Building, for recovery of any damages for breach of this Lease by
Landlord or on any judgment in connection therewith. None of the persons or
entities comprising or representing Landlord (whether partners, shareholders,
officers, directors, trustees, employees, beneficiaries, agents or otherwise)
shall ever be personally liable under this Lease or for any such damages or
judgment, and Tenant shall have no right to effect any levy of execution against
any assets of such persons or entities on account of any such liability or
judgment. Any lien obtained by Tenant to enforce any such judgment, and any
levy of execution thereon, shall be subject and subordinate to all Encumbrances
as specified in Paragraph 27 above.
------------
34. Mortgagee Protection.
--------------------
If Landlord defaults under this Lease, Tenant shall give written
notice of such default to any beneficiary of a deed of trust or mortgagee of a
mortgage covering the Premises, and offer such beneficiary or mortgagee a
reasonable opportunity to cure the default, including time to obtain possession
of the Premises by power of sale or a judicial foreclosure, if such should prove
necessary to effect a cure.
35. Brokers.
-------
Landlord and Tenant acknowledge and agree that they have utilized the
services of real estate brokers (with Colliers Parrish International and AMB
Corporate Real Estate Advisors representing Tenant, and BT Commercial
representing Landlord) with respect to the transactions between Landlord and
Tenant that are represented by this Lease. Tenant warrants and represents that
it has had no dealings with any other real estate broker or agent in connection
with the negotiation of this Lease, 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.
36. 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.
63
<PAGE>
37. Parking.
-------
Tenant shall have the non-exclusive right, in common with any other
tenants or occupants of the Project, to use up to 3.33 unassigned parking spaces
per each one thousand (1,000) square feet of Rentable Area in the Premises, upon
terms and conditions, as may from time to time be reasonably established by
Landlord. Should parking charges or surcharges of any kind be imposed on the
parking facilities by a governmental agency, Tenant shall reimburse Landlord for
such charges and/or surcharges or, if possible, shall pay such charges and/or
surcharges directly to the governmental agency and, in such event, Tenant shall
provide Landlord with proof that such charges and/or surcharges have been paid
by Tenant. Parking on that portion of the Project cross-hatched on Exhibit C
---------
shall be subject such reciprocal easement agreements affecting the such portion
of the Project as Landlord may adopt from time to time.
38. INTENTIONALLY OMITTED
39. INTENTIONALLY OMITTED
40. Option to Purchase.
------------------
A. Option to Purchase Premises. Landlord shall use reasonable
---------------------------
efforts to subdivide the Project so that the Building becomes situated on its
own legal parcel (the "Broadway Parcel") separate and apart from any areas of
---------------
the Project. If Landlord so creates the Broadway Parcel in a configuration
acceptable to Landlord, then at any time prior to December 1, 1997, Tenant shall
have the option to elect to acquire, on an all cash basis, in the manner set
forth in Paragraph 40.B, fee title to the Broadway Parcel, together with the
--------------
improvements situated thereon, including Landlord's interest in the Lease, for a
purchase price of Twenty Million Three Hundred Twelve Thousand Dollars
($20,312,000.00). In order to elect to exercise its option to acquire the
Broadway Parcel, Tenant shall deliver to Landlord, on or before December 1,
1997, a written notice setting forth Tenant's exercise of such option (the
"Broadway Option Notice"). The Broadway Option Notice shall not be effective
- -----------------------
unless the Broadway Option Notice includes the following: (i) immediately
available funds in an amount equal to One Million Fifteen Thousand Six Hundred
Dollars ($1,015,600.00) (the "Deposit"), and (ii) an original of the liquidated
damage provision set forth in Exhibit H attached to this Lease, executed by
---------
Tenant. The Deposit shall be held by the Title Company, defined in Exhibit H,
---------
in an interest bearing account and shall constitute liquidated damages, and
shall be paid to Landlord in the event Tenant fails to consummate the purchase
of the Broadway Parcel in accordance with the terms of this Paragraph 40, other
------------
than as a direct result of Landlord's failure to perform its obligations under
this Paragraph 40 or Exhibit H. Escrow for the sale of the
------------ ---------
64
<PAGE>
Broadway Parcel to Tenant shall close sixty (60) days after Landlord's receipt
of the Broadway Option Notice, or such other date as Landlord and Tenant shall
mutually agree, but in no event later than January 31, 1998. Tenant's
acquisition of the Broadway Parcel shall be subject to the provisions of
Paragraph 40.B. If Tenant does not deliver the Broadway Option Notice to
- --------------
Landlord on or before December 1, 1997, then Tenant's option to purchase the
Broadway Parcel shall terminate and cease to be of any force or effect. All
closing, title insurance and transfer costs, including applicable sales and
transfer taxes, associated with Tenant's acquisition of the Broadway Parcel
shall be paid by Landlord and Tenant in accordance with the custom in San Mateo
County.
B. Process. Should Tenant exercise its option to acquire the
-------
Broadway Parcel within the applicable period of time set forth in this Paragraph
---------
40, Tenant's acquisition of the Broadway Parcel shall be carried out on (i) the
- --
terms and conditions described in this Paragraph 40 (the "Agreed Terms"), and
------------ ------------
(ii) the terms and conditions set forth on Exhibit H attached to this Agreement
---------
(the "Standard Terms"). To the extent there is any discrepancy between the
--------------
Agreed Terms and the Standard Terms, the Agreed Terms shall be controlling.
C. Option and Rights Personal. The option described in Paragraph
-------------------------- ---------
40.A shall be personal to the Tenant originally named in this Lease, and shall
- ----
not be assigned, sold, conveyed or otherwise transferred to any other party
(including without limitation any assignee or sublessee of such Tenant) without
the prior written consent of Landlord, which consent may be withheld in
Landlord's sole discretion; provided, however, that the option described in
Paragraph 40.A may be transferred to the transferee pursuant to a Permitted
- --------------
Transfer without Landlord's consent. Tenant's rights under this Paragraph 40
------------
shall be exercisable only so long as the Lease remains in full force and effect
and shall be an interest appurtenant to and not separable from Tenant's estate
under the Lease. Under no circumstances shall Landlord be required to pay any
real estate commission to any party with respect to Tenant's exercise of the
option described in Paragraph 40.A .
--------------
41. 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.
65
<PAGE>
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 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 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 successors
and assigns to the extent this Lease is assignable.
H. Waiver. The waiver by Landlord of any breach of any term,
------
condition or covenant, of this Lease 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 unless such waiver is in writing
signed by Landlord.
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
66
<PAGE>
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. Lease Summary. The Lease Summary attached to this Lease is
-------------
intended to provide general information only. In the event of any inconsistency
between the Lease Summary and the specific provisions of this Lease, the
specific provisions of this Lease shall prevail.
67
<PAGE>
THIS LEASE is effective as of the date the last signatory necessary to
execute the Lease shall have executed this Lease.
TENANT:
Dated: ____________________ AT HOME CORPORATION,
a Delaware corporation
By: /s/ Kenneth A. Goldman
----------------------
Its: SVP Finance & CFO
------------------
By: ______________________
Its: _____________________
LANDLORD:
Dated: ____________________ MARTIN/CAMPUS ASSOCIATES, L.P.,
a Delaware limited partnership
By: Martin/Redwood Associates,
partnership, its General
Partner
By: The Martin Group of
Companies, Inc., a
California corporation,
its General Partner
By: /s/ Michael A. Covarrubias
--------------------------
Its: President
---------
68
<PAGE>
EXHIBIT A
---------
INITIAL PREMISES
----------------
<PAGE>
EXHIBIT B
---------
WORK LETTER AGREEMENT
---------------------
THIS WORK LETTER ("Agreement") is made and entered into by and between
Landlord and Tenant as of the date of the Lease. This Agreement shall be
deemed a part of the Lease to which it is attached. Capitalized terms which are
used herein and defined in the Lease shall have the meanings given in the Lease.
1. General.
-------
1.1. Capital Improvements. At Landlord's sole cost and expense,
--------------------
Landlord shall do the following (collectively, the "Capital Improvements"):
--------------------
. Remove all existing interior improvements in the Building
including all existing restrooms (excluding existing stairs,
elevator and the main fire sprinkler line).
. Provide new HVAC equipment with sufficient capacity and
performance to meet the needs of office users typical of the mid-
Peninsula office market (not more than one (1) ton HVAC per 375
square feet of space). As part of the Capital Improvements, the
supply and return ducting shall be run from the HVAC equipment on
the roof to and from two (2) central locations on each floor (for
a total of four (4) locations in the Building). All other
ducting, distribution, and controls shall be part of Tenant
Improvements.
. Provide 3,000 amp. 480 volt electrical service to a main
electrical panel to be located inside the Building, with capacity
to provide power to the main HVAC equipment plus a total of seven
(7) watts per square foot for lighting and power. All conduit,
wiring devices, and controls downstream of the main panel shall
be part of the Tenant Improvements. Conduit and wiring to the
main HVAC equipment on the roof will be a Capital Improvement.
. Remove window screens on exterior and place commercial quality
solar film on windows.
. Upgrade landscaping.
. Repair and restripe parking areas adjacent to the Building and
provide outside lighting.
. Perform any exterior ADA and exterior code-related work required
by the City of Redwood City in
<PAGE>
connection with the initial construction of the Premises.
. Remove all interior asbestos except non-friable asbestos within
the existing transite panel assembly, which shall remain in its
current location.
. Provide two (2) 4-inch conduits (sufficient to accommodate 1,200
pair copper telephone lines) to a telephone closet on the ground
floor of the Building, at the end of the Building closest to the
point of origin.
. Repair all elements of the exterior shell of the Building as
required by the City of Redwood City, including the roof, doors,
curtain wall, sidewalks and exterior lighting.
. perform seismic work to generally achieve the objectives
described in the September 12, 1996 letter to Landlord from
Cabak, Rooney & Associates, Landlord's seismic engineer.
Except for its obligation to perform the Capital Improvements and the Tenant
Improvements as set forth in this Lease and the Work Letter, Landlord shall have
no obligation whatsoever to do any work or perform any improvements whatsoever
to any portion of the Premises or the Building; provided, however, that the
Tenant Improvements shall be performed at the sole cost and expense of Tenant.
Landlord shall cause Contractor (as defined below) to perform all initial
leasehold improvements, in accordance with the approved Final Plans and as
otherwise may be required to comply with applicable law (collectively, the
"Tenant Improvements"). The parties acknowledge and agree that the Capital
- --------------------
Improvements and the Tenant Improvements constitute all of the work required to
enable Tenant to occupy, and operate its business in, the Premises. Landlord
shall consult with Tenant regarding solar film to be used in connection with
such construction. In addition, if Landlord materially alters the current
landscape, parking and lighting plans for the Project before the Commencement
Date, then Landlord shall consult with Tenant regarding such modification, but
Tenant shall have no approval rights regarding such modification. Before the
date of this Lease, Landlord submitted to the City of Redwood City for approval
plans for the construction of a portion of the Capital Improvements; such plans
did not include any HVAC work or seismic work.
1.2. Tenant Improvement Costs. The cost of performing the Tenant
------------------------
Improvements, including without limitation the costs described in Paragraph 6
-----------
below (collectively, the "Tenant
------
<PAGE>
Improvement Costs") shall be paid by Tenant in the manner set forth in Paragraph
- ----------------- ---------
5 below.
- -
1.3. Seismic. Landlord shall provide Tenant with copies of any
-------
existing seismic analyses and evaluations of the Building for Tenant's
information and review. Landlord hereby confirms to Tenant that to the best of
Landlord's knowledge as of the date of the Lease, the foundation of the Building
is currently in good condition and repair.
2. Approval of Plans for Tenant Improvements.
-----------------------------------------
2.1. Architect. Tenant has selected Studios Architects ("Architect")
--------- ---------
for the design and preparation of plans for the Tenant Improvements. Tenant
shall retain Architect's administrative services throughout the performance of
the Tenant Improvements.
2.2. Submittal of Plans.
------------------
2.2.1. Preliminary Plans. Tenant shall cause Architect to prepare
-----------------
preliminary plans (the "Preliminary Plans") for the Tenant Improvements to be
-----------------
performed at the Premises. Tenant shall cause Architect to deliver the
Preliminary Plans to Landlord on or before October 25 1996. Within five (5) days
after Landlord's receipt of the Preliminary Plans, Landlord shall either approve
or disapprove the Preliminary Plans, which approval shall not be unreasonably
withheld. Failure of Landlord to approve or disapprove the Preliminary Plans
within such five-day period shall constitute grounds for the assertion of a
Landlord Delay, and Tenant shall have the right to deliver a Delay Notice to
Landlord as early as two (2) business days before expiration of such 5-day
period. If Landlord disapproves the Preliminary Plans, then Landlord shall state
in reasonable detail the changes which Landlord requires to be made thereto.
Tenant shall submit to Landlord revised Preliminary Plans within five (5) days
after Tenant's receipt of Landlord's disapproval notice. Following Landlord's
receipt of the revised Preliminary Plans from Tenant, Landlord shall have the
right to review and approve the revised Preliminary Plans pursuant to this
Paragraph 2.2.1. Landlord shall give Tenant written notice of its approval or
- ---------------
disapproval of the revised Preliminary Plans within five (5) days after the date
of Landlord's receipt thereof. Failure of Landlord to approve or disapprove the
Preliminary Plans within such five-day period shall constitute grounds for the
assertion of a Landlord Delay, and Tenant shall have the right to deliver a
Delay Notice to Landlord as early as two (2) business days before expiration of
such 5-day period. If Landlord disapproves the revised Preliminary Plans, then
Landlord and Tenant shall continue to follow the procedures set forth in this
Paragraph 2.2.1 until Landlord and Tenant reasonably approve the Preliminary
- ---------------
Plans in accordance with this Paragraph 2.2.1.
---------------
<PAGE>
2.2.2. Preliminary Budget. Landlord has retained Devcon
------------------
Construction ("Contractor") as the general contractor for the construction of
----------
the Tenant Improvements. Tenant shall have the right to approve the construction
contract between Landlord and Contractor for the construction of the Tenant
Improvements, which approval shall not be unreasonably withheld or delayed;
provided, however, that Tenant shall have no right to disapprove such
construction contract if such construction contract substantially conforms with
the applicable AIA form contract and general conditions. Ten (10) days after
approval by Landlord and Tenant of the Preliminary Plans, Contractor shall
prepare a preliminary budget for the Tenant Improvements based upon the approved
Preliminary Plans, which Contractor shall submit to Tenant for its review and
approval. Within three (3) days after Tenant's receipt of the preliminary
budget, Tenant shall either approve or disapprove the preliminary budget. If
Tenant reasonably rejects such preliminary budget, Landlord shall, within five
(5) days of Landlord's receipt of Tenant's written rejection notice, require
Architect to revise the Preliminary Plans to reduce the cost of the Tenant
Improvements. Following Landlord's instructions to the Architect, Landlord and
Tenant shall again follow the procedures set forth in Paragraph 2.2.1 and this
---------------
Paragraph 2.2.2 with respect to the approval of the Preliminary Plans and to the
- ---------------
submission and approval of the preliminary budget from Contractor.
2.2.3. Final Plans. Upon the earlier to occur of (i) ten (10)
-----------
days after approval by Landlord and Tenant of the preliminary budget for the
Tenant Improvements, or (ii) November 18, 1996, Tenant shall cause Architect to
commence preparing complete plans, specifications and working drawings which
incorporate and are consistent with the approved Preliminary Plans and
preliminary budget, and which show in detail the intended design, construction
and finishing of all portions of the Tenant Improvements described in the
Preliminary Plans (collectively, the "Final Plans"). Tenant shall cause
-----------
Architect to deliver the Final Plans to Landlord, for Landlord's review and
approval, no later than December 6, 1996. Within five (5) days after Landlord's
receipt of the Final Plans, Landlord shall either approve or disapprove the
Final Plans, which approval shall not be unreasonably withheld. Landlord's
failure to approve or disapprove the Final Plans within such five-day period
shall constitute grounds for the assertion of a Landlord Delay, and Tenant shall
have the right to deliver a Delay Notice to Landlord as early as two (2)
business days before expiration of such 5-day period. If Landlord disapproves
the Final Plans, then Landlord shall state in reasonable detail the changes
which Landlord requires to be made thereto. Tenant shall submit to Landlord
revised Final Plans within five (5) days after Tenant's receipt of Landlord's
disapproval notice. Following Landlord's receipt of the revised Final Plans from
Tenant, Landlord shall have the right to review and approve the revised Final
Plans pursuant to this Paragraph 2.2.3. Landlord shall give Tenant
---------------
<PAGE>
written notice of its approval or disapproval of the revised Final Plans within
five (5) days after the date of Landlord's receipt thereof. Landlord's failure
to approve or disapprove the Final Plans within such five-day period shall
constitute grounds for the assertion of a Landlord Delay, and Tenant shall have
the right to deliver a Delay Notice to Landlord as early as two (2) business
days before expiration of such 5-day period. If Landlord disapproves the
revised Final Plans, then Landlord and Tenant shall continue to follow the
procedures set forth in this Paragraph 2.2.3 until Landlord and Tenant
---------------
reasonably approve such Final Plans in accordance with this Paragraph 2.2.3.
---------------
3. Construction Budget. Upon approval by Landlord and Tenant of the
-------------------
Final Plans, Landlord shall instruct Contractor to obtain competitive bids for
the Tenant Improvements from at least three (3) qualified subcontractors for
each of the major subtrades (excluding the mechanical and electrical trades,
which shall be on a design/build basis, unless Landlord elects to competitively
bid these trades) and to submit the same to Landlord and Tenant for their review
and approval. Upon selection of the subcontractors and approval of the bids,
Contractor shall prepare a cost estimate for the Tenant Improvements described
in such Final Plans, based upon the bids submitted by the subcontractors
selected. Contractor shall submit such cost estimate to Landlord and Tenant for
their review and approval. Landlord or Tenant may each approve or reject such
cost estimate in their reasonable sole discretion. If either Landlord or Tenant
rejects such cost estimate, Landlord shall resolicit bids based on such Final
Plans, in accordance with the procedures specified above. Following any
resolicitation of bids by Landlord pursuant to this Paragraph 3, Landlord and
-----------
Tenant shall again follow the procedures set forth in this Paragraph 3 with
-----------
respect to the submission and reasonable approval of the cost estimate from
Contractor.
4. Landlord to Construct. Landlord shall cause Contractor to construct
---------------------
the Tenant Improvements in a good and workmanlike manner, in accordance with the
approved Final Plans and in compliance with all applicable laws. Architect
shall be responsible for obtaining all necessary building permits and approvals
and other authorizations from governmental agencies required in connection with
the Tenant Improvements. The cost of all such permits and approvals, including
inspection and other building fees required to obtain the permits for the Tenant
Improvements, shall be included as part of the Tenant Improvement Costs. Tenant
shall have the benefit of any warranties provided by Contractor, the
subcontractors and suppliers in connection with the Tenant Improvements.
5. Payment for Tenant Improvements. The Tenant Improvement Costs shall
-------------------------------
be paid solely by Tenant as follows:
<PAGE>
5.1. Set-Aside Funds. Within five (5) days after the parties have
---------------
mutually agreed upon the cost estimate for the Tenant Improvements pursuant to
Paragraph 3 above, Tenant shall deposit into a separate account with any
- -----------
financial institution designated by Landlord, in Tenant's name, subject to
restrictions in favor of such financial institution, an amount (the "Set-Aside
---------
Funds") equal to the Tenant Improvement Costs for the portion of the Tenant
- -----
Improvements that Landlord then intends to commence, based on the assumption
that the Tenant Improvement Costs shall equal such cost estimate. Landlord
shall instruct such financial institution to hold the Set-Aside Funds in a
separate interest-bearing account with interest to accrue for Tenant's account,
and shall utilize the Set-Aside Funds to pay for the Tenant Improvement Costs in
the manner set forth in this Paragraph 5. Before commencement of construction
-----------
of any subsequent portion of the Tenant Improvements, Tenant shall deposit in
such account an additional amount equal to the Tenant Improvement Cost for such
subsequent Tenant Improvements.
5.2. Payment. As and when any Tenant Improvement Costs become due
-------
and payable, Landlord shall request such financial institution to utilize the
remaining Set-Aside Funds to pay such amounts; provided, however, that if at any
time there are insufficient Set-Aside Funds to pay any amount of the Tenant
Improvement Costs, Tenant shall pay any and all such Tenant Improvement Costs to
Landlord within ten (10) days after the date of Tenant's receipt of Landlord's
written request therefor. Any failure by Tenant to pay any Tenant Improvement
Costs as and when required under this Agreement shall constitute a default by
Tenant under the Lease.
5.3. Penalties. To the extent that any contractor or subcontractor
---------
working on the Tenant Improvements imposes upon Landlord any penalty or late
charge due to Tenant's failure to pay to Landlord any amount due under this
Paragraph 5.3 as and when such amount is due, Tenant shall be solely responsible
- -------------
for paying such penalty or late charge; provided, however, that if Tenant
disputes the imposition of such penalty or late charge, Tenant shall not be
required to pay the penalty or late charge until the dispute has been settled or
otherwise resolved; provided further, that if any penalty or late charge is
imposed due to Tenant's exercise of its rights under this Paragraph 5.3, Tenant
-------------
shall pay such penalty or late charge as provided in this Paragraph 5.3.
-------------
6. Tenant Improvement Costs. The Tenant Improvement Costs shall include
------------------------
all reasonable costs incurred in connection with the Tenant Improvements (but
not the Capital Improvements), as determined by Landlord in its reasonable
discretion, including the following:
(a) All costs of space plans and other architectural and engineering
plans and specifications for the Tenant
<PAGE>
Improvements, including engineering costs associated with completion of the
State of California energy utilization calculations under Title 24 legislation
required in connection with the Tenant Improvements;
(b) All costs of obtaining building permits and other necessary
authorizations from the City of Redwood City;
(c) All costs of interior design and finish schedule plans and
specifications, including as-built drawings by Architect;
(d) All direct and indirect costs of procuring, constructing and
installing the Tenant Improvements in the Premises, including, but not limited
to, the construction fee payable to the Contractor for overhead and profit, and
the cost of all on-site supervisory and administrative staff, office, equipment
and temporary services rendered by Contractor in connection with construction of
the Tenant Improvements;
(e) All fees payable to Architect and Landlord's engineering firm if
they are required by Tenant to redesign any portion of the Tenant Improvements
following Tenant's approval of the Final Plans;
(f) Sewer connection fees (if any);
(g) All costs of installing an emergency power supply systems in each
of the Buildings, which emergency power supply shall include emergency HVAC for
Tenant's computer rooms;
(h) All direct and indirect construction costs associated with
complying with Title 24 legislation and ADA compliance for all interior
improvements (including the reconstruction of all restrooms); and
(i) A construction management fee payable to Landlord equal to three
percent (3%) of the total Tenant Improvement Costs. (Landlord shall either
provide, or cause a third party to provide, construction management services in
connection with the construction of the Tenant Improvements, and the foregoing
fee shall be the sole compensation for such services).
7. Change Requests. No revisions to the approved Final Plans shall be
---------------
made by either Landlord or Tenant unless approved in writing by both parties.
Landlord agrees to make all changes (i) required by any public agency to conform
with governmental regulations, or (ii) requested in writing by Tenant and
approved in writing by Landlord, which approval shall not be unreasonably
withheld. Any costs related to such changes shall be added to the Tenant
Improvement Costs and shall be paid for in accordance with Paragraph 5. The
-----------
billing for such additional costs shall be accompanied by evidence of the
amounts billed as is customarily
<PAGE>
used in the business. Costs related to changes shall include, without
limitation, any architectural, structural engineering, or design fees, and the
Contractor's price for effecting the change. Any change order which may extend
the date of substantial completion of the Tenant Improvements may be disapproved
by Landlord unless Tenant agrees that for all purposes under this Lease, the
Tenant Improvements shall be deemed to have been substantially completed on that
date on which such Tenant Improvements would have been substantially completed
without giving effect to the change order in question.
8. Early Access. So long as such entry does not in any way interfere
------------
with or delay Landlord's construction of the Improvements, Tenant shall have the
right to enter the Premises before the Commencement Date for the purpose of
installing cable T.V., telephones, telecommunications cabling, furniture and
other similar items. Such entry shall be subject to all of the terms and
conditions of the Lease, other than the obligation to pay Rent.
LANDLORD: TENANT:
MARTIN/CAMPUS ASSOCIATES, L.P., AT HOME CORPORATION,
a Delaware limited partnership a Delaware corporation
By: Martin/Redwood Associates, By: _________________________
L.P., a California limited Its: _________________________
partnership, its General
Partner
By: _________________________
By: The Martin Group of Its: _________________________
Companies, Inc., a
California corporation,
its General Partner
By: ____________________
Its: ____________________
<PAGE>
EXHIBIT C
---------
SITE PLAN FOR PROJECT
---------------------
<PAGE>
EXHIBIT D
---------
COMMENCEMENT DATE MEMORANDUM
----------------------------
LANDLORD: Martin/Campus Associates, L.P.
TENANT: ___________________________
LEASE DATE: ___________________________
PREMISES: ___________________________________________
Pursuant to Paragraph 4.A. of the above referenced Lease, the commencement date
--------------
is hereby established as _________________ for _______________________________,
Redwood City, CA 94063. The Commencement Date as defined in Paragraph 4.A shall
-------------
be __________________.
TENANT:
Dated____________________ AT HOME CORPORATION,
a Delaware corporation
By: __________________________
Its: __________________________
By: __________________________
Its: __________________________
LANDLORD:
Dated_________________ MARTIN/CAMPUS ASSOCIATES, L.P.,
a Delaware limited partnership
By: Martin/Redwood Associates,
partnership, its General
By: The Martin Group of
Companies, Inc., a
California corporation,
its General Partner
By: ____________________
Its: ____________________
<PAGE>
EXHIBIT E
---------
FLOOR PLAN OF EARLY OCCUPANCY PREMISES
--------------------------------------
<PAGE>
EXHIBIT F
---------
SEARS SITE
----------
<PAGE>
EXHIBIT G
---------
SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT
<PAGE>
EXHIBIT H
---------
STANDARD TERMS FOR OPTION TO PURCHASE
-------------------------------------
This Exhibit H sets forth certain standard terms that shall be
---------
applicable to the purchase of the Broadway Parcel pursuant Paragraph 40 of the
------------
Lease. This Exhibit shall be deemed a part of the Lease to which it is
attached. Capitalized terms which are used herein and defined in the Lease
shall have the meanings given in the Lease.
1. Sale and Purchase; Title Company.
--------------------------------
1.1. General. In the event Tenant acquires the Broadway Parcel
-------
(the "Option Property"), Landlord shall sell to Tenant, and Tenant shall
---------------
purchase from Landlord, all of the "Property" (as defined below).
1.2. The Property. As used in this Agreement, the term
------------
"Property" includes the Option Property and all of the items referred to in
--------
Paragraphs 1.2.1 through 1.2.4.
- ---------------- -----
1.2.1. Personal Property. All of Landlord's right, title
-----------------
and interest in and to any and all personal property located at the Option
Property which is owned by Landlord and which is used in the operation and
maintenance of the Option Property (the "Personal Property").
-----------------
1.2.2. Rights and Privileges. All of Landlord's right,
---------------------
title and interest, if any, in and to all rights, privileges, tenements,
hereditaments, rights-of-way, easements, appurtenances, mineral rights,
development rights, air rights and riparian or littoral rights belonging or
appertaining to the Option Property.
1.2.3. Contracts and Leases. All of Landlord's right,
--------------------
title and interest in and to (i) all service, maintenance, construction,
management and other contracts relating to the Option Property (collectively,
"Contracts"), and (ii) all leases, tenancy and occupancy agreements for all or
---------
any portion of the Option Property (collectively, "Leases").
------
1.2.4. Permits and Warranties. All of Landlord's right,
----------------------
title and interest in and to (i) all licenses, permits and approvals, if any,
affecting or pertaining to the Option Property which, if assignable, are to be
assigned to Tenant at the Closing (as defined below), and (ii) all warranties,
if any, affecting or pertaining to the Option Property which, if assignable, are
to be assigned to Tenant at the Closing.
1.3. Title Company. The purchase and sale of the Property shall be
-------------
accomplished through an escrow which Landlord
<PAGE>
has established or will establish with Chicago Title Insurance Company, One
Kaiser Plaza, Oakland, California (the "Title Company").
-------------
2. Title. Title to the Property shall be conveyed from Landlord to
-----
Tenant by grant deed (the "Deed"), subject to: (i) liens to secure payment of
----
real estate taxes and assessments not delinquent; (ii) applicable zoning and use
laws, ordinances, rules and regulations of any municipality, township, county,
state or other governmental agency or authority; (iii) all matters that would be
disclosed by a physical inspection or survey of the Option Property or that are
actually known to Tenant; (iv) any exceptions or matters created by Tenant, its
agents, employees or representatives; (v) all exceptions of record that were in
existence as of the date of the Lease and all CC&Rs recorded by Landlord; (vi)
all Leases and Contracts; and (vii) such other exceptions as Tenant may approve
in writing.
The foregoing exceptions to title are referred to collectively as the
"Conditions of Title". Conclusive evidence of delivery of title in accordance
-------------------
with the foregoing shall be the willingness of Title Company to issue to Tenant,
upon payment of its regularly scheduled premium, its CLTA owner's policy of
title insurance, in the amount of the Purchase Price, showing title to the
Option Property vested of record in Tenant, subject only to the Conditions of
Title (and the standard printed exceptions and conditions in the policy of title
insurance). If Landlord for any reason is unable to deliver title to the
Property subject only to the Conditions of Title, then Tenant's sole remedy
shall be to terminate this Agreement and receive a return of any Deposit (but
not the Option Deposit), and neither Landlord nor Tenant shall thereafter have
any further rights or obligations under this Agreement, except Tenant's
obligation to perform the Continuing Obligations (as defined below). Tenant
shall have no right to commence any action for damages, specific performance or
other relief as a result of Landlord's inability to deliver title to the
Property subject only to the Conditions of Title; provided, however, that if
Landlord intentionally fails to consummate the conveyance of the Option Property
to Tenant in accordance with the terms of the Lease, then Tenant shall have the
right to commence any actions for damages, specific performance or other relief
as a result of Landlord's intentional breach.
3. Damage, Destruction or Taking. If at any time prior to the Closing,
-----------------------------
Landlord determines that the Option Property has been destroyed or damaged
by earthquake, flood or other casualty and that such damage will require more
than One Million Dollars ($1,000,000.00) to repair (a "Casualty"), or if a
--------
proceeding is instituted for the taking of all or any material portion of the
Option Property under the power of eminent domain (a "Taking"), then Tenant
------
shall have the right by giving written notice to Landlord and Title Company
within fifteen (15) days after the
<PAGE>
date of receipt of written notice of any such Casualty or Taking, either to: (i)
consummate the purchase of the Property in accordance with the Lease, in which
event Landlord shall assign to Tenant at the Closing (A) any insurance proceeds
payable to Landlord on account of such Casualty, or (B) any award payable to
Landlord by reason of the Taking, as the case may be; or (ii) terminate
Landlord's obligations under Paragraph 40 of the Lease and this Exhibit H,
effective as of the date such notice of termination is given. If Tenant fails to
give such notice within such 15-day period, then Tenant shall be deemed to have
elected to terminate Landlord's obligations under Paragraph 40 of the Lease and
this Exhibit H, pursuant to this Paragraph 3. The Closing Date shall be
--------- -----------
deferred, if necessary, to permit Tenant to have the 15-day period following
receipt of notice of a Casualty or a Taking to make the election specified
hereinabove. If Tenant terminates Landlord's obligations under Paragraph 40 of
the Lease and this Exhibit H, pursuant to this Paragraph 3, then any Deposit
--------- -----------
(but not the Option Deposit) shall be returned to Tenant, and neither Landlord
nor Tenant shall have any further obligations under Paragraph 40 of the Lease or
------------
this Exhibit H. Nothing herein shall be deemed to constitute an obligation on
---------
the part of Landlord to carry or maintain any insurance of any kind whatsoever
pertaining to the Property.
4. Landlord's Disclaimer; Release and Indemnification of Landlord.
--------------------------------------------------------------
4.1. Landlord's Disclaimer. Tenant acknowledges and agrees that the
---------------------
sale of the Property to Tenant is made without any warranty or representation of
any kind by Landlord, either express or implied, with respect to any aspect,
portion or component of the Property, including: (i) the physical condition,
nature or quality of the Property, including the quality of the soils on and
under the Property and the quality of the labor and materials included in any
buildings or other improvements, fixtures, equipment or personal property
comprising a portion of the Property; (ii) the fitness of the Property for any
particular purpose; (iii) the presence or suspected presence of hazardous
materials on, in, under or about the Property (including the soils and
groundwater on and under the Property); or (iv) existing or proposed
governmental laws or regulations applicable to the Property, or the further
development or change in use thereof, including environmental laws and laws or
regulations dealing with zoning or land use. Tenant further agrees and
acknowledges that, as of the Closing, Tenant shall have made such feasibility
studies, investigations, environmental studies, engineering studies, inquiries
of governmental officials, and all other inquiries and investigations, which
Tenant shall deem necessary to satisfy itself as to the condition, nature and
quality of the Property and as to the suitability of the Property for Tenant's
purposes. Tenant further agrees and acknowledges that, in purchasing the
Property, Tenant shall rely entirely on its own investigation, examination and
inspection of the
<PAGE>
Property, and not upon any representation or warranty of Landlord, or any agent
or representative of Landlord. Tenant further agrees and acknowledges that
Tenant has leased and occupied the Option Property prior to the Closing, by
reason of such tenancy, possession and occupancy, Tenant is fully aware of the
condition of the Option Property. THEREFORE, TENANT AGREES THAT, IN CONSUMMATING
THE PURCHASE OF THE PROPERTY PURSUANT TO THIS LEASE, TENANT SHALL ACQUIRE THE
PROPERTY IN ITS THEN CONDITION, "AS IS, WHERE IS" AND WITH ALL FAULTS, AND
SOLELY IN RELIANCE ON TENANT'S OWN INVESTIGATION, EXAMINATION, INSPECTION,
ANALYSIS AND EVALUATION OF THE PROPERTY. The agreements and acknowledgments
contained in this Paragraph 4.1 constitute a conclusive admission that Tenant,
-------------
as a sophisticated, knowledgeable investor in real property, shall acquire the
Property solely upon its own judgment as to any matter germane to the Property
or to Tenant's contemplated use of the Property, and not upon any statement,
representation or warranty by Landlord, or any agent or representative of
Landlord, which is not expressly set forth in this Agreement. At the Closing,
upon the request of Landlord, Tenant shall execute and deliver to Landlord a
certificate of Tenant reaffirming the foregoing.
4.2. Tenant's Release of Landlord. Tenant hereby waives, releases
----------------------------
and forever discharges Landlord and its officers, directors, employees and
agents from any and all claims, actions, causes of action, demands, liabilities,
damages, costs, expenses or compensation whatsoever, whether direct or indirect,
known or unknown, foreseeable or unforeseeable, which Tenant may have at the
Closing or which may arise in the future on account of or in any way arising out
of or connected with the Property, including: (i) the physical condition, nature
or quality of the Property (including the soils and groundwater on and under the
Option Property); (ii) the presence or release in, under, on or about the
Property (including the soils and groundwater on and under the Option Property)
of any hazardous materials; and (iii) the ownership, management or operation of
the Property, but excluding claims to the extent based on Landlord's fraud or
intentional misrepresentation. At the Closing, upon the request of Landlord,
Tenant shall deliver to Landlord a certificate of Tenant reaffirming the
foregoing. Tenant hereby waives the protection of California Civil Code
Paragraph 1542, which reads 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."
Tenant's
Initials: _______________________
<PAGE>
4.3. Tenant's Indemnification of Landlord. Tenant shall indemnify,
------------------------------------
defend, protect and hold Landlord harmless from and against any and all claims,
actions, causes of action, demands, liabilities, damages, costs and expenses
(including attorneys' fees), whether direct or indirect, known or unknown,
foreseeable or unforeseeable, which may be asserted against or suffered by
Landlord at any time after the Closing on account of or in any way arising out
of or connected with the Property, including: (i) the physical condition, nature
or quality of the Property (including the soils and groundwater on and under the
Option Property); (ii) the presence or release in, under, on or about the
Property (including the soils and groundwater on and under the Option Property)
of any hazardous materials; and (iii) the ownership, management or operation of
the Property, including any claim or demand by any tenant for the refund or
return of any security deposit or other deposit, but excluding claims to the
extent based on Landlord's fraud or intentional misrepresentation. At the
Closing, upon the request of Landlord, Tenant shall deliver to Landlord a
certificate reaffirming the foregoing.
4.4. Flood Hazard Zone. Tenant acknowledges that if the Option
-----------------
Property is located in an area which the Secretary of HUD has found to have
special flood hazards, then pursuant to the National Flood Insurance Program,
Tenant will be required to purchase flood insurance in order to obtain any loan
secured by the Option Property from any federally regulated financial
institution or a loan insured or guaranteed by an agency of the United States
government. Tenant shall have sole responsibility to determine whether the
Option Property is located in an area which is subject to the National Flood
Insurance Program.
4.5. Inspections. Subject to obtaining Landlord's prior written
-----------
consent, which shall not be unreasonably withheld or delayed, Tenant shall have
the right to conduct such inspections, investigations, borings, samplings and
other tests of the Property that Tenant deems to be useful or necessary for the
conduct of Tenant's due diligence in connection with the acquisition of the
Property. Upon request by Tenant, Landlord shall make available to Tenant for
inspection all material documents and reports in Landlord's possession relating
to the condition of the Property. Tenant shall indemnify, defend, protect and
hold Landlord harmless from and against any and all loss, cost, damage, injury,
claim (including claims of lien for work or labor performed or materials or
supplies furnished), liability or expense (including attorneys' fees) as a
result of, arising out of, or in any way connected with the exercise of Tenant's
(or its agents', contractors', employees' or authorized representatives')
inspection rights pursuant to this Paragraph 4.5 or the performance of Tenant's
-------------
due diligence. Tenant shall promptly repair any damage to the Property caused
by its due diligence.
<PAGE>
5. Closing.
-------
5.1. Closing. The transaction contemplated by this Exhibit H shall
------- ---------
be consummated through escrow at the office of Title Company on the date
described in Paragraph 5.1.1 below, or on such other date as shall be mutually
---------------
agreed upon by Landlord and Tenant (each, a "Closing Date"). For purposes of
------------
this Exhibit H, the term "Closing" shall mean the consummation of the sale and
--------- -------
conveyance of the Property to Tenant as evidenced by recordation of the Deed (as
defined below).
5.1.1. Closing Dates. The Closing Date shall be no later than
-------------
the date that is sixty (60) days after Landlord receives the Broadway Option
Notice; provided, however, that the Closing Date shall in no event be later than
January 31, 1998.
5.2. Landlord's Delivery Into Escrow. Landlord shall deliver the
-------------------------------
following items into escrow:
5.2.1. Deed. The Deed, duly executed and acknowledged by
----
Landlord, except that the amount of any transfer tax shall not be shown on the
Deed, but shall be set forth on a separate affidavit or instrument which, after
recordation of the Deed, shall be attached thereto so that the amount of such
transfer tax shall not be of record.
5.2.2. Other Documents. Such other documents or instruments as
---------------
may be reasonably required to consummate this transaction in accordance with the
terms and conditions herein contained, such as appropriate escrow instructions
to Title Company.
5.3. Tenant's Delivery Into Escrow. Tenant shall deliver the
-----------------------------
following items into escrow:
5.3.1. Cash. Immediately available funds in the following
----
amounts: (i) the balance of the Purchase Price, less the amount of the Deposit;
(ii) such amount, if any, as is necessary for Tenant to pay Tenant's share of
the closing costs and prorations specified in Paragraphs 5.5 and 5.6; and (iii)
-------------- ---
any other amounts required to close escrow in accordance with the terms of this
Exhibit H.
- ---------
5.3.2. Other Documents. Such other documents and instruments
---------------
as may be reasonably required in order to consummate this transaction in
accordance with the terms and conditions of this Exhibit H and the Lease, such
---------
as appropriate escrow instructions to Title Company.
5.3.3. Evidence of Authorization. Such evidence as shall
-------------------------
reasonably establish that Tenant's performance of its obligations under the
Lease and this Exhibit H have been duly
---------
<PAGE>
authorized and that the person or persons executing all documents on behalf of
Tenant have been duly authorized and empowered to do so.
5.4. Landlord's and Tenant's Joint Delivery Into Escrow. Landlord
--------------------------------------------------
and Tenant jointly shall deliver the following items into escrow:
5.4.1. Assignment and Assumption Agreements. A document by
------------------------------------
which Landlord assigns to Tenant, and Tenant assumes, the Leases, Contracts,
permits and warranties which will survive the Closing.
5.4.2. Other Documents. Such other documents and instruments
---------------
as may be reasonably required to consummate this transaction in accordance with
the terms and conditions of this Agreement.
5.5. Closing Prorations. At the Closing, all items of income and
------------------
expense of the Property shall be prorated as provided in this Paragraph 5.5 on
-------------
the basis of a 360-day year, actual days elapsed for the month in which the
Closing occurs, as of midnight on the day immediately preceding the Closing
Date. Except as provided in this Paragraph 5.5, income and expenses
-------------
attributable to the period prior to the Closing Date shall be for the account of
Landlord, and income and expenses attributable to the period on and after the
Closing Date shall be for the account of Tenant. Property taxes and assessments
shall be prorated through escrow, and all other items of income and expense
shall be prorated outside of escrow on the Closing Date by the parties. Without
limiting the generality of the foregoing, the following items shall be prorated
through escrow as described above:
(a) Current rents collected by Landlord under the Leases. With
respect to any rent receivables carried by Landlord under the Leases as of the
Closing, Tenant shall pay Landlord full value in immediately available funds at
the Closing and Landlord shall execute and deliver to Tenant at the Closing an
assignment of all of Landlord's right, title and interest with respect thereto.
(b) Amounts paid or payable in respect of the Contracts which
Tenant assumes at the Closing.
5.6. Closing Costs. Landlord shall pay the following closing costs:
-------------
(i) all fees and costs for releasing all encumbrances, liens and security
interests of record which are not Conditions of Title; and (ii) county
documentary or other transfer taxes payable upon recordation of the Deed.
Tenant shall pay the following closing costs: (a) the premium for Tenant's
policy of title insurance; (b) any and all costs, fees, title insurance premiums
and other charges payable in connection with any financing obtained by Tenant to
acquire the Property,
<PAGE>
including all escrow fees relating to the funding and/or recordation of such
financing; and (c) all escrow fees. Each party shall pay one-half of any escrow
cancellation fee charged by Title Company in connection with the purchase and
sale of the Property in accordance with this Exhibit H. All other closing costs
---------
shall be paid by the parties in accordance with the custom then prevailing in
San Mateo County.
5.7. Security Deposits. With respect to all Leases which are in
-----------------
effect at the Closing, Landlord shall give Tenant at the Closing, through
Escrow, a credit in the amount of all security deposits and other deposits then
held by Landlord under such Leases.
5.8. Possession. Subject to the rights of tenants under the Leases,
----------
Landlord shall deliver exclusive possession of the Property to Tenant at the
Closing.
5.9. Closing Procedure. Title Company shall close escrow when it is
-----------------
in a position to: (i) pay to Landlord, in immediately available funds, the
amount of the Purchase Price, as such amount may be increased or decreased as a
result of the allocation of the closing costs and prorations as specified in
Paragraphs 5.5 and 5.6 and Landlord's obligations with respect to security
- -------------- ---
deposits as specified in Paragraph 5.7; and (ii) issue to Tenant the policy of
-------------
title insurance referred to in Paragraph 2.
-----------
5.10. Escrow. Upon delivery of the Broadway Option Notice, Tenant
------
and Landlord shall deposit an executed counterpart of this Exhibit H with the
---------
Title Company and this Exhibit H shall serve as instructions to the Title
---------
Company for consummation of the purchase and sale contemplated hereby. Landlord
and Tenant shall execute such supplemental escrow instructions as may be
appropriate to enable the Title Company to comply with the terms of this Exhibit
-------
H, provided such supplemental escrow instructions are not in conflict with this
- -
Exhibit H. In the event of any conflict between the provisions of this Exhibit
- --------- -------
H and any supplementary escrow instructions signed by Tenant and Landlord, the
- -
terms of this Exhibit H shall control.
---------
5.11. Compliance. The Title Company shall comply with all applicable
----------
federal, state and local reporting and withholding requirements relating to the
close of the transactions contemplated herein. Without limiting the generality
of the foregoing, to the extent the transactions contemplated by this Exhibit H
---------
involve a real estate transaction within the purview of Section 6045 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), Title
---------------------
Company shall have sole responsibility to comply with the requirements of
Section 6045 of the Internal Revenue Code (and any similar requirements imposed
by state or local law). For purposes of this Paragraph 5.11, Landlord's tax
--------------
identification number is 94-3236971. Title
<PAGE>
Company shall hold Tenant, Landlord and their counsel free and harmless from and
against any and all liability, claims, demands, damages and costs, including
reasonable attorney's fees and other litigation expenses, arising or resulting
from the failure or refusal of Title Company to comply with such reporting
requirements.
6. Survival of Provisions. Notwithstanding any other provision of
----------------------
this Exhibit H to the contrary, each representation, warranty, covenant or
---------
agreement contained in this Exhibit H (including Tenant's obligations pursuant
---------
to Paragraph 4.3) shall survive and be binding and enforceable following the
-------------
Closing and shall not be deemed to be merged into, or waived by delivery or
recordation of, the Deed or any other instruments delivered at the Closing.
7. Exchange. At the option of either party, such party may elect to
--------
consummate the transaction hereunder in whole or in part as a like-kind exchange
pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended. If
either party (the "Exchanging Party") so elects, the other party (the
----------------
"Cooperating Party") shall cooperate with the Exchanging Party, executing such
- ------------------
documents and taking such action as may be reasonably necessary in order to
effectuate this transaction as a like-kind exchange; provided, however, that (i)
the Cooperating Party's cooperation hereunder shall be without cost, expense or
liability to the Cooperating Party of any kind or character, including, without
limitation, any attorneys' fees, costs or expense incurred in connection with
the review or preparation of documentation in order to effectuate such like-kind
exchange, and the Cooperating Party shall have no obligation to take title to
any real property; (ii) the Exchanging Party shall assume all risks in
connection with the designation, selection and setting of terms of the purchase
or sale of any exchange property; (iii) the Exchanging Party shall bear all
costs and expenses in connection with any such exchange transaction in excess of
the costs and expenses which would have otherwise been incurred in acquiring or
selling the Property by means of a straight purchase, so that the net effect to
the Cooperating Party shall be identical to that which would have resulted had
this Exhibit H closed on a purchase and sale; (iv) any documents to effectuate
---------
such exchange transaction are consistent with the terms and conditions contained
in this Exhibit H; and (v) the Exchanging Party shall indemnify, defend and hold
---------
the Cooperating Party harmless from any and all claims, demands, penalties,
loss, causes of action, suits, risks, liability, costs or expenses of any kind
or nature (including, without limitation, reasonable attorneys' fees) which the
Cooperating Party may incur or sustain, directly or indirectly, related to or in
connection with, or arising out of, the consummation of this transaction as a
like-kind exchange as contemplated hereunder.
<PAGE>
8. Liquidated Damages. TENANT ACKNOWLEDGES THAT THE CLOSING OF THE
------------------
SALE OF THE PROPERTY TO TENANT, ON THE TERMS AND CONDITIONS AND WITHIN THE TIME
PERIOD SET FORTH IN THIS EXHIBIT H AND THE LEASE, IS MATERIAL TO LANDLORD.
TENANT ALSO ACKNOWLEDGES THAT SUBSTANTIAL DAMAGES WILL BE SUFFERED BY LANDLORD
IF SUCH TRANSACTION IS NOT SO CONSUMMATED DUE TO TENANT'S DEFAULT. TENANT
FURTHER ACKNOWLEDGES THAT, AS OF THE DATE OF TENANT'S DELIVERY OF THE BROADWAY
OPTION NOTICE, LANDLORD'S DAMAGES WOULD BE EXTREMELY DIFFICULT OR IMPOSSIBLE TO
COMPUTE IN LIGHT OF THE UNPREDICTABLE STATE OF THE ECONOMY AND OF GOVERNMENTAL
REGULATIONS, THE FLUCTUATING MARKET FOR REAL ESTATE AND REAL ESTATE LOANS OF ALL
TYPES, AND OTHER FACTORS WHICH DIRECTLY AFFECT THE VALUE AND MARKETABILITY OF
THE PROPERTY. IN LIGHT OF THE FOREGOING AND ALL OF THE OTHER FACTS AND
CIRCUMSTANCES SURROUNDING THIS TRANSACTION, AND FOLLOWING NEGOTIATIONS BETWEEN
THE PARTIES, TENANT AND LANDLORD AGREE THAT THE AMOUNT OF THE DEPOSIT REPRESENTS
A REASONABLE ESTIMATE OF THE DAMAGES WHICH LANDLORD WOULD SUFFER BY REASON OF
TENANT'S DEFAULT HEREUNDER. ACCORDINGLY, TENANT AND LANDLORD HEREBY AGREE THAT,
IN THE EVENT OF SUCH DEFAULT BY TENANT, LANDLORD MAY TERMINATE ITS OBLIGATIONS
UNDER PARAGRAPH 40 OF THE LEASE AND THIS EXHIBIT H BY GIVING NOTICE TO TENANT.
IN THE EVENT OF SUCH TERMINATION, LANDLORD SHALL RETAIN THE DEPOSIT AS
LIQUIDATED DAMAGES IN LIEU OF ANY OTHER CLAIM LANDLORD MAY HAVE AT LAW OR IN
EQUITY (INCLUDING, WITHOUT LIMITATION, SPECIFIC PERFORMANCE) ARISING BY REASON
OF TENANT'S FAILURE TO PURCHASE THE PROPERTY PURSUANT TO THIS EXHIBIT H.
LANDLORD'S RETENTION OF THE DEPOSIT PURSUANT TO THIS PARAGRAPH 8 SHALL IN NO WAY
LIMIT ANY OF LANDLORD'S RIGHTS OR REMEDIES UNDER THE LEASE WITH RESPECT TO ANY
DEFAULT BY TENANT UNDER THE LEASE. THE PARTIES HAVE INITIALED THIS PARAGRAPH 8
-----------
TO ESTABLISH THEIR INTENT SO TO LIQUIDATE DAMAGES. NOTWITHSTANDING THE
FOREGOING, NOTHING CONTAINED IN THIS PARAGRAPH 8 SHALL BE DEEMED TO LIMIT: (i)
-----------
TENANT'S OBLIGATIONS UNDER THE LEASE; OR
<PAGE>
(ii) TENANT'S INDEMNIFICATION OBLIGATIONS CONTAINED IN THIS EXHIBIT H.
Landlord's Tenant's
Initials: /s/ MAC Initials: /s/ KAG
------- -------
TENANT:
Dated____________________ AT HOME CORPORATION,
a Delaware corporation
By: /s/ Kenneth A. Goldman
--------------------------
Its: CFO
-------------------------
By: __________________________
Its: __________________________
LANDLORD:
Dated 10/24/96 MARTIN/CAMPUS ASSOCIATES, L.P.,
-----------
a Delaware limited partnership
By: Martin/Redwood Associates,
By: The Martin Group of
Companies, Inc., a
California corporation,
its General Partner
By: /s/ Michael A.Covarrubias
-------------------------
Its: President
----------------------
<PAGE>
EXHIBIT 10.09
INDEMNIFICATION AGREEMENT
This Agreement, made and entered into this ___ day of ________________,
1996 ("Agreement"), by and between At Home Corporation, a Delaware corporation
("Company"), and _____________________________ ("Indemnitee"):
WHEREAS, highly competent persons have become more reluctant to serve
privately- and publicly-held corporations as directors or in other capacities
unless they are provided with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the corporation; and
WHEREAS, directors, officers, and other persons in service to corporations
or business enterprises are being increasingly subjected to expensive and time-
consuming litigation relating to, among other things, matters that traditionally
would have been brought only against the Company or business enterprise itself;
and
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining such
persons; and
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that the increased difficulty in attracting and retaining such persons is
detrimental to the best interests of the Company's stockholders and that the
Company should act to assure such persons that there will be increased certainty
of such protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will service or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, this Agreement is a supplement to and in furtherance of the
Certificate of Incorporation and the Bylaws of the Company and any resolutions
adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to
diminish or abrogate any rights of Indemnitee thereunder; and
WHEREAS, the Certificate of Incorporation, the Bylaws and the Delaware
director indemnification statute each is nonexclusive, and therefore each
contemplates that contracts may be entered into with respect to indemnification
of directors, officers and employees; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify, and to advance expenses on behalf
of, such persons to the fullest extent permitted by applicable law so that they
will serve or continue to serve the Company free from undue concern that they
will not be so indemnified; and
<PAGE>
WHEREAS, Indemnitee is willing to serve, continue to serve and to take on
additional service for or on behalf of the Company on the condition that he be
so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. Services by Indemnitee. Indemnitee agrees to serve and/or
----------------------
continue to serve as a director, officer, employee and/or agent of the Company
and, and at the request of the Company, as a director, officer, employee, agent
and/or fiduciary of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise. Indemnitee may at any time and for
any reason resign from such position (subject to any other contractual
obligation or any obligation imposed by operation of law), in which event the
Company shall have no obligation under this Agreement to continue Indemnitee in
such position. This Agreement shall not be deemed an employment contract
between the Company (or any of its subsidiaries) and Indemnitee. Indemnitee
specifically acknowledges that Indemnitee's employment with the Company (or any
of its subsidiaries), if any, is at will, and that Indemnitee may be discharged
at any time for any reason, with or without cause, except as may be otherwise
provided in any written employment contract between Indemnitee and the Company
(or any of its subsidiaries), other applicable formal severance policies duly
adopted by the Board, or, with respect to service as a director of the Company,
by the Company's Certificate of Incorporation, Bylaws, and the General
Corporation Law of the State of Delaware. The foregoing notwithstanding, this
Agreement shall continue in force after Indemnitee has ceased to serve as an
officer, director, employee and/or agent of the Company or as a director,
officer, employee, agent and/or fiduciary of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise.
Section 2. Indemnification - General. The Company shall indemnify, and
-------------------------
advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in this
Agreement and (b) (subject to the provisions of this Agreement) to the fullest
extent permitted by applicable law in effect on the date hereof and as amended
from time to time. The rights of Indemnitee provided under the preceding
sentence shall include, but shall not be limited to, the rights set forth in the
other Sections of this Agreement.
Section 3. Proceedings Other Than Proceedings by or in the Right of the
------------------------------------------------------------
Company. Indemnitee shall be entitled to the rights of indemnification provided
- -------
in this Section 3 if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to or a participant in any
threatened, pending, or completed Proceeding (as hereinafter defined), other
than a Proceeding by or in the right of the Company. Pursuant to this Section
3, Indemnitee shall be indemnified against all Expenses, judgments, penalties,
fines and amounts paid in settlement (including all interest, assessments and
other charges paid or payable in connection with or in respect of such Expenses,
judgments, penalties, fines and amounts paid in settlement) actually and
reasonably incurred by him or on his behalf in connection with such Proceeding
or any claim, issue or matter therein, 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 Proceeding, had no reasonable cause to
believe his conduct was unlawful.
-2-
<PAGE>
Section 4. Proceedings by or in the Right of the Company. Indemnitee
---------------------------------------------
shall be entitled to the rights of indemnification provided in this Section 4
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to or a participant in any threatened, pending or completed Proceeding
brought by or in the right of the Company to procure a judgment in its favor.
Pursuant to this Section, Indemnitee shall be indemnified against all Expenses
(including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses) actually and reasonably incurred
by him or on his behalf in connection with 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; provided, however, that, if applicable law so
-------- -------
provides, no indemnification against such Expenses shall be made in respect of
any claim, issue or matter in such Proceeding as to which Indemnitee shall have
been adjudged to be liable to the Company unless and to the extent that the
Court of Chancery of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, shall determine that such
indemnification may be made.
Section 5. Partial Indemnification. Notwithstanding any other provision
-----------------------
of this Agreement, to the extent that Indemnitee is, by reason of his Corporate
Status, a party to (or a participant in) and is successful, on the merits or
otherwise, in defense of any Proceeding, he shall be indemnified against all
Expenses actually and reasonably incurred by him or on his behalf in connection
therewith. If Indemnitee is not wholly successful in defense of such Proceeding
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by him or on
his behalf in connection with each successfully resolved claim, issue or matter.
For purposes of this Section and without limitation, the termination of any
claim, issue or matter in such a Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such claim, issue or
matter. If Indemnitee is entitled under any provision of this agreement to
indemnification by the Company for some or a portion of the Expenses, judgments,
penalties, fines and amounts paid in settlement (including all interest,
assessments and other charges paid or payable in connection with or in respect
of such Expenses, judgments, penalties, fines and amounts paid in settlement)
actually and reasonably incurred by him or on his behalf in connection with such
Proceeding or any claim, issue or matter therein, but not, however, for the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion to which Indemnitee is entitled.
Section 6. Indemnification for Additional Expenses.
---------------------------------------
(a) The Company shall indemnify Indemnitee against any and all
Expenses and, if requested by Indemnitee, shall (within twenty (20) business
days of such request) advance such Expenses to Indemnitee, which are incurred by
Indemnitee in connection with any action brought by Indemnitee for (i)
indemnification or advance payment of Expenses by the Company under this
Agreement or any other agreement or bylaw of the Company now or hereafter in
effect; or (ii) recovery under any directors' and officers' liability insurance
policies maintained by the Company, regardless of whether Indemnitee ultimately
is determined to be entitled to such indemnification, advance expense payment or
insurance recovery, as the case may be.
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<PAGE>
(b) Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a witness in any
Proceeding to which Indemnitee is not a party, he shall be indemnified against
all Expenses actually and reasonably incurred by him or on his behalf in
connection therewith.
Section 7. Advancement of Expenses. The Company shall advance all
-----------------------
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within twenty (20) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses. Notwithstanding the foregoing, the obligation of the Company to
advance Expenses pursuant to this Section 7 shall be subject to the condition
that, if, when and to the extent that the Company determines that Indemnitee
would not be permitted to be indemnified under applicable law, the Company shall
be entitled to be reimbursed, within thirty (30) days of such determination, by
Indemnitee (who hereby agrees to reimburse the Company) for all such amounts
theretofore paid; provided, however, that if Indemnitee has commenced or
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thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee should be indemnified under applicable
law, any determination made by the Company that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any advance of
Expenses until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefrom have been exhausted or lapsed).
Section 8. Procedure for Determination of Entitlement to Indemnification.
-------------------------------------------------------------
(a) To obtain indemnification under this Agreement, Indemnitee
shall submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee and
is reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant
to the first sentence of Section 8(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case: (i) if a Change in Control (as hereinafter defined) shall
have occurred, by Independent Counsel (as hereinafter defined) in a written
opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee; or (ii) if a Change of Control shall not have occurred, (A) by a
majority vote of the Disinterested Directors (as hereinafter defined), even
though less than a quorum of the Board, or (B) if there are no such
Disinterested Directors or, if such Disinterested Directors so direct, by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee or (C) if so directed by the Board, by the stockholders
of the Company; and, if it is so determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within seven
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<PAGE>
(7) business days after such determination. Indemnitee shall cooperate with the
person, persons or entity making such determination with respect to Indemnitee's
entitlement to indemnification, including providing to such person, persons or
entity upon reasonable advance request any documentation or information which is
not privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including reasonable attorneys' fees and disbursements)
incurred by Indemnitee in so cooperating with the person, persons or entity
making such determination shall be borne by the Company (irrespective of the
determination as to Indemnitee's entitlement to indemnification) and the Company
hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 8(b) hereof, the Independent
Counsel shall be selected as provided in this Section 8(c). If a Change of
Control shall not have occurred, the Independent Counsel shall be selected by
the Board of Directors, and the Company shall give written notice to Indemnitee
advising him of the identity of the Independent Counsel so selected. If a
Change of Control shall have occurred, the Independent Counsel shall be selected
by Indemnitee (unless Indemnitee shall request that such selection be made by
the Board of Directors, in which event the preceding sentence shall apply), and
Indemnitee shall give written notice to the Company advising it of the identity
of the Independent Counsel so selected. In either event, Indemnitee or the
Company, as the case may be, may, within ten (10) days after such written notice
of selection shall have been given, deliver to the Company or to Indemnitee, as
the case may be, a written objection to such selection; provided, however, that
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such objection may be asserted only on the ground that the Independent Counsel
so selected does not meet the requirements of "Independent Counsel" as defined
in Section 17 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. If such written objection is
so made and substantiated, the Independent Counsel so selected may not serve as
Independent Counsel unless and until such objection is withdrawn or a court has
determined that such objection is without merit. If, within twenty (20) days
after submission by Indemnitee of a written request for indemnification pursuant
to Section 8(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the Court of Chancery
of the State of Delaware for resolution of any objection which shall have been
made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the Court or by such other person as the Court shall designate, and the
person with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel under Section 8(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 8(b) hereof, and the Company shall pay all reasonable fees and
expenses incident to the procedures of this Section 8(c), regardless of the
manner in which such Independent Counsel was selected or appointed. Upon the
due commencement of any judicial proceeding or arbitration pursuant to Section
10(a)(iii) of this Agreement, Independent Counsel shall be discharged and
relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).
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<PAGE>
(d) The Company shall not be required to obtain the consent of
Indemnitee to the settlement of any Proceeding which the Company has undertaken
to defend if the Company assumes full and sole responsibility for such
settlement and such settlement grants Indemnitee a complete and unqualified
release in respect of the potential liability. The Company shall not be liable
for any amount paid by Indemnitee in settlement of any Proceeding that is not
defended by the Company, unless the Company has consented in writing to such
settlement, which consent shall not be unreasonably withheld.
(e) In the event the Company shall be obligated to advance the
expenses for any Proceeding against Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, upon the delivery to
Indemnitee of written notice of its election to do so. After delivery of such
notice and the retention of such counsel by the Company, the Company will not be
liable to Indemnitee under this Agreement for any fees of counsel subsequently
incurred by Indemnitee with respect to the same Proceeding, provided that (a)
Indemnitee shall have the right to employ his own counsel in any such proceeding
at Indemnitee's expense; (b) 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 Indemnitee has been
previously authorized by the Company, (ii) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense or (iii) the Company shall not, in
fact, have employed counsel to assume the defense of such Proceeding, then the
reasonable fees and expenses of Indemnitee's counsel shall be at the expense of
the Company.
Section 9. Presumptions and Effect of Certain Proceedings.
----------------------------------------------
(a) In making a determination with respect to entitlement to
indemnification or the advancement of expenses hereunder, the person or persons
or entity making such determination shall presume that Indemnitee is entitled to
indemnification or advancement of expenses under this Agreement if Indemnitee
has submitted a request for indemnification or the advancement of expenses in
accordance with Section 8(a) of this Agreement, and the Company shall have the
burden of proof to overcome that presumption in connection with the making by
any person, persons or entity of any determination contrary to that presumption.
Neither the failure of the Company (including the Board or independent legal
counsel) to have made a determination prior to the commencement of any action
pursuant to this Agreement that indemnification is proper in the circumstances
because Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Company (including the Board or independent legal counsel)
that Indemnitee has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that Indemnitee has not met the
applicable standard of conduct.
(b) If the person, persons or entity empowered or selected under
Section 8 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within sixty (60) days after
receipt by the Company of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made
-6-
<PAGE>
and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such 60-day period
-------- -------
may be extended for a reasonable time, not to exceed an additional thirty (30)
days, if the person, persons or entity making the determination with respect to
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating of documentation and/or information relating
thereto; and provided, further, that the foregoing provisions of this Section
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9(b) shall not apply (i) if the determination of entitlement to indemnification
is to be made by the stockholders pursuant to Section 8(b) of this Agreement and
if (A) within fifteen (15) days after receipt by the Company of the request for
such determination the Board of Directors has resolved to submit such
determination to the stockholders for their consideration at an annual meeting
thereof to be held within seventy-five (75) days after such receipt and such
determination is made thereat, or (B) a special meeting of stockholders is
called within fifteen (15) days after such receipt for the purpose of making
such determination, such meeting is held for such purpose within sixty (60) days
after having been so called and such determination is made thereat, or (C) a
written consent of stockholders is solicited within fifteen (15) days after such
receipt for the purpose of making such determination, and such consent is
obtained within sixty (60) days after such solicitation, or (ii) if the
determination of entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 8(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of Indemnitee
to indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
(d) For purposes of any determination of "good faith," Indemnitee
shall be deemed to have acted in "good faith" if Indemnitee's action is based on
the records or books of account of the Company or relevant enterprise, including
financial statements, or on information supplied to Indemnitee by the officers
of the Company or relevant enterprise in the course of their duties, or on the
advice of legal counsel for the Company or relevant enterprise or on information
or records given or reports made to the Company or relevant enterprise by an
independent certified public accountant or by an appraiser or other expert
selected with reasonable care by the Company or relevant enterprise. The
provisions of this Section 9(d) shall not be deemed to be exclusive or to limit
in any way the other circumstances in which Indemnitee may be deemed to have met
the applicable standard of conduct set forth in this Agreement.
(e) The knowledge and/or actions, or failure to act, of any other
director, officer, agent or employee of the Company or relevant enterprise shall
not be imputed to Indemnitee for purposes of determining the right to
indemnification under this Agreement.
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<PAGE>
Section 10. Remedies of Indemnitee.
----------------------
(a) In the event that (i) a determination is made pursuant to
Section 8 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 7 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 8(b) of this Agreement
within ninety (90) days after receipt by the Company of the request for
indemnification, (iv) payment of indemnification is not made pursuant to Section
5 or 6 of this Agreement within twenty (20) days after receipt by the Company of
a written request therefor, or (v) payment of indemnification is not made within
seven (7) business days after a determination has been made that Indemnitee is
entitled to indemnification, Indemnitee shall be entitled to an adjudication by
the Court of Chancery of the State of Delaware of his entitlement to such
indemnification or advancement of Expenses. Alternatively, Indemnitee, at his
option, may seek an award in arbitration to be conducted by a single arbitrator
pursuant to the Commercial Arbitration Rules of the American Arbitration
Association. Indemnitee shall commence such proceeding seeking an adjudication
or an award in arbitration within one hundred eighty (180) days following the
date on which Indemnitee first has the right to commence such proceeding
pursuant to this Section 10(a); provided, however, that the foregoing clause
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shall not apply in respect of a proceeding brought by Indemnitee to enforce his
rights under Section 5 of this Agreement.
(b) In the event that a determination shall have been made pursuant
to Section 8(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 10 shall be conducted in all respects as a de novo trial, or
-- ----
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred, in any
judicial proceeding or arbitration commenced pursuant to this Section 10, the
Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section
8(b) of this Agreement that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding or
arbitration commenced pursuant to this Section 10, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law.
(d) In the event that Indemnitee, pursuant to this Section 10,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the types described in the definition
of Expenses in Section 17 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in said judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
or advancement of expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be appropriately
prorated.
-8-
<PAGE>
The Company shall indemnify Indemnitee against any and all Expenses and, if
requested by Indemnitee, shall (within twenty (20) days after receipt by the
Company of a written request therefor) advance such expenses to Indemnitee,
which are incurred by Indemnitee in connection with any action brought by
Indemnitee for indemnification or advance of Expenses from the Company under
this Agreement or under any directors' and officers' liability insurance
policies maintained by the Company, regardless of whether Indemnitee ultimately
is determined to be entitled to such indemnification, advancement of Expenses or
insurance recovery, as the case may be.
(e) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 10 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
Section 11. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
-----------------------------------------------------------
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Certificate of Incorporation, the Bylaws, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or repeal of this Agreement or of any provision hereof shall limit or
restrict any right of Indemnitee under this Agreement in respect of any action
taken or omitted by such Indemnitee in his Corporate Status prior to such
amendment, alteration or repeal. To the extent that a change in the General
Corporation Law of the State of Delaware, whether by statute or judicial
decision, permits greater indemnification or advancement of Expenses than would
be afforded currently under the Company's Bylaws and this Agreement, it is the
intent of the parties hereto that Indemnitee shall enjoy by this Agreement the
greater benefits so afforded by such change. No right or remedy herein conferred
is intended to be exclusive of any other right or remedy, and every other right
and remedy shall be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other right or
remedy.
(b) To the extent that the Company maintains an insurance policy
or policies providing liability insurance for directors, officers, employees, or
agents of the Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person serves at the
request of the Company, Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
available for any such director, officer, employee or agent under such policy or
policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
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<PAGE>
(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
(e) The Company's obligation to indemnify or advance expenses
hereunder to Indemnitee who is or was serving at the request of the Company as a
director, officer, employee, agent and/or fiduciary of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
shall be reduced by any amount Indemnitee has actually received as
indemnification or advancement of expenses from such other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
Section 12. Duration of Agreement. This Agreement shall continue until
---------------------
and terminate upon the later of: (a) ten (10) years after the date that
Indemnitee shall have ceased to serve as a director, officer, employee and/or
agent of the Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which Indemnitee served at the
request of the Company; or (b) the final termination of any Proceeding then
pending in respect of which Indemnitee is granted rights of indemnification or
advancement of expenses hereunder and of any proceeding commenced by Indemnitee
pursuant to Section 10 of this Agreement relating thereto. This Agreement shall
be binding upon the Company and its successors and assigns and shall inure to
the benefit of Indemnitee and his heirs, executors and administrators.
Section 13. Severability. If any provision or provisions of this
------------
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; (b) such provision or
provisions shall be deemed reformed to the extent necessary to conform to
applicable law and to give the maximum effect to the intent of the parties
hereto; and (c) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of any Section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested thereby.
Section 14. Exception to Right of Indemnification or Advancement of
-------------------------------------------------------
Expenses. Except as provided in Section 6(a) of this Agreement, Indemnitee
- --------
shall not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any Proceeding brought by Indemnitee (other than a
Proceeding by Indemnitee to enforce his rights under this Agreement), or any
claim therein prior to a Change in Control, unless the bringing of such
Proceeding or making of such claim shall have been approved by the Board of
Directors.
Section 15. Identical Counterparts. This Agreement may be executed in one
----------------------
or more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
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<PAGE>
Section 16. Headings. The headings of the paragraphs of this Agreement
--------
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
Section 17. Definitions. For purposes of this Agreement:
-----------
(a) "Change in Control" means a change in control of the Company
occurring after the Effective Date of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934, as amended (the "Act"), whether or not the
Company is then subject to such reporting requirement; provided, however, that,
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without limitation, such a Change in Control shall be deemed to have occurred if
after the Effective Date (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Act), directly or indirectly, of securities of the Company
representing twenty percent (20%) or more of the combined voting power of the
Company's then outstanding securities without the prior approval of at least
two-thirds of the members of the Board in office immediately prior to such
person attaining such percentage interest; and provided, further, that a Change
-------- -------
in Control shall not be deemed to occur as a result of a transfer of Company
securities from a stockholder to any direct or indirect affiliate or general or
limited partner of such stockholder; or (ii) there occurs a proxy contest, or
the Company is a party to a merger, consolidation, sale of assets, plan of
liquidation or other reorganization not approved by at least two-thirds of the
members of the Board then in office, as a consequence of which members of the
Board in office immediately prior to such transaction or event constitute less
than a majority of the Board thereafter.
(b) "Corporate Status" describes the status of a person who is or
was a director, officer, employee, fiduciary or agent of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the request of the
Company.
(c) "Disinterested Director" means a director of the Company who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
(d) "Effective Date" means ______________, 1996.
(e) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, being or preparing to be a witness in, or
otherwise participating in, a Proceeding.
(f) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the Company
or Indemnitee in any matter material to either such party, or (ii) any other
party to the Proceeding giving rise to a claim for indemnification here-
-11-
<PAGE>
under. Notwithstanding the foregoing, the term "Independent Counsel" shall not
include any person who, under the applicable standards of professional conduct
then prevailing, would have a conflict of interest in representing either the
Company or Indemnitee in an action to determine Indemnitee's rights under this
Agreement. The Company agrees to pay the reasonable fees of the Independent
Counsel referred to above and to fully indemnify such counsel against any and
all Expenses, claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
(g) "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Corporation
or otherwise and whether civil, criminal, administrative or investigative, in
which Indemnitee was, is, may be or will be involved as a party or otherwise, by
reason of the fact that Indemnitee is or was a director, officer, employee
and/or agent of the Company, by reason of any action taken by him or of any
inaction on his part while acting as director, officer, employee and/or agent of
the Company, or by reason of the fact that he is or was serving at the request
of the Company as a director, officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise; in each case
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification or advancement of
expenses can be provided under this Agreement; except one (i) initiated by an
Indemnitee pursuant to Section 10 of this Agreement to enforce his rights under
this Agreement or (ii) pending on or before the Effective Date.
Section 18. Enforcement.
-----------
(a) The Company expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on it hereby in order to
induce Indemnitee to serve as a director, officer, employee and/or agent of the
Company, and the Company acknowledges that Indemnitee is relying upon this
Agreement in serving as a director, officer, employee and/or agent of the
Company.
(b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
Section 19. 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 provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 20. Notice by Indemnitee. Indemnitee agrees promptly to notify
--------------------
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder. The failure of Indemnitee to so
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<PAGE>
notify the Company shall not relieve the Company of any obligation which it may
have to Indemnitee under this Agreement or otherwise.
Section 21. Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, (ii) mailed by certified
or registered mail, return receipt requested, with postage prepaid, on the third
business day after the date on which it is so mailed, (iii) dispatched by
recognized overnight courier with fees prepaid, on the first business day after
dispatch or (iv) transmitted by facsimile (confirmed by first class mail), on
the date of transmission:
(a) If to Indemnitee, to the address and facsimile number listed
on the signature page hereto.
(b) If to the Company to:
At Home Corporation
385 Ravendale Drive
Mountain View, CA 94043
Facsimile: (415) 944-8500
Attention: David G. Pine, Esq.
with a copy to:
Fenwick & West LLP
Two Palo Alto Square
Suite 800
Palo Alto, CA 94306
Facsimile: (415) 494-1417
Attention: Gordon K. Davidson, Esq.
or to such other address or facsimile number as may have been furnished to
Indemnitee by the Company or to the Company by Indemnitee, as the case may be.
Section 22. Contribution. To the fullest extent permissible under
------------
applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee,
whether for judgments, fines, penalties, excise taxes, amounts paid or to be
paid in settlement and/or for Expenses, in connection with any claim relating to
an indemnifiable event under this Agreement, in such proportion as is deemed
fair and reasonable in light of all of the circumstances of such Proceeding in
order to reflect (i) the relative benefits received by the Company and
Indemnitee as a result of the event(s) and/or transaction(s) giving cause to
such Proceeding; and/or (ii) the relative fault of the Company (and its
directors, officers, employees and agents) and Indemnitee in connection with
such event(s) and/or transaction(s).
-13-
<PAGE>
Section 23. Governing Law; Submission to Jurisdiction; Appointment of
---------------------------------------------------------
Agent for Service of Process. This Agreement and the legal relations among the
- ----------------------------
parties shall be governed by, and construed and enforced in accordance with, the
laws of the State of Delaware, without regard to its conflict of laws rules.
Except with respect to any arbitration commenced by Indemnitee pursuant to
Section 10(a) of this Agreement, the Company and Indemnitee hereby irrevocably
and unconditionally (i) agree that any action or proceeding arising out of or in
connection with this Agreement shall be brought only in the Chancery Court of
the State of Delaware (the "Delaware Court"), and not in any other state or
federal court in the United States of America or any court in any other country,
(ii) consent to submit to the exclusive jurisdiction of the Delaware Court for
purposes of any action or proceeding arising out of or in connection with this
Agreement, (iii) appoint, to the extent such party is not a resident of the
State of Delaware, irrevocably RL&F Service Corp., One Rodney Square, 10th
Floor, 10th and King Streets, Wilmington, Delaware 19801 as its agent in the
State of Delaware as such party's agent for acceptance of legal process in
connection with any such action or proceeding against such party with the same
legal force and validity as if served upon such party personally within the
State of Delaware, (iv) waive any objection to the laying of venue of any such
action or proceeding in the Delaware Court, and (v) waive, and agree not to
plead or to make, any claim that any such action or proceeding brought in the
Delaware Court has been brought in an improper or otherwise inconvenient forum.
Section 24. Miscellaneous. Use of the masculine pronoun shall be deemed
-------------
to include usage of the feminine pronoun where appropriate.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
ATTEST AT HOME CORPORATION
By:___________________________ By:_________________________
Name: Name:
Title: Title:
INDEMNITEE
____________________________
Signature
____________________________
Print Name
Address: ____________________________
____________________________
____________________________
Facsimile:( )
----------------------------
-15-
<PAGE>
EXHIBIT 10.10
AT HOME CORPORATION
1996 INCENTIVE STOCK OPTION PLAN
--------------------------------
As Adopted January 12, 1996 and as amended May 16, 1996
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. Capitalized terms not defined in the text of this
Plan are defined in Section 21. This Plan is intended to be a written
compensatory benefit plan within the meaning of Rule 701 promulgated under the
Securities Act and is intended to comply with Section 25102(o) of the California
Corporations Code. Any provision of this Plan which is inconsistent with Section
25102(o) shall, without further act or amendment by the Company or the Board, be
reformed to comply with the requirements of Section 25102(o).
2. SHARES SUBJECT TO THIS PLAN.
---------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 16,
--------------------------
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan shall be 1,500,000 Shares. Subject to Sections 2.2 and 16,
Shares that: (a) are subject to issuance upon exercise of an Option under this
Plan but cease to be subject to such Option for any reason other than the
purchase of such Shares upon exercise of such Option; or (b) are subject to an
Option that otherwise terminates or expires without such Shares being issued,
shall again be available for grant and issuance in connection with future grants
of Options under this Plan.
2.2 Adjustment of Shares. In the event that the number of the
--------------------
outstanding shares of the Company's Common Stock 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, and (b) the Exercise Prices of and number of Shares subject to
outstanding Options shall be proportionately adjusted, subject to any required
action by the Board or the shareholders of the Company and compliance with
applicable securities laws; provided, however, that fractions of a Share shall
-------- -------
not be issued but shall either be (i) replaced by a cash payment equal to the
Fair Market Value of such fractional shares in lieu thereof, or (ii) 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 Options may be
granted to employees, officers, directors or consultants of the Company or any
Parent or Subsidiary of the Company; provided such consultants render bona fide
--------
services not in connection with the offer and sale of securities in a capital-
raising transaction. A person may be granted more than one Option under this
Plan.
4. ADMINISTRATION.
--------------
4.1 Committee Authority. This Plan shall be administered by the
-------------------
Committee or the Board acting as the Committee. Subject to the general purposes,
terms and conditions of
-1-
<PAGE>
this Plan, and to the direction of the Board, the Committee shall have full
power and authority to implement and carry out this Plan, including without
limitation the authority to:
(a) construe and interpret this Plan, any Stock Option Agreement and
any other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan;
(c) select persons to receive Options;
(d) determine the form and terms of Options;
(e) determine the number of Shares subject to Options;
(f) determine whether Options will be granted singly, in combination,
in tandem with, in replacement of, or as alternatives to, other
Options 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 Option conditions;
(h) determine the vesting, exercisability and payment terms of
Options;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in this Plan, any Option or any Stock Option
Agreement;
(j) determine whether an Option has vested or 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 Option shall be made in its sole discretion at the time of
grant of the Option or, unless in contravention of any express term of this Plan
or Option, at any later time, and such determination shall be final and binding
on the Company and all persons having an interest in any Option under this Plan.
The Committee may delegate to one or more officers of the Company the authority
to grant an Option under this Plan to Participants who are not Insiders of the
Company.
4.3 Exchange Act Requirements. If the Company is subject to the
-------------------------
Exchange Act, the Company will take appropriate steps to comply with the
disinterested director requirements of Section 16(b) of the Exchange Act,
including but not limited to, the appointment by the Board of a Committee
consisting of not less than two persons (who are members of the Board), each of
whom is a Disinterested Person.
5. OPTIONS. The Committee may grant Options to eligible persons and
-------
shall determine whether such Options shall be Incentive Stock Options within the
meaning of the Code ("ISOS") 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:
-2-
<PAGE>
5.1 Form of Option Grant. Each Option granted under this Plan
--------------------
shall be evidenced by an option grant agreement which shall expressly identify
the Option as an ISO or NQSO ("STOCK OPTION AGREEMENT"), and be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee shall from time to time approve, and which shall comply with and be
subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option shall 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 shall be exercisable within the times
---------------
or upon or after the occurrence of the events determined by the Committee as set
forth in the Stock Option Agreement; provided, however, that no Option shall be
-------- -------
exercisable after the expiration of ten (10) years from the date such 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 any Parent or Subsidiary of the
Company ("TEN PERCENT SHAREHOLDER") shall be exercisable after the expiration of
five (5) years from the date the Option is granted. The Committee also may
provide for the exercise of Options to become exercisable at one time or from
time to time, periodically or otherwise, in such number or percentage as the
Committee determines. Subject to earlier termination of an Option as provided
herein, each Participant shall have the right to exercise such Participant's
Option at the rate of at least twenty percent (20%) per year over five (5) years
from the date such Option is granted.
5.4 Exercise Price. The Exercise Price shall 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 shall 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 Option granted to
a Ten Percent Shareholder shall 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 6 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, 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 in the manner permitted
by the terms of such Option, as determined under Section 6.1.
5.6 Termination. Notwithstanding the exercise periods set forth in
-----------
the Stock Option Agreement, subject to the provisions of Section 5.9, exercise
of an Option shall be subject to the following:
(a) If the Participant is Terminated for any reason except death or
Disability, then Participant may exercise such Participant's
Options (only to the extent
-3-
<PAGE>
that such Options would have been exercisable upon the
Termination Date) no later than three (3) months after the
Termination Date (or such shorter time period not less than
thirty (30) days as may be specified in the Stock Option
Agreement), but in any event no later than the expiration date of
the Options, provided, that once the Company is subject
--------
to the reporting requirements of the Exchange Act, the Company
may permit any Participant who is an executive officer of the
Company within the meaning of Section 16(b) of the Exchange Act
to exercise an Option up to seven (7) months after the
Termination Date (but no later than the expiration date of the
Option); provided, however, that any unexercised ISO that remains
-------- -------
exercisable after three (3) months after the Termination Date
shall be deemed a NQSO.
(b) If the Participant is Terminated because of death or Disability
(or the Participant dies within three months of such
Termination), 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 time period not less than six (6) months as
may be specified in the Stock Option Agreement), but in any event
no later than the expiration date of the Options; provided,
--------
however, that in the event of Termination due to Disability other
-------
than as defined in Section 22(e)(3) of the Code, any unexercised
ISO that remains exercisable after three (3) months after the
Termination Date shall be deemed a NQSO.
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 ISOs. The aggregate Fair Market Value
-------------------
(determined as of the date of grant) of Shares with respect to which ISOs 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 or any
Parent or Subsidiary of the Company) shall not exceed $100,000. If the Fair
Market Value of Shares on the date of grant with respect to which ISOs 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 shall be ISOs and the Options for the amount
in excess of $100,000 that become exercisable in that calendar year shall 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 ISOs, then such
different limit shall be automatically incorporated herein and shall 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 Participant, impair any of Participant's rights under any
Option previously granted. Any outstanding ISO that is modified,
-4-
<PAGE>
extended, renewed or otherwise altered shall 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 affected Participants 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 ISOs shall be interpreted, amended
or altered, nor shall 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 affected Participants, to disqualify any ISO under
Section 422 of the Code.
6. PAYMENT FOR SHARE PURCHASES.
---------------------------
6.1 Payment. Payment for Shares purchased upon exercise of an Option
-------
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
sufficient to avoid imputation of income under Sections 483 and
1274 of the Code; provided, however, that Participants who are
-------- -------
not employees of the Company shall not be entitled to purchase
Shares with a promissory note unless the note is adequately
secured by collateral other than the Shares; and provided
--------
further, that the portion of the Purchase Price equal to the par
-------
value of the Shares, if any, must be paid in cash; and provided
--------
further, that the promissory note shall be secured as provided in
-------
Section 12 of this Plan;
(d) by waiver of compensation due or accrued to Participant for
services rendered;
(e) by tender of property;
(f) provided that a public market for the Company's stock then
--------
exists;
(1) through a "same day sale" commitment from 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
-5-
<PAGE>
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 Participant and an NASD
Dealer whereby 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
(g) by any combination of the foregoing.
6.2 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.
7. WITHHOLDING TAXES.
-----------------
7.1 Withholding Generally. Whenever Shares are to be issued upon the
---------------------
exercise of Options 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 Options are to be made in cash, such payment shall
be net of an amount sufficient to satisfy federal, state, and local withholding
tax requirements.
7.2 Stock Withholding. When, under applicable tax laws, a Participant
-----------------
incurs tax liability in connection with the exercise or vesting of any Option or
exercise of an Option that is subject to tax withholding and the Participant is
obligated to pay the Company the amount required to be withheld, the Committee
may 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 (the "TAX DATE"). All elections by a Participant to have Shares
withheld for this purpose shall be made in writing in a form acceptable to the
Committee and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, then except as provided below, the election shall be
irrevocable as to the particular Shares as to which the election
is made;
(c) all elections shall be subject to the consent or disapproval of
the Committee;
(d) if the Participant is an Insider and if the Company is subject to
Section 16(b) of the Exchange Act: (1) the election may not be
made within six (6) months of the date of grant of the Option,
except as otherwise permitted by SEC Rule 16b-3(e) under the
Exchange Act, and (2) either (A) the election to use stock
withholding must be irrevocably made at least
-6-
<PAGE>
six (6) months prior to the Tax Date (although such election may
be revoked at any time at least six (6) months prior to the Tax
Date) or (B) the exercise of the Option or election to use stock
withholding must be made in the ten (10) day period beginning on
the third (3rd) day following the release of the Company's
quarterly or annual summary statement of sales or earnings; and
(e) in the event that the Tax Date is deferred until six (6) months
after the delivery of Shares under Section 83(b) of the Code, the
Participant shall receive the full number of Shares with respect
to which the exercise occurs, but such Participant shall be
unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
8. PRIVILEGES OF STOCK OWNERSHIP.
-----------------------------
8.1 Voting and Dividends. No Participant shall have any of the
--------------------
rights of a shareholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
shall be a shareholder and have all the rights of a shareholder 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 subject to repurchase restrictions or other restrictions ("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 shall be subject to the same restrictions as the Restricted
Stock; provided, further, that the Participant shall have no right to retain
-------- -------
such stock dividends or stock distributions with respect to Shares that are
repurchased at the Participant's original Purchase Price pursuant to Section 10.
8.2 Financial Statements. The Company shall provide fiscal year end
--------------------
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 Options outstanding; provided, however, the Company shall not be
-------- -------
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
9. TRANSFERABILITY. Options granted under this Plan, and any interest
---------------
therein, shall 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. During the lifetime of the
Participant an Option shall be exercisable only by the Participant who holds
such Option, and any elections with respect to an Option, may be made only by
the Participant who holds such Option.
10. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Stock Option
Agreement (a) a right of first refusal to purchase all Shares that a Participant
(or a subsequent transferee) may propose to transfer to a third party, and/or
(b) a right to repurchase all Shares (or, with the consent of the Participant, a
portion of the Shares) held by a Participant following such Participant's
Termination at any time within ninety (90) days after Participant's Termination
Date for cash or cancellation of purchase money indebtedness of Purchaser to the
Company, at: (A) with respect
-7-
<PAGE>
to Shares that are "Vested" (as defined in the Stock Option Agreement), the
higher of: (l) the Participant's original Purchase Price, or (2) the Fair Market
Value of such Shares on the Participant's Termination Date, provided such right
--------
of repurchase terminates when the Company's securities become publicly traded;
or (B) with respect to Shares that are not "Vested" (as defined in the Stock
Option Agreement), at the Participant's original Purchase Price, provided, that
--------
the right to repurchase at the original Purchase Price lapses at the rate of at
least 20% per year over 5 years from the date the Shares were purchased. If such
right of repurchase of Shares that are not "Vested" is assigned, the assignee
must pay the Company upon assignment of the right (unless the assignee is a one
hundred percent (100%) owned Subsidiary of the Company or is the Parent of the
Company owning one hundred percent (100%) of the Company) cash equal to the
difference between the Exercise Price and the Fair Market Value of the Shares,
if the Exercise Price is less than the Fair Market Value of the Shares.
11. CERTIFICATES. All certificates for Shares or other securities
------------
delivered under this Plan shall be subject to such stock transfer orders,
legends and other restrictions as the Committee may deem necessary or 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.
12. 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 officer 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 shall 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 shall 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 shall be required to
execute and deliver a written pledge agreement in such form as the Committee
shall 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.
13. EXCHANGE AND BUYOUT OF OPTIONS. The Committee may, at any time or
------------------------------
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Options in exchange for the surrender and
cancellation of any or all outstanding Options. The Committee may at any time
buy from a Participant an Option 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 shall agree.
14. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Option shall not
----------------------------------------------
be effective unless such Option is granted by the Committee and is exercisable
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, as they
are in effect on the date of grant of the Option
-8-
<PAGE>
and also on the date of exercise or other issuance. Notwithstanding any other
provision in this Plan, the Company shall 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 shall 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
shall have no liability for any inability or failure to do so.
15. NO OBLIGATION TO EMPLOY. Nothing in this Plan or in any Option
-----------------------
granted under this Plan shall 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, 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.
16. CORPORATE TRANSACTIONS.
----------------------
16.1 Assumption or Replacement of Options by Successor. In the
-------------------------------------------------
event of:
(a) a merger or consolidation in which the Company is not the
surviving corporation (other than (i) a merger or consolidation
----- ----
of the Company with a wholly-owned subsidiary, (ii) a
reincorporation of the Company in a different jurisdiction or
(iii) an other transaction in which there is no substantial
change in the shareholders of the Company and their respective
stockholdings in the successor corporation and the Options
granted under this Plan are assumed or replaced by the successor
corporation in a manner that is binding on all Participants);
(b) a reverse triangular merger in which the Company survives but
following which the shareholders of the Company (other than any
----- ----
shareholder that (i) merges with the Company in such reverse
triangular merger or (ii) is an affiliate of another corporation
that merges with the Company in such reverse triangular merger)
cease to own their shares or other equity interests in the
Company as a result of such merger;
(c) a dissolution or liquidation of the Company;
(d) the sale of substantially all of the assets of the Company; or
(e) any other transaction which qualifies as a "corporate
transaction" under Section 424(a) of the Code or regulations
thereunder wherein the shareholders of the Company give up all of
their equity interest in the Company,
any or all outstanding Options may be assumed or replaced by the successor
corporation (if any), which assumption or replacement shall be binding on all
Participants. In the alternative, the successor corporation may substitute
equivalent stock options or provide substantially similar consideration to
Participants as was provided to shareholders (after taking into account the
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<PAGE>
existing provisions of the Options). 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.
If such successor corporation (if any) refuses to assume, replace or
substitute Options as provided above pursuant to a transaction described in this
Section 16.1, then such Options shall expire upon the consummation of such
transaction at such time and on such conditions as the Board shall determine.
16.2 Other Treatment of Options. Subject to any greater rights
--------------------------
granted to Participants under the foregoing provisions of this Section 16, in
the event of the occurrence of any transaction described in Section 16.1, any
outstanding Options shall be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
16.3 Assumption of Options by the Company. The Company, from time to
------------------------------------
time, also may substitute or assume outstanding stock options granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (a) granting an Option under this Plan in substitution of
such other company's stock option, or (b) assuming such award as if it had been
granted under this Plan if the terms of such assumed stock option could be
applied to an Option granted under this Plan. Such substitution or assumption
shall be permissible if the holder of the substituted or assumed stock option
would have been eligible to be granted an Option under this Plan if the other
company had applied the rules of this Plan to such grant. In the event the
Company assumes a stock option granted by another company, the terms and
conditions of such stock option shall 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 stock option, such new Option may be granted with a similarly adjusted
Exercise Price.
17. ADOPTION AND SHAREHOLDER APPROVAL. This Plan shall become effective
---------------------------------
on the date that it is adopted by the Board (the "EFFECTIVE DATE"). This Plan
shall be approved by the shareholders of the Company (excluding Shares issued
pursuant to this Plan), consistent with applicable laws, within twelve months
before or after the Effective Date. Upon the Effective Date, the Board may
grant Options pursuant to this Plan; provided, however, that: (a) no Option may
-------- -------
be exercised prior to initial shareholder approval of this Plan; and (b) in the
event that shareholder approval is not obtained within the time period provided
herein, all Options granted hereunder without such approval shall be canceled.
After the Company becomes subject to Section 16(b) of the Exchange Act, the
Company will comply with the requirements of Rule 16b-3 (or its successor), as
amended, with respect to shareholder approval.
18. TERM OF PLAN. This Plan will terminate ten (10) years from the
------------
Effective Date or, if earlier, the date of initial shareholder approval of this
Plan.
19. 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 Stock Option Agreement or instrument to be executed pursuant to this
Plan; provided, however, that the Board shall not, without the approval of the
-------- -------
shareholders of the Company, amend this Plan in any manner that requires such
shareholder approval pursuant to the Code or
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<PAGE>
the regulations promulgated thereunder as such provisions apply to ISO plans or
(if the Company is then subject to the Exchange Act) pursuant to the Exchange
Act or Rule 16b-3 (or its successor), as amended, thereunder.
20. NONEXCLUSIVITY OF THIS PLAN. Neither the adoption of this Plan by the
---------------------------
Board, the submission of this Plan to the shareholders of the Company for
approval, nor any provision of this Plan shall 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.
21. DEFINITIONS. As used in this Plan, the following terms shall have the
-----------
following meanings:
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee of the Board appointed by the Board to
administer this Plan, or if no such committee is appointed, the Board.
"COMMON STOCK" means the Company's Series A Common Stock.
"COMPANY" means At Home Corporation, a corporation organized under the
laws of the State of Delaware, or any successor corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"DISINTERESTED PERSON" means a director who has not, during the period
that person is a member of the Committee and for one year prior to service as a
member of the Committee, been granted or awarded equity securities pursuant to
this Plan or any other plan of the Company or any Parent or Subsidiary of the
Company, except in accordance with the requirements set forth in Rule 16b-
3(c)(2)(i) (and any successor regulation thereto) as promulgated by the SEC
under Section 16(b) of the Exchange Act, as such rule is amended from time to
time and as interpreted by the SEC.
"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 last reported sale price on the Nasdaq National
Market or, if no such reported sale takes place on such date, the
average of the closing bid and asked prices;
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<PAGE>
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, the last reported sale price or, if
no such reported sale takes place on such date, the average of
the closing bid and asked prices on the principal national
securities exchange on which the Common Stock is listed or
admitted to trading;
(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 such date, as reported by The Wall Street
Journal, for the over-the-counter market; or
(d) if none of the foregoing is applicable, by the Board of Directors
of the Company 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 option to purchase Shares granted pursuant to this
Plan.
"PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company, if at the time of the granting of
an Option under this Plan, 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 Option under this Plan.
"PLAN" means this At Home Corporation 1996 Incentive Stock Option
Plan, as amended from time to time.
"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 16, and any
successor security.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Award, 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 ceased to provide services as
an employee, director, or consultant, to the Company or a Parent or Subsidiary
of the Company, except in the case of sick leave, military leave, or any other
leave of absence approved by the Committee, provided, that such leave is for a
--------
period of not more than three (3) months, or reinstatement upon the expiration
of such leave is guaranteed by contract or statute. The Committee shall have
sole discretion to
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<PAGE>
determine whether a Participant has ceased to provide services and the effective
date on which the Participant ceased to provide services (the "TERMINATION
DATE").
-13-
<PAGE>
EXHIBIT 10.11
AT HOME CORPORATION
1996 INCENTIVE STOCK OPTION PLAN NO. 2
--------------------------------------
As Adopted July 16, 1996
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. Capitalized terms not defined in the text of this
Plan are defined in Section 21. This Plan is intended to be a written
compensatory benefit plan within the meaning of Rule 701 promulgated under the
Securities Act and is intended to comply with Section 25102(o) of the California
Corporations Code. Any provision of this Plan which is inconsistent with Section
25102(o) shall, without further act or amendment by the Company or the Board, be
reformed to comply with the requirements of Section 25102(o).
2. SHARES SUBJECT TO THIS PLAN.
---------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 16, the
--------------------------
total number of Shares reserved and available for grant and issuance pursuant to
this Plan shall be 5,000,000 Shares (less the number of Shares purchased outside
----
this Plan and outside the Company's 1996 Incentive Stock Option Plan (adopted
January 12, 1996 and amended May 16, 1996) by employees, officers, directors or
consultants of the Company, whether such purchases occur before or after the
Effective Date (as defined in Section 17 below), unless specifically provided
otherwise in a resolution adopted by the Board at the time it approves the sale
of Shares to such employee, officer, director or consultant, and plus the number
----
of Shares repurchased by the Company upon termination of any person's employment
or service relationship with the Company or upon exercise of the Company's right
of first refusal upon transfers by such persons); provided that the number of
-------------
Shares issued hereunder shall not exceed 5,000,000. Subject to Sections 2.2 and
16, Shares that: (a) are subject to issuance upon exercise of an Option under
this Plan but cease to be subject to such Option for any reason other than the
purchase of such Shares upon exercise of such Option; or (b) are subject to an
Option that otherwise terminates or expires without such Shares being issued,
shall again be available for grant and issuance in connection with future grants
of Options under this Plan.
2.2 Adjustment of Shares. In the event that the number of the
--------------------
outstanding shares of the Company's Common Stock 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, and (b) the Exercise Prices of and number of Shares subject to
outstanding Options shall be proportionately adjusted, subject to any required
action by the Board or the shareholders of the Company and compliance with
applicable securities laws; provided, however, that fractions of a Share shall
-------- -------
not be issued but shall either be (i) replaced by a cash payment equal to the
Fair Market Value of such fractional shares in lieu thereof, or (ii) rounded up
to the nearest whole Share, as determined by the Committee.
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<PAGE>
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 Options may be
granted to employees, officers, directors or consultants of the Company or any
Parent or Subsidiary of the Company; provided such consultants render bona fide
--------
services not in connection with the offer and sale of securities in a capital-
raising transaction. A person may be granted more than one Option under this
Plan.
4. ADMINISTRATION.
--------------
4.1 Committee Authority. This Plan shall be administered by the
-------------------
Committee or 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 shall have full power and authority to implement and carry out this
Plan, including without limitation the authority to:
(a) construe and interpret this Plan, any Stock Option Agreement and
any other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan;
(c) select persons to receive Options;
(d) determine the form and terms of Options;
(e) determine the number of Shares subject to Options;
(f) determine whether Options will be granted singly, in combination,
in tandem with, in replacement of, or as alternatives to, other
Options 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 Option conditions;
(h) determine the vesting, exercisability and payment terms of
Options;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in this Plan, any Option or any Stock Option
Agreement;
(j) determine whether an Option has vested or 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 Option shall be made in its sole discretion at the time of
grant of the Option or, unless in contravention of any express term of this Plan
or Option, at any later time, and such determination shall be final and binding
on the Company and all persons having an interest in any Option under this Plan.
The Committee may delegate to one or more officers of the Company the authority
to grant an Option under this Plan to Participants who are not Insiders of the
Company.
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<PAGE>
4.3 Exchange Act Requirements. If the Company is subject to the
-----------------------------
Exchange Act, the Company will take appropriate steps to comply with the
disinterested director requirements of Section 16(b) of the Exchange Act,
including but not limited to, the appointment by the Board of a Committee
consisting of not less than two persons (who are members of the Board), each of
whom is a Disinterested Person.
5. OPTIONS. The Committee may grant Options to eligible persons and shall
-------
determine whether such Options shall be Incentive Stock Options within the
meaning of the Code ("ISOS") 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 shall be
--------------------
evidenced by an option grant agreement which shall expressly identify the Option
as an ISO or NQSO ("STOCK OPTION AGREEMENT"), and be in such form and contain
such provisions (which need not be the same for each Participant) as the
Committee shall from time to time approve, and which shall comply with and be
subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option shall 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 shall be exercisable within the times or
---------------
upon or after the occurrence of the events determined by the Committee as set
forth in the Stock Option Agreement; provided, however, that no Option shall be
-------- -------
exercisable after the expiration of ten (10) years from the date such 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 any Parent or Subsidiary of the
Company ("TEN PERCENT SHAREHOLDER") shall be exercisable after the expiration of
five (5) years from the date the Option is granted. The Committee also may
provide for the exercise of Options to become exercisable at one time or from
time to time, periodically or otherwise, in such number or percentage as the
Committee determines. Subject to earlier termination of an Option as provided
herein, each Participant shall have the right to exercise such Participant's
Option at the rate of at least twenty percent (20%) per year over five (5) years
from the date such Option is granted.
5.4 Exercise Price. The Exercise Price shall 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 shall 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 Option granted to
a Ten Percent Shareholder shall 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 6 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
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<PAGE>
number of shares being purchased, the restrictions imposed on the shares, 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 in the manner permitted by the terms of such option, as determined
under section 6.1.
5.6 Termination. Notwithstanding the exercise periods set forth in the
-----------
Stock Option Agreement, subject to the provisions of Section 5.9, exercise of an
Option shall be subject to the following:
(a) If the Participant is Terminated for any reason except death or
Disability, then 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 time period
not less than thirty (30) days as may be specified in the Stock
Option Agreement), but in any event no later than the expiration
date of the Options, provided, that once the Company is subject
--------
to the reporting requirements of the Exchange Act, the Company
may permit any Participant who is an executive officer of the
Company within the meaning of Section 16(b) of the Exchange Act
to exercise an Option up to seven (7) months after the
Termination Date (but no later than the expiration date of the
Option); provided, however, that any unexercised ISO that remains
-------- -------
exercisable after three (3) months after the Termination Date
shall be deemed a NQSO.
(b) If the Participant is Terminated because of death or Disability
(or the Participant dies within three months of such
Termination), 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 time period not less than six (6) months as
may be specified in the Stock Option Agreement), but in any event
no later than the expiration date of the Options; provided,
--------
however, that in the event of Termination due to Disability other
-------
than as defined in Section 22(e)(3) of the Code, any unexercised
ISO that remains exercisable after three (3) months after the
Termination Date shall be deemed a NQSO.
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 ISOs. The aggregate Fair Market Value (determined
-------------------
as of the date of grant) of Shares with respect to which ISOs 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 or any Parent or
Subsidiary of the Company) shall not exceed $100,000. If
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<PAGE>
the Fair Market Value of Shares on the date of grant with respect to which ISOs
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 shall be ISOs and the Options for the
amount in excess of $100,000 that become exercisable in that calendar year shall
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 ISOs, then
such different limit shall be automatically incorporated herein and shall 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 Participant, impair any of Participant's rights under any
Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered shall 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 affected Participants 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 ISOs shall be interpreted, amended or
altered, nor shall 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 affected Participants, to disqualify any ISO under
Section 422 of the Code.
6. PAYMENT FOR SHARE PURCHASES.
---------------------------
6.1 Payment. Payment for Shares purchased upon exercise of an Option
-------
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
sufficient to avoid imputation of income under Sections 483 and
1274 of the Code; provided, however, that Participants who are
-------- -------
not employees of the Company shall not be entitled to purchase
Shares with a promissory note unless the note is adequately
secured by collateral other than the Shares; and provided
--------
further, that the portion of the Purchase Price equal to the par
-------
value of the Shares, if any, must be paid in cash; and provided
--------
further, that
-------
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<PAGE>
the promissory note shall be secured as provided in Section 12
of this Plan;
(d) by waiver of compensation due or accrued to Participant for
services rendered;
(e) by tender of property;
(f) provided that a public market for the Company's stock then
--------
exists;
(1) through a "same day sale" commitment from 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 Participant and an NASD
Dealer whereby 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
(g) by any combination of the foregoing.
6.2 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.
7. WITHHOLDING TAXES.
-----------------
7.1 Withholding Generally. Whenever Shares are to be issued upon the
---------------------
exercise of Options 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 Options are to be made in cash, such payment shall
be net of an amount sufficient to satisfy federal, state, and local withholding
tax requirements.
7.2 Stock Withholding. When, under applicable tax laws, a
-----------------
Participant incurs tax liability in connection with the exercise or vesting of
any Option or exercise of an Option that is subject to tax withholding and the
Participant is obligated to pay the Company the amount required to be withheld,
the Committee may 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 (the "TAX DATE"). All elections by a Participant to
have Shares withheld for this purpose shall be
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<PAGE>
made in writing in a form acceptable to the Committee and shall be subject to
the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, then except as provided below, the election shall be
irrevocable as to the particular Shares as to which the election
is made;
(c) all elections shall be subject to the consent or disapproval of
the Committee;
(d) if the Participant is an Insider and if the Company is subject to
Section 16(b) of the Exchange Act: (1) the election may not be
made within six (6) months of the date of grant of the Option,
except as otherwise permitted by SEC Rule 16b-3(e) under the
Exchange Act, and (2) either (A) the election to use stock
withholding must be irrevocably made at least six (6) months
prior to the Tax Date (although such election may be revoked at
any time at least six (6) months prior to the Tax Date) or (B)
the exercise of the Option or election to use stock withholding
must be made in the ten (10) day period beginning on the third
(3rd) day following the release of the Company's quarterly or
annual summary statement of sales or earnings; and
(e) in the event that the Tax Date is deferred until six (6) months
after the delivery of Shares under Section 83(b) of the Code, the
Participant shall receive the full number of Shares with respect
to which the exercise occurs, but such Participant shall be
unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
8. PRIVILEGES OF STOCK OWNERSHIP.
-----------------------------
8.1 Voting and Dividends. No Participant shall have any of the
--------------------
rights of a shareholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
shall be a shareholder and have all the rights of a shareholder 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 subject to repurchase restrictions or other restrictions ("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 shall be subject to the same restrictions as the Restricted
Stock; provided, further, that the Participant shall have no right to retain
-------- -------
such stock dividends or stock distributions with respect to Shares that are
repurchased at the Participant's original Purchase Price pursuant to Section 10.
8.2 Financial Statements. The Company shall provide fiscal year end
--------------------
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 Options outstanding; provided, however, the Company shall not be
-------- -------
required to provide such financial statements to
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<PAGE>
Participants whose services in connection with the Company assure them access to
equivalent information.
9. TRANSFERABILITY. Options granted under this Plan, and any
---------------
interest therein, shall 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. During the lifetime of
the Participant an Option shall be exercisable only by the Participant who holds
such Option, and any elections with respect to an Option, may be made only by
the Participant who holds such Option.
10. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Stock Option
Agreement (a) a right of first refusal to purchase all Shares that a Participant
(or a subsequent transferee) may propose to transfer to a third party, and/or
(b) a right to repurchase all Shares (or, with the consent of the Participant, a
portion of the Shares) held by a Participant following such Participant's
Termination at any time within ninety (90) days after Participant's Termination
Date for cash or cancellation of purchase money indebtedness of Purchaser to the
Company, at: (A) with respect to Shares that are "Vested" (as defined in the
Stock Option Agreement), the higher of: (l) the Participant's original Purchase
Price, or (2) the Fair Market Value of such Shares on the Participant's
Termination Date, provided such right of repurchase terminates when the
--------
Company's securities become publicly traded; or (B) with respect to Shares that
are not "Vested" (as defined in the Stock Option Agreement), at the
Participant's original Purchase Price, provided, that the right to repurchase at
--------
the original Purchase Price lapses at the rate of at least 20% per year over 5
years from the date the Shares were purchased. If such right of repurchase of
Shares that are not "Vested" is assigned, the assignee must pay the Company upon
assignment of the right (unless the assignee is a one hundred percent (100%)
owned Subsidiary of the Company or is the Parent of the Company owning one
hundred percent (100%) of the Company) cash equal to the difference between the
Exercise Price and the Fair Market Value of the Shares, if the Exercise Price is
less than the Fair Market Value of the Shares.
11. CERTIFICATES. All certificates for Shares or other securities
------------
delivered under this Plan shall be subject to such stock transfer orders,
legends and other restrictions as the Committee may deem necessary or 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.
12. 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 officer 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 shall 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 shall have full recourse against the Participant
-8-
<PAGE>
under the promissory note notwithstanding any pledge of the Participant's Shares
or other collateral. In connection with any pledge of the Shares, Participant
shall be required to execute and deliver a written pledge agreement in such form
as the Committee shall 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.
13. EXCHANGE AND BUYOUT OF OPTIONS. The Committee may, at any time or
------------------------------
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Options in exchange for the surrender and
cancellation of any or all outstanding Options. The Committee may at any time
buy from a Participant an Option 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 shall agree.
14. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Option shall not
----------------------------------------------
be effective unless such Option is granted by the Committee and is exercisable
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, as they
are in effect on the date of grant of the Option and also on the date of
exercise or other issuance. Notwithstanding any other provision in this Plan,
the Company shall 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 shall 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 shall have no liability
for any inability or failure to do so.
15. NO OBLIGATION TO EMPLOY. Nothing in this Plan or in any Option
-----------------------
granted under this Plan shall 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, 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.
16. CORPORATE TRANSACTIONS.
----------------------
16.1 Assumption or Replacement of Options by Successor. In the event
-------------------------------------------------
of:
(a) a merger or consolidation in which the Company is not the
surviving corporation (other than (i) a merger or consolidation
----- ----
of the Company with a wholly-owned subsidiary, (ii) a
reincorporation of the Company in a different jurisdiction or
(iii) an other transaction in which there is no substantial
change in the shareholders of the Company and their respective
stockholdings in the successor corporation and the Options
granted under this Plan are assumed or replaced by the successor
corporation in a manner that is binding on all Participants);
-9-
<PAGE>
(b) a reverse triangular merger in which the Company survives but
following which the shareholders of the Company (other than any
----- ----
shareholder that (i) merges with the Company in such reverse
triangular merger or (ii) is an affiliate of another corporation
that merges with the Company in such reverse triangular merger)
cease to own their shares or other equity interests in the
Company as a result of such merger;
(c) a dissolution or liquidation of the Company;
(d) the sale of substantially all of the assets of the Company; or
(e) any other transaction which qualifies as a "corporate
transaction" under Section 424(a) of the Code or regulations
thereunder wherein the shareholders of the Company give up all of
their equity interest in the Company,
any or all outstanding Options may be assumed or replaced by the successor
corporation (if any), which assumption or replacement shall be binding on all
Participants. In the alternative, the successor corporation may substitute
equivalent stock options or provide substantially similar consideration to
Participants as was provided to shareholders (after taking into account the
existing provisions of the Options). 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.
If such successor corporation (if any) refuses to assume, replace or
substitute Options as provided above pursuant to a transaction described in this
Section 16.1, then such Options shall expire upon the consummation of such
transaction at such time and on such conditions as the Board shall determine.
16.2 Other Treatment of Options. Subject to any greater rights
--------------------------
granted to Participants under the foregoing provisions of this Section 16, in
the event of the occurrence of any transaction described in Section 16.1, any
outstanding Options shall be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
16.3 Assumption of Options by the Company. The Company, from time to
------------------------------------
time, also may substitute or assume outstanding stock options granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (a) granting an Option under this Plan in substitution of
such other company's stock option, or (b) assuming such award as if it had been
granted under this Plan if the terms of such assumed stock option could be
applied to an Option granted under this Plan. Such substitution or assumption
shall be permissible if the holder of the substituted or assumed stock option
would have been eligible to be granted an Option under this Plan if the other
company had applied the rules of this Plan to such grant. In the event the
Company assumes a stock option granted by another company, the terms and
conditions of such stock option shall 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
-10-
<PAGE>
elects to grant a new Option rather than assuming an existing stock option, such
new Option may be granted with a similarly adjusted Exercise Price.
17. ADOPTION AND SHAREHOLDER APPROVAL. This Plan shall become effective
---------------------------------
on the date that it is adopted by the Board (the "EFFECTIVE DATE"). This Plan
shall be approved by the shareholders of the Company (excluding Shares issued
pursuant to this Plan), consistent with applicable laws, within twelve months
before or after the Effective Date. Upon the Effective Date, the Board may
grant Options pursuant to this Plan; provided, however, that: (a) no Option may
-------- -------
be exercised prior to initial shareholder approval of this Plan; and (b) in the
event that shareholder approval is not obtained within the time period provided
herein, all Options granted hereunder without such approval shall be canceled.
After the Company becomes subject to Section 16(b) of the Exchange Act, the
Company will comply with the requirements of Rule 16b-3 (or its successor), as
amended, with respect to shareholder approval.
18. TERM OF PLAN. This Plan will terminate ten (10) years from the
------------
Effective Date or, if earlier, the date of initial shareholder approval of this
Plan.
19. 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 Stock Option Agreement or instrument to be executed pursuant to this
Plan; provided, however, that the Board shall not, without the approval of the
-------- -------
shareholders of the Company, amend this Plan in any manner that requires such
shareholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans or (if the Company is then
subject to the Exchange Act) pursuant to the Exchange Act or Rule 16b-3 (or its
successor), as amended, thereunder.
20. NONEXCLUSIVITY OF THIS PLAN. Neither the adoption of this Plan by the
---------------------------
Board, the submission of this Plan to the shareholders of the Company for
approval, nor any provision of this Plan shall 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.
21. DEFINITIONS. As used in this Plan, the following terms shall have the
-----------
following meanings:
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee of the Board appointed by the Board to
administer this Plan, or if no such committee is appointed, the Board.
"COMMON STOCK" means the Company's Series A Common Stock.
"COMPANY" means At Home Corporation, a corporation organized under the
laws of the State of Delaware, or any successor corporation.
-11-
<PAGE>
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"DISINTERESTED PERSON" means a director who has not, during the period
that person is a member of the Committee and for one year prior to service as a
member of the Committee, been granted or awarded equity securities pursuant to
this Plan or any other plan of the Company or any Parent or Subsidiary of the
Company, except in accordance with the requirements set forth in Rule 16b-
3(c)(2)(i) (and any successor regulation thereto) as promulgated by the SEC
under Section 16(b) of the Exchange Act, as such rule is amended from time to
time and as interpreted by the SEC.
"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 last reported sale price on the Nasdaq National
Market or, if no such reported sale takes place on such date, the
average of the closing bid and asked prices;
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, the last reported sale price or, if
no such reported sale takes place on such date, the average of
the closing bid and asked prices on the principal national
securities exchange on which the Common Stock is listed or
admitted to trading;
(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 such date, as reported by The Wall Street
Journal, for the over-the-counter market; or
(d) if none of the foregoing is applicable, by the Board of Directors
of the Company 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 option to purchase Shares granted pursuant to this
Plan.
"PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company, if at the time of the granting of
an Option under this Plan, 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.
-12-
<PAGE>
"PARTICIPANT" means a person who receives an Option under this Plan.
"PLAN" means this At Home Corporation 1996 Incentive Stock Option
Plan, as amended from time to time.
"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 16, and any
successor security.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Award, 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 ceased to provide services as
an employee, director, or consultant, to the Company or a Parent or Subsidiary
of the Company, except in the case of sick leave, military leave, or any other
leave of absence approved by the Committee, provided, that such leave is for a
--------
period of not more than three (3) months, or reinstatement upon the expiration
of such leave is guaranteed by contract or statute. The Committee shall 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").
-13-
<PAGE>
EXHIBIT 10.12
AT HOME CORPORATION
1997 EQUITY INCENTIVE PLAN
As Adopted May 15, 1997
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 16,000,000 Shares, less: (a) the total number of
Shares issued by the Company under (i) restricted stock purchase agreements
entered into prior to the Effective Date of this Plan with employees, officers,
directors, consultants, independent contractors or advisors of the Company and
(ii) the Company's 1996 Incentive Stock Option Plan or 1996 Incentive Stock
Option Plan No. 2 (the "PRIOR PLANS") pursuant to the exercise of options
granted on or before the Effective Date; (b) Shares that are issuable as of the
Effective Date upon exercise of options granted under the Prior Plans; and (c)
Shares issued as of any date under the Company's 1997 Employee Stock Purchase
Plan adopted contemporaneously with this Plan.
Subject to Sections 2.2 and 18 hereof, Shares that: (a) are
subject to issuance upon exercise of an option granted under the Prior Plans or
under this Plan that cease to be subject to such option for any reason other
than exercise of such option; (b) are subject to an award granted under
restricted stock purchase agreements entered into prior to the Effective Date of
this Plan with employees, officers, directors, consultants, independent
contractors or advisors of the Company, the Prior Plans, or this Plan, that are
forfeited or are repurchased by the Company at the original issue price; or (c)
are subject to any other award granted under the Prior Plans or under this Plan
that otherwise terminates without Shares being issued, will again be available
for grant and issuance in connection with future Awards under this Plan.
The number of Shares reserved and available for grant and
issuance pursuant to this Plan shall automatically be increased by 4,200,000
shares on August 1, 1997. 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.
The sum of (a) Restricted Stock Awards, (b) Stock Bonus Awards,
or (c) Options with a Purchase Price or Exercise Price, as the case may be,
below Fair Market Value issued under this Plan may not exceed 20% of the total
number of Shares reserved for grant and issuance pursuant to this Plan as of any
date.
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
<PAGE>
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 1,000,000 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 2,000,000 Shares in the
calendar year in which they commence their employment. A person may be granted
more than one Award under this Plan.
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:
-2-
<PAGE>
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.
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 because of Participant's death or
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
-3-
<PAGE>
(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.
(c) If a Participant is terminated for Cause, then the Participant
may exercise such Participant Options only to the extent that
such Options would have been exercisable upon the Termination
Date no later than one (1) month after the Termination Date (or
such shorter period as may be determined by the Committee), but
in any event, no later than the expiration date of the Options.
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
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agreement is delivered to the person. If
such person does not execute and deliver the Restricted Stock Purchase
-4-
<PAGE>
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 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.
-5-
<PAGE>
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
sufficient 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.
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.
-6-
<PAGE>
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 original Purchase 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 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
-7-
<PAGE>
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 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, the
vesting of all Awards will accelerate and the Options will become exercisable in
full prior to the consummation of such event at such times
-8-
<PAGE>
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 in accordance with the provisions of this Plan.
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 Series A 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 Board 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; and (c) in the event that stockholder approval
of such increase is not obtained within the time period provided herein, all
Awards granted hereunder will be canceled, any Shares issued pursuant to any
Award will be canceled, and any purchase of Shares hereunder will be rescinded.
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.
-9-
<PAGE>
"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 At Home Corporation or any successor corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, within the meaning of Section 22(e)(3) of the Code, 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 Series A Common Stock determined as follows:
(a) if such Series A 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 Series A 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 Series A Common Stock is listed or admitted
to trading as reported in The Wall Street Journal;
-----------------------
(c) if such Series A 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 Series A Common Stock are
initially offered for sale to the public by the Company's
underwriters in the initial public offering of the Company's
Series A 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.
-10-
<PAGE>
"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 shareholder return and/or total shareholder 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.
"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 At Home Corporation 1997 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 Series A Common Stock
reserved for issuance under this Plan or any other compensatory arrangement of
the Company, 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.
-11-
<PAGE>
"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.
-12-
<PAGE>
EXHIBIT 10.13
AT HOME CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
As Adopted May 15, 1997
1. ESTABLISHMENT OF PLAN. At Home Corporation (the "COMPANY") proposes to
grant options for purchase of the Company's Series A 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,
"PARTICIPATING 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 400,000 shares of the Company's Series A Common Stock is reserved for
issuance under this Plan. 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 Board and its decisions shall be final and binding upon all
participants. Members of the Board 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 Participating
Subsidiaries fifteen (15) 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 Series A 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, would
<PAGE>
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 whether or not
reclassified as common law employees, unless the Company or a Participating
Subsidiary withholds or is required to withhold U.S. Federal employment taxes
for such individuals pursuant to Section 3402 of the Code.
5. OFFERING DATES. The offering periods of this Plan (each, an
"OFFERING PERIOD") shall be of twenty-four (24) months duration commencing on
February 15 and August 15 of each year and ending on August 14 and February 14
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 Series A Common Stock are available on the Nasdaq
National Market (the "FIRST OFFERING DATE") and shall end on August 14, 1999.
Except for the first Offering Period, each Offering Period shall consist of four
(4) six-month purchase periods (individually, a "PURCHASE PERIOD") during which
payroll deductions of the participants are accumulated under this Plan. The
first Offering Period shall consist of no fewer than three Purchase Periods, any
of which may be greater or less than six months as determined by the Committee.
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 Board shall have the power to change the duration of
Offering Periods or Purchase 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 or Purchase 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
fifteen (15) days before such Offering Date unless a later time for filing the
subscription agreement authorizing payroll deductions is set by the Board 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 fifteen (15) 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 Series A 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
Series A Common Stock on the Offering Date (but in no event less than the par
value of a share of the Company's Series A Common Stock), or (ii) eighty-five
percent (85%) of the fair market value of a share of the Company's Series A
Common Stock on the Purchase Date (but in no event less than the par value of a
share of the Company's Series A Common Stock), provided, however, that the
-------- -------
number of shares of the Company's Series A Common Stock subject to any option
granted pursuant to this Plan shall not exceed the lesser of (a) the maximum
number of shares set by the Board pursuant to Section 10(c) below with respect
to the applicable Purchase Date, or (b) 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 Series A
Common Stock shall be determined as provided in Section 8 hereof.
8. PURCHASE PRICE. The purchase price per share at which a share of
Series A Common Stock will be sold in any Offering Period shall be eighty-five
percent (85%) of the lesser of:
-2-
<PAGE>
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date.
For purposes of this Plan, the term "FAIR MARKET VALUE" means, as of
any date, the value of a share of the Company's Series A Common Stock determined
as follows:
(a) if such Series A 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 Series A 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 Series A Common Stock is
listed or admitted to trading as reported in The Wall Street
---------------
Journal;
-------
(c) if such Series A 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 Series
A Common Stock are initially offered for sale to the public
by the Company's underwriters in the initial public offering
of the Company's Series A 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 fifteen percent (10%) or such lower
limit set by the Committee. Compensation shall mean base salary that is not in
excess of $250,000 per calendar year, provided however, that for purposes of
determining a participant's base salary, 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 following the Offering Date and
shall continue to the end of the Offering Period unless sooner altered or
terminated as provided in this Plan.
(b) A participant may lower (but not 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 Offering 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) 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.
(d) 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
-3-
<PAGE>
funds then in the participant's account to the purchase of whole shares of
Series A 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 Series A 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 Series A 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.
(e) 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.
(f) During a participant's lifetime, such participant's 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.
(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 Series A 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. Once the Maximum Share Amount
is set, it 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 Committee 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
thereby.
(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.
-4-
<PAGE>
(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 above for initial participation in
this Plan.
(c) If the purchase price on the first day of any current Offering
Period in which a participant is enrolled is higher than the purchase price 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 promptly 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 Series A Common Stock covered by each
option under this Plan which has not yet been exercised and the number of shares
of Series A 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 Series A 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 Series A Common Stock of the Company resulting from a stock split or
the payment of a stock dividend (but only on the Series A 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 Series A Common
Stock subject to an option.
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 the
options under this Plan shall terminate as of a date fixed by the Committee and
give each participant the right to exercise his or her option as to all of the
optioned stock, including shares which would not otherwise be exercisable. 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
-5-
<PAGE>
Company, (iii) the sale of 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, each option under
this Plan may be assumed or an equivalent option may be substituted by such
successor corporation or a parent or subsidiary of such successor corporation.
In the event such surviving corporation refuses to assume or substitute options
under this Plan, (i) this Plan will terminate upon the consummation of such
transaction, unless otherwise provided by the Committee and (ii) the Committee
may declare that the options under this Plan shall terminate as of a date fixed
by the Committee and give each participant the right to exercise his or her
option as to all of the optioned stock. If the Committee makes an option fully
exercisable in the event of a merger, consolidation or sale of assets, the
Committee shall notify the participant that the option shall be fully
exercisable for a certain period, and the option and this Plan will terminate
upon the expiration of such period.
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 Series A 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
Series A 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 hereof) 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 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"). Unless such participant is disposing of
any of such shares during the Notice Period, such participant shall keep the
certificates representing such shares in his or her name (and not in the name of
a nominee) during 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 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.
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 date that is 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
-6-
<PAGE>
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 Series A 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, 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, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 hereof 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.
-7-
<PAGE>
EXHIBIT 10.14
RESTRICTED STOCK PURCHASE AGREEMENT
(FOR PURCHASES PAID FOR WITH CASH)
This Agreement is made and entered into as of July 31, 1996 (the "Effective
---------
Date") between AT HOME CORPORATION, a Delaware corporation (the "Company"), and
- ---- -------
Thomas A. Jermoluk ("Purchaser").
---------
RECITALS
--------
A. The Company desires to provide equity incentives to certain key
employees pursuant to this Restricted Stock Purchase Agreement, which agreement
is intended to qualify as a compensatory benefit plan or agreement within the
meaning of Rule 701 under the Securities Act of 1933, as amended.
B. Purchaser is the President and Chief Executive Officer of the Company
and possesses sufficient business and financial experience, and/or sufficient
knowledge of and/or relationship to the Company and its management to enable the
Company to lawfully issue shares of its Common Stock to Purchaser without the
need for registration or qualification of such shares under the Securities Act
of 1933, as amended, and all applicable state "blue sky" laws.
C. The Company desires to sell to Purchaser, and Purchaser desires to
purchase from the Company, shares of the Company's Series A Common Stock.
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE OF SHARES. On the Effective Date and subject to the terms
-------------------
and conditions of this Agreement, Purchaser hereby purchases from the Company,
and the Company hereby sells to Purchaser, an aggregate of 1,500,000 shares of
the Company's Series A Common Stock, $0.01 par value (the "Shares"), at an
------
aggregate purchase price of $150,000.00 (the "Purchase Price") or $0.10 per
--------------
Share (the"Purchase Price Per Share"). As used in this Agreement, the term
------------------------
"Shares" refers to the Shares purchased under this Agreement and includes all
securities received (a) in replacement of the Shares, (b) as a result of stock
dividends or stock splits in respect of the Shares, and (c) in replacement of
the Shares in a recapitalization, merger, reorganization or the like.
2. PAYMENT OF PURCHASE PRICE; CLOSING.
-----------------------------------
(A) DELIVERIES BY PURCHASER. Purchaser hereby delivers to the
------------------------
Company the full Purchase Price by delivery of a check made out to the order of
the Company in the amount of $150,000.00 in payment of the aggregate Purchase
Price of the Shares, a copy of which is attached hereto as Exhibit 1.
---------
Purchaser also hereby delivers to the Company two (2) copies of a blank Stock
Power and Assignment Separate from Stock Certificate in the form of Exhibit 2
---------
attached hereto (the "Stock Powers"), duly executed by Purchaser and his spouse.
------------
<PAGE>
(B) DELIVERIES BY THE COMPANY. Upon its receipt of the entire
--------------------------
Purchase Price and the documents to be executed and delivered by Purchaser to
the Company under Section 2(a), the Company will issue a duly executed stock
certificate evidencing the Shares in the name of Purchaser, with such
certificate to be placed in escrow as provided in Section 9 until expiration or
termination of both the Company's Repurchase Obligation and Right of First
Refusal described in Sections 5 and 6.
3. REPRESENTATIONS AND WARRANTS OF PURCHASER. Purchaser represents and
------------------------------------------
warrants to the Company that:
(A) PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is
----------------------------------------
purchasing the Shares for Purchaser's own account for investment purposes only
and not with a view to, or for sale in connection with, a distribution of the
Shares within the meaning of the Securities Act of 1933, as amended (the "1933
----
Act"). Purchaser has no present intention of selling or otherwise disposing of
- ---
all or any portion of the Shares and no one other than Purchaser has any
beneficial ownership of any of the Shares.
(B) ACCESS TO INFORMATION. Purchaser has had access to all
----------------------
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.
(C) UNDERSTANDING OF RISKS. Purchaser is fully aware of: (i) the
-----------------------
highly speculative nature of the investment in the Shares; (ii) the financial
hazards involved; (iii) the lack of liquidity of the Shares and the restrictions
on transferability of the Shares (e.g., that Purchaser may not be able to sell
----
or dispose of the Shares or use them as collateral for loans); (iv) the
qualifications and backgrounds of the management of the Company; and (v) the tax
consequences of investment in the Shares.
(D) PURCHASER'S QUALIFICATIONS. Purchaser has a preexisting
---------------------------
personal or business relationship with the Company and/or certain of its
officers and/or directors of a nature and duration sufficient to make Purchaser
aware of the character, business acumen and general business and financial
circumstances of the Company and/or such officers and directors. By reason of
Purchaser's business or financial experience, Purchaser is capable of evaluating
the merits and risks of this investment, has the ability to protect Purchaser's
own interests in this transaction and is financially capable of bearing a total
loss of this investment.
(E) NO GENERAL SOLICITATION. At no time was Purchaser presented
------------------------
with or solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Shares.
(F) COMPLIANCE WITH SECURITIES LAWS. Purchaser understands and
--------------------------------
acknowledges that, in reliance upon the representations and warranties made by
Purchaser herein, the Shares are not being registered with the Securities and
Exchange Commission ("SEC") under the 1933 Act or being qualified under the
---
California Corporate Securities Law of 1968, as
2
<PAGE>
amended (the "Law"), but instead are being issued under an exemption or
---
exemptions from the registration and qualification requirements of the 1933 Act
and the Law or other applicable state securities laws which may impose certain
restrictions on Purchaser's ability to transfer the Shares.
(G) RESTRICTIONS ON TRANSFER. Purchaser acknowledges and agrees
-------------------------
that the Company, in its discretion, may elect to issue the Shares under one or
more of several different exemptions from the registration and qualification
requirements of the 1933 Act and the Law and that Purchaser's ability to
transfer the Shares in compliance with such laws will be affected by the
Company's choice of exemption. Purchaser further understands that the Company's
choice of exemptions may not be definitively made until a later date and the
Company is entirely free in its discretion to choose which exemption or
exemptions it will rely upon to exempt the sale of Shares to Purchaser.
Purchaser understands that Purchaser may not transfer any Shares unless such
Shares are registered under the 1933 Act or qualified under the Law or unless,
in the opinion of counsel to the Company, exemptions from such registration and
qualification requirements are available. Purchaser understands that only the
Company may file a registration statement with the SEC or the California
Commissioner of Corporations and that the Company is under no obligation to do
so with respect to the Shares. Purchaser has also been advised that exemptions
from registration and qualification may not be available or may not permit
Purchaser to transfer all or any of the Shares in the amounts or at the times
proposed by Purchaser.
(H) RULE 144. Purchaser acknowledges that SEC Rule 144 promulgated
---------
under the 1933 Act, which permits certain limited sales of unregistered
securities, is not presently available with respect to the Shares and, in any
event, may require that the Shares be held for a minimum of two years, and in
certain cases three years, after they have been purchased and paid for (within
--------
the meaning of Rule 144), before they may be resold under Rule 144. Purchaser
understands that Rule 144 will remain unavailable indefinitely with respect to
transfers of the Shares so long as Purchaser remains an "affiliate" of the
Company and "current public information" about the Company (as defined in Rule
144) is not publicly available. In addition, Purchaser understands that all
public resales of the Shares by Purchaser at a time when Purchaser is an
affiliate of the Company must comply with the provisions of Rule 144.
(I) RULE 701. If the Shares are issued pursuant to the exemption
---------
provided by Rule 701 promulgated under the 1933 Act, then the Shares will become
freely tradable by persons who are non-affiliates of the Company under SEC Rule
701 promulgated under the 1933 Act, subject to limited conditions regarding the
method of sale, 90 days after the first sale of common stock of the Company to
the general public pursuant to a registration statement filed with and declared
effective by the SEC, subject to any transfer restrictions imposed by applicable
state securities laws, the lengthier market standoff agreement contained in this
Agreement or any other agreement entered into by Purchaser. Under Rule 701,
affiliates must comply with the provisions (other than the holding period
requirements) of Rule 144.
(J) RULE 504. If the Company elects to issue the Shares to
---------
Purchaser under the exemption provided by Rule 504 of Regulation D promulgated
under the 1933 Act, then the Shares should be freely tradable by non-affiliates
of the Company under the 1933 Act, subject to any transfer restrictions imposed
by applicable state securities laws, the lengthier market stand-off agreement
contained in this Agreement or any other contractual restrictions contained in
this
3
<PAGE>
Agreement or in any other agreement entered into by Purchaser. However,
affiliates of the Company must continue to comply with the provisions (other
than the holding period requirements) of Rule 144. As noted above, Rule 144 is
not presently available.
(K) TERMS OF PURCHASE AGREEMENT ACCEPTED. Purchaser has received a
-------------------------------------
copy of this Agreement, has read and understands the terms of this Agreement,
and agrees to be bound by its terms and conditions. Purchaser acknowledges that
there may be adverse tax consequences upon purchase and disposition of the
Shares, and that Purchaser should consult a tax adviser prior to such purchase
or disposition.
4. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with any
--------------------------
registration of the Company's securities under the 1933 Act that, upon the
request of the Company or the underwriters managing any registered public
offering of the Company's securities, Purchaser will not sell or otherwise
dispose of any Shares without the prior written consent of the Company or such
managing underwriters, as the case may be, for a period of time (not to exceed
one year) after the effective date of such registration requested by such
managing underwriters and subject to all restrictions as the Company or the
managing underwriters may specify for employee-shareholders generally.
5. COMPANY'S REPURCHASE OBLIGATION. Upon the occurrence of certain
--------------------------------
events, the Company has the obligation to repurchase all of the Unvested Shares
(as defined below) on the terms and conditions set forth in this Section (the
"Repurchase Obligation").
- ----------------------
(A) DEFINITION OF "EMPLOYED BY THE COMPANY"; "TERMINATION DATE". For
------------------------------------------------------------
purposes of this Agreement, Purchaser will be considered to be "employed by the
---------------
Company" if the Board of Directors of the Company determines that Purchaser is
- -------
rendering substantial services as an officer, employee or consultant to the
Company or to any parent, subsidiary or affiliate of the Company. In case of
any dispute as to whether Purchaser is employed by the Company, the Board of
Directors of the Company will have discretion to determine whether Purchaser has
ceased to be employed by the Company or any parent, subsidiary or affiliate of
the Company and the effective date on which Purchaser's employment terminated
(the "Termination Date").
----------------
(B) UNVESTED AND VESTED SHARES. "Unvested Shares" are Shares which
--------------------------- ---------------
are subject to the Company's Repurchase Obligation. "Vested Shares" are Shares
-------------
which are no longer subject to the Company's Repurchase Obligation. On the
Effective Date, 375,000 of the Shares will be "Vested Shares" and 1,125,000 of
the Shares will be "Unvested Shares". If Purchaser has been continuously
employed by the Company at all times from the Effective Date until August 31,
1997 (the "First Vesting Date"), then on the First Vesting Date an additional
------------------
two point zero eight percent (2.08%) of the Shares will become Vested Shares;
and thereafter, for so long (and only for so long) as Purchaser remains
continuously employed by the Company at all times after the First Vesting Date,
an additional two point zero eight percent (2.08%) of the Shares will become
Vested Shares upon the last day of each succeeding calendar month that elapses
after the First Vesting Date. Notwithstanding the foregoing, no Shares will
become Vested Shares after the Termination Date, except as provided in (f)
below.
4
<PAGE>
(C) ADJUSTMENTS. The number of Shares that are Vested Shares or
------------
Unvested Shares will be proportionally adjusted to reflect any stock dividend,
stock split, reverse stock split or recapitalization of the Series A Common
Stock of the Company occurring after the Effective Date.
(D) REPURCHASE AT ORIGINAL PRICE. If Purchaser shall cease to be
-----------------------------
employed by the Company due to voluntary termination, termination by the Company
with "cause", death or disability, the Company shall repurchase all Unvested
Shares of Purchaser from Purchaser (or Purchaser's personal representative as
the case may be) at the Purchaser's original Purchase Price Per Share (as
adjusted to reflect any stock dividend, stock split, reverse stock split or
recapitalization of the Series A Common Stock of the Company occurring after the
Effective Date).
(E) PAYMENT OF REPURCHASE PRICE. The repurchase price payable to
----------------------------
purchase Unvested Shares will be payable, at the option of the Company or its
assignee(s), by check or by cancellation of all or a portion of any outstanding
indebtedness of Purchaser to the Company (or to such assignee) or by any
combination thereof. The repurchase price will be paid without interest within
ninety (90) days after the Termination Date.
(F) VESTING UPON TERMINATION WITHOUT "CAUSE". If Purchaser shall
----------------------------------------
cease to be employed by the Company due to termination by the Company without
"cause", all of the Shares shall become Vested Shares as of the Termination Date
and the Company shall not be required or entitled to repurchase any Shares from
Purchaser. Termination without "cause" shall mean termination of Purchaser's
employment by Company for any reason other than "cause", voluntary termination,
death or disability. Termination shall be regarded as for "cause" only upon (i)
Purchaser's willful and continued failure to substantially perform his duties
with the Company after there is delivered to Purchaser by the Board of Directors
a written demand for substantial performance which sets forth in detail the
specific respects in which it believes Purchaser has not substantially performed
his duties; (ii) Purchaser willfully engaging in gross misconduct which is
materially detrimental to the Company; (iii) Purchaser committing a felony or an
act of fraud against the Company or its affiliates; or (iv) Purchaser breaching
materially the terms of Purchaser's employee confidentiality and proprietary
information agreement with the Company or any other similar agreement that may
be in effect from time to time. No act, or failure to act, by Purchaser shall be
considered "willful" if done, or omitted to be done, by Purchaser in good faith
in Purchaser's reasonable belief that his act or omission was in the best
interests of the Company and/or required by applicable law. Purchaser shall not
be deemed to have been terminated for cause under clause (i), (ii) or (iv)
unless and until there shall have been delivered to Purchaser a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the entire membership of the Board of Directors at a meeting of the Board of
Directors called and held for that purpose (after reasonable notice to and an
opportunity for Purchaser, together with Purchaser's counsel, to be heard before
the Board of Directors), finding that in the good faith opinion of the Board of
Directors, Purchaser is guilty of conduct set forth in such clauses and
specifying the particulars thereof in detail. A resignation by Purchaser for any
of the following reasons shall not be deemed to be a voluntary termination and
instead shall be deemed to be a termination of Purchaser's employment by the
Company without "cause": (w) Purchaser shall be placed in a lower stature
position than the position described in Recital B.
5
<PAGE>
above; (x) Purchaser's base salary shall be reduced by more than twenty percent
without Purchaser's consent; (y) Purchaser shall cease to be the Chief Executive
Officer of the Company reporting to the Board of Directors; or (z) the Company
shall otherwise breach the material terms of that certain letter agreement
between the Company and Purchaser dated July 19, 1996 (the "Employment Letter
-----------------
Agreement").
- ----------
(G) RIGHT OF TERMINATION UNAFFECTED. Nothing in this Agreement will
--------------------------------
be construed to limit or otherwise affect in any manner whatsoever the right or
power of the Company (or any parent, subsidiary or affiliate of the Company) to
terminate Purchaser's employment at any time for any reason or no reason, with
or without cause.
6. RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold or otherwise
-----------------------
transferred by Purchaser without the Company's prior written consent. Before
any Vested Shares held by Purchaser or any transferee of such Shares (either
being sometimes referred to herein as the "Holder") may be sold or otherwise
------
transferred (including without limitation a transfer by gift or operation of
law), the Company and/or its assignee(s) will have a right of first refusal to
purchase the Vested Shares to be sold or transferred (the "Offered Shares") on
--------------
the terms and conditions set forth in this Section (the "Right of First
--------------
Refusal").
(A) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares will
----------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
------
Holder's bona fide intention to sell or otherwise transfer the Offered Shares;
(ii) the name, address and phone/fax number of each proposed purchaser or other
transferee ("Proposed Transferee"); (iii) the number of Offered Shares to be
---------------------
transferred to each Proposed Transferee; (iv) the bona fide cash price or
other consideration for which the Holder proposes to transfer the Offered
Shares (the "Offered Price") and (unless waived by the Company) a brief
-------------
written explanation, signed by the Holder and the Proposed Transferee, of how
the Offered Price was arrived at; and (v) that the Holder will offer to sell the
Offered Shares to the Company and/or its assignee(s) at the Offered Price as
provided in this Section. A true and correct copy of the Proposed Transferee's
bona fide offer shall be provided to the Company together with the Notice.
(B) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within sixty
-----------------------------------
(60) days after the date of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all (but not less than
all) of the Offered Shares proposed to be transferred to any one or more of the
Proposed Transferees named in the Notice, at the purchase price determined in
accordance with subsection (c) below.
(C) PURCHASE PRICE. The purchase price for the Offered Shares
---------------
purchased under this Section will be the Offered Price. If the Offered Price
includes consideration other than cash, then the value of the non-cash
consideration as determined in good faith by the Company's Board of Directors
will conclusively be deemed to be the cash equivalent value of such non-cash
consideration.
(D) PAYMENT. Payment of the purchase price for Offered Shares will
--------
be payable, at the option of the Company and/or its assignee(s) (as applicable),
by check or by cancellation of all or a portion of any outstanding indebtedness
of the Holder to the Company (or
6
<PAGE>
to such assignee, in the case of a purchase of Offered Shares by such assignee)
or by any combination thereof. The purchase price will be paid without interest
within sixty (60) days after the Company's receipt of the Notice, or, at the
option of the Company and/or its assignee(s), in the manner and at the time(s)
set forth in the Notice.
(E) HOLDER'S RIGHT TO TRANSFER. If all of the Offered Shares
---------------------------
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Offered Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
--------
such sale or other transfer is consummated within 120 days after the date of
the Notice, and provided further, that: (i) any such sale or other transfer is
-------- -------
effected in compliance with all applicable securities laws; and (ii) the
Proposed Transferee agrees in writing that the provisions of this Section will
continue to apply to the Offered Shares in the hands of such Proposed
Transferee. If the Offered Shares described in the Notice are not transferred to
the Proposed Transferee within such 120 day period, then a new Notice must be
given to the Company, and the Company will again be offered the Right of First
Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(F) EXEMPT TRANSFERS. Notwithstanding anything to the contrary in
-----------------
this Section, the following transfers of Shares will be exempt from the Right of
First Refusal: (i) the transfer of any or all of the Shares during Purchaser's
lifetime by gift or on Purchaser's death by will or intestacy to Purchaser's
"immediate family" (as defined below) or to a trust for the benefit of Purchaser
or Purchaser's immediate family, provided that each transferee or other
recipient agrees in a writing satisfactory to the Company that the provisions of
this Section will continue to apply to the transferred Shares in the hands of
such transferee or other recipient; (ii) any transfer of Shares made pursuant to
a statutory merger or statutory consolidation of the Company with or into
another corporation or corporations (except that the Right of First Refusal will
continue to apply thereafter to such Shares, in which case the surviving
corporation of such merger or consolidation shall succeed to the rights of the
Company under this Section unless the agreement of merger or consolidation
expressly otherwise provides); (iii) any transfer of Shares pursuant to the
winding up and dissolution of the Company; or (iv) any transfer of Shares made
in accordance with Section 5 of this Agreement or this Section 6. As used
herein, the term "immediate family" will mean Purchaser's spouse, lineal
----------------
descendant or antecedent, father, mother, brother or sister, adopted child or
grandchild, or the spouse of any child, adopted child, grandchild or adopted
grandchild of Purchaser.
(G) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
--------------------------------------
Refusal will terminate as to all Shares on the effective date of the first sale
of common stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC under the 1933 Act (other
than a registration statement relating solely to the issuance of common stock
pursuant to a business combination or an employee incentive or benefit plan).
(H) ENCUMBRANCES ON SHARES. Purchaser may grant a lien or security
-----------------------
interest in, or pledge, hypothecate or encumber Vested Shares only if the
Company or its successors and assigns do not hold a lien or security interest in
such shares and only if each party to whom such lien or security interest is
granted, or to whom such pledge, hypothecation or other encumbrance
7
<PAGE>
is made, agrees in a writing satisfactory to the Company that: (i) such lien,
security interest, pledge, hypothecation or encumbrance will not apply to such
Vested Shares after they are acquired by the Company and/or its assignees under
this Section; and (ii) the provisions of this Section will continue to apply to
such Vested Shares in the hands of such party and any transferee of such party.
Purchaser may not grant a lien or security interest in, or pledge, hypothecate
or encumber any Unvested Shares.
7. GUARANTEES. The provisions of Section 5(b) and Section 5(c) of the
----------
Employment Letter Agreement regarding the First Guarantee and the Second
Guarantee are hereby incorporated into and shall form a part of this Agreement.
The term "Restricted Stock" as used in the Employment Letter Agreement shall
have the same meaning as the term "Shares" used herein. Both terms refer to the
shares of Series A Common Stock purchased hereunder.
8. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this
----------------------
Agreement, Purchaser will have all of the rights of a shareholder of the Company
with respect to the Shares from and after the date that Purchaser delivers
payment of the Purchase Price until such time as Purchaser disposes of the
Shares or the Company and/or its assignee(s) exercise(s) the Right of First
Refusal or the Company is required to repurchase the Shares pursuant to Section
5 above or pursuant to the Employment Letter Agreement. Upon an exercise of the
Right of First Refusal or a termination of Purchaser's employment that triggers
the Repurchase Obligation, Purchaser will have no further rights as a holder of
the Shares, except the right to receive payment for the Shares so purchased in
accordance with the provisions of this Agreement, and Purchaser will promptly
surrender the stock certificate(s) evidencing the Shares so purchased to the
Company for transfer or cancellation.
9. ESCROW. As security for Purchaser's faithful performance of this
-------
Agreement, Purchaser agrees, immediately upon receipt of the stock
certificate(s) evidencing the Shares, to deliver such certificate(s), together
with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any
(with the date and number of Shares left blank), to the Secretary of the Company
or other designee of the Company ("Escrow Holder"), who is hereby appointed to
-------------
hold such certificate(s) and Stock Powers in escrow and to take all such actions
and to effectuate all such transfers and/or releases of such Shares as are in
accordance with the terms of this Agreement. Purchaser and the Company agree
that Escrow Holder will not be liable to any party to this Agreement (or to any
other party) for any actions or omissions unless Escrow Holder is grossly
negligent or intentionally fraudulent in carrying out the duties of Escrow
Holder under this Section. Escrow Holder may rely upon any letter, notice or
other document executed by any signature purported to be genuine and may rely on
the advice of counsel and obey any order of any court with respect to the
transactions contemplated by this Agreement. The Shares will be released from
escrow upon termination of the Right of First Refusal or upon all Shares
becoming Vested Shares, whichever is later.
10. TAX CONSEQUENCES. Purchaser hereby acknowledges that Purchaser has
-----------------
been informed that, unless an election is filed by the Purchaser with the
Internal Revenue Service (and, if necessary, the proper state taxing
authorities), within 30 days of the purchase of the Shares, electing pursuant to
--------------
Section 83(b) of the Internal Revenue Code (and similar state tax provisions, if
applicable) to be taxed currently on any difference between the Purchase Price
of
8
<PAGE>
the Shares and their fair market value on the date of purchase, there will be a
recognition of taxable income to the Purchaser, measured by the excess, if any,
of the fair market value of the Vested Shares, at the time they cease to be
Unvested Shares, over the purchase price for such Shares. Purchaser represents
that Purchaser has consulted any tax adviser(s) Purchaser deems advisable in
connection with Purchaser's purchase of the Shares and the filing of the
election under Section 83(b) and similar tax provisions. A form of Election
under Section 83(b) is attached hereto as Exhibit 3 for reference. PURCHASER
---------
HEREBY ASSUMES ALL RESPONSIBILITY FOR FILING SUCH ELECTION AND PAYING ANY TAXES
RESULTING FROM SUCH ELECTION OR FOR FAILING TO FILE THE ELECTION AND PAYING
TAXES RESULTING FROM THE LAPSE OF THE REPURCHASE RESTRICTIONS ON THE UNVESTED
SHARES. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER ADVERSE TAX
CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR DISPOSITION OF THE SHARES.
PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH ANY TAX ADVISER PURCHASER
DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND
THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE.
11. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
---------------------------------------------
(A) LEGENDS. Purchaser understands and agrees that the Company will
--------
place the legends set forth below or similar legends on any stock certificate(s)
evidencing the Shares, together with any other legends that may be required by
state or federal securities laws, the Company's Certificate of Incorporation or
Bylaws, any other agreement between Purchaser and the Company or any agreement
between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
A STATEMENT OF THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS
GRANTED TO OR IMPOSED UPON EACH CLASS OR SERIES OF AUTHORIZED SHARES
OF THE COMPANY MAY BE
9
<PAGE>
OBTAINED UPON REQUEST AND WITHOUT CHARGE, FROM THE COMPANY'S SECRETARY
AT THE COMPANY'S PRINCIPAL OFFICES.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE, TRANSFER, REPURCHASE, IRREVOCABLE PROXY
AND VOTING PROVISIONS, AND A RIGHT OF FIRST REFUSAL OPTION HELD BY THE
ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A RESTRICTED STOCK
PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE
SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE
ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS, REPURCHASE,
IRREVOCABLE PROXY AND VOTING PROVISIONS, AND RIGHT OF FIRST REFUSAL
ARE BINDING ON TRANSFEREES OF THESE SHARES.
(B) STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, in order to
---------------------------
ensure compliance with the restrictions imposed by this Agreement, the Company
may issue appropriate "stop-transfer" instructions to its transfer agent, if
any, and if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(C) REFUSAL TO TRANSFER. The Company will not be required (i) to
--------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares, or to accord the right to vote or pay dividends, to any
purchaser or other transferee to whom such Shares have been so transferred.
12. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of
-------------------------------------
the Shares will be subject to and conditioned upon compliance by the Company and
Purchaser with all applicable state and federal laws and regulations and with
all applicable requirements of any stock exchange or automated quotation system
on which the Company's common stock may be listed or quoted at the time of such
issuance or transfer.
13. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
-----------------------
under this Agreement, including its rights to repurchase Shares under the Right
of First Refusal. This Agreement will be binding upon and inure to the benefit
of the successors and assigns of the Company. Subject to the restrictions on
transfer herein set forth, this Agreement will be binding upon Purchaser and
Purchaser's heirs, executors, administrators, successors and assigns.
14. GOVERNING LAW; SEVERABILITY. This Agreement will be governed by and
----------------------------
construed in accordance with the internal laws of the State of California,
excluding that body of laws pertaining to conflict of laws. If any provision of
this Agreement is determined by a court of law to be illegal or unenforceable,
then such provision will be enforced to the maximum extent possible and the
other provisions will remain fully effective and enforceable.
15. NOTICES. Any notice required or permitted hereunder will be given in
--------
writing and will be deemed effectively given upon personal delivery, three (3)
days after deposit in the
10
<PAGE>
United States mail by certified or registered mail (return receipt requested),
one (1) business day after its deposit with any return receipt express courier
(prepaid), or one (1) business day after transmission by telecopier, addressed
to the other party at its address (or facsimile number, in the case of
transmission by telecopier) as shown below its signature to this Agreement, or
to such other address as such party may designate in writing from time to time
to the other party.
16. FURTHER INSTRUMENTS. The parties agree to execute such further
--------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
17. HEADINGS. The captions and headings of this Agreement are included
---------
for ease of reference only and will be disregarded in interpreting or construing
this Agreement. Unless specifically indicated otherwise, all references herein
to Sections will refer to Sections of this Agreement.
18. ENTIRE AGREEMENT. This Agreement, together with Section 5(b) and
-----------------
Section 5(c) of the Employment Letter Agreement and all Exhibits to this
Agreement, constitutes the entire agreement and understanding of the parties
with respect to the subject matter of this Agreement, and supersedes all prior
understandings and agreements, whether oral or written, between the parties
hereto with respect to the specific subject matter hereof.
19. FINANCIAL STATEMENTS. The Company shall provide fiscal year end
--------------------
financial statements to Purchaser on an annual basis at such times as they are
available for distribution to stockholders.
20. VOTING AGREEMENT. In consideration of the sale of the Shares by the
----------------
Company to Purchaser, Purchaser hereby agrees that, with respect to any matter
upon which the separate vote of the holders of the Company's Series A Common
Stock is required under Section 242(b) of the Delaware General Corporation Law
prior to the closing of the Company's initial public offering of Series A Common
Stock pursuant to a registration statement filed with and declared effective by
the SEC (the "Company IPO"), Purchaser will cast all votes attributable to
-----------
Purchaser's Shares in the same proportion as the holders of the Company's
outstanding shares of Series A, Series K and Series T Preferred Stock or any
other series of stock designated in the Certificate of Incorporation of the
Company as Convertible Preferred Stock (the "Convertible Preferred Stock") cast
---------------------------
their votes upon such matter, or, if there are no such shares of Convertible
Preferred Stock outstanding, in the same manner as the holders of the Company's
outstanding shares of Series B Common Stock cast their votes upon such matter.
Purchaser hereby irrevocably appoints the Secretary of the Company, or any other
person designated by the Secretary of the Company, to act as Purchaser's proxy
until the Company IPO to cast all votes attributable to Purchaser's Shares as
specified in this Section. The obligations of this Section shall be binding on
any transferee to whom the Shares are transferred by Purchaser or any subsequent
transferee. As a condition of any transfer of the Shares prior to the Company
IPO, Purchaser shall require any transferee, and any such transferee shall
require its transferee, to agree to be bound by the provisions of this Section
in the same manner as Purchaser is bound.
11
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate by its duly authorized representative and Purchaser has executed this
Agreement in duplicate, as of the Effective Date.
AT HOME CORPORATION PURCHASER
By: /s/ David G. Pine /s/ Thomas A. Jermoluk
---------------------------------- --------------------------------
Thomas A. Jermoluk
Title:Vice President, General Counsel
-------------------------------
Address: 385 Ravendale Drive Address:________________________
Mountain View, CA 94043
________________________________
Fax:____________________________
LIST OF EXHIBITS
- ----------------
Exhibit 1: Purchaser's check in the amount of $150,000.00
Exhibit 2: Stock Power and Assignment Separate from Stock Certificate
Exhibit 3: Election Under Section 83(b) of the Internal Revenue Code
12
<PAGE>
EXHIBIT 1
---------
COPY OF PURCHASER'S CHECK
-------------------------
<PAGE>
EXHIBIT 2
---------
STOCK POWER AND ASSIGNMENT
SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase
Agreement dated as of July 31, 1996 (the "Agreement"), the undersigned hereby
---------
sells, assigns and transfers unto __________________, ___________ shares of the
Series A Common Stock of AT HOME CORPORATION, a Delaware corporation (the
"Company"), standing in the undersigned's name on the books of the Company
-------
represented by Certificate No(s). _____ delivered herewith, and does hereby
irrevocably constitute and appoint the Secretary of the Company as the
undersigned's attorney-in-fact, with full power of substitution, to transfer
said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS
AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS THERETO.
Dated:_________________
PURCHASER
/s/ Thomas A. Jermoluk
----------------------------
_____________________________
(Purchaser's Spouse)
INSTRUCTION: Please do not fill in any blanks other than the signature lines.
- ----------- ---
The purpose of this Stock Power and Assignment is to enable the Company and/or
its assigns to exercise its "Right of First Refusal" or implement its
"Repurchase Obligation" set forth in the Agreement without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT 3
---------
ELECTION UNDER SECTION 83(B) OF THE
INTERNAL REVENUE CODE
The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in gross income for the Taxpayer's current
taxable year the excess, if any, of the fair market value of the property
described below at the time of transfer over the amount paid for such property,
as compensation for services.
1. TAXPAYER'S NAME: Thomas A. Jermoluk
TAXPAYER'S ADDRESS: 892 St. Joseph Ave
-------------------------------
Los Altos, CA 94024
-------------------------------
SOCIAL SECURITY NUMBER: ###-##-####
-------------------------------
2. The property with respect to which the election is made is described as
follows: 1,500,000 shares of Series A Common Stock of AT HOME CORPORATION,
a Delaware corporation (the "Company"), which is Taxpayer's employer or the
-------
corporation for whom the Taxpayer performs services.
3. The date on which the shares were transferred was July 31, 1996 and this
election is made for calendar year 1996.
4. The shares are subject to the following restrictions: The Company must
repurchase all or a portion of the shares at the Taxpayer's original
purchase price under certain conditions at the time of Taxpayer's
termination of employment or services.
5. The fair market value of the shares (without regard to restrictions other
than restrictions which by their terms will never lapse) was $0.10 per
share at the time of transfer.
6. The amount paid for such shares was $0.10 per share.
7. The Taxpayer has submitted a copy of this statement to the Company.
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS"), AT THE
---
OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS AFTER
--------------
THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE TAXPAYER'S
INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE REVOKED
WITHOUT THE CONSENT OF THE IRS.
Dated: July 31, 1996 /s/ Thomas A. Jermoluk
-----------------------------
Thomas A. Jermoluk
<PAGE>
EXHIBIT 10.15
RESTRICTED STOCK PURCHASE AGREEMENT
(FOR PURCHASES PAID FOR WITH CASH)
This Agreement is made and entered into as of July 31, 1996 (the "Effective
---------
Date") between AT HOME CORPORATION, a Delaware corporation (the "Company"), and
- ---- -------
Thomas A. Jermoluk ("Purchaser").
---------
RECITALS
--------
A. The Company desires to provide equity incentives to certain key
employees pursuant to this Restricted Stock Purchase Agreement.
B. Purchaser is the President and Chief Executive Officer of the Company
and possesses sufficient business and financial experience, and/or sufficient
knowledge of and/or relationship to the Company and its management to enable the
Company to lawfully issue shares of its Series K Preferred Stock to Purchaser
without the need for registration or qualification of such shares pursuant to
Section 4(2) of and/or Regulation D promulgated under the Securities Act of
1933, as amended, and all applicable state "blue sky" laws.
C. The Company desires to sell to Purchaser, and Purchaser desires to
purchase from the Company, shares of the Company's Series K Preferred Stock.
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE OF SHARES. On the Effective Date and subject to the terms
-------------------
and conditions of this Agreement, Purchaser hereby purchases from the Company,
and the Company hereby sells to Purchaser, an aggregate of 500,000/1/ shares of
the Company's Series K Preferred Stock, $0.01 par value, which are convertible
into an aggregate of 500,000 shares of Series A Common Stock (the "Shares"), at
------
an aggregate purchase price of $500,000.00 (the "Purchase Price") or $1.00/2/
--------------
per Share (the "Purchase Price Per Share"). As used in this Agreement, the term
------------------------
"Shares" refers to the Shares purchased under this Agreement and includes all
securities received (a) in replacement of the Shares, (b) as a result of stock
dividends or stock splits in respect of the Shares, and (c) in replacement of
the Shares in a recapitalization, merger, reorganization or the like.
2. PAYMENT OF PURCHASE PRICE; CLOSING.
-----------------------------------
(A) DELIVERIES BY PURCHASER. Purchaser hereby delivers to the Company
------------------------
the full Purchase Price by delivery of a check made out to the order of the
Company in the amount of $500,000.00 in payment of the aggregate Purchase Price
of the Shares, a copy of which is
____________________
/1/ 50,000 shares of Series K Preferred Stock after giving effect to the 10 to
1 reverse split of the Series K Preferred Stock scheduled to occur on August 1,
1996
/2/ $10.00 per share after giving effect to the 10 to 1 reverse split of the
Series K Preferred Stock scheduled to occur on August 1, 1996
<PAGE>
attached hereto as Exhibit 1. Purchaser also hereby delivers to the Company two
---------
(2) copies of a blank Stock Power and Assignment Separate from Stock Certificate
in the form of Exhibit 2 attached hereto (the "Stock Powers"), duly executed by
---------
Purchaser and his spouse.
(B) DELIVERIES BY THE COMPANY. Upon its receipt of the entire
--------------------------
Purchase Price and the documents to be executed and delivered by Purchaser to
the Company under Section 2(a), the Company will issue a duly executed stock
certificate evidencing the Shares in the name of Purchaser, with such
certificate to be placed in escrow as provided in Section 9 until expiration or
termination of both the Company's Repurchase Obligation and Right of First
Refusal described in Sections 5 and 6.
3. REPRESENTATIONS AND WARRANTS OF PURCHASER. Purchaser represents and
------------------------------------------
warrants to and covenants with the Company that:
(A) PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is
----------------------------------------
purchasing the Shares for Purchaser's own account for investment purposes only
and not with a view to, or for sale in connection with, a distribution of the
Shares within the meaning of the Securities Act of 1933, as amended (the "1933
----
Act"). Purchaser has no present intention of selling or otherwise disposing of
- ---
all or any portion of the Shares and no one other than Purchaser has any
beneficial ownership of any of the Shares.
(B) ACCESS TO INFORMATION. Purchaser has had access to all
----------------------
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.
(C) UNDERSTANDING OF RISKS. Purchaser is fully aware of: (i) the
-----------------------
highly speculative nature of the investment in the Shares; (ii) the financial
hazards involved; (iii) the lack of liquidity of the Shares and the restrictions
on transferability of the Shares (e.g., that Purchaser may not be able to sell
----
or dispose of the Shares or use them as collateral for loans); (iv) the
qualifications and backgrounds of the management of the Company; and (v) the tax
consequences of investment in the Shares.
(D) PURCHASER'S QUALIFICATIONS. Purchaser has a preexisting
---------------------------
personal or business relationship with the Company and/or certain of its
officers and/or directors of a nature and duration sufficient to make Purchaser
aware of the character, business acumen and general business and financial
circumstances of the Company and/or such officers and directors. By reason of
Purchaser's business or financial experience, Purchaser is capable of evaluating
the merits and risks of this investment, has the ability to protect Purchaser's
own interests in this transaction and is financially capable of bearing a total
loss of this investment.
(E) NO GENERAL SOLICITATION. At no time was Purchaser presented
------------------------
with or solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Shares.
2
<PAGE>
(F) COMPLIANCE WITH SECURITIES LAWS. Purchaser understands and
--------------------------------
acknowledges that, in reliance upon the representations and warranties made by
Purchaser herein, the Shares are not being registered with the Securities and
Exchange Commission ("SEC") under the 1933 Act or being qualified under the
---
California Corporate Securities Law of 1968, as amended (the "Law"), but instead
---
are being issued under an exemption or exemptions from the registration and
qualification requirements of the 1933 Act and the Law or other applicable state
securities laws which may impose certain restrictions on Purchaser's ability to
transfer the Shares.
(G) RESTRICTIONS ON TRANSFER. Purchaser acknowledges and agrees
-------------------------
that the Company, in its discretion, may elect to issue the Shares under one or
more of several different exemptions from the registration and qualification
requirements of the 1933 Act and the Law and that Purchaser's ability to
transfer the Shares in compliance with such laws will be affected by the
Company's choice of exemption. Purchaser further understands that the Company's
choice of exemptions may not be definitively made until a later date and the
Company is entirely free in its discretion to choose which exemption or
exemptions it will rely upon to exempt the sale of Shares to Purchaser.
Purchaser understands that Purchaser may not transfer any Shares unless such
Shares are registered under the 1933 Act or qualified under the Law or unless,
in the opinion of counsel to the Company, exemptions from such registration and
qualification requirements are available. Purchaser understands that only the
Company may file a registration statement with the SEC or the California
Commissioner of Corporations and that the Company is under no obligation to do
so with respect to the Shares. Purchaser has also been advised that exemptions
from registration and qualification may not be available or may not permit
Purchaser to transfer all or any of the Shares in the amounts or at the times
proposed by Purchaser.
(H) RULE 144. Purchaser acknowledges that SEC Rule 144 promulgated
---------
under the 1933 Act, which permits certain limited sales of unregistered
securities, is not presently available with respect to the Shares and, in any
event, may require that the Shares be held for a minimum of two years, and in
certain cases three years, after they have been purchased and paid for (within
------------
the meaning of Rule 144), before they may be resold under Rule 144. Purchaser
understands that Rule 144 will remain unavailable indefinitely with respect to
transfers of the Shares so long as Purchaser remains an "affiliate" of the
Company and "current public information" about the Company (as defined in Rule
144) is not publicly available. In addition, Purchaser understands that all
public resales of the Shares by Purchaser at a time when Purchaser is an
affiliate of the Company must comply with the provisions of Rule 144.
(I) TERMS OF PURCHASE AGREEMENT ACCEPTED. Purchaser has received a
-------------------------------------
copy of this Agreement, has read and understands the terms of this Agreement,
and agrees to be bound by its terms and conditions. Purchaser acknowledges that
there may be adverse tax consequences upon purchase and disposition of the
Shares, and that Purchaser should consult a tax adviser prior to such purchase
or disposition.
(j) CONVERSION OF SHARES. Purchaser covenants and agrees that if he
--------------------
converts the Shares into any intermediate shares of stock of the Company that
are then convertible into shares of Series A Common Stock of the Company, he
will immediately convert such intermediate shares of stock into shares of Series
A Common Stock of the Company.
3
<PAGE>
4. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with any
--------------------------
registration of the Company's securities under the 1933 Act that, upon the
request of the Company or the underwriters managing any registered public
offering of the Company's securities, Purchaser will not sell or otherwise
dispose of any Shares without the prior written consent of the Company or such
managing underwriters, as the case may be, for a period of time (not to exceed
one year) after the effective date of such registration requested by such
managing underwriters and subject to all restrictions as the Company or the
managing underwriters may specify for employee-shareholders generally.
5. COMPANY'S REPURCHASE OBLIGATION. Upon the occurrence of certain
--------------------------------
events, the Company has the obligation to repurchase all of the Unvested Shares
(as defined below) on the terms and conditions set forth in this Section (the
"Repurchase Obligation").
- ----------------------
(A) DEFINITION OF "EMPLOYED BY THE COMPANY"; "TERMINATION DATE". For
------------------------------------------------------------
purposes of this Agreement, Purchaser will be considered to be "employed by the
---------------
Company" if the Board of Directors of the Company determines that Purchaser is
- -------
rendering substantial services as an officer, employee or consultant to the
Company or to any parent, subsidiary or affiliate of the Company. In case of
any dispute as to whether Purchaser is employed by the Company, the Board of
Directors of the Company will have discretion to determine whether Purchaser has
ceased to be employed by the Company or any parent, subsidiary or affiliate of
the Company and the effective date on which Purchaser's employment terminated
(the "Termination Date").
----------------
(B) UNVESTED AND VESTED SHARES. "Unvested Shares" are Shares which
--------------------------- ---------------
are subject to the Company's Repurchase Obligation. "Vested Shares" are Shares
-------------
which are no longer subject to the Company's Repurchase Obligation. On the
Effective Date, 125,000/3/ of the Shares will be "Vested Shares" and 375,000/4/
of the Shares will be "Unvested Shares". If Purchaser has been continuously
employed by the Company at all times from the Effective Date until August 31,
1997 (the "First Vesting Date"), then on the First Vesting Date an additional
------------------
two point zero eight percent (2.08%) of the Shares will become Vested Shares;
and thereafter, for so long (and only for so long) as Purchaser remains
continuously employed by the Company at all times after the First Vesting Date,
an additional two point zero eight percent (2.08%) of the Shares will become
Vested Shares upon the last day of each succeeding calendar month that elapses
after the First Vesting Date. Notwithstanding the foregoing, no Shares will
become Vested Shares after the Termination Date, except as provided in (f)
below.
(C) ADJUSTMENTS. The number of Shares that are Vested Shares or
------------
Unvested Shares will be proportionally adjusted to reflect any stock dividend,
stock split, reverse stock split or recapitalization of the Series K Preferred
Stock of the Company occurring after the Effective Date.
_________________________
/3/12,500 shares after giving effect to the 10 to 1 reverse split of the Series
K Preferred Stock scheduled to occur on August 1, 1996
/4/37,500 shares after giving effect to the 10 to 1 reverse split of the Series
K Preferred Stock scheduled to occur on August 1, 1996
4
<PAGE>
(D) REPURCHASE AT ORIGINAL PRICE. If Purchaser shall cease to be
-----------------------------
employed by the Company due to voluntary termination, termination by the Company
with "cause", death or disability, the Company shall repurchase all Unvested
Shares of Purchaser from Purchaser (or Purchaser's personal representative as
the case may be) at the Purchaser's original Purchase Price Per Share (as
adjusted to reflect any stock dividend, stock split, reverse stock split or
recapitalization of the Series K Preferred Stock of the Company occurring after
the Effective Date).
(E) PAYMENT OF REPURCHASE PRICE. The repurchase price payable to
----------------------------
purchase Unvested Shares will be payable, at the option of the Company or its
assignee(s), by check or by cancellation of all or a portion of any outstanding
indebtedness of Purchaser to the Company (or to such assignee) or by any
combination thereof. The repurchase price will be paid without interest within
ninety (90) days after the Termination Date.
(F) VESTING UPON TERMINATION WITHOUT "CAUSE". If Purchaser shall
----------------------------------------
cease to be employed by the Company due to termination by the Company without
"cause", all of the Shares shall become Vested Shares as of the Termination Date
and the Company shall not be required or entitled to repurchase any Shares from
Purchaser. Termination without "cause" shall mean termination of Purchaser's
employment by Company for any reason other than "cause", voluntary termination,
death or disability. Termination shall be regarded as for "cause" only upon (i)
Purchaser's willful and continued failure to substantially perform his duties
with the Company after there is delivered to Purchaser by the Board of Directors
a written demand for substantial performance which sets forth in detail the
specific respects in which it believes Purchaser has not substantially performed
his duties; (ii) Purchaser willfully engaging in gross misconduct which is
materially detrimental to the Company; (iii) Purchaser committing a felony or an
act of fraud against the Company or its affiliates; or (iv) Purchaser breaching
materially the terms of Purchaser's employee confidentiality and proprietary
information agreement with the Company or any other similar agreement that may
be in effect from time to time. No act, or failure to act, by Purchaser shall be
considered "willful" if done, or omitted to be done, by Purchaser in good faith
in Purchaser's reasonable belief that his act or omission was in the best
interests of the Company and/or required by applicable law. Purchaser shall not
be deemed to have been terminated for cause under clause (i), (ii) or (iv)
unless and until there shall have been delivered to Purchaser a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the entire membership of the Board of Directors at a meeting of the Board of
Directors called and held for that purpose (after reasonable notice to and an
opportunity for Purchaser, together with Purchaser's counsel, to be heard before
the Board of Directors), finding that in the good faith opinion of the Board of
Directors, Purchaser is guilty of conduct set forth in such clauses and
specifying the particulars thereof in detail. A resignation by Purchaser for any
of the following reasons shall not be deemed to be a voluntary termination and
instead shall be deemed to be a termination of Purchaser's employment by the
Company without "cause": (w) Purchaser shall be placed in a lower stature
position than the position described in Recital B. above; (x) Purchaser's base
salary shall be reduced by more than twenty percent without Purchaser's consent;
(y) Purchaser shall cease to be the Chief Executive Officer of the Company
reporting to the Board of Directors; or (z) the Company shall otherwise breach
the material terms of that certain letter agreement between the Company and
Purchaser dated July 19, 1996 (the "Employment Letter Agreement").
---------------------------
5
<PAGE>
(G) RIGHT OF TERMINATION UNAFFECTED. Nothing in this Agreement
--------------------------------
will be construed to limit or otherwise affect in any manner whatsoever the
right or power of the Company (or any parent, subsidiary or affiliate of the
Company) to terminate Purchaser's employment at any time for any reason or no
reason, with or without cause.
6. RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold or otherwise
-----------------------
transferred by Purchaser without the Company's prior written consent. Before
any Vested Shares held by Purchaser or any transferee of such Shares (either
being sometimes referred to herein as the "Holder") may be sold or otherwise
------
transferred (including without limitation a transfer by gift or operation of
law), the Company and/or its assignee(s) will have a right of first refusal to
purchase the Vested Shares to be sold or transferred (the "Offered Shares") on
--------------
the terms and conditions set forth in this Section (the "Right of First
--------------
Refusal").
- -------
(A) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares will
----------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
------
bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the
name, address and phone/fax number of each proposed purchaser or other
transferee ("Proposed Transferee"); (iii) the number of Offered Shares to be
---------------------
transferred to each Proposed Transferee; (iv) the bona fide cash price or other
consideration for which the Holder proposes to transfer the Offered Shares (the
"Offered Price") and (unless waived by the Company) a brief written explanation,
-------------
by the Holder and the Proposed Transferee, of how the Offered Price was arrived
at; and (v) that the Holder will offer to sell the Offered Shares to the Company
and/or its assignee(s) at the Offered Price as provided in this Section. A true
and correct copy of the Proposed Transferee's bona fide offer shall be provided
to the Company together with the Notice.
(B) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within sixty
-----------------------------------
(60) days after the date of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all (but not less than
all) of the Offered Shares proposed to be transferred to any one or more of the
Proposed Transferees named in the Notice, at the purchase price determined in
accordance with subsection (c) below.
(C) PURCHASE PRICE. The purchase price for the Offered Shares
---------------
purchased under this Section will be the Offered Price. If the Offered Price
includes consideration other than cash, then the value of the non-cash
consideration as determined in good faith by the Company's Board of Directors
will conclusively be deemed to be the cash equivalent value of such non-cash
consideration.
(D) PAYMENT. Payment of the purchase price for Offered Shares will
--------
be payable, at the option of the Company and/or its assignee(s) (as applicable),
by check or by cancellation of all or a portion of any outstanding indebtedness
of the Holder to the Company (or to such assignee, in the case of a purchase of
Offered Shares by such assignee) or by any combination thereof. The purchase
price will be paid without interest within sixty (60) days after the Company's
receipt of the Notice, or, at the option of the Company and/or its assignee(s),
in the manner and at the time(s) set forth in the Notice.
6
<PAGE>
(E) HOLDER'S RIGHT TO TRANSFER. If all of the Offered Shares
---------------------------
proposed in the Notice to be given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Offered Shares to that Proposed Transferee
at the Offered Price or at a higher price, provided that such sale or other
--------
transfer is consummated within 120 days after the date of the Notice, and
provided further, that: (i) any such sale or other transfer is effected in
- -------- -------
compliance with all applicable securities laws; and (ii) the Proposed Transferee
agrees in writing that the provisions of this Section will continue to apply to
the Offered Shares in the hands of such Proposed Transferee. If the Offered
Shares described in the Notice are not transferred to the Proposed Transferee
within such 120 day period, then a new Notice must be given to the Company, and
the Company will again be offered the Right of First Refusal before any Shares
held by the Holder may be sold or otherwise transferred.
(F) EXEMPT TRANSFERS. Notwithstanding anything to the contrary in
-----------------
this Section, the following transfers of Shares will be exempt from the Right of
First Refusal: (i) the transfer of any or all of the Shares during Purchaser's
lifetime by gift or on Purchaser's death by will or intestacy to Purchaser's
"immediate family" (as defined below) or to a trust for the benefit of Purchaser
or Purchaser's immediate family, provided that each transferee or other
recipient agrees in a writing satisfactory to the Company that the provisions of
this Section will continue to apply to the transferred Shares in the hands of
such transferee or other recipient; (ii) any transfer of Shares made pursuant to
a statutory merger or statutory consolidation of the Company with or into
another corporation or corporations (except that the Right of First Refusal will
continue to apply thereafter to such Shares, in which case the surviving
corporation of such merger or consolidation shall succeed to the rights of the
Company under this Section unless the agreement of merger or consolidation
expressly otherwise provides); (iii) any transfer of Shares pursuant to the
winding up and dissolution of the Company; or (iv) any transfer of Shares made
in accordance with Section 5 of this Agreement or this Section 6. As used
herein, the term "immediate family" will mean Purchaser's spouse, lineal
----------------
descendant or antecedent, father, mother, brother or sister, adopted child or
grandchild, or the spouse of any child, adopted child, grandchild or adopted
grandchild of Purchaser.
(G) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
--------------------------------------
Refusal will terminate as to all Shares on the effective date of the first sale
of common stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC under the 1933 Act (other
than a registration statement relating solely to the issuance of common stock
pursuant to a business combination or an employee incentive or benefit plan).
(H) ENCUMBRANCES ON SHARES. Purchaser may grant a lien or security
-----------------------
interest in, or pledge, hypothecate or encumber Vested Shares only if the
Company or its successors and assigns do not hold a lien or security interest in
such shares and only if each party to whom such lien or security interest is
granted, or to whom such pledge, hypothecation or other encumbrance is made,
agrees in a writing satisfactory to the Company that: (i) such lien, security
interest, pledge, hypothecation or encumbrance will not apply to such Vested
Shares after they are acquired by the Company and/or its assignees under this
Section; and (ii) the provisions of this Section will continue to apply to such
Vested Shares in the hands of such party and any
7
<PAGE>
transferee of such party. Purchaser may not grant a lien or security interest
in, or pledge, hypothecate or encumber any Unvested Shares.
7. GUARANTEES. The provisions of Section 5(b) and Section 5(c) of the
----------
Employment Letter Agreement regarding the First Guarantee and the Second
Guarantee are hereby incorporated into and shall form a part of this Agreement.
The term "Series K Stock" as used in the Employment Letter Agreement shall have
the same meaning as the term "Shares" used herein. Both terms refer to the
shares of Series K Preferred Stock purchased hereunder.
8. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this
----------------------
Agreement, Purchaser will have all of the rights of a shareholder of the Company
with respect to the Shares from and after the date that Purchaser delivers
payment of the Purchase Price until such time as Purchaser disposes of the
Shares or the Company and/or its assignee(s) exercise(s) the Right of First
Refusal or the Company is required to repurchase the Shares pursuant to Section
5 above or pursuant to the Employment Letter Agreement. Upon an exercise of the
Right of First Refusal or a termination of Purchaser's employment that triggers
the Repurchase Obligation, Purchaser will have no further rights as a holder of
the Shares, except the right to receive payment for the Shares so purchased in
accordance with the provisions of this Agreement, and Purchaser will promptly
surrender the stock certificate(s) evidencing the Shares so purchased to the
Company for transfer or cancellation.
9. ESCROW. As security for Purchaser's faithful performance of this
-------
Agreement, Purchaser agrees, immediately upon receipt of the stock
certificate(s) evidencing the Shares, to deliver such certificate(s), together
with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any
(with the date and number of Shares left blank), to the Secretary of the Company
or other designee of the Company ("Escrow Holder"), who is hereby appointed to
-------------
hold such certificate(s) and Stock Powers in escrow and to take all such actions
and to effectuate all such transfers and/or releases of such Shares as are in
accordance with the terms of this Agreement. Purchaser and the Company agree
that Escrow Holder will not be liable to any party to this Agreement (or to any
other party) for any actions or omissions unless Escrow Holder is grossly
negligent or intentionally fraudulent in carrying out the duties of Escrow
Holder under this Section. Escrow Holder may rely upon any letter, notice or
other document executed by any signature purported to be genuine and may rely on
the advice of counsel and obey any order of any court with respect to the
transactions contemplated by this Agreement. The Shares will be released from
escrow upon termination of the Right of First Refusal or upon all Shares
becoming Vested Shares, whichever is later.
10. TAX CONSEQUENCES. Purchaser hereby acknowledges that Purchaser has
-----------------
been informed that, unless an election is filed by the Purchaser with the
Internal Revenue Service (and, if necessary, the proper state taxing
authorities), within 30 days of the purchase of the Shares, electing pursuant to
--------------
Section 83(b) of the Internal Revenue Code (and similar state tax provisions, if
applicable) to be taxed currently on any difference between the Purchase Price
of the Shares and their fair market value on the date of purchase, there will be
a recognition of taxable income to the Purchaser, measured by the excess, if
any, of the fair market value of the Vested Shares, at the time they cease to be
Unvested Shares, over the purchase price for such Shares. Purchaser represents
that Purchaser has consulted any tax adviser(s) Purchaser deems
8
<PAGE>
advisable in connection with Purchaser's purchase of the Shares and the filing
of the election under Section 83(b) and similar tax provisions. A form of
Election under Section 83(b) is attached hereto as Exhibit 3 for reference.
---------
PURCHASER HEREBY ASSUMES ALL RESPONSIBILITY FOR FILING SUCH ELECTION AND PAYING
ANY TAXES RESULTING FROM SUCH ELECTION OR FOR FAILING TO FILE THE ELECTION AND
PAYING TAXES RESULTING FROM THE LAPSE OF THE REPURCHASE RESTRICTIONS ON THE
UNVESTED SHARES. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER ADVERSE TAX
CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR DISPOSITION OF THE SHARES.
PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH ANY TAX ADVISER PURCHASER
DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND
THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE.
11. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
---------------------------------------------
(A) LEGENDS. Purchaser understands and agrees that the Company will
--------
place the legends set forth below or similar legends on any stock certificate(s)
evidencing the Shares, together with any other legends that may be required by
state or federal securities laws, the Company's Certificate of Incorporation or
Bylaws, any other agreement between Purchaser and the Company or any agreement
between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
A STATEMENT OF THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS
GRANTED TO OR IMPOSED UPON EACH CLASS OR SERIES OF AUTHORIZED SHARES
OF THE COMPANY MAY BE OBTAINED UPON REQUEST AND WITHOUT CHARGE, FROM
THE COMPANY'S SECRETARY AT THE COMPANY'S PRINCIPAL OFFICES.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE, TRANSFER,
9
<PAGE>
REPURCHASE, IRREVOCABLE PROXY AND VOTING PROVISIONS, AND A RIGHT OF
FIRST REFUSAL OPTION HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET
FORTH IN A RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND
THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED
AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC SALE AND TRANSFER
RESTRICTIONS, REPURCHASE, IRREVOCABLE PROXY AND VOTING PROVISIONS, AND
RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
(B) STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, in order to
---------------------------
ensure compliance with the restrictions imposed by this Agreement, the Company
may issue appropriate "stop-transfer" instructions to its transfer agent, if
any, and if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(C) REFUSAL TO TRANSFER. The Company will not be required (i) to
--------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares, or to accord the right to vote or pay dividends, to any
purchaser or other transferee to whom such Shares have been so transferred.
12. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of
-------------------------------------
the Shares will be subject to and conditioned upon compliance by the Company and
Purchaser with all applicable state and federal laws and regulations and with
all applicable requirements of any stock exchange or automated quotation system
on which the Company's common stock may be listed or quoted at the time of such
issuance or transfer.
13. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
-----------------------
under this Agreement, including its rights to repurchase Shares under the Right
of First Refusal. This Agreement will be binding upon and inure to the benefit
of the successors and assigns of the Company. Subject to the restrictions on
transfer herein set forth, this Agreement will be binding upon Purchaser and
Purchaser's heirs, executors, administrators, successors and assigns.
14. GOVERNING LAW; SEVERABILITY. This Agreement will be governed by and
----------------------------
construed in accordance with the internal laws of the State of California,
excluding that body of laws pertaining to conflict of laws. If any provision of
this Agreement is determined by a court of law to be illegal or unenforceable,
then such provision will be enforced to the maximum extent possible and the
other provisions will remain fully effective and enforceable.
15. NOTICES. Any notice required or permitted hereunder will be given in
--------
writing and will be deemed effectively given upon personal delivery, three (3)
days after deposit in the United States mail by certified or registered mail
(return receipt requested), one (1) business day after its deposit with any
return receipt express courier (prepaid), or one (1) business day after
transmission by telecopier, addressed to the other party at its address (or
facsimile number, in the case of transmission by telecopier) as shown below its
signature to this Agreement, or to such other address as such party may
designate in writing from time to time to the other party.
10
<PAGE>
16. FURTHER INSTRUMENTS. The parties agree to execute such further
--------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
17. HEADINGS. The captions and headings of this Agreement are included
---------
for ease of reference only and will be disregarded in interpreting or construing
this Agreement. Unless specifically indicated otherwise, all references herein
to Sections will refer to Sections of this Agreement.
18. ENTIRE AGREEMENT. This Agreement, together with Section 5(b) and
-----------------
Section 5(c) of the Employment Letter Agreement and all Exhibits to this
Agreement, constitutes the entire agreement and understanding of the parties
with respect to the subject matter of this Agreement, and supersedes all prior
understandings and agreements, whether oral or written, between the parties
hereto with respect to the specific subject matter hereof.
19. FINANCIAL STATEMENTS. The Company shall provide fiscal year end
--------------------
financial statements to Purchaser on an annual basis at such times as they are
available for distribution to stockholders.
20. VOTING AGREEMENT. In consideration of the sale of the Shares by the
----------------
Company to Purchaser, Purchaser hereby agrees that, with respect to any matter
upon which the separate vote of the holders of the Company's Series A Common
Stock is required under Section 242(b) of the Delaware General Corporation Law
prior to the closing of the Company's initial public offering of Series A Common
Stock pursuant to a registration statement filed with and declared effective by
the SEC (the "Company IPO"), Purchaser will cast all votes attributable to
-----------
Purchaser's Shares in the same proportion as the holders of the Company's
outstanding shares of Series A, Series K and Series T Preferred Stock or any
other series of stock designated in the Certificate of Incorporation of the
Company as Convertible Preferred Stock (the "Convertible Preferred Stock") cast
---------------------------
their votes upon such matter, or, if there are no such shares of Convertible
Preferred Stock outstanding, in the same manner as the holders of the Company's
outstanding shares of Series B Common Stock cast their votes upon such matter.
Purchaser hereby irrevocably appoints the Secretary of the Company, or any other
person designated by the Secretary of the Company, to act as Purchaser's proxy
until the Company IPO to cast all votes attributable to Purchaser's Shares as
specified in this Section. The obligations of this Section shall be binding on
any transferee to whom the Shares are transferred by Purchaser or any subsequent
transferee. As a condition of any transfer of the Shares prior to the Company
IPO, Purchaser shall require any transferee, and any such transferee shall
require its transferee, to agree to be bound by the provisions of this Section
in the same manner as Purchaser is bound.
11
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate by its duly authorized representative and Purchaser has executed this
Agreement in duplicate, as of the Effective Date.
AT HOME CORPORATION PURCHASER
By: /s/ David G. Pine /s/ Thomas A. Jermoluk
---------------------------------- -------------------------------
Thomas A. Jermoluk
Title:Vice President, General Counsel
-------------------------------
Address: 385 Ravendale Drive Address:_______________________
Mountain View, CA 94043
_______________________________
Fax:___________________________
LIST OF EXHIBITS
- ----------------
Exhibit 1: Purchaser's check in the amount of $500,000.00
Exhibit 2: Stock Power and Assignment Separate from Stock Certificate
Exhibit 3: Election Under Section 83(b) of the Internal Revenue Code
12
<PAGE>
EXHIBIT 1
---------
COPY OF PURCHASER'S CHECK
-------------------------
<PAGE>
EXHIBIT 2
---------
STOCK POWER AND ASSIGNMENT
SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase
Agreement dated as of July 31, 1996 (the "Agreement"), the undersigned hereby
---------
sells, assigns and transfers unto _____________________, ______________ shares
of the Series K Preferred Stock of AT HOME CORPORATION, a Delaware corporation
(the "Company"), standing in the undersigned's name on the books of the Company
-------
represented by Certificate No(s). _____ delivered herewith, and does hereby
irrevocably constitute and appoint the Secretary of the Company as the
undersigned's attorney-in-fact, with full power of substitution, to transfer
said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS
AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS THERETO.
Dated: ___________________199___
PURCHASER
/s/ Thomas A. Jermoluk
------------------------------
______________________________
(Purchaser's Spouse)
INSTRUCTION: Please do not fill in any blanks other than the signature lines.
- ----------- ---
The purpose of this Stock Power and Assignment is to enable the Company and/or
its assigns to exercise its "Right of First Refusal" or implement its
"Repurchase Obligation" set forth in the Agreement without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT 3
---------
ELECTION UNDER SECTION 83(B) OF THE
INTERNAL REVENUE CODE
The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in gross income for the Taxpayer's current
taxable year the excess, if any, of the fair market value of the property
described below at the time of transfer over the amount paid for such property,
as compensation for services.
1. TAXPAYER'S NAME: Thomas A. Jermoluk
TAXPAYER'S ADDRESS: 892 St. Joseph Ave.
------------------------------
Los Altos, CA 94024
------------------------------
SOCIAL SECURITY NUMBER: ###-##-####
------------------------------
2. The property with respect to which the election is made is described as
follows: 500,000 shares of Series K Preferred Stock of AT HOME
CORPORATION, a Delaware corporation (the "Company"), which is Taxpayer's
-------
employer or the corporation for whom the Taxpayer performs services.
3. The date on which the shares were transferred was July 31, 1996 and this
election is made for calendar year 1996.
4. The shares are subject to the following restrictions: The Company must
repurchase all or a portion of the shares at the Taxpayer's original
purchase price under certain conditions at the time of Taxpayer's
termination of employment or services.
5. The fair market value of the shares (without regard to restrictions other
than restrictions which by their terms will never lapse) was $1.00 per
share at the time of transfer.
6. The amount paid for such shares was $1.00 per share.
7. The Taxpayer has submitted a copy of this statement to the Company.
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS"), AT THE
---
OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS AFTER
--------------
THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE TAXPAYER'S
INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE REVOKED
WITHOUT THE CONSENT OF THE IRS.
Dated: July 31, 1996 /s/ Thomas A. Jermoluk
------------------------------------
Thomas A. Jermoluk
<PAGE>
EXHIBIT 10.16
RESTRICTED STOCK PURCHASE AGREEMENT
(FOR PURCHASES PAID FOR WITH CASH)
This Agreement is made and entered into as of July 31, 1996 (the "Effective
---------
Date") between AT HOME CORPORATION, a Delaware corporation (the "Company"), and
- ---- -------
William R. Hearst, III ("Purchaser").
---------
RECITALS
--------
A. Purchaser possesses sufficient business and financial experience,
and/or sufficient knowledge of and/or relationship to the Company and its
management, as to enable the Company to lawfully issue shares of its Common
Stock to Purchaser without the need for registration or qualification of such
shares under the Securities Act of 1933, as amended, and all applicable state
"blue sky" laws.
B. The Company desires to sell to Purchaser, and Purchaser desires to
purchase from the Company, the shares of the Company's Series A Common Stock.
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE OF SHARES. On the Effective Date and subject to the terms
-------------------
and conditions of this Agreement, Purchaser hereby purchases from the Company,
and Company hereby sells to Purchaser, an aggregate of 200,000 shares of the
Company's Series A Common Stock, $0.01 par value (the "Shares") at an aggregate
------
purchase price of $20,000.00 (the "Purchase Price") or $0.10 per Share (the
--------------
"Purchase Price Per Share"). As used in this Agreement, the term "Shares"
- -------------------------
refers to the Shares purchased under this Agreement and includes all securities
received (a) in replacement of the Shares, (b) as a result of stock dividends or
stock splits in respect of the Shares, and (c) in replacement of the Shares in a
recapitalization, merger, reorganization or the like.
2. PAYMENT OF PURCHASE PRICE; CLOSING.
-----------------------------------
(A) DELIVERIES BY PURCHASER. Purchaser hereby delivers to the
------------------------
Company (i) a check made out to the order of the Company in an amount equal to
$20,000.00 in payment of the aggregate Purchase Price of the Shares, a copy of
which is attached hereto as Exhibit 1, and (ii) two (2) copies of a blank Stock
---------
Power and Assignment Separate from Stock Certificate in the form of Exhibit 2
---------
attached hereto (the "Stock Powers") duly executed by Purchaser and (if
------------
applicable) Purchaser's spouse.
(B) DELIVERIES BY THE COMPANY. Upon its receipt of the entire
--------------------------
Purchase Price and all the documents to be executed and delivered by Purchaser
to the Company under Section 2(a), the Company will issue a duly executed stock
certificate evidencing the Shares in the name of Purchaser, with such
certificate to be placed in escrow as provided in Section 7 until expiration or
termination of the Right of First Refusal described in Section 5.
3. REPRESENTATIONS AND WARRANTS OF PURCHASER. Purchaser represents and
------------------------------------------
warrants to the Company that:
(A) PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is purchasing
----------------------------------------
the Shares for Purchaser's own account for investment purposes only and not with
a view to, or for sale in connection with, a distribution of the Shares within
the meaning of the Securities Act of 1933, as amended (the "1933 Act").
--------
Purchaser has no present intention of selling or otherwise disposing of all or
any portion of the Shares and no one other than Purchaser has any beneficial
ownership of any of the Shares.
<PAGE>
(B) ACCESS TO INFORMATION. Purchaser has had access to all
----------------------
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.
(C) UNDERSTANDING OF RISKS. Purchaser is fully aware of: (i) the
-----------------------
highly speculative nature of the investment in the Shares; (ii) the financial
hazards involved; (iii) the lack of liquidity of the Shares and the restrictions
on transferability of the Shares (e.g., that Purchaser may not be able to sell
----
or dispose of the Shares or use them as collateral for loans); (iv) the
qualifications and backgrounds of the management of the Company; and (v) the tax
consequences of investment in the Shares.
(D) PURCHASER'S QUALIFICATIONS. Purchaser has a preexisting personal
---------------------------
or business relationship with the Company and/or certain of its officers and/or
directors of a nature and duration sufficient to make Purchaser aware of the
character, business acumen and general business and financial circumstances of
the Company and/or such officers and directors. By reason of Purchaser's
business or financial experience, Purchaser is capable of evaluating the merits
and risks of this investment, has the ability to protect Purchaser's own
interests in this transaction and is financially capable of bearing a total loss
of this investment.
(E) NO GENERAL SOLICITATION. At no time was Purchaser presented with
------------------------
or solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Shares.
(F) COMPLIANCE WITH SECURITIES LAWS. Purchaser understands and
--------------------------------
acknowledges that, in reliance upon the representations and warranties made by
Purchaser herein, the Shares are not being registered with the Securities and
Exchange Commission ("SEC") under the 1933 Act or being qualified under the
---
California Corporate Securities Law of 1968, as amended (the "Law"), but instead
---
are being issued under an exemption or exemptions from the registration and
qualification requirements of the 1933 Act and the Law or other applicable state
securities laws which may impose certain restrictions on Purchaser's ability to
transfer the Shares.
(G) RESTRICTIONS ON TRANSFER. Purchaser acknowledges and agrees that
-------------------------
the Company, in its discretion, may elect to issue the Shares under one or more
of several different exemptions from the registration and qualification
requirements of the 1933 Act and the Law and that Purchaser's ability to
transfer the Shares in compliance with such laws will be affected by the
Company's choice of exemption. Purchaser further understands that the Company's
choice of exemptions may not be definitively made until a later date and the
Company is entirely free in its discretion to choose which exemption or
exemptions it will rely upon to exempt the sale of Shares to Purchaser.
Purchaser understands that Purchaser may not transfer any Shares unless such
Shares are registered under the 1933 Act or qualified under the Law or unless,
in the opinion of counsel to the Company, exemptions from such registration and
qualification requirements are available. Purchaser understands that only the
Company may file a registration statement with the SEC or the California
Commissioner of Corporations and that the Company is under no obligation to do
so with respect to the Shares. Purchaser has also been advised that exemptions
from registration and qualification may not be available or may not permit
Purchaser to transfer all or any of the Shares in the amounts or at the times
proposed by Purchaser.
(H) RULE 144. Purchaser acknowledges that SEC Rule 144 promulgated
---------
under the 1933 Act, which permits certain limited sales of unregistered
securities, is not presently available with respect to the Shares and, in any
event, may require that the Shares be held for a minimum of two years, and in
certain cases three years, after they have been purchased and paid for (within
------------
the meaning of Rule 144), before they may be resold under Rule 144. Purchaser
understands that Rule 144 will remain unavailable indefinitely with respect to
transfers of the Shares so long as Purchaser remains an "affiliate"
<PAGE>
of the Company and "current public information" about the Company (as defined in
Rule 144) is not publicly available. In addition, Purchaser understands that all
public resales of the Shares by Purchaser at a time when Purchaser is an
affiliate of the Company must comply with the provisions of Rule 144.
(I) RULE 701. If the Shares are issued pursuant to the exemption
---------
provided by Rule 701 promulgated under the 1933 Act, then the Shares will become
freely tradable by persons who are non-affiliates of the Company under SEC Rule
701 promulgated under the 1933 Act, subject to limited conditions regarding the
method of sale, 90 days after the first sale of common stock of the Company to
the general public pursuant to a registration statement filed with and declared
effective by the SEC, subject to any transfer restrictions imposed by applicable
state securities laws, the lengthier market standoff agreement contained in this
Agreement or any other agreement entered into by Purchaser. Under Rule 701,
affiliates must comply with the provisions (other than the holding period
requirements) of Rule 144.
(J) RULE 504. If the Company elects to issue the Shares to Purchaser
---------
under the exemption provided by Rule 504 of Regulation D promulgated under the
1933 Act, then the Shares should be freely tradable by non-affiliates of the
Company under the 1933 Act, subject to any transfer restrictions imposed by
applicable state securities laws, the lengthier market stand-off agreement
contained in this Agreement or any other contractual restrictions contained in
this Agreement or in any other agreement entered into by Purchaser. However,
affiliates of the Company must continue to comply with the provisions (other
than the holding period requirements) of Rule 144. As noted above, Rule 144 is
not presently available.
(K) TERMS OF PURCHASE AGREEMENT ACCEPTED. Purchaser has received a
-------------------------------------
copy of this Agreement, has read and understands the terms of this Agreement,
and agrees to be bound by its terms and conditions. Purchaser acknowledges that
there may be adverse tax consequences upon purchase and disposition of the
Shares, and that Purchaser should consult a tax adviser prior to such purchase
or disposition.
4. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with any
--------------------------
registration of the Company's securities under the 1933 Act that, upon the
request of the Company or the underwriters managing any registered public
offering of the Company's securities, Purchaser will not sell or otherwise
dispose of any Shares without the prior written consent of the Company or such
managing underwriters, as the case may be, for a period of time (not to exceed
one year) after the effective date of such registration requested by such
managing underwriters and subject to all restrictions as the Company or the
managing underwriters may specify for employee-shareholders generally.
5. RIGHT OF FIRST REFUSAL. Before any Shares held by Purchaser or any
-----------------------
transferee of such Shares (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including without limitation a
- -------
transfer by gift or operation of law), the Company and/or its assignee(s) will
have a right of first refusal to purchase the Shares to be sold or transferred
(the "Offered Shares") on the terms and conditions set forth in this Section
--------------
(the "Right of First Refusal").
----------------------
(A) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares will
----------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
------
Holder's bona fide intention to sell or otherwise transfer the Offered Shares;
(ii) the name, address and phone/fax number of each proposed purchaser or other
transferee ("Proposed Transferee"); (iii) the number of Offered Shares to be
-------------------
transferred to each Proposed Transferee; (iv) the bona fide cash price or other
consideration for which the Holder proposes to transfer the Offered Shares (the
"Offered Price") and (unless waived by the Company) a brief written explanation,
-------------
signed by the Holder and the Proposed Transferee, of how the Offered Price was
arrived at; and (v) that the Holder will offer to sell the Offered Shares to the
Company and/or its assignee(s) at the Offered Price as provided in this Section.
A true and correct copy of the Proposed Transferee's bona fide offer shall be
provided to the Company together with the Notice.
<PAGE>
(B) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within sixty
-----------------------------------
(60) days after the date of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all (but not less than
all) of the Offered Shares proposed to be transferred to any one or more of the
Proposed Transferees named in the Notice, at the purchase price determined in
accordance with subsection (c) below.
(C) PURCHASE PRICE. The purchase price for the Offered Shares
---------------
purchased under this Section will be the Offered Price. If the Offered Price
includes consideration other than cash, then the value of the non-cash
consideration as determined in good faith by the Company's Board of Directors
will conclusively be deemed to be the cash equivalent value of such non-cash
consideration.
(D) PAYMENT. Payment of the purchase price for Offered Shares will
--------
be payable, at the option of the Company and/or its assignee(s) (as applicable),
by check or by cancellation of all or a portion of any outstanding indebtedness
of the Holder to the Company (or to such assignee, in the case of a purchase of
Offered Shares by such assignee) or by any combination thereof. The purchase
price will be paid without interest within sixty (60) days after the Company's
receipt of the Notice, or, at the option of the Company and/or its assignee(s),
in the manner and at the time(s) set forth in the Notice.
(E) HOLDER'S RIGHT TO TRANSFER. If all of the Offered Shares
---------------------------
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Offered Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
--------
such sale or other transfer is consummated within 120 days after the date of
the Notice, and provided further, that: (i) any such sale or other transfer is
-------- -------
effected in compliance with all applicable securities laws; and (ii) the
Proposed Transferee agrees in writing that the provisions of this Section will
continue to apply to the Offered Shares in the hands of such Proposed
Transferee. If the Offered Shares described in the Notice are not transferred to
the Proposed Transferee within such 120 day period, then a new Notice must be
given to the Company, and the Company will again be offered the Right of First
Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(F) EXEMPT TRANSFERS. Notwithstanding anything to the contrary in
-----------------
this Section, the following transfers of Shares will be exempt from the Right of
First Refusal: (i) the transfer of any or all of the Shares during Purchaser's
lifetime by gift or on Purchaser's death by will or intestacy to Purchaser's
"immediate family" (as defined below) or to a trust for the benefit of Purchaser
or Purchaser's immediate family, provided that each transferee or other
recipient agrees in a writing satisfactory to the Company that the provisions of
this Section will continue to apply to the transferred Shares in the hands of
such transferee or other recipient; (ii) any transfer of Shares made pursuant to
a statutory merger or statutory consolidation of the Company with or into
another corporation or corporations (except that the Right of First Refusal will
continue to apply thereafter to such Shares, in which case the surviving
corporation of such merger or consolidation shall succeed to the rights or the
Company under this Section unless the agreement of merger or consolidation
expressly otherwise provides); (iii) any transfer of Shares pursuant to the
winding up and dissolution of the Company; or (iv) any transfer of Shares made
in accordance with this Section 5. As used herein, the term "immediate family"
----------------
will mean Purchaser's spouse, lineal descendant or antecedent, father, mother,
brother or sister, adopted child or grandchild, or the spouse of any child,
adopted child, grandchild or adopted grandchild of Purchaser.
(G) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
--------------------------------------
Refusal will terminate as to all Shares on the effective date of the first sale
of common stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC under the 1933 Act (other
than a registration statement relating solely to the issuance of common stock
pursuant to a business combination or an employee incentive or benefit plan).
<PAGE>
(H) ENCUMBRANCES ON SHARES. Purchaser may grant a lien or security
-----------------------
interest in, or pledge, hypothecate or encumber Shares only if the Company or
its successors and assigns do not hold a lien or security interest in such
shares and only if each party to whom such lien or security interest is granted,
or to whom such pledge, hypothecation or other encumbrance is made, agrees in a
writing satisfactory to the Company that: (i) such lien, security interest,
pledge, hypothecation or encumbrance will not apply to such Shares after they
are acquired by the Company and/or its assignees under this Section; and (ii)
the provisions of this Section will continue to apply to such Shares in the
hands of such party and any transferee of such party.
6. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this
----------------------
Agreement, Purchaser will have all of the rights of a shareholder of the Company
with respect to the Shares from and after the date that Purchaser delivers
payment of the Purchase Price until such time as Purchaser disposes of the
Shares or the Company and/or its assignee(s) exercise(s) the Right of First
Refusal. Upon an exercise of the Right of First Refusal, Purchaser will have no
further rights as a holder of the Shares so purchased upon such exercise, except
the right to receive payment for the Shares so purchased in accordance with the
provisions of this Agreement, and Purchaser will promptly surrender the stock
certificate(s) evidencing the Shares so purchased to the Company for transfer or
cancellation.
7. ESCROW. As security for Purchaser's faithful performance of this
-------
Agreement, Purchaser agrees, immediately upon receipt of the stock
certificate(s) evidencing the Shares, to deliver such certificate(s), together
with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any
(with the date and number of Shares left blank), to the Secretary of the Company
or other designee of the Company ("Escrow Holder"), who is hereby appointed to
-------------
hold such certificate(s) and Stock Powers in escrow and to take all such actions
and to effectuate all such transfers and/or releases of such Shares as are in
accordance with the terms of this Agreement. Purchaser and the Company agree
that Escrow Holder will not be liable to any party to this Agreement (or to any
other party) for any actions or omissions unless Escrow Holder is grossly
negligent or intentionally fraudulent in carrying out the duties of Escrow
Holder under this Section. Escrow Holder may rely upon any letter, notice or
other document executed by any signature purported to be genuine and may rely on
the advice of counsel and obey any order of any court with respect to the
transactions contemplated by this Agreement. The Shares will be released from
escrow upon termination of the Right of First Refusal.
8. TAX CONSEQUENCES. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER
-----------------
ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR DISPOSITION OF
THE SHARES. PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH ANY TAX
ADVISER PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION
OF THE SHARES AND THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX
ADVICE.
9. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
---------------------------------------------
(A) LEGENDS. Purchaser understands and agrees that the Company will
--------
place the legends set forth below or similar legends on any stock certificate(s)
evidencing the Shares, together with any other legends that may be required by
state or federal securities laws, the Company's Certificate of Incorporation or
Bylaws, any other agreement between Purchaser and the Company or any agreement
between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR
<PAGE>
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER
TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
A STATEMENT OF THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS
GRANTED TO OR IMPOSED UPON EACH CLASS OR SERIES OF AUTHORIZED SHARES
OF THE COMPANY MAY BE OBTAINED UPON REQUEST AND WITHOUT CHARGES, FROM
THE COMPANY'S SECRETARY AT THE COMPANY'S PRINCIPAL OFFICES.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, IRREVOCABLE PROXY AND
VOTING PROVISIONS, AND A RIGHT OF FIRST REFUSAL OPTION HELD BY THE
ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A RESTRICTED STOCK
PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE
SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE
ISSUER. SUCH PUBLIC RESALE AND TRANSFER RESTRICTIONS, IRREVOCABLE
PROXY AND VOTING PROVISIONS, AND RIGHT OF FIRST REFUSAL OPTION ARE
BINDING ON TRANSFEREES OF THESE SHARES.
(B) STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, in order to
---------------------------
ensure compliance with the restrictions imposed by this Agreement, the Company
may issue appropriate "stop-transfer" instructions to its transfer agent, if
any, and if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(C) REFUSAL TO TRANSFER. The Company will not be required (i) to
--------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares, or to accord the right to vote or pay dividends, to any
purchaser or other transferee to whom such Shares have been so transferred.
10. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of
-------------------------------------
the Shares will be subject to and conditioned upon compliance by the Company and
Purchaser with all applicable state and federal laws and regulations and with
all applicable requirements of any stock exchange or automated quotation system
on which the Company's common stock may be listed or quoted at the time of such
issuance or transfer.
11. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
-----------------------
under this Agreement, including its rights to repurchase Shares under the Right
of First Refusal. This Agreement will be binding upon and inure to the benefit
of the successors and assigns of the Company. Subject to the restrictions on
transfer herein set forth, this Agreement will be binding upon Purchaser and
Purchaser's heirs, executors, administrators, successors and assigns.
12. GOVERNING LAW; SEVERABILITY. This Agreement will be governed by and
----------------------------
construed in accordance with the internal laws of the State of California,
excluding that body of laws pertaining to conflict of laws. If any provision of
this Agreement is determined by a court of law to be illegal or unenforceable,
then such provision will be enforced to the maximum extent possible and the
other provisions will remain fully effective and enforceable.
13. NOTICES. Any notice required or permitted hereunder will be given in
--------
writing and will be deemed effectively given upon personal delivery, three (3)
days after deposit in the United States mail by
<PAGE>
certified or registered mail (return receipt requested), one (1) business day
after its deposit with any return receipt express courier (prepaid), or one (1)
business day after transmission by facsimile, addressed to the other party at
its address (or facsimile number, in the case of transmission by facsimile) as
shown below its signature to this Agreement, or to such other address as such
party may designate in writing from time to time to the other party.
14. FURTHER INSTRUMENTS. The parties agree to execute such further
--------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
15. HEADINGS. The captions and headings of this Agreement are included
---------
for ease of reference only and will be disregarded in interpreting or construing
this Agreement. All references herein to Sections will refer to Sections of
this Agreement.
16. ENTIRE AGREEMENT. This Agreement, together with all its Exhibits,
-----------------
constitutes the entire agreement and understanding of the parties with respect
to the subject matter of this Agreement, and supersedes all prior understandings
and agreements, whether oral or written, between the parties hereto with respect
to the specific subject matter hereof.
17. FINANCIAL STATEMENTS. The Company shall provide fiscal year end
--------------------
financial statements to Purchaser on an annual basis at such times as they are
available for distribution to stockholders.
18. VOTING AGREEMENT. In consideration of the sale of the Shares by the
----------------
Company to Purchaser, Purchaser hereby agrees that, with respect to any matter
upon which the separate vote of the holders of the Company's Series A Common
Stock is required under Section 242(b) of the Delaware General Corporation Law
prior to the closing of the Company's initial public offering of Series A Common
Stock pursuant to a registration statement filed with and declared effective by
the SEC (the "Company IPO"), Purchaser will cast all votes attributable to
-----------
Purchaser's Shares in the same proportion as the holders of the Company's
outstanding shares of Convertible Preferred Stock designated in the Certificate
of Incorporation of the Company (the "Convertible Preferred Stock") cast their
---------------------------
votes upon such matter, or, if there are no such shares of Convertible Preferred
Stock outstanding, in the same manner as the holders of the Company's
outstanding shares of Series B Common Stock cast their votes upon such matter.
Purchaser hereby irrevocably appoints the Secretary of the Company, or any other
person designated by the Secretary of the Company, to act as Purchaser's proxy
until the Company IPO to cast all votes attributable to Purchaser's Shares as
specified in this Section. The obligations of this Section shall be binding on
any transferee to whom the Shares are transferred by Purchaser or any subsequent
transferee. As a condition of any transfer of the Shares prior to the Company
IPO, Purchaser shall require any transferee, and any such transferee shall
require its transferee, to agree to be bound by the provisions of this Section
in the same manner as Purchaser is bound.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate by its duly authorized representative and Purchaser has executed this
Agreement in duplicate, as of the Effective Date.
AT HOME CORPORATION PURCHASER
By: /s/ THOMAS A. JERMOLUK /s/ WILLIAM R. HEARST, III
------------------------- ----------------------------
William R. Hearst, III
Title:______________________
Address: 385 Ravendale Drive Address: 2440 Vallejo Street
<PAGE>
Mountain View, CA 94043 San Francisco, CA 94123
LIST OF EXHIBITS
- ----------------
Exhibit 1: Purchaser's check in the amount of $20,000.00 in payment of the
Purchase Price of the Shares
Exhibit 2: Stock Power and Assignment Separate from Stock Certificate
____________________________________
Continued from the previous page
<PAGE>
EXHIBIT 1
---------
COPY OF PURCHASER'S CHECK
-------------------------
<PAGE>
EXHIBIT 2
---------
STOCK POWER AND ASSIGNMENT
SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Purchase Agreement
dated as of July 31, 1996, (the "Agreement"), the undersigned hereby sells,
---------
assigns and transfers unto _____________________, ______________ shares of the
Series A Common Stock of AT HOME CORPORATION, a Delaware corporation (the
"Company"), standing in the undersigned's name on the books of the Company
- --------
represented by Certificate No(s). _____ delivered herewith, and does hereby
irrevocably constitute and appoint the Secretary of the Company as the
undersigned's attorney-in-fact, with full power of substitution, to transfer
said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS
AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS THERETO.
Dated: ____________, 199___
PURCHASER
________________________________
William R. Hearst, III
________________________________
(Purchaser's Spouse)
INSTRUCTION: Please do not fill in any blanks other than the signature line.
- ----------- ---
The purpose of this Stock Power and Assignment is to enable the Company and/or
its assigns to exercise its "Right of First Refusal" set forth in the Agreement
without requiring additional signatures on the part of the Purchaser.
<PAGE>
EXHIBIT 10.17
RESTRICTED STOCK PURCHASE AGREEMENT
This Agreement is made and entered into as of July 29, 1996 (the
"Effective Date") between AT HOME CORPORATION, a Delaware corporation (the
- ---------------
"Company"), and Ken Goldman ("Purchaser").
- -------- ---------
RECITALS
--------
A. The Company desires to provide equity incentives to certain key
employees pursuant to this Restricted Stock Purchase Agreement, which agreement
is intended to qualify as a compensatory benefit plan or agreement within the
meaning of Rule 701 under the Securities Act of 1933, as amended.
B. Purchaser possesses sufficient business and financial experience,
and/or sufficient knowledge of and/or relationship to the Company and its
management, as to enable the Company to lawfully issue shares of its Common
Stock to Purchaser without the need for registration or qualification of such
shares under the Securities Act of 1933, as amended, and all applicable state
"blue sky" laws.
C. The Company desires to sell to Purchaser, and Purchaser desires
to purchase from the Company, the shares of the Company's Series A Common Stock.
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE OF SHARES. On the Effective Date and subject to the
-------------------
terms and conditions of this Agreement, Purchaser hereby purchases from the
Company, and Company hereby sells to Purchaser, an aggregate of 275,000 shares
of the Company's Series A Common Stock, $0.01 par value (the "Shares") at an
------
purchase price of $27,500.00 (the "Purchase Price") or $0.10 per Share (the
--------------
"Purchase Price Per Share"). As used in this Agreement, the term "Shares"
- -------------------------
refers to the Shares purchased under this Agreement and includes all securities
received (a) in replacement of the Shares, (b) as a result of stock dividends or
stock splits in respect of the Shares, and (c) in replacement of the Shares in a
recapitalization, merger, reorganization or the like.
2. PAYMENT OF PURCHASE PRICE; CLOSING.
-----------------------------------
(A) DELIVERIES BY PURCHASER. Purchaser hereby delivers to the
------------------------
Company (i) a check made out to the order of the Company in the amount of
$27,500.00 in payment of the Purchase Price of the Shares, a copy of which is
attached hereto as Exhibit 1; and (ii) two (2) copies of a blank Stock Power and
---------
Assignment Separate from Stock Certificate in the form of Exhibit 2 attached
---------
hereto (the "Stock Powers"), duly executed by Purchaser and (if applicable)
------------
Purchaser's spouse.
(B) DELIVERIES BY THE COMPANY. Upon its receipt of the entire
--------------------------
Purchase Price and all the documents to be executed and delivered by Purchaser
to the Company under Section 2(a), the Company will issue a duly executed stock
certificate evidencing the Shares in the name of Purchaser, with such
certificate to be placed in escrow as provided in Section 8 until expiration or
termination of both the Company's Repurchase Option and Right of First Refusal
described in Sections 5 and 6.
3. REPRESENTATIONS AND WARRANTS OF PURCHASER. Purchaser represents
------------------------------------------
and warrants to the Company that:
(A) PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is
----------------------------------------
purchasing the Shares for Purchaser's own account for investment purposes only
and not with a view to, or for sale in connection with, a
<PAGE>
distribution of the Shares within the meaning of the Securities Act of 1933,
as amended (the "1933 Act"). Purchaser has no present intention of selling or
---- ---
otherwise disposing of all or any portion of the Shares and no one other than
Purchaser has any beneficial ownership of any of the Shares.
(B) ACCESS TO INFORMATION. Purchaser has had access to all
----------------------
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.
(C) UNDERSTANDING OF RISKS. Purchaser is fully aware of: (i)
-----------------------
the highly speculative nature of the investment in the Shares; (ii) the
financial hazards involved; (iii) the lack of liquidity of the Shares and the
restrictions on transferability of the Shares (e.g., that Purchaser may not be
----
able to sell or dispose of the Shares or use them as collateral for loans); (iv)
the qualifications and backgrounds of the management of the Company; and (v) the
tax consequences of investment in the Shares.
(D) PURCHASER'S QUALIFICATIONS. Purchaser has a preexisting
---------------------------
personal or business relationship with the Company and/or certain of its
officers and/or directors of a nature and duration sufficient to make Purchaser
aware of the character, business acumen and general business and financial
circumstances of the Company and/or such officers and directors. By reason of
Purchaser's business or financial experience, Purchaser is capable of evaluating
the merits and risks of this investment, has the ability to protect Purchaser's
own interests in this transaction and is financially capable of bearing a total
loss of this investment.
(E) NO GENERAL SOLICITATION. At no time was Purchaser
------------------------
presented with or solicited by any publicly issued or circulated newspaper,
mail, radio, television or other form of general advertising or solicitation in
connection with the offer, sale and purchase of the Shares.
(F) COMPLIANCE WITH SECURITIES LAWS. Purchaser understands and
--------------------------------
acknowledges that, in reliance upon the representations and warranties made by
Purchaser herein, the Shares are not being registered with the Securities and
Exchange Commission ("SEC") under the 1933 Act or being qualified under the
---
California Corporate Securities Law of 1968, as amended (the "Law"), but instead
---
are being issued under an exemption or exemptions from the registration and
qualification requirements of the 1933 Act and the Law or other applicable state
securities laws which may impose certain restrictions on Purchaser's ability to
transfer the Shares.
(G) RESTRICTIONS ON TRANSFER. Purchaser acknowledges and
-------------------------
agrees that the Company, in its discretion, may elect to issue the Shares under
one or more of several different exemptions from the registration and
qualification requirements of the 1933 Act and the Law and that Purchaser's
ability to transfer the Shares in compliance with such laws will be affected by
the Company's choice of exemption. Purchaser further understands that the
Company's choice of exemptions may not be definitively made until a later date
and the Company is entirely free in its discretion to choose which exemption or
exemptions it will rely upon to exempt the sale of Shares to Purchaser.
Purchaser understands that Purchaser may not transfer any Shares unless such
Shares are registered under the 1933 Act or qualified under the Law or unless,
in the opinion of counsel to the Company, exemptions from such registration and
qualification requirements are available. Purchaser understands that only the
Company may file a registration statement with the SEC or the California
Commissioner of Corporations and that the Company is under no obligation to do
so with respect to the Shares. Purchaser has also been advised that exemptions
from registration and qualification may not be available or may not permit
Purchaser to transfer all or any of the Shares in the amounts or at the times
proposed by Purchaser.
(H) RULE 144. Purchaser acknowledges that SEC Rule 144
---------
promulgated under the 1933 Act, which permits certain limited sales of
unregistered securities, is not presently available with respect to the Shares
-2-
<PAGE>
and, in any event, may require that the Shares be held for a minimum of two
years, and in certain cases three years, after they have been purchased and paid
--------
for (within the meaning of Rule 144), before they may be resold under Rule 144.
- ---
Purchaser understands that Rule 144 will remain unavailable indefinitely with
respect to transfers of the Shares so long as Purchaser remains an "affiliate"
of the Company and "current public information" about the Company (as defined in
Rule 144) is not publicly available. In addition, Purchaser understands that all
public resales of the Shares by Purchaser at a time when Purchaser is an
affiliate of the Company must comply with the provisions of Rule 144.
(I) RULE 701. If the Shares are issued pursuant to the exemption
---------
provided by Rule 701 promulgated under the 1933 Act, then the Shares will become
freely tradable by persons who are non-affiliates of the Company under SEC Rule
701 promulgated under the 1933 Act, subject to limited conditions regarding the
method of sale, 90 days after the first sale of common stock of the Company to
the general public pursuant to a registration statement filed with and declared
effective by the SEC, subject to any transfer restrictions imposed by applicable
state securities laws, the lengthier market standoff agreement contained in this
Agreement or any other agreement entered into by Purchaser. Under Rule 701,
affiliates must comply with the provisions (other than the holding period
requirements) of Rule 144.
(J) RULE 504. If the Company elects to issue the Shares to
---------
Purchaser under the exemption provided by Rule 504 of Regulation D promulgated
under the 1933 Act, then the Shares should be freely tradable by non-affiliates
of the Company under the 1933 Act, subject to any transfer restrictions imposed
by applicable state securities laws, the lengthier market stand-off agreement
contained in this Agreement or any other contractual restrictions contained in
this Agreement or in any other agreement entered into by Purchaser. However,
affiliates of the Company must continue to comply with the provisions (other
than the holding period requirements) of Rule 144. As noted above, Rule 144 is
not presently available.
(K) TERMS OF PURCHASE AGREEMENT ACCEPTED. Purchaser has
-------------------------------------
received a copy of this Agreement, has read and understands the terms of this
Agreement, and agrees to be bound by its terms and conditions. Purchaser
acknowledges that there may be adverse tax consequences upon purchase and
disposition of the Shares, and that Purchaser should consult a tax adviser prior
to such purchase or disposition.
4. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with
--------------------------
any registration of the Company's securities under the 1933 Act that, upon the
request of the Company or the underwriters managing any registered public
offering of the Company's securities, Purchaser will not sell or otherwise
dispose of any Shares without the prior written consent of the Company or such
managing underwriters, as the case may be, for a period of time (not to exceed
one year) after the effective date of such registration requested by such
managing underwriters and subject to all restrictions as the Company or the
managing underwriters may specify for employee-shareholders generally.
5. COMPANY'S REPURCHASE OPTION. The Company has the option to
----------------------------
repurchase all or a portion of the Unvested Shares (as defined below) on the
terms and conditions set forth in this Section (the "Repurchase Option").
-----------------
(A) DEFINITION OF "EMPLOYED BY THE COMPANY"; "TERMINATION DATE".
-----------------------------------------------------------
For purposes of this Agreement, Purchaser will be considered to be "employed by
-----------
the Company" if the Board of Directors of the Company determines that Purchaser
- -----------
is rendering substantial services as an officer or employee to the Company or to
any parent, subsidiary or affiliate of the Company. In case of any dispute as
to whether Purchaser is employed by the Company, the Board of Directors of the
Company will have discretion to determine whether Purchaser has ceased to be
employed by the Company or any parent, subsidiary or affiliate of the Company
and the effective date on which Purchaser's employment terminated (the
"Termination Date").
----------------
-3-
<PAGE>
(B) UNVESTED AND VESTED SHARES. "Unvested Shares" are Shares
--------------------------- ---------------
which are subject to the Company's Repurchase Option. "Vested Shares" are Shares
-------------
which are no longer subject to the Company's Repurchase Obligation. On the
Effective Date, all of the Shares will be Unvested Shares. Shares will become
Vested Shares as follows:
(i) If Purchaser has been continuously employed by the Company
at all times from the Effective Date until July 29, 1997 (the "Standard Vesting
----------------
Date"), then on the Standard Vesting Date 55,000 of the Shares will become
- ----
Vested Shares; and thereafter, for so long (and only for so long) as Purchaser
remains continuously employed by the Company at all times after the Standard
Vesting Date, an additional 4,583.33 of the Shares will become Vested Shares
upon the 29th day of each succeeding month that elapses after the Standard
Vesting Date until July 29, 2000.
(ii) If Purchaser has been continuously employed by the Company
at all times from the Effective Date until January 29, 1997 (the "Special
-------
Vesting Date"), then on the Special Vesting Date 13,750 of the Shares will
- ------------
become Vested Shares; and thereafter, for so long (and only for so long) as
Purchaser remains continuously employed by the Company at all times after the
Special Vesting Date, an additional 2,291.67 of the Shares will become Vested
Shares upon the 29th day of each succeeding month that elapses after the
Special Vesting Date until July 29, 1998.
Notwithstanding the foregoing, no Shares will become Vested Shares after the
Termination Date.
(C) ADJUSTMENTS. The number of Shares that are Vested Shares or
------------
Unvested Shares will be proportionally adjusted to reflect any stock dividend,
stock split, reverse stock split or recapitalization of the Series A Common
Stock of the Company occurring after the Effective Date.
(D) EXERCISE OF REPURCHASE OPTION AT ORIGINAL PRICE. At any
------------------------------------------------
time within ninety (90) days after the Termination Date, the Company may elect
to repurchase any or all of the Unvested Shares by giving Purchaser written
notice of exercise of the Repurchase Option. The Company and/or its assignee(s)
will then have the option to repurchase from Purchaser (or from Purchaser's
personal representative as the case may be) any or all of the Unvested Shares at
the Purchaser's original Purchase Price Per Share (as adjusted to reflect any
stock dividend, stock split, reverse stock split or recapitalization of the
Series A Common Stock of the Company occurring after the Effective Date).
(E) PAYMENT OF REPURCHASE PRICE. The repurchase price payable to
----------------------------
purchase Unvested Shares upon exercise of the Repurchase Option will be payable,
at the option of the Company or its assignee(s), by check or by cancellation of
all or a portion of any outstanding indebtedness of Purchaser to the Company (or
to such assignee) or by any combination thereof. The repurchase price will be
paid without interest within ninety (90) days after the Termination Date.
(F) RIGHT OF TERMINATION UNAFFECTED. Nothing in this Agreement
--------------------------------
will be construed to limit or otherwise affect in any manner whatsoever the
right or power of the Company (or any parent, subsidiary or affiliate of the
Company) to terminate Purchaser's employment at any time for any reason or no
reason, with or without cause.
6. RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold or
-----------------------
otherwise transferred by Purchaser without the Company's prior written consent.
Before any Vested Shares held by Purchaser or any transferee of such Shares
(either being sometimes referred to herein as the "Holder") may be sold or
------
otherwise transferred (including without limitation a transfer by gift or
operation of law), the Company and/or its assignee(s)
-4-
<PAGE>
will have a right of first refusal to purchase the Vested Shares to be sold or
transferred (the "Offered Shares") on the terms and conditions set forth in this
--------------
Section (the "Right of First Refusal").
----------------------
(A) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares will
----------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
------
Holder's bona fide intention to sell or otherwise transfer the Offered Shares;
(ii) the name, address and phone/fax number of each proposed purchaser or other
transferee ("Proposed Transferee"); (iii) the number of Offered Shares to be
-------------------
transferred to each Proposed Transferee; (iv) the bona fide cash price or other
consideration for which the Holder proposes to transfer the Offered Shares (the
"Offered Price") and (unless waived by the Company) a brief written explanation,
-------------
signed by the Holder and the Proposed Transferee, of how the Offered Price was
arrived at; and (v) that the Holder will offer to sell the Offered Shares to the
Company and/or its assignee(s) at the Offered Price as provided in this Section.
A true and correct copy of the Proposed Transferee's bona fide offer shall be
provided to the Company together with the Notice.
(B) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within
-----------------------------------
sixty (60) days after the date of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all (but not less
than all) of the Offered Shares proposed to be transferred to any one or more of
the Proposed Transferees named in the Notice, at the purchase price determined
in accordance with subsection (c) below.
(C) PURCHASE PRICE. The purchase price for the Offered Shares
---------------
purchased under this Section will be the Offered Price. If the Offered Price
includes consideration other than cash, then the value of the non-cash
consideration as determined in good faith by the Company's Board of Directors
will conclusively be deemed to be the cash equivalent value of such non-cash
consideration.
(D) PAYMENT. Payment of the purchase price for Offered Shares
--------
will be payable, at the option of the Company and/or its assignee(s) (as
applicable), by check or by cancellation of all or a portion of any outstanding
indebtedness of the Holder to the Company (or to such assignee, in the case of a
purchase of Offered Shares by such assignee) or by any combination thereof. The
purchase price will be paid without interest within sixty (60) days after the
Company's receipt of the Notice, or, at the option of the Company and/or its
assignee(s), in the manner and at the time(s) set forth in the Notice.
(E) HOLDER'S RIGHT TO TRANSFER. If all of the Offered Shares
---------------------------
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Offered Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
--------
such sale or other transfer is consummated within 120 days after the date of the
Notice, and provided further, that: (i) any such sale or other transfer is
-------- -------
effected in compliance with all applicable securities laws; and (ii) the
Proposed Transferee agrees in writing that the provisions of this Section will
continue to apply to the Offered Shares in the hands of such Proposed
Transferee. If the Offered Shares described in the Notice are not transferred to
the Proposed Transferee within such 120 day period, then a new Notice must be
given to the Company, and the Company will again be offered the Right of First
Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(F) EXEMPT TRANSFERS. Notwithstanding anything to the contrary
-----------------
in this Section, the following transfers of Shares will be exempt from the Right
of First Refusal: (i) the transfer of any or all of the Shares during
Purchaser's lifetime by gift or on Purchaser's death by will or intestacy to
Purchaser's "immediate family" (as defined below) or to a trust for the benefit
of Purchaser or Purchaser's immediate family, provided that each transferee or
other recipient agrees in a writing satisfactory to the Company that the
provisions of this Section will continue to apply to the transferred Shares in
the hands of such transferee or other recipient; (ii) any transfer of Shares
made pursuant to a statutory merger or statutory consolidation of the Company
with or into another corporation or corporations (except that the Right of First
Refusal will continue to apply thereafter to such Shares,
-5-
<PAGE>
in which case the surviving corporation of such merger or consolidation shall
succeed to the rights or the Company under this Section unless the agreement of
merger or consolidation expressly otherwise provides); (iii) any transfer of
Shares pursuant to the winding up and dissolution of the Company; or (iv) any
transfer of Shares made in accordance with Section 5 or 6 of this Agreement. As
used herein, the term "immediate family" will mean Purchaser's spouse, lineal
----------------
descendant or antecedent, father, mother, brother or sister, adopted child or
grandchild, or the spouse of any child, adopted child, grandchild or adopted
grandchild of Purchaser.
(G) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
--------------------------------------
Refusal will terminate as to all Shares on the effective date of the first sale
of common stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC under the 1933 Act (other
than a registration statement relating solely to the issuance of common stock
pursuant to a business combination or an employee incentive or benefit plan).
(H) ENCUMBRANCES ON VESTED SHARES. Purchaser may grant a lien
------------------------------
or security interest in, or pledge, hypothecate or encumber Vested Shares only
if the Company or its successors and assigns do not hold a lien or security
interest in such share and only if each party to whom such lien or security
interest is granted, or to whom such pledge, hypothecation or other encumbrance
is made, agrees in a writing satisfactory to the Company that: (i) such lien,
security interest, pledge, hypothecation or encumbrance will not apply to such
Vested Shares after they are acquired by the Company and/or its assignees under
this Section; and (ii) the provisions of this Section will continue to apply to
such Vested Shares in the hands of such party and any transferee of such party.
Purchaser may not grant a lien or security interest in, or pledge, hypothecate
or encumber any Unvested Shares.
7. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of
----------------------
this Agreement, Purchaser will have all of the rights of a shareholder of the
Company with respect to the Shares from and after the date that Purchaser
delivers payment of the Purchase Price until such time as Purchaser disposes of
the Shares or the Company and/or its assignee(s) exercise(s) the Repurchase
Option or Right of First Refusal. Upon an exercise of the Repurchase Option or
the Right of First Refusal, Purchaser will have no further rights as a holder of
the Shares so purchased upon such exercise, except the right to receive payment
for the Shares so purchased in accordance with the provisions of this Agreement,
and Purchaser will promptly surrender the stock certificate(s) evidencing the
Shares so purchased to the Company for transfer or cancellation.
8. ESCROW. As security for Purchaser's faithful performance of this
-------
Agreement, Purchaser agrees, immediately upon receipt of the stock
certificate(s) evidencing the Shares, to deliver such certificate(s), together
with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any
(with the date and number of Shares left blank), to the Secretary of the Company
or other designee of the Company ("Escrow Holder"), who is hereby appointed to
-------------
hold such certificate(s) and Stock Powers in escrow and to take all such actions
and to effectuate all such transfers and/or releases of such Shares as are in
accordance with the terms of this Agreement. Purchaser and the Company agree
that Escrow Holder will not be liable to any party to this Agreement (or to any
other party) for any actions or omissions unless Escrow Holder is grossly
negligent or intentionally fraudulent in carrying out the duties of Escrow
Holder under this Section. Escrow Holder may rely upon any letter, notice or
other document executed by any signature purported to be genuine and may rely on
the advice of counsel and obey any order of any court with respect to the
transactions contemplated by this Agreement. The Shares will be released from
escrow upon termination of both the Repurchase Option and the Right of First
Refusal.
9. TAX CONSEQUENCES. Purchaser hereby acknowledges that Purchaser
-----------------
has been informed that, unless an election is filed by the Purchaser with the
Internal Revenue Service (and, if necessary, the proper state taxing
authorities), within 30 days of the purchase of the Shares, electing pursuant to
--------------
Section 83(b) of the Internal Revenue Code (and similar state tax provisions, if
applicable) to be taxed currently on any difference
-6-
<PAGE>
between the Purchase Price of the Shares and their fair market value on the date
of purchase, there will be a recognition of taxable income to the Purchaser,
measured by the excess, if any, of the fair market value of the Vested Shares,
at the time they cease to be Unvested Shares, over the purchase price for such
Shares. Purchaser represents that Purchaser has consulted any tax adviser(s)
Purchaser deems advisable in connection with Purchaser's purchase of the Shares
and the filing of the election under Section 83(b) and similar tax provisions. A
form of Election under Section 83(b) is attached hereto as Exhibit 3 for
---------
reference. PURCHASER HEREBY ASSUMES ALL RESPONSIBILITY FOR FILING SUCH ELECTION
AND PAYING ANY TAXES RESULTING FROM SUCH ELECTION OR FOR FAILING TO FILE THE
ELECTION AND PAYING TAXES RESULTING FROM THE LAPSE OF THE REPURCHASE
RESTRICTIONS ON THE UNVESTED SHARES. PURCHASER UNDERSTANDS THAT PURCHASER MAY
SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR
DISPOSITION OF THE SHARES. PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED
WITH ANY TAX ADVISER PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE
OR DISPOSITION OF THE SHARES AND THAT PURCHASER IS NOT RELYING ON THE COMPANY
FOR ANY TAX ADVICE.
10. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
---------------------------------------------
(A) LEGENDS. Purchaser understands and agrees that the Company will
--------
place the legends set forth below or similar legends on any stock certificate(s)
evidencing the Shares, together with any other legends that may be required by
state or federal securities laws, the Company's Certificate of Incorporation or
Bylaws, any other agreement between Purchaser and the Company or any agreement
between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY
MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT
AND ANY APPLICABLE STATE SECURITIES LAWS.
A STATEMENT OF THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS GRANTED
TO OR IMPOSED UPON EACH CLASS OR SERIES OF AUTHORIZED SHARES OF THE COMPANY
MAY BE OBTAINED UPON REQUEST AND WITHOUT CHARGE, FROM THE COMPANY'S
SECRETARY AT THE COMPANY'S PRINCIPAL OFFICES.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, IRREVOCABLE PROXY AND VOTING
PROVISIONS, AND RIGHT OF FIRST REFUSAL AND REPURCHASE OPTIONS HELD BY THE
ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A RESTRICTED STOCK PURCHASE
AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A
COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH
PUBLIC RESALE AND TRANSFER RESTRICTIONS, IRREVOCABLE PROXY AND VOTING
PROVISIONS, AND THE RIGHT OF REPURCHASE AND RIGHT OF FIRST REFUSAL OPTIONS
ARE BINDING ON TRANSFEREES OF THESE SHARES.
-7-
<PAGE>
(B) STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, in order to
---------------------------
ensure compliance with the restrictions imposed by this Agreement, the Company
may issue appropriate "stop-transfer" instructions to its transfer agent, if
any, and if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(C) REFUSAL TO TRANSFER. The Company will not be required (i) to
--------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares, or to accord the right to vote or pay dividends, to any
purchaser or other transferee to whom such Shares have been so transferred.
11. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of
-------------------------------------
the Shares will be subject to and conditioned upon compliance by the Company and
Purchaser with all applicable state and federal laws and regulations and with
all applicable requirements of any stock exchange or automated quotation system
on which the Company's common stock may be listed or quoted at the time of such
issuance or transfer.
12. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
-----------------------
under this Agreement, including its rights to repurchase Shares under the
Repurchase Option and the Right of First Refusal. This Agreement will be
binding upon and inure to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer herein set forth, this
Agreement will be binding upon Purchaser and Purchaser's heirs, executors,
administrators, successors and assigns.
13. GOVERNING LAW; SEVERABILITY. This Agreement will be governed by and
----------------------------
construed in accordance with the internal laws of the State of California,
excluding that body of laws pertaining to conflict of laws. If any provision of
this Agreement is determined by a court of law to be illegal or unenforceable,
then such provision will be enforced to the maximum extent possible and the
other provisions will remain fully effective and enforceable.
14. NOTICES. Any notice required or permitted hereunder will be given in
--------
writing and will be deemed effectively given upon personal delivery, three (3)
days after deposit in the United States mail by certified or registered mail
(return receipt requested), one (1) business day after its deposit with any
return receipt express courier (prepaid), or one (1) business day after
transmission by facsimile, addressed to the other party at its address (or
facsimile number, in the case of transmission by facsimile) as shown below its
signature to this Agreement, or to such other address as such party may
designate in writing from time to time to the other party.
15. FURTHER INSTRUMENTS. The parties agree to execute such further
--------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
16. HEADINGS. The captions and headings of this Agreement are included
---------
for ease of reference only and will be disregarded in interpreting or construing
this Agreement. All references herein to Sections will refer to Sections of
this Agreement.
17. ENTIRE AGREEMENT. This Agreement, together with all its Exhibits,
-----------------
constitutes the entire agreement and understanding of the parties with respect
to the subject matter of this Agreement, and supersedes all prior understandings
and agreements, whether oral or written, between the parties hereto with respect
to the specific subject matter hereof.
18. FINANCIAL STATEMENTS. The Company shall provide fiscal year end
--------------------
financial statements to Purchaser on an annual basis at such times as they are
available for distribution to stockholders.
-8-
<PAGE>
19. VOTING AGREEMENT. In consideration of the sale of the Shares by the
----------------
Company to Purchaser, Purchaser hereby agrees that, with respect to any matter
upon which the separate vote of the holders of the Company's Series A Common
Stock is required under Section 242(b) of the Delaware General Corporation Law
prior to the closing of the Company's initial public offering of Series A Common
Stock pursuant to a registration statement filed with and declared effective by
the SEC (the "Company IPO"), Purchaser will cast all votes attributable to
-----------
Purchaser's Shares in the same proportion as the holders of the Company's
outstanding shares of Convertible Preferred Stock designated in the Certificate
of Incorporation of the Company (the "Convertible Preferred Stock") cast their
---------------------------
votes upon such matter, or, if there are no such shares of Convertible Preferred
Stock outstanding, in the same manner as the holders of the Company's
outstanding shares of Series B Common Stock cast their votes upon such matter.
Purchaser hereby irrevocably appoints the Secretary of the Company, or any other
person designated by the Secretary of the Company, to act as Purchaser's proxy
until the Company IPO to cast all votes attributable to Purchaser's Shares as
specified in this Section. The obligations of this Section shall be binding on
any transferee to whom the Shares are transferred by Purchaser or any subsequent
transferee. As a condition of any transfer of the Shares prior to the Company
IPO, Purchaser shall require any transferee, and any such transferee shall
require its transferee, to agree to be bound by the provisions of this Section
in the same manner as Purchaser is bound.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate by its duly authorized representative and Purchaser has executed this
Agreement in duplicate, as of the Effective Date.
AT HOME CORPORATION PURCHASER
By: /s/ WILLIAM R. HEARST III /s/ KEN GOLDMAN
-------------------------- ---------------
Ken Goldman
Title:
-----------------------
Address: 385 Ravendale Drive Address: 441 Walsh Road
Mountain View, CA 94043 Atherton, CA 94027
-9-
<PAGE>
LIST OF EXHIBITS
- ----------------
Exhibit 1: Purchaser's check in the amount of $27,500.00 in payment of the
Purchase Price of the Shares
Exhibit 2: Stock Power and Assignment Separate from Stock Certificate
Exhibit 3: Election Under Section 83(b) of the Internal Revenue Code
-10-
<PAGE>
EXHIBIT 1
---------
COPY OF PURCHASER'S CHECK
-------------------------
<PAGE>
EXHIBIT 2
---------
STOCK POWER AND ASSIGNMENT
SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase
Agreement dated as of July 29, 1996, (the "Agreement"), the undersigned hereby
---------
sells, assigns and transfers unto _____________________, ______________ shares
of the Series A Common Stock of AT HOME CORPORATION, a Delaware corporation
(the "Company"), standing in the undersigned's name on the books of the
-------
Company represented by Certificate No(s). _____ delivered herewith, and does
hereby irrevocably constitute and appoint the Secretary of the Company as the
undersigned's attorney-in-fact, with full power of substitution, to transfer
said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS
AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS THERETO.
Dated: ______________________, 199___
PURCHASER
______________________________
Ken Goldman
______________________________
(Purchaser's Spouse)
INSTRUCTION: Please do not fill in any blanks other than the signature line.
- ----------- ---
The purpose of this Stock Power and Assignment is to enable the Company and/or
its assigns to exercise its "Repurchase Option" and/or "Right of First Refusal"
set forth in the Agreement without requiring additional signatures on the part
of the Purchaser.
<PAGE>
EXHIBIT 3
---------
ELECTION UNDER SECTION 83(B) OF THE
INTERNAL REVENUE CODE
The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in gross income for the Taxpayer's current
taxable year the excess, if any, of the fair market value of the property
described below at the time of transfer over the amount paid for such
property, as compensation for services.
1. TAXPAYER'S NAME: Ken Goldman
--------------------------------
TAXPAYER'S ADDRESS: 441 Walsh Road
--------------------------------
Atherton, CA 94027
--------------------------------
SOCIAL SECURITY NUMBER: ________________________________
2. The property with respect to which the election is made is described as
follows: 275,000 shares of Series A Common Stock of AT HOME CORPORATION,
a Delaware corporation (the "Company"), which is Taxpayer's employer or
-------
the corporation for whom the Taxpayer performs services.
3. The date on which the shares were transferred was July 29, 1996 and this
election is made for calendar year 1996.
4. The shares are subject to the following restrictions: The Company may
repurchase all or a portion of the shares at the Taxpayer's original
purchase price under certain conditions at the time of Taxpayer's
termination of employment or services.
5. The fair market value of the shares (without regard to restrictions other
than restrictions which by their terms will never lapse) was $0.10 per
share at the time of transfer.
6. The amount paid for such shares was $0.10 per share.
7. The Taxpayer has submitted a copy of this statement to the Company.
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS"), AT THE
---
OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS
--------------
AFTER THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE
TAXPAYER'S INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE
REVOKED WITHOUT THE CONSENT OF THE IRS.
Dated: July 29, 1996 ______________________________
Ken Goldman
<PAGE>
EXHIBIT 10.18
FORM OF RESTRICTED STOCK PURCHASE AGREEMENT
(FOR PURCHASES PAID FOR WITH A PROMISSORY NOTE)
This Agreement is made and entered into as of ____________ (the "Effective
---------
Date") between AT HOME CORPORATION, a Delaware corporation (the "Company"), and
- ---- -------
__________ ("Purchaser").
---------
RECITALS
--------
A. The Company desires to provide equity incentives to certain key
employees pursuant to this Restricted Stock Purchase Agreement, which agreement
is intended to qualify as a compensatory benefit plan or agreement within the
meaning of Rule 701 under the Securities Act of 1933, as amended.
B. Purchaser possesses sufficient business and financial experience,
and/or sufficient knowledge of and/or relationship to the Company and its
management, as to enable the Company to lawfully issue shares of its Common
Stock to Purchaser without the need for registration or qualification of such
shares under the Securities Act of 1933, as amended, and all applicable state
"blue sky" laws.
C. The Company desires to sell to Purchaser, and Purchaser desires to
purchase from the Company, the shares of the Company's Series A Common Stock.
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE OF SHARES. On the Effective Date and subject to the terms
-------------------
and conditions of this Agreement, Purchaser hereby purchases from the Company,
and Company hereby sells to Purchaser, an aggregate of ________ shares the
Company's Series A Common Stock, $0.01 par value (the "Shares") at an aggregate
------
purchase price of $_________ (the "Purchase Price") or $0.10 per Share (the
--------------
"Purchase Price Per Share"). As used in this Agreement, the term "Shares" refers
------------------------
to the Shares purchased under this Agreement and includes all securities
received (a) in replacement of the Shares, (b) as a result of stock dividends or
stock splits in respect of the Shares, and (c) in replacement of the Shares in a
recapitalization, merger, reorganization or the like.
2. PAYMENT OF PURCHASE PRICE; CLOSING.
-----------------------------------
(A) DELIVERIES BY PURCHASER. Purchaser hereby delivers to the
------------------------
Company the full Purchase Price by delivery of: (i) a check in the amount of
$_________ in payment of the aggregate par value of the Shares, a copy of which
is attached hereto as Exhibit 1; and (ii) by delivery to the Company of a
---------
Secured Full Recourse Promissory Note of Purchaser in the principal amount of
$_________ in the form of Exhibit 2, duly executed by Purchaser (the "Note").
--------- ----
Purchaser also hereby delivers to the Company: (i) two (2) copies of a blank
Stock Power and Assignment Separate from Stock Certificate in the form of
Exhibit 3 attached hereto (the "Stock Powers"), duly executed by Purchaser and
- --------- ------------
(if applicable) Purchaser's spouse; and (ii) a Stock Pledge Agreement in the
form of Exhibit 4, duly executed by Purchaser (the "Pledge Agreement").
--------- ----------------
(B) DELIVERIES BY THE COMPANY. Upon its receipt of the entire
--------------------------
Purchase Price and all the documents to be executed and delivered by Purchaser
to the Company under Section 2(a), the Company will issue a duly executed stock
certificate evidencing the Shares in the name of Purchaser, with such
certificate to be placed in escrow as provided in Section 8 until expiration or
termination of both the Company's Repurchase Option and Right of First Refusal
described in Sections 5 and 6 and payment in full to the Company of all sums due
under the Note.
<PAGE>
3. REPRESENTATIONS AND WARRANTS OF PURCHASER. Purchaser represents and
------------------------------------------
warrants to the Company that:
(A) PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is purchasing
----------------------------------------
the Shares for Purchaser's own account for investment purposes only and not with
a view to, or for sale in connection with, a distribution of the Shares within
the meaning of the Securities Act of 1933, as amended (the "1933 Act").
--------
Purchaser has no present intention of selling or otherwise disposing of all or
any portion of the Shares and no one other than Purchaser has any beneficial
ownership of any of the Shares.
(B) ACCESS TO INFORMATION. Purchaser has had access to all
----------------------
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.
(C) UNDERSTANDING OF RISKS. Purchaser is fully aware of: (i) the
-----------------------
highly speculative nature of the investment in the Shares; (ii) the financial
hazards involved; (iii) the lack of liquidity of the Shares and the restrictions
on transferability of the Shares (e.g., that Purchaser may not be able to sell
----
or dispose of the Shares or use them as collateral for loans); (iv) the
qualifications and backgrounds of the management of the Company; and (v) the tax
consequences of investment in the Shares.
(D) PURCHASER'S QUALIFICATIONS. Purchaser has a preexisting personal
---------------------------
or business relationship with the Company and/or certain of its officers and/or
directors of a nature and duration sufficient to make Purchaser aware of the
character, business acumen and general business and financial circumstances of
the Company and/or such officers and directors. By reason of Purchaser's
business or financial experience, Purchaser is capable of evaluating the merits
and risks of this investment, has the ability to protect Purchaser's own
interests in this transaction and is financially capable of bearing a total loss
of this investment.
(E) NO GENERAL SOLICITATION. At no time was Purchaser presented with
------------------------
or solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Shares.
(F) COMPLIANCE WITH SECURITIES LAWS. Purchaser understands and
--------------------------------
acknowledges that, in reliance upon the representations and warranties made by
Purchaser herein, the Shares are not being registered with the Securities and
Exchange Commission ("SEC") under the 1933 Act or being qualified under the
---
California Corporate Securities Law of 1968, as amended (the "Law"), but instead
---
are being issued under an exemption or exemptions from the registration and
qualification requirements of the 1933 Act and the Law or other applicable state
securities laws which may impose certain restrictions on Purchaser's ability to
transfer the Shares.
(G) RESTRICTIONS ON TRANSFER. Purchaser acknowledges and agrees that
-------------------------
the Company, in its discretion, may elect to issue the Shares under one or more
of several different exemptions from the registration and qualification
requirements of the 1933 Act and the Law and that Purchaser's ability to
transfer the Shares in compliance with such laws will be affected by the
Company's choice of exemption. Purchaser further understands that the Company's
choice of exemptions may not be definitively made until a later date and the
Company is entirely free in its discretion to choose which exemption or
exemptions it will rely upon to exempt the sale of Shares to Purchaser.
Purchaser understands that Purchaser may not transfer any Shares unless such
Shares are registered under the 1933 Act or qualified under the Law or unless,
in the opinion of counsel to the Company, exemptions from such registration and
qualification requirements are available. Purchaser understands that only the
Company may file a registration statement with the SEC or the California
Commissioner of Corporations and that the Company is under no obligation to do
so with respect to the Shares. Purchaser has also
-2-
<PAGE>
been advised that exemptions from registration and qualification may not be
available or may not permit Purchaser to transfer all or any of the Shares in
the amounts or at the times proposed by Purchaser.
(H) RULE 144. Purchaser acknowledges that SEC Rule 144 promulgated
---------
under the 1933 Act, which permits certain limited sales of unregistered
securities, is not presently available with respect to the Shares and, in any
event, may require that the Shares be held for a minimum of two years, and in
certain cases three years, after they have been purchased and paid for (within
------------
the meaning of Rule 144), before they may be resold under Rule 144. PURCHASER
---------
UNDERSTANDS THAT SHARES PAID FOR WITH A NOTE MAY NOT BE DEEMED TO BE FULLY "PAID
- --------------------------------------------------------------------------------
FOR" WITHIN THE MEANING OF RULE 144 UNLESS CERTAIN CONDITIONS ARE MET AND THAT,
- -------------------------------------------------------------------------------
ACCORDINGLY, THE RULE 144 HOLDING PERIOD OF SUCH SHARES MAY NOT BEGIN TO RUN
- ----------------------------------------------------------------------------
UNTIL SUCH SHARES ARE FULLY PAID FOR WITHIN THE MEANING OF RULE 144. Purchaser
- -------------------------------------------------------------------
understands that Rule 144 will remain unavailable indefinitely with respect to
transfers of the Shares so long as Purchaser remains an "affiliate" of the
Company and "current public information" about the Company (as defined in Rule
144) is not publicly available. In addition, Purchaser understands that all
public resales of the Shares by Purchaser at a time when Purchaser is an
affiliate of the Company must comply with the provisions of Rule 144.
(I) RULE 701. If the Shares are issued pursuant to the exemption
---------
provided by Rule 701 promulgated under the 1933 Act, then the Shares will become
freely tradable by persons who are non-affiliates of the Company under SEC Rule
701 promulgated under the 1933 Act, subject to limited conditions regarding the
method of sale, 90 days after the first sale of common stock of the Company to
the general public pursuant to a registration statement filed with and declared
effective by the SEC, subject to any transfer restrictions imposed by applicable
state securities laws, the lengthier market standoff agreement contained in this
Agreement or any other agreement entered into by Purchaser. Under Rule 701,
affiliates must comply with the provisions (other than the holding period
requirements) of Rule 144.
(J) RULE 504. If the Company elects to issue the Shares to Purchaser
---------
under the exemption provided by Rule 504 of Regulation D promulgated under the
1933 Act, then the Shares should be freely tradable by non-affiliates of the
Company under the 1933 Act, subject to any transfer restrictions imposed by
applicable state securities laws, the lengthier market stand-off agreement
contained in this Agreement or any other contractual restrictions contained in
this Agreement or in any other agreement entered into by Purchaser. However,
affiliates of the Company must continue to comply with the provisions (other
than the holding period requirements) of Rule 144. As noted above, Rule 144 is
not presently available.
(K) TERMS OF PURCHASE AGREEMENT ACCEPTED. Purchaser has received a
-------------------------------------
copy of this Agreement, has read and understands the terms of this Agreement,
and agrees to be bound by its terms and conditions. Purchaser acknowledges that
there may be adverse tax consequences upon purchase and disposition of the
Shares, and that Purchaser should consult a tax adviser prior to such purchase
or disposition.
4. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with any
--------------------------
registration of the Company's securities under the 1933 Act that, upon the
request of the Company or the underwriters managing any registered public
offering of the Company's securities, Purchaser will not sell or otherwise
dispose of any Shares without the prior written consent of the Company or such
managing underwriters, as the case may be, for a period of time (not to exceed
one year) after the effective date of such registration requested by such
managing underwriters and subject to all restrictions as the Company or the
managing underwriters may specify for employee-shareholders generally.
5. COMPANY'S REPURCHASE OPTION. The Company has the option to repurchase
----------------------------
all or a portion of the Unvested Shares (as defined below) on the terms and
conditions set forth in this Section (the "Repurchase Option") if Purchaser
-----------------
ceases to be employed by the Company (as defined
-3-
<PAGE>
herein) for any reason, or no reason, including without limitation Purchaser's
death, disability, voluntary resignation or termination by the Company with or
without cause.
(A) DEFINITION OF "EMPLOYED BY THE COMPANY"; "TERMINATION DATE". For
------------------------------------------------------------
purposes of this Agreement, Purchaser will be considered to be "employed by the
---------------
Company" if the Board of Directors of the Company determines that Purchaser is
- -------
rendering substantial services as an officer or employee to the Company or to
any parent, subsidiary or affiliate of the Company. In case of any dispute as
to whether Purchaser is employed by the Company, the Board of Directors of the
Company will have discretion to determine whether Purchaser has ceased to be
employed by the Company or any parent, subsidiary or affiliate of the Company
and the effective date on which Purchaser's employment terminated (the
"Termination Date").
- -----------------
(B) UNVESTED AND VESTED SHARES. Shares that are not Vested Shares (as
---------------------------
defined in this Section) are "Unvested Shares". On the Effective Date, all of
---------------
the Shares will be Unvested Shares. If Purchaser has been continuously employed
by the Company at all times from the Effective Date ________ (the "First Vesting
-------------
Date"), then on the First Vesting Date twenty-five percent (25%) of the Shares
- ----
will become Vested Shares; and thereafter, for so long (and only for so long) as
Purchaser remains continuously employed by the Company at all times after the
First Vesting Date, an additional two point zero nine percent (2.09%) of the
Shares will become Vested Shares upon each succeeding month that elapses after
the First Vesting Date. Notwithstanding the foregoing, no Shares will become
Vested Shares after the Termination Date.
(C) ADJUSTMENTS. The number of Shares that are Vested Shares or
------------
Unvested Shares will be proportionally adjusted to reflect any stock dividend,
stock split, reverse stock split or recapitalization of the Series A Common
Stock of the Company occurring after the Effective Date.
(D) EXERCISE OF REPURCHASE OPTION AT ORIGINAL PRICE. At any time
------------------------------------------------
within ninety (90) days after the Termination Date, the Company may elect to
repurchase any or all of the Unvested Shares by giving Purchaser written notice
of exercise of the Repurchase Option. The Company and/or its assignee(s) will
then have the option to repurchase from Purchaser (or from Purchaser's personal
representative as the case may be) any or all of the Unvested Shares at the
Purchaser's original Purchase Price Per Share (as adjusted to reflect any stock
dividend, stock split, reverse stock split or recapitalization of the Series A
Common Stock of the Company occurring after the Effective Date).
(E) PAYMENT OF REPURCHASE PRICE. The repurchase price payable to
----------------------------
purchase Unvested Shares upon exercise of the Repurchase Option will be payable,
at the option of the Company or its assignee(s), by check or by cancellation of
all or a portion of any outstanding indebtedness of Purchaser to the Company (or
to such assignee) or by any combination thereof. The repurchase price will be
paid without interest within ninety (90) days after the Termination Date.
(F) RIGHT OF TERMINATION UNAFFECTED. Nothing in this Agreement will
--------------------------------
be construed to limit or otherwise affect in any manner whatsoever the right or
power of the Company (or any parent, subsidiary or affiliate of the Company) to
terminate Purchaser's employment at any time for any reason or no reason, with
or without cause.
6. RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold or otherwise
-----------------------
transferred by Purchaser without the Company's prior written consent. Before
any Vested Shares held by Purchaser or any transferee of such Shares (either
being sometimes referred to herein as the "Holder") may be sold or otherwise
------
transferred (including without limitation a transfer by gift or operation of
law), the Company and/or its assignee(s) will have a right of first refusal to
purchase the Vested Shares to be sold or transferred (the "Offered Shares") on
--------------
the terms and conditions set forth in this Section (the "Right of First
--------------
Refusal").
-4-
<PAGE>
(A) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares will
----------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
------
bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the
name, address and phone/fax number of each proposed purchaser or other
transferee ("Proposed Transferee"); (iii) the number of Offered Shares to be
-------------------
transferred to each Proposed Transferee; (iv) the bona fide cash price or other
consideration for which the Holder proposes to transfer the Offered Shares (the
"Offered Price") and (unless waived by the Company) a brief written explanation,
-------------
signed by the Holder and the Proposed Transferee, of how the Offered Price was
arrived at; and (v) that the Holder will offer to sell the Offered Shares to the
Company and/or its assignee(s) at the Offered Price as provided in this Section.
A true and correct copy of the Proposed Transferee's bona fide offer shall be
provided to the Company together with the Notice.
(B) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within sixty
-----------------------------------
(60) days after the date of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all (but not less than
all) of the Offered Shares proposed to be transferred to any one or more of the
Proposed Transferees named in the Notice, at the purchase price determined in
accordance with subsection (c) below.
(C) PURCHASE PRICE. The purchase price for the Offered Shares
---------------
purchased under this Section will be the Offered Price. If the Offered Price
includes consideration other than cash, then the value of the non-cash
consideration as determined in good faith by the Company's Board of Directors
will conclusively be deemed to be the cash equivalent value of such non-cash
consideration.
(D) PAYMENT. Payment of the purchase price for Offered Shares will be
--------
payable, at the option of the Company and/or its assignee(s) (as applicable), by
check or by cancellation of all or a portion of any outstanding indebtedness of
the Holder to the Company (or to such assignee, in the case of a purchase of
Offered Shares by such assignee) or by any combination thereof. The purchase
price will be paid without interest within sixty (60) days after the Company's
receipt of the Notice, or, at the option of the Company and/or its assignee(s),
in the manner and at the time(s) set forth in the Notice.
(E) HOLDER'S RIGHT TO TRANSFER. If all of the Offered Shares
---------------------------
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Offered Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
--------
such sale or other transfer is consummated within 120 days after the date of the
Notice, and provided further, that: (i) any such sale or other transfer is
-------- -------
effected in compliance with all applicable securities laws; and (ii) the
Proposed Transferee agrees in writing that the provisions of this Section will
continue to apply to the Offered Shares in the hands of such Proposed
Transferee. If the Offered Shares described in the Notice are not transferred to
the Proposed Transferee within such 120 day period, then a new Notice must be
given to the Company, and the Company will again be offered the Right of First
Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(F) EXEMPT TRANSFERS. Notwithstanding anything to the contrary in
-----------------
this Section, the following transfers of Shares will be exempt from the Right of
First Refusal: (i) the transfer of any or all of the Shares during Purchaser's
lifetime by gift or on Purchaser's death by will or intestacy to Purchaser's
"immediate family" (as defined below) or to a trust for the benefit of Purchaser
or Purchaser's immediate family, provided that each transferee or other
recipient agrees in a writing satisfactory to the Company that the provisions of
this Section will continue to apply to the transferred Shares in the hands of
such transferee or other recipient; (ii) any transfer of Shares made pursuant to
a statutory merger or statutory consolidation of the Company with or into
another corporation or corporations (except that the Right of First Refusal will
continue to apply thereafter to such Shares, in which case the surviving
corporation of such merger or consolidation shall succeed to the rights or the
Company under this Section unless the agreement of merger or consolidation
expressly otherwise provides); (iii) any transfer of Shares pursuant to the
winding up and dissolution of the Company; or (iv) any transfer of Shares made
in accordance with
-5-
<PAGE>
Section 5 of this Agreement or this Section 6. As used herein, the term
"immediate family" will mean Purchaser's spouse, lineal descendant or
----------------
antecedent, father, mother, brother or sister, adopted child or grandchild, or
the spouse of any child, adopted child, grandchild or adopted grandchild of
Purchaser.
(G) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
--------------------------------------
Refusal will terminate as to all Shares on the effective date of the first sale
of common stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC under the 1933 Act (other
than a registration statement relating solely to the issuance of common stock
pursuant to a business combination or an employee incentive or benefit plan).
(H) ENCUMBRANCES ON VESTED SHARES. Purchaser may grant a lien or
------------------------------
security interest in, or pledge, hypothecate or encumber Vested Shares only if
the Company or its successors and assigns do not hold a lien or security
interest in such share and only if each party to whom such lien or security
interest is granted, or to whom such pledge, hypothecation or other encumbrance
is made, agrees in a writing satisfactory to the Company that: (i) such lien,
security interest, pledge, hypothecation or encumbrance will not apply to such
Vested Shares after they are acquired by the Company and/or its assignees under
this Section; and (ii) the provisions of this Section will continue to apply to
such Vested Shares in the hands of such party and any transferee of such party.
Purchaser may not grant a lien or security interest in, or pledge, hypothecate
or encumber any Unvested Shares.
7. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this
----------------------
Agreement, Purchaser will have all of the rights of a shareholder of the Company
with respect to the Shares from and after the date that Purchaser delivers
payment of the Purchase Price until such time as Purchaser disposes of the
Shares or the Company and/or its assignee(s) exercise(s) the Repurchase Option
or Right of First Refusal. Upon an exercise of the Repurchase Option or the
Right of First Refusal, Purchaser will have no further rights as a holder of the
Shares so purchased upon such exercise, except the right to receive payment for
the Shares so purchased in accordance with the provisions of this Agreement, and
Purchaser will promptly surrender the stock certificate(s) evidencing the Shares
so purchased to the Company for transfer or cancellation.
8. ESCROW. As security for Purchaser's faithful performance of this
-------
Agreement, Purchaser agrees, immediately upon receipt of the stock
certificate(s) evidencing the Shares, to deliver such certificate(s), together
with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any
(with the date and number of Shares left blank), to the Secretary of the Company
or other designee of the Company ("Escrow Holder"), who is hereby appointed to
-------------
hold such certificate(s) and Stock Powers in escrow and to take all such actions
and to effectuate all such transfers and/or releases of such Shares as are in
accordance with the terms of this Agreement. Purchaser and the Company agree
that Escrow Holder will not be liable to any party to this Agreement (or to any
other party) for any actions or omissions unless Escrow Holder is grossly
negligent or intentionally fraudulent in carrying out the duties of Escrow
Holder under this Section. Escrow Holder may rely upon any letter, notice or
other document executed by any signature purported to be genuine and may rely on
the advice of counsel and obey any order of any court with respect to the
transactions contemplated by this Agreement. The Shares will be released from
escrow upon termination of both the Repurchase Option and the Right of First
Refusal provided, however, that the Shares will be retained in escrow so long as
-------- -------
they are subject to the Pledge Agreement.
9. TAX CONSEQUENCES. Purchaser hereby acknowledges that Purchaser has
-----------------
been informed that, unless an election is filed by the Purchaser with the
Internal Revenue Service (and, if necessary, the proper state taxing
authorities), within 30 days of the purchase of the Shares, electing pursuant to
--------------
Section 83(b) of the Internal Revenue Code (and similar state tax provisions, if
applicable) to be taxed currently on any difference between the Purchase Price
of the Shares and their fair market value on the date of purchase, there will be
a recognition of taxable income to the Purchaser, measured by the excess, if
any, of the fair market value of the Vested Shares, at the time they cease to be
Unvested Shares, over the purchase price for such Shares. Purchaser represents
that Purchaser has consulted
-6-
<PAGE>
any tax adviser(s) Purchaser deems advisable in connection with Purchaser's
purchase of the Shares and the filing of the election under Section 83(b) and
similar tax provisions. A form of Election under Section 83(b) is attached
hereto as Exhibit 5 for reference. PURCHASER HEREBY ASSUMES ALL RESPONSIBILITY
---------
FOR FILING SUCH ELECTION AND PAYING ANY TAXES RESULTING FROM SUCH ELECTION OR
FOR FAILING TO FILE THE ELECTION AND PAYING TAXES RESULTING FROM THE LAPSE OF
THE REPURCHASE RESTRICTIONS ON THE UNVESTED SHARES. PURCHASER UNDERSTANDS THAT
PURCHASER MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S
PURCHASE OR DISPOSITION OF THE SHARES. PURCHASER REPRESENTS THAT PURCHASER HAS
CONSULTED WITH ANY TAX ADVISER PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE
PURCHASE OR DISPOSITION OF THE SHARES AND THAT PURCHASER IS NOT RELYING ON THE
COMPANY FOR ANY TAX ADVICE.
10. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
---------------------------------------------
(A) LEGENDS. Purchaser understands and agrees that the Company will
--------
place the legends set forth below or similar legends on any stock certificate(s)
evidencing the Shares, together with any other legends that may be required by
state or federal securities laws, the Company's Certificate of Incorporation or
Bylaws, any other agreement between Purchaser and the Company or any agreement
between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
A STATEMENT OF THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS
GRANTED TO OR IMPOSED UPON EACH CLASS OR SERIES OF AUTHORIZED SHARES
OF THE COMPANY MAY BE OBTAINED UPON REQUEST AND WITHOUT CHARGE, FROM
THE COMPANY'S SECRETARY AT THE COMPANY'S PRINCIPAL OFFICES.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, IRREVOCABLE PROXY AND
VOTING PROVISIONS, AND RIGHT OF FIRST REFUSAL AND REPURCHASE OPTIONS
HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A RESTRICTED
STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF
THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE
OF THE ISSUER. SUCH PUBLIC RESALE AND TRANSFER RESTRICTIONS,
IRREVOCABLE PROXY AND VOTING PROVISIONS, AND THE RIGHT OF REPURCHASE
AND RIGHT OF FIRST REFUSAL OPTIONS ARE BINDING ON TRANSFEREES OF THESE
SHARES.
(B) STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, in order to
---------------------------
ensure compliance with the restrictions imposed by this Agreement, the Company
may issue appropriate "stop-
-7-
<PAGE>
transfer" instructions to its transfer agent, if any, and if the Company
transfers its own securities, it may make appropriate notations to the same
effect in its own records.
(C) REFUSAL TO TRANSFER. The Company will not be required (i) to
--------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares, or to accord the right to vote or pay dividends, to any
purchaser or other transferee to whom such Shares have been so transferred.
11. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of
-------------------------------------
the Shares will be subject to and conditioned upon compliance by the Company and
Purchaser with all applicable state and federal laws and regulations and with
all applicable requirements of any stock exchange or automated quotation system
on which the Company's common stock may be listed or quoted at the time of such
issuance or transfer.
12. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
-----------------------
under this Agreement, including its rights to repurchase Shares under the
Repurchase Option and the Right of First Refusal. This Agreement will be
binding upon and inure to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer herein set forth, this
Agreement will be binding upon Purchaser and Purchaser's heirs, executors,
administrators, successors and assigns.
13. GOVERNING LAW; SEVERABILITY. This Agreement will be governed by and
----------------------------
construed in accordance with the internal laws of the State of California,
excluding that body of laws pertaining to conflict of laws. If any provision of
this Agreement is determined by a court of law to be illegal or unenforceable,
then such provision will be enforced to the maximum extent possible and the
other provisions will remain fully effective and enforceable.
14. NOTICES. Any notice required or permitted hereunder will be given in
--------
writing and will be deemed effectively given upon personal delivery, three (3)
days after deposit in the United States mail by certified or registered mail
(return receipt requested), one (1) business day after its deposit with any
return receipt express courier (prepaid), or one (1) business day after
transmission by facsimile, addressed to the other party at its address (or
facsimile number, in the case of transmission by facsimile) as shown below its
signature to this Agreement, or to such other address as such party may
designate in writing from time to time to the other party.
15. FURTHER INSTRUMENTS. The parties agree to execute such further
--------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
16. HEADINGS. The captions and headings of this Agreement are included
---------
for ease of reference only and will be disregarded in interpreting or construing
this Agreement. All references herein to Sections will refer to Sections of
this Agreement.
17. ENTIRE AGREEMENT. This Agreement, together with all its Exhibits,
-----------------
constitutes the entire agreement and understanding of the parties with respect
to the subject matter of this Agreement, and supersedes all prior understandings
and agreements, whether oral or written, between the parties hereto with respect
to the specific subject matter hereof.
18. FINANCIAL STATEMENTS. The Company shall provide fiscal year end
--------------------
financial statements to Purchaser on an annual basis at such times as they are
available for distribution to stockholders.
19. VOTING AGREEMENT. In consideration of the sale of the Shares by the
----------------
Company to Purchaser, Purchaser hereby agrees that, with respect to any matter
upon which the separate vote of the
-8-
<PAGE>
holders of the Company's Series A Common Stock is required under Section 242(b)
of the Delaware General Corporation Law prior to the closing of the Company's
initial public offering of Series A Common Stock pursuant to a registration
statement filed with and declared effective by the SEC (the "Company IPO"),
-----------
Purchaser will cast all votes attributable to Purchaser's Shares in the same
proportion as the holders of the Company's outstanding shares of Convertible
Preferred Stock designated in the Certificate of Incorporation of the Company
(the "Convertible Preferred Stock") cast their votes upon such matter, or, if
---------------------------
there are no such shares of Convertible Preferred Stock outstanding, in the same
manner as the holders of the Company's outstanding shares of Series B Common
Stock cast their votes upon such matter. Purchaser hereby irrevocably appoints
the Secretary of the Company, or any other person designated by the Secretary of
the Company, to act as Purchaser's proxy until the Company IPO to cast all votes
attributable to Purchaser's Shares as specified in this Section. The obligations
of this Section shall be binding on any transferee to whom the Shares are
transferred by Purchaser or any subsequent transferee. As a condition of any
transfer of the Shares prior to the Company IPO, Purchaser shall require any
transferee, and any such transferee shall require its transferee, to agree to be
bound by the provisions of this Section in the same manner as Purchaser is
bound.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate by its duly authorized representative and Purchaser has executed this
Agreement in duplicate, as of the Effective Date.
AT HOME CORPORATION PURCHASER
By:________________________________ ___________________________________
Title:_____________________________
Address: 385 Ravendale Drive Address:___________________________
Mountain View, CA 94043
___________________________________
Fax: ______________________________
LIST OF EXHIBITS
- ----------------
Exhibit 1: Purchaser's check in the amount of $________ in payment of the
aggregate par value of the Shares
Exhibit 2: Secured Full Recourse Promissory Note
Exhibit 3: Stock Power and Assignment Separate from Stock Certificate
Exhibit 4: Stock Pledge Agreement
Exhibit 5: Election Under Section 83(b) of the Internal Revenue Code
-9-
<PAGE>
EXHIBIT 1
---------
COPY OF PURCHASER'S CHECK
-------------------------
<PAGE>
EXHIBIT 2
---------
SECURED FULL RECOURSE PROMISSORY NOTE
-------------------------------------
Mountain View, California
$__________ July 16, 1996
1. OBLIGATION. In exchange for the issuance to the undersigned
-----------
("Purchaser") of ________ shares (the "Shares") of the Series A Common Stock of
--------- ------
AT HOME CORPORATION, a Delaware corporation (the "Company"), receipt of which is
-------
hereby acknowledged, Purchaser hereby promises to pay to the order of the
Company on or before May 31, 2001, at the Company's principal place of business
at 385 Ravendale Drive, Mountain View, California 94043, or at such other place
as the Company may direct, the principal sum of ________________ Dollars
($________) together with interest on unpaid principal compounded annually at
the rate of Five point Eight Eight percent (5.88%), which rate is not less than
the minimum rate established pursuant to Section 1274(d) of the Internal Revenue
Code of 1986, as amended, on the earliest date on which there was a binding
contract in writing for the purchase of the Shares; provided, however, that the
-------- -------
rate at which interest will accrue on unpaid principal under this Note will not
exceed the highest rate permitted by applicable law.
2. SECURITY. Payment of this Note is secured by a security interest in
---------
the Shares granted to the Company by Purchaser under a Stock Pledge Agreement
dated of even date herewith between the Company and Purchaser (the "Pledge
------
Agreement"). This Note is being tendered by Purchaser to the Company in partial
- ---------
payment of the purchase price of the Shares pursuant to that certain Restricted
Stock Purchase Agreement between Purchaser and the Company dated of even date
with this Note (the "Purchase Agreement").
------------------
3. DEFAULT; ACCELERATION OF OBLIGATION. Purchaser will be deemed to be
------------------------------------
in default under this Note and the principal sum of this Note, together with all
interest accrued thereon, will immediately become due and payable in full: (a)
upon Purchaser's failure to make any payment when due under this Note; (b) in
the event Purchaser ceases to be employed by the Company (as defined in the
Purchase Agreement) for any reason; (c) upon any transfer of any of the Shares;
(d) upon the filing by or against Purchaser of any voluntary or involuntary
petition in bankruptcy or any petition for relief under the federal bankruptcy
code or any other state or federal law for the relief of debtors; or (e) upon
the execution by Purchaser of an assignment for the benefit of creditors or the
appointment of a receiver, custodian, trustee or similar party to take
possession of Purchaser's assets or property.
4. REMEDIES ON DEFAULT. Upon any default of Purchaser under this Note,
--------------------
the Company will have, in addition to its rights and remedies under this Note
and under the Pledge Agreement, full recourse against any real, personal,
tangible or intangible assets of Purchaser, and may pursue any legal or
equitable remedies that are available to it.
5. RULE 144 HOLDING PERIOD. SUBJECT (TO THE EXTENT RULE 701 IS
------------------------
APPLICABLE TO THE SHARES) TO ANY CONTRARY PROVISIONS OF RULE 701 UNDER THE
SECURITIES ACT OF 1933, PURCHASER UNDERSTANDS THAT THE HOLDING PERIOD SPECIFIED
UNDER RULE 144(d) OF THE SECURITIES AND EXCHANGE COMMISSION WILL NOT BEGIN TO
RUN WITH RESPECT TO SHARES PURCHASED WITH THIS NOTE UNTIL EITHER (A) THE
PURCHASE PRICE OF SUCH SHARES IS PAID IN FULL IN CASH OR BY OTHER PROPERTY
ACCEPTED BY THE COMPANY, OR (B) THIS NOTE IS SECURED BY COLLATERAL, OTHER THAN
THE SHARES THAT HAVE NOT BEEN
<PAGE>
FULLY PAID FOR IN CASH, HAVING A FAIR MARKET VALUE AT LEAST EQUAL TO THE AMOUNT
OF PURCHASER'S THEN OUTSTANDING OBLIGATION UNDER THIS NOTE (INCLUDING ACCRUED
INTEREST).
6. PREPAYMENT. Prepayment of principal and/or interest due under this
-----------
Note may be made at any time without penalty. Unless otherwise agreed in
writing by the Company, all payments will be made in lawful tender of the United
States and will be applied first to the payment of accrued interest, and the
remaining balance of such payment, if any, will then be applied to the payment
of principal. If Purchaser prepays all or a portion of the principal amount of
this Note, Purchaser intends that the Shares paid for by the portion of
principal so paid will continue to be held in pledge under the Pledge Agreement
to serve as independent collateral for the outstanding portion of this Note for
the purpose of commencing the holding period under Rule 144(d) of the Securities
and Exchange Commission with respect to other Shares purchased with this Note.
7. GOVERNING LAW; WAIVER. The validity, construction and performance of
----------------------
this Note will be governed by the internal laws of the State of California,
excluding that body of law pertaining to conflicts of law. Purchaser hereby
waives presentment, notice of non-payment, notice of dishonor, protest, demand
and diligence.
8. ATTORNEYS' FEES. If suit is brought for collection of this Note,
----------------
Purchaser agrees to pay all reasonable expenses, including attorneys' fees,
incurred by the holder in connection therewith whether or not such suit is
prosecuted to judgment.
IN WITNESS WHEREOF, Purchaser has executed this Note as of the date and
year first above written.
__________________________
-2-
<PAGE>
EXHIBIT 3
---------
STOCK POWER AND ASSIGNMENT
SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase
Agreement dated as of July 16, 1996, (the "Agreement"), the undersigned hereby
---------
sells, assigns and transfers unto _____________________, ______________ shares
of the Series A Common Stock of AT HOME CORPORATION, a Delaware corporation (the
"Company"), standing in the undersigned's name on the books of the Company
-------
represented by Certificate No(s). _____ delivered herewith, and does hereby
irrevocably constitute and appoint the Secretary of the Company as the
undersigned's attorney-in-fact, with full power of substitution, to transfer
said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS
AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS THERETO.
Dated: _____________________, 199___
PURCHASER
______________________________
______________________________
(Purchaser's Spouse)
INSTRUCTION: Please do not fill in any blanks other than the signature line.
- ----------- ---
The purpose of this Stock Power and Assignment is to enable the Company and/or
its assigns to acquire the shares upon a default under Purchaser's Note and to
exercise its "Repurchase Option" and/or "Right of First Refusal" set forth in
the Agreement without requiring additional signatures on the part of the
Purchaser.
<PAGE>
EXHIBIT 4
---------
STOCK PLEDGE AGREEMENT
----------------------
This Agreement is made and entered into as of ________ between AT HOME
CORPORATION, a Delaware corporation (the "Company"), and ____________
-------
("Pledgor").
-------
R E C I T A L S
- - - - - - - -
A. In exchange for Pledgor's Secured Full Recourse Promissory Note to the
Company of even date herewith (the "Note") and a cash payment of ____________
----
Dollars ($________), the Company has issued and sold to Pledgor ________ shares
of its Series A Common Stock (the "Shares") pursuant to the terms and conditions
------
of that certain Stock Purchase Agreement between the Company and Pledgor dated
of even date herewith (the "Purchase Agreement").
------------------
B. Pledgor has agreed that repayment of the Note will be secured by the
pledge of the Shares pursuant to this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. CREATION OF SECURITY INTEREST. Pursuant to the provisions of the
------------------------------
California Commercial Code, Pledgor hereby grants to the Company, and the
Company hereby accepts, a first and present security interest in the Shares as
collateral to secure the payment of Pledgor's obligation to the Company under
the Note. Pledgor herewith delivers to the Company Series A Common Stock
certificate(s) No(s). ____representing all the Shares, together with one stock
power for each certificate in the form attached as an Exhibit to the Purchase
Agreement, duly executed (with the date and number of shares left blank) by
Pledgor and Pledgor's spouse, if any. For purposes of this Agreement, the
Shares pledged to the Company hereby, together with any additional collateral
pledged pursuant to Section 5 hereof, will hereinafter be collectively referred
to as the "Collateral." Pledgor agrees that the Collateral pledged to the
----------
Company will be deposited with and held by the Escrow Holder (as defined in the
Purchase Agreement) and that, notwithstanding anything to the contrary in the
Purchase Agreement, for purposes of carrying out the provisions of this
Agreement, Escrow Holder will act solely for the Company as its agent.
2. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and
-------------------------------
warrants to the Company that Pledgor has good title (both record and beneficial)
to the Collateral, free and clear of all claims, pledges, security interests,
liens or encumbrances of every nature whatsoever, and that Pledgor has the right
to pledge and grant the Company the security interest in the Collateral granted
under this Agreement. Pledgor further agrees that, until the entire principal
sum and all accrued interest due under the Note has been paid in full, Purchaser
will not, without the Company's prior written consent, (i) sell, assign or
transfer, or attempt to sell, assign or transfer, any of the Collateral, or (ii)
grant or create, or attempt to grant or create, any security interest, lien,
pledge, claim or other encumbrance with respect to any of the Collateral.
3. RIGHTS ON DEFAULT. In the event of default (as defined in the Note)
------------------
by Pledgor under the Note, the Company will have full power to sell, assign and
deliver the whole or any part of the Collateral at any broker's exchange or
elsewhere, at public or private sale, at the option of the Company, in order to
satisfy any part of the obligations of Pledgor now existing or hereinafter
arising under the Note. On any such sale, the Company or its assigns may
purchase all or any part of the Collateral. In addition, at its sole option, the
Company may elect to retain all the Collateral in full satisfaction of Pledgor's
obligation under the Note, in accordance with the provisions and procedures set
forth in the California Commercial Code.
<PAGE>
4. ADDITIONAL REMEDIES. The rights and remedies granted to the Company
--------------------
herein upon default under the Note will be in addition to all the rights, powers
and remedies of the Company as a secured creditor or otherwise under the
California Commercial Code and applicable law and such rights, powers and
remedies will be exercisable by the Company with respect to all of the
Collateral. Pledgor agrees that the Company's reasonable expenses of holding
the Collateral, preparing it for resale or other disposition, and selling or
otherwise disposing of the Collateral, including attorneys' fees and other legal
expenses, will be deducted from the proceeds of any sale or other disposition
and will be included in the amounts Pledgor must tender to redeem the
Collateral. All rights, powers and remedies of the Company will be cumulative
and not alternative. Any forbearance or failure or delay by the Company in
exercising any right, power or remedy hereunder will not be deemed to be a
waiver of any such right, power or remedy and any single or partial exercise of
any such right, power or remedy hereunder will not preclude the further exercise
thereof.
5. DIVIDENDS; VOTING. All dividends hereinafter declared on or payable
------------------
with respect to the Collateral during the term of this pledge (excluding only
ordinary cash dividends, which will be payable to Pledgor so long as Pledgor is
not in default under the Note) will be immediately delivered to the Company to
be held in pledge under this Agreement. Notwithstanding this Agreement, so long
as Pledgor owns the Shares and is not in default under the Note, Pledgor will be
entitled to vote any shares comprising the Collateral, subject to any the proxy
granted by Pledgor and subject to the voting provisions of the Purchase
Agreement.
6. ADJUSTMENTS. In the event that during the term of this pledge, any
------------
stock dividend, reclassification, readjustment, stock split or other change is
declared or made with respect to the Collateral, or if warrants or any other
rights, options or securities are issued in respect of the Collateral, then all
new, substituted and/or additional shares or other securities issued by reason
of such change or by reason of the exercise of such warrants, rights, options or
securities, will be immediately pledged to the Company to be held under the
terms of this Agreement in the same manner as the Collateral is held hereunder.
7. RIGHTS UNDER PURCHASE AGREEMENT. Pledgor understands and agrees that
--------------------------------
the Company's rights to repurchase the Collateral under the Purchase Agreement
will continue for the periods and on the terms and conditions specified in the
Purchase Agreement, whether or not the Note has been paid during such period of
time, and that to the extent that the Note is not paid during such period of
time, the repurchase by the Company of the Collateral may be made by way of
cancellation of all or any part of Pledgor's indebtedness under the Note.
8. REDELIVERY OF COLLATERAL. Upon payment in full of the entire
-------------------------
principal sum and all accrued interest due under the Note, and subject to the
terms and conditions of the Purchase Agreement, the Company will immediately
redeliver the Collateral to Pledgor and this Agreement will terminate; provided,
--------
however, that all rights of the Company to retain possession of the Shares
- -------
pursuant to the Purchase Agreement will survive termination of this Agreement.
9. SUCCESSORS AND ASSIGNS. This Agreement will inure to the benefit of
-----------------------
the respective heirs, personal representatives, successors and assigns of the
parties hereto.
10. GOVERNING LAW; SEVERABILITY. This Agreement will be governed by and
----------------------------
construed in accordance with the internal laws of the State of California,
excluding that body of law relating to conflicts of law. Should one or more of
the provisions of this Agreement be determined by a court of law to be illegal
or unenforceable, the other provisions nevertheless will remain effective and
will be enforceable.
11. MODIFICATION; ENTIRE AGREEMENT. This Agreement will not be amended
-------------------------------
without the written consent of both parties hereto. This Agreement and Section
8 of the Purchase Agreement constitute the
-2-
<PAGE>
entire agreement of the parties hereto with respect to the subject matter hereof
and supersede all prior agreements and understandings related to such subject
matter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
AT HOME CORPORATION PLEDGOR
By:_____________________________ ______________________________
Title___________________________
-3-
<PAGE>
EXHIBIT 5
---------
ELECTION UNDER SECTION 83(B) OF THE
INTERNAL REVENUE CODE
The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in gross income for the Taxpayer's current
taxable year the excess, if any, of the fair market value of the property
described below at the time of transfer over the amount paid for such property,
as compensation for services.
1. TAXPAYER'S NAME: _________________________
TAXPAYER'S ADDRESS: _________________________
_________________________
SOCIAL SECURITY NUMBER: _________________________
2. The property with respect to which the election is made is described as
follows: _________ shares of Series A Common Stock of AT HOME CORPORATION,
a Delaware corporation (the "Company"), which is Taxpayer's employer or the
-------
corporation for whom the Taxpayer performs services.
3. The date on which the shares were transferred was _______ and this election
is made for calendar year 1996.
4. The shares are subject to the following restrictions: The Company may
repurchase all or a portion of the shares at the Taxpayer's original
purchase price under certain conditions at the time of Taxpayer's
termination of employment or services.
5. The fair market value of the shares (without regard to restrictions other
than restrictions which by their terms will never lapse) was $0.10 per
share at the time of transfer.
6. The amount paid for such shares was $0.10 per share.
7. The Taxpayer has submitted a copy of this statement to the Company.
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS"), AT THE
---
OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS AFTER
--------------
THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE TAXPAYER'S
INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE REVOKED
WITHOUT THE CONSENT OF THE IRS.
Dated: ______________________________
<PAGE>
EXHIBIT 10.19
[LETTERHEAD OF @HOME NETWORK]
July 19, 1996
Tom A. Jermoluk
Dear Tom:
It gives me great pleasure to offer you the position of President and Chief
Executive Officer of At Home Corporation (the "Company"), effective July 22,
-------
1996 (the "Effective Date"). The Board of Directors intends to elect you
--------------
Chairman as of the first Board of Directors meeting after the Effective Date.
The terms of your employment are as follows:
1. Base Compensation. Your base salary will be $500,000 per year. Your base
-----------------
salary shall be reviewed annually by the Board of Directors or its Compensation
Committee and any annual increase will be effective as of the date determined
appropriate by the Board or its Compensation Committee.
2. Bonuses. You will be eligible for a bonus of $200,000 per year based on
-------
the performance of the Company with a minimum bonus to be determined by the
Board of Directors or its Compensation Committee. The exact bonus formula will
be determined by October 1, 1996. Performance measurements will be based on the
Company's annual operating plan.
3. Restricted Stock Award.
----------------------
(a) You will be granted the right to purchase one million five hundred
thousand (1,500,000) shares of restricted Series A common stock of the Company
(the "Restricted Stock") at the fair market value per share of the Company's
----------------
common stock at the first Board of Directors meeting after the Effective Date,
which is currently expected to be ten cents ($.10) per share. You also will be
granted the right to purchase fifty thousand (50,000) shares of restricted
Series K preferred stock of the Company (the "Series K Stock") at $10.00 per
--------------
share at the first Board of Directors meeting after the Effective Date. (The
50,000 shares of Series K Stock are convertible into five hundred thousand
(500,000) shares of restricted Series A common stock of the Company, and for
purposes of paragraph 3 of this Agreement it shall be assumed that such shares
of Series K Stock are converted into Series A common stock). The vesting start
date for the grant of the Restricted Stock and the Series K Stock will be your
first date of employment. Twenty-five (25%) percent of your Restricted Stock
and Series K Stock will vest on the
<PAGE>
Effective Date. After the first twelve full calendar months from the date of
grant vestingrestrictions will lapse at the rate of 2.08% per month on the last
day of each calendar month thereafter.
(b) If you are an employee of the Company on or after the second
anniversary of the Effective Date, the Company will guarantee (the "First
-----
Guarantee") for a period of two years so long as the Company is not publicly
- ---------
traded and you continue to be employed by the Company (the "First Guarantee
---------------
Period") that the Restricted Stock and Series K Stock shall have an aggregate
- ------
fair market value of $10,000,000 (the "First Guaranteed Value") as follows:
----------------------
(i) At any time during the First Guarantee Period on which you
elect to sell vested shares of Restricted Stock or Series K Stock, you may cause
the Company to purchase such shares, in which case the product obtained by
multiplying the First Guaranteed Value by the Applicable Percentage shall be
paid by the Company in exchange for such shares of Restricted Stock and Series K
Stock.
(ii) For purposes of this paragraph 3(b), the Applicable Percentage
as of any date shall be equal to the number of shares of Restricted Stock and
Series K Stock sold by you on such date divided by 2,000,000.
(iii) The First Guarantee shall continue until the earliest to occur
of (A) the termination of your employment at any time pursuant to paragraphs
5(a) or 5(b) below; or (B) ninety days after the termination of your employment
pursuant to paragraph 5(c) or 5(d).
(c) If you are an employee of the Company on or after the fourth
anniversary of the Effective Date, the Company will guarantee (the "Second
------
Guarantee") for a period of five years so long as you continue to be employed by
- ---------
the Company (the "Second Guarantee Period") that the Restricted Stock and Series
-----------------------
K Stock shall have an aggregate fair market value of $20,000,000 (the "Second
------
Guaranteed Value") as follows:
- ----------------
(i) At any time that you sell vested shares of Restricted Stock or
Series K Stock during the Second Guarantee Period, the Company shall pay to you
the excess, if any, of (A) the product obtained by multiplying (x) the Second
Guaranteed Value by (y) the Applicable Percentage over (B) the sales price of
any such shares of Restricted Stock and Series K Stock sold by you; provided,
however, that in no event shall the Company make a payment to you if the sum of
the amounts received by you upon the sale of all shares of Restricted Stock and
Series K Stock on or prior to such date or pursuant to payments on the Second
Guarantee equal or exceed the Second Guaranteed Value multiplied by a fraction,
the numerator of which is the number of shares of Restricted Stock and Series K
Stock sold by you during the Second Guarantee Period, and the denominator of
which is 2,000,000.
(ii) For purposes of this paragraph 3(c), the Applicable Percentage
as of any date shall be equal to the number of shares of Restricted Stock and
Series K Stock sold by you on such date divided by 2,000,000.
<PAGE>
(iii) The Second Guarantee shall continue until the earliest to occur
of (A) the termination of your employment at any time pursuant to paragraphs
5(a) or 5(b) below; or (B) ninety days after the termination of your employment
pursuant to paragraph 5(c) or 5(d).
(iv) If the Company is not publicly traded on the date during the
Second Guarantee Period on which you elect to sell vested shares of Restricted
Stock or Series K Stock, you may cause the Company to purchase such shares, in
which case the product obtained by multiplying the Second Guaranteed Value by
the Applicable Percentage shall be paid by the Company in exchange for such
shares of Restricted Stock and Series K Stock.
(v) Notwithstanding anything in this paragraph 3 to the contrary,
(A) in the event your employment terminates on or prior to the fourth
anniversary of the Effective Date as a result of your death or permanent
disability as shall be defined in the Company's long-term disability income
plan, you shall be eligible for the Second Guarantee pursuant to the foregoing
provisions, except that the Second Guaranteed Value shall be multiplied by a
fraction, the numerator of which is the number of whole months from the
Effective Date to the date your employment terminates, and the denominator of
which is forty-eight and (B) in the event your employment terminates pursuant to
paragraph 5(c) or 5(d) below, the Second Guarantee shall commence on such
termination of employment and shall continue for ninety days.
4. Indemnification. The Company agrees to provide you with standard
---------------
indemnification for directors and officers.
5. Termination and Termination Payments.
------------------------------------
(a) You have the right to terminate your employment at any time upon not
less than one month's written notice to the Company. In such event, the Company
shall pay you all compensation (including base salary and pro rata bonus) due to
you to the date of termination. The Company shall repurchase all unvested
shares of Restricted Stock and Series K Stock owned by you on the date of your
termination of employment within ninety days of your termination at your
original purchase price for such Restricted Stock and Series K Stock.
(b) The Company shall have the right to terminate your employment with
"cause" upon written notice to you. In such event, the Company shall pay you
all compensation (including base salary and accrued vacation but excluding
bonus) due to you on the date of termination. The Company shall repurchase all
unvested shares of Restricted Stock and Series K Stock owned by you on the date
of your termination of employment within ninety days of your termination at your
original purchase price for such Restricted Stock and Series K Stock. For
purposes of this Agreement, termination of your employment with the Company
shall be regarded as a termination for "cause" only upon (i) your willful and
continued failure to substantially perform your duties with the Company after
there is delivered to you by the Board of Directors a written demand for
substantial performance which sets forth in detail the specific respects in
which it believes you have not substantially performed your duties; (ii) your
willfully engaging in gross misconduct which is materially detrimental to the
Company; (iii) your committing a felony or an act of fraud against the Company
or its affiliates; or (iv) your
<PAGE>
breaching materially the terms of your employee confidentiality and proprietary
information agreement with the Company or any other similar agreement that may
be in effect from time to time. No act, or failure to act, by you shall be
considered "willful" if done, or omitted to be done by you in good faith and in
your reasonable belief that your act or omission was in the best interests of
the Company and/or required by applicable law. You shall not be deemed to have
been terminated for cause under clause (i), (ii) or (iv) of this paragraph 5(b)
unless and until there shall have been delivered to you a copy of a resolution
duly adopted by the affirmative vote of not less than a majority of the entire
membership of the Board of Directors at a meeting of the Board of Directors
called and held for that purpose (after reasonable notice to and an opportunity
for you, together with your counsel, to be heard before the Board of Directors),
finding that in the good faith opinion of the Board of Directors, you are guilty
of conduct set forth in such clauses and specifying the particulars thereof in
detail.
(c) The Company shall have the right to terminate your employment for any
reason without "cause" upon not less than one month's written notice to you. If
the Company terminates your employment for any reason without "cause" (i) the
Company shall pay you all compensation (including base salary and bonus) due to
you at the date of your termination and continue to pay you in equal
installments an amount equal to the sum of your then current monthly base salary
plus bonus for a period of six months after the date of such termination and
(ii) all vesting restrictions with respect to the Restricted Stock and Series K
Stock shall lapse on the date of such termination.
(d) If you resign for any of the following reasons, it shall be deemed to
be a termination of your employment by the Company without "cause": (i) You
shall be placed in a lower stature position than the position described in this
Agreement; (ii) Your base salary hereunder shall be reduced by more than twenty
percent without your consent; (iii) You shall cease to be the Chief Executive
Officer of the Company reporting to the Board of Directors; or (iv) the Company
shall otherwise breach the material terms of this Agreement.
6. Vacation. You shall be entitled to paid vacation in accordance with the
--------
Company's vacation policy for employees, as in effect from time to time.
7. Benefits. The Company will provide you with benefits as part of its
--------
standard employee benefits package.
8. Nondisclosure. Both you and the Company agree to keep the terms of this
-------------
Agreement confidential except as may otherwise be required by law.
9. Entire Agreement. This Agreement represents the entire agreement between
----------------
you and the Company concerning the matters addressed herein, and supersedes all
prior agreements and understanding on such matters.
_____________________________
<PAGE>
To indicate your acceptance of this offer, please sign this letter. We are
pleased to have you as At Home Corporation's President and Chief Executive
Officer.
Sincerely,
FOR THE BOARD OF DIRECTORS OF
AT HOME CORPORATION
/s/ L. John Doerr
L. John Doerr
Director
AGREED TO AND ACCEPTED:
/s/ Thomas A. Jermoluk Date: 22 JUL 96
- --------------------------------- -------------------
<PAGE>
EXHIBIT 21.01
SUBSIDIARIES OF REGISTRANT
THE REGISTRANT HAS ONE SUBSIDIARY, ATHOME.NET, A CALIFORNIA CORPORATION.
<PAGE>
EXHIBIT 23.02
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 1, 1997, in the Registration Statement (Form S-
1) and related Prospectus of At Home Corporation for the registration of
9,200,000 shares of its Series A common stock.
San Jose, California
May, 1997
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon determination of
the share price for common shares in this offering and calculation of pro forma
net loss per share, if no other events have occurred from May 1, 1997 to the
date of such determination that would affect the consolidated financial
statements and notes thereto.
Ernst & Young LLP
San Jose, California
May 15, 1997
<PAGE>
EXHIBIT 24.01
POWERS OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned constitutes and
appoints Thomas A. Jermoluk, Kenneth A. Goldman and David G. Pine, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to the Registration Statement on Form S-1 filed by At Home Corporation, and to
sign any registration statement for the same offering covered by such
Registration Statement that is to be effective upon filing pursuant to Rule 462
promulgated under the Securities Act, and all post-effective amendments thereto,
and to file the same, with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or his or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
By: *
--------------------------------------
Print Name ______________________________
Title ___________________________________
* Executed by each officer and director whose signature has been conformed on
the signature page appearing at page II-6 of the Registration Statement.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> OTHER YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> MAR-28-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 6,844 9,709
<SECURITIES> 63 7,061
<RECEIVABLES> 0 164
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 7,156 18,315
<PP&E> 963 16,199
<DEPRECIATION> 42 1,871
<TOTAL-ASSETS> 8,124 33,388
<CURRENT-LIABILITIES> 912 7,742
<BONDS> 0 7,329
0 0
9,968 44,993
<COMMON> 0 1,035
<OTHER-SE> (2,756) (27,711)
<TOTAL-LIABILITY-AND-EQUITY> 8,124 33,388
<SALES> 0 0
<TOTAL-REVENUES> 0 676
<CGS> 0 0
<TOTAL-COSTS> 0 6,969
<OTHER-EXPENSES> 2,886 18,734
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 179
<INCOME-PRETAX> (2,756) (24,513)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,756) (24,513)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,756) (24,513)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,067
<SECURITIES> 2,360
<RECEIVABLES> 81
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,788
<PP&E> 20,666
<DEPRECIATION> 3,323
<TOTAL-ASSETS> 26,878
<CURRENT-LIABILITIES> 11,123
<BONDS> 8,085
0
44,993
<COMMON> 6,212
<OTHER-SE> (43,535)
<TOTAL-LIABILITY-AND-EQUITY> 26,878
<SALES> 0
<TOTAL-REVENUES> 806
<CGS> 0
<TOTAL-COSTS> 4,325
<OTHER-EXPENSES> 7,422
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114
<INCOME-PRETAX> (10,901)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,901)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,901)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
