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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 000-22697
AT HOME CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 77-0408542
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
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425 BROADWAY STREET
REDWOOD CITY, CA 94063
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(650) 569-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
SERIES A COMMON STOCK
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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AS OF JANUARY 31, 1999
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Aggregate market value of the voting stock held by
non-affiliates of the registrant based on the closing bid
price of such stock:...................................... $4,698,327,500
Number of shares of Series A Common Stock outstanding:...... 106,355,301
Number of shares of Series B Common Stock outstanding:...... 15,400,000
Number of shares of Series K Common Stock outstanding:...... 2,609,707
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders to be filed by April 30, 1999 are Incorporated by
Reference into Part III (Items 10, 11, 12, and 13) hereof.
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AT HOME CORPORATION
1998 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business............................................ 3
Item 2. Properties.......................................... 14
Item 3. Legal Proceedings................................... 15
Item 4. Submission of Matters to a Vote of Security
Holders................................................... 15
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PART II
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Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters....................................... 15
Item 6. Selected Financial Data............................. 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 17
Item 8. Financial Statements and Supplementary Data......... 40
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure....................... 40
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PART III
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Item 10. Directors and Executive Officers of the
Registrant................................................ 40
Item 11. Executive Compensation............................. 40
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 40
Item 13. Certain Relationships and Related Transactions..... 41
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PART IV
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Item 14. Exhibits, Financial Statements, Financial Statement
Schedule and Reports on Form 8-K.......................... 41
SIGNATURES.................................................. 45
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PART I
ITEM 1.
BUSINESS
This annual report contains forward-looking statements relating to future
events or financial results, such as statements indicating that "we believe,"
"we expect" or "we anticipate" that certain events may occur or certain trends
may continue, and similar statements relating to future events or financial
results. These forward-looking statements are subject to material risks and
uncertainties as indicated under the caption "Risk Factors." Actual results
could vary materially as a result of a number of factors including those set
forth in "Risk Factors" and elsewhere in this report.
We are the leading provider of broadband Internet services over the cable
television infrastructure to consumers. By virtue of our relationships with 18
cable companies in North America and Europe, we have access to approximately
58.7 million homes, which includes exclusive access to over 50% of the
households in the United States and Canada. We also provide broadband Internet
services to businesses over both the cable television infrastructure and digital
telecommunications lines.
Our primary offering, the @Home service, allows residential subscribers to
connect their personal computers via cable modems to a high-speed Internet
backbone network developed and managed by us. This service enables subscribers
to receive the "@Home Experience," which includes Internet service over hybrid
fiber co-axial, or HFC, cable at transmission speeds up to 100 times faster than
typical dial-up connections, "always on" connection and rich multimedia
programming through our broadband Internet portal. The technology foundation of
the @Home Experience is our scalable, distributed, intelligent network
architecture (our broadband network), a "parallel Internet" that optimizes
traffic routing, improves security and consistency of service, and facilitates
end-to-end network management, enhancing our ability to address performance
bottlenecks before they affect the user experience.
Our @Media group has established the @Home launch screen as the leading
broadband Internet portal, providing a gateway to compelling multimedia and
electronic commerce offerings on the Internet. To date, the @Home Experience has
generated greater page views per subscriber than are reported by the leading
narrowband Internet portal companies. Our @Media group works with content
providers to facilitate the creation of rich multimedia broadband content
delivered through the @Home portal and to facilitate online transactions and
services for @Home subscribers. Multimedia content offerings include on-demand
video clips from partners such as Bloomberg and CNN Interactive, on-demand music
and CD previews provided by our Tune-In service and low-latency multiplayer
gaming from SegaSoft. Electronic commerce partners include Amazon.com, the
leading online bookseller, BuyDirect.com, an online software distributor, and
Travelocity, a leading online travel site. Our @Media group also sells
advertising on a cost per thousand impressions, or CPM, basis as well as on a
sponsorship basis. We had 57 advertisers in the fourth quarter of 1998,
including Ford, Godiva, Intel, Kodak, Lands' End, Lexus, Mercedes Benz and
Starbucks.
For businesses, our @Work services provide a platform for Internet,
intranet and extranet connectivity solutions and networked business applications
over both cable infrastructure and digital telecommunications lines. In order to
accelerate deployment of the @Work connectivity and hosting solutions into major
U.S. metropolitan areas, we have established strategic relationships with
Teleport Communications Group, the country's largest competitive local exchange
carrier and a subsidiary of AT&T, Northpoint, a provider of digital subscriber
line services to businesses, and Exodus, a provider of Internet hosting and
network management services. By combining our broadband distributed network
architecture with cable, telephone and technology relationships, the @Work
services provide a compelling platform for nationwide delivery of network-based
business applications. We have developed this platform at a low incremental cost
by leveraging our existing broadband network investment. We currently provide
@Work services to nearly 1,700 businesses.
We have entered into distribution arrangements for our @Home service with
16 cable companies in North America whose cable systems pass approximately 57.3
million homes -- Tele-Communications, Inc., Cablevision Systems Corp., Comcast
Corporation, Cox Communications, Inc., Rogers Cablesystems Limited, Shaw
Cablesystems Ltd., Bresnan Communications Company, Century Communications Corp.,
Cogeco
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Cable, Inc., Garden State Cable, Insight Communications, InterMedia Partners IV
L.P., Jones Intercable, Inc., Lenfest Communications Inc., Marcus Cable
Operating Company, L.P. and Midcontinent Cable Co. Some of these distribution
arrangements are subject to the completion of definitive agreements. As of
December 31, 1998, approximately 13.2 million of the homes served by these cable
partners were passed by upgraded two-way HFC cable, and we believe that our
cable partners will complete the upgrade of systems passing a majority of their
homes within four years. In order to shorten time to market for cable operators,
we provide a turnkey solution, which includes not only a technology platform and
a national brand, but also ongoing marketing, customer service, billing and
product development support. As of December, 1998, we had launched the @Home
service through our cable partners in portions of 59 cities and communities in
the United States and Canada and have approximately 331,000 subscribers.
As part of our strategy to expand into international markets, we have
entered into agreements for the distribution of our @Home service by Edon and
Palet Kabelcom in the Netherlands. We have entered into an agreement with Intel
to create a limited partnership whereby Intel will invest $20 million in @Home
Benelux, which operates under the trade name @Home Nederland, to help speed the
deployment of broadband services in the Netherlands. We have also initiated
distribution programs with leading consumer electronics retailers and computer
manufacturers, including CompUSA, Compaq and Dell, to facilitate the sale of the
@Home service and cable modems compliant with the new DOCSIS cable modem
standard. In addition, we are working with CableLabs and National Digital
Television Center, a subsidiary of TCI, to develop advanced digital set-top
boxes to provide broadband Internet access via television sets and to accelerate
transformation of the Internet into a mass medium.
RECENT EVENTS
Acquisition of Excite, Inc. On January 19, 1999, we agreed to acquire
Excite, Inc. and to issue shares of our Series A common stock, including shares
issuable upon the exercise of Excite options and warrants, valued at
approximately $6.7 billion at the time of the announcement of the acquisition.
Excite is a global Internet media company that attracts approximately 17 million
visitors monthly to its www.excite.com and www.webcrawler.com portal Web sites.
Excite is based in Redwood City, California. Under the merger agreement, we will
issue approximately 1.0419 shares of our Series A common stock in exchange for
each outstanding share of Excite common stock. As a result, assuming no exercise
of Excite or our outstanding options and warrants, former shareholders of Excite
will own approximately 30% of the outstanding shares of our Series A common
stock. The acquisition will be accounted for as a purchase and is expected to
close in the second quarter of 1999. Although our and Excite's boards of
directors have approved the transaction, the acquisition is subject to several
conditions, including approval by both companies' stockholders and the
expiration of applicable waiting periods under certain antitrust laws.
Therefore, there is a risk that the merger may not be consummated, and, even if
the merger is consummated, we will face challenges integrating Excite's business
with ours.
Backbone Capacity Contract with AT&T. On January 5, 1999, we announced that
we had entered an agreement with AT&T to create a nationwide Internet Protocol
network utilizing AT&T's backbone to cost-effectively support broadband services
throughout North America over the next 20 years. This new backbone facility,
which is scheduled to be deployed in mid-1999, represents a 100-fold increase in
our backbone capacity and initially will enable us to support up to five million
broadband users. AT&T will first provide us with 2 OC-48 channels, each with the
capacity to transport 2.5 gigabits per second of data, over a 15,000 mile
optical network. The agreement provides for significant expansion of capacity
that allows us to take advantage of the rapid evolution of data transport
technology.
Accounting Change for Certain Warrants. Following discussions with the
staff of the Securities and Exchange Commission, we will record as intangible
assets and amortize ratably over their remaining lives amounts which were
previously expensed in connection with our Cablevision distribution agreement.
We had recorded non-cash charges to operations of $172.6 million and $74.5
million in the fourth quarter of 1997 and the first quarter of 1998 related to
the agreement. We have reversed these previously expensed amounts and recorded
the entire $247.1 million as intangible assets, which will be amortized ratably
over their remaining lives. We will carry these intangible assets in our
financial statements at the lower of its amortized cost or fair
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value. These adjustments to our financial statements for the year ended December
31, 1997 and for the first three quarters of 1998 resulted in an increase to
assets and stockholders' equity at the end of each of these periods. The
reversal of the previously recorded charges to operations, less the amortization
of the intangible asset, resulted in a decrease to our previously reported net
losses for the fourth quarter of 1997 and the first quarter of 1998 and an
increase in the previously reported net losses for the second and third quarters
of 1998.
Acquisition of Narrative Communications Corp. On December 30, 1998, we
acquired Narrative for approximately 1.3 million shares of Series A common
stock, including shares issuable upon the exercise of outstanding Narrative
options, valued at approximately $93.8 million. Narrative, a market leader in
rich media advertising and direct marketing solutions for the World Wide Web, is
based in Waltham, Massachusetts and has nearly 50 employees. Narrative had a net
loss of approximately $5.7 million on revenues of approximately $202,000 in 1997
and had a net loss of $5.8 million on revenues of approximately $621,000 through
December 30, 1998, the purchase date. The acquisition was accounted for as a
purchase, and approximately $92.4 million of the purchase price was allocated to
goodwill and other intangible assets and will be amortized over the respective
useful lives of those assets, estimated to be 3.5 years. The remainder of the
purchase price, $2.7 million, was charged to operations in the fourth quarter of
1998 as purchased in-process research and development.
Offering of Convertible Subordinated Debentures. On December 28, 1998, we
issued $437.0 million of Convertible Subordinated Debentures in a private
offering within the United States to qualified institutional investors. The
issue price of each $1,000 debenture was $524.64, or 52.464% of principal amount
at maturity, and the effective annual interest rate on the debentures, excluding
amortization of the issuance cost, is approximately 4%. Each debenture is
convertible at the option of the holder at any time prior to maturity into 6.55
shares of our Series A common stock. The debentures mature on December 28, 2018,
and interest on the debentures at the rate of 0.5246% per annum on the principal
amount due at maturity is payable semiannually commencing June 28, 1999. We
raised approximately $22.4 million of net proceeds from the offering. We intend
to use the net proceeds of the offering for general corporate purposes,
including working capital and capital expenditures, including those associated
with domestic and international expansion and additional backbone capacity. A
portion of the net proceeds also may be used to acquire or invest in
complementary businesses or products or to obtain the right to complementary
technologies.
PRODUCTS AND SERVICES
@Home Service
Our primary offering is the @Home service, a comprehensive broadband
Internet solution that leverages the two-way HFC cable television infrastructure
and our technological and programming capabilities to provide the @Home
Experience, which we believe is the most compelling consumer Internet experience
currently available. By connecting via a cable modem to the @Home broadband
network through the local cable infrastructure, subscribers to the @Home service
can achieve peak data transmission speeds of 2 to 5 megabits per second, which
is over 100 times faster than the peak data transmission speed of a 28.8
kilobits per second dial-up modem. This high bandwidth enables compelling
multimedia applications, broadband advertising, online commerce and multiplayer
games. The @Home service offering also includes standard Internet service
provider functionality, including Web page hosting for subscribers, the ability
to create and manage multiple email accounts and remote access. We also offer
the ability to share Internet access across multiple PCs in the home for an
additional monthly fee. A critical differentiation of the @Home service is that
the two-way cable infrastructure is "always on," providing instantaneous access
to the Internet and eliminating the need for a time consuming dial-up procedure
using the telephone network.
Our @Media group has established the @Home launch screen as the leading
broadband Internet portal, providing a gateway to compelling multimedia and
electronic commerce offerings on the Internet. The @Home portal provides the
user with access to an array of multimedia content channels, powerful tools and
Web-based applications designed specifically to take advantage of our broadband
network architecture. We believe that the @Home portal broadens the appeal of
online services beyond technology enthusiasts to the mass market by facilitating
access to broadband content (such as animated graphics, near-CD-quality audio
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and video clips) and stimulating persistent usage with timely, dynamic, highly
sought-after data streams, as well as by simplifying navigation, increasing the
subscriber's knowledge of Internet resources. The @Home portal 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 timely and compelling editorial
content. Through the @Home portal, we generate and direct regular audience
traffic to @Media and content providers' offerings. The @Home portal includes a
variety of tools that allow users to obtain information quickly and easily. For
example, the "How Do I" section, which is one click from the @Home portal,
provides users with a variety of step-by-step solutions to such tasks as making
plane reservations and checking movie schedules. The service also includes a
"Member Services" area where the customer can manage accounts and services via a
simple graphical interface, and personalized user services such as
individualized stock portfolios. We have also recently launched the @Home
Assistant, a proprietary @Home software application, which exploits @Home's
"always-on" connection to provide "out of browser" one-click access to
personalized stock prices, news feeds, local weather, sports scores and dining
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 is currently offered to consumers in the United States
for flat monthly fees generally ranging from $35 to $55, and typically includes
a cable modem provided by the cable partner. Installation of the @Home service
is provided by the cable partner at prices 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
portal as well as other online services, Internet service providers and Web
content. In addition to making the Internet considerably easier to access for
consumers, the @Home client software offers advertisers and content providers a
rich and consistent client environment for delivering multimedia advertising,
content and applications. The @Home client software includes a customized
browser from Netscape and other high-performance and multimedia software
optimized for the @Home Experience. We also provide a customized version of
Microsoft's Internet Explorer, thereby giving subscribers a choice of browsers.
We have also initiated a distribution program with leading consumer electronic
retailers and computer retailers, including CompUSA, Compaq and Dell, to
facilitate the sale of the @Home service and DOCSIS-compliant cable modems.
In an effort to increase the deployment of our @Home service into North
American homes and businesses, we are planning to establish a joint venture with
cable operators, technology suppliers and systems integrators to encourage small
and medium-sized cable operators to offer the @Home service. The venture would
extend our current business model for large cable operators by providing a full
range of services, including financing of cable and network equipment, expanded
customer service, billing systems and service installation, and marketing
support.
We are currently developing the capability to deliver the @Home Experience
to televisions via set-top boxes connected to the cable infrastructure, and
thereby meet the needs of a broader market of non-computer users. According to
IDC, there are approximately 282 million television sets compared to
approximately 66 million personal computers in United States households. In
September 1998, we entered into an agreement with TCI's National Digital
Television Center pursuant to which we agreed to develop software and provide
integration services for TCI's advanced set-top devices that will deliver both
digital television and Internet data services. The agreement contemplates that
we will provide Internet connectivity for these devices, supply email accounts
via geographically dispersed mail servers and provide overall system management
for TCI's email services. We also are working with National Digital Television
Center on the overall software integration related to TCI's advanced digital
set-top devices. See "Risk Factors -- We face challenges associated with our
joint development effort with TCI."
@Work Services
For businesses, @Work services provide end-to-end managed connectivity for
Internet, intranet and extranet solutions over the cable infrastructure and
digital telecommunications lines. In addition, @Work is developing a next
generation platform to support networked business applications and other
value-added data networking solutions such as server hosting and electronic
commerce hosting. In order to accelerate
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deployment of @Work's connectivity solutions in metropolitan areas throughout
the United States, we have established a strategic relationship with TCG, the
country's largest CLEC, to provide targeted co-location and local telephone
circuits for infrastructure and subscriber connectivity. We currently offer two
services: @Work Internet and @Work Remote.
@Work Internet. The @Work Internet service delivers dedicated, high-speed,
end-to-end managed Internet connectivity to commercial enterprises over digital
telecommunications lines, HFC cable and digital subscriber lines. The @Work
Internet service offers dedicated access options at peak data transmission
speeds ranging from 56 kilobits per second to 10 megabits per second. These
solutions are priced competitively vis-a-vis existing alternatives. As of
December 31, 1998, the telco-based @Work Internet service was available in 22
metropolitan markets including Boston, Chicago, Denver, Detroit, Los Angeles,
New York, Orange County, Philadelphia, Phoenix, San Diego, San Francisco,
Seattle, Vancouver and Washington, D.C. At December 31, 1998, we were providing
@Work Internet services to nearly 1,700 businesses, a majority of these over
digital telecommunications lines.
In February 1998, we and Cox announced the availability of the @Work
Internet service via Cox's HFC cable infrastructure in Orange County, Phoenix,
and San Diego. Businesses in these markets that are passed by two-way HFC cable
can connect directly to the @Work Internet service. The @Work Internet HFC
service is a shared bandwidth solution that offers peak data transmission speeds
of 2 to 5 megabits per second downstream using the @Home broadband network.
@Work Remote. The @Work Remote Service is our first virtual private
networking solution. This solution provides a secure, high-speed method for
corporations to extend their local area networks to telecommuters and branch
offices via the cable infrastructure. In November 1997, we announced a non-
exclusive agreement with TCI, Cox and Comcast to develop, deploy and market
@Work Remote in areas served by these cable partners. The @Work Remote service
also includes the network equipment and software needed to connect corporate
local area networks securely to the @Home broadband network via high-bandwidth
local telephone circuits. We offer virtual private network capability between
branch offices and corporate headquarters.
Our future @Work service offerings will leverage our existing connectivity
solutions and broadband network architecture to deliver more value-added
services to commercial customers. @Work has introduced and will continue to
introduce enhanced access services that include increased service level options
as well as solutions for companies seeking multiple commercial Internet
connections to provide redundancy and load balancing. We also develop and deploy
hosting services that allow corporate information technology professionals to
outsource certain networking tasks. For example, we introduced a variety of
commercial shared Web site hosting and co-location services in the third quarter
of 1998. To further this goal, we entered into an agreement in March 1998 with
Exodus, a provider of Internet hosting and network management solutions, to
develop and deploy @Work-branded shared server hosting solutions. These hosting
solutions will also serve as a platform for outsourced network-based, commercial
applications and related management services. In addition, by designing each of
our regional data centers to include high-availability, high-performance servers
and mass storage, we believe that we will have the ability to deliver and
facilitate next-generation client-server and distributed-object networked
business applications. See "Risk Factors -- We must respond to rapid
technological change."
@Media Services and Technologies
Our @Media group has established the @Home portal as the leading broadband
Internet portal, providing a gateway to compelling multimedia and electronic
commerce offerings on the Internet. To date, the @Home Experience has generated
greater page views per subscriber than are reported by the leading narrowband
Internet portal companies. The @Media group works with content providers to
facilitate the creation of rich multimedia broadband content delivered through
the @Home portal and to facilitate online transactions and services for our
subscribers.
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We believe that growth in our subscriber base will be critical to
attracting advertisers. In addition to traditional sales and marketing efforts,
we have developed a variety of compelling programming services delivered through
the @Home portal in order to drive incremental subscriber revenue and
penetration. In addition to receiving advertising fees, the @Media programming
services provide a variety of other revenue sources, including fees related to
content partnering arrangements. Examples of @Media programming services
include:
Real-Time News and Entertainment Services. Continuously-updated
headlines delivered in the News, Sports and Finance @Home channels, and
video clips presenting top stories, sports highlights and movie previews.
Current @Media partners include Bloomberg and CNN Interactive.
Interactive Shopping. Evaluate and purchase goods via an interactive
multimedia shopping experience. Current @Media partners include Amazon.com,
AutoConnect, N2K, PC Connection, QVC, Realtor.com, Reel.Com and
Travelocity. In addition, we have partnered with BuyDirect.com to enable
@Home users to purchase and download software titles at speeds
substantially faster and with greater reliability than a typical dial-up
modem.
High-Speed Multiplayer Gaming. Download and play popular Internet
games against other online players, delivered via the @Home Games channel.
By combining high speed with very low latency, the @Home broadband network
provides an excellent environment for high-quality game play. We have
already co-located game servers on our network backbone and are offering
multiplayer online games to @Home subscribers from SegaSoft.
Digital Audio Services. Near-CD-quality audio on various music, talk
and event channels (including jazz, rock and 24-hour sports talk) via our
Tune-In service. Users can simultaneously listen to the Tune-In service and
browse the Internet. Current @Media partners include Bloomberg Radio, CNET
Radio, Net Radio, SportsLine and Spinner.com.
Digital Photography. @Media has established a relationship with Intel
to utilize our high bandwidth to create an online photography resource
center. The resulting service, Making Pictures, enables users to share
their photographs and learn more about the industry migration to digital
photography.
Enhanced Search and Directory Services. Leading search and directory
services integrated into the @Home portal. Current @Media partners include
Inktomi Corporation, a leading provider of search solutions, and Looksmart
International Limited, a leading provider of directory services.
The @Media group offers a series of technologies to assist advertisers and
content providers in delivering compelling multimedia advertising and premium
services, including replication and co-location. Replication enables our content
partners to place copies of their content and applications locally on the @Home
broadband network, thereby reducing the possibility of Internet bottlenecks at
the interconnect points. Co-location allows content providers to co-locate their
content servers directly on the @Home broadband network. Content providers can
then serve their content to @Home subscribers without traversing the congested
Internet. For example, CNN and Bloomberg videos are replicated into each of our
regional data centers. Also, multiplayer game servers are co-located to enable
low-latency online gaming.
The @Media group sells advertising through several formats including
banners, half-banners, and the "B*box," a broadband audio/video advertising
space. With the B*box, advertisers are not constrained by the Web banner
paradigm and can broaden their creative presentation using video clips, audio
and animation. Advertisers have the ability to enhance their message by using
multimedia tools and technologies such as Enliven, Flash, Quicktime Video, Real
Audio and Shockwave. We derive advertising revenue on a CPM basis as well as on
a sponsorship basis. We had 57 advertisers in the fourth quarter of 1998,
including Ford, Godiva, Intel, Kodak, Lands' End, Lexus, Mercedes Benz and
Starbucks. Advertisers have reported response rates (click-throughs)
substantially greater than they currently experience with traditional Web banner
advertisements. Advertisers' ability to present more compelling messages to
online users has resulted in advertising rates greater than those charged for
banner advertising on the Web.
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In addition to revenue derived from advertisements, we have established
relationships with certain of our interactive shopping and gaming partners
whereby we participate in the revenues or profits for certain transactions on
the @Home portal. We also allow certain of our content partners to sponsor
certain content channels for a fee.
THE @HOME BROADBAND NETWORK
We designed the @Home broadband 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. 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
telecommunications networks. The four key principles of our network strategy are
moving data closer to the user, end-to-end network management, "always-on"
service and scalability.
Moving Data Closer to the User. The @Home broadband network utilizes
caching and replication technologies to move the information that a subscriber
requests close to the subscriber. Local caching reduces backbone network
traffic, enabling the @Home broadband network to overcome a fundamental weakness
of the Internet's 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 Internet service provider and finally
to the user's computer. If the user's neighbor requests the same video clip from
that Web site, the neighbor must pull the same data across a similar path. In
contrast, our approach would move the video clip over our 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. We achieve end-to-end network management
through our proactive network quality, service and performance management
systems. The @Home broadband network provides visibility from our servers (or
content partners' servers) across the backbone and all the way to the
subscriber's home. Because the @Home broadband network is centrally managed, we
can dynamically identify and enhance network quality, service and performance,
or address issues before they affect the user experience.
"Always On" Service. The @Home broadband network is "always on," unlike
switched technologies such as dial-up and ISDN. The user is always connected to
the Internet as long as his or her computer and cable modem are on. This
eliminates the need for a time-consuming connection process, as with a dial-up
service, and changes the way the customer uses the Internet.
Scalability. The @Home service is architected to be scalable to handle
increasing numbers of subscribers without degradation. Although users in the
same service area share high-bandwidth access (much like corporate LANs), which
may limit the effective bandwidth that is available to a given subscriber at a
given time, 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 nodes, with each node serving a smaller number of
subscribers over the same fiber-optic infrastructure.
The primary components of the @Home broadband network are our high-speed
private national backbone, regional data centers, regional networks, headends
(including caching servers), network connections and cable modems and the
Network Operations Center.
Private National Backbone. We operate our own private national
backbone, which consists of a network of high-speed asynchronous transfer
mode communications services that we lease to connect our regional data
centers and regional networks with content providers and the Internet.
These services currently operate at a speed of 45 megabits per second and
can be upgraded to 155 megabits per second or higher. This backbone can be
viewed as a high-speed "parallel Internet" that connects via our routers
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<PAGE> 10
to the Internet at multiple network access points with "Tier-One" peering
status, which permits us to exchange Internet traffic with other nationwide
Internet service providers. In January 1999, we announced that we had
entered an agreement with AT&T to create a nationwide Internet Protocol
network utilizing AT&T's backbone to cost-effectively support ubiquitous
broadband services throughout North America over the next 20 years. This
new backbone facility, which is scheduled to be deployed in mid-1999,
represents a 100-fold increase in our backbone capacity and initially will
enable us to support up to five million broadband users.
Regional Data Centers. The regional data centers act as service hubs
for defined geographic areas, such as major metropolitan areas, providing
key services, including email, news groups and chat facilities, to
subscribers, managing network performance proactively, replicating content
and applications, and providing a cost-efficient infrastructure to cache
and multicast data throughout a region and to house local content and
subscribers' Web pages. We use "high availability" servers from Sun
Microsystems, Inc. in our regional data centers for these mission-critical
activities. We have deployed regional data centers in 19 geographic areas
as of December 31, 1998.
Regional Networks. The regional networks consist of network routers
and switches that interconnect our regional data centers and national
backbone to multiple cable headend facilities at speeds of 45 megabits per
second to 155 megabits per second. 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 often allows us
to 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 regional
data center 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 that 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
can be used for network troubleshooting, tuning performance and tailoring
the @Home service.
Network Connections. 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, which effectively limits the peak
upstream transmission speed.
Cable Modems. 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. While peak data transmission speed of a
cable modem depends on the specific model and can approach 10-27 megabits
per second downstream and 0.7-10 megabits per second upstream, the
performance that subscribers actually experience is often constrained by
the capacity of their personal computers, the capacity of the server being
accessed and the type of network architecture utilized. In addition, in
some markets, we have limited users' upstream bandwidth in order to prevent
user abuse, and we expect to continue to limit upstream bandwidth in
additional portions of our network. The North American cable industry has
adopted DOCSIS to support the delivery of data services utilizing
interoperable cable modems. We believe that this new standard and the
distribution of DOCSIS-compliant modems through computer retailers will
facilitate the growth of the cable modem industry and the availability of
lower cost interoperable cable modems through retail channels. See "Risk
Factors -- The scalability, speed and
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<PAGE> 11
security of our network is unproven" and "-- We depend on two-way cable
modems based upon a new industry standard."
Network Operations Center. We provide end-to-end network management
through our Network Operations Center. The Network Operations Center uses
advanced network management tools and systems to monitor the network
infrastructure on a 24 x 7 basis, enhancing its ability to address
performance bottlenecks before they affect the user experience. From the
Network Operations Center, we can manage the @Home broadband network from
end-to-end, including the backbone, regional data centers, regional
networks, headend facilities, servers and other components of the network
infrastructure to the user's home. See "Risk Factors -- Our dependence on
our network exposes us to a significant risk of system failure."
We also utilize certain key technologies from third parties to build and
manage the @Home broadband network. In particular, we have established strategic
relationships with AT&T for network backbone capacity, Sun Microsystems for high
availability servers, Silicon Graphics for caching servers, Cisco Systems, Inc.
for network routing and switching hardware, Sprint for national switched ATM
backbone services, Objective Systems Integrators, Inc. for network management
software, Tivoli Systems Inc. for systems management software to operate
regional data centers remotely, Oracle Corporation for advanced database
management software, Microsoft and Netscape and for server and browser software,
Inktomi for proxy and caching software and Software.com for efficient mail
delivery. See "Risk Factors -- We must respond to rapid technological change"
and "-- The scalability, speed and security of our network is unproven."
PRODUCT DEVELOPMENT AND ENGINEERING
Our product development and engineering efforts focus on: (1) design and
development of new technologies and products to increase the speed and
efficiency of our broadband network architecture and to facilitate the
development and distribution of high bandwidth content and commercial
value-added applications; (2) adaptation of our network services for use over
non-HFC access technologies, such as digital subscriber line; (3) development of
software tools and enabling platforms for the creation and distribution of
enhanced content optimized for our broadband network; and (4) porting the
appropriate components of the @Home Experience to TV-based Internet devices and
developing software, email support and related services for these devices. See
"Risk Factors -- We face challenges associated with our joint development effort
with TCI."
Our product development and engineering expenses for the years ended
December 31, 1996, 1997 and 1998 were $6.3 million, $12.0 million and $17.0
million.
STRATEGIC DISTRIBUTION RELATIONSHIPS
Strategic Relationships with North American Cable Partners. We have
strategic relationships with 16 cable companies whose systems pass approximately
57.3 million homes in North America. Subject to certain exceptions, TCI,
Comcast, Cablevision and Cox have granted us the exclusive right to offer high-
bandwidth residential consumer Internet services over their cable systems until
June 4, 2002. Rogers and Shaw have agreed to market and promote the @Home
service in Canada on an exclusive basis. Our other cable partners in North
America have entered into agreements to distribute the @Home service on an
exclusive basis through certain of their cable systems. See "Risk Factors -- Our
cable partners are not generally obligated to carry our services, and the
exclusivity obligations that prevent them from carrying competing services are
limited and may be terminated."
Of the 57.3 million homes, approximately 13.2 million were passed by
upgraded two-way HFC cable as of December 31, 1998, and we believe that our
cable partners will complete the upgrade of systems passing a majority of their
homes within four years. Our cable partners have announced and begun to
implement major infrastructure investments in order to deploy two-way HFC cable.
However, certain of our cable partners have limited experience with these
upgrades, and these investments have placed a significant strain on the
financial, managerial, operating and other resources of our cable partners, most
of which are already highly leveraged. Therefore, these infrastructure
investments have been, and we expect will continue to be, subject to change,
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<PAGE> 12
delay or cancellation. Although our commercial success depends on the successful
and timely completion of these infrastructure upgrades, most of our cable
partners are under no obligation to upgrade systems or to introduce, market or
promote our services. See "Risk Factors -- We depend on our cable partners to
upgrade to the two-way cable infrastructure necessary to support our @Home
service; the timing and availability of these upgrades are uncertain" and
"-- Our principal cable partners may dispose of their cable systems, which would
reduce our potential subscriber base."
As of December 31, 1998, we had approximately 331,000 subscribers in the
United States and Canada, including recently acquired Internet subscribers
served by Jones and Cogeco that are being converted to the @Home service. As of
December 31, 1998, our cable partners had launched the @Home service in portions
of the cities and communities set forth in the following table.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
CABLE PARTNERS CITIES & COMMUNITIES
- -----------------------------------------------------------------------------
<S> <C> <C>
BRESNAN Bay City, MI
- -----------------------------------------------------------------------------
CABLEVISION Long Island, NY
Norwalk, CT
- -----------------------------------------------------------------------------
COGECO Toronto, ON Windsor, ON
- -----------------------------------------------------------------------------
COMCAST Atlanta, GA Orange County, CA
Baltimore, MD Philadelphia, PA
Charleston, SC Sarasota, FL
Chesterfield, VA Trenton, NJ
Detroit, MI
- -----------------------------------------------------------------------------
COX Hampton Roads, VA Orange County, CA
Hartford, CT Phoenix, AZ
New Orleans, LA Providence, RI
Oklahoma City, OK San Diego, CA
Omaha, NE
- -----------------------------------------------------------------------------
GARDEN STATE Cherry Hill, NJ
- -----------------------------------------------------------------------------
INSIGHT Jeffersonville, IN
- -----------------------------------------------------------------------------
INTERMEDIA Greenville/Spartanburg, SC Nashville, TN
Louisville, KY
- -----------------------------------------------------------------------------
JONES Washington DC Region, VA
- -----------------------------------------------------------------------------
MARCUS Fort Worth, TX
- -----------------------------------------------------------------------------
ROGERS Ottawa, ON Toronto, ON
Southwest Ontario Vancouver, BC
- -----------------------------------------------------------------------------
SHAW Calgary, AB Richmond Hill, ON
Edmonton, AB Saskatoon, SK
Ft. McMurray, AB Victoria, BC
Kelowna, BC Winnipeg, MB
- -----------------------------------------------------------------------------
TCI Arlington Heights, IL Moline, IL
Baton Rouge, LA Pittsburgh, PA
Cedar Rapids, IA Portland, OR
Dallas, TX Rochester, NY
Denver, CO Royal Oak, MI
Des Moines, IA San Francisco Bay Area, CA
East Lansing, MI Seattle, WA
Hartford, CT Spokane, WA
Woodhaven, MI
- -----------------------------------------------------------------------------
</TABLE>
In order to shorten time to market for cable operators, we provide a
turnkey solution, which includes not only a technology platform, but also a
national brand, marketing, customer service and billing. This solution enables
our cable partners to leverage their respective infrastructures to deliver
high-bandwidth interactive data services that represent significant new revenue
opportunities. Our cable partners have the additional opportunity to develop and
receive all the revenues derived from local content distributed locally through
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<PAGE> 13
portions of the @Home broadband network to local subscribers. Our 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
@Home broadband network and local marketing efforts. See "Risk
Factors -- Several factors may inhibit the growth of the @Home Service."
Under current arrangements with our U.S. cable partners, we receive 35% of
both the basic monthly fees and the fees for premium services, and they retain
the entire installation payment. In Canada, we receive a smaller percentage of
the monthly subscription fees billed by Rogers, Shaw and Cogeco because Rogers,
Shaw and Cogeco are responsible for various costs that are not borne by our
cable partners in the United States such as the costs of providing additional
customer support, data transport within Canada, and national marketing and
content programming.
In international markets, we anticipate 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 international cable system operators, data transport
costs and regulatory environments. To the extent that we offer terms of
distribution and other services to international cable system operators that are
more favorable than those offered to the four principal U.S. cable partners,
these principal U.S. cable partners have the right to obtain such more favorable
terms under a "most favored nation" provision in their distribution agreement
with us.
Strategic Relationships with Cable Partners Outside of North America. On
July 15, 1998, we entered into a Joint Venture Agreement with Edon and MEGA
Limburg Telediensten N.V. and N.V. PNEM Teleservices, together acting under the
trade name Palet Kabelcom (Edon and Palet Kabelcom are each multi-system cable
operators in The Netherlands which together cover approximately twenty percent
(20%) of homes served by cable in The Netherlands), to create a Netherlands
limited liability company known as @Home Benelux B.V. @Home Benelux will deliver
a customized version of our Internet services to residential cable subscribers
in The Netherlands and, later, throughout the Dutch-speaking Benelux
territories. In addition, we have entered into an agreement with Intel to create
a limited partnership whereby Intel will invest $20 million in @Home Benelux,
which operates under the trade name @Home Nederland, to help speed the
deployment of broadband services in the Netherlands. In connection with the
formation of @Home Benelux, we have agreed to license to @Home Benelux our core
technologies on an exclusive basis in the Dutch-speaking Benelux territories for
a period of seven years commencing on the earlier of June 30, 1999 or the date
we are first entitled to receive revenue from our 1,000th @Home Benelux
subscriber. We will also perform certain management services in connection with
the start-up and ongoing operations of @Home Benelux. Edon and Palet Kabelcom
have each agreed to the exclusive distribution via their cable networks of our
Internet services for a similar time period as the @Home Benelux license. @Home
Benelux will also seek to expand its penetration of homes served by cable in the
Benelux territories by entering into additional exclusive distribution
agreements with other multi-system cable operators. We believe that @Home
Benelux will begin delivery of our services to customers in The Netherlands in
the first quarter of 1999.
Agreement with TCG. We have a Master Communications Services Agreement with
TCG, the largest CLEC in the United States, which provides high-speed fiber
optic telecommunications services to commercial customer sites in metropolitan
centers in the United States. Under its agreement with us, TCG provides
telecommunications facilities management and network services for the local
telecommunications transport requirements of our @Work services. In markets
served by TCG networks, TCG provides us with (1) the ability to co-locate our
equipment within TCG's network distribution facilities and (2) transport access
facilities to and from the co-located equipment, 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. The agreement
provides us with such telecommunications services at rates generally at or below
those of competing carriers, and the ability to co-locate our regional data
centers within TCG's network distribution facilities at favorable rates. Our
access to TCG's fiber optic network and switching infrastructure gives us a
nationwide opportunity in the commercial marketplace, which we believe will
accelerate the deployment of our @Work services into major United States
markets.
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Agreement with Northpoint. In June 1998, we entered into an agreement with
Northpoint, a wholesale data CLEC that provides digital subscriber line access
to small and medium sized businesses, whereby Northpoint provides "local loops"
that represent an additional last-mile transport option for @Work's Internet
access and networking offerings. Northpoint currently offers service in Boston,
Chicago, metropolitan Los Angeles, New York City, San Diego, the San Francisco
Bay Area and Washington D.C. and plans to expand nationally over the next
several years. As part of the agreement, we will receive engineering and
operational support from Northpoint. In addition, we will have input into
Northpoint's launch plans, and the two companies will jointly fund marketing
programs. We believe that favorable access to Northpoint's digital subscriber
line transport services will facilitate @Work's deployment of cost-effective
dedicated commercial Internet access services aimed at small businesses that
historically have relied on dial-up or ISDN access options.
Agreement with Exodus. In March 1998, we entered into an agreement with
Exodus, a provider of Internet hosting and network management services, under
which Exodus will work with us to develop and implement customized,
@Work-branded versions of Exodus' server hosting and network management services
solutions that leverage Exodus facilities and infrastructure. We will market and
sell these solutions in conjunction with @Work's connectivity and value-added
network applications. Additionally, Exodus has committed to market and resell
certain @Work commercial connectivity and value-added application solutions. We
will also work with Exodus to interconnect our respective networks, allowing us
to take advantage of Exodus' series of private and public peering relationships.
We believe that favorable access to these hosting capabilities will accelerate
the development and implementation of @Work's network-based applications and
other services.
EMPLOYEES
As of December 31, 1998, we had 570 employees, excluding temporary
personnel and consultants. Of the total: 96 were employed in networking
engineering; 101 were employed in operations; 166 were employed in customer
support, sales, marketing and related activities; 69 supported the @Work
services; 70 supported the @Media services; 13 supported our international
operations; and 55 were employed in general and administration. None of our
employees is represented by a labor union, and we consider our relations with
our employees to be good. Our ability to achieve our financial and operational
objectives depends in large part upon the continued service of our senior
management and key technical personnel and our continuing ability to attract and
retain highly qualified technical and managerial personnel. Competition for such
qualified personnel in our 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 -- We face challenges managing our expanded operations and we depend on
key personnel."
ITEM 2. PROPERTIES
We are headquartered in facilities consisting of approximately 135,000
square feet in Redwood City, California, which we occupy under a 12-year lease.
In September 1997 and March 1998, we exercised build-to-suit options requiring
the landlord to build additional facilities of approximately 360,000 square feet
on adjacent property. All facilities constructed under our build-to-suit options
will be subject to leases of up to 15 years in length, have base rent determined
in relation to construction costs and will include tenant improvements paid for
by us. The build-to-suit options that have been exercised to date provide for
monthly rental payments beginning upon the phased completion of the buildings.
Occupancy of the first phase is scheduled to occur during the second half of
1999, and occupancy of the second phase is scheduled to occur early in the year
2000. In addition to our build-to-suit options, in December 1998 we exercised
our right to purchase one land parcel from the landlord. The purchase price of
the exercised option is payable in two installments, one of $278,000, which was
paid in December 1998, and a second installment of $5,288,000, which is due in
the first half of 1999. We also have smaller offices in Waltham, Massachusetts
and Bala Cynwyd, Pennsylvania. The Waltham facility, which we assumed in
connection with our acquisition of Narrative and which consists of approximately
10,000 square feet, houses our new Enliven service. The Bala Cynwyd facility is
a small sales office that supports our cable partners in the eastern United
States and eastern
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<PAGE> 15
Canada. We believe that our existing facilities and the facilities we have the
right to have built will be adequate to accommodate our growth for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
We are not aware of any material legal proceedings at December 31, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders in the fourth
quarter of 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Market for Registrant's Common Equity. Our Series A Common Stock is traded
on the National Market System of the Nasdaq Stock Market, Inc. under the symbol
ATHM. The following table sets forth the range of the high and low sale prices
by quarter as reported on the Nasdaq National Market since July 11, 1997, the
date our Common Stock commenced trading.
<TABLE>
<CAPTION>
QUARTER HIGH LOW
------- ------- ------
<S> <C> <C>
1997 Third Quarter (commencing July 11, 1997)............... 25 5/16 17
1997 Fourth Quarter......................................... 29 3/8 18 7/16
1998 First Quarter.......................................... 38 1/8 20 1/2
1998 Second Quarter......................................... 57 1/4 29 3/4
1998 Third Quarter.......................................... 54 15/16 23 1/2
1998 Fourth Quarter......................................... 84 3/4 34 1/2
</TABLE>
As of February 5, 1998, the number of stockholders of record was 911. We
currently intend to retain any earnings for use in our business and do not
anticipate paying any cash dividends in the foreseeable future.
Recent Sales of Unregistered Securities. On November 9, 1998, in connection
with our acquisition of Full Force Systems, Inc., we issued 38,190 shares of our
Series A common stock to the shareholders of Full Force in a private transaction
that was exempt from registration under the Securities Act by virtue of Section
4(2) of the Securities Act.
On December 28, 1998, we issued $437 million principal amount of
Convertible Subordinated Debentures due 2018 in a transaction that was exempt
under the Securities Act by virtue of Section 4(2) of the act. Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and
Goldman Sachs & Co. acted as initial purchasers and offered the debentures to
qualified institutional investors in the United States in reliance on Rule 144A
under the Securities Act and to institutional accredited investors, as defined
in Rule 501(a)(1), (2), (3) and (7) under the Securities Act. Each $1,000
debenture is convertible into 6.55 shares of our Series A common stock.
On December 30, 1998, in connection with our acquisition of Narrative, we
issued 1,205,333 shares of our Series A common stock to the Narrative
stockholders in a private transaction that was exempt from registration under
the Securities Act by virtue of Section 4(2) of the Securities Act, and we will
issue options to purchase 141,273 shares of our Series A common stock.
Use of Proceeds from Sales of Registered Securities. We commenced our
initial public offering on July 11, 1997 pursuant to a Registration Statement on
Form S-1 (File No. 333-27323). In the offering, we sold an aggregate of
10,350,000 shares of Series A common stock (including 1,350,000 shares sold
pursuant to the exercise of the Underwriters' over-allotment option) at an
initial price of $10.50 per share. The offering was closed on July 16, 1997.
Aggregate proceeds from the offering were $108,675,000, which included
$14,175,000 in aggregate proceeds due to the exercise of the underwriters'
option to purchase shares to cover over-allotments. The
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<PAGE> 16
Company paid underwriters' discounts and commissions of $7,607,250 and other
expenses of approximately $1,300,000 in connection with the IPO. Our total
expenses in the offering were $8,907,250, and our net proceeds were $99,767,750.
Of the net proceeds, $12,345,000 has been used for purchases of property,
equipment and improvements, $9,292,000 has been used for payments on capital
lease obligations, $19,941,000 has been used to fund operating losses and the
remainder has been allocated to general working capital requirements.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data is qualified by
reference, and should be read in conjunction with, our Consolidated Financial
Statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere herein. The
selected consolidated statement of operations data presented below for the years
ended December 31 1998, 1997 and 1996, and the selected consolidated balance
sheet data as of December 31, 1998, 1997 and 1996, are derived from our
consolidated financial statements that have been included elsewhere in this Form
10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues(1)............................................... $ 48,045 $ 7,437 $ 676
Costs and expenses:
Operating costs......................................... 46,965 22,459 6,969
Product development and engineering..................... 17,009 11,984 6,312
Sales and marketing..................................... 18,091 11,863 6,368
General and administrative.............................. 12,429 10,635 6,054
--------- -------- --------
Total costs and expenses before cost and amortization of
distribution agreements and acquisition costs(2)........ 94,494 56,941 25,703
--------- -------- --------
Loss from operations before cost and amortization of
distribution agreements and acquisition costs........... (46,449) (49,504) (25,027)
Interest income, net...................................... 6,413 3,033 514
--------- -------- --------
Loss before cost and amortization of distribution
agreements and acquisition costs........................ (40,036) (46,471) (24,513)
Purchased in-process research and development............. 2,758 -- --
Cost and amortization of distribution agreements.......... 101,385 9,246 --
--------- -------- --------
Net loss.................................................. $(144,179) $(55,717) $(24,513)
========= ======== ========
Pro forma basic and diluted net loss per share............ $ (1.26) $ (0.54) $ (0.26)
========= ======== ========
Pro forma shares used in per share calculation............ 114,240 103,543 96,120
========= ======== ========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C>
(1) Revenues from related parties......................... $ 10,458 $ 2,948 $ 634
========= ======== ========
(2) Depreciation and amortization included in costs and
expenses................................................ $ 15,029 $ 8,913 $ 1,903
========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, and short-term cash investments..... $419,289 $120,379 $16,770
Working capital............................................. 390,324 101,390 10,573
Distribution agreements, net of accumulated amortization.... 186,247 163,345 --
Total assets................................................ 780,631 323,928 33,388
Convertible debentures...................................... 229,344 -- --
Capital lease obligations, less current portion and other
long-term liabilities..................................... 14,356 15,735 5,654
Stockholders' equity........................................ 493,866 282,407 18,317
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
We are the leading provider of broadband Internet services over the cable
television infrastructure to consumers. By virtue of our relationships with 18
cable companies in North America and Europe, we have access to approximately
58.7 million homes, which includes exclusive access to over 50% of the
households in the United States and Canada. We also provide broadband Internet
services to businesses over both the cable television infrastructure and digital
telecommunications lines.
Our primary offering, the @Home service, allows residential subscribers to
connect their personal computers via cable modems to a high-speed Internet
backbone network developed and managed by us. This service enables subscribers
to receive the "@Home Experience," which includes Internet service over hybrid
fiber co-axial, or HFC, cable at transmission speeds up to 100 times faster than
typical dial-up connections, "always on" connection and rich multimedia
programming through our broadband Internet portal. The technology foundation of
the @Home Experience is our scalable, distributed, intelligent network
architecture (our broadband network), a "parallel Internet" that optimizes
traffic routing, improves security and consistency of service, and facilitates
end-to-end network management, enhancing our ability to address performance
bottlenecks before they affect the user experience.
Our @Media group has established the @Home launch screen as the leading
broadband Internet portal, providing a gateway to compelling multimedia and
electronic commerce offerings on the Internet. To date, the @Home Experience has
generated greater page views per subscriber than are reported by the leading
narrowband Internet portal companies. Our @Media group works with content
providers to facilitate the creation of rich multimedia broadband content
delivered through the @Home portal and to facilitate online transactions and
services for @Home subscribers. Multimedia content offerings include on-demand
video clips from partners such as Bloomberg and CNN Interactive, on-demand music
and CD previews provided by our Tune-In service and low-latency multiplayer
gaming from SegaSoft. Electronic commerce partners include Amazon.com, the
leading online bookseller, BuyDirect.com, an online software distributor, and
Travelocity, a leading online travel site. Our @Media group also sells
advertising on a cost per thousand impressions, or CPM, basis as well as on a
sponsorship basis. We had 57 advertisers in the fourth quarter of 1998,
including Ford, Godiva, Intel, Kodak, Lands' End, Lexus, Mercedes Benz and
Starbucks.
For businesses, our @Work services provide a platform for Internet,
intranet and extranet connectivity solutions and networked business applications
over both cable infrastructure and digital telecommunications lines. In order to
accelerate deployment of the @Work connectivity and hosting solutions into major
U.S. metropolitan areas, we have established strategic relationships with
Teleport Communications Group, the country's largest competitive local exchange
carrier and a subsidiary of AT&T, Northpoint, a provider of digital subscriber
line services to businesses, and Exodus, a provider of Internet hosting and
network management services. By combining our broadband distributed network
architecture with cable, telephone and technology relationships, the @Work
services provide a compelling platform for nationwide delivery of network-based
business applications. We have developed this platform at a low incremental cost
by leveraging our existing broadband network investment. We currently provide
@Work services to nearly 1,700 businesses.
We have entered into distribution arrangements for our @Home service with
16 cable companies in North America whose cable systems pass approximately 57.3
million homes -- Tele-Communications, Inc., Cablevision Systems Corp., Comcast
Corporation, Cox Communications, Inc., Rogers Cablesystems Limited, Shaw
Cablesystems Ltd., Bresnan Communications Company, Century Communications Corp.,
Cogeco Cable, Inc., Garden State Cable, Insight Communications, InterMedia
Partners IV L.P., Jones Intercable, Inc., Lenfest Communications Inc., Marcus
Cable Operating Company, L.P. and Midcontinent Cable Co. Some of these
distribution arrangements are subject to the completion of definitive
agreements. As of December 31, 1998, approximately 13.2 million of the homes
served by these cable partners were passed by upgraded two-way HFC cable, and we
believe that our cable partners will complete the upgrade of systems passing a
majority of their homes within four years. In order to shorten time to market
for cable operators, we provide a turnkey solution, which includes not only a
technology platform and a national brand, but also ongoing marketing, customer
service, billing and product development support. As of December 31, 1998, we
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<PAGE> 18
had launched the @Home service through our cable partners in portions of 59
cities and communities in the United States and Canada and have approximately
331,000 subscribers.
As part of our strategy to expand into international markets, we have
entered into agreements for the distribution of our @Home service by Edon and
Palet Kabelcom in the Netherlands. We have entered into an agreement with Intel
to create a limited partnership whereby Intel will invest $20 million in @Home
Benelux, which operates under the trade name @Home Nederland, to help speed the
deployment of broadband services in the Netherlands. We have also initiated
distribution programs with leading consumer electronics retailers and computer
manufacturers, including CompUSA, Compaq and Dell, to facilitate the sale of the
@Home service and cable modems compliant with the new DOCSIS cable modem
standard. In addition, we are working with CableLabs and National Digital
Television Center, a subsidiary of TCI, to develop advanced digital set-top
boxes to provide broadband Internet access via television sets and to accelerate
transformation of the Internet into a mass medium.
This annual report contains forward-looking statements relating to future
events or financial results, such as statements indicating that "we believe,"
"we expect" or "we anticipate" that certain events may occur or certain trends
may continue, and similar statements relating to future events or financial
results. These forward-looking statements are subject to material risks and
uncertainties as indicated under the caption "Risk Factors." Actual results
could vary materially as a result of a number of factors including those set
forth in "Risk Factors" and elsewhere in this report.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues
<TABLE>
<CAPTION>
1998 CHANGE 1997
------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues.................................................... $48,045 546% $7,437
======= ======
</TABLE>
Our revenues increased by 546% to $48.0 million for 1998 from $7.4 million
for 1997. The growth in revenues came from an increase in the number of
subscribers to our services. Our revenues consist of monthly subscription fees
for the @Home residential service, installation and monthly access fees for
@Work services, and fees for advertising, content placement and content
development from @Media services. In 1998, approximately 50% of our revenues
came from @Home services, approximately 40% of our revenues came from @Work
services, and approximately 10% of our revenues came from @Media services. Our
@Home subscribers increased 569% to approximately 331,000 at the end of 1998
from approximately 50,000 at the end of 1997. The number of subscribers to our
@Work services increased by 409% to approximately 1,700 at the end of 1998 from
331 at the end of 1997. Revenues generated from our @Media services were evenly
split between advertising revenue and content revenue. Our number of advertisers
at December 31, 1998, 57, was 185% higher than our number of advertisers at
December 31, 1997. Content revenues increased as demand for broadband portal
placement intensified. For 1998, revenues for the @Home service generated from
United States subscribers and Canadian subscribers represented 78% and 22% of
total revenues. We expect subscriber growth rates for the @Home service in the
United States to exceed those in Canada in 1999. Therefore, we expect revenues
generated from United States @Home subscribers will represent a greater portion
of total revenues for the @Home service in 1999. However, subscriber growth is
subject to a number of risks. See "Risk Factors -- Several factors may inhibit
the growth of the @Home service." Revenues from related parties, as a percentage
of total revenues, represented approximately 22% for 1998 and 40% for 1997.
Related-party revenues included development fees for @Work services and set-top
devices and fees for billing and support functions.
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<PAGE> 19
Total Costs and Expenses
<TABLE>
<CAPTION>
1998 CHANGE 1997
-------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating costs............................................. $ 46,965 109% $22,459
Product development and engineering......................... 17,009 42% 11,984
Sales and marketing......................................... 18,091 52% 11,863
General and administrative.................................. 12,429 17% 10,635
-------- -------
Total costs and expenses before cost and amortization of
distribution agreements and acquisition costs.......... 94,494 66% 56,941
Purchased in-process research and development............... 2,758 N/A --
Cost and amortization of distribution agreements............ 101,385 997% 9,246
-------- -------
Total costs and expenses.......................... $198,637 200% $66,187
======== =======
</TABLE>
Total costs and expenses before charges for purchased in-process research
and development and cost and amortization of distribution agreements increased
66% to $94.5 million for 1998 from $56.9 million for 1997. Total expenses after
cost and amortization of the distribution agreements and purchased in-process
research and development associated with the acquisitions of Narrative and Full
Force increased 200% for 1998 to $198.6 million from $66.2 million for 1997. We
believe continued expansion of our operations is critical to the achievement of
our goals, and we anticipate that costs and expenses will continue to increase
in 1999 although at a slower rate than the expected increase in our revenues.
However, our operating results may fluctuate significantly, and revenues could
grow at a slower rate than costs and expenses. See "Risk Factors -- Our
quarterly operating results may fluctuate significantly."
Operating Costs. Operating costs are primarily related to providing
services to customers, maintaining the @Home broadband network, generating
content programming for the @Home portal and deploying the @Home service in
Europe. Operating costs increased 109% to $47.0 million for fiscal 1998 from
$22.5 million for 1997. This increase was primarily a result of:
- additional telecommunications costs to connect the @Home broadband
network to additional areas;
- costs associated with the initial start-up and deployment of the @Home
service in Europe;
- maintenance and depreciation of capital equipment required for our
network; and
- expanded customer service operations to support a larger subscriber base.
Operating costs are expected to increase substantially during 1999 as we
continue to make substantial investments in network infrastructure and customer
service operations.
Product Development and Engineering. Product development and engineering
expenses consist primarily of salaries and related expenses for personnel, fees
to outside contractors and consultants and the allocated cost of facilities.
Product development and engineering increased 42% to $17.0 million for fiscal
1998 from $12.0 million for 1997. This increase is primarily due to:
- expenditures focused on the continued development of the @Home backbone
network to incorporate new telecommunications and server technologies;
- efforts to incorporate Internet technologies into advanced digital
set-top boxes; and
- development of software tools and enabling platforms for the creation and
distribution of enhanced content optimized for our broadband network.
We anticipate that product development and engineering costs will continue to
increase during 1999 due in part to increased technology development efforts
related to our broadband network, including initial design and deployment costs
associated with our AT&T backbone capacity agreement, and advanced digital
set-top boxes.
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<PAGE> 20
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and promotional expenses. Sales and marketing expenses
increased 52% to $18.1 million for 1998 from $11.9 million for 1997. This
increase was principally the result of increases in sales and marketing
activities to support the expansion of @Work services, the growth in advertising
and content partnering arrangements and regional deployments of the @Home
service. We expect that sales and marketing costs will continue to increase in
1999 primarily due to personnel and other costs related to:
- @Home and @Work subscriber acquisition, including expanded retail
initiatives;
- our efforts to increase advertising and content partnering arrangements;
and
- expanded product offerings, including delivery of the @Home service
through set-top devices.
General and Administrative. General and administrative expenses consist
primarily of administrative and executive personnel costs, fees for professional
services and the costs of computer systems to support our operations. General
and administrative expenses increased by 17% to $12.4 million for 1998 from
$10.6 million for 1997. This increase was caused by hiring additional finance,
human resource and facilities personnel. To support our expected growth, we
anticipate that costs in this area will continue to grow significantly during
1999.
Purchased in-process research and development. In the fourth quarter of
1998, we acquired Narrative for a total purchase consideration of $93.8 million,
and we acquired Full Force for a total purchase consideration of $1.7 million.
In connection with these acquisitions, in the fourth quarter of 1998, we
recorded purchased in-process research and development charges to operations of
approximately $2.7 million for Narrative and $58,000 for Full Force. These
amounts represent an allocation of purchase price to development projects for
the creation of new technologies that will:
- allow our subscribers to use their existing television sets
simultaneously for viewing regular television programming, viewing the
Internet and making telephone calls;
- make Internet advertising more interesting for the viewer; and
- assist advertisers in tracking various advertising metrics.
As of the date that we valued the Narrative technology, we estimated that
13% of the research and development effort had been completed at the date of the
Narrative acquisition and expect the remaining 87% of the research and
development efforts to require approximately 5 months to complete. As of the
date that we valued the Full Force technology, we estimated that 33% of the
research and development effort had been completed at the date of the Full Force
acquisition and expect the remaining 67% of the research and development efforts
to require approximately two months to complete. Although we expect that we will
successfully develop technologies related to the purchased in-process research
and development, substantial additional development of these technologies is
required, and these technologies may not achieve commercial viability. The
efforts required to develop technologies related to the purchased in-process
research and development principally relate to the completion of planning,
designing, prototyping, verification and testing activities required to
establish that products associated with the technologies can be successfully
introduced.
The value of the purchased in-process research and development was
determined by estimating the projected net cash flows related to products
associated with the new technologies, including costs to complete the
development of the technologies and the future revenues that may be earned upon
commercialization of the products. We then discounted these cash flows back to
their net present value.
If we do not successfully deploy commercially-accepted products based on
the acquired in-process technology, our operating results could be adversely
affected in future periods.
Cost and Amortization of Distribution Agreements. Cost and amortization of
distribution agreements consist primarily of charges and amortization related to
warrants to purchase our common stock issued in connection with distribution
agreements with certain of our cable partners and their future performance in
connection with distributing our services. Cost and amortization of distribution
agreements increased from $9.2 million in 1997 to $101.4 million in 1998,
primarily as a result of the amortization of the cost of the
20
<PAGE> 21
Cablevision distribution agreement and charges associated with the successful
achievement of certain performance milestones by other cable partners. We will
incur approximately $13.6 million per quarter for amortization of the
Cablevision distribution agreement through the first half of 2002, and this
amount would increase if TCI transfers certain cable systems to Cablevision. In
addition, total cost and amortization of distribution agreements could increase
significantly if our cable partners achieve certain performance milestones.
Interest Income, Net. Interest income, net represents interest and realized
gains earned on our cash and short-term cash investments and available-for-sale
investments less interest expense on debt obligations, including our convertible
subordinated debentures. Interest income, net was $6.4 million for 1998 and $3.0
million for 1997. Interest income for 1998 was $8.4 million compared to $4.2
million for 1997. This increase was principally due to the increased cash
balances available to invest following our Series A common stock offering in
August 1998. Interest expense for 1998 was $2.0 million compared to $1.2 million
for 1997. This increase was due primarily to increases in capital lease
obligations associated with our leasing of capital equipment. We anticipate
interest expense will increase sharply in 1999 due to the interest obligations
of our convertible subordinated debentures.
Income Taxes. Due to operating losses incurred since inception, we did not
record a provision for income taxes in 1998 or 1997. At December 31, 1998, we
had net deferred tax assets of $92.5 million relating principally to tax net
operating loss carryforwards and the temporary difference relating to the cost
and amortization of distribution agreements recorded in 1998 and 1997.
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 net deferred tax assets as of December 31, 1998 and 1997, since
we lack an earnings history. Accordingly, we have not recorded any income tax
benefit for net losses incurred for any period from inception through December
31, 1998. See Note 9 of Notes to Consolidated Financial Statements.
Net Loss. Our net loss before the costs and amortization for distribution
agreements and purchased in-process research and development was $40.0 million
for 1998 and $46.5 million for 1997. Our net loss for 1998 of $144.2 million
includes costs and amortization of $101.4 million related to certain
distribution agreements and $2.8 million related to purchased in-process
research and development from our acquisitions of Narrative and Full Force. The
decrease in net loss before the costs and amortization for distribution
agreements and purchased in-process research and development was primarily a
result of additional revenues, partially offset by the additional expenses
attributable to the expansion of our @Home and @Work services. We anticipate
that our net loss, excluding non-cash charges relating to amortization of the
distribution agreement, performance warrants earned by cable operators and
amortization of amounts related to mergers and acquisitions, will continue to
decline during 1999 as revenues grow at a faster rate than expenses. However,
revenues could grow at a slower rate than costs and expenses. See "Risk
Factors -- Our operating results may fluctuate significantly."
If our merger with Excite closes, we expect to record charges for the
amortization of goodwill and other intangible assets in our statement of
operations estimated at approximately $1,700 million annually for four years
from the date of the acquisition. This estimate is based on a preliminary
valuation and is subject to change pending a final analysis of the total
purchase cost and the fair value of the assets acquired and liabilities assumed.
The impact of such changes could be material.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues
<TABLE>
<CAPTION>
1997 CHANGE 1996
------ ------ ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues.................................................... $7,437 1,000% $676
====== ====
</TABLE>
Revenues for 1997 equaled $7.4 million, an increase of $6.7 million over
revenues of $676,000 for 1996. Revenues from related parties as a percentage of
total revenues were approximately 40% for 1997 and 94% for
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<PAGE> 22
1996. For 1997, revenues from @Work services in the United States and from the
@Home service in Canada contributed significantly to our total revenues,
especially during the second half of the year.
Total Costs and Expenses
<TABLE>
<CAPTION>
1997 CHANGE 1996
------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating Costs............................................. $22,459 222% $ 6,969
Product development and engineering......................... 11,984 90% 6,312
Sales and marketing......................................... 11,863 86% 6,368
General and administrative.................................. 10,635 76% 6,054
------- --- -------
Total costs and expenses before cost and amortization of
distribution agreement................................. 56,941 122% 25,703
Cost and amortization of distribution agreements............ 9,246 N/A --
------- --- -------
Total costs and expenses.......................... $66,187 N/A $25,703
======= =======
</TABLE>
Total Costs and Expenses. Total costs and expenses before the cost and
amortization of distribution agreements was $56.9 million for 1997 and $25.7
million for 1996. This increase was primarily a result of:
- operating costs associated with expansion and deployment of the @Home
broadband network to support the @Home service subscriber growth;
- additional corporate infrastructure investments; and
- the start-up of @Work services.
Operating Costs. Operating costs were $22.5 million for 1997 and $7.0
million for 1996. This increase was primarily a result of:
- maintenance and depreciation from capital equipment used in support of
the @Home broadband network and headend architecture;
- additional telecommunications costs to support the deployment of the
@Home broadband network to additional sites;
- customer service operations;
- development of additional content programming resources; and
- the launch of our @Work services.
Product Development and Engineering. Product development and engineering
expenses were $12.0 million for 1997 and $6.3 million for 1996. The higher level
of expenses for product development and engineering were attributable
principally to increases in personnel and related expenses incurred primarily in
four areas:
- the design, testing and deployment of the @Home broadband network;
- the development of software tools and enabling platforms for the creation
and distribution of enhanced content;
- applications development specifically designed to take advantage of the
@Home broadband network; and
- the development of @Work services.
Sales and Marketing. Sales and marketing expenses were $11.9 million for
1997 and $6.4 million for 1996. This increase was principally the result of:
- continued increases in sales and marketing activities to support the
expansion of regional deployments of the @Home and @Work services;
- the expansion of our sales force and related travel and entertainment
expenses;
- expenditures for trade shows; and
- increased marketing activities, including market development funds, to
attract additional cable partners, subscribers and corporate accounts.
22
<PAGE> 23
General and Administrative. General and administrative expenses were $10.6
million for 1997 and $6.1 million for 1996. This increase was the result of:
- additions of personnel to support our operations;
- stock compensation charges resulting from stock options and stock
purchase agreements;
- additional facilities expenditures; and
- additional expenses related to activities and requirements of becoming a
publicly traded company.
Interest Income, Net. Interest income, net represents interest earned by
our cash and short-term cash investments, less interest expense on our debt
obligations. Interest income, net was $3.0 million for 1997 and $514,000 for
1996. Interest income for 1997 was $4.2 million as compared to $693,000 for
1996. This increase was principally due to the increased balances available to
invest resulting from our preferred stock financing in April 1997 and our
initial public offering in July 1997. Interest expense for 1997 was $1.2 million
as compared to $179,000 for 1996. This increase was due primarily to significant
increases in capital lease obligations associated with our leasing of capital
equipment.
Income Taxes. Due to operating losses incurred since inception, we have not
recorded a provision for income taxes in 1997 or 1996.
Net Loss. The net loss before the charge for the cost and amortization of
distribution agreements was $46.5 million for 1997 and $24.5 million for 1996.
The net loss for 1997 of $55.7 million includes amortization of $9.2 million
related to the distribution agreement with Cablevision. The increase in net loss
before the amortization from the agreement with Cablevision was primarily a
result of additional business activities, partially offset by the additional
revenues attributable to the expansion of our @Home and @Work services.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through a
combination of private and public sales of equity and convertible debt
securities and capital equipment leases. At December 31, 1998, our principal
source of liquidity was $419.3 million of cash, cash equivalents and short-term
cash investments, as compared to $120.4 million at December 31, 1997.
In September 1997, we entered into a term loan agreement with Silicon
Valley Bank. The term loan, as amended in October 1998, provides for borrowings
of up to $15.0 million to finance the acquisition of property, equipment and
improvements, and to collateralize letters of credit. At our option, borrowings
under this term loan bear interest either at the Bank's prime rate or at LIBOR
plus 2.5%. As of December 31, 1998, there were no borrowings under this term
loan although there were outstanding letters of credit in the amount of $3.5
million related to real property transactions. Under the term loan, we are
required to meet certain financial covenants. The term loan expires on October
19, 2002.
Net cash used in operating activities for 1998 was $30.2 million. This is
primarily the result of a net loss of $144.2 million, which was reduced by
non-cash items for:
- charges for performance warrants charges earned under distribution
agreements, $49.8 million;
- amortization of the distribution agreements, $51.6 million; and
- depreciation and amortization from operations of $15.0 million.
An $8.1 million increase in accounts receivable occurring in connection with our
growth in revenues also impacted our cash used in operating activities.
Net cash used in investing activities in 1998 was $54.8 million. This use
of funds was the result of purchases of net short-term investments of $43.1
million and $16.8 million in cash purchases of property, equipment and
improvements as part of our continued expansion in core businesses. Gross
capital expenditures for equipment, software, furniture, leasehold improvements
and fixtures for 1998 was $29.7 million and for 1997 was $26.5 million, of which
$12.9 million in 1998 and $16.5 million in 1997 were financed through capital
leases. We expect to spend approximately $100 million each year over the next
two years for capital expenditures, of which we will spend approximately $50
million for additional backbone capacity and related equipment.
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<PAGE> 24
Net cash provided by financing activities for 1998 was $341.5 million. Of
this increase, $130.8 million resulted primarily from the sale of common stock
in 1998 and $222.4 million resulted from the net proceeds from our sale of
convertible debentures in December 1998.
We believe that we have the financial resources needed to meet our
presently anticipated business requirements, including capital expenditure and
strategic operating programs, for at least the next 12 months. Thereafter, if
cash generated by operations is insufficient to satisfy our liquidity
requirements, we 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 our stockholders. We may not be
able to raise any such capital on terms acceptable to us or at all.
We are headquartered in facilities consisting of approximately 135,000
square feet in Redwood City, California, which we occupy under a 12-year lease.
In September 1997 and March 1998, we exercised build-to-suit options requiring
the landlord to build additional facilities of approximately 360,000 square feet
on adjacent property. All facilities constructed under our build-to-suit options
will be subject to leases of up to 15 years in length, have base rent determined
in relation to construction costs and will include tenant improvements paid for
by us. The build-to-suit options that have been exercised to date provide for
monthly rental payments beginning upon the phased completion of the buildings.
Occupancy of the first phase is scheduled to occur during the second half of
1999, and occupancy of the second phase is scheduled to occur early in 2000. In
addition to our build-to-suit options, in December 1998 we exercised our right
to purchase one land parcel from the landlord. The purchase price of the
exercised option is payable in two installments, one of $278,000, which was paid
in December 1998, and a second installment of $5,288,000, which is due in the
first half of 1999. We also have smaller offices in Waltham, Massachusetts and
Bala Cynwyd, Pennsylvania. We believe that our existing facilities and the
facilities we have the right to have built will be adequate to accommodate our
growth for the foreseeable future.
DISCLOSURES ABOUT MARKET RISK
The following discusses our exposure to market risk related to changes in
interest rates, equity prices and foreign currency exchange rates.
Interest Rate Sensitivity.
Short-Term Investments. We had short-term investments of $118.6 million at
December 31, 1998. These short-term investments consist of highly liquid
investments with original maturities at the date of purchase of between three
and twelve months. These investments are subject to interest rate risk and will
fall in value if market interest rates increase. A hypothetical increase in
market interest rates by 10 percent from levels at December 31, 1998 would cause
the fair value of these short-term investments to decline by an immaterial
amount. Because we are not required to sell these investments before maturity,
we have the ability to avoid realizing losses on these investments due to a
sudden change in market interest rates. However, we could choose to sell these
investments before maturity at a loss. Declines in interest rates over time
will, however, reduce our interest income.
Outstanding Convertible Debt. At December 31, 1998, we had outstanding
long-term convertible debentures of approximately $229.3 million at a fixed
interest rate of 4%. In certain circumstances, we may be required to redeem
these debentures for our Series A common stock or cash. Because the interest
rate on these debentures are fixed, a hypothetical 10 percent decrease in
interest rates would not have a material impact on us. Increases in interest
rates could, however, increase the interest expense associated with future
borrowings by us, if any. We do not hedge against interest rate increases.
Equity Price Risk.
We own 86,000 shares of common stock of Exodus Communications. We purchased
these shares at the time of Exodus' initial public offering in March 1998 at a
price of $15.00 per share. At December 31, 1998, the
24
<PAGE> 25
closing price of Exodus' common stock was $64.25 per share. We value this
investment using the closing fair market value stated in the Wall Street Journal
for the last day of each month. As a result, we reflect this investment in our
balance sheet at December 31, 1998 at its market value of $5.5 million, with the
unrealized gains and losses excluded from earnings and reported in the
"Accumulated Other Comprehensive Income" component of stockholders' equity. We
do not hedge against equity price changes.
Foreign Currency Exchange Rate Risk.
Substantially all of our revenues are realized in U.S. dollars and most of
our revenues are from customers in the United States. Therefore, we do not
believe we face significant direct foreign currency exchange rate risk. We do
not hedge against foreign currency exchange rate changes.
IMPACT OF ADOPTION OF NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting and displaying comprehensive income and its
components. Additionally, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes reporting standards
regarding operating segments, products and services, geographic areas and major
customers. We adopted these Statements in 1998. Adoption of these Statements did
not have a material impact on our consolidated financial position, results of
operations or cash flows.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." We expect to adopt this Statement effective
January 1, 2000, which will require that we recognize all derivatives on our
balance sheets at fair value. We do not anticipate that the adoption of this
Statement will have a significant effect on our results of operations or
financial position.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which establishes
guidelines for the accounting for the costs of all computer software developed
or obtained for internal use. We adopted SOP 98-1 effective for the year ended
December 31, 1998. The adoption of SOP 98-1 did not have a material impact on
our consolidated financial statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which is effective for fiscal years beginning after
December 15, 1998. The statement requires costs of start-up activities and
organization costs to be expensed as incurred. We are required to adopt SOP 98-5
for the year ended December 31, 1999. The adoption of SOP 98-5 is not expected
to have a material impact on our consolidated financial statements.
IMPACT OF THE YEAR 2000 ISSUE
Year 2000 computer issues create certain risks for us, although we believe
that such risks are less significant than those faced by many companies due to
the fact that we commenced operations in 1995. If our internal and network
information systems do not correctly recognize and process date information
beyond the year 1999, there could be an adverse impact on our operations. To
address these Year 2000 issues with our internal and network systems, we have
initiated a program to evaluate our internal and network systems. We and our
majority shareholder, TCI, have initiated a comprehensive program to address
Year 2000 readiness in our systems and with our customers' and suppliers'
systems. The program has been designed to gather information regarding the Year
2000 compliance of products and services that we require to deploy our
residential and commercial Internet services. Under the program, assessment and
remediation are proceeding in tandem and are intended to have our critical
systems in Year 2000 compliance by June 30, 1999. These activities are intended
to encompass all major categories of systems that we use, including network
management, customer service and business operations. The costs incurred to date
related to the program have not been material. We currently expect that the
total cost of our Year 2000 readiness program will not exceed $750,000 over the
next fiscal year. The total cost estimate does not include potential costs
related to any
25
<PAGE> 26
customer or other claims or the costs of internal software or hardware replaced
in the normal course of business. The total cost estimate is based on the
current assessment of our Year 2000 readiness needs and is subject to change as
the program proceeds.
As part of the normal course of our operations, we are currently in the
process of transitioning to or implementing new computer software for our
accounting, billing, network management, human resources and other management
information systems. We are assessing and testing these systems for Year 2000
dependencies and will implement changes to such systems if necessary. The
successful implementation of these new systems is crucial to the efficient
operation of our business. We may not be successful implementing new systems in
an efficient and timely manner, and the new systems may not be adequate to
support our operations. Problems with installation or initial operation of the
new systems could cause substantial difficulties in operations planning,
business management and financial reporting, which could have a material adverse
effect on our business. The cost of bringing our new systems into Year 2000
compliance, if necessary, is not expected to have a material effect on our
financial condition or results of operations.
We have also initiated formal communications with many of our significant
suppliers to determine the extent to which we are vulnerable to these suppliers'
failure to remedy their own Year 2000 issues. We have already received
assurances of Year 2000 compliance from a number of those suppliers. Most of the
suppliers have no contractual obligations under existing contracts to provide us
with this information. We are taking steps with respect to new supplier
agreements to seek assurance that the suppliers' products and internal systems
are Year 2000 compliant. Despite these assurances, we may still experience
supplier-related Year 2000 problems.
Although we currently expect that the Year 2000 issue will not pose
significant operational problems, delays in the implementation of new
information systems or a failure to fully identify all Year 2000 dependencies in
our existing system and in the systems of our suppliers could have material
adverse consequences. Therefore, we are developing, but do not yet have,
contingency plans for continuing operations in the event these problems arise.
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the following risk factors and the other information
in this Form 10-K before investing in our common stock. Our business and results
of operations could be seriously harmed by any of the following risks. The
trading price of our common stock could decline due to any of these risks, and
you may lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
OUR BUSINESS IS UNPROVEN, AND WE MAY NOT ACHIEVE PROFITABILITY
We were incorporated in March 1995, and we commenced operations in August
1995; we have incurred operating losses in each fiscal period since our
inception. As of December 31, 1998, we had an accumulated deficit of $227.2
million. In addition, we currently intend to increase capital expenditures and
operating expenses in order to expand our network and to market and provide our
services to a growing number of potential subscribers. As a result, we expect to
incur additional net operating losses before cost and amortization of
distribution agreements and amortization of goodwill and other intangible assets
for at least the next three quarters.
The profit potential of our business model is unproven. Our @Home service
was available only in portions of 59 geographic markets as of December 31, 1998
and may not achieve broad consumer or commercial acceptance. Although
approximately 2,053 organizations have agreed to utilize @Work services as of
December 31, 1998, our @Work services may not achieve broad commercial
acceptance and the current rate of deployment for @Work services may not be
sustained. We have difficulty predicting whether the pricing models for our
Internet services will prove to be viable, whether demand for our Internet
services will materialize at the prices our cable partners charge for the @Home
service or the prices we or our cable partners charge for @Work services, or
whether current or future pricing levels will be sustainable. If such
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pricing levels are not achieved or sustained or if our services do not achieve
or sustain broad market acceptance, our business will be significantly harmed.
We may never achieve favorable operating results or profitability.
SEVERAL FACTORS MAY INHIBIT THE GROWTH OF THE @HOME SERVICE
As of December 31, 1998, we had approximately 331,000 cable modem
subscribers, including recently acquired Internet subscribers that are being
converted to the @Home service. Our ability to increase the number of
subscribers to the @Home service to achieve our business plans and generate
future revenues will be dependent on a number of factors, many of which are
beyond our control. For instance, certain cable partners from time to time have
not achieved subscriber levels which we had originally anticipated. These
factors include, among others:
- the rate at which our current and future cable partners upgrade their
cable infrastructures
- our ability and the ability of our cable partners to coordinate timely
and effective marketing campaigns with the availability of cable
infrastructure upgrades
- the success of our cable partners in marketing and installing the @Home
service in their local cable areas
- the prices that our cable partners set for the @Home service and for its
installation
- the speed at which our cable partners can complete the installations
required to initiate service for new subscribers
- the commercial availability of DOCSIS-compliant, self-installable modems
and the success of our roll-out of these products with the @Home service
- the quality of customer and technical support provided by us and our
cable partners
- the quality of content on the @Home service
We believe subscriber growth has been constrained, and will continue to be
constrained, by the cost and the amount of time required to install the @Home
service for each residential consumer. In addition, our growth has been
constrained by the rate at which our cable partners have upgraded their cable
systems, and most of our cable partners are not obligated to upgrade their cable
infrastructures or market the @Home service. Moreover, the @Home service is
currently priced at a premium to many other online services, and large numbers
of subscribers may not be willing to pay a premium for the @Home service.
Because of the preceding factors, among others, our actual revenues or the rate
at which we will add new subscribers may differ from our forecasts. We may not
be able to increase our subscriber base in accordance with our internal
forecasts or the forecasts of industry analysts or to a level that meets the
expectations of investors. The rate at which subscribers have increased during
1998 does not necessarily indicate the rate at which subscribers may be expected
to increase in the future. In particular, while we have recently forecast that
our number of subscribers could grow to over 1.1 million by December 31, 1999
from approximately 331,000 subscribers at December 31, 1998, we may not achieve
this level of subscriber growth, particularly given the risks set forth here.
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY
Our operating results may fluctuate significantly due to a variety of
factors, many of which are outside our control. Factors that may affect our
operating results attributable to our @Home service include:
- the timing of our cable partners' upgrades of their cable infrastructures
and roll-outs of the @Home service
- the rate at which customers subscribe to our Internet services and the
prices subscribers pay for these services
- changes in the revenue splits between us and our cable partners
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- the demand for electronic commerce
- the effectiveness of our cable partners' marketing, installation and
other operations
Operating results attributable to our @Work services are dependent on:
- the demand for, and level of acceptance of, our corporate Internet,
intranet and extranet connectivity and telecommuting solutions
- the introduction of, demand for, and level of acceptance of, our
value-added business applications
- in part, the timing of our cable partners' upgrades of their cable
infrastructures
- the effectiveness of our cable partners' marketing and other operations
- competitive pressures, including pricing pressure and the availability of
competing technologies, in the market for business Internet services
- the creditworthiness of our @Work customers
Following discussions with the staff of the Securities and Exchange
Commission, we recently restated our financial statements for the year ended
December 31, 1997 and the first three quarters of 1998 to record as intangible
assets and amortize ratably over their useful lives amounts that were previously
expensed in connection with our Cablevision distribution agreement. Our
operating results have been and will continue to be adversely affected by
significant charges associated with warrants issued to current and potential
cable partners in connection with distribution agreements.
Our quarterly revenues and operating results are difficult to forecast even
in the short term. A significant portion of our 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 our
operating results may be magnified by our inability to adjust spending to
compensate for the shortfall. Moreover, our cable partners have complete
discretion regarding the pricing of the @Home service in their territories,
which could further impact our ability to generate revenue. A shortfall in
actual compared to estimated revenue could significantly harm our business.
THE SCALABILITY, SPEED AND SECURITY OF OUR NETWORK IS UNPROVEN
Due to the limited deployment of our services, the ability of our network
to connect and manage a substantial number of online subscribers at high
transmission speeds is as yet unknown, and we face risks related to our
network's ability to be scaled up to its expected subscriber levels while
maintaining superior performance. The network may be unable to achieve or
maintain a high speed of data transmission, especially as our subscribers
increase. In recent periods, the performance of the network has experienced some
deterioration in certain markets as a result of subscriber abuse of the @Home
service. While we seek to eliminate such abuse by limiting users' upstream
bandwidth, our failure to achieve or maintain high-speed data transmission would
significantly reduce consumer demand for our services. In addition, while we
have taken steps to prevent users from sharing files via the @Home service and
to protect against "email spamming," public concerns about security, privacy and
reliability of the cable network, or actual problems with the security, privacy
or reliability of our network, may inhibit the acceptance of our Internet
services.
WE FACE CHALLENGES MANAGING OUR EXPANDED OPERATIONS AND WE DEPEND ON KEY
PERSONNEL
We may not be able to successfully manage any future periods of rapid
growth or expansion, which we expect to place a significant strain on our
managerial, operating, financial and other resources. From time to time, we and
our cable partners have had difficulty managing network operations and expansion
of backbone capacity and providing adequate customer service or efficient
provisioning of new subscribers. A prolonged failure to perform these functions
successfully would significantly inhibit subscriber growth and retention. We
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are highly dependent upon the efforts of our senior management team, and our
future performance will depend, in part, upon the ability of senior management
to manage growth effectively. This will require us:
- to implement additional management information systems capabilities
- to further develop our operating, administrative, financial and
accounting systems and controls
- to maintain close coordination among engineering, accounting, finance,
marketing, sales and operations
- to hire and train additional technical and marketing personnel
There is intense competition for senior management, technical and marketing
personnel in the areas of our activities. The loss of the services of any of our
senior management team or the failure to attract and retain additional key
employees could significantly harm our business. We maintain no key-person life
insurance.
WE DEPEND ON TWO-WAY CABLE MODEMS BASED UPON A NEW INDUSTRY STANDARD
Each of our subscribers currently must obtain a cable modem from a cable
partner to access the @Home service. The North American cable industry has
recently adopted a set of interface standards known as DOCSIS for hardware and
software to support the delivery of data services over the cable infrastructure
utilizing interoperable cable modems. We believe that these specifications,
together with our distribution relationships with CompUSA, Compaq and Dell, will
facilitate the growth of the cable modem industry and the availability of lower
cost, interoperable cable modems through retail channels. However, certain of
our cable partners have chosen to delay some deployments of the @Home service
until the widespread commercial availability of DOCSIS-compliant cable modems.
Our subscriber growth could be constrained and our business could be
significantly harmed if our cable partners choose to slow the deployment of the
@Home service further, as a result of the timing of widespread commercial
availability of DOCSIS-compliant cable modems or otherwise. Cable modems that
are DOCSIS-compliant are not expected to be available in significant quantities
until at least the second quarter of 1999. Although multiple vendors are
expected to supply DOCSIS-compliant cable modems and their constituent
components, any cable partner's reliance on a single provider of these modems or
components could cause that cable partner to be unable to generate expected
subscriber growth for the @Home service if the supplier does not provide the
cable partner with a sufficient quantity of DOCSIS-compliant modems.
OUR MARKETS ARE HIGHLY COMPETITIVE
The markets for consumer and business Internet services and online content
are extremely competitive, and we expect that competition will intensify in the
future. Our most direct competitors are other providers of cable-based Internet
services, unaffiliated cable companies, national long-distance and local
exchange carriers, Internet and online service providers, and Internet content
aggregators.
We compete with other cable-based services. Our competitors in the
cable-based services market are those 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. In particular, Time Warner
Inc. and MediaOne Group have deployed high-speed Internet access services over
their existing local HFC cable networks through their cable-based Internet
service, Road Runner, which features a variety of proprietary content from Time
Warner Publications. Time Warner's substantial libraries of multimedia content
could provide Road Runner with a significant competitive advantage. In June
1998, Microsoft and Compaq each invested $212.5 million in Road Runner and
announced that Microsoft will provide software for the Road Runner service and
that Compaq will produce cable-ready personal computers to be used with the
service. Time Warner and MediaOne plan to market the Road Runner service through
their own cable systems as well as to other cable system operators nationwide.
Although we do not presently compete directly with the Road Runner service for
subscribers because Road Runner is offered over different cable systems than
those that carry the @Home service, we do compete with the Road Runner service
in seeking to establish distribution arrangements with cable system operators.
Furthermore, if and when our existing cable partners cease to be subject to
their exclusivity obligations, we may compete with Road Runner and potentially
other Internet service providers for distribution over the cable systems of our
cable partners. In addition, other cable system
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operators, including Adelphia Communications Corporation, have launched their
own cable-based Internet services that could compete with our services.
We also compete with other high-speed telecommunications technologies. Long
distance inter-exchange carriers, such as AT&T, MCI Worldcom and Sprint have
deployed large-scale Internet access networks and sell connectivity to business
and residential customers. The regional Bell operating companies and other local
exchange carriers have also entered this field and are providing price
competitive services. Many such carriers are offering diversified packages of
telecommunications services, including Internet access, to residential customers
and could bundle these services together, which could put us at a competitive
disadvantage. Many of these competitors are offering or may soon offer
technologies that will compete with some or all of our high-speed data service
offerings. These technologies include integrated services digital network (ISDN)
and asymmetric digital subscriber line (ADSL). In January 1998, technology
companies including Compaq, Intel and Microsoft together with numerous
telecommunications providers announced an initiative to develop a simplified
version of ADSL, referred to as "ADSL Lite," which is intended to reduce the
complexity and expense of installing Internet services based on ADSL. Also, in
October 1998, the International Telecommunications Union adopted an ADSL
standard called G Lite. Widespread commercial acceptance of ADSL technologies
could significantly reduce the potential subscriber base for our Internet
services, which could significantly harm our business.
We compete with other online services. We also compete with Internet
service providers that provide basic Internet access to residential consumers
and businesses, generally using existing telephone network infrastructures.
While not offering the advantages of broadband access, these services are widely
available and inexpensive. In addition, we compete with online service providers
such as America Online, Inc. that provide, over the Internet and on proprietary
online services, content and applications ranging from news and sports to
consumer videoconferencing. These services currently 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. America Online and Bell Atlantic have recently entered
into an agreement whereby America Online will offer its Internet services using
Bell Atlantic's advanced digital subscriber line infrastructure. Online service
providers also 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.
We compete with content aggregators and Internet portals. Finally, we
compete with content aggregators and Internet portals that seek to capture
audience flow by providing ease-of-use and offering content that appeals to a
broad audience. Leading companies in this area include America Online, Yahoo!
Inc. and Lycos, Inc. In this market, competition affects existing and potential
relationships with 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 of the desired content. Many online service providers, such
as America Online, have the advantage of large customer bases, industry
experience, many content partnerships and significant resources.
Many of our competitors have more resources than we do. Many of our
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 we do. These 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 we could. We may not be able
to compete successfully against current or future competitors, and competitive
pressures could significantly harm us. Further, as a strategic response to
changes in the competitive environment, we and our cable partners may make
certain pricing, service or marketing decisions or enter into acquisitions or
new ventures that could significantly harm us.
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WE FACE CHALLENGES ASSOCIATED WITH OUR JOINT DEVELOPMENT EFFORT WITH TCI
We were selected by TCI to develop software and provide integration
services for TCI's next generation advanced digital set-top devices. Although we
believe this relationship could enable us to expand our product line and market
the @Home service to a broader audience of consumers who do not regularly use a
personal computer, the agreement does not require that TCI deploy the @Home
service on these set-top devices, and we cannot predict when these set-top
devices will become commercially available. Notwithstanding our agreement with
TCI, we cannot deploy set-top device Internet services over the cable
infrastructure of TCI or our cable partners without their consent.
In addition to the technological, financial and infrastructure challenges
TCI faces in deploying the new set-top devices, the success of this development
effort is subject to:
- the technological and operational challenges of providing and supporting
email and other Internet services to set-top device users
- competition from alternative Internet service providers and deployment
technologies
- the degree to which consumers desire Internet services, including email,
on their televisions
In addition, our cable partners can work with third parties to develop and
deploy set-top devices, and even if they do choose to work with us, our revenue
split on any fees generated from services deployed on these devices may differ
from our revenue split with respect to our current high-speed cable Internet
services.
OUR DEPENDENCE ON OUR NETWORK EXPOSES US TO A SIGNIFICANT RISK OF SYSTEM FAILURE
Our operations are dependent upon our ability to support our 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 our network operations center
or at a number of our regional data centers could cause interruptions in our
services. Additionally, failure of our cable partners or companies from which we
obtain data transport services to provide the data communications capacity we
require, as a result of natural disaster, operational disruption or any other
reason, could cause interruptions in the services we provide. Any damage or
failure that causes interruptions in our operations could significantly harm our
business.
WE MUST RESPOND TO RAPID 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 we
continually improve the performance, features and reliability of our network,
Internet content and consumer and business services, particularly in response to
competitive offerings. We may not be successful in responding quickly, cost
effectively and sufficiently to these developments. There may be a time-limited
market opportunity for our cable-based consumer and business Internet services,
and we may not be successful in achieving widespread acceptance of our services
before competitors offer products and services with speed and performance
similar to or better than our current offerings. In addition, the widespread
adoption of new Internet or telecommuting technologies or standards, cable-based
or otherwise, could require that we make substantial expenditures to modify or
adapt our network, products and services. This could fundamentally affect the
character, viability and frequency of Internet-based advertising and content
services. Finally, new Internet or telecommuting services or enhancements that
we offer may contain design flaws or other defects.
YEAR 2000 ISSUES COULD AFFECT OUR BUSINESS
If our internal and network information systems do not correctly recognize
and process date information beyond the year 1999, we may not be able to conduct
operations. To address these Year 2000 issues, we and our majority shareholder,
TCI, have initiated a comprehensive program to address Year 2000 readiness in
our systems and with our customers' and suppliers' systems. The program has been
designed to gather information
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regarding the Year 2000 compliance of products and services that we require to
deploy our residential and commercial Internet services. Under the program,
assessment and remediation are proceeding in tandem, and we intend to have our
critical systems in Year 2000 compliance by June 30, 1999. These activities
encompass all major categories of systems that we use, including network
management, customer service and business operations. The costs incurred to date
related to the program have not been material. We currently expect that the
total cost of our Year 2000 readiness program will not exceed $750,000 in 1999.
The total cost estimate does not include potential costs related to any customer
or other claims or the costs of internal software or hardware replaced in the
normal course of business. The total cost estimate is based on the current
assessment of our Year 2000 readiness needs and is subject to change as the
program proceeds.
As part of our normal course of operations, we are currently in the process
of transitioning to or implementing new computer software for our accounting,
billing, network management, human resources and other management information
systems. We are assessing and testing these systems for Year 2000 compliance and
will implement changes to these systems, if necessary. The successful
implementation of these new systems is crucial to the efficient operation of our
business. However, we may not implement our new systems in an efficient and
timely manner, and the new systems may not be adequate to support our
operations. Problems with installation or initial operation of the new systems
could cause substantial difficulties in operations planning, business management
and financial reporting, which could significantly harm our business, financial
condition and results of operations. The cost of bringing our new systems into
Year 2000 compliance, if necessary, is not expected to have a material effect on
our financial condition or results of operations.
We have also initiated formal communications with many of our significant
suppliers to determine the extent to which we are vulnerable to these suppliers'
failure to remedy their own Year 2000 issues. We have already received
assurances of Year 2000 compliance from a number of those suppliers. Most of the
suppliers have no contractual obligations under existing contracts to provide us
with this information. We are taking steps with respect to new supplier
agreements to seek assurance that the suppliers' products and internal systems
are Year 2000 compliant. Despite these assurances, we may still experience
supplier-related Year 2000 problems.
Although we currently expect that the Year 2000 issue will not pose
significant operational problems, delays in the implementation of new
information systems or a failure to fully identify all Year 2000 dependencies in
our existing system and in the systems of our suppliers could have material
adverse consequences. Therefore, we are developing, but do not yet have,
contingency plans for continuing operations in the event these problems arise.
WE FACE CHALLENGES EXPANDING INTERNATIONALLY
A key component of our strategy is expansion into international markets. To
date, we have developed distribution relationships only with United States,
Canadian and Dutch cable system operators. We have extremely limited experience
in developing localized versions of our products and services and in developing
relationships with international cable system operators. We may not be
successful in expanding our product and service offerings into foreign markets.
In addition to the uncertainty regarding our ability to generate revenues from
foreign operations and expand our international presence, there are certain
risks inherent in doing business internationally, 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
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- problems in collecting accounts receivable
- fluctuations in currency exchange rates
- seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world
- potential inability to use European customer information due to new
European governmental regulations
- potential adverse tax consequences
One or more of these factors could significantly harm our international
operations and therefore our business.
OUR BUSINESS MAY BE IMPACTED BY CABLE UNBUNDLING PROPOSALS AND OTHER GOVERNMENT
REGULATION AND LEGAL UNCERTAINTIES
Federal regulation could harm our business. Currently, our services are not
directly subject to regulations of the Federal Communication Commission or any
other federal or state communications regulatory agency. However, changes in the
regulatory environment relating to the Internet market, including regulatory
changes that affect telecommunications costs, limit usage of subscriber-related
information or increase the likelihood or scope of competition from the regional
Bell operating companies or other telecommunications companies, could affect our
pricing or ability to market our services successfully. For example, regulation
of cable television rates may affect the speed at which our cable partners
upgrade their cable systems to carry our services. Similarly, legislation
considered in the last Congress, which would have restricted the use of
subscriber information by interactive computer services for marketing and other
purposes, could adversely affect the marketing of our services as well as our
revenue from advertising.
Local franchise authorities could seek to regulate our services. Many of
our United States cable partners' local cable affiliates have elected to
classify the provision of the @Home service as additional cable services under
their respective local franchise agreements, and to pay franchise fees in
accordance with those agreements. Local franchise authorities may attempt to
subject cable systems to higher or other franchise fees or taxes or otherwise
require cable operators to obtain additional franchises in connection with their
distribution of the @Home service. There are thousands of franchise authorities,
and thus it will be difficult or impossible for us or our cable partners to
operate under a unified set of franchise requirements.
The FCC could require our cable partners to grant our competitors access to
the cable infrastructure. America Online, MindSpring Enterprises, Inc.,
Consumers Union and other parties have requested the FCC to require cable
operators to provide Internet and online service providers with unbundled access
to the cable infrastructure. In the event that the FCC were to require
third-party access to the cable infrastructure, Internet and online service
providers could potentially provide services over the cable infrastructure of
our cable partners that compete with our services. If the FCC or another
governmental agency were to classify our cable partners as common carriers of
Internet services, or if they were to seek such classification as a means of
protecting themselves against liabilities, our rights as the exclusive
residential high-speed Internet service provider over the systems of our United
States cable partners could be lost. In addition, if we or our United States
cable partners were classified as common carriers, these cable partners could be
subject to government-regulated tariff schedules for the amounts they could
charge for our services.
Local agencies may require third party access. The third party access issue
has also been raised in proceedings before local governments. Local governments
must approve the transfer of TCI's cable systems to AT&T in connection with the
AT&T's acquisition of TCI. America Online, U S West and some Internet service
providers have asked local governments to impose a third-party access
requirement on TCI as a condition to approving the transfer, and Portland and
Multnomah County, Oregon have imposed such a condition. AT&T and TCI have
challenged this action in Federal District Court. Seattle and King County,
Washington, are considering a similar condition. Other local governments are
considering imposing third-party
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access requirements on cable operators in franchise renewal proceedings and in
connection with transfers of cable systems between cable operators.
Canadian regulation could affect our business. Rogers and Shaw have
informed us that, due to certain Canadian regulations, they are required to
provide access to their respective networks to third-party Internet service
providers. Although no third party currently uses Rogers' or Shaw's networks for
the purpose of offering Internet services, these Canadian regulations preclude
us from having an exclusive contractual right to access these networks.
Deregulation of telephone companies could enhance their ability to compete
against our service. The FCC also is considering whether to provide the Bell
operating companies and other incumbent local exchange carriers with significant
relief from existing access, resale, unbundling, pricing, and cost recovery
rules and policies, without regard to local access and transport boundaries, in
order to encourage the deployment and operations by these carriers of
high-capacity, packet-switched networks and other advanced telecommunications
facilities and related services, including Internet access services.
Deregulation of telephone company advanced services could enhance the ability of
these companies to compete against the delivery of @Home's services by our cable
partners.
WE COULD FACE LIABILITY FOR DEFAMATORY OR INDECENT CONTENT
It is possible that claims could be made against Internet and online
service providers under both United States and foreign law for defamation,
negligence, copyright or trademark infringement, or other theories based on the
nature and content of the materials disseminated through their networks. Several
private lawsuits seeking to impose such liability are currently pending. In
addition, legislation has been proposed that imposes liability for or prohibits
the transmission over the Internet of certain types of information. The
imposition upon Internet and online service providers of potential liability for
information carried on or disseminated through their systems could require us to
implement measures to reduce our exposure to this liability. This may require
that we expend substantial resources or discontinue certain service or product
offerings. The increased attention focused upon liability issues as a result of
these lawsuits and legislative proposals could impact the growth of Internet
use. Furthermore, certain foreign governments, such as Germany, have enacted
laws and regulations governing content distributed over the Internet that are
more strict than those currently in place in the United States. One or more of
these factors could significantly harm our business.
OUR PRO FORMA ACCOUNTING FOR THE EXCITE MERGER MAY CHANGE
The total estimated purchase price for the Excite merger has been allocated
on a preliminary basis to assets and liabilities based on our best estimates of
their fair values, with the excess costs over the net assets acquired allocated
to goodwill and other intangible assets. This allocation is subject to change
pending a final analysis of the fair values of the assets acquired and
liabilities assumed. The impact of these changes could be material to our future
results of operations.
CERTAIN TRANSACTIONS MAY RESULT IN ADDITIONAL DILUTION TO OUR STOCKHOLDERS
We have entered into agreements with Cablevision, Rogers, Shaw, certain
other cable partners and other business partners pursuant to which we have
issued warrants to purchase a total of 23,619,036 shares of our Series A common
stock. Under these agreements, warrants to purchase 12,386,125 shares of our
Series A common stock at an average price of $2.26 per share were exercisable as
of December 31, 1998. To the extent that Cablevision, Rogers, Shaw, certain
other cable partners or other business partners become eligible to and exercise
their warrants, our stockholders would experience substantial dilution. We also
may issue additional stock, or warrants to purchase stock, at prices less than
fair market value in connection with efforts to expand distribution of the @Home
service.
OUR STOCK PRICE IS SUBJECT TO SIGNIFICANT VOLATILITY
The stock market has from time to time experienced significant price and
volume fluctuations. In addition, the market price of the shares of our Series A
common stock, like the market prices of shares of
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other Internet companies, has been and is likely to be highly volatile. Factors
such as fluctuations in our operating results, announcements of technological
innovations or new products by us or our competitors, regulatory actions, market
rumors, acquisitions in the Internet, telecommunications or cable industries and
general market conditions may have a significant effect on the market price of
our Series A common stock and other securities, such as our outstanding
debentures, that are convertible into or exercisable for our Series A common
stock.
RISKS RELATED TO OUR RELATIONSHIPS WITH OUR CABLE PARTNERS
WE DEPEND ON OUR CABLE PARTNERS TO UPGRADE TO THE TWO-WAY CABLE INFRASTRUCTURE
NECESSARY TO SUPPORT OUR @HOME SERVICE; THE AVAILABILITY AND TIMING OF THESE
UPGRADES ARE UNCERTAIN
Transmission of the @Home service and certain @Work services over cable
depends on the availability of high-speed two-way HFC cable infrastructure.
However, only a portion of existing cable plant in the United States and in
certain international markets has been upgraded to HFC cable, and even less is
capable of high-speed two-way transmission. Our cable partners have announced
and begun to implement major infrastructure investments in order to deploy
two-way HFC cable. However, certain of our cable partners have limited
experience with these upgrades, and these investments have placed a significant
strain on the financial, managerial, operating and other resources of our cable
partners, most of which are already highly leveraged. Therefore, these
infrastructure investments have been, and we expect will continue to be, subject
to change, delay or cancellation. Although our commercial success depends on the
successful and timely completion of these infrastructure upgrades, most of our
cable partners are under no obligation to upgrade systems or to introduce,
market or promote our services. The failure of our cable partners to complete
these upgrades in a timely and satisfactory manner, or at all, would prevent us
from delivering high-performance Internet services and would significantly harm
our business.
OUR CABLE PARTNERS ARE NOT GENERALLY OBLIGATED TO CARRY OUR SERVICES, AND THE
EXCLUSIVITY OBLIGATIONS THAT PREVENT THEM FROM CARRYING COMPETING SERVICES MAY
BE TERMINATED
Our cable partners are subject to certain exclusivity obligations that
prohibit them from obtaining high-speed (greater than 128 kilobits per second)
residential consumer Internet services from any source other than us. However,
most of our cable partners are under no affirmative obligation to carry any of
our services, and the exclusivity obligations of our principal cable partners,
TCI, Comcast, Cox and Cablevision, expire on June 4, 2002, and may be terminated
sooner under certain circumstances. For example, our principal cable partners
may terminate all their exclusivity obligations upon a change in law that
materially impairs certain of their rights. Also, Comcast or Cox may terminate
all exclusivity obligations of our principal cable partners at any time if there
is a change of control of TCI that results, within one year, in the incumbent
directors of TCI no longer constituting a majority of the TCI board of
directors. AT&T has agreed with TCI not to take intentional actions that would
allow termination of these exclusivity obligations. Either Comcast or Cox, based
on relative subscriber criteria as of June 4, 1999 and as of each anniversary of
that date, has the right to terminate the exclusivity obligations of our
principal cable partners if TCI and its affiliates do not meet certain
subscriber penetration levels for the @Home service. Based upon current
subscriber penetration information available to us, it is uncertain whether TCI
will meet these penetration levels at June 4, 1999 or in the future. If Comcast
or Cox terminates the exclusivity obligations, this could significantly harm our
business and cause an immediate drop in our stock price. Finally, Comcast may
terminate its own exclusivity obligations upon its election after June 4, 1999
if it permits a portion of its equity in us to be repurchased by us at Comcast's
original cost. Comcast has informed us that it has entered into an agreement
with Microsoft Corporation under which Microsoft can require Comcast to
terminate its exclusivity obligations after June 4, 1999. Although Microsoft has
stated in the agreement that it has no present intention to do so, Microsoft may
be more likely than Comcast to terminate Comcast's exclusivity obligations.
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THE EXCLUSIVITY OBLIGATIONS OF OUR CABLE PARTNERS ARE LIMITED
The exclusivity obligations also are subject to exceptions that would
permit our principal cable partners and their affiliates to engage in certain
activities which could compete, directly or indirectly, with our activities. For
example, each of these cable partners and its affiliates is permitted to:
- engage in any business other than the provision of high-speed residential
consumer Internet services, including competing with our @Work operations
- maintain voting equity interests of 10% or less in public companies that
directly compete with our @Home service and related Internet backbone
connectivity services
- acquire an interest in any business that competes with our high-speed
residential consumer Internet services (so long as the competitive
business is not its primary business)
- acquire equity securities of public companies that compete with us,
provided that it does not control (or is not under common control with)
such companies
- operate a competing business in any cable system territory where the
exclusivity obligations have been terminated
OUR CABLE PARTNERS MAY OFFER CERTAIN SERVICES DESPITE THEIR EXCLUSIVITY
OBLIGATIONS
Most of our cable partners' exclusivity obligations are limited to
high-speed residential Internet services and do not extend to various excluded
services that they may offer without us. These excluded services include:
- telephony services
- services that are primarily work-related (such as @Work services)
- residential Internet services that do not use the cable partners' cable
television infrastructures, regardless of data transmission speed
- local Internet services that do not require use of an Internet backbone
outside a single metropolitan area
- services that are utilized primarily to connect students to schools,
colleges or universities
- Internet telephony, Internet video telephony or Internet video
conferencing
- limited Internet services primarily intended for display on a television
such as some types of Internet-based digital set-top services
- certain Internet services that are primarily downstream services where
the user cannot send upstream commands in real-time
- streaming video services that include video segments longer than 10
minutes in duration
In addition, our cable partners can engage in limited testing, trials and
similar activities with respect to businesses subject to their exclusivity
obligations. By engaging in the excluded services, most cable partners can
compete, directly or indirectly, with our activities, including our @Work
services.
WE ARE PROHIBITED FROM OFFERING THE EXCLUDED SERVICES
Until the later of June 4, 2002 or such time as a principal cable partner
is no longer in compliance with its exclusivity obligations, we may not offer
the excluded services described above using a principal cable partner's cable
plant, or to residences in the geographic areas served by its cable systems,
without its consent. These restrictions apply even if we have integrated an
excluded service with the @Home service in another geographic area. In the case
of streaming video transmissions that include video segments longer than 10
minutes in duration, we face increased obligations to our principal cable
partners that remain in compliance with their exclusivity obligations.
Specifically, we have agreed not to allow these video transmissions using
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<PAGE> 37
their cable infrastructure or in the geographic areas served by their cable
systems, without their consent. Therefore, we may never have access to the cable
infrastructures of our principal cable partners for excluded services, and we
must negotiate a separate agreement, including a new revenue split, if
applicable, with each of the principal cable partners for each excluded service
that we seek to provide over their cable infrastructures.
WE ARE CONTROLLED BY TCI
TCI controls approximately 71% of our voting power and has the power to
elect a majority of our board members and to control all matters requiring the
approval of our stockholders. TCI's Series B common stock carries ten votes per
share and gives TCI the right to elect five Series B directors, one of which is
designated by Comcast and one of which is designated by Cox. Currently, four of
our 11 directors are directors, officers or employees of TCI or its affiliates.
As long as TCI owns at least 7,700,000 shares of our Series B common stock and
holds a majority of our voting power, our Board may take action only if approved
by the Board and by a majority of the Series B directors, three of five of which
are designees of TCI. This allows TCI to block actions of our Board, even
through the TCI directors may not then constitute a majority of the Board. In
addition, TCI can expand the Board at any time and fill the vacancies with TCI
designees to control a majority of the Board. Further, we may not take certain
corporate actions without the approval of TCI's Series B directors and in
certain cases the directors designated by Comcast and Cox. Notwithstanding these
provisions, all of our directors owe fiduciary duties to our stockholders. If
and when the merger of AT&T and TCI is complete, AT&T will control TCI and thus
control us. Even if and when we complete the Excite merger, TCI or AT&T will
continue to own more than 50% of our voting power.
WE MAY NOT REALIZE THE EXPECTED BENEFITS FROM, AND COULD BE HARMED BY, AT&T'S
ACQUISITION OF TCI AND TCG
On June 24, 1998, TCI and AT&T announced that AT&T has agreed to acquire
TCI. AT&T and TCI anticipate that their merger, which is subject to regulatory
approval, will be completed in the first quarter of 1999. In addition, in July
1998, AT&T acquired Teleport Communications Group, Inc. While we believe that
AT&T's acquisition of TCI and TCG may benefit us by increasing the rate at which
TCI's cable facilities will be upgraded to the two-way HFC cable necessary to
carry our services, by allowing us to utilize the strength of AT&T's brand in
marketing the @Home service to consumers and by increasing the potential for
cooperation between us and TCG, these benefits may not be realized and AT&T's
TCI acquisition may not be completed. Moreover upon a change of control of TCI
that results within one year in the incumbent directors of TCI no longer
constituting a majority of the TCI board of directors, either Cox or Comcast can
terminate the exclusivity obligations that apply to our principal cable
partners. While AT&T has agreed with TCI not to take intentional actions that
would allow termination of these exclusivity obligations, if AT&T did take these
actions, either Cox or Comcast would have the right to terminate the exclusivity
obligations of all our principal cable partners. This would significantly harm
our business and cause an immediate drop in our stock price.
As discussed above, local franchise authorities could impose an obligation,
in connection with AT&T's acquisition of TCI, that AT&T and TCI allow third
parties to access TCI's cable infrastructure. The imposition of such an
obligation could lessen the anticipated benefits of their merger, and therefore
the benefits we may receive as a result of their merger.
WE MAY FACE ADDITIONAL COMPETITION FROM AT&T
AT&T operates certain businesses that could compete with our services,
notwithstanding any exclusivity obligations that may apply to it if and when its
acquisition of TCI is completed. First, AT&T operates a consumer Internet
service known as AT&T WorldNet. Although AT&T WorldNet is currently a dial-up
service that does not utilize broadband technologies, AT&T may be able to use
non-cable-based data transport mechanisms to offer high-speed residential
Internet services that compete with our @Home service. Second, AT&T owns TCG,
which operates an Internet service for business customers that competes with our
@Work service. Our @Work business depends to a significant extent on our
agreement with TCG for local access telecommunications services. If TCG ceases
to cooperate with us, our @Work business would be
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harmed. Because our @Work business is not subject to the cable partners'
exclusivity obligations, AT&T or TCG are not limited in their ability to compete
with our @Work business. In addition, AT&T and Time Warner recently announced
the formation of a significant strategic relationship that will include a joint
venture to offer AT&T-branded cable telephony service to residential and small
business customers over Time Warner's existing cable television systems in 33
states. The relationship between AT&T and Time Warner could ultimately extend to
other broadband services, including cable Internet services, that compete with
our @Home service. Therefore, even once it controls us, AT&T may take actions
that benefit TCG, WorldNet or other services of AT&T or other parties to our
detriment.
WE DEPEND ON OUR CABLE PARTNERS FOR DISTRIBUTION; THIS CREATES CONFLICTS OF
INTEREST
Through their cable systems, our cable partners provide the principal
distribution network for our services, and they share the revenue from the @Home
services that are derived from our subscribers. Given our contractual and
business relationships with our cable partners, the interests of our cable
partners may not always coincide with our interests, and conflicts of interest
concerning the split of revenues and other matters exist. Because TCI,
Cablevision, Comcast and Cox all operate cable systems that will be the primary
distributors of the @Home service, situations may arise where their interests
may diverge or appear to diverge from the interests of our other stockholders.
TCI and the other principal cable partners, acting through their Board
designees, have the ability to cause us to take certain actions or prohibit us
from taking certain actions that may be favored by other stockholders or by the
other directors who are not affiliated with our principal cable partners. Our
Board, which is controlled by TCI, has the power, subject to directors'
fiduciary duties, to approve transactions in which our principal cable partners
have an interest, including amending or terminating their distribution agreement
with us or changing the revenue splits in their favor. Under the agreements
under which our U. S. cable partners distribute our services, we receive 35% of
monthly fees and fees for premium services. However, most of these agreements,
including the agreement with our principal cable partners, contain contractual
"most favored nation" provisions, which provide that our principal cable
partners are entitled to distribution arrangements and related services on terms
at least as favorable as those obtained by any other cable system operator.
Therefore, our principal cable partners have the power, subject to their
fiduciary duties, to cause us to approve more favorable distribution
arrangements, including more favorable revenue splits, for one or more
unaffiliated cable operators in order to receive more favorable distribution
arrangements themselves and reduce our share of subscriber fees.
WE DEPEND ON OUR CABLE PARTNERS TO MARKET, DELIVER AND SUPPORT THE @HOME SERVICE
Because subscribers to the @Home service will subscribe through a cable
partner, the cable partner will substantially control the customer relationship
with the subscriber. Each cable partner has complete discretion regarding the
pricing of the @Home service to subscribers in its territories (except for
certain premium services for which we may contract directly with the
subscriber), and a cable partner could use the @Home service as a loss leader in
order to increase demand for other products or services with more attractive
terms. The cable partners do not have any affirmative obligations (other than
the payment of revenue splits to us) with respect to marketing, installing and
maintaining infrastructure for, providing customer service for and billing for
the @Home service. In limited circumstances, such as a cable partner's failure
to upgrade a cable system or roll out the @Home service after it has committed
to do so, we may be entitled to certain cost reimbursements and to be released
from certain of our exclusivity obligations, neither of which may be an
effective remedy for the failure. Our business requires a substantial rollout of
the @Home service, and if a widespread rollout does not occur, our business will
not be viable. Moreover, our cable partners have in the past experienced, and
may in the future experience, delays in installing the @Home service in areas in
which it has been introduced. Our cable partners are expected to provide general
customer service to our subscribers and, under their distribution agreements,
have the option to provide technical support, rather than utilizing our service
and support capabilities. If a cable partner elects to provide technical
support, we must reimburse them for our avoided costs, and we would have little
or no control over the quality of customer service actually provided to
subscribers of the @Home service. If the customer service and support provided
by our cable partners are unsatisfactory to subscribers, consumer demand for the
@Home service will likely diminish.
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OUR CABLE PARTNERS CONTROL THE TERMS OF DISTRIBUTION OF THE @HOME SERVICE
We and our cable partners have entered into agreements providing for the
distribution of the @Home service by our cable partners and their affiliates.
The economic and other terms of these agreements may be less favorable to us
than those that could have been negotiated had we been independent of our
principal cable partners. In addition, the agreements with our principal cable
partners contain provisions that permit a cable partner to change certain
aspects of the distribution of the @Home service without our approval. For
example, a principal cable partner has the option to provide certain customer
service functions that we currently provide and upon which our 35% revenue split
was based. If a principal cable partner elects to provide these services, it is
also entitled to reimbursement of our avoided costs. Similarly, the principal
cable partners have certain rights to remove cable systems from the approved
rollout schedule or to substitute cable systems in place of removed systems.
These rights are contractual in nature and may be exercised by the principal
cable partners in their sole discretion. The exercise by the principal cable
partners of these contractual rights may significantly harm our business. Our
cable partners also control the rollout schedule of the @Home service, and our
principal cable partners hold certain priority rights with respect to this
rollout schedule. This priority could harm us because we may be required to roll
out our services to our principal cable partners before rolling out the services
to other cable system operators, even though the other cable system operators
may be ready to roll out the @Home service sooner or on terms more favorable for
us.
OUR PRINCIPAL CABLE PARTNERS CAN BLOCK ACCESS TO CERTAIN CONTENT AND SERVICES
Each principal cable partner has the right to exclude the promotion of
specified national content providers from the @Home service offered through its
cable systems, subject to an adjustment in the revenue split if the number of
such exclusions exceeds a specified number. In addition, a principal cable
partner has the right to block access to certain content, including streaming
video segments of more than ten minutes in duration, and we are obligated to use
reasonable best efforts to block such access. We are also obligated to use
reasonable best efforts to consult with and involve each of the principal cable
partners in the development of requirements for, design of and introduction of
enhancements, new features and new applications of the @Home service. If
principal cable partners representing a majority of the residential subscribers
who subscribe to the @Home service object to any enhancement, feature or
application, we have agreed not to implement that enhancement, feature or
application in the territories of the objecting cable partners. If any of the
cable partners exercise these rights to block access to certain content or
services in certain territories, we may be required to devote substantial
expenses and resources to provide different content and services in different
territories and to assist them in blocking such access. This could significantly
harm our business.
OUR CABLE PARTNERS MAY COMPETE WITH US FOR ADVERTISING AND PROGRAMMING REVENUE
While we retain 100% of the revenue from our programming of the designated
national area of the @Home service, our principal U.S. cable partners retain
100% of revenue generated from their programming of a designated local area of
the start page of the @Home service. These revenues could include advertising
fees, service fees, content provider charges, transaction fees and promotional
revenue. Accordingly, in exercising their right to program the local area, our
cable partners could place a significant amount of advertising or program
content on the @Home service for which we receive no share of the revenues. For
example, given the national or regional coverage of their operations, any of our
principal cable partners and its affiliates could strike agreements with
advertisers that could effectively result in broad-based advertising campaigns
reaching significant regions of the United States in competition with our
advertising campaigns, generating revenue only for such cable partner and its
affiliates and not for us. In Canada, we share national advertising revenue with
our Canadian cable partners.
WE DEPEND ON TCG FOR LOCAL TELECOMMUNICATIONS SERVICES FOR OUR @WORK SERVICES
We depend on TCG, which is owned by AT&T, to provide local
telecommunications services and co-location within TCG's facilities on favorable
economic terms. This relationship enables us to provide @Work services to an
entire metropolitan area in which TCG has facilities. If we were required to
obtain comparable telecommunications services from local exchange carriers, we
would effectively be limited to providing @Work services to commercial customers
within a ten-mile radius of one of our points of presence. As a result, we would
be required to build multiple points of presence to service an entire
metropolitan area, which would substantially increase our capital costs to enter
new markets and which could make such market
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entry uneconomical. If we were required to pay standard local exchange carrier
rates, the ongoing operating costs for our @Work services would be substantially
higher. The loss of our strategic relationship with TCG would significantly harm
our ability to deploy our @Work services. 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. To the extent TCG
acquires or enters into strategic relationships with other Internet service
providers, 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 for us to establish similar relationships, and equivalent terms might not
be available.
OUR PRINCIPAL CABLE PARTNERS MAY DISPOSE OF THEIR CABLE SYSTEMS, WHICH WOULD
REDUCE OUR POTENTIAL SUBSCRIBER BASE
Our agreements with our principal cable partners do not require that they
maintain a specified number of cable systems, subscribers or homes passed in
order to maintain their control over equity ownership of us. These principal
cable partners may dispose of a significant amount of their cable systems
without requiring that these cable systems remain subject to any exclusivity
provisions. However, to the extent that any of our principal cable partners
disposes of systems accounting for more than 20% of the number of homes passed
in its service areas as of June 4, 1996 (subject to certain exceptions) without
causing such transferred homes to remain exclusive to us, then that principal
cable partner may be required to sell a proportionate amount of its equity
interest in us to our other principal cable partners at fair market value. For
example, TCI has completed the transfer or sale of certain cable systems and has
announced the proposed sale or transfer of additional cable systems and is
considering various plans and proposals that may result in the disposition of
other of its cable systems. Although TCI has informed us that it is attempting
to cause certain of these transferred systems to remain subject to TCI's
exclusivity obligations, these efforts may not be successful. These dispositions
could significantly harm us if the transferred homes do not remain exclusive.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The index to our Consolidated Financial Statements and the Report of the
Independent Auditors appears in Part IV of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information concerning our directors required by Item 10 is
incorporated by reference herein to section entitled "Proposal No. 1 -- Election
of Directors" of the proxy statement for our 1999 Annual Meeting of Stockholders
that we will file by April 30, 1999. The information concerning our executive
officers required by Item 10 is incorporated by reference to the section of our
proxy statement entitled "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the sections entitled "Executive Compensation" and "Proposal No. 1 -- Election
of Directors" of our proxy statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" of our proxy statement.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to
the section entitled "Certain Transactions" of our proxy statement.
With the exception of the information specifically stated as being
incorporated by reference from our proxy statement in Part III of this Annual
Report on Form 10-K, our proxy statement is not to be deemed as filed as part of
this report. The proxy statement will be filed with the Securities and Exchange
Commission by April 30 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. We have filed the following financial statements
with this Form 10-K:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... 47
Consolidated Balance Sheets at December 31, 1998 and
1997...................................................... 48
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996.......................... 49
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996.............. 50
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.......................... 51
Notes to Consolidated Financial Statements.................. 52
</TABLE>
(a)(2) Financial Statement Schedules. -- Not applicable.
(a)(3) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------- -----
<S> <C>
3.01 Third Amended and Restated Certificate of Incorporation of
Registrant filed August 14, 1996(1)
3.02 Certificate of Amendment of Third Amended and Restated
Certificate of Incorporation of Registrant filed April 11,
1997(1)
3.03 Certificate of Designation of Series C Convertible
Participating Preferred Stock of Registrant filed April 11,
1997(1)
3.04 Form of Certificate of Amendment of the Third Amended and
Restated Certificate of Incorporation of Registrant
effective July 15, 1997(1)
3.05 Form of Second Amended and Restated Bylaws of Registrant
effective July 16, 1997(1)
3.06 Form of Fourth Amended and Restated Certificate of
Incorporation of Registrant filed July 16, 1997(1)
4.01 Third Amended and Restated Registration Rights Agreement,
dated April 11, 1997, among Registrant and the parties
indicated therein(1)
4.02 Letter Agreement relating to Tag-Along/Drag-Along Rights,
dated April 11, 1997, among Registrant and the parties
indicated therein(1)
4.03 Canadian Purchase Letter Agreement, dated April 11, 1997,
among Registrant and the parties indicated therein(1)
4.04 Form of Amended and Restated Stockholders' Agreement, dated
August 1, 1996, among Registrant and the parties indicated
therein, as amended on May 15, 1997(1)
4.05 Form of certificate of Registrant's Series A common stock(1)
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------- -----
<S> <C>
4.06 Narrative Communications Corp. 1998 Equity Incentive Plan,
assumed by Registrant as of December 30, 1998(*)
4.07 Registrant's 1997 Equity Incentive Plan, as amended(*)(2)
4.08 Registrant's 1997 Employee Stock Purchase Plan, as
amended(*)(2)
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.(1)
10.01 A 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(1)
10.01 B Letter Agreement and Term Sheet, dated as of October 2,
1997, among Registrant, Cablevision Systems Corporation, CSC
Parent Corporation, Comcast Corporation, Cox Enterprises,
Inc., Kleiner Perkins Caufield & Byers and
Tele-Communications, Inc.(3)
10.02 A 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(1)
10.02 B Warrant Purchase Agreement, dated October 10, 1997, between
Registrant and Cablevision Systems Corporation(3)
10.03 A 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.(1)
10.03 B Warrant to Purchase Shares of Series A common stock of the
Registrant issued to CSC Parent Corporation as of October
10, 1997(3)
10.04 A 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.(1)
10.04 B Contingent Warrant to Purchase Shares of Series A Common
Stock of Registrant issued to CSC Parent Corporation as of
October 10, 1997(3)
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.(1)
10.06 Term Sheet dated March 18, 1997, among Registrant and Shaw
Cablesystems Ltd. and Rogers Cablesystems Limited(1)
10.07 Master Communications Services Agreement, dated April 2,
1997, between Registrant and Teleport Communications Group
Inc.(1)
10.08 Lease, dated October 17, 1996, between Registrant and
Martin/Campus Associated, L.P.(1)
10.09 Form of Indemnification Agreement between Registrant and
each of its directors and executive officers(*)(1)
10.10 Registrant's 1996 Incentive Stock Option Plan(*)(1)
10.11 Registrant's 1996 Incentive Stock Option Plan No. 2(*)(1)
10.12 Narrative Communications Corp. 1995 Stock Option Plan,
assumed by Registrant as of December 30, 1998(*)
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------- -----
<S> <C>
10.13 Description of Registrant's 1998 Executive Incentive Plan(*)
10.14 Restricted Stock Purchase Agreement, dated July 31, 1996,
between Registrant and Thomas A. Jermoluk for purchase of
Series A common stock(*)(1)
10.15 Restricted Stock Purchase Agreement, dated July 31, 1996,
between Registrant and Thomas A. Jermoluk for purchase of
Series K preferred stock(*)(1)
10.16 Restricted Stock Purchase Agreement, dated July 31, 1996,
between Registrant and William R. Hearst III for purchase of
Series A common stock(*)(1)
10.17 Restricted Stock Purchase Agreement, dated July 29, 1996,
between Registrant and Ken Goldman for purchase of Series A
common stock(*)(1)
10.18 Form of Restricted Stock Purchase Agreement and Promissory
Note between Registrant and other officers for purchase of
Series A common stock(*)(1)
10.19 Employment Letter Agreement, dated July 19, 1996, between
Registrant and Thomas A. Jermoluk(*)(1)
10.20 Letter of Agreement, dated May 15, 1997, among Registrant
and the parties indicated therein, including as exhibits the
Master Distribution Agreement Term Sheet and the Term Sheet
for Form of LCO Agreement(1)
10.21 Build To Suit Lease, dated September 29, 1997 between
Registrant and Martin/Campus Associates, L.P. (425 Broadway,
Redwood City, California)(4)
10.22 Build To Suit Lease, dated September 29, 1997, between
Registrant and Martin/ Campus Associates, L.P., (440
Broadway, Redwood City, California)(4)
10.23 Loan and Security Agreement, dated September 30, 1997,
between Registrant and Silicon Valley Bank(4)
10.24 Binding Warrant Term Sheet, dated February 24, 1998, among
Registrant, Rogers Communications, Inc. and Shaw
Communications, Inc.(5)
10.25 Warrant Purchase Agreement, dated May 5, 1998, between
Registrant and Century Communications Corp.
10.26 Warrant to Purchase Series A Common Stock of Registrant
issued to Century Communications Corp. as of May 5, 1998
10.27 Form of Warrant to Purchase Series A Common Stock of
Registrant to be issued to Century Communications Corp.
10.28 Warrant Purchase Agreement, dated June 27, 1998, between
Registrant and Garden State Cablevision L.P.
10.29 Warrant to Purchase Series A Common Stock of Registrant
issued to Garden State Cablevision L.P. as of June 27, 1998
10.30 Warrant Purchase Agreement, dated June 26, 1998, between
Registrant and Jones Intercable Inc.
10.31 Warrant to Purchase Series A common stock of Registrant
issued to Jones Intercable Inc. as of June 26, 1998
10.32 Agreement and Plan of Merger, dated December 30, 1998,
between Registrant and Narrative Communications Corp.
(incorporated by reference to Exhibit 2.1 of our Report on
Form 8-K filed on January 14, 1999 (File No. 000-22697))
10.33 IRU Capacity Agreement, dated December 19, 1998, between
Registrant and AT&T Corp.(**)
10.34 Form of Loan Modification Agreement between Registrant and
Silicon Valley Bank
</TABLE>
43
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------- -----
<S> <C>
10.35 Build to Suit Option Agreement, dated October 25, 1996,
between Registrant and Martin/Campus Associates, L.P., and
First Amendment to Build to Suit Option Agreement.
10.36 Build to Suit Lease, dated July 14, 1998, between Registrant
and Martin/Campus Associates, L.P. (420 Broadway, Redwood
City, California)
10.37 Form of Build to Suit Lease between Registrant and
Martin/Campus Associates, L.P. (430 Broadway, Redwood City,
California)
21.01 Subsidiaries of Registrant(1)
23.01 Consent of Ernst & Young LLP, Independent Auditors
24.01 Power of Attorney executed by each officer and director (See
pages 44 and 45 of this Form 10-K)
27.01 Financial data schedule for year ended December 31, 1998
</TABLE>
- ---------------
* Management contracts or compensatory plans required to be filed as an
exhibit to Form 10-K.
** Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from this public filing and have been filed separately with the
Securities and Exchange Commission.
(1) Incorporated by reference to exhibits to our Registration Statement on Form
S-1 (File No. 333-27323), which became effective on July 11, 1997.
(2) Incorporated by reference to exhibits to our Registration Statement on Form
S-8 filed on July 28, 1998 (File No. 333-60037).
(3) Incorporated by reference to exhibits to our Registration Statement on Form
8-K filed on October 22, 1997 (File No. 000-22697).
(4) Incorporated by reference to exhibits to our Report on Form 10-Q filed on
November 14, 1997 (File No. 000-22697).
(5) Incorporated by reference to exhibits to our Report on Form 10-Q filed on
May 15, 1998 (File No. 000-22697), as amended on February 8, 1999.
(b) Reports on Form 8-K.
No such reports were filed in the fourth quarter of 1998.
(c) Exhibits. -- See (a)(3) above.
(d) Financial Statement Schedules. -- Not applicable.
44
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: February 19, 1999 AT HOME CORPORATION
By: /s/ THOMAS A. JERMOLUK
------------------------------------
Thomas A. Jermoluk
Chairman, President and
Chief Executive Officer
POWER OF ATTORNEY
Each individual whose signature appears below 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, each with the power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K,
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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ THOMAS A. JERMOLUK President, Chief Executive February 19, 1999
- ----------------------------------------------------- Officer and Chairman of the
Thomas A. Jermoluk Board
PRINCIPAL FINANCIAL OFFICER:
/s/ KENNETH A. GOLDMAN Senior Vice President and February 19, 1999
- ----------------------------------------------------- Chief Financial Officer
Kenneth A. Goldman
PRINCIPAL ACCOUNTING OFFICER:
/s/ ROBERT A. LERNER Corporate Controller February 19, 1999
- -----------------------------------------------------
Robert A. Lerner
</TABLE>
45
<PAGE> 46
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
ADDITIONAL DIRECTORS:
/s/ WILLIAM R. HEARST III Vice Chairman February 19, 1999
- -----------------------------------------------------
William R. Hearst III
/s/ JAMES L. BARKSDALE Director February 19, 1999
- -----------------------------------------------------
James L. Barksdale
/s/ L. JOHN DOERR Director February 19, 1999
- -----------------------------------------------------
L. John Doerr
/s/ LEO J. HINDERY, JR. Director February 19, 1999
- -----------------------------------------------------
Leo J. Hindery, Jr.
/s/ JOHN C. MALONE Director February 19, 1999
- -----------------------------------------------------
John C. Malone
/s/ BRUCE W. RAVENEL Director February 9, 1999
- -----------------------------------------------------
John C. Malone
/s/ BRIAN L. ROBERTS Director February 19, 1999
- -----------------------------------------------------
Brian L. Roberts
/s/ LARRY E. ROMRELL Director February 19, 1999
- -----------------------------------------------------
Larry E. Romrell
/s/ JAMES R. SHAW, JR. Director February 11, 1999
- -----------------------------------------------------
James R. Shaw, Jr.
/s/ DAVID M. WOODROW Director February 6, 1999
- -----------------------------------------------------
David M. Woodrow
</TABLE>
46
<PAGE> 47
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, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the each of
the three years in the period ended December 31, 1998. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
At Home Corporation at December 31, 1998 and 1997, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Jose, California
January 19, 1999
47
<PAGE> 48
AT HOME CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
--------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 300,702 $ 44,213
Short-term investments.................................... 118,587 76,166
--------- --------
Total cash, cash equivalents and short-term
investments..................................... 419,289 120,379
Accounts receivable, (net of allowance for doubtful
accounts of $252 in 1998 and none in 1997)............. 6,358 1,470
Accounts receivable -- related parties.................... 4,300 672
Other current assets...................................... 3,381 2,919
--------- --------
Total current assets.............................. 433,328 125,440
Property, equipment and improvements, net................... 49,240 33,061
Distribution agreements, net................................ 186,247 163,345
Intangible assets, net...................................... 93,989 --
Other assets................................................ 17,827 2,082
--------- --------
Total assets...................................... $ 780,631 $323,928
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 7,100 $ 2,409
Accounts payable -- related parties....................... 3,684 2,108
Accrued compensation and related expenses................. 1,262 798
Accrued transport costs................................... 2,444 1,179
Deferred revenues......................................... 5,164 1,941
Other accrued liabilities................................. 11,305 5,644
Current portion of capital lease obligations.............. 12,045 9,971
--------- --------
Total current liabilities......................... 43,004 24,050
Convertible debentures...................................... 229,344 --
Capital lease obligations, less current portion............. 14,356 15,735
Other liabilities........................................... 61 1,736
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value:
Authorized shares -- 230,277,660 in 1998 and 1997
Issued and outstanding shares -- 123,272,867 in 1998
and 118,603,220
in 1997.............................................. 719,680 370,111
Notes receivable from stockholders........................ (4) (319)
Deferred compensation..................................... (2,880) (4,399)
Accumulated other comprehensive income.................... 4,235 --
Accumulated deficit....................................... (227,165) (82,986)
--------- --------
Total stockholders' equity........................ 493,866 282,407
--------- --------
Total liabilities and stockholders' equity........ $ 780,631 $323,928
========= ========
</TABLE>
See accompanying notes.
48
<PAGE> 49
AT HOME CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Revenues(1)............................................... $ 48,045 $ 7,437 $ 676
Costs and expenses(2):
Operating costs......................................... 46,965 22,459 6,969
Product development and engineering..................... 17,009 11,984 6,312
Sales and marketing..................................... 18,091 11,863 6,368
General and administrative.............................. 12,429 10,635 6,054
Purchased in-process research and development........... 2,758 -- --
Cost and amortization of distribution agreements........ 101,385 9,246 --
--------- -------- --------
Total costs and expenses.................................. 198,637 66,187 25,703
--------- -------- --------
Loss from operations...................................... (150,592) (58,750) (25,027)
Interest income, net...................................... 6,413 3,033 514
--------- -------- --------
Net loss.................................................. $(144,179) $(55,717) $(24,513)
========= ======== ========
Pro forma basic and diluted net loss per share............ $ (1.26) $ (0.54) $ (0.26)
========= ======== ========
Shares used in pro forma basic and diluted per share
calculations............................................ 114,240 103,543 96,120
========= ======== ========
- ---------------
(1) Revenues from related parties......................... $ 10,458 $ 2,948 $ 634
========= ======== ========
(2) Depreciation and amortization included in costs and
expenses.............................................. $ 66,620 $ 18,159 $ 1,903
========= ======== ========
</TABLE>
See accompanying notes.
49
<PAGE> 50
AT HOME CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES ACCUMULATED
PREFERRED STOCK COMMON STOCK RECEIVABLE OTHER
----------------- ------------------ FROM DEFERRED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT STOCKHOLDERS COMPENSATION INCOME
------ -------- ------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of preferred stock, less
issuance costs.................... 1,000 $ 9,968 -- $ -- $ -- $ -- $ --
Net loss............................ -- -- -- -- -- -- --
------ -------- ------- -------- ----- ------- ------
Balances at December 31, 1995....... 1,000 9,968 -- -- -- -- --
Issuance of preferred stock, less
issuance costs.................... 3,522 35,025 -- -- -- -- --
Series A common stock issued under
stock option plans and restricted
stock agreements.................. -- -- 12,402 718 (170) -- --
Repurchases of Series A common
stock............................. -- -- (547) (29) -- -- --
Deferred compensation related to
grant of stock options............ -- -- -- 346 -- (346) --
Amortization of deferred
compensation...................... -- -- -- -- -- 74 --
Net loss............................ -- -- -- -- -- -- --
------ -------- ------- -------- ----- ------- ------
Comprehensive loss.................. -- -- -- -- -- -- --
------ -------- ------- -------- ----- ------- ------
Balances at December 31, 1996....... 4,522 44,993 11,855 1,035 (170) (272) --
Issuance of Series C preferred
stock, less issuance costs........ 240 46,339 -- -- -- -- --
Conversion of preferred stock to
common stock...................... (4,762) (91,332) 95,252 91,332 -- -- --
Series A common stock issued in the
initial public offering, less
issuance costs.................... -- -- 10,350 99,768 -- -- --
Series A common stock issued under
stock option plans and restricted
stock agreements.................. -- -- 2,191 527 (234) -- --
Repurchases of Series A common
stock............................. -- -- (1,045) (91) 15 -- --
Repayment of notes receivable....... -- -- -- -- 70 -- --
Warrants issued to purchase Series A
common stock in connection with
distribution agreements........... -- -- -- 172,283 -- -- --
Deferred compensation related to
grant of stock options............ -- -- -- 5,257 -- (5,257) --
Amortization of deferred
compensation...................... -- -- -- -- -- 1,130 --
Net loss............................ -- -- -- -- -- -- --
------ -------- ------- -------- ----- ------- ------
Comprehensive loss.................. -- -- -- -- -- -- --
------ -------- ------- -------- ----- ------- ------
Balances at December 31, 1997....... -- -- 118,603 370,111 (319) (4,399) --
Series A common stock issued in the
secondary offering, less issuance
costs............................. -- -- 2,875 125,725 -- -- --
Series A common stock and options
for Series A common stock issued
in acquisitions................... -- -- 1,244 94,953 -- -- --
Series A common stock issued upon
exercise of warrants.............. -- -- 96 -- -- --
Series A common stock issued under
stock option plans and employee
stock purchase plan............... -- -- 650 5,139 -- -- --
Repurchases of Series A common
stock............................. -- -- (195) (36) 12 -- --
Repayment of notes receivable....... -- -- -- -- 303 -- --
Warrants issued to purchase Series A
common stock in connection with
distribution agreements........... -- -- -- 124,287 -- -- --
Amortization of deferred
compensation, net of cancelled
stock options..................... -- -- -- (499) -- 1,519 --
Net loss............................ -- -- -- -- -- -- --
Unrealized gain on investments...... -- -- -- -- -- -- 4,235
------ -------- ------- -------- ----- ------- ------
Comprehensive loss.................. -- -- -- -- -- -- --
------ -------- ------- -------- ----- ------- ------
Balances at December 31, 1998....... -- $ -- 123,273 $719,680 $ (4) $(2,880) $4,235
====== ======== ======= ======== ===== ======= ======
<CAPTION>
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
----------- -------------
<S> <C> <C>
Issuance of preferred stock, less
issuance costs.................... $ -- $ 9,968
Net loss............................ (2,756) (2,756)
--------- ---------
Balances at December 31, 1995....... (2,756) 7,212
Issuance of preferred stock, less
issuance costs.................... -- 35,025
Series A common stock issued under
stock option plans and restricted
stock agreements.................. -- 548
Repurchases of Series A common
stock............................. -- (29)
Deferred compensation related to
grant of stock options............ -- --
Amortization of deferred
compensation...................... -- 74
Net loss............................ (24,513) (24,513)
--------- ---------
Comprehensive loss.................. -- (24,513)
--------- ---------
Balances at December 31, 1996....... (27,269) 18,317
Issuance of Series C preferred
stock, less issuance costs........ -- 46,339
Conversion of preferred stock to
common stock...................... -- --
Series A common stock issued in the
initial public offering, less
issuance costs.................... -- 99,768
Series A common stock issued under
stock option plans and restricted
stock agreements.................. -- 293
Repurchases of Series A common
stock............................. -- (76)
Repayment of notes receivable....... -- 70
Warrants issued to purchase Series A
common stock in connection with
distribution agreements........... -- 172,283
Deferred compensation related to
grant of stock options............ -- --
Amortization of deferred
compensation...................... -- 1,130
Net loss............................ (55,717) (55,717)
--------- ---------
Comprehensive loss.................. -- (55,717)
--------- ---------
Balances at December 31, 1997....... (82,986) 282,407
Series A common stock issued in the
secondary offering, less issuance
costs............................. -- 125,725
Series A common stock and options
for Series A common stock issued
in acquisitions................... -- 94,953
Series A common stock issued upon
exercise of warrants.............. -- --
Series A common stock issued under
stock option plans and employee
stock purchase plan............... -- 5,139
Repurchases of Series A common
stock............................. -- (24)
Repayment of notes receivable....... -- 303
Warrants issued to purchase Series A
common stock in connection with
distribution agreements........... -- 124,287
Amortization of deferred
compensation, net of cancelled
stock options..................... -- 1,020
Net loss............................ (144,179) (144,179)
Unrealized gain on investments...... -- 4,235
--------- ---------
Comprehensive loss.................. -- (139,944)
--------- ---------
Balances at December 31, 1998....... $(227,165) $ 493,866
========= =========
</TABLE>
See accompanying notes.
50
<PAGE> 51
AT HOME CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
CASH (USED IN) OPERATING ACTIVITIES
Net loss.................................................... $(144,179) $ (55,717) $(24,513)
Adjustments to reconcile net loss to cash used in operating
activities:
Depreciation and amortization............................. 14,009 7,783 1,829
Amortization of distribution agreements................... 51,591 9,246 --
Cost of distribution agreements........................... 49,794 -- --
Amortization of deferred compensation..................... 1,020 1,130 74
Charge for purchased in-process research and
development............................................. 2,758 -- --
Changes in assets and liabilities:
Accounts receivable..................................... (8,099) (1,338) (804)
Other assets............................................ (9,143) (2,251) (1,190)
Accounts payable........................................ 5,822 1,089 2,605
Accrued compensation and related expenses............... 322 550 159
Deferred revenues....................................... 3,126 1,853 87
Other accrued liabilities............................... 4,503 6,026 798
Other long-term liabilities............................. (1,736) 61 1,675
--------- --------- --------
Cash (used in) operating activities......................... (30,212) (31,568) (19,280)
CASH (USED IN) INVESTING ACTIVITIES
Purchase of short-term investments.......................... (135,342) (103,030) (8,998)
Sales and maturities of short-term investments.............. 92,922 33,925 2,000
Purchase of property, equipment and improvements............ (16,793) (9,989) (7,320)
Increase in other assets.................................... 4,291 -- --
Business combinations, net of cash acquired................. 144 -- --
--------- --------- --------
Cash (used in) investing activities......................... (54,778) (79,094) (14,318)
CASH PROVIDED BY FINANCING ACTIVITIES
Proceeds from issuance of convertible debentures............ 229,344 -- --
Issuance costs of convertible debentures.................... (6,878) -- --
Proceeds from issuance of convertible preferred stock....... -- 46,339 35,025
Proceeds from issuance of common stock, net of
repurchases............................................... 130,828 99,985 519
Proceeds from capital lease financing....................... -- 5,630 1,500
Payments on capital lease obligations....................... (12,118) (6,858) (581)
Repayment of notes receivable from stockholders............. 303 70 --
--------- --------- --------
Cash provided by financing activities....................... 341,479 145,166 36,463
--------- --------- --------
Net increase in cash and cash equivalents................... 256,489 34,504 2,865
Cash and cash equivalents, beginning of period.............. 44,213 9,709 6,844
--------- --------- --------
Cash and cash equivalents, end of period.................... $ 300,702 $ 44,213 $ 9,709
========= ========= ========
SUPPLEMENTAL DISCLOSURES
Interest paid............................................. $ 2,148 $ 1,039 $ 143
========= ========= ========
Acquisition of equipment under capital leases............. $ 12,872 $ 16,527 $ 7,916
========= ========= ========
Financing of other assets................................. $ -- $ 1,572 $ --
========= ========= ========
Notes receivable from stockholders issued in connection
with exercise of stock options and restricted stock
purchases............................................... $ -- $ 234 $ 170
========= ========= ========
Issuance of warrants issued in connection with the
distribution agreement with Cablevision................. $ 74,493 $ 172,283 $ --
========= ========= ========
Acquisitions of Narrative Communications Corporation and
Full Force Systems, Inc.:
Common stock issued and options and warrants exercisable
for common stock assumed.............................. $ 94,953 $ -- $ --
========= ========= ========
Liabilities assumed..................................... $ 2,589 $ -- $ --
========= ========= ========
</TABLE>
See accompanying notes.
51
<PAGE> 52
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
1998, the Company's services were available through cable systems in a limited
number of cities in North America.
DEPENDENCE ON CABLE COMPANIES
The Company has strategic relationships with eighteen cable companies that
provide through their cable systems the principal distribution network for the
Company's services to its subscribers. The Company's cable partners have granted
the Company the exclusive right to offer high-speed residential consumer
Internet services over their cable systems, subject to certain exceptions.
However, these cable partners are under no obligation to carry the Company's
services. In addition, the cable partners' 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,
significant portions of the cable infrastructure 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 subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Certain reclassifications have been made to prior year's financial
statements to conform to current year's presentation.
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.
52
<PAGE> 53
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid investments with insignificant interest
rate risk and maturities of 90 days 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 90 days of their
acquisition date.
PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements 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.
INTANGIBLE ASSETS
Intangible assets consist of purchased technology, acquired workforce and
goodwill related to the acquisitions of Narrative Communications Corp.
("Narrative") and Full Force Systems, Inc. ("Full Force") which were accounted
for as purchases (Note 3). Amortization of intangible assets is provided on the
straight-line basis over the estimated useful lives of the assets, which range
from 3 to 3.5 years. Acquired in-process research and development without
alternative future use is charged to operations when acquired.
The Company records impairment losses on intangible assets when events and
circumstances indicate that such assets might be impaired and the estimated fair
value of the asset is less than its recorded amount. To date, no such impairment
has occurred.
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.
Through December 31, 1998, the majority of such revenue was derived from cable
system operators that are also stockholders of the Company. Revenues also
include the sale of online advertising based on fixed-fee charter programs,
delivery of impressions on a cost per thousand basis and content partnering
arrangements. Such revenues are recognized over the term of the programs.
ADVERTISING COSTS
All advertising costs are expensed as incurred. Advertising costs, which
are included in sales and marketing expenses, were $1,771,000, $626,000 and
$684,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
RESEARCH AND DEVELOPMENT SOFTWARE COSTS
Research and development costs are charged to operations as incurred.
Software development and prototype costs incurred prior to the establishment of
technological feasibility are included in research and development and are
expensed as incurred. Software development costs incurred subsequent to the
establishment of technological feasibility through the period of general market
availability of the product are capitalized and amortized over their estimated
useful life.
53
<PAGE> 54
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
The Company adopted Statement of Financial Accounting Standards Statement
No. 128, "Earnings Per Share" ("FAS 128"), which is effective for fiscal years
ending after December 15, 1997. FAS 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Dilutive
earnings per share is very similar to the previously reported fully diluted
earnings per share.
Pro forma basic and diluted net loss per share is computed using the
weighted average number of common shares outstanding, net of shares subject to
repurchase, and also gives effect to the conversion of all outstanding shares of
convertible preferred stock into shares of common stock for the years ended
December 31, 1997 and 1996. Such information is presented in Note 2.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130 establishes new
standards for reporting and displaying comprehensive income and its components.
FAS 130 establishes standards for reporting and displaying comprehensive income
and its components (revenues, expenses, gains and losses). Comprehensive income
as defined includes all changes in equity (net assets) during a period from
non-owner sources. Such items may include foreign currency translation
adjustments, unrealized gains/losses from investing and hedging activities, and
other transactions. The Company adopted FAS 130 in 1998.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information" ("FAS
131") which was adopted by the Company for the period ending December 31, 1998.
FAS 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. The Company
operates in one business segment, Internet services to consumers and business
over the cable television infrastructure.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", which establishes
guidelines for the accounting for the costs of all computer software developed
or obtained for internal use. The Company adopted SOP 98-1 effective for the
year ended December 31, 1998. The adoption of SOP 98-1 did not have a material
impact on the Company's consolidated financial statements.
In April, 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." The statement is effective for fiscal years beginning
after December 15, 1998. The statement requires costs of
54
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AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
start-up activities and organization costs to be expensed as incurred. The
Company is required to adopt SOP 98-5 for the year ended December 31, 1999. The
adoption of SOP 98-5 is not expected to have a material impact on the Company's
consolidated financial statements.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). The Company expects to adopt
FAS 133 effective January 1, 2000. FAS 133 will require the Company to recognize
all derivatives on the balance sheet at fair value. The Company does not
anticipate that the adoption of FAS 133 will have a significant effect on its
results of operations or financial position.
2. PRO FORMA NET LOSS PER SHARE
Pro forma basic and diluted net loss per share are computed using the
weighted average number of common shares outstanding. The computation for the
periods ended December 31, 1997 and 1996, also gives pro forma effect to the
conversion, in connection with the Company's initial public offering in July
1997, of all outstanding shares of convertible preferred stock into shares of
common stock. The effect of outstanding stock options, warrants and common stock
subject to repurchase is excluded from the computation as their inclusion would
be anti-dilutive.
The computation of basic and diluted net loss per share is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Net loss.......................................... $(144,179) $(55,717) $(24,513)
========= ======== ========
Weighted average shares of common stock
outstanding..................................... 120,054 17,515 4,808
Less: weighted average shares of common stock
subject to repurchase........................... (5,814) (9,224) (3,940)
Pro forma common equivalent shares from
convertible preferred stock..................... -- 95,252 95,252
--------- -------- --------
Shares used in per share calculations............. 114,240 103,543 96,120
========= ======== ========
Basic and diluted net loss per share.............. $ (1.26) $ (0.54) $ (0.26)
========= ======== ========
</TABLE>
3. BUSINESS COMBINATIONS
The Company completed acquisitions of Full Force and Narrative in November
and December 1998, respectively. These acquisitions were each accounted for as a
purchase.
Narrative is a provider of advertising solutions for the Internet. The
purchase consideration was approximately $93,800,000, comprising the issuance of
1,205,333 shares of the Company's Series A common stock with an aggregate fair
value of approximately $84,212,000, the assumption of options to purchase
141,273 shares of the Company's Series A common stock with an aggregate fair
value of approximately $9,169,000, and $419,000 of acquisition costs.
Full Force is a developer of set-top applications for interactive
television. The purchase consideration was approximately $1,672,000, comprising
of the issuance of 38,190 shares of the Company's Series A common stock with an
aggregate fair value of approximately $1,572,000 and $100,000 of acquisition
costs.
55
<PAGE> 56
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The purchase consideration was allocated to the acquired assets and assumed
liabilities based on fair values as follows (in thousands):
<TABLE>
<CAPTION>
NARRATIVE FULL FORCE
--------- ----------
<S> <C> <C>
Cash........................................................ $ 77 $ 69
Accounts receivables and other assets....................... 584 60
Property and equipment...................................... 520 5
Purchased technology........................................ 22,900 215
Other identified intangible assets.......................... 1,050 101
Goodwill.................................................... 68,404 1,318
Purchased in-process research and development............... 2,700 58
Liabilities assumed......................................... (2,435) (154)
------- --------
Total purchase consideration...................... $93,800 $ 1,672
======= ========
</TABLE>
The value assigned to purchased in-process technology in these acquisitions
was determined by identifying the research projects for which technological
feasibility had not been achieved and assessing the date of completion of the
research and development effort. The state of completion was determined by
estimating the costs and time incurred to date relative to those costs and time
to be incurred to develop the in-process technology into commercially viable
products. The estimated discounted net cash flows included only net cash flows
resulting from the percentage of research and development efforts complete at
the date of acquisition. The discount rate included a factor that took into
account the uncertainty surrounding the successful development of the in-process
technology projects.
To determine the value of purchased technology, the expected future cash
flows of the existing developed technologies were discounted taking into account
the characteristics and applications of the product, the size of existing
markets, growth rates of existing and future markets as well as an evaluation of
past and anticipated product-life cycles.
The following unaudited pro forma summary represents the consolidated
results of operations as if the acquisitions of Narrative and Full Force had
occurred at the beginning of the each year presented and excludes 2,758,000 of
purchased in process research and development charges related to these
acquisitions (in thousands, except per share data).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997
---------- ---------
<S> <C> <C>
Pro forma revenues.......................................... $ 49,261 $ 8,279
========= ========
Pro forma net loss.......................................... $ 173,810 $(88,285)
========= ========
Pro forma net loss basic and diluted per share.............. $ (1.51) $ (0.76)
========= ========
Number of shares used in pro forma basic and diluted per
share calculation......................................... 115,483 115,483
========= ========
</TABLE>
The pro forma results of operations are not necessarily indicative of the
results that would have occurred if the acquisitions had occurred at the
beginning of each year presented and are not intended to be indicative of future
results of operations.
56
<PAGE> 57
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
SHORT-TERM INVESTMENTS
The Company has classified all short-term 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.
The following is a summary of available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Corporate bonds and notes................................... $280,429 $ 74,867
Market auction preferred stock.............................. 98,609 21,000
U.S. government obligations................................. 8,760 5,772
Money market instruments.................................... 620 2,789
Certificates of deposit..................................... 9,388 15,004
-------- --------
397,806 119,432
Less: Included in cash and cash equivalents................. 279,219 43,266
-------- --------
Included in short-term investments.......................... $118,587 $ 76,166
======== ========
</TABLE>
Unrealized gains and losses at December 31, 1998 and 1997 and realized
gains and losses for the years 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. All available-for-sale securities at December 31, 1998 have maturity
dates in 1999.
5. PROPERTY, EQUIPMENT AND IMPROVEMENTS
The components of property, equipment and improvements are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ ESTIMATED
1998 1997 USEFUL LIVES
------- ------- ------------
<S> <C> <C> <C>
Computer equipment and software.................... $56,004 $32,318 3-4 years
Furniture and fixtures............................. 7,271 5,278 5 years
Leasehold improvements............................. 9,628 5,119 Lease term
------- -------
72,903 42,715
Less: accumulated depreciation and amortization.... 23,663 9,654
------- -------
$49,240 $33,061
======= =======
</TABLE>
Equipment and improvements include amounts for assets acquired under
capital leases, principally computer equipment and software and furniture and
fixtures of approximately $40,023,000 and $24,443,000 at December 31, 1998 and
1997, respectively. Accumulated amortization of these assets was approximately
$15,843,000 and $7,339,000 at December 31, 1998 and 1997, respectively.
6. COMMITMENTS
The Company leases certain office facilities under non-cancelable operating
leases that expire at various dates through 2008, 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
57
<PAGE> 58
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
Future minimum lease payments under non-cancelable operating and capital
leases having terms in excess of one year as of December 31, 1998 are as follows
(in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
Year ending December 31,
1999...................................................... $ 5,506 $14,911
2000...................................................... 7,622 9,650
2001...................................................... 7,686 3,563
2002...................................................... 7,136 275
2003...................................................... 7,317 --
Thereafter................................................ 74,284 --
-------- -------
Total minimum lease payments...................... $109,551 28,399
========
Less amounts representing interest.......................... 1,998
-------
Present value of minimum capital lease obligations.......... 26,401
Less current portion........................................ 12,045
-------
Noncurrent portion.......................................... $14,356
=======
</TABLE>
In September 1997 and March 1998, the Company exercised build-to-suit
options requiring the landlord to build additional facilities of approximately
360,000 square feet on adjacent property. All facilities constructed under the
Company's build-to-suit options will be subject to leases of up to 15 years in
length, have base rent determined in relation to construction costs and will
include tenant improvements paid for by the Company. The build-to-suit options
that have been exercised to date provide for monthly rental payments beginning
upon the phased completion of the buildings. Occupancy of the first phase is
scheduled to occur during the second half of 1999 and occupancy of the second
phase is scheduled to occur early in the year 2000.
In addition to our build-to-suit options, in December 1998 we exercised our
right to purchase one land parcel from the landlord. The purchase price of the
exercised option is payable in two installments, one of $278,000, which was paid
in December 1998, and a second installment of $5,288,000, which is due in the
first half of 1999.
The Company is also committed to make expenditures for tenant improvements
estimated to be approximately $9,723,000 in 1999.
Facility rent expense amounted to approximately $3,593,000, $1,245,000, and
$600,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
7. CONVERTIBLE DEBENTURES AND TERM LOAN AGREEMENT
CONVERTIBLE DEBENTURES
On December 28, 1998, the Company issued $437,000,000 of Convertible
Subordinated Debentures in a private offering within the United States to
qualified institutional investors. The issue price of each $1,000 debenture was
$524.64 (52.464% of principal amount at maturity), or approximately
$229,300,000. Issuance costs were approximately $6,900,000, resulting in net
proceeds to the Company of approximately $222,400,000. The issuance costs were
recorded as other assets and are being amortized by charges to interest expense
ratably over the term of the debentures. Each debenture is convertible at the
option of the holder at any time prior to maturity, unless redeemed or otherwise
purchased, into 6.55 shares of the Company's Series A common stock. The
debentures mature on December 28, 2018, and interest on the debentures at the
58
<PAGE> 59
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
rate of 0.5246% per annum on the principal amount due at maturity, $437,000,000,
is payable semiannually commencing June 28, 1999. The effective annual interest
rate on the debentures, excluding accretion of original issuance discount and
amortization of the issuance costs, is approximately 4%.
TERM LOAN AGREEMENT
The Company has available a $15,000,000 term loan agreement with a bank to
finance the acquisition of property, equipment and improvements, and to
collateralize letters of credit. Borrowings under this term loan bear interest
at the Company's option of the lendor's prime rate or Libor plus 2.5%. Under the
terms of the term loan, the Company is required to meet certain financial
covenants. The term loan expires in October 19, 2002.
As of December 31, 1998, there were no borrowings under this term loan
although there were outstanding letters of credit in the amount of $3,500,000
million issued as security deposits on real property leases.
8. STOCKHOLDERS' EQUITY
COMMON STOCK
On July 11, 1997, the Company completed its Initial Public Stock Offering
("Initial Public Offering") and issued 10,350,000 shares (including 1,350,000
shares issued in connection with the exercise of the underwriters'
over-allotment option) of its common stock to the public at a price of $10.50
per share. The Company received net proceeds of approximately $99,800,000 in
cash. Concurrent with the Initial Public Offering, each share of preferred stock
converted to common stock on a 20-for-1 basis. Shares of Series AT, AX, AM, and
C preferred stock converted into 64,974,600 shares of Series A common stock.
Shares of Series T preferred stock converted into 15,400,000 shares of Series B
common stock. Shares of Series K preferred stock converted into 14,877,660
shares of Series K common stock.
Common stock consists of the following at:
<TABLE>
<CAPTION>
SHARES ISSUED
SHARES AUTHORIZED AND OUTSTANDING
AT DECEMBER 31, AT DECEMBER 31,
-------------------------- --------------------------
SERIES 1998 1997 1998 1997
------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
A..................................... 200,000,000 200,000,000 105,263,160 88,325,560
B..................................... 15,400,000 15,400,000 15,400,000 15,400,000
K..................................... 14,877,660 14,877,660 2,609,707 14,877,660
----------- ----------- ----------- -----------
230,277,660 230,277,660 123,272,867 118,603,220
=========== =========== =========== ===========
</TABLE>
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.
As of December 31, 1998, one principal cable stockholder controlled
approximately 71% of the voting power of the Company as a result of its
ownership in Series A and Series B common stock.
PREFERRED STOCK
The Board of Directors 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 shares of preferred stock, with such designation, 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
59
<PAGE> 60
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. No shares of preferred stock were issued or outstanding at December 31,
1998 or 1997.
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, 1997, the Company repurchased
519,350 shares of common stock pursuant to such agreements. As of December 31,
1998, 1,947,483 shares were subject to repurchase.
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 $5.00 per share, if the Company's stock
is publicly traded, the Company is obligated to pay the officer the difference
between $5.00 per share and the average price for each share sold. At December
31, 1998, the officer owned 2,098,225 shares of Series A common stock. At
December 31, 1998, the officer owned 1,000,000 shares of Series K common stock.
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 $15.00 per share. The warrant is exercisable for a five-year period
beginning in October 1997. The Company deemed the warrant to have insignificant
fair value at the time of issuance. During the year ended December 31, 1998, the
lessor acquired 158,625 shares under the terms of the warrant.
In April 1997, the Company also issued warrants to purchase 2,000,000
shares of Series C preferred stock at a price of $10.00 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 Company deemed the warrants to have insignificant fair value
at the time of issuance. At December 31, 1998, 1,060,351 warrants were
exercisable.
In July 1997, the Company issued a warrant to Intel Corporation in
connection with a development agreement that gives Intel Corporation the right
to purchase 100,000 shares of Series A common stock for $10.00 per share ("Intel
Warrant 1"). The shares exercisable under Intel Warrant 1 vest 25% on the six
month anniversary of the agreement and the remainder vests monthly for two years
thereafter. The warrant is exercisable through September 2002. In September
1997, the Company, in an amendment to the development agreement, issued a second
warrant ("Intel Warrant 2") that gives Intel Corporation the right to purchase
100,000 shares of Series A common stock for $21.00 per share. The shares
exercisable under Intel Warrant 2 vest on an accelerated basis from September
2004 or earlier, subject to certain performance standards being met by Intel
Corporation, as specified in the amended development agreement. In September
2004, all unvested shares will automatically vest. The Company deemed the
warrants to have insignificant fair value at the time of issuance. At December
31, 1998, 133,333 warrants were exercisable.
60
<PAGE> 61
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In October 1997, the Company entered into a contract with Cablevision
Systems Corporation ("Cablevision"), and its parent, CSC Parent Corporation
("CSC Parent"), Comcast Corporation ("Comcast"), Cox Enterprises, Inc. ("Cox"),
Kleiner, Perkins, Caufield & Byers and Tele-Communications, Inc. ("TCI") (the
"Agreement"). The Agreement provides that Cablevision will enter into a Master
Distribution Agreement for the distribution of the Company's @Home service on
substantially the same terms and conditions as TCI, Comcast and Cox. Although
Cablevision is subject to certain exclusivity obligations that prohibit it from
obtaining high-speed (greater than 128 kilobits per second ) residential
consumer Internet services from any source other than the Company, Cablevision
is under no obligation to upgrade its cable systems to two-way cable
infrastructure and is under no affirmative obligation to roll out, market,
promote or carry any of the Company's services. The exclusivity obligations in
favor of the Company expire in June 2002, and may be terminated sooner under
certain circumstances. These exclusivity obligations also are subject to
exceptions that would permit Cablevision to engage in certain activities which
could compete, directly or indirectly, with the activities of the Company.
The Agreement provides for the issuance to Cablevision and CSC Parent of a
warrant to purchase up to 7,875,784 shares of the Company's Series A Common
Stock at an exercise price of $0.50 per share (the "Warrant"). The Warrant was
immediately exercisable, subject to the receipt of all necessary governmental
consents or approvals. The Agreement provides for the issuance of an additional
warrant to Cablevision and CSC Parent to purchase up to 3,071,152 shares of the
Company's Series A common stock at an exercise price of $0.50 per share under
certain conditions (the "Contingent Warrant"). The Contingent Warrant is not
immediately exercisable and will become exercisable as and to the extent certain
cable television systems are transferred from TCI and its controlled affiliates
to CSC, CSC Parent or their controlled affiliates. During the year ended
December 31, 1997, the Company recorded the fair value of the Warrant,
$172,600,000, as an intangible asset, which is being amortized ratably over 56
months, the remaining term of the exclusivity obligations. During the year ended
December 31, 1998, the Contingent Warrant became exercisable for 2,355,514
shares of common stock. The Company capitalized the fair value of the Contingent
Warrant, $74,500,000, as an intangible asset, which is being amortized ratably
over 51 months, the remaining term of the exclusivity obligations. As of
December 31, 1998 and 1997, accumulated amortization of the cost of the
distribution agreement totaled approximately $60,837,000 and $9,246,000,
respectively.
In February 1998, the Company issued performance-based warrants to Rogers
Cablesystems Limited ("Rogers") and Shaw Cablesystems Ltd. ("Shaw") to purchase
up to 2,900,000 and 2,100,000 shares of Series A common stock, respectively, at
an exercise price of $10.50 per share. Warrants to purchase 919,768 shares of
common stock became exercisable when Rogers and Shaw met certain subscriber
performance milestones during the year ended December 31, 1998. The Company
recorded non-cash charges to operations for the fair value of these warrants of
$49,794,000.
In February 1998, the Company issued performance based warrants to certain
other cable operators to purchase an aggregate of up to 5,272,100 shares of
Series A common stock, respectively, at an exercise price of $10.50 per share.
As of December 31, 1998 none of these had vested as the performance milestones
had not been met. In the event the performance milestones are met, the Company
will incur non-cash charges to operations in future periods based on the
difference between the then fair market value of the Company's Series A common
stock and the exercise price of $10.50 per share.
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
(collectively, the "1996 Plans"). The 1996 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
61
<PAGE> 62
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Board of Directors. The 1996 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.
The options granted under the 1996 Plans were exercisable immediately upon
issuance and generally have a term of ten years. Upon termination of employment,
unvested shares may be repurchased by the Company at the original purchase
price. Fully vested shares could have been 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 repurchase right for vested shares
expired upon the completion of the Initial Public Offering. Stock options
generally vest at the rate of 25% after one year and ratably on a monthly basis
for three years thereafter.
The Company's 1997 Equity Incentive Plan ("1997 Plan") was adopted by the
Board of Directors in May 1997 and approved by the stockholders in July 1997 as
the successor to the 1996 Plans. 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. Options
under the 1997 Plan generally vest at the rate of 25% after one year and ratably
on a monthly basis for three years thereafter. The total number of shares of
Series A common stock reserved for issuance under the 1997 Plan is 25,775,000
less the total number of shares issued or issuable to employees, officers,
directors and consultants under restricted stock purchase agreements, the 1996
Plans and shares issued under the 1997 Employee Stock Purchase Plan, discussed
below.
The Company's 1998 Equity Incentive Plan ("1998 Plan"), was adopted by the
Board of Directors in December 1998. The 1998 Plan provides for the grant of
450,000 shares of the Company's common stock and 447,300 options were granted to
existing Narrative employees on December 30, 1998. Options vest under the 1998
Plan vest at the rate of 25% after one year and ratably on a monthly basis for
three years thereafter.
As a result of the Narrative acquisition (Note 3), the Company assumed
options outstanding under the Narrative 1995 Stock Option Plan exercisable for
141,273 shares of the Company's Series A common stock (based on the merger
exchange ratio). These options are included in the following table under options
granted in the year ended December 31, 1998. Options generally vest at the rate
of 25% after one year and ratably on a quarterly basis for three years
thereafter.
A summary of activity under the Company's stock option plans is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
of year............ 3,058,135 $10.26 223,000 $ 0.06 -- --
Options granted...... 7,647,652 $40.73 5,158,001 $ 6.30 5,296,500 $0.06
Options exercised.... (424,553) $ 7.01 (2,170,586) $ 0.25 (4,875,500) $0.06
Options cancelled.... (267,939) $18.83 (152,280) $ 3.78 (198,000) $0.05
---------- ---------- ----------
Balance at end of
year............... 10,013,295 $33.44 3,058,135 $10.26 223,000 $0.06
========== ========== ==========
Options exercisable
at year-end........ 1,616,393 1,641,885 223,000
========== ========== ==========
</TABLE>
62
<PAGE> 63
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ----------------------
WEIGHTED-AVERAGE WEIGHTED WEIGHTED
RANGE REMAINING AVERAGE AVERAGE
OF EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- ---------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.05 - $ 4.00 1,164,716 8.31 $ 2.41 1,140,404 $ 2.38
$ 4.40 - $ 8.00 194,186 8.77 $ 5.79 119,335 $ 5.74
$18.44 - $33.00 2,310,880 9.10 $23.14 334,654 $19.53
$33.13 - $34.44 2,119,612 9.36 $33.91 9,750 $33.89
$37.00 - $46.34 2,663,375 9.74 $38.57 10,250 $41.84
$47.06 - $71.50 1,560,526 9.97 $65.89 2,000 $56.85
---------- ---------
$ 0.05 - $71.50 10,013,295 9.36 $33.44 1,616,393 $ 6.69
========== =========
</TABLE>
At December 31, 1998, outstanding options to purchase 763,224 shares were
vested and 2,258,953 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 terminations.
The Company recorded deferred compensation of $5,257,000 and $346,000
during the years ended December 31, 1997 and 1996, respectively, 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.
EMPLOYEE STOCK PURCHASE PLAN
The 1997 Employee Stock Purchase Plan ("ESPP") was established in July of
that year to provide employees with an opportunity to purchase common stock of
the Company through payroll deductions. The Company initially reserved 400,000
shares of common stock for issuance to participants and an additional 600,000
shares were reserved during the year ended December 31, 1998. Under the ESPP,
the Company's employees, subject to certain restrictions, may purchase shares of
common stock at the lesser of 85 percent of the fair market value at either the
beginning of each two-year offering period or the end of each six-month purchase
period within the two-year offering period. In February and July 1998, employees
purchased 117,027 and 114,918 shares, respectively.
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 Statement No. 123, "Accounting for Stock-Based Compensation" ("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.
The value of the Company's stock-based awards to employees in the years
ended December 31, 1996 and 1997, prior to the Initial Public Offering, was
estimated using the minimum value method. Options granted subsequent to the
Initial Public Offering have been 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 option valuation. The minimum value method does not consider
stock price volatility. Further, certain other assumptions necessary to apply
the Black-Scholes
63
<PAGE> 64
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
model may differ significantly from assumptions used in calculating the value of
options granted in 1996 and 1997, prior to the Initial Public Offering, under
the minimum value method.
The fair value of the Company's stock-based awards to employees was
estimated assuming no expected dividends and the following weighted-average
assumptions:
<TABLE>
<CAPTION>
OPTIONS ESPP
----------------------------- ------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------- ------------------------
1998 1997 1996 1998 1997
------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Expected life of options.......... 4 years 4 years 4 years 6 months 7 months
Expected volatility............... 1.00 0.71 N/A 1.00 0.72
Risk free interest rate........... 4.69% 6.00% 6.50% 4.50% 5.09%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Net loss as reported.............................. $(144,179) $(55,717) $(24,513)
Pro forma net loss................................ $(166,401) $(56,746) $(24,520)
Pro forma basic and diluted net loss per
share -- as reported............................ $ (1.26) $ (0.54) $ (0.26)
Pro forma basic and diluted net loss per
share -- as adjusted............................ $ (1.46) $ (0.55) $ (0.26)
</TABLE>
The weighted-average fair value of options granted during the years ended
December 31, 1998, 1997 and 1996 was $28.01, $3.29 and $0.01, respectively. The
weighted-average fair value of ESPP rights granted during the years ended
December 31, 1998 and 1997 was $5.33 and $3.97, respectively.
9. INCOME TAXES
The Company's income tax 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>
YEAR ENDED DECEMBER 31, 1998
-------------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Income tax benefit at U.S. statutory rate........... $(50,463) $(19,501) $(8,334)
Valuation allowance for deferred tax assets......... 50,463 19,501 8,334
-------- -------- -------
Income tax benefit.................................. $ -- $ -- $ --
======== ======== =======
</TABLE>
64
<PAGE> 65
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 at are as follows (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 38,394 $ 25,484
Cost and amortization of distribution agreements.......... 45,078 3,767
Accrued costs and expenses................................ 6,054 --
Capitalized start-up costs................................ 2,462 3,357
Other..................................................... 480 1,106
-------- --------
Total gross deferred tax assets............................. 92,468 33,714
Less valuation allowance.................................... (92,468) (33,181)
-------- --------
Deferred tax assets............................... -- 533
-------- --------
Deferred tax liabilities:
Property and equipment.................................... -- 533
-------- --------
Total gross deferred tax liabilities........................ -- 533
-------- --------
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,
1998 and 1997 has been established to reflect these uncertainties. The valuation
allowance increased by $59,287,000, $22,324,000 and $9,714,000 in 1998, 1997 and
1996, respectively.
At December 31, 1998, the Company had net operating loss carryforwards for
federal and state tax purposes of approximately $94,227,000. These carryforwards
will expire beginning in 2010 and 2003 for federal and state purposes,
respectively, if not utilized.
10. RELATED PARTY TRANSACTIONS
For the years ended December 31, 1998, 1997 and 1996, the Company purchased
services of approximately none, $215,000 and $2,726,000, respectively, from
certain stockholders.
The Company entered into an OEM software license agreement under which the
Company paid the vendor none, $2,275,000 and $1,388,000 during the years ended
December 31, 1998, 1997 and 1996, respectively, 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.
11. 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.
65
<PAGE> 66
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. FINANCIAL INSTRUMENTS
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash and trade accounts receivable. The Company
maintains its cash with three domestic financial institutions with high credit
standings. The Company performs periodic evaluations of the relative credit
standing of this institution. The Company conducts business with companies in
various industries throughout the United States. The Company performs ongoing
credit evaluations of its corporate customers and generally does not require
collateral. Reserves are maintained for potential credit losses and such losses
to date have been within management's expectations.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Accounts receivable and accounts payable: The carrying amounts reported in
the balance sheet for accounts receivable and accounts payable approximate their
fair value.
Investment securities: The fair values for available-for-sale securities
are based on quoted market prices.
Convertible debentures: The fair values of the Company's convertible
debentures are estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements.
The carrying amounts and fair values of the Company's financial instruments
are as follows: (in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Cash and cash equivalents..................... $300,702 $300,702 $44,213 $44,213
Short-term cash investments................... 118,587 118,587 76,166 76,166
Accounts receivable........................... 10,658 10,658 2,142 2,142
Accounts payable.............................. 10,784 10,784 4,517 4,517
Convertible debentures........................ 229,344 229,344 -- --
</TABLE>
13. SUBSEQUENT EVENTS (UNAUDITED)
MERGER AGREEMENT WITH EXCITE, INC.
On January 19, 1999 the Company entered into a merger agreement with
Excite, Inc. ("Excite"), a global Internet media company that offers consumers
and advertisers comprehensive Internet navigation services with extensive
personalization capabilities. Under the terms of the merger agreement, the
Company will issue approximately 54.9 million shares of its Series A common
stock for all of the outstanding common stock of Excite based on an exchange
ratio of approximately 1.041902 shares of the Company's Series A common stock
for each share of Excite's common stock. The Company may issue up to
approximately 15.3 million additional shares of Series A common stock in
connection with the assumption of obligations under Excite's stock option and
employer stock purchase plans and outstanding warrants. The transaction will be
accounted for as a purchase. The Company's preliminary unaudited estimate of the
total purchase consideration is approximately $6,964 million, based on the fair
value at the time of announcement of the merger, of Series A common stock to be
issued and stock option, stock purchase plan and warrant obligations assumed,
plus estimated transaction costs.
66
<PAGE> 67
AT HOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The merger has been approved by the boards of directors of At Home and
Excite, but the acquisition is subject to several conditions, including approval
by both companies' stockholders and the expiration of applicable waiting periods
under certain antitrust laws.
The following unaudited pro forma condensed financial information presents
the combined results of operations of the Company and Excite, including the
amortization of goodwill and other intangible assets, as if the merger had
occurred at the beginning of each year presented (in thousands).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Pro forma revenues........................................ $ 202,150 $ 61,551
=========== ===========
Pro forma net loss........................................ $(1,881,073) $(1,827,974)
=========== ===========
Pro forma basic and diluted net loss per share............ $ (11.12) $ (11.54)
=========== ===========
Number of shares used in basic and diluted pro forma per
share calculation....................................... 169,124 158,427
=========== ===========
</TABLE>
The pro forma results of operations are not necessarily indicative of the
results that would have occurred had the merger occurred at the beginning of
each year presented, and are not intended to be indicative of future results of
operations.
CHANGES IN COMMON SHARES AUTHORIZED
On January 19, 1999, the Company's Board of Directors authorized an
increase in the number of authorized shares of Series A common stock from
200,000,000 to 233,000,000 and a decrease in the number of authorized shares of
Series K common stock from 14,877,660 to 2,609,707, subject to stockholder
approval.
BACKBONE AGREEMENT
The Company entered into a twenty-year agreement with a major
tele-communications company to create a nationwide Internet Protocol network.
This new backbone facility, which is scheduled to be deployed in mid-1999,
initially will enable the Company to support up to five million broadband users.
In connection with this agreement, the Company will incur expenditures of
approximately $50,000,000 over each of the next two years for additional
backbone capacity and related equipment. The Company will capitalize these
payments and amortize the amounts by charges to operations over the term of the
agreement.
67
<PAGE> 68
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AND STOCK PRICE DATA)
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Total revenue..................... $ 5,773 $ 9,220 $ 13,815 $ 19,237
Costs and expenses:
Operating costs................. 8,615 10,098 12,256 15,996
Product development and
engineering.................. 3,573 3,891 4,588 4,957
Sales and marketing............. 3,500 4,356 4,978 5,257
General and administrative...... 2,874 2,925 3,112 3,518
Purchased in-process research
and development.............. -- -- -- 2,758
Cost and amortization of
distribution agreements...... 19,534 13,628 13,628 54,595
------------ ------------ ------------ ------------
Total costs and
expenses.............. 38,096 34,898 38,562 87,081
------------ ------------ ------------ ------------
Loss from operations.............. (32,323) (25,678) (24,747) (67,844)
Interest income, net.............. 1,107 906 1,460 2,940
------------ ------------ ------------ ------------
Net loss.......................... $ (31,216) $ (24,772) $ (23,287) $ (64,904)
============ ============ ============ ============
Pro forma basic and diluted net
loss per share.................. $ (0.28) $ (0.22) $ (0.20) $ (0.56)
============ ============ ============ ============
Price range per share............. $20.50-38.13 $29.75-57.25 $23.50-54.94 $34.50-84.75
</TABLE>
68
<PAGE> 69
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
------- ------------------------------------------------------------ ------------
<S> <C> <C>
4.06 Narrative Communications Corp. 1998 Equity Incentive Plan,
assumed by Registrant as of December 30, 1998(*)
10.12 Narrative Communications Corp. 1995 Stock Option Plan,
assumed by Registrant as of December 30, 1998(*)
10.13 Description of Registrant's 1998 Executive Incentive Plan(*)
10.25 Warrant Purchase Agreement, dated May 5, 1998, between
Registrant and Century Communications Corp.
10.26 Warrant to Purchase Series A Common Stock of Registrant
issued to Century Communications Corp. as of May 5, 1998
10.27 Form of Warrant to Purchase Series A Common Stock of
Registrant to be issued to Century Communications Corp.
10.28 Warrant Purchase Agreement, dated June 27, 1998, between
Registrant and Garden State Cablevision L.P.
10.29 Warrant to Purchase Series A Common Stock of Registrant
issued to Garden State Cablevision L.P. as of June 27, 1998
10.30 Warrant Purchase Agreement, dated June 26, 1998, between
Registrant and Jones Intercable Inc.
10.31 Warrant to Purchase Series A common stock of Registrant
issued to Jones Intercable Inc. as of June 26, 1998
10.33 IRU Capacity Agreement, dated December 19, 1998, between
Registrant and AT&T Corp.(**)
10.34 Form of Loan Modification Agreement between Registrant and
Silicon Valley Bank
10.35 Build to Suit Option Agreement, dated October 25, 1996,
between Registrant and Martin/Campus Associates, L.P., and
First Amendment to Build to Suit Option Agreement.
10.36 Build to Suit Lease, dated July 14, 1998, between Registrant
and Martin/Campus Associates, L.P. (420 Broadway, Redwood
City, California)
10.37 Form of Build to Suit Lease between Registrant and
Martin/Campus Associates, L.P. (430 Broadway, Redwood City,
California)
23.01 Consent of Ernst & Young LLP, Independent Auditors
24.01 Power of Attorney executed by each officer and director (See
pages 44 and 45 of this Form 10-K)
27.01 Financial data schedule for year ended December 31, 1998
</TABLE>
- ---------------
* Management contracts or compensatory plans required to be filed as an
exhibit to Form 10-K.
** Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from this public filing and have been filed separately with the
Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 4.06
NARRATIVE COMMUNICATIONS CORP.
1998 EQUITY INCENTIVE PLAN
As Adopted December 29, 1998
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 18,
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 600,000 Shares. Subject to Sections 2.2 and 18
hereof, Shares that are subject to issuance upon exercise of an option granted
under this Plan that cease to be subject to such option for any reason other
than exercise of such option will again be available for grant and issuance in
connection with future Awards under this Plan.
At all times the Company shall reserve and keep available a
sufficient number of Shares as shall be required to satisfy the requirements of
all outstanding Options granted under this Plan and all other outstanding but
unvested Awards granted under this Plan.
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 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 or any other equity incentive plan of the
Company 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.
<PAGE> 2
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the
Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and
any other agreement or document executed pursuant to this
Plan;
(b) prescribe, amend and rescind rules and regulations relating
to this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration
subject to Awards;
(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or as
alternatives to, other Awards under this Plan or any other
incentive or compensation plan of the Company or any Parent
or Subsidiary of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of
Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award
Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for
the administration of this Plan.
4.2 Committee Discretion. Any determination made by the
Committee with respect to any Award will be made in its sole discretion at the
time of grant of the Award or, unless in contravention of any express term of
this Plan or Award, at any later time, and such determination will be final and
binding on the Company and on all persons having an interest in any Award under
this Plan. The Committee may delegate to one or more officers of the Company the
authority to grant an Award under this Plan to Participants who are not Insiders
of the Company.
5. OPTIONS. The Committee may grant Options to eligible persons and
will determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOs"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan
will be evidenced by an Award Agreement which will expressly identify the Option
as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
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
2
<PAGE> 3
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 (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
3
<PAGE> 4
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 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.
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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.
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.
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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.
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
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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 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
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<PAGE> 8
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 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.
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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 Company's Board of Directors approves this
Plan (the "EFFECTIVE DATE"). This Plan shall be approved by the stockholders of
the Company (excluding Shares issued pursuant to this Plan), consistent with
applicable laws, within twelve (12) months before or after the date this Plan is
adopted by the Board. Upon the Effective Date, the Committee may grant Awards
pursuant to this Plan; provided, however, that: (a) no Option may be exercised
prior to initial stockholder approval of this Plan; (b) no Option granted
pursuant to an increase in the number of Shares subject to this Plan approved by
the Board will be exercised prior to the time such increase has been approved by
the stockholders of the Company; 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.
"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.
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"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 Narrative Communications Corp. 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 (if any, and if not, then a share
of the Company's common stock) determined as follows:
(a) if such common stock is not publicly traded, the price of
an equivalent number of shares of At Home Corporation's
Series A Common Stock pursuant to the Conversion Ratio
defined in the Agreement and Plan of Merger dated December
17, 1998, by and among At Home Corporation, a Delaware
corporation, the Company and Transitory Corporation, a
Delaware corporation and wholly owned subsidiary of At Home
Corporation;
(b) 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;
(c) 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;
(d) 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;
(e) if none of the foregoing is applicable, by the Committee in
good faith.
"INSIDER" means an officer or director of the Company or
any other person whose transactions in the Company's Common Stock are subject to
Section 16 of the Exchange Act.
"OPTION" means an award of an option to purchase Shares
pursuant to Section 5.
"PARENT" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"PARTICIPANT" means a person who receives an Award under
this Plan.
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"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 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.
"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").
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"UNVESTED SHARES" means "Unvested Shares" as defined in the
Award Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the
Award Agreement.
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EXHIBIT 10.12
NARRATIVE COMMUNICATIONS CORP.
1995 STOCK OPTION PLAN
1. PURPOSE
The purpose of this 1995 Stock Option Plan (the "Plan") is to advance
the interests of NARRATIVE COMMUNICATIONS CORP. (the "Company") by enhancing
the ability of the Company and its subsidiaries to attract and retain
employees, directors, consultants or advisers who are in a position to make
significant contributions to the success of the Company, to reward them for
their contributions and to encourage them to take into account the long-term
interests of the Company.
The Plan provides for the award of options to purchase shares of the
Company's common stock ("Stock"). Options granted pursuant to the Plan may be
incentive stock options as defined in section 422 of the Internal Revenue Code
of 1986 (as from time to time amended, the "Code") (any option that is intended
to qualify as an incentive stock option being referred to herein as an
"incentive option"), or options that are not incentive options, or both.
Options granted pursuant to the Plan shall be presumed to be non-incentive
options unless expressly designated as incentive options.
2. ELIGIBILITY FOR AWARDS
Persons eligible to receive awards under the Plan shall be all
executive officers of the Company and its subsidiaries and other employees,
consultants and advisers who, in the opinion of the Board, are in a position to
make a significant contribution to the success of the Company and its
subsidiaries. Directors, including directors who are not employees, of the
Company shall be eligible to receive awards under the Plan to the extent that
their eligibility would not disqualify them as disinterested persons for
purposes of Rule 16b-3 ("Rule 16b-3") under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Incentive options shall be granted only
to "employees" as defined in the provisions of the Code or regulations
thereunder applicable to incentive stock options. A subsidiary for purposes of
the Plan shall be a corporation in which the Company owns, directly or
indirectly, stock possessing 50% of more of the total combined voting power of
all classes of stock. Persons selected for awards under the Plan are referred
to herein as "participants."
3. ADMINISTRATION
The Plan shall be administered by the Board of Directors (the "Board")
of the Company. The Board shall have authority, not inconsistent with the
express provisions of the Plan, (a) to grant awards consisting of options, to
such participants as the Board may select;
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(b) to determine the time or times when awards shall be granted and the number
of shares of Stock subject to each award; (c) to determine which options are,
and which options are not, incentive options; (d) to determine the terms and
conditions of each award; (e) to prescribe the form or forms of any instruments
evidencing awards and any other instruments required under the Plan and to
change such forms from time to time; (f) to adopt, amend and rescind rules and
regulations for the administration of the Plan; and (g) to interpret the Plan
and to decide any questions and settle all controversies and disputes that may
arise in connection with the Plan. Such determinations of the Board shall be
conclusive and shall bind all parties. Subject to Section 8 the Board shall
also have the authority, both generally and in particular instances, to waive
compliance by a participant with any obligation to be performed by the
participant under an award, to waive any condition or provision of an award,
and to amend or cancel any award (and if an award is canceled, to grant a new
award on such terms as the Board shall specify) except that the Board may not
take any action with respect to an outstanding award that would adversely
affect the rights of the participant under such award without such
participant's consent. Nothing in the preceding sentence shall be construed as
limiting the power of the Board to make adjustments required by Section 6(c)
and Section 6(i).
The Board may, in its discretion, delegate some or all of its powers with
respect to the Plan to a committee (the "Committee"), in which even all
references in this Plan (as appropriate) to the Board shall be deemed to refer
to the Committee. The Committee, if one is appointed, shall consist of at least
two directors. A majority of the members of the Committee shall constitute a
quorum, and all determinations of the Committee shall be made by a majority of
its members. Any determination of the Committee under the Plan may be made
without notice or meeting of the Committee by a writing signed by a majority of
the Committee members. On and after registration of the Stock under the
Exchange Act, the Board shall delegate the power to select directors and
executive officers to receive awards under the Plan and the timing, pricing and
amount of such awards to a committee or committees, the number of which shall
satisfy the requirements of Rule 16b-3 applicable to the Company and all
members of which shall be disinterested persons within the meaning of the
applicable provisions of Rule 16b-3 and, with respect to executive officers
only, "outside directors" within the meaning of section 162(m) under the Code.
4. EFFECTIVE DATE AND TERM OF PLAN
The Plan shall become effective on the date on which it is approved by the
shareholders of the Company. Grants of awards under the Plan may be made prior
to that date (but contemporaries with or after Board adoption of the Plan),
subject to approval of the Plan by such shareholders.
No awards shall be granted under the Plan after the completion of ten
years from the date on which the plan was adopted by the Board, but awards
previously granted may extend beyond that date.
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<PAGE> 3
5. SHARES SUBJECT TO THE PLAN
(a) NUMBER OF SHARES. Subject to adjustment as provided in Section 5(c),
the aggregate number of shares of Stock that may be delivered upon the exercise
of awards granted under the Plan shall be 1,000,000. If any award granted under
the Plan terminates without having been exercised in full, or upon exercise is
satisfied other than by delivery of Stock, the number of shares of Stock as to
which such award was not exercised shall be available for future grants within
the limits set forth in this Section 5(a).
The maximum number of shares for which options may be granted to any
individual over the life of the Plan shall be 125,000. The per-individual
limitations described in this paragraph shall be construed and applied
consistent with the rules and regulations under section 162(m) of the Code.
(b) SHARES TO BE DELIVERED. Shares delivered under the Plan shall be
authorized but unissued Stock or, if the Board so decides in its sole
discretion, previously issued Stock acquired by the Company and held in its
treasury. No factional shares of Stock shall be delivered under the Plan.
(c) CHANGES IN STOCK. In the event of a stock dividend, stock split or
combination of shares, recapitalization or other change in the Company's
capital stock, the number and kind of shares of Stock subject to awards then
outstanding or subsequently granted under the Plan, the exercise price of such
awards, the maximum number of shares of Stock that may be delivered under the
Plan, and other relevant provisions shall be appropriately adjusted by the
Board, whose determination shall be binding on all persons.
The Board may also adjust the number of shares subject to outstanding
awards and the exercise price and the terms of outstanding awards to take into
consideration material changes in accounting practices or principles,
extraordinary dividends, consolidations or mergers (except those described in
Section 6(i)), acquisitions or dispositions of stock or property or any other
event if it is determined by the Board that such adjustment is appropriate to
avoid distortion in the operation of the Plan, provided that no such
adjustment shall be made in the case of an incentive option, without the
consent of the participant, if it would constitute a modification, extension or
renewal of the option within the meaning of section 424(h) of the Code.
6. TERMS AND CONDITIONS OF OPTIONS
(a) EXERCISE PRICE OF OPTIONS. The exercise price of each option shall
be determined by the Board but in the case of an incentive option shall not be
less than 100% (110%, in the case of an incentive option granted to a ten-
percent shareholder) of the fair market value of the Stock at the time the
option is granted; nor shall the exercise price be less, in the case of an
original issue of authorized stock, than par value. For this purpose, "fair
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<PAGE> 4
market value" in the case of incentive options shall have the same meaning as it
does in the provisions of the Code and the regulations thereunder applicable to
incentive options; and "ten-percent shareholder" shall mean any participant who
at the time of grant owns directly, or by reason of the attribution rules set
forth in section 424(d) of the Code is deemed to own, stock possessing more than
10% of the total combined voting power of all classes of stock of the Company or
of any of its parent or subsidiary corporations.
(b) Duration of Options. Options shall be exercisable during such
period or periods as the Board may specify. The latest date on which an option
may be exercised (the "Final Exercise Date") shall be the date that is ten years
(five years, in the case of an incentive option granted to a "ten-percent
shareholder" as defined in (a) above) from the date the option was granted or
such earlier date as the Board may specify at the time the option is granted.
(c) Exercise of Options.
(1) Options shall become exercisable at such time or times and upon
such conditions as the Board shall specify. In the case of an
option not immediately exercisable in full, the Board may at any
time accelerate the time at which all or any part of the option
may be exercised.
(2) Options may be exercised only in writing. Written notice of
exercise must be signed by the proper person and furnished to
the Company, together with (i) such documents as the Board may
require and (ii) payment in full as specified below in Section
6(d) for the number of shares for which the option is exercised.
(3) The delivery of Stock upon the exercise of an option shall be
subject to compliance with (i) applicable federal and state laws
and regulations, (ii) if the outstanding Stock is at the time
listed on any stock exchange, the listing requirements of such
exchange, and (iii) Company counsel's approval of all other
legal matters in connection with the issuance and delivery of
such Stock. If the sale of Stock has not been registered under
the Securities Act of 1933, as amended, the Company may require,
as a condition to exercise of the option, such representations
or agreements as counsel for the Company may consider
appropriate to avoid violation of such Act and may require that
the certificates evidencing such Stock bear an appropriate
legend restricting transfer.
(4) In the case of an option that is not an incentive option, the
Board shall have the right to require that the participant
exercising the option remit to the Company an amount sufficient
to satisfy any federal, state, or local withholding tax
requirements (or make other arrangements satisfactory to the
Company with regard to such taxes) prior to the delivery of any
Stock pursuant to the exercise of the option. If permitted by
the Board, either at the time of the grant of the option or the
time of exercise, the participant may elect, at such time and in
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<PAGE> 5
such manner as the Board may prescribe, to satisfy such withholding
obligation by (1) delivering to the Company Stock (which in the case
of Stock acquired from the Company shall have been owned by the
participant for at least six months prior to the delivery date)
having a fair market value equal to such withholding obligation or
(ii) requesting that the Company withhold from the shares of Stock to
be delivered upon the exercise a number of shares of Stock having a
fair market value equal to such withholding obligation.
In the case of an incentive option, if at the time the option is
exercised the Board determines that under applicable law and
regulations the Company could be liable for the withholding of any
federal or state tax with respect to a disposition of the Stock
received upon exercise, the Board may require as a condition of
exercise that the participant exercising the option agree (i) to
inform the Company promptly of any disposition (within the meaning of
section 424(c) of the Code and the regulations thereunder) of Stock
received upon exercise and (ii) to give such security as the Board
deems adequate to meet the potential liability of the Company for the
withholding of tax, and to augment such security from time to time in
any amount reasonably deemed necessary by the Board to preserve the
adequacy of such security.
(5) If an option is exercised by the executor or administrator of a
deceased participant, or by the person or persons to whom the option
has been transferred by the participant's will or the applicable laws
of descent and distribution, the Company shall be under no obligation
to deliver Stock pursuant to such exercise until the Company is
satisfied as to the authority of the person or persons exercising the
option.
(d) Payment for and Delivery of Stock. Stock purchased upon exercise of
an option under the Plan shall be paid for as follows:
(i) in cash or by personal check, certified check, bank draft or money
order payable to the order of the Company; or
(ii) if so permitted by the Board (which, in the case of an incentive
option, shall specify the method of payment at the time of grant,
(A) through the delivery of shares of Stock (which, in the case of
Stock acquired from the Company, shall have been held for at least
six months prior to delivery) having a fair market value on the last
business day preceding the date of exercise equal to the purchase
price or (B) by delivery of a promissory note of the participant
to the Company, such note to be payable on such terms as are
specified by the Board or (C) by delivery of an unconditional and
irrevocable undertaking by a broker to deliver promptly to the
Company sufficient funds to pay the exercise price or (D) by any
combination of the permissible forms of payment; provided, that if
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<PAGE> 6
the Stock delivered upon exercise of the option is an original
issue of authorized Stock, at least so much of the exercise price
as represents the par value of such Stock shall be paid other than
by a personal check or promissory note of the person exercising
the option.
(e) Rights as Shareholder. A participant shall not have the rights of
a shareholder with regard to awards under the Plan except as to Stock actually
received by the participant under the Plan.
(f) Nontransferability of Awards. Except as the Board may otherwise
determine, no award may be transferred other than by will or by the laws of
descent and distribution, and during a participant's lifetime as award may be
exercised only by the participant.
(g) Death. If a participant dies, each option held by the participant
immediately prior to death may be exercised, to the extent it was exercisable
immediately prior to death, by the participant's executor or administrator or by
the person or persons to whom the option is transferred by will or the
applicable laws of descent and distribution, at any time within the one-year
period (or such longer or shorter period as the Board may determine) beginning
with the date of the participant's death but in no event beyond the Final
Exercise Date. All options held by a participant immediately prior to death that
are not then exercisable shall terminate on the date of death.
(h) Termination of Service Other Than By Death. If an employee's
employment with the Company and its subsidiaries terminates for any reason other
than by death, all options held by the employee that are not then exercisable
shall terminate. Options that are exercisable on the date employment terminates
shall continue to be exercisable for a period of sixty (60) days (or such longer
period as the Board may determine, but in no event beyond the Final Exercise
Date) unless the employee was discharged for cause that in the opinion of the
Board casts such discredit on the employee as to justify termination of the
employee's options. After completion of the post-termination exercise period,
such options shall terminate to the extent not previously exercised, expired or
terminated. For purposes of this Section 6(h), employment shall not be
considered terminated (i) in the case of sick leave or other bona fide leave of
absence approved for purposes of the Plan by the Board, so long as the
employee's right to reemployment is guaranteed either by statute or by contract,
or (ii) in the case of a transfer of employment between the Company and a
subsidiary, between subsidiaries or to the employment of a corporation (or a
parent or subsidiary corporation of such corporation) issuing or assuming an
option in a transaction to which section 424(a) of the Code applies.
(i) Mergers, etc. In the event of a consolidation or merger in which
the Company is not the surviving corporation or which results in the acquisition
of substantially all the Company's outstanding Stock by a single person or
entity or by a group of persons and/or entities acting in concert, or in the
event of the sale or transfer of substantially all the Company's assets, all
outstanding awards shall thereupon terminate, provided that, at least 20
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<PAGE> 7
days prior to the effective date of any such merger, consolidation or sale of
assets, the Board shall either (i) make all outstanding awards exercisable
immediately prior to consummation of such merger, consolidation or sale of
assets or (ii) if there is a surviving or acquiring corporation, arrange,
subject to consummation of the merger, consolidation or sale of assets, to have
that corporation or an affiliate of that corporation grant to participants
replacement awards, which awards in the case of incentive options shall
satisfy, in the determination of the Board, the requirements of section 424(a)
of the Code.
The board may grant awards under the Plan in substitution for awards held
by employees, directors, consultants or advisers or another corporation who
concurrently become employees, directors, consultants or advisers of the
Company or a subsidiary of the Company as the result of a merger or
consolidation of that corporation with the Company or a subsidiary of the
Company, or as the result of the acquisition by the Company or a subsidiary of
the Company of property or stock of that corporation. The Company may direct
that substitute awards be granted on such terms and conditions as the Board
considers appropriate in the circumstances.
7. EMPLOYMENT RIGHTS
Neither the adoption of the Plan nor the grant of awards shall confer
upon any participant any right to continue as an employee or director of, or
consultant or adviser to, the Company or any parent or subsidiary or affect in
any way the right of the Company or parent or subsidiary to terminate them at
any time. Except as specifically provided by the Board in any particular case,
the loss of existing or potential profit in awards granted under this Plan
shall not constitute an element of damages in the event of termination of the
relationship of a participant even if the termination is in violation of an
obligation of the Company to the participant by contract or otherwise.
8. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of awards to a participant
shall affect the Company's right to make awards to such participant that are
not subject to the Plan, to issue to such participant Stock as a bonus or
otherwise, or to adopt other plans or arrangements under which Stock may be
issued.
The Board may at any time discontinue granting awards under the Plan.
With the consent of the participant, the Board may at any time cancel an
existing award in whole or in part and grant another award for such number of
shares as the Board specifies. The Board may at any time or times amend the
Plan or any outstanding award for the purpose of satisfying the requirements of
section 422 of the Code or of any changes in applicable laws or regulations or
for any other purpose that may at the time be permitted by law, or may at any
time terminate the Plan as to further grants of awards, but no such amendment
shall adversely
<PAGE> 8
affect the rights of any participant (without the participant's consent) under
any award previously granted.
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<PAGE> 1
EXHIBIT 10.13
SUMMARY OF @HOME 1998 EXECUTIVE INCENTIVE PLAN
In 1998, we adopted an executive incentive plan designed to align our
executive team around a set of three general goals: revenue performance (40%
weight), profit/loss performance (40% weight) and customer satisfaction
performance (20% weight). The revenue performance and profit/loss performance
measures will be deemed met if we attain 90% of set targets for these measures.
Under this plan, each eligible executive may receive an award of up to 25% of
his or her annual salary. Currently, 15 executives are eligible to participate
in this plan, and we estimate that if we meet our performance measures we will
award an aggregate of $760,000 in 1999 under this plan.
<PAGE> 1
EXHIBIT 10.25
WARRANT PURCHASE AGREEMENT
This Warrant Purchase Agreement (this "Agreement") is made as of May 5,
1998, by and between At Home Corporation (the "Company") and Century
Communications Corp. ("Purchaser").
The parties hereby agree as follows:
1. DEFINITIONS INCORPORATED BY REFERENCE. The following terms shall have
the meaning ascribed to them in the @Home Network Distribution Agreement, dated
as of May 1, 1998, between the Company and Purchaser (the "Distribution
Agreement")
Term Cross Reference
---- ---------------
Living Unit Section 1(q)
Master Roll-Out Plan Section 2(a)(i)
2. PURCHASE AND SALE OF INITIAL WARRANT. Upon the execution of this
Agreement, the Company will issue and sell to Purchaser and Purchaser will
purchase, in exchange for aggregate consideration of $2,761.50, a warrant to
purchase 2,630,000 shares of Series A Common Stock of the Company (the "Warrant
Shares"), in the form attached hereto as Exhibit A (the "Initial Warrant").
3. CLOSING. The closing of the purchase and sale of the Initial Warrant
(the "Closing") shall be held on the date hereof or at such other time as the
Company and Purchaser may mutually determine. At the Closing, Purchaser will
deliver to the Company a check or wire transfer funds in the amount of the
purchase price of the Initial Warrant and the Company shall deliver the Initial
Warrant to Purchaser.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. The representations and
warranties of Purchaser set forth in Section 8 of the Initial Warrant are
incorporated herein as if fully set forth herein. In addition, Purchaser
represents and warrants to the Company that:
(i) The number of Living Units in those geographic areas that
were used for calculating the number of Warrant Shares are indicated in the
column entitled "#HP" on the Master Roll-Out Plan attached to the Distribution
Agreement, and such numbers are true and correct as of that date.
(ii) None of the Living Units described in Section 3(i) above
were transferred to Purchaser from any cable operator that previously has
received equity securities from the Company (including warrants and other
exercisable or convertible securities) for such Living Units.
<PAGE> 2
5. ADDITIONAL WARRANT.
(i) @Home agrees to offer for purchase by Century a warrant
substantially in the form attached as Exhibit B (the "Second Warrant") upon
satisfaction of the following condition:
On or prior to December 31, 1998, Century enters into
binding purchase agreement(s) to acquire Living Units in
the Los Angeles area, in addition to those covered by
the original Master Roll-Out Plan attached to the
Distribution Agreement, excluding any acquired Living
Units in respect of which any cable operator has
received equity securities of the Company (including
warrants and other exercisable or convertible
securities), and such additional acquired Living Units
are added to the Master Roll-Out Plan.
(ii) The Second Warrant shall be for a number of shares of @Home
Common Stock equal to such number of additional acquired Living Units,
multiplied by two. The purchase price of the Second Warrant shall be equal to
0.01% of the aggregate exercise price of the Second Warrant.
(iii) Prior to the issuance of the Second Warrant, Purchaser
shall make the same representations and warranties to the Company with regard to
the Second Warrant as those set forth in Section 4 above with regard to the
Initial Warrant.
6. BINDING AGREEMENT; GOVERNING LAW. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents, made and to be performed entirely within the State
of California.
7. MODIFICATION; WAIVER. No modification or waiver of any provision of
this Agreement or consent to departure therefrom shall be effective unless in
writing and approved by the Company and Purchaser.
8. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
AT HOME CORPORATION: CENTURY COMMUNICATIONS CORP.:
By: /s/ DEAN A. GILBERT By: /s/ CLIFFORD A. BAIL
------------------------------ ------------------------------
Name: Dean A. Gilbert Name: Clifford A. Bail
---------------------------- ---------------------------
Title: SVP/GM @Home Title: Vice President
--------------------------- --------------------------
Date: as of 5/5/98 Date: as of 5/5/98
----------------------------- ----------------------------
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<PAGE> 1
EXHIBIT 10.26
CENTURY COMMUNICATIONS CORP. WARRANT (INITIAL WARRANT)
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT 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 EXCEPT PURSUANT TO REGISTRATION UNDER THE ACT OR
PURSUANT TO AN 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 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.
Issue Date: May 5, 1998
WARRANT TO PURCHASE SERIES A COMMON STOCK
OF
AT HOME CORPORATION
THIS CERTIFIES THAT in consideration of the continued rapid deployment
of the @Home Service of At Home Corporation, a Delaware corporation (the
"COMPANY"), Century Communications Corp., a New Jersey corporation (the "INITIAL
REGISTERED HOLDER"), or its permitted registered assigns (including the Initial
Registered Holder, the "REGISTERED Holder"), is entitled, subject to the terms
and conditions of this Warrant, to purchase from the Company at any time (i) on
or after the Commencement Date and (ii) on or prior to the Expiration Date,
2,630,000 shares of the Company's Series A Common Stock (subject to adjustment
as set forth in the Company's Certificate of Incorporation), at an exercise
price equal to $10.50 per share of Series A Common Stock (such price, as it may
be adjusted pursuant to the provisions of Section 5 below, referred to as the
"EXERCISE PRICE"), upon surrender of this Warrant at the principal office of the
Company, together with a duly executed subscription form in the form attached
hereto as Exhibit 1 and simultaneous payment of the full exercise price for the
shares of Warrant Stock so purchased. The Exercise Price and the number and kind
of shares of Warrant Stock purchasable under this Warrant are subject to
adjustment as provided herein.
Notwithstanding anything to the contrary contained in this Warrant, this Warrant
and all rights to purchase Warrant Stock hereunder shall terminate on the
Expiration Date.
<PAGE> 2
1. CERTAIN DEFINITIONS.
1.1 DEFINITIONS INCORPORATED BY REFERENCE. The following terms shall
have the meaning ascribed to them in the @Home Network Distribution Agreement,
dated as of May 1, 1998, between the Company and the Initial Registered Holder:
<TABLE>
<CAPTION>
Term Cross Reference
---- ---------------
<S> <C>
@Home Service Section 1(d)
@Home Facilities Upgrade Section 1(b)
Deployment Schedule Section 1(l)
Living Unit Section 1(s)
Master Roll-Out Plan Section 2(a)(i)
MDU Section 1(y)
One-Way Data-Ready Cable System Section 1(k)
Service Area Section 1(ee)
Service Area Plan Section 2 (b)(i)
Two-Way Data-Ready Cable System Section 1(k)
</TABLE>
1.2 ADDITIONAL DEFINITIONS. The following additional definitions shall
apply for purposes of this Warrant:
"ACT" means the Securities Act of 1933, as amended.
"COMMENCEMENT DATE" means March 31, 1999.
"COMMERCIALLY DEPLOYED" means a Eligible Living Unit that is: (i)
connected to a Two-Way Data-Ready Cable System or to a One-Way Data-Ready Cable
System; and (ii) able to subscribe to the @Home Service, if desired.
Notwithstanding the foregoing, if an Eligible Living Unit that is connected to a
Two-Way Data-Ready Cable System or to a One-Way Data-Ready Cable System is not
able to subscribe to the @Home Service because the Company has not completed the
@Home Facilities Upgrade in accordance with the Deployment Schedule set forth in
the Service Area Plan for that Eligible Living Unit, such Eligible Living Unit
will be considered "Commercially Deployed." A Eligible Living Unit will be
considered "connected" to a Two-Way Data Ready Cable System or a One-Way Data
Ready Cable System, if the Eligible Living Unit is located within 150 feet of
the applicable Two-Way Data Ready Cable System or One-Way Data Ready Cable
System. A Eligible Living Unit in a MDU that meets the criteria set forth in
clause (i) and (ii) above shall be counted as one Commercially Deployed Living
Unit.
"DETERMINATION DATE" means March 31 of each of 1999, 2000, 2001,
2002 and 2003.
"DISTRIBUTION AGREEMENT" means the @Home Network Distribution
Agreement, dated as of May 1, 1998, between the Company and the Initial
Registered Holder.
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<PAGE> 3
"ELIGIBLE LIVING UNITS" means the Living Units in those Service
Areas indicated on the Master Roll-Out Plan that were used for calculating the
number of Warrant Shares.
"EXPIRATION DATE" means 5:00 p.m. Pacific Time on June 1, 2004.
"ISSUE DATE" means the date of this Warrant.
"PERSON" means any individual, corporation, limited liability
company, partnership, 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.
"SEC" means the U.S. Securities and Exchange Commission.
"SECOND WARRANT" means the warrant (and any warrant(s) delivered
in substitution or exchange therefor, as provided therein) to be issued to the
Initial Registered Holder upon the occurrence of certain events, pursuant to the
Warrant Purchase Agreement, dated as of the date of this Warrant, between the
Company and the Initial Registered Holder.
"SERIES A COMMON STOCK" means the Company's Series A Common
Stock, par value $0.01 per share, and stock of any other series or class into
which the same may be changed.
"WARRANT" means this Warrant and any warrant(s) delivered in
substitution or exchange therefor, as provided herein.
"WARRANT PURCHASE AGREEMENT" means the Agreement dated of even
date herewith between the Company and the Initial Registered Holder relating to
the purchase of this Warrant.
"WARRANT STOCK" means shares of Series A Common Stock issued upon
exercise of this Warrant (or, for the purposes of Section 2.1.2, the Second
Warrant).
2. EXERCISE.
2.1 Exercisability of Warrant. This Warrant is not immediately
exercisable, and will become exercisable with respect to that number of shares
of Warrant Stock as follows:
2.1.1 On each Determination Date, this Warrant shall become
exercisable as to a number of shares of Warrant Stock equal to (x) the number of
Eligible Living Units which, on such date, are (A) subject to a Service Area
Plan and (B) Commercially Deployed, multiplied by (y) two. On or following a
Determination Date, the Registered Holder shall provide the Company with a
certificate, executed by either the Chief Executive Officer or Chief Financial
Officer of the Registered Holder, setting forth in detail its calculation of
such number of residences, which determination shall be conclusive unless
disputed by the Company. In the event that the Company shall dispute such
determination, the Company shall, within three
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<PAGE> 4
business days of its receipt of the Registered Holder's certificate, give
written notice to the Registered Holder, setting forth in detail the basis of
its dispute. In the event of such a dispute, no shares of Warrant Stock shall
become exercisable in connection with such Determination Date until both the
Company and the Registered Holder shall have resolved such dispute to their
mutual satisfaction. For the avoidance of doubt, shares of Warrant Stock
exercisable prior to such Determination Date shall continue to be exercisable
regardless of any such dispute.
2.1.2 If, between January 1, 1999 and December 31, 1999, the
Initial Registered Holder enters into a binding purchase agreement to acquire
additional Living Units in the Los Angeles area from one or more cable
operators, excluding any acquired Living Units in respect of which any cable
operator has received equity securities of the Company (including warrants and
other exercisable or convertible securities) (the "1999 ACQUIRED HOMES"), either
this Warrant or the Second Warrant (if such Second Warrant has been issued)
shall, on the appropriate Determination Date, become exercisable as to a number
of shares of Warrant Stock equal to (x) the number of 1999 Acquired Homes which
are (A) subject to a Service Area Plan and (B) Commercially Deployable,
multiplied by (y) two. The certification and dispute provisions of Section 2.1.1
shall also apply to the exercisability of shares of Warrant Stock under this
Section 2.1.2.
2.1.3 In no event shall the number of shares of Warrant Stock
exercisable pursuant to Sections 2.1.1 and 2.1.2 of this Warrant exceed
2,630,000.
2.2 Surrender. Subject to compliance with all applicable
securities laws and the provisions of Section 2.1, this Warrant may be exercised
in whole or in part by surrendering this Warrant at the principal office of the
Company at 425 Broadway, Redwood City, California 94063, with the subscription
form attached hereto as Exhibit 1 duly executed by the Registered Holder,
accompanied by payment as set forth in Section 2.3 below.
2.3 Payment of Exercise Price. Payment shall be made at any time
with respect to shares of Warrant Stock being purchased hereunder (x) by the
payment to the Company, by cash, check and/or wire transfer, of an amount equal
to the then-applicable Exercise Price per share multiplied by the number of
shares of Warrant Stock then being purchased, or, at the option of the
Registered Holder, (y) by surrendering to the Company for cancellation the right
to receive upon exercise hereof a number of shares of Series A Common Stock
equal to the value (as determined below) of the shares of Warrant Stock with
respect to which this Warrant is being exercised, in which case the number of
shares to be issued to the Registered Holder upon such exercise shall be
computed using the following formula:
X = Y(A-B)
-----
A
Where: X = the number of shares of Series A Common Stock to be
issued to the Registered Holder.
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<PAGE> 5
Y = the number of shares of Series A Common Stock with
respect to which this Warrant is being exercised and
with respect to which the right to receive shares is
being cancelled.
A = the fair market value of one share of Series A Common
Stock.
B = the Exercise Price per share of Series A Common Stock
(as it may be adjusted pursuant to the provisions of
Section 5);
provided, that in the case of a cashless exercise pursuant to clause (y), the
Registered Holder shall only be entitled to surrender for cancellation the right
to receive shares which may then be issued upon exercise of this Warrant.
As used herein, the "fair market value of one share of Series A Common Stock"
shall mean the average, for the five trading days (or such fewer number of days
as the Company's Series A Common Stock may have been publicly traded) ending
with the trading day which is two trading days prior to the date of such
surrender, of:
(a) the closing prices of the Company's Series A Common
Stock sold on the securities exchange(s) on which the Series A Common Stock may
at the time be listed, or
(b) if there have been no sales on such exchange(s) on
any such trading day, the average of the highest bid and lowest asked prices on
such exchange(s) at the end of such day, or
(c) if on any such trading day the Series A Common Stock
is not so listed, the average of the representative bid and asked prices quoted
on the Nasdaq National Market ("NASDAQ") as of 4:00 p.m., New York City time, on
such day, or
(d) if on any such trading day the Series A Common Stock
is not quoted on Nasdaq, the average of the highest bid and lowest asked price
on such day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization.
2.4 Date of Exercise; Fractional Shares. Except as otherwise
provided in Section 2.3, this Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided in Sections 2.2 and 2.3, and the person entitled to receive
the shares of Warrant Stock issuable upon such exercise shall be treated for all
purposes as the holder of record of such shares as of the close of business on
such date. As soon as practicable on or after such date, the Company shall issue
and deliver to the person or persons entitled to receive the same a certificate
or certificates for the number of whole shares of Warrant Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share equal to
such fraction of the current fair market value of one whole share of Warrant
Stock as of the date of exercise, as determined in good faith by the Company's
Board of Directors. No
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<PAGE> 6
fractional shares may be issued upon any exercise of this Warrant, and any
fractions shall be rounded down to the nearest whole number of shares.
2.5 Partial Exercise. Upon a partial exercise of this Warrant,
this Warrant shall be surrendered by the Registered Holder and replaced with a
new Warrant of like tenor in the name of the Registered Holder providing for the
right to purchase the number of shares of Warrant Stock as to which this Warrant
has not then been exercised.
2.6 Taxes. The issuance of certificates for shares of Warrant
Stock upon the exercise of this Warrant will be made without charge by the
Company to the Registered Holder for any issue tax (other than applicable income
tax).
3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Fully Paid Shares; Reservation. The Company hereby represents
and warrants to the Registered Holder that all shares of Warrant Stock which may
be issued upon exercise of this Warrant shall have been duly and validly
reserved for issuance and, upon issuance, be duly authorized, validly issued,
fully paid and nonassessable, and free of any liens, claims, charges, security
interests, pledges or encumbrances of any kind, except for restrictions on
transfer provided for in this Warrant and under applicable federal and state
securities laws. If at any time the number of authorized but unissued shares of
the Company's Warrant Stock shall not be sufficient to effect the exercise of
this Warrant, the Company will take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Warrant Stock to such number of shares of Warrant Stock as shall be sufficient
for such purpose.
3.2 Notices. The Company agrees that it will notify the
Registered Holder at least ten (10) business days in advance of the proposed
consummation of any pending consolidation or merger of the Company into any
other corporation or the sale of all or substantially all of the Company's
assets to another corporation, unless after the closing of any such transaction
the stockholders of the Company immediately prior to such transaction own in
excess of fifty percent (50%) of the voting power of the surviving corporation
or its parent corporation. Such notice shall include a description of all
material terms and conditions of such transaction and the per share value of the
consideration to be paid in connection therewith, and other information given by
the Company to the holders of its Series A Common Stock in connection with their
approval thereof.
3.3 No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or Bylaws, or through reorganization,
consolidation, merger, dissolution, issue or sale of securities, sale of assets
or any other voluntary action, willfully avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Registered Holder under this Warrant against wrongful impairment. Without
limiting the generality of the foregoing, the Company: (i) will not set nor
increase the par value of any shares of stock issuable upon exercise of this
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<PAGE> 7
Warrant above the amount payable therefor upon such exercise, and (ii) will take
all such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and non-assessable shares of Warrant Stock
upon the exercise of this Warrant.
4. TRANSFER RESTRICTIONS.
4.1 Limitations on Transfer.
(i) Any portion of this Warrant that is then exercisable
pursuant to Section 2.1 above may be assigned, conveyed or transferred by the
Registered Holder to a third party without the Company's consent provided that
the third party agrees in writing to comply with all of the terms and conditions
of this Warrant and the Company is informed in writing of such assignment,
conveyance or transfer.
(ii) Unless otherwise agreed by @Home in writing, which
consent will not be unreasonably withheld, any portion of this Warrant that is
not exercisable may not be assigned, conveyed or transferred by the Registered
Holder to a third party except when the Eligible Homes underlying that portion
of the Warrant are transferred to that third party in accordance with the
Distribution Agreement, such third party agrees in writing to comply with all of
the terms and conditions of this Warrant, and the Company is informed in writing
of such assignment, conveyance or transfer.
4.2 Mechanics and Effects of Transfer. Any assignment, conveyance
or transfer of the Warrant, the Warrant Stock or the rights hereunder shall be
made on the books of the Company maintained for such purpose at the principal
office of the Company upon surrender of this Warrant or the Warrant Stock and a
properly completed assignment in the form of Exhibit 2 hereto. All transferees
under this Section 4 will be bound by the provisions of this Section 4.
Notwithstanding the foregoing, this Warrant and the rights hereunder may not be
assigned, conveyed or transferred unless such assignment, conveyance or transfer
also complies with all applicable securities laws and the provisions of Section
8.2 hereof.
4.3 Legends; Notations. The certificates evidencing the Warrant
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."; and
-7-
<PAGE> 8
(b) any legend required by any applicable state
securities law.
The Company shall make a notation on its stock books regarding
the restrictions on transfer of the Warrants and Warrant Stock provided by
applicable securities and other laws and this Warrant, and will transfer
securities on the books of the Company only to the extent not inconsistent
therewith. Without limiting the foregoing, the Company shall refuse to register
any transfer of the Warrants or Warrant Stock not made in accordance with or
pursuant to an applicable exemption from registration under the Act and
applicable state securities laws.
5. ADJUSTMENT OF EXERCISE PRICE, NUMBER AND KIND OF SHARES. The number
and kind of shares of Warrant Stock issuable upon exercise of this Warrant (or
any shares of stock or other securities or property at the time receivable or
issuable upon exercise of this Warrant) and the Exercise Price therefor, are
subject to adjustment upon the occurrence of the following events:
5.1 Adjustment for Stock Splits, Stock Dividends,
Recapitalizations, etc. The Exercise Price of this Warrant and the number of
shares of Series A Common Stock issuable upon exercise of this Warrant shall
each be proportionally adjusted to reflect any stock dividend, stock split,
reverse stock split, recapitalization and the like affecting the number of
outstanding shares of Series A Common Stock that occurs after the Issue Date.
5.2 Adjustment for Reorganization, Consolidation, Merger. In case
of any reorganization of the Company (or of any other corporation, the stock or
other securities of which are at the time receivable on the exercise of this
Warrant), after the Issue Date, or in case, after such date, the Company (or any
such corporation) shall consolidate with or merge into another corporation or
convey all or substantially all of its assets to another corporation or other
entity, then, and in each such case, the Registered Holder of this Warrant, upon
any permitted exercise of this Warrant (as provided in Section 2), at any time
after the consummation of such reorganization, consolidation, merger, or
conveyance, shall be entitled to receive, in lieu of the stock or other
securities and property receivable upon the exercise of this Warrant prior to
such consummation, the stock or other securities or property to which such
Registered Holder would have been entitled upon the consummation of such
reorganization, consolidation, merger or conveyance if such Registered Holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in this Section 5, and the successor or purchasing
corporation or other entity in such reorganization, consolidation, merger or
conveyance (if other than the Company) shall duly execute and deliver to the
Registered Holder a supplement hereto acknowledging such corporation's or
entity's obligations under this Warrant; and in each such case, the terms of
this Warrant (including the exercisability, transfer and adjustment provisions
of this Warrant) shall be applicable to the shares of stock or other securities
or property receivable upon the exercise of this Warrant after the consummation
of such reorganization, consolidation, merger or conveyance.
6. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment in
either the Exercise Price or in the number of shares of Warrant Stock, or other
stock, securities or property receivable upon the exercise of this Warrant, the
Chief Financial Officer of the Company shall
-8-
<PAGE> 9
promptly thereafter compute such adjustment in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment and showing in
detail the facts upon which such adjustment is based, including a statement of
the adjusted Exercise Price. The Company will cause copies of such certificate
to be mailed (by first class mail, postage prepaid) to the Registered Holder.
7. LOSS OR MUTILATION. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership, and the loss, theft, destruction
or mutilation, of this Warrant, and of indemnity reasonably satisfactory to it,
and (in the case of mutilation) upon surrender and cancellation of this Warrant,
the Company will execute and deliver in lieu thereof a new Warrant of like
tenor.
8. REPRESENTATIONS AND WARRANTIES OF THE REGISTERED HOLDER.
8.1 Restrictions under Securities Laws. The Registered Holder
understands that neither the offer and sale of this Warrant nor the offer and
sale of shares of Warrant Stock that may be purchased upon exercise thereof have
been registered under the Act, or any state securities laws. As a condition to
the issuance of this Warrant and to its exercise the Registered Holder hereby
represents and warrants to the Company that:
(a) The Warrant and the underlying shares of Warrant Stock
(collectively, the "SECURITIES") are being and/or will be acquired by the
Registered Holder in a transaction exempt from registration under Section 4(2)
of the Act and/or Regulation D promulgated under the Act, for its own account,
for investment purposes only, and not with a view to the sale or other
distribution thereof within the meaning of the Act and the Registered Holder has
no present intention of selling or otherwise disposing of all or any portion of
the Securities except as permitted by the Warrant Purchase Agreement and this
Warrant.
(b) The Registered Holder is capable of evaluating the
merits and risks of any investment in the Securities, is financially capable of
bearing a total loss of this investment and either: (i) has a preexisting
personal or business relationship with the Company or its principals; (ii) by
reason of the Registered Holder's business or financial experience, has the
capacity to protect his or its own interests in connection with this investment;
or (iii) if the Registered Holder is the Initial Registered Holder, is an
"accredited investor" within the meaning of Regulation D promulgated under the
Act, as amended.
(c) The Registered Holder has had access to all
information regarding the Company, its present and prospective business, assets,
liabilities and financial condition that the Registered Holder considers
important to making the decision to acquire the Securities and has had ample
opportunity to ask questions of and receive answers from the Company's
representatives concerning an investment in the Securities and to obtain any and
all documents requested in order to supplement or verify any of the information
supplied.
(d) The Registered Holder understands that the Securities
shall be deemed restricted securities under the Act and may not be resold unless
they are registered under
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<PAGE> 10
the Act and any applicable State securities law, or in the opinion of counsel in
form and substance satisfactory to the Company, an exemption from such
registration is available.
(e) The Registered Holder is aware of Rule 144 promulgated
under the Act, which rule provides, in substance, that: (i) after one year from
the date restricted securities have been purchased and fully paid for, a holder
may transfer restricted securities provided certain conditions are met (e.g.,
certain public information is available about the Company), and specific
limitations on the amount of shares which can be sold within certain periods and
the manner in which such shares must be sold are complied with; and (ii) after
two years from the date the securities have been purchased and fully paid for,
holders who are not "affiliates" of the Company may sell restricted securities
without satisfying such conditions.
(f) The Registered Holder further understands that if the
requirements of Rule 144 are not met, registration under the Act or compliance
with some other registration exemption will be required for any disposition of
the Securities; and that, although Rule 144 is not exclusive, the SEC has
expressed its opinion that persons proposing to sell restricted securities other
than in a registered offering or other than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales and such persons and the brokers who
participate in the transactions do so at their own risk. The Registered Holder
understands that the Company is under no obligation to register the Securities
or take any other actions under the Act or any state securities laws.
8.2 Compliance with Securities Laws. The Registered Holder of
this Warrant, by acceptance hereof, agrees that, absent an effective
registration statement filed with the SEC under the Act covering the disposition
or sale of any Securities, such Registered Holder will not sell or transfer any
or all of such Securities unless such sale or transfer is pursuant to an
available exemption from registration under the Act and applicable state
securities laws. As a condition to any such sale or transfer, the Registered
Holder shall first provide the Company with an opinion of counsel satisfactory
to the Company to the effect that such sale or transfer is or will be exempt
from the registration and prospectus delivery requirements of the Act and
applicable state securities laws. Such Registered Holder consents to the Company
making a notation on its records, or giving instructions to any transfer agent
of such Securities, in order to implement the foregoing restrictions on
transfer. The shares issued upon exercise of this Warrant shall bear legends
referring to the restrictions on transfer set forth in this Section 8. As a
condition to the transfer of this Warrant or transfer of the shares issuable on
exercise hereof, any permitted transferee must execute and deliver to the
Company representations and warranties similar to these set forth in this
Section 8 and applicable to a transferee of securities in an exempt transaction
under the Act and must agree in writing to accept and be bound by all the terms
and conditions of this Warrant.
9. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. This Warrant does not by
itself entitle the Registered Holder to any voting rights or other rights as a
stockholder of the Company. In the absence of affirmative action by the
Registered Holder to purchase Warrant Stock by exercise of this Warrant, no
provisions of this Warrant, and no enumeration herein of the rights or
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<PAGE> 11
privileges of the Registered Holder shall cause such Registered Holder to be a
stockholder of the Company for any purpose.
10. REGULATORY COMPLIANCE. If the Registered Holder of this Warrant or
the Warrant Stock would be subject to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and the rules and regulations thereunder (collectively,
the "ANTITRUST LAW"), then prior to such exercise or conversion and following
such Registered Holder's notice to the Company of its intention to exercise or
convert, the Company and such Registered 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 and the Antitrust Division of the Department of Justice. Each
of the Company and such Registered Holder shall bear and pay any costs or
expenses that it incurs in compliance with this requirement.
11. AMENDMENT; WAIVER. Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Registered Holder. Any amendment or
waiver effected in accordance with this Section 11 shall be binding upon the
Registered Holder, any future Registered Holder and the Company.
12. NOTICES. All notices and other communications from the Company to
the Registered Holder shall be deemed given when personally delivered, mailed by
first-class registered or certified mail, postage prepaid, delivered by
recognized overnight courier service, or transmitted by facsimile (with
confirmation by first class mail), to the address furnished to the Company in
writing by the Registered Holder who shall have furnished an address and/or
facsimile number to the Company in writing.
13. HEADINGS. The headings in this Warrant are for purposes of
convenience in reference only, and shall not be deemed to constitute a part
hereof.
14. LAW GOVERNING. This Warrant shall be construed and enforced in
accordance with, and governed by, the internal laws of the State of Delaware,
excluding that body of law applicable to conflicts of laws.
15. TERMS BINDING. By acceptance of this Warrant, the Registered Holder
of this Warrant (and each subsequent assignee, transferee or Registered Holder
of this Warrant) accepts and agrees to be bound by all the terms and conditions
of this Warrant.
16. COUNTERPARTS. This Warrant may be executed in one or more
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 12
IN WITNESS WHEREOF, the Company and the Registered Holder have executed this
Warrant as of the Issue Date.
THE COMPANY: ACKNOWLEDGED AND ACCEPTED
BY REGISTERED HOLDER:
AT HOME CORPORATION CENTURY COMMUNICATIONS CORP.
By: /s/ DEAN A. GILBERT By: /s/ CLIFFORD A. BAIL
------------------------------ ----------------------------------
Name: Dean A. Gilbert Name: Clifford A. Bail
---------------------------- --------------------------------
Title: SVP, GM @Home Title: Vice President
--------------------------- -------------------------------
[WARRANT SIGNATURE PAGE]
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<PAGE> 1
EXHIBIT 10.27
CENTURY COMMUNICATIONS CORP. WARRANT (SECOND WARRANT)
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT 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 EXCEPT PURSUANT TO REGISTRATION UNDER THE ACT OR
PURSUANT TO AN 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 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.
Issue Date: ________________
WARRANT TO PURCHASE SERIES A COMMON STOCK
OF
AT HOME CORPORATION
THIS CERTIFIES THAT in consideration of the continued rapid deployment
of the @Home Service of At Home Corporation, a Delaware corporation (the
"COMPANY"), Century Communications Corp., a New Jersey corporation (the "INITIAL
REGISTERED HOLDER"), or its permitted registered assigns (including the Initial
Registered Holder, the "REGISTERED HOLDER"), is entitled, subject to the terms
and conditions of this Warrant, to purchase from the Company at any time (i) on
or after the Commencement Date and (ii) on or prior to the Expiration Date,
[____________] shares of the Company's Series A Common Stock (subject to
adjustment as set forth in the Company's Certificate of Incorporation), at an
exercise price equal to $10.50 per share of Series A Common Stock (such price,
as it may be adjusted pursuant to the provisions of Section 5 below, referred to
as the "EXERCISE PRICE"), upon surrender of this Warrant at the principal office
of the Company, together with a duly executed subscription form in the form
attached hereto as Exhibit 1 and simultaneous payment of the full exercise price
for the shares of Warrant Stock so purchased. The Exercise Price and the number
and kind of shares of Warrant Stock purchasable under this Warrant are subject
to adjustment as provided herein.
Notwithstanding anything to the contrary contained in this Warrant, this Warrant
and all rights to purchase Warrant Stock hereunder shall terminate on the
Expiration Date.
<PAGE> 2
1. CERTAIN DEFINITIONS.
1.1 DEFINITIONS INCORPORATED BY REFERENCE. The following terms shall
have the meaning ascribed to them in the @Home Network Distribution Agreement,
dated as of May 1, 1998, between the Company and the Initial Registered Holder:
<TABLE>
<CAPTION>
Term Cross Reference
---- ---------------
<S> <C>
@Home Service Section 1(d)
@Home Facilities Upgrade Section 1(b)
Deployment Schedule Section 1(l)
Living Unit Section 1(s)
Master Roll-Out Plan Section 2(a)(i)
MDU Section 1(y)
One-Way Data-Ready Cable System Section 1(k)
Service Area Section 1(ee)
Service Area Plan Section 2 (b)(i)
Two-Way Data-Ready Cable System Section 1(k)
</TABLE>
1.2 ADDITIONAL DEFINITIONS. The following additional definitions shall
apply for purposes of this Warrant:
"1998 ACQUIRED HOMES" means Living Units in the Los Angeles area,
in addition to those covered by the original Master Roll-Out Plan attached to
the Distribution Agreement, acquired by the Initial Registered Holder pursuant
to binding purchase agreement(s) entered into on or prior to December 31, 1998,
excluding any acquired Living Units in respect of which any cable operator has
received equity securities of the Company (including warrants and other
exercisable or convertible securities) in respect of such acquired Living Units.
"ACT" means the Securities Act of 1933, as amended.
"COMMENCEMENT DATE" means March 31, 1999.
"COMMERCIALLY DEPLOYED" means a Eligible Living Unit that is: (i)
connected to a Two-Way Data-Ready Cable System or to a One-Way Data-Ready Cable
System; and (ii) able to subscribe to the @Home Service, if desired.
Notwithstanding the foregoing, if an Eligible Living Unit that is connected to a
Two-Way Data-Ready Cable System or to a One-Way Data-Ready Cable System is not
able to subscribe to the @Home Service because the Company has not completed the
@Home Facilities Upgrade in accordance with the Deployment Schedule set forth in
the Service Area Plan for that Eligible Living Unit, such Eligible Living Unit
will be considered "Commercially Deployed." A Eligible Living Unit will be
considered "connected" to a Two-Way Data Ready Cable System or a One-Way Data
Ready Cable System, if the Eligible Living Unit is located within 150 feet of
the applicable Two-Way Data Ready Cable System or One-Way Data Ready Cable
System. A Eligible Living Unit in a MDU that meets the criteria set forth in
clause (i) and (ii) above shall be counted as one Commercially Deployed Living
Unit.
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<PAGE> 3
"DETERMINATION DATE" means March 31 of each of 1999, 2000, 2001,
2002 and 2003.
"DISTRIBUTION AGREEMENT" means the @Home Network Distribution
Agreement, dated as of May 1, 1998, between the Company and the Initial
Registered Holder.
"ELIGIBLE LIVING UNITS" means the Living Units in those Service
Areas indicated on the Master Roll-Out Plan that were used for calculating the
number of Warrant Shares.
"EXPIRATION DATE" means 5:00 p.m. Pacific Time on June 1, 2004.
"FIRST WARRANT" means the Company warrant (and any warrant(s)
delivered in substitution or exchange therefor, as provided therein) issued to
the Initial Registered Holder on May 5, 1998.
"ISSUE DATE" means the date of this Warrant.
"PERSON" means any individual, corporation, limited liability
company, partnership, 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.
"SEC" means the U.S. Securities and Exchange Commission.
"SERIES A COMMON STOCK" means the Company's Series A Common
Stock, par value $0.01 per share, and stock of any other series or class into
which the same may be changed.
"WARRANT" means this Warrant and any warrant(s) delivered in
substitution or exchange therefor, as provided herein.
"WARRANT PURCHASE AGREEMENT" means the Agreement dated of even
date herewith between the Company and the Initial Registered Holder relating to
the purchase of this Warrant.
"WARRANT STOCK" means shares of Series A Common Stock issued upon
exercise of this Warrant (or, for the purposes of Section 2.1.2, the First
Warrant).
2. EXERCISE.
2.1 Exercisability of Warrant. This Warrant is not immediately
exercisable, and will become exercisable with respect to that number of shares
of Warrant Stock as follows:
2.1.1 On each Determination Date, this Warrant shall become
exercisable as to a number of shares of Warrant Stock equal to (x) the number of
1998 Acquired Homes on the Master Roll-Out Plan (or any amendment thererto)
which, on such date, are (A) subject to a
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<PAGE> 4
Service Area Plan and (B) Commercially Deployed, multiplied by (y) two. On or
following a Determination Date, the Registered Holder shall provide the Company
with a certificate, executed by either the Chief Executive Officer or Chief
Financial Officer of the Registered Holder, setting forth in detail its
calculation of such number of residences, which determination shall be
conclusive unless disputed by the Company. In the event that the Company shall
dispute such determination, the Company shall, within three business days of its
receipt of the Registered Holder's certificate, give written notice to the
Registered Holder, setting forth in detail the basis of its dispute. In the
event of such a dispute, no shares of Warrant Stock shall become exercisable in
connection with such Determination Date until both the Company and the
Registered Holder shall have resolved such dispute to their mutual satisfaction.
For the avoidance of doubt, shares of Warrant Stock exercisable prior to such
Determination Date shall continue to be exercisable regardless of any such
dispute.
2.1.2 If, between January 1, 1999 and December 31, 1999, the
Initial Registered Holder enters into a binding purchase agreement to acquire
additional Living Units in the Los Angeles area from one or more cable
operators, excluding any acquired Living Units in respect of which any cable
operator has received equity securities of the Company (including warrants and
other exercisable or convertible securities) (the "1999 ACQUIRED HOMES"), either
this Warrant or the First Warrant shall, on the appropriate Measurement Date,
become exercisable as to a number of shares of Warrant Stock equal to (x) the
number of 1999 Acquired Homes which are (A) subject to a Service Area Plan and
(B) Commercially Deployable, multiplied by (y) two. The certification and
dispute provisions of Section 2.1.1 shall also apply to the exercisability of
shares of Warrant Stock under this Section 2.1.2.
2.1.3 In no event shall the number of shares of Warrant Stock
exercisable pursuant to Sections 2.1.1 and 2.1.2 of this Warrant exceed
[___________].
2.2 Surrender. Subject to compliance with all applicable
securities laws and the provisions of Section 2.1, this Warrant may be exercised
in whole or in part by surrendering this Warrant at the principal office of the
Company at 425 Broadway, Redwood City, California 94063, with the subscription
form attached hereto as Exhibit 1 duly executed by the Registered Holder,
accompanied by payment as set forth in Section 2.3 below.
2.3 Payment of Exercise Price. Payment shall be made at any time
with respect to shares of Warrant Stock being purchased hereunder (x) by the
payment to the Company, by cash, check and/or wire transfer, of an amount equal
to the then-applicable Exercise Price per share multiplied by the number of
shares of Warrant Stock then being purchased, or, at the option of the
Registered Holder, (y) by surrendering to the Company for cancellation the right
to receive upon exercise hereof a number of shares of Series A Common Stock
equal to the value (as determined below) of the shares of Warrant Stock with
respect to which this Warrant is being exercised, in which case the number of
shares to be issued to the Registered Holder upon such exercise shall be
computed using the following formula:
-4-
<PAGE> 5
X = Y(A-B)
------
A
Where: X = the number of shares of Series A Common Stock to be
issued to the Registered Holder.
Y = the number of shares of Series A Common Stock with
respect to which this Warrant is being exercised and with
respect to which the right to receive shares is being
cancelled.
A = the fair market value of one share of Series A Common
Stock.
B = the Exercise Price per share of Series A Common Stock
(as it may be adjusted pursuant to the provisions of
Section 5);
provided, that in the case of a cashless exercise pursuant to clause (y), the
Registered Holder shall only be entitled to surrender for cancellation the right
to receive shares which may then be issued upon exercise of this Warrant.
As used herein, the "fair market value of one share of Series A Common Stock"
shall mean the average, for the five trading days (or such fewer number of days
as the Company's Series A Common Stock may have been publicly traded) ending
with the trading day which is two trading days prior to the date of such
surrender, of:
(a) the closing prices of the Company's Series A Common
Stock sold on the securities exchange(s) on which the Series A Common Stock may
at the time be listed, or
(b) if there have been no sales on such exchange(s) on any
such trading day, the average of the highest bid and lowest asked prices on such
exchange(s) at the end of such day, or
(c) if on any such trading day the Series A Common Stock
is not so listed, the average of the representative bid and asked prices quoted
on the Nasdaq National Market ("NASDAQ") as of 4:00 p.m., New York City time, on
such day, or
(d) if on any such trading day the Series A Common Stock
is not quoted on Nasdaq, the average of the highest bid and lowest asked price
on such day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization.
2.4 Date of Exercise; Fractional Shares. Except as otherwise
provided in Section 2.3, this Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided in Sections 2.2 and 2.3, and the person entitled to receive
the shares of Warrant Stock issuable upon such exercise shall be treated for all
purposes as the holder of record of such shares as of the close of business on
such date.
-5-
<PAGE> 6
As soon as practicable on or after such date, the Company shall issue and
deliver to the person or persons entitled to receive the same a certificate or
certificates for the number of whole shares of Warrant Stock issuable upon such
exercise, together with cash in lieu of any fraction of a share equal to such
fraction of the current fair market value of one whole share of Warrant Stock as
of the date of exercise, as determined in good faith by the Company's Board of
Directors. No fractional shares may be issued upon any exercise of this Warrant,
and any fractions shall be rounded down to the nearest whole number of shares.
2.5 Partial Exercise. Upon a partial exercise of this Warrant,
this Warrant shall be surrendered by the Registered Holder and replaced with a
new Warrant of like tenor in the name of the Registered Holder providing for the
right to purchase the number of shares of Warrant Stock as to which this Warrant
has not then been exercised.
2.6 Taxes. The issuance of certificates for shares of Warrant
Stock upon the exercise of this Warrant will be made without charge by the
Company to the Registered Holder for any issue tax (other than applicable income
tax).
3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Fully Paid Shares; Reservation. The Company hereby represents
and warrants to the Registered Holder that all shares of Warrant Stock which may
be issued upon exercise of this Warrant shall have been duly and validly
reserved for issuance and, upon issuance, be duly authorized, validly issued,
fully paid and nonassessable, and free of any liens, claims, charges, security
interests, pledges or encumbrances of any kind, except for restrictions on
transfer provided for in this Warrant and under applicable federal and state
securities laws. If at any time the number of authorized but unissued shares of
the Company's Warrant Stock shall not be sufficient to effect the exercise of
this Warrant, the Company will take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Warrant Stock to such number of shares of Warrant Stock as shall be sufficient
for such purpose.
3.2 Notices. The Company agrees that it will notify the
Registered Holder at least ten (10) business days in advance of the proposed
consummation of any pending consolidation or merger of the Company into any
other corporation or the sale of all or substantially all of the Company's
assets to another corporation, unless after the closing of any such transaction
the stockholders of the Company immediately prior to such transaction own in
excess of fifty percent (50%) of the voting power of the surviving corporation
or its parent corporation. Such notice shall include a description of all
material terms and conditions of such transaction and the per share value of the
consideration to be paid in connection therewith, and other information given by
the Company to the holders of its Series A Common Stock in connection with their
approval thereof.
3.3 No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or Bylaws, or through reorganization,
consolidation, merger, dissolution, issue or sale of securities, sale of assets
or any other voluntary action, willfully avoid or seek to avoid
-6-
<PAGE> 7
the observance or performance of any of the terms of this Warrant, but will at
all times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Registered Holder under this Warrant against wrongful
impairment. Without limiting the generality of the foregoing, the Company: (i)
will not set nor increase the par value of any shares of stock issuable upon
exercise of this Warrant above the amount payable therefor upon such exercise,
and (ii) will take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and non-assessable
shares of Warrant Stock upon the exercise of this Warrant.
4. TRANSFER RESTRICTIONS.
4.1 Limitations on Transfer.
(i) Any portion of this Warrant that is then exercisable
pursuant to Section 2.1 above may be assigned, conveyed or transferred by the
Registered Holder to a third party without the Company's consent provided that
the third party agrees in writing to comply with all of the terms and conditions
of this Warrant and the Company is informed in writing of such assignment,
conveyance or transfer.
(ii) Unless otherwise agreed by @Home in writing, which
consent will not be unreasonably withheld, any portion of this Warrant that is
not exercisable may not be assigned, conveyed or transferred by the Registered
Holder to a third party except when the Eligible Homes underlying that portion
of the Warrant are transferred to that third party in accordance with the
Distribution Agreement, such third party agrees in writing to comply with all of
the terms and conditions of this Warrant, and the Company is informed in writing
of such assignment, conveyance or transfer.
4.2 Mechanics and Effects of Transfer. Any assignment, conveyance
or transfer of the Warrant, the Warrant Stock or the rights hereunder shall be
made on the books of the Company maintained for such purpose at the principal
office of the Company upon surrender of this Warrant or the Warrant Stock and a
properly completed assignment in the form of Exhibit 2 hereto. All transferees
under this Section 4 will be bound by the provisions of this Section 4.
Notwithstanding the foregoing, this Warrant and the rights hereunder may not be
assigned, conveyed or transferred unless such assignment, conveyance or transfer
also complies with all applicable securities laws and the provisions of Section
8.2 hereof.
4.3 Legends; Notations. The certificates evidencing the Warrant
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
-7-
<PAGE> 8
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."; and
(b) any legend required by any applicable state securities
law.
The Company shall make a notation on its stock books regarding
the restrictions on transfer of the Warrants and Warrant Stock provided by
applicable securities and other laws and this Warrant, and will transfer
securities on the books of the Company only to the extent not inconsistent
therewith. Without limiting the foregoing, the Company shall refuse to register
any transfer of the Warrants or Warrant Stock not made in accordance with or
pursuant to an applicable exemption from registration under the Act and
applicable state securities laws.
5. ADJUSTMENT OF EXERCISE PRICE, NUMBER AND KIND OF SHARES. The number
and kind of shares of Warrant Stock issuable upon exercise of this Warrant (or
any shares of stock or other securities or property at the time receivable or
issuable upon exercise of this Warrant) and the Exercise Price therefor, are
subject to adjustment upon the occurrence of the following events:
5.1 Adjustment for Stock Splits, Stock Dividends,
Recapitalizations, etc. The Exercise Price of this Warrant and the number of
shares of Series A Common Stock issuable upon exercise of this Warrant shall
each be proportionally adjusted to reflect any stock dividend, stock split,
reverse stock split, recapitalization and the like affecting the number of
outstanding shares of Series A Common Stock that occurs after the Issue Date.
5.2 Adjustment for Reorganization, Consolidation, Merger. In case
of any reorganization of the Company (or of any other corporation, the stock or
other securities of which are at the time receivable on the exercise of this
Warrant), after the Issue Date, or in case, after such date, the Company (or any
such corporation) shall consolidate with or merge into another corporation or
convey all or substantially all of its assets to another corporation or other
entity, then, and in each such case, the Registered Holder of this Warrant, upon
any permitted exercise of this Warrant (as provided in Section 2), at any time
after the consummation of such reorganization, consolidation, merger, or
conveyance, shall be entitled to receive, in lieu of the stock or other
securities and property receivable upon the exercise of this Warrant prior to
such consummation, the stock or other securities or property to which such
Registered Holder would have been entitled upon the consummation of such
reorganization, consolidation, merger or conveyance if such Registered Holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in this Section 5, and the successor or purchasing
corporation or other entity in such reorganization, consolidation, merger or
conveyance (if other than the Company) shall duly execute and deliver to the
Registered Holder a supplement hereto acknowledging such corporation's or
entity's obligations under this Warrant; and in each such case, the terms of
this Warrant (including the exercisability, transfer and adjustment provisions
of this Warrant) shall be applicable to the shares of stock or other securities
or property
-8-
<PAGE> 9
receivable upon the exercise of this Warrant after the consummation of such
reorganization, consolidation, merger or conveyance.
6. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment in
either the Exercise Price or in the number of shares of Warrant Stock, or other
stock, securities or property receivable upon the exercise of this Warrant, the
Chief Financial Officer of the Company shall promptly thereafter compute such
adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment and showing in detail the facts upon
which such adjustment is based, including a statement of the adjusted Exercise
Price. The Company will cause copies of such certificate to be mailed (by first
class mail, postage prepaid) to the Registered Holder.
7. LOSS OR MUTILATION. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership, and the loss, theft, destruction
or mutilation, of this Warrant, and of indemnity reasonably satisfactory to it,
and (in the case of mutilation) upon surrender and cancellation of this Warrant,
the Company will execute and deliver in lieu thereof a new Warrant of like
tenor.
8. REPRESENTATIONS AND WARRANTIES OF THE REGISTERED HOLDER.
8.1 Restrictions under Securities Laws. The Registered Holder
understands that neither the offer and sale of this Warrant nor the offer and
sale of shares of Warrant Stock that may be purchased upon exercise thereof have
been registered under the Act, or any state securities laws. As a condition to
the issuance of this Warrant and to its exercise the Registered Holder hereby
represents and warrants to the Company that:
(a) The Warrant and the underlying shares of Warrant Stock
(collectively, the "SECURITIES") are being and/or will be acquired by the
Registered Holder in a transaction exempt from registration under Section 4(2)
of the Act and/or Regulation D promulgated under the Act, for its own account,
for investment purposes only, and not with a view to the sale or other
distribution thereof within the meaning of the Act and the Registered Holder has
no present intention of selling or otherwise disposing of all or any portion of
the Securities except as permitted by the Warrant Purchase Agreement and this
Warrant.
(b) The Registered Holder is capable of evaluating the
merits and risks of any investment in the Securities, is financially capable of
bearing a total loss of this investment and either: (i) has a preexisting
personal or business relationship with the Company or its principals; (ii) by
reason of the Registered Holder's business or financial experience, has the
capacity to protect his or its own interests in connection with this investment;
or (iii) if the Registered Holder is the Initial Registered Holder, is an
"accredited investor" within the meaning of Regulation D promulgated under the
Act, as amended.
(c) The Registered Holder has had access to all
information regarding the Company, its present and prospective business, assets,
liabilities and financial condition that the Registered Holder considers
important to making the decision to acquire the Securities and
-9-
<PAGE> 10
has had ample opportunity to ask questions of and receive answers from the
Company's representatives concerning an investment in the Securities and to
obtain any and all documents requested in order to supplement or verify any of
the information supplied.
(d) The Registered Holder understands that the Securities
shall be deemed restricted securities under the Act and may not be resold unless
they are registered under the Act and any applicable State securities law, or in
the opinion of counsel in form and substance satisfactory to the Company, an
exemption from such registration is available.
(e) The Registered Holder is aware of Rule 144 promulgated
under the Act, which rule provides, in substance, that: (i) after one year from
the date restricted securities have been purchased and fully paid for, a holder
may transfer restricted securities provided certain conditions are met (e.g.,
certain public information is available about the Company), and specific
limitations on the amount of shares which can be sold within certain periods and
the manner in which such shares must be sold are complied with; and (ii) after
two years from the date the securities have been purchased and fully paid for,
holders who are not "affiliates" of the Company may sell restricted securities
without satisfying such conditions.
(f) The Registered Holder further understands that if the
requirements of Rule 144 are not met, registration under the Act or compliance
with some other registration exemption will be required for any disposition of
the Securities; and that, although Rule 144 is not exclusive, the SEC has
expressed its opinion that persons proposing to sell restricted securities other
than in a registered offering or other than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales and such persons and the brokers who
participate in the transactions do so at their own risk. The Registered Holder
understands that the Company is under no obligation to register the Securities
or take any other actions under the Act or any state securities laws.
8.2 Compliance with Securities Laws. The Registered Holder of
this Warrant, by acceptance hereof, agrees that, absent an effective
registration statement filed with the SEC under the Act covering the disposition
or sale of any Securities, such Registered Holder will not sell or transfer any
or all of such Securities unless such sale or transfer is pursuant to an
available exemption from registration under the Act and applicable state
securities laws. As a condition to any such sale or transfer, the Registered
Holder shall first provide the Company with an opinion of counsel satisfactory
to the Company to the effect that such sale or transfer is or will be exempt
from the registration and prospectus delivery requirements of the Act and
applicable state securities laws. Such Registered Holder consents to the Company
making a notation on its records, or giving instructions to any transfer agent
of such Securities, in order to implement the foregoing restrictions on
transfer. The shares issued upon exercise of this Warrant shall bear legends
referring to the restrictions on transfer set forth in this Section 8. As a
condition to the transfer of this Warrant or transfer of the shares issuable on
exercise hereof, any permitted transferee must execute and deliver to the
Company representations and warranties similar to these set forth in this
Section 8 and applicable to a transferee of securities in an exempt transaction
under the Act and must agree in writing to accept and be bound by all the terms
and conditions of this Warrant.
-10-
<PAGE> 11
9. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. This Warrant does not by
itself entitle the Registered Holder to any voting rights or other rights as a
stockholder of the Company. In the absence of affirmative action by the
Registered Holder to purchase Warrant Stock by exercise of this Warrant, no
provisions of this Warrant, and no enumeration herein of the rights or
privileges of the Registered Holder shall cause such Registered Holder to be a
stockholder of the Company for any purpose.
10. REGULATORY COMPLIANCE. If the Registered Holder of this Warrant or
the Warrant Stock would be subject to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and the rules and regulations thereunder (collectively,
the "ANTITRUST LAW"), then prior to such exercise or conversion and following
such Registered Holder's notice to the Company of its intention to exercise or
convert, the Company and such Registered 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 and the Antitrust Division of the Department of Justice. Each
of the Company and such Registered Holder shall bear and pay any costs or
expenses that it incurs in compliance with this requirement.
11. AMENDMENT; WAIVER. Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Registered Holder. Any amendment or
waiver effected in accordance with this Section 11 shall be binding upon the
Registered Holder, any future Registered Holder and the Company.
12. NOTICES. All notices and other communications from the Company to
the Registered Holder shall be deemed given when personally delivered, mailed by
first-class registered or certified mail, postage prepaid, delivered by
recognized overnight courier service, or transmitted by facsimile (with
confirmation by first class mail), to the address furnished to the Company in
writing by the Registered Holder who shall have furnished an address and/or
facsimile number to the Company in writing.
13. HEADINGS. The headings in this Warrant are for purposes of
convenience in reference only, and shall not be deemed to constitute a part
hereof.
14. LAW GOVERNING. This Warrant shall be construed and enforced in
accordance with, and governed by, the internal laws of the State of Delaware,
excluding that body of law applicable to conflicts of laws.
15. TERMS BINDING. By acceptance of this Warrant, the Registered Holder
of this Warrant (and each subsequent assignee, transferee or Registered Holder
of this Warrant) accepts and agrees to be bound by all the terms and conditions
of this Warrant.
16. COUNTERPARTS. This Warrant may be executed in one or more
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
-11-
<PAGE> 12
IN WITNESS WHEREOF, the Company and the Registered Holder have executed this
Warrant as of the Issue Date.
THE COMPANY: ACKNOWLEDGED AND ACCEPTED
BY REGISTERED HOLDER:
AT HOME CORPORATION CENTURY COMMUNICATIONS CORP.
By: By:
------------------------------ ------------------------------
Name: Name:
---------------------------- ---------------------------
Title: Title:
--------------------------- --------------------------
[WARRANT SIGNATURE PAGE]
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<PAGE> 1
EXHIBIT 10.28
WARRANT PURCHASE AGREEMENT
This Warrant Purchase Agreement (this "Agreement") is made as of June
27, 1998, by and between At Home Corporation (the "Company") and Garden State
Cablevision L.P. ("Purchaser").
The parties hereby agree as follows:
1. PURCHASE AND SALE OF WARRANT. Upon the execution of this Agreement,
the Company will issue and sell to Purchaser and Purchaser will purchase, in
exchange for aggregate consideration of $622.15, a warrant to purchase 592,528
shares of Series A Common Stock of the Company (the "Warrant Shares"), in the
form attached hereto as Exhibit A (the "Warrant").
2. CLOSING. The closing of the purchase and sale of the Warrant (the
"Closing") shall be held on the date hereof or at such other time as the Company
and Purchaser may mutually determine. At the Closing, Purchaser will deliver to
the Company a check or wire transfer funds in the amount of the purchase price
of the Warrant and the Company shall deliver the Warrant to Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. The representations and
warranties of Purchaser set forth in Section 8 of the Warrant are incorporated
herein as if fully set forth herein. In addition, Purchaser represents and
warrants to the Company that:
(i) The total number of Living Units (as such term is defined in
the Distribution Agreement) in the Service Area that were used for calculating
the number of Warrant Shares is indicated in the column entitled "Planned
Maximum Homes Passed" on the Master Roll-Out Plan attached to the @Home Network
Distribution Agreement, dated as of June 27, 1998 (the "Distribution
Agreement"), and such number is true and correct as of that date.
(ii) None of the Living Units described in Section 3(i) above
were transferred to Purchaser from any cable operator that previously has
received equity securities from the Company (including warrants and other
exercisable or convertible securities) for such Living Units.
4. BINDING AGREEMENT; GOVERNING LAW. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents, made and to be performed entirely within the State
of California.
5. MODIFICATION; WAIVER. No modification or waiver of any provision of
this Agreement or consent to departure therefrom shall be effective unless in
writing and approved by the Company and Purchaser.
<PAGE> 2
6. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
AT HOME CORPORATION: GARDEN STATE CABLEVISION L.P.
By: /s/ Kenneth A. Goldman By: /s/ Brian W. Earnshaw
------------------------------ ------------------------------
Name: Name: Brian W. Earnshaw
---------------------------- ---------------------------
Title: Title: Vice President - Finance
--------------------------- --------------------------
and Administration
--------------------------
Date: Date: October 8, 1998
---------------------------- ---------------------------
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<PAGE> 1
EXHIBIT 10.29
GARDEN STATE CABLEVISION L.P. WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT 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 EXCEPT PURSUANT TO REGISTRATION UNDER THE ACT OR
PURSUANT TO AN 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 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.
Issue Date: June 27, 1998
WARRANT TO PURCHASE SERIES A COMMON STOCK
OF
AT HOME CORPORATION
THIS CERTIFIES THAT in consideration of the continued rapid deployment
of the @Home Service of At Home Corporation, a Delaware corporation (the
"COMPANY"), Garden State Cablevision L.P. (the "INITIAL REGISTERED HOLDER"), or
its permitted registered assigns (including the Initial Registered Holder, the
"REGISTERED HOLDER"), is entitled, subject to the terms and conditions of this
Warrant, to purchase from the Company at any time (i) on or after the
Commencement Date and (ii) on or prior to the Expiration Date, 592,528 shares of
the Company's Series A Common Stock (subject to adjustment as set forth in the
Company's Certificate of Incorporation), at an exercise price equal to $10.50
per share of Series A Common Stock (such price, as it may be adjusted pursuant
to the provisions of Section 5 below, referred to as the "EXERCISE PRICE"), upon
surrender of this Warrant at the principal office of the Company, together with
a duly executed subscription form in the form attached hereto as Exhibit 1 and
simultaneous payment of the full exercise price for the shares of Warrant Stock
so purchased. The Exercise Price and the number and kind of shares of Warrant
Stock purchasable under this Warrant are subject to adjustment as provided
herein.
Notwithstanding anything to the contrary contained in this Warrant, this Warrant
and all rights to purchase Warrant Stock hereunder shall terminate on the
Expiration Date.
<PAGE> 2
1. CERTAIN DEFINITIONS.
1.1 Definitions Incorporated by Reference. The following terms
shall have the meaning ascribed to them in the @Home Network Distribution
Agreement, dated as of June 27, 1998, between the Company and the Initial
Registered Holder:
<TABLE>
<CAPTION>
Term Cross Reference
---- ---------------
<S> <C>
@Home Service Section 1(d)
Living Unit Section 1(q)
Master Roll-Out Plan Section 2(a)(i)
MDU Section 1(u)
Service Area Section 1(dd)
Service Area Plan Section 2 (b)(i)
Two-Way Data-Ready Cable System Section 1(gg)
</TABLE>
1.2 Additional Definitions. The following additional definitions
shall apply for purposes of this Warrant:
"ACT" means the Securities Act of 1933, as amended.
"COMMENCEMENT DATE" means March 31, 1999.
"COMMERCIALLY DEPLOYED" means a Eligible Living Unit that is: (i)
connected to a Two-Way Data-Ready Cable System; and (ii) able to subscribe to
the @Home Service, if desired. For the purposes of this definition, a Living
Unit will be considered "connected" to a Two-Way Data Ready Cable System if the
Eligible Living Unit is located within 150 feet of the applicable Two-Way Data
Ready Cable System. An Eligible Living Unit in a MDU that meets the two criteria
set forth above shall be counted as one Commercially Deployed Eligible Living
Unit.
"DETERMINATION DATE" means March 31 of each of 1999, 2000, 2001,
2002 and 2003.
"DISTRIBUTION AGREEMENT" means the @Home Network Distribution
Agreement, dated as of June 27, 1998, between the Company and the Initial
Registered Holder.
"EXPIRATION DATE" means 5:00 p.m. Pacific Time on June 26, 2004.
"ELIGIBLE LIVING UNITS" means the Living Units in the Service
Area indicated on the Master Roll-Out Plan that were used for calculating the
number of Warrant Shares.
"ISSUE DATE" means the date of this Warrant.
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<PAGE> 3
"MASTER ROLL-OUT PLAN" means the Master Roll-Out Plan attached as
an exhibit to the Distribution Agreement.
"PERSON" means any individual, corporation, limited liability
company, partnership, 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.
"SEC" means the U.S. Securities and Exchange Commission.
"SERIES A COMMON STOCK" means the Company's Series A Common
Stock, par value $0.01 per share, and stock of any other series or class into
which the same may be changed.
"WARRANT" means this Warrant and any warrant(s) delivered in
substitution or exchange therefor, as provided herein.
"WARRANT PURCHASE AGREEMENT" means the Agreement dated of even
date herewith between the Company and the Initial Registered Holder relating to
the purchase of this Warrant.
"WARRANT STOCK" means shares of Series A Common Stock issued upon
exercise of this Warrant.
2. EXERCISE.
2.1 Exercisability of Warrant. This Warrant is not immediately
exercisable. On each Determination Date, this Warrant shall become exercisable
as to a number of shares of Warrant Stock equal to (x) the number of Living
Units which, on such date, are (A) subject to a Service Area Plan and (B)
Commercially Deployed, multiplied by (y) two. On or following a Determination
Date, the Registered Holder shall provide the Company with a certificate,
executed by either the Chief Executive Officer or Chief Financial Officer of the
Registered Holder, setting forth in detail its calculation of such number of
residences, which determination shall be conclusive unless disputed by the
Company. In the event that the Company shall dispute such determination, the
Company shall, within three business days of its receipt of the Registered
Holder's certificate, give written notice to the Registered Holder, setting
forth in detail the basis of its dispute. In the event of such a dispute, no
shares of Warrant Stock shall become exercisable in connection with such
Determination Date until both the Company and the Registered Holder shall have
resolved such dispute to their mutual satisfaction. For the avoidance of doubt,
shares of Warrant Stock exercisable prior to such Determination Date shall
continue to be exercisable regardless of any such dispute. In no event shall the
number of shares of Warrant Stock exercisable pursuant to this Warrant exceed
592,528.
2.2 Surrender. Subject to compliance with all applicable
securities laws and the provisions of Section 2.1, this Warrant may be exercised
in whole or in part by surrendering this Warrant at the principal office of the
Company at 425 Broadway, Redwood City, California
-3-
<PAGE> 4
94063, with the subscription form attached hereto as Exhibit 1 duly executed by
the Registered Holder, accompanied by payment as set forth in Section 2.3 below.
2.3 Payment of Exercise Price. Payment shall be made at any time
with respect to shares of Warrant Stock being purchased hereunder (x) by the
payment to the Company, by cash, check and/or wire transfer, of an amount equal
to the then-applicable Exercise Price per share multiplied by the number of
shares of Warrant Stock then being purchased, or, at the option of the
Registered Holder, (y) by surrendering to the Company for cancellation the right
to receive upon exercise hereof a number of shares of Series A Common Stock
equal to the value (as determined below) of the shares of Warrant Stock with
respect to which this Warrant is being exercised, in which case the number of
shares to be issued to the Registered Holder upon such exercise shall be
computed using the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Series A Common Stock to be issued
to the Registered Holder.
Y = the number of shares of Series A Common Stock with
respect to which this Warrant is being exercised and with
respect to which the right to receive shares is being
canceled.
A = the fair market value of one share of Series A Common
Stock.
B = the Exercise Price per share of Series A Common Stock (as
it may be adjusted pursuant to the provisions of Section
5);
provided, that in the case of a cashless exercise pursuant to clause (y), the
Registered Holder shall only be entitled to surrender for cancellation the right
to receive shares which may then be issued upon exercise of this Warrant.
As used herein, the "fair market value of one share of Series A Common Stock"
shall mean the average, for the five trading days (or such fewer number of days
as the Company's Series A Common Stock may have been publicly traded) ending
with the trading day which is two trading days prior to the date of such
surrender, of:
(a) the closing prices of the Company's Series A Common
Stock sold on the securities exchange(s) on which the Series A Common Stock may
at the time be listed, or
(b) if there have been no sales on such exchange(s) on any
such trading day, the average of the highest bid and lowest asked prices on such
exchange(s) at the end of such day, or
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<PAGE> 5
(c) if on any such trading day the Series A Common Stock is
not so listed, the average of the representative bid and asked prices quoted on
the Nasdaq National Market ("NASDAQ") as of 4:00 p.m., New York City time, on
such day, or
(d) if on any such trading day the Series A Common Stock is
not quoted on Nasdaq, the average of the highest bid and lowest asked price on
such day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization.
2.4 Date of Exercise; Fractional Shares. Except as otherwise
provided in Section 2.3, this Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided in Sections 2.2 and 2.3, and the person entitled to receive
the shares of Warrant Stock issuable upon such exercise shall be treated for all
purposes as the holder of record of such shares as of the close of business on
such date. As soon as practicable on or after such date, the Company shall issue
and deliver to the person or persons entitled to receive the same a certificate
or certificates for the number of whole shares of Warrant Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share equal to
such fraction of the current fair market value of one whole share of Warrant
Stock as of the date of exercise, as determined in good faith by the Company's
Board of Directors. No fractional shares may be issued upon any exercise of this
Warrant, and any fractions shall be rounded down to the nearest whole number of
shares.
2.5 Partial Exercise. Upon a partial exercise of this Warrant,
this Warrant shall be surrendered by the Registered Holder and replaced with a
new Warrant of like tenor in the name of the Registered Holder providing for the
right to purchase the number of shares of Warrant Stock as to which this Warrant
has not then been exercised.
2.6 Taxes. The issuance of certificates for shares of Warrant
Stock upon the exercise of this Warrant will be made without charge by the
Company to the Registered Holder for any issue tax (other than applicable income
tax).
3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Fully Paid Shares; Reservation. The Company hereby represents
and warrants to the Registered Holder that all shares of Warrant Stock which may
be issued upon exercise of this Warrant shall have been duly and validly
reserved for issuance and, upon issuance, be duly authorized, validly issued,
fully paid and nonassessable, and free of any liens, claims, charges, security
interests, pledges or encumbrances of any kind, except for restrictions on
transfer provided for in this Warrant and under applicable federal and state
securities laws. If at any time the number of authorized but unissued shares of
the Company's Warrant Stock shall not be sufficient to effect the exercise of
this Warrant, the Company will take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Warrant Stock to such number of shares of Warrant Stock as shall be sufficient
for such purpose.
-5-
<PAGE> 6
3.2 Notices. The Company agrees that it will notify the
Registered Holder at least ten (10) business days in advance of the proposed
consummation of any pending consolidation or merger of the Company into any
other corporation or the sale of all or substantially all of the Company's
assets to another corporation, unless after the closing of any such transaction
the stockholders of the Company immediately prior to such transaction own in
excess of fifty percent (50%) of the voting power of the surviving corporation
or its parent corporation. Such notice shall include a description of all
material terms and conditions of such transaction and the per share value of the
consideration to be paid in connection therewith, and other information given by
the Company to the holders of its Series A Common Stock in connection with their
approval thereof.
3.3 No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or Bylaws, or through reorganization,
consolidation, merger, dissolution, issue or sale of securities, sale of assets
or any other voluntary action, willfully avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Registered Holder under this Warrant against wrongful impairment. Without
limiting the generality of the foregoing, the Company: (i) will not set nor
increase the par value of any shares of stock issuable upon exercise of this
Warrant above the amount payable therefor upon such exercise, and (ii) will take
all such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and non-assessable shares of Warrant Stock
upon the exercise of this Warrant.
4. TRANSFER RESTRICTIONS.
4.1 Limitations on Transfer.
(i) Any portion of this Warrant that is then exercisable
pursuant to Section 2.1 above may be assigned, conveyed or transferred by the
Registered Holder to a third party without the Company's consent provided that
the third party agrees in writing to comply with all of the terms and conditions
of this Warrant and the Company is informed in writing of such assignment,
conveyance or transfer.
(ii) Unless otherwise agreed by @Home in writing, which
consent will not be unreasonably withheld, any portion of this Warrant that is
not exercisable may not be assigned, conveyed or transferred by the Registered
Holder to a third party except when the Eligible Homes underlying that portion
of the Warrant are transferred to that third party in accordance with the
Distribution Agreement, such third party agrees in writing to comply with all of
the terms and conditions of this Warrant, and the Company is informed in writing
of such assignment, conveyance or transfer.
4.2 Mechanics and Effects of Transfer. Any assignment, conveyance
or transfer of the Warrant, the Warrant Stock or the rights hereunder shall be
made on the books of the Company maintained for such purpose at the principal
office of the Company upon surrender of this Warrant or the Warrant Stock and a
properly completed assignment in the form of Exhibit
-6-
<PAGE> 7
2 hereto. All transferees under this Section 4 will be bound by the provisions
of this Section 4. Notwithstanding the foregoing, this Warrant and the rights
hereunder may not be assigned, conveyed or transferred unless such assignment,
conveyance or transfer also complies with all applicable securities laws and the
provisions of Section 8.2 hereof.
4.3 Legends; Notations. The certificates evidencing the Warrant
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."; and
(b) any legend required by any applicable state securities
law.
The Company shall make a notation on its stock books regarding
the restrictions on transfer of the Warrants and Warrant Stock provided by
applicable securities and other laws and this Warrant, and will transfer
securities on the books of the Company only to the extent not inconsistent
therewith. Without limiting the foregoing, the Company shall refuse to register
any transfer of the Warrants or Warrant Stock not made in accordance with or
pursuant to an applicable exemption from registration under the Act and
applicable state securities laws.
5. ADJUSTMENT OF EXERCISE PRICE, NUMBER AND KIND OF SHARES. The number
and kind of shares of Warrant Stock issuable upon exercise of this Warrant (or
any shares of stock or other securities or property at the time receivable or
issuable upon exercise of this Warrant) and the Exercise Price therefor, are
subject to adjustment upon the occurrence of the following events:
5.1 Adjustment for Stock Splits, Stock Dividends,
Recapitalizations, etc. The Exercise Price of this Warrant and the number of
shares of Series A Common Stock issuable upon exercise of this Warrant shall
each be proportionally adjusted to reflect any stock dividend, stock split,
reverse stock split, recapitalization and the like affecting the number of
outstanding shares of Series A Common Stock that occurs after the Issue Date.
5.2 Adjustment for Reorganization, Consolidation, Merger. In case
of any reorganization of the Company (or of any other corporation, the stock or
other securities of which are at the time receivable on the exercise of this
Warrant), after the Issue Date, or in case, after such date, the Company (or any
such corporation) shall consolidate with or merge into another corporation or
convey all or substantially all of its assets to another corporation or other
-7-
<PAGE> 8
entity, then, and in each such case, the Registered Holder of this Warrant, upon
any permitted exercise of this Warrant (as provided in Section 2), at any time
after the consummation of such reorganization, consolidation, merger, or
conveyance, shall be entitled to receive, in lieu of the stock or other
securities and property receivable upon the exercise of this Warrant prior to
such consummation, the stock or other securities or property to which such
Registered Holder would have been entitled upon the consummation of such
reorganization, consolidation, merger or conveyance if such Registered Holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in this Section 5, and the successor or purchasing
corporation or other entity in such reorganization, consolidation, merger or
conveyance (if other than the Company) shall duly execute and deliver to the
Registered Holder a supplement hereto acknowledging such corporation's or
entity's obligations under this Warrant; and in each such case, the terms of
this Warrant (including the exercisability, transfer and adjustment provisions
of this Warrant) shall be applicable to the shares of stock or other securities
or property receivable upon the exercise of this Warrant after the consummation
of such reorganization, consolidation, merger or conveyance.
6. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment in
either the Exercise Price or in the number of shares of Warrant Stock, or other
stock, securities or property receivable upon the exercise of this Warrant, the
Chief Financial Officer of the Company shall promptly thereafter compute such
adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment and showing in detail the facts upon
which such adjustment is based, including a statement of the adjusted Exercise
Price. The Company will cause copies of such certificate to be mailed (by first
class mail, postage prepaid) to the Registered Holder.
7. LOSS OR MUTILATION. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership, and the loss, theft, destruction
or mutilation, of this Warrant, and of indemnity reasonably satisfactory to it,
and (in the case of mutilation) upon surrender and cancellation of this Warrant,
the Company will execute and deliver in lieu thereof a new Warrant of like
tenor.
8. REPRESENTATIONS AND WARRANTIES OF THE REGISTERED HOLDER.
8.1 Restrictions under Securities Laws. The Registered Holder
understands that neither the offer and sale of this Warrant nor the offer and
sale of shares of Warrant Stock that may be purchased upon exercise thereof have
been registered under the Act, or any state securities laws. As a condition to
the issuance of this Warrant and to its exercise the Registered Holder hereby
represents and warrants to the Company that:
(a) The Warrant and the underlying shares of Warrant Stock
(collectively, the "SECURITIES") are being and/or will be acquired by the
Registered Holder in a transaction exempt from registration under Section 4(2)
of the Act and/or Regulation D promulgated under the Act, for its own account,
for investment purposes only, and not with a view to the sale or other
distribution thereof within the meaning of the Act and the Registered
-8-
<PAGE> 9
Holder has no present intention of selling or otherwise disposing of all or any
portion of the Securities except as permitted by the Warrant Purchase Agreement
and this Warrant.
(b) The Registered Holder is capable of evaluating the
merits and risks of any investment in the Securities, is financially capable of
bearing a total loss of this investment and either: (i) has a preexisting
personal or business relationship with the Company or its principals; (ii) by
reason of the Registered Holder's business or financial experience, has the
capacity to protect his or its own interests in connection with this investment;
or (iii) if the Registered Holder is the Initial Registered Holder, is an
"accredited investor" within the meaning of Regulation D promulgated under the
Act, as amended.
(c) The Registered Holder has had access to all
information regarding the Company, its present and prospective business, assets,
liabilities and financial condition that the Registered Holder considers
important to making the decision to acquire the Securities and has had ample
opportunity to ask questions of and receive answers from the Company's
representatives concerning an investment in the Securities and to obtain any and
all documents requested in order to supplement or verify any of the information
supplied.
(d) The Registered Holder understands that the Securities
shall be deemed restricted securities under the Act and may not be resold unless
they are registered under the Act and any applicable State securities law, or in
the opinion of counsel in form and substance satisfactory to the Company, an
exemption from such registration is available.
(e) The Registered Holder is aware of Rule 144 promulgated
under the Act, which rule provides, in substance, that: (i) after one year from
the date restricted securities have been purchased and fully paid for, a holder
may transfer restricted securities provided certain conditions are met (e.g.,
certain public information is available about the Company), and specific
limitations on the amount of shares which can be sold within certain periods and
the manner in which such shares must be sold are complied with; and (ii) after
two years from the date the securities have been purchased and fully paid for,
holders who are not "affiliates" of the Company may sell restricted securities
without satisfying such conditions.
(f) The Registered Holder further understands that if the
requirements of Rule 144 are not met, registration under the Act or compliance
with some other registration exemption will be required for any disposition of
the Securities; and that, although Rule 144 is not exclusive, the SEC has
expressed its opinion that persons proposing to sell restricted securities other
than in a registered offering or other than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales and such persons and the brokers who
participate in the transactions do so at their own risk. The Registered Holder
understands that the Company is under no obligation to register the Securities
or take any other actions under the Act or any state securities laws.
8.2 Compliance with Securities Laws. The Registered Holder of
this Warrant, by acceptance hereof, agrees that, absent an effective
registration statement filed with the SEC under the Act covering the disposition
or sale of any Securities, such Registered Holder will not
-9-
<PAGE> 10
sell or transfer any or all of such Securities unless such sale or transfer is
pursuant to an available exemption from registration under the Act and
applicable state securities laws. As a condition to any such sale or transfer,
the Registered Holder shall first provide the Company with an opinion of counsel
satisfactory to the Company to the effect that such sale or transfer is or will
be exempt from the registration and prospectus delivery requirements of the Act
and applicable state securities laws. Such Registered Holder consents to the
Company making a notation on its records, or giving instructions to any transfer
agent of such Securities, in order to implement the foregoing restrictions on
transfer. The shares issued upon exercise of this Warrant shall bear legends
referring to the restrictions on transfer set forth in this Section 8. As a
condition to the transfer of this Warrant or transfer of the shares issuable on
exercise hereof, any permitted transferee must execute and deliver to the
Company representations and warranties similar to these set forth in this
Section 8 and applicable to a transferee of securities in an exempt transaction
under the Act and must agree in writing to accept and be bound by all the terms
and conditions of this Warrant.
9. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. This Warrant does not by
itself entitle the Registered Holder to any voting rights or other rights as a
stockholder of the Company. In the absence of affirmative action by the
Registered Holder to purchase Warrant Stock by exercise of this Warrant, no
provisions of this Warrant, and no enumeration herein of the rights or
privileges of the Registered Holder shall cause such Registered Holder to be a
stockholder of the Company for any purpose.
10. REGULATORY COMPLIANCE. If the Registered Holder of this Warrant or
the Warrant Stock would be subject to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and the rules and regulations thereunder (collectively,
the "ANTITRUST LAW"), then prior to such exercise or conversion and following
such Registered Holder's notice to the Company of its intention to exercise or
convert, the Company and such Registered 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 and the Antitrust Division of the Department of Justice. Each
of the Company and such Registered Holder shall bear and pay any costs or
expenses that it incurs in compliance with this requirement.
11. AMENDMENT; WAIVER. Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Registered Holder. Any amendment or
waiver effected in accordance with this Section 11 shall be binding upon the
Registered Holder, any future Registered Holder and the Company.
12. NOTICES. All notices and other communications from the Company to
the Registered Holder shall be deemed given when personally delivered, mailed by
first-class registered or certified mail, postage prepaid, delivered by
recognized overnight courier service, or transmitted by facsimile (with
confirmation by first class mail), to the address furnished to the Company in
writing by the Registered Holder who shall have furnished an address and/or
facsimile number to the Company in writing.
-10-
<PAGE> 11
13. HEADINGS. The headings in this Warrant are for purposes of
convenience in reference only, and shall not be deemed to constitute a part
hereof.
14. LAW GOVERNING; DISPUTE RESOLUTION. This Warrant shall be construed
and enforced in accordance with, and governed by, the internal laws of the State
of California, excluding that body of law applicable to conflicts of laws. Any
claim, controversy or dispute between the parties relating to this Warrant (a
"Dispute") will be resolved in accordance with the following procedure:
(i) The Chief Executive Officers of each of the parties involved
in the Dispute will first discuss the Dispute and use their good faith efforts
to reach a fair and equitable resolution.
(ii) In the event the Chief Executive Officers of the parties
involved in the Dispute are unable to resolve the Dispute, the Board of
Directors of @Home will review the Dispute and use its good faith efforts to
reach a fair and equitable resolution.
(iii) In the event the Board of Directors of @Home are unable to
resolve the dispute to the satisfaction of any of the parties involved in the
Dispute, the dissatisfied party may submit the Dispute to a confidential
arbitration proceeding. Such arbitration proceeding will be held in San
Francisco, California will be subject to the rules of the American Arbitration
Association ("AAA"), and will be conducted by a single arbitrator chosen by the
AAA. The parties agree that the decision of the arbitrator will be final and
binding upon the parties.
15. TERMS BINDING. By acceptance of this Warrant, the Registered Holder
of this Warrant (and each subsequent assignee, transferee or Registered Holder
of this Warrant) accepts and agrees to be bound by all the terms and conditions
of this Warrant.
16. COUNTERPARTS. This Warrant may be executed in one or more
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Registered Holder have executed
this Warrant as of the Issue Date.
THE COMPANY: ACKNOWLEDGED AND ACCEPTED
BY INITIAL REGISTERED HOLDER:
AT HOME CORPORATION GARDEN STATE CABLEVISION L.P.
By: /s/ Kenneth A. Goldman By: /s/ Brian W. Earnshaw
------------------------------ -----------------------------
Name: Name: Brian W. Earnshaw
---------------------------- ---------------------------
Title: Title: Vice President - Finance
--------------------------- --------------------------
and Administration
--------------------------
October 8, 1998
--------------------------
-11-
<PAGE> 1
EXHIBIT 10.30
WARRANT PURCHASE AGREEMENT
This Warrant Purchase Agreement (this "Agreement") is made as of June
26, 1998, by and between At Home Corporation (the "Company") and Jones
Intercable Inc. ("Purchaser").
The parties hereby agree as follows:
1. PURCHASE AND SALE OF WARRANT. Upon the execution of this Agreement, the
Company will issue and sell to Purchaser and Purchaser will purchase, in
exchange for aggregate consideration of $2,148.40, a warrant to purchase
2,046,100 shares of Series A Common Stock of the Company (the "Warrant Shares"),
in the form attached hereto as Exhibit A (the "Warrant").
2. CLOSING. The closing of the purchase and sale of the Warrant (the
"Closing") shall be held on the date hereof or at such other time as the Company
and Purchaser may mutually determine. At the Closing, Purchaser will deliver to
the Company a check or wire transfer funds in the amount of the purchase price
of the Warrant and the Company shall deliver the Warrant to Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. The representations and
warranties of Purchaser set forth in Section 8 of the Warrant are incorporated
herein as if fully set forth herein. In addition, Purchaser represents and
warrants to the Company that:
(i) The number of Living Units (as such term is defined in the
Distribution Agreement) in those geographic areas that were used for calculating
the number of Warrant Shares are indicated in the column entitled "Planned
Maximum Homes Passed" on the Master Roll-Out Plan attached to the @Home Network
Distribution Agreement, dated as of June 26, 1998 (the "Distribution
Agreement"), and such numbers are true and correct as of that date.
(ii) None of the Living Units described in Section 3(i) above were
transferred to Purchaser from: (x) Tele-Communications, Inc., Comcast
Corporation or Cox Enterprises, Inc. on or after June 4, 1996; (y) Cablevision
Systems Corporation on or after October 2, 1997; or (z) Century Communications
Corporation on or after May 1, 1998.
4. BINDING AGREEMENT; GOVERNING LAW. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents, made and to be performed entirely within the State
of California.
5. MODIFICATION; WAIVER. No modification or waiver of any provision of
this Agreement or consent to departure therefrom shall be effective unless in
writing and approved by the Company and Purchaser.
<PAGE> 2
6. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
AT HOME CORPORATION: JONES INTERCABLE INC.:
By: /s/ Dean Gilbert By: /s/ Philip Laxar
----------------------------- -------------------------------
Name: Dean Gilbert Name: Philip Laxar
----------------------------- -------------------------------
Title: S.V.P. & G.M. Title: Sr. VP Programming
----------------------------- -------------------------------
Date: 6/26/98 Date: June 26, 1998
----------------------------- -------------------------------
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<PAGE> 1
EXHIBIT 10.31
JONES INTERCABLE INC. WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT 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 EXCEPT PURSUANT TO REGISTRATION UNDER THE ACT OR
PURSUANT TO AN 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 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.
Issue Date: June 26, 1998
WARRANT TO PURCHASE SERIES A COMMON STOCK
OF
AT HOME CORPORATION
THIS CERTIFIES THAT in consideration of the continued rapid deployment
of the @Home Service of At Home Corporation, a Delaware corporation (the
"COMPANY"), Jones Intercable Inc., a Colorado corporation (the "INITIAL
REGISTERED HOLDER"), or its permitted registered assigns (including the Initial
Registered Holder, the "REGISTERED HOLDER"), is entitled, subject to the terms
and conditions of this Warrant, to purchase from the Company at any time (i) on
or after the Commencement Date and (ii) on or prior to the Expiration Date,
2,046,100 shares of the Company's Series A Common Stock (subject to adjustment
as set forth in the Company's Certificate of Incorporation), at an exercise
price equal to $10.50 per share of Series A Common Stock (such price, as it may
be adjusted pursuant to the provisions of Section 5 below, referred to as the
"EXERCISE PRICE"), upon surrender of this Warrant at the principal office of the
Company, together with a duly executed subscription form in the form attached
hereto as Exhibit 1 and simultaneous payment of the full exercise price for the
shares of Warrant Stock so purchased. The Exercise Price and the number and kind
of shares of Warrant Stock purchasable under this Warrant are subject to
adjustment as provided herein.
Notwithstanding anything to the contrary contained in this Warrant, this Warrant
and all rights to purchase Warrant Stock hereunder shall terminate on the
Expiration Date.
<PAGE> 2
1. CERTAIN DEFINITIONS.
1.1 Definitions Incorporated by Reference. The following terms shall
have the meaning ascribed to them in the @Home Network Distribution Agreement,
dated as of June 26, 1998, between the Company and the Initial Registered
Holder:
<TABLE>
<CAPTION>
Term Cross Reference
---- ---------------
<S> <C>
@Home Service Section 1(d)
Living Unit Section 1(q)
Master Roll-Out Plan Section 2(a)(i)
MDU Section 1(w)
One-Way Data-Ready Cable System Section 7(e)(v)
Service Area Section 1(ee)
Service Area Plan Section 2 (b)(i)
Two-Way Data-Ready Cable System Section 1(hh)
</TABLE>
1.2 Additional Definitions. The following additional definitions shall
apply for purposes of this Warrant:
"ACT" means the Securities Act of 1933, as amended.
"COMMENCEMENT DATE" means March 31, 1999.
"COMMERCIALLY DEPLOYED" means a Eligible Living Unit that is: (i)
connected to a Two-Way Data-Ready Cable System, or, if located in Prince
Williams County connected to a One-Way Data-Ready Cable System; and (ii) able to
subscribe to the @Home Service, if desired. For the purposes of this definition,
a Living Unit will be considered "connected" to a Two-Way Data Ready Cable
System or a One-Way Data Ready Cable System, as the case may be, if the Living
Unit is located within 150 feet of the applicable Two-Way Data Ready Cable
System or One-Way Data Ready Cable System. A Living Unit in a MDU that meets the
two criteria set forth above shall be counted as one Commercially Deployed
Living Unit.
"DETERMINATION DATE" means March 31 of each of 1999, 2000, 2001,
2002 and 2003.
"DISTRIBUTION AGREEMENT" means the @Home Network Distribution
Agreement, dated as of June 26, 1998, between the Company and the Initial
Registered Holder.
"EXPIRATION DATE" means 5:00 p.m. Pacific Time on June 26, 2004.
"ELIGIBLE LIVING UNITS" means the Living Units in those Service
Areas indicated on the Master Roll-Out Plan that were used for calculating the
number of Warrant Shares (i.e. those Living Units located in the following
Service Areas: Independence, MO; Albuquerque, NM; Alexandria, VA; Dale City, VA;
and the DC Region.)
"ISSUE DATE" means the date of this Warrant.
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<PAGE> 3
"MASTER ROLL-OUT PLAN" means the Master Roll-Out Plan attached as
an exhibit to the Distribution Agreement.
"PERSON" means any individual, corporation, limited liability
company, partnership, 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.
"SEC" means the U.S. Securities and Exchange Commission.
"SERIES A COMMON STOCK" means the Company's Series A Common
Stock, par value $0.01 per share, and stock of any other series or class into
which the same may be changed.
"WARRANT" means this Warrant and any warrant(s) delivered in
substitution or exchange therefor, as provided herein.
"WARRANT PURCHASE AGREEMENT" means the Agreement dated of even
date herewith between the Company and the Initial Registered Holder relating to
the purchase of this Warrant.
"WARRANT STOCK" means shares of Series A Common Stock issued upon
exercise of this Warrant.
2. EXERCISE.
2.1 Exercisability of Warrant. This Warrant is not immediately
exercisable. On each Determination Date, this Warrant shall become exercisable
as to a number of shares of Warrant Stock equal to (x) the number of Eligible
Living Units which, on such date, are (A) subject to a Service Area Plan and (B)
Commercially Deployed, multiplied by (y) two. On or following a Determination
Date, the Registered Holder shall provide the Company with a certificate,
executed by either the Chief Executive Officer or Chief Financial Officer of the
Initial Registered Holder, setting forth in detail its calculation of such
number of residences, which determination shall be conclusive unless disputed by
the Company. In the event that the Company shall dispute such determination, the
Company shall, within three business days of its receipt of the Initial
Registered Holder's certificate, give written notice to the Registered Holder,
setting forth in detail the basis of its dispute. In the event of such a
dispute, no shares of Warrant Stock shall become exercisable in connection with
such Determination Date until both the Company and the Initial Registered Holder
shall have resolved such dispute to their mutual satisfaction. For the avoidance
of doubt, shares of Warrant Stock exercisable prior to such Determination Date
shall continue to be exercisable regardless of any such dispute. In no event
shall the number of shares of Warrant Stock exercisable pursuant to this Warrant
exceed 2,046,100.
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2.2 Surrender. Subject to compliance with all applicable
securities laws and the provisions of Section 2.1, this Warrant may be exercised
in whole or in part by surrendering this Warrant at the principal office of the
Company at 425 Broadway, Redwood City, California 94063, with the subscription
form attached hereto as Exhibit 1 duly executed by the Registered Holder,
accompanied by payment as set forth in Section 2.3 below.
2.3 Payment of Exercise Price. Payment shall be made at any time
with respect to shares of Warrant Stock being purchased hereunder (x) by the
payment to the Company, by cash, check and/or wire transfer, of an amount equal
to the then-applicable Exercise Price per share multiplied by the number of
shares of Warrant Stock then being purchased, or, at the option of the
Registered Holder, (y) by surrendering to the Company for cancellation the right
to receive upon exercise hereof a number of shares of Series A Common Stock
equal to the value (as determined below) of the shares of Warrant Stock with
respect to which this Warrant is being exercised, in which case the number of
shares to be issued to the Registered Holder upon such exercise shall be
computed using the following formula:
X = Y(A-B)
-----
A
Where: X = the number of shares of Series A Common Stock to be issued
to the Registered Holder.
Y = the number of shares of Series A Common Stock with
respect to which this Warrant is being exercised and with
respect to which the right to receive shares is being
canceled.
A = the fair market value of one share of Series A Common
Stock.
B = the Exercise Price per share of Series A Common Stock
(as it may be adjusted pursuant to the provisions of
Section 5);
provided, that in the case of a cashless exercise pursuant to clause (y), the
Registered Holder shall only be entitled to surrender for cancellation the right
to receive shares which may then be issued upon exercise of this Warrant.
As used herein, the "fair market value of one share of Series A Common Stock"
shall mean the average, for the five trading days (or such fewer number of days
as the Company's Series A Common Stock may have been publicly traded) ending
with the trading day which is two trading days prior to the date of such
surrender, of:
(a) the closing prices of the Company's Series A Common
Stock sold on the securities exchange(s) on which the Series A Common Stock may
at the time be listed, or
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(b) if there have been no sales on such exchange(s) on any
such trading day, the average of the highest bid and lowest asked prices on such
exchange(s) at the end of such day, or
(c) if on any such trading day the Series A Common Stock
is not so listed, the average of the representative bid and asked prices quoted
on the Nasdaq National Market ("NASDAQ") as of 4:00 p.m., New York City time, on
such day, or
(d) if on any such trading day the Series A Common Stock
is not quoted on Nasdaq, the average of the highest bid and lowest asked price
on such day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization.
2.4 Date of Exercise; Fractional Shares. Except as otherwise
provided in Section 2.3, this Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided in Sections 2.2 and 2.3, and the person entitled to receive
the shares of Warrant Stock issuable upon such exercise shall be treated for all
purposes as the holder of record of such shares as of the close of business on
such date. As soon as practicable on or after such date, the Company shall issue
and deliver to the person or persons entitled to receive the same a certificate
or certificates for the number of whole shares of Warrant Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share equal to
such fraction of the current fair market value of one whole share of Warrant
Stock as of the date of exercise, as determined in good faith by the Company's
Board of Directors. No fractional shares may be issued upon any exercise of this
Warrant, and any fractions shall be rounded down to the nearest whole number of
shares.
2.5 Partial Exercise. Upon a partial exercise of this Warrant,
this Warrant shall be surrendered by the Registered Holder and replaced with a
new Warrant of like tenor in the name of the Registered Holder providing for the
right to purchase the number of shares of Warrant Stock as to which this Warrant
has not then been exercised.
2.6 Taxes. The issuance of certificates for shares of Warrant
Stock upon the exercise of this Warrant will be made without charge by the
Company to the Registered Holder for any issue tax (other than applicable income
tax).
3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Fully Paid Shares; Reservation. The Company hereby represents
and warrants to the Registered Holder that all shares of Warrant Stock which may
be issued upon exercise of this Warrant shall have been duly and validly
reserved for issuance and, upon issuance, be duly authorized, validly issued,
fully paid and nonassessable, and free of any liens, claims, charges, security
interests, pledges or encumbrances of any kind, except for restrictions on
transfer provided for in this Warrant and under applicable federal and state
securities laws. If at any time the number of authorized but unissued shares of
the Company's Warrant Stock shall not be sufficient to effect the exercise of
this Warrant, the Company will take such corporate
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<PAGE> 6
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Warrant Stock to such number of shares of
Warrant Stock as shall be sufficient for such purpose.
3.2 Notices. The Company agrees that it will notify the
Registered Holder at least ten (10) business days in advance of the proposed
consummation of any pending consolidation or merger of the Company into any
other corporation or the sale of all or substantially all of the Company's
assets to another corporation, unless after the closing of any such transaction
the stockholders of the Company immediately prior to such transaction own in
excess of fifty percent (50%) of the voting power of the surviving corporation
or its parent corporation. Such notice shall include a description of all
material terms and conditions of such transaction and the per share value of the
consideration to be paid in connection therewith, and other information given by
the Company to the holders of its Series A Common Stock in connection with their
approval thereof.
3.3 No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or Bylaws, or through reorganization,
consolidation, merger, dissolution, issue or sale of securities, sale of assets
or any other voluntary action, willfully avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Registered Holder under this Warrant against wrongful impairment. Without
limiting the generality of the foregoing, the Company: (i) will not set nor
increase the par value of any shares of stock issuable upon exercise of this
Warrant above the amount payable therefor upon such exercise, and (ii) will take
all such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and non-assessable shares of Warrant Stock
upon the exercise of this Warrant.
4. TRANSFER RESTRICTIONS.
4.1 Limitations on Transfer. Unless otherwise agreed by @Home in
writing, this Warrant and the rights hereunder may not be assigned, conveyed or
transferred except with respect to that portion of the Warrant that is then
exercisable pursuant to Section 2.1 above.
4.2 Mechanics and Effects of Transfer. Any assignment, conveyance
or transfer of the Warrant, the Warrant Stock or the rights hereunder shall be
made on the books of the Company maintained for such purpose at the principal
office of the Company upon surrender of this Warrant or the Warrant Stock and a
properly completed assignment in the form of Exhibit 2 hereto. All transferees
under this Section 4 will be bound by the provisions of this Section 4.
Notwithstanding the foregoing, this Warrant and the rights hereunder may not be
assigned, conveyed or transferred unless such assignment, conveyance or transfer
also complies with all applicable securities laws and the provisions of Section
8.2 hereof.
4.3 Legends; Notations. The certificates evidencing the Warrant
Stock shall be endorsed with the legends set forth below:
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<PAGE> 7
(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."; and
(b) any legend required by any applicable state
securities law.
The Company shall make a notation on its stock books regarding
the restrictions on transfer of the Warrants and Warrant Stock provided by
applicable securities and other laws and this Warrant, and will transfer
securities on the books of the Company only to the extent not inconsistent
therewith. Without limiting the foregoing, the Company shall refuse to register
any transfer of the Warrants or Warrant Stock not made in accordance with or
pursuant to an applicable exemption from registration under the Act and
applicable state securities laws.
5. ADJUSTMENT OF EXERCISE PRICE, NUMBER AND KIND OF SHARES. The number
and kind of shares of Warrant Stock issuable upon exercise of this Warrant (or
any shares of stock or other securities or property at the time receivable or
issuable upon exercise of this Warrant) and the Exercise Price therefor, are
subject to adjustment upon the occurrence of the following events:
5.1 Adjustment for Stock Splits, Stock Dividends,
Recapitalizations, etc. The Exercise Price of this Warrant and the number of
shares of Series A Common Stock issuable upon exercise of this Warrant shall
each be proportionally adjusted to reflect any stock dividend, stock split,
reverse stock split, recapitalization and the like affecting the number of
outstanding shares of Series A Common Stock that occurs after the Issue Date.
5.2 Adjustment for Reorganization, Consolidation, Merger. In case
of any reorganization of the Company (or of any other corporation, the stock or
other securities of which are at the time receivable on the exercise of this
Warrant), after the Issue Date, or in case, after such date, the Company (or any
such corporation) shall consolidate with or merge into another corporation or
convey all or substantially all of its assets to another corporation or other
entity, then, and in each such case, the Registered Holder of this Warrant, upon
any permitted exercise of this Warrant (as provided in Section 2), at any time
after the consummation of such reorganization, consolidation, merger, or
conveyance, shall be entitled to receive, in lieu of the stock or other
securities and property receivable upon the exercise of this Warrant prior to
such consummation, the stock or other securities or property to which such
Registered Holder would have been entitled upon the consummation of such
reorganization, consolidation, merger or conveyance if such Registered Holder
had exercised this Warrant immediately prior thereto, all
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<PAGE> 8
subject to further adjustment as provided in this Section 5, and the successor
or purchasing corporation or other entity in such reorganization, consolidation,
merger or conveyance (if other than the Company) shall duly execute and deliver
to the Registered Holder a supplement hereto acknowledging such corporation's or
entity's obligations under this Warrant; and in each such case, the terms of
this Warrant (including the exercisability, transfer and adjustment provisions
of this Warrant) shall be applicable to the shares of stock or other securities
or property receivable upon the exercise of this Warrant after the consummation
of such reorganization, consolidation, merger or conveyance.
6. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment in
either the Exercise Price or in the number of shares of Warrant Stock, or other
stock, securities or property receivable upon the exercise of this Warrant, the
Chief Financial Officer of the Company shall promptly thereafter compute such
adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment and showing in detail the facts upon
which such adjustment is based, including a statement of the adjusted Exercise
Price. The Company will cause copies of such certificate to be mailed (by first
class mail, postage prepaid) to the Registered Holder.
7. LOSS OR MUTILATION. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership, and the loss, theft, destruction
or mutilation, of this Warrant, and of indemnity reasonably satisfactory to it,
and (in the case of mutilation) upon surrender and cancellation of this Warrant,
the Company will execute and deliver in lieu thereof a new Warrant of like
tenor.
8. REPRESENTATIONS AND WARRANTIES OF THE REGISTERED HOLDER.
8.1 Restrictions under Securities Laws. The Registered Holder
understands that neither the offer and sale of this Warrant nor the offer and
sale of shares of Warrant Stock that may be purchased upon exercise thereof have
been registered under the Act, or any state securities laws. As a condition to
the issuance of this Warrant and to its exercise the Registered Holder hereby
represents and warrants to the Company that:
(a) The Warrant and the underlying shares of Warrant Stock
(collectively, the "SECURITIES") are being and/or will be acquired by the
Registered Holder in a transaction exempt from registration under Section 4(2)
of the Act and/or Regulation D promulgated under the Act, for its own account,
for investment purposes only, and not with a view to the sale or other
distribution thereof within the meaning of the Act and the Registered Holder has
no present intention of selling or otherwise disposing of all or any portion of
the Securities except as permitted by the Warrant Purchase Agreement and this
Warrant.
(b) The Registered Holder is capable of evaluating the
merits and risks of any investment in the Securities, is financially capable of
bearing a total loss of this investment and either: (i) has a preexisting
personal or business relationship with the Company or its principals; (ii) by
reason of the Registered Holder's business or financial experience, has the
capacity to protect his or its own interests in connection with this investment;
or (iii) if the
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<PAGE> 9
Registered Holder is the Initial Registered Holder, is an "accredited investor"
within the meaning of Regulation D promulgated under the Act, as amended.
(c) The Registered Holder has had access to all
information regarding the Company, its present and prospective business, assets,
liabilities and financial condition that the Registered Holder considers
important to making the decision to acquire the Securities and has had ample
opportunity to ask questions of and receive answers from the Company's
representatives concerning an investment in the Securities and to obtain any and
all documents requested in order to supplement or verify any of the information
supplied.
(d) The Registered Holder understands that the Securities
shall be deemed restricted securities under the Act and may not be resold unless
they are registered under the Act and any applicable State securities law, or in
the opinion of counsel in form and substance satisfactory to the Company, an
exemption from such registration is available.
(e) The Registered Holder is aware of Rule 144 promulgated
under the Act, which rule provides, in substance, that: (i) after one year from
the date restricted securities have been purchased and fully paid for, a holder
may transfer restricted securities provided certain conditions are met (e.g.,
certain public information is available about the Company), and specific
limitations on the amount of shares which can be sold within certain periods and
the manner in which such shares must be sold are complied with; and (ii) after
two years from the date the securities have been purchased and fully paid for,
holders who are not "affiliates" of the Company may sell restricted securities
without satisfying such conditions.
(f) The Registered Holder further understands that if the
requirements of Rule 144 are not met, registration under the Act or compliance
with some other registration exemption will be required for any disposition of
the Securities; and that, although Rule 144 is not exclusive, the SEC has
expressed its opinion that persons proposing to sell restricted securities other
than in a registered offering or other than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales and such persons and the brokers who
participate in the transactions do so at their own risk. The Registered Holder
understands that the Company is under no obligation to register the Securities
or take any other actions under the Act or any state securities laws.
8.2 Compliance with Securities Laws. The Registered Holder of
this Warrant, by acceptance hereof, agrees that, absent an effective
registration statement filed with the SEC under the Act covering the disposition
or sale of any Securities, such Registered Holder will not sell or transfer any
or all of such Securities unless such sale or transfer is pursuant to an
available exemption from registration under the Act and applicable state
securities laws. As a condition to any such sale or transfer, the Registered
Holder shall first provide the Company with an opinion of counsel satisfactory
to the Company to the effect that such sale or transfer is or will be exempt
from the registration and prospectus delivery requirements of the Act and
applicable state securities laws. Such Registered Holder consents to the Company
making a notation on its records, or giving instructions to any transfer agent
of such Securities, in order to implement the foregoing restrictions on
transfer. The shares issued upon exercise of this Warrant shall bear
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<PAGE> 10
legends referring to the restrictions on transfer set forth in this Section 8.
As a condition to the transfer of this Warrant or transfer of the shares
issuable on exercise hereof, any permitted transferee must execute and deliver
to the Company representations and warranties similar to these set forth in this
Section 8 and applicable to a transferee of securities in an exempt transaction
under the Act and must agree in writing to accept and be bound by all the terms
and conditions of this Warrant.
9. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. This Warrant does not by
itself entitle the Registered Holder to any voting rights or other rights as a
stockholder of the Company. In the absence of affirmative action by the
Registered Holder to purchase Warrant Stock by exercise of this Warrant, no
provisions of this Warrant, and no enumeration herein of the rights or
privileges of the Registered Holder shall cause such Registered Holder to be a
stockholder of the Company for any purpose.
10. REGULATORY COMPLIANCE. If the Registered Holder of this Warrant or
the Warrant Stock would be subject to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and the rules and regulations thereunder (collectively,
the "ANTITRUST LAW"), then prior to such exercise or conversion and following
such Registered Holder's notice to the Company of its intention to exercise or
convert, the Company and such Registered 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 and the Antitrust Division of the Department of Justice. Each
of the Company and such Registered Holder shall bear and pay any costs or
expenses that it incurs in compliance with this requirement.
11. AMENDMENT; WAIVER. Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Registered Holder. Any amendment or
waiver effected in accordance with this Section 11 shall be binding upon the
Registered Holder, any future Registered Holder and the Company.
12. NOTICES. All notices and other communications from the Company to
the Registered Holder shall be deemed given when personally delivered, mailed by
first-class registered or certified mail, postage prepaid, delivered by
recognized overnight courier service, or transmitted by facsimile (with
confirmation by first class mail), to the address furnished to the Company in
writing by the Registered Holder who shall have furnished an address and/or
facsimile number to the Company in writing.
13. HEADINGS. The headings in this Warrant are for purposes of
convenience in reference only, and shall not be deemed to constitute a part
hereof.
14. LAW GOVERNING. This Warrant shall be construed and enforced in
accordance with, and governed by, the internal laws of the State of Delaware,
excluding that body of law applicable to conflicts of laws.
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<PAGE> 11
15. TERMS BINDING. By acceptance of this Warrant, the Registered Holder
of this Warrant (and each subsequent assignee, transferee or Registered Holder
of this Warrant) accepts and agrees to be bound by all the terms and conditions
of this Warrant.
16. COUNTERPARTS. This Warrant may be executed in one or more
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company and the Registered Holder have executed
this Warrant as of the Issue Date.
THE COMPANY: ACKNOWLEDGED AND ACCEPTED
BY INITIAL REGISTERED HOLDER:
AT HOME CORPORATION JONES INTERCABLE INC.
By: /s/ DEAN GILBERT By: /s/ PHILIP LAXAR
--------------------------- ---------------------------------
Name: Dean Gilbert Name: Philip Laxar
------------------------- -------------------------------
Title: S.V.P. & G.M. Title: Sr. VP Programming
------------------------ ------------------------------
[WARRANT SIGNATURE PAGE]
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EXHIBIT 10.33
Page 1
IRU CAPACITY AGREEMENT
This IRU Capacity Agreement (the "Agreement") is entered into
as of December 19, 1998 (the "Effective Date") between AT&T Corp. ("AT&T"), a
New York corporation with offices at 295 North Maple Avenue, Basking Ridge, New
Jersey 07920, and At Home Corporation ("@Home"), a Delaware corporation with its
principal place of business located at 425 Broadway Street, Redwood City,
California 94063.
BACKGROUND
This Agreement is made with reference to the following facts:
A. AT&T operates a fiber optic communications system (as such system
exists now, and as it is modified from time to time, the "AT&T Network").
B. AT&T desires to provide, and @Home desires to obtain, an
indefeasible right to use optical fibers and dedicated circuit capacity derived
with network electronics and circuit electronics on the AT&T Network.
C. AT&T desires to grant, and @Home desires to obtain, the ability to
upgrade @Home's rights hereunder on the AT&T Network.
D. AT&T desires to provide, and @Home desires to obtain, collocation,
maintenance and other services in connection with the capacity it derives from
the AT&T Network.
TERMS OF AGREEMENT
1 Definitions
1.1 "Accept" shall have the definition set forth in the
section entitled Testing and Acceptance. "Acceptance" shall have the
corresponding meaning.
1.2 "Additional Capacity" shall mean any Capacity aquired by
@Home pursuant to the section entitled Upgrades and Expansion.
1.3 "AT&T POPs" shall mean (a) the AT&T sites identified in
Exhibit E and (ii) such other AT&T sites as the parties may agree from time to
time to be within the scope of the term "AT&T POP."
1.4 "@Home Backbone Network" shall mean, at any date, the
@Home Routes as of that date.
1.5 "Capacity" shall mean the Phase Two Capacity, the Phase
Three Capacity, the Alternate Capacity and the Additional Capacity, including
both (i) the circuit capacity, as measured in terms of OC-3, OC-12, OC-48 or
otherwise and (ii) a portion of the relevant fiber strands necessary to
transport such capacity.
<PAGE> 2
Page 2
1.6 "City Pair" shall mean any of the pairs of cities listed
in Exhibit C or Exhibit D.
1.7 "Consumer Price Index" shall mean the Consumer Price Index
for Urban Wage Earners and Clerical Workers, All Items (1982-84=100), for the
United States as published by the United States Department of Labor, Bureau of
Labor Statistics, or any successor index thereto.
1.8 "@Home Routes" shall mean Routes on which @Home has rights
to use capacity under this Agreement.
1.9 [ * ]
1.10 "Indefeasible Right to Use" or "IRU" shall mean the
exclusive, unrestricted, and indefeasible right to use the relevant Capacity
(including equipment, fibers or capacity) for any legal purpose. The granting of
such IRU does not convey title or legal ownership of any fibers or equipment on
the AT&T Network. The IRU shall convey an interest that notwithstanding the
occurrence of a breach by the receiving party of any legal duty or obligation
imposed by any contract, by the law of torts (including simple or gross
negligence, strict liability or willful misconduct), or by federal or state
laws, rules, regulations, orders, standards or ordinances, during the Term, the
granting party shall have no right to revoke or restrict in any manner or to any
degree whatsoever, through injunctive relief or otherwise, the use of the IRU
granted to the receiving party, it being understood and agreed that each such
breach shall be compensable, if at all, by a remedy at law and not at equity.
1.11 [ * ] In Routes between two of the thirty largest
metropolitan statistical areas in the United States ("Large MSAs"), the
"Relevant Area" shall be any route in the United States; for Routes which do not
service a Large MSA, the Relevant Area shall mean a route in the same general
geographical area as the Route for which [ * ] is to be measured.
1.12 "Material Provision" shall mean any provision of this
Agreement (including, without limitation, payment provisions) the breach of
which by one party is determined by a judicial proceeding or pursuant to the
Section entitled Arbitration to constitute a material adverse effect on the use
and enjoyment by the other party of the benefits of this Agreement.
1.13 "OC-3" shall mean bi-directional OC-3 optical
transmission capacity meeting the specifications set forth in AT&T's Technical
Reference 54018, as revised from time to time. For purposes of this Agreement,
"bi-directional" shall mean that traffic up to the designated capacity can
travel in each direction simultaneously.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 3
Page 3
1.14 "OC-12" shall mean bi-directional OC-12 optical
transmission capacity meeting the specifications set forth in AT&T's Technical
Reference 54077, as revised from time to time.
1.15 "OC-48" shall mean bi-directional OC-48 optical
transmission capacity meeting the specifications set forth in AT&T's Technical
Reference 54078, as revised from time to time.
1.16 "Route" shall mean any route on the AT&T Network between
any two points of presence listed on Exhibits C and D or any other AT&T points
of presence which support OC-48 service.
1.17 "Third Party POPs" shall mean (i) the third party sites
identified in Exhibit G and (ii) such other third party sites as the parties may
agree from time to time to be within the scope of the term "Third Party POP."
1.18 "Service Components" shall mean, with respect to any
Route, the capacity, collocation and interconnection services relating to such
Route to be provided pursuant to this Agreement.
1.19 "Significant Route" shall mean any of the Routes so
designated on Exhibit C or D.
2 Service Components.
2.1 Indefeasible Right to Use. AT&T hereby grants to @Home for
the Term of this Agreement an IRU in the Capacity, as the Capacity may be
increased from time to time pursuant to the terms hereof.
2.2 Collocation and Interconnection. AT&T shall provide @Home
with collocation space along the @Home Backbone Network in (i) the AT&T POPs
under an agreement substantially in the form attached as Exhibit F (Collocation
Agreement). In each AT&T POP, AT&T shall provide @Home with three rack spaces
(as used in this Agreement, "rack space" shall have the meaning set forth in
Exhibit F) and associated collocation and interconnection services, as listed in
Exhibit F, or as hereafter mutually agreed upon. AT&T shall use its best efforts
to make the three rack spaces contiguous. AT&T shall procure on behalf of @Home
one rack space in the Third-Party POPs. As part of the Services provided
hereunder, AT&T will extend its facilities at no cost to @Home to the @Home
designated demarcation point within the Third-Party POPs.
3 Performance Phase.
3.1 Phase One - Interim Services. To assist @Home's transition
to the AT&T Network, during the period from January 1, 1999 through Acceptance
of the Phase Two Services on the applicable Route, AT&T will provide @Home
either with the Phase Two Service Components or with alternate capacity using
Asynchronous Transfer Mode technology ("ATM"), or with a hybrid arrangement
including some portion of the Phase Two Routes combined with ATM. @Home has an
existing ATM service arrangement with Sprint, which arrangement
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currently is being restructured. @Home will arrange for AT&T to assume @Home's
rights and obligations under the Sprint ATM service arrangement, once it is
restructured (the "Sprint ATM Arrangement") provided that @Home shall remain
liable for, and AT&T shall assume no liability for, termination charges,
shortfall charges, charges for service provided prior to January 1, 1999, and
other charges not directly related to the provision of ATM service under the
Sprint ATM Arrangement from January 1, 1999 forward. AT&T's willingness to
assume the Sprint ATM Arrangement is contingent upon its review and assessment
of the terms. In the event that AT&T incurs charges under the Sprint ATM
Arrangement in excess of [*], @Home will pay the amount of such
excess to AT&T as an Assumption Fee, except if AT&T does not deliver the Phase
Two Capacity by the Phase Two Commitment Date the charges incurred under the
Sprint ATM Arrangement from April 1, 1999 through the date on which AT&T
delivers the Phase Two Capacity will not be counted in calculating any
Assumption Fee. The parties acknowledge and agree that (i) the assumption of the
Sprint ATM Arrangement by AT&T is an accommodation to @Home to induce it to
enter into this Agreement and (ii) @Home has informed AT&T that it would not
enter into this Agreement without this provision.
3.2 Phase Two - [*] Capacity. AT&T shall provide, at no
additional cost to @Home, capacity (the "Phase Two Capacity") along certain
Routes (collectively, the "Phase Two Routes") as follows: [*] capacity on the
Routes and in the amounts listed on Exhibit C and in [*] capacity on the Routes
listed on Exhibit C. The "Phase Two Service Components" shall include the Phase
Two Capacity and corresponding collocation and interconnection services as set
forth in the Section entitled Collocation and Interconnection and Exhibit F.
AT&T shall deliver the Phase Two Service Components so that they are Accepted no
later than [*] (the "Phase Two Commitment Date"). The Phase Two Service
Components shall be subject to the testing and acceptance process set forth in
the Section entitled Testing and Acceptance. The Phase Two Service Components
shall terminate upon Acceptance of the Phase Three Service Components (defined
below).
3.3 Phase Three - [*] Capacity. AT&T shall provide at no
additional cost to @Home [*](the "Phase Three Capacity") on the Routes listed on
Exhibit D (the "Phase Three Routes") in accordance with the terms of this
Agreement including Exhibit B (Technical Specifications). The "Phase Three
Service Components" shall include the Phase Three Capacity and corresponding
collocation and interconnection services as set forth in the Section entitled
Collocation and Interconnection and Exhibit F. AT&T shall provide the Phase
Three Service Components so that they are Accepted no later than the relevant
scheduled delivery dates specified on Exhibit D (the "Phase Three Delivery
Dates").
3.4 Other Capacity. The parties agree to work together in good
faith to enter into a separate agreement or a contract tariff by January 31,
1999 to cover @Home's additional [*] (or larger) needs. In addition, @Home, at
its option, may order, and AT&T shall use commercially reasonable efforts to
promptly provide, capacity on routes not available through the AT&T Network
("Off-net Capacity"). AT&T shall provide such Off-net Capacity at [*] such is
actually obtained by AT&T from a non-affiliated third-party carrier, subject to
such other terms and conditions as apply between AT&T and such other carrier.
4. Delivery and Liquidated Damages
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4.1 Delivery. AT&T shall complete the construction,
installation and testing of the Phase Two Service Components and the Phase Three
Service Components so that they are Accepted in accordance with the terms of
this Agreement and specifically Exhibit B (Technical Specifications) by the
Phase Two Commitment Date and each of the applicable Phase Three Delivery Dates,
respectively. Notwithstanding the foregoing, each party understands that a risk
of delay is inherent in the provisioning of Phase Three Service Components due
to the extent of the project. Therefore, there shall be a completion grace
period extending from each of the Phase Three Delivery Dates as indicated on
Exhibit D until August 31, 1999 (the "Phase Three Commitment Date") for AT&T to
complete the construction, installation and testing of the Phase Three Service
Components. There shall be no grace period associated with the Phase Two
Commitment Date. The Phase Two Commitment Date and the Phase Three Commitment
Date are hereinafter collectively referred to as the "Commitment Dates."
4.2 Liquidated Damages. The parties agree that it would be
difficult to determine the precise amount of damages which @Home would suffer in
the event that the @Home Backbone Network or any portion thereof is not
completed by the applicable Commitment Date. Therefore, the parties agree, as
their best estimate of such damages to @Home that in the event that any of the
Service Components are not delivered and Accepted for any Significant Route by
the applicable Commitment Date, @Home shall receive a discount against the
purchase price (the "Discount") in the amount of [*] per month (prorated for
partial months) per City Pair for such Significant Route. The Discount shall
continue to accrue until the Service Components for such Significant Route are
delivered to and Accepted by @Home.
4.3 Cover Service Components. In the event the Service
Components for any Route have not been Accepted 120 days after the applicable
Commitment Date, @Home may, at its option, obtain equivalent capacity for the
Route from another carrier and AT&T shall reimburse @Home for all expenses
charged by such other carrier until such time that the Service Components are
Accepted by @Home for the applicable Route. This cover remedy is in lieu of
liquidated damages under Section 4.2 for such late delivery for the time such
alternative capacity is provided.
4.4 Alternate Service Components. If @Home has not Accepted
the Phase Three Service on any Route by the Phase Three Commitment Date, AT&T
shall provide @Home with [*] between the [City Pairs] for each applicable
Route not yet Accepted (the "Alternate Capacity"). The Alternate Service
Components shall include the Alternate Capacity and corresponding collocation
and interconnection services as set forth in the Section entitled Collocation
and Interconnection and Exhibit F. If necessary, AT&T will provide the Alternate
Service Components with services it obtains from another carrier. AT&T shall
provide the Alternate Service Components to @Home at no additional cost to
@Home. To the extent that AT&T provides Alternate Service Components, @Home will
not have the right to obtain Cover Service Components as set forth in Section
4.3, and will not have the right to liquidated damages under Section 4.2 for
such late delivery for the time the Alternative Service Components are provided.
4.5 Substantial Failure to Deliver Routes. If by March 31,
2000, regardless of any Force Majeure Events, 70% of all the Phase Three Routes
and associated Service Components have not been Accepted by @Home, then @Home
shall have the right to
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terminate this Agreement by providing written notice thereof to AT&T. In such
event, AT&T shall refund to @Home any amounts actually paid by @Home to AT&T
pursuant to the Section entitled Payment, except that AT&T may withhold an
amount for each Accepted Route, the "Usage Fee." The Usage Fee shall equal the
portion of the IRU Fee paid through the date of termination of this Agreement
with respect to such Route (calculated on a pro-rata basis based on mileage)
multiplied by a fraction. The fraction shall have a numerator equal to the
number of months @Home was provided Service on such Route and a denominator of
240. In addition, regardless of any Force Majeure Events, @Home may terminate
this Agreement with respect to any Route for which the Service Components have
not been Accepted within two years of the Effective Date.
5. Payment.
5.1 IRU Fee. In consideration for the Interim Service and the
IRUs granted hereunder in the Capacity, @Home shall pay AT&T [*].
5.2 Maintenance. In consideration for the provision of
maintenance services provided by or arranged for by AT&T with respect to Phase
Three Capacity in accordance with the Section entitled Operation, Maintenance
and Repair, @Home shall pay AT&T a quarterly Maintenance Fee (as defined below)
in arrears on a Route mileage basis (regardless of the amount of capacity used
on the Route). The mileage used to calculate the Maintenance Fee for each
quarter shall be calculated by adding together the number of applicable Route
miles in use at the beginning and end of the quarter and dividing by two. The
"Maintenance Fee" shall be the sum of two components: the "Services Component"
and the "Repair/Replacement Component". The Services Component shall be equal to
[*] per quarter per Route mile. The Repair/Replacement Component shall be
lower during the period the initial equipment used to provide the Capacity is
new to reflect AT&T's ability to take advantage of manufacturers' warranties.
The Repair/Replacement Component shall be (a) [*] per quarter per Route mile
during the first three years of Phase Three Capacity on the relevant Route and
(b) [*] per quarter per Route mile thereafter.
5.2.1 CPI Increase. The Maintenance Fee shall be
adjusted annually by the aggregate change in the Consumer Price Index, as set
forth below. Beginning at the start of the first year for which the Maintenance
Fee applies, and each additional year thereafter, the Maintenance Fee payable
hereunder shall be determined by multiplying the monthly Maintenance Fee set
forth in Section 5.2 by a fraction, the numerator of which shall be (i) the
average of the monthly Consumer Price Indices for the 12 months immediately
preceding the date on which the Maintenance Fee is to be adjusted and (ii) the
denominator of which shall be the average of the monthly Consumer Price Indices
for the 12 months immediately preceding the Effective Date of this Agreement.
5.3 Collocation. In consideration for collocation at the AT&T
POPs @Home shall pay AT&T the amounts set forth in Exhibit F. AT&T shall charge
@Home for rack spaces in Third-Party POPs only the actual cost therefor to AT&T,
without mark-up.
5.3.1 CPI Increase. The collocation charges shall be
adjusted annually by the aggregate change in the Consumer Price Index, as set
forth below. At the beginning of each calendar year beginning with 2000, the
collocation charges shall be
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determined by multiplying such charges by a fraction, the numerator of which
shall be (a) the average of the monthly Consumer Price Indices for the 12 months
preceding the date on which the charge is to be adjusted and (b) the denominator
of which shall be the average of the monthly Consumer Price Indices for the 12
months immediately preceding the date on which the charges were first
established under this Agreement.
5.4 Invoicing and Payment Terms. AT&T shall send a bill to
@Home for all charges payable under this Agreement. With the exception of the
IRU Fee which each shall be due on the dates set forth in Exhibit I, @Home shall
pay all invoiced amounts within 30 days after the date of an invoice therefor.
@Home's obligation to pay a charge that is subject to a specifically identified
good faith dispute will be suspended while the disputed charge is under
investigation by AT&T if (a) @Home provides a written explanation of the basis
for such dispute prior to the date such payment is due or (b) an AT&T account
inquiry and collections representative provides express written consent to
suspend the payment obligation pending investigation. If any amount due under
this Agreement not so disputed is not received within fifteen days after the
date due, then, in addition to its other remedies available under this
Agreement, AT&T may in its sole discretion impose a late payment charge
calculated each month at the rate of 1% per month (or 12% per annum), such late
charge being payable upon demand by AT&T.
6. Upgrades and Expansion.
6.1 Upgrade of @Home Backbone Network at @Home's Request. At
any time after [*] and during the Term of this Agreement, @Home shall have the
right to upgrade its Capacity on @Home Routes (a "Requested Upgrade"). [*] @Home
may request such upgrade by providing written notice (the "Upgrade Request
Notice") to such effect to AT&T. The Upgrade Request Notice shall include the
Route(s) and the amount of additional capacity for each Route (provided however
the effective Capacity that @Home obtains shall not exceed the [*] for such
Route, except if @Home has previously made an Existing Route Expansion (as
defined below) for the Route that @Home desires, in which case the effective
capacity which @Home obtains shall not exceed the product of (a) the [*] for the
Route and (b) the [*] (as defined below) for the Route). At such time, AT&T
shall be obligated to provide @Home with (i) the Requested Upgrade or (ii)
alternative capacity along the Routes and in the amount requested by @Home as
part of the Requested Upgrade ("Additional Capacity Without Upgrade");. Within
60 days of the date of the Upgrade Request Notice, AT&T shall respond in writing
(the "Upgrade Response Notice") indicating whether it has selected option (i) or
option (ii) above and providing a detailed description of the upgraded
transmission system or the capacity, as applicable, the anticipated time line
for installation, completion and delivery, as applicable and the [*]. Within 30
days after receipt of the Upgrade Response Notice, @Home shall provide AT&T with
written confirmation of @Home's desire (or lack thereof) to proceed with the
Requested Upgrade. @Home shall pay for the Requested Upgrade in accordance with
the Section entitled Upgrade Payment Terms and AT&T shall use commercially
reasonable efforts to provide the additional Capacity promptly.
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6.2 Expansion of @Home Backbone Network. At any time after
August 31, 1999 and during the Term of this Agreement, @Home shall have the
right to request an expansion of the @Home Backbone Network to (a) include
Routes not then on the @Home Backbone Network (a "Route Expansion") or (b)
include additional capacity above [*] on an @Home Route then in use (an
"Existing Route Expansion"), (in either case, a "Requested Expansion"). In
connection with a Requested Expansion, @Home shall have the right to purchase
from AT&T additional [*] Capacity (a) in a Route Expansion, on such Routes up to
[*] or (b) in an Existing Route Expansion, up to an amount of capacity above the
Market Equivalent Capacity as specified by @Home (the [*] requested in an
Existing Route Expansion above [*] is referred to as the "[*]") @Home may
request such expansion by providing written notice (the "Expansion Request
Notice") to such effect to AT&T. The Expansion Notice shall include the new
Route(s) and the amount of additional capacity for each new Route that @Home
desires. At such time, AT&T shall provide @Home with (i) the Requested Expansion
using such upgraded facilities; or (ii) alternative capacity in the amount
requested by @Home as part of the Requested Expansion ("Additional Expansion
Capacity Without Upgrade"); provided however that in either case, the Capacity
that @Home obtains shall not exceed (a) in the case of a Route Expansion, the
[*] or (b) in the case of an Existing Route Expansion, the product of (1) [*]
multiplied by (2) the sum of [*]. Within 60 days of the date of the Expansion
Request Notice, AT&T shall respond in writing (the "Expansion Response Notice")
indicating whether it has selected option (i) or option (ii) above and providing
a detailed description of the upgraded transmission system or the capacity, as
applicable, the anticipated time line for installation, completion and delivery,
as applicable and the [*]. Within 30 days after receipt of the Expansion
Response Notice, @Home shall provide AT&T with written confirmation of @Home's
desire (or lack thereof) to proceed with the Requested Expansion. @Home shall
pay for the Requested Expansion in accordance with the Section entitled
Expansion Payment Terms and AT&T shall use commercially reasonable efforts to
provide the additional Capacity promptly.
6.3 Upgrade of @Home Backbone Network During AT&T Network
Upgrade. AT&T shall provide written notice (the "Upgrade Notice") to @Home of
each "Upgrade" of the AT&T Network. An "Upgrade" is any change to the AT&T
Network, including but not limited to [*]. The Upgrade Notice shall include a
detailed description of the upgraded transmission system (including routes,
engineering and capacity), anticipated time line for installation, completion
and delivery and the [*]. @Home may elect to participate in the Upgrade and to
retain AT&T to upgrade the @Home Backbone Network (or such portions of the @Home
Backbone Network as @Home requests) by providing notice (the "Upgrade Acceptance
Notice") to such effect to AT&T in writing within 30 days of receiving the
Upgrade Notice. The Upgrade Acceptance Notice shall include the Routes and the
amounts of capacity for each Route that @Home desires. @Home may elect to
participate in the AT&T Network upgrade on individual Routes, rather than for
the entire Upgrade. @Home may at any time in the future request Service
Components on the Upgraded portions of the AT&T Network in
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accordance with the Section entitled Upgrade of @ Home Backbone Network at @
Home's Request.
6.4 Forecasting and Planning. AT&T and @Home shall meet twice
a year to review @Home's network forecasts, AT&T network planning and status and
to discuss the current [*]. In the event the parties do not agree upon [*] for
any Route, at the option of either party, determination of [*] at such time
shall be referred to the binding decision of a mutually acceptable independent
third party. If the parties do not agree upon such a third party within 30 days
of the exercise of such option, an independent third party will be chosen
through arbitration under the terms of this Agreement.
6.5 Transition to New Service. In the event an Upgrade, an
Expansion or a Requested Upgrade requires a transfer of @Home's Service
Components to different electronics, AT&T will effect the transfer in accordance
with mutually acceptable transition procedures approved by the engineering
groups of @Home and AT&T.
6.6 Collocation with Upgrade or Expansion. In connection with
a Requested Upgrade, an Upgrade or an Expansion, AT&T shall provide collocation
services to @Home in a manner sufficient to meet @Home's needs. @Home shall pay
the cost for such collocation as set forth in Exhibits F and I.
6.7 Acceptance of Upgrade and Expansion. Testing, Acceptance
and payment subsequent thereto of a Requested Upgrade, an Upgrade or an
Expansion shall be in accordance with the section entitled Testing and
Acceptance herein, provided however, that in the event the specifications set
forth in Exhibit B are no longer applicable to the technology employed at the
time of a Requested Upgrade, an Upgrade or an Expansion, the parties shall
mutually agree in writing to specifications in line with industry standards
prior to the testing.
6.8 City-Pair Split. At @Home's request, AT&T shall allow
@Home to split any Route between the two cities of a City Pair if AT&T has a
point of presence (the "New POP") in between the two cities. In such case, AT&T
shall provide @Home with collocation (three rack spaces) and interconnection at
the New POP. AT&T's only charge for allowing and implementing such split in the
City Pair will be for the collocation. @Home shall pay the cost for such
collocation as set forth in Exhibits E and I.
7. Payment for Upgrades and Expansions.
7.1 Additional Capacity Cost. Pricing for additional upgrading
to a new higher capacity shall be determined by the following:
[*]
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[*]
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7.1.2 Fiber Cost. [*] @Home shall pay [*] per Route
mile for the right to use fiber in connection with extending the Capacity to an
additional Route usage of fiber on any non-@Home Route. @Home shall pay an
amount equal to the product of (a) [*] per Route mile and (b) the [*] for the
right to use fiber in connection with an Existing Route Expansion. The route
mileage for new Routes shall be determined by AT&T's final as-built circuit
designs.
7.3 Upgrade and Expansion Payment Terms. Upon agreeing to
participate in an upgrade or expansion @Home shall owe AT&T [*]. Upon Acceptance
in accordance with the Section entitled Testing and Acceptance and delivery of
the Service Components along the upgraded or expanded portion of the @Home
Backbone Network, @Home shall pay the remainder of [*] in the Upgrade Response
Notice, the Upgrade Notice or the Expansion Notice, as applicable. The Section
entitled Invoicing and Payment Terms shall apply to the [*].
8. Audit of Certain Upgrade, Expansion and Discount-Related Invoices.
@Home may undertake an audit under this Section in connection with a billing
dispute or after payment of the relevant invoice to evaluate the accuracy of
pricing and calculations for such invoice. For a period of twelve (12) months
from the date payment of the relevant invoice by @Home is first due, AT&T agrees
to maintain records [*] related to an invoice, and to make such records
available to a representative of @Home (or, at AT&T's option, to a third-party
auditor acceptable to both parties) at reasonable times at AT&T headquarters on
prior notice in connection with an audit requested by @Home under this Section.
All costs related to such audit will be borne by @Home. All documents reviewed
in connection with such an audit shall be subject to confidential treatment as
set forth in the Section entitled Confidentiality. If the audit discloses an
error in the pricing or discounts made available to @Home, and such audit
indicates @Home paid too much, AT&T and @Home will promptly review the
conclusions of the audit and, where AT&T concurs, AT&T shall pay @Home the
amounts due within 15 days of its concurrence. In the event the audit reveals
that @Home was charged too little, @Home shall pay the difference within 30 days
of receiving an invoice from AT&T therefor. If the parties disagree, either
party may seek to resolve the matter through arbitration as set forth in the
Section entitled Arbitration.
9. Testing and Acceptance.
9.1 Testing. Prior to making any Capacity available to @Home
under this Agreement, AT&T shall test the Capacity on a Route-specific basis
("Testing") to ensure that the Capacity is in conformity with the technical
specifications set forth in Exhibit B (the "Specifications"). If any Testing
establishes that the Capacity does not conform to the Technical Specifications,
AT&T promptly shall correct such nonconformity and conduct additional Testing
prior to making the Service Components available to @Home.
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9.2 Acceptance. If AT&T determines, that for a particular
Route, that the Testing results show that the Capacity meets the Specifications
and that the Service Components are available for @Home's use, AT&T shall
provide @Home with written notice to that effect (the "Delivery Notice"). The
Delivery Notice shall include the Testing results, a description of the
available Service Components (including circuit identifiers) and the date the
Service Components will be available. Prior to providing the Delivery Notice
AT&T shall use commercially reasonable efforts to deliver @Home the applicable
rack spaces pursuant to a Collocation Agreement in the AT&T POP for installation
of its equipment. If @Home fails to give a Non-Acceptance Notice (defined below)
or makes a special request for an extension of the acceptance period (during
which period the applicable Commitment Date for the Route shall be tolled)
within 30 days after @Home's receipt of the Delivery Notice, @Home shall be
deemed to have accepted the Service Components for such Route(s) effective as of
such thirtieth day. The earliest of (i) such date, (ii) the date @Home informs
AT&T that it has accepted the Service Components, or (iii) the date that @Home
actually begins commercial use of the Service Component shall be deemed the
"Acceptance Date" for that Service Component and such Service Component shall be
"Accepted." @Home shall have the right to extend the acceptance period for 15
days upon written request to AT&T.
9.3 Non-Acceptance. If within the 30-day period (or the 45-day
period if applicable) described above, @ Home gives AT&T a written notice of any
nonconformity of the Capacity to the Specifications or stating that the Service
Components are not available for @ Home's use ("Non-Acceptance Notice"),
Acceptance shall not occur. A Non-Acceptance Notice must either specifically
identify the Specifications with which @Home contends the Capacity does not
conform, or provide an explanation of the manner and extent to which the Service
Component is not available. @Home will promptly upon AT&T's written request,
give reasonably specific additional information to AT&T regarding the claimed
nonconformity and , from the date of Non-Acceptance Notice until such
information is provided, any applicable Commitment Date shall be tolled. AT&T
shall use commercially reasonable efforts to correct such nonconformity and make
the Service Component available within 10 days of receipt of @Home's valid
Non-Acceptance Notice. Upon completion of such correction, AT&T shall notify
@Home by providing a Delivery Notice, after which @Home shall have 10 days for
Acceptance or for @Home to provide additional notice of a failure to deliver the
Service Components by providing a Non-Acceptance Notice. Such process shall be
repeated until Acceptance, provided however, if AT&T fails to correct any
nonconformity of any Capacity to the Technical Specifications or to provide the
Service Components within 90 days after the date of the first Delivery Notice,
@Home may at its option terminate this Agreement with respect to the affected
Route(s) only, upon written notice to AT&T. In such case, AT&T need no longer
deliver the affected Route(s), and @Home need no longer pay any amounts due for
such Route(s).
10. Operation, Maintenance and Repair.
10.1 Purchase, Repair or Replacement of Electronic Equipment.
AT&T shall purchase, repair and replace all electronic equipment related to the
provision of the Service Components at all times.
10.2 Operating Standards. During the term of this Agreement,
AT&T shall operate the @Home Backbone Network in accordance with the same
standards with which AT&T operates the AT&T Network and in any case, with at
least the standard of care in the industry.
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10.3 Maintenance and Repair. During the Term hereof, AT&T
shall be responsible, at its sole expense, for the emergency and non-emergency
maintenance, and repair of the AT&T Network and the @ Home Backbone Network, so
as to assure continuing conformity of the @Home Backbone Network with the
Specifications. If routine, scheduled maintenance of the @Home Backbone Network
is expected to result in any interruption of the Service, AT&T shall so notify
@Home in writing at least 10 business days prior to commencing such routine
maintenance. AT&T shall schedule major maintenance of the @Home Backbone Network
at a time selected by AT&T to limit adverse user impacts.
10.4 Use of Subcontractors. AT&T may contract with qualified
contractors for the performance of any maintenance and repair services
contemplated by this Agreement, including unaffiliated contractors, but shall
remain responsible for the performance of such services in accordance with the
requirements of this Agreement.
10.5 Response to Interruptions. Subject to geographic
limitations, AT&T shall exercise commercially reasonable efforts to respond to
any Unscheduled Interruption (defined below) involving AT&T facilities
delivering the Service within four hours, measured in each case from the time
that AT&T receives notice of an interruption and ending at the time a qualified
AT&T technician arrives at the site of the reported problem.
10.6 Credit for Total Interruptions.
10.6.1 A Total Interruption is: (a) any situation in
which @Home suffers a total loss of connectivity in one or more Routes, lasting
two or more hours, which loss is not caused by @Home, and that does not occur
within or as a result of equipment connections that @Home provides. In the event
of a Total Interruption that is due to circumstances within AT&T's reasonable
control (fiber cuts shall not be deemed to be within AT&T's reasonable control),
@Home shall be entitled to an allowance in the form of a credit against amounts
otherwise payable by @Home under this Agreement, calculated as set out below. No
credit will be provided for any scheduled interruption. Any credit shall be
applied to the next monthly maintenance invoice issued to @Home.
10.6.2 @Home shall be credited for each [ * ] hour
period of a Total Interruption within AT&T's reasonable control in a specific
Route at a rate of [ * ] for each such period of a Total Interruption for each
Route where the Total Interruption occurs, the duration of such Interruption
being measured from (i) the time of notice to AT&T's network control center that
a Total Interruption has occurred to (ii) the time of restoration of the
Service.
10.6.3 If there shall occur, within any period of 12
consecutive months, more than four Total Interruptions caused by factors within
AT&T's reasonable control on the AT&T Network, AT&T will demonstrate to @Home
actions taken by AT&T to reduce such Interruptions. If there shall occur more
than two additional Total Interruptions due to factors within AT&T's reasonable
control within the subsequent three month period, @Home may at its option
terminate this Agreement upon written notice to AT&T, but only with respect to
the affected Route(s).
10.7 Interference. In any instance in which AT&T believes in
good faith that @Home's use of the @Home Backbone Network is interfering
unreasonably with the use of
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 14
Page 14
AT&T service by others or the operation of the AT&T Network, AT&T may
immediately restrict or suspend the Service Components, without liability on the
part of AT&T, and then notify @Home of the action that AT&T has taken and the
reason for such action. For purposes of the foregoing sentence, the normal usage
by @Home of all or any part of the Capacity shall be deemed to be reasonable. To
the extent doing so does not interfere with its ability to prevent such
interference, AT&T will attempt to limit any restriction or suspension under
this Section to the Service Components that are causing such interference.
10.8 Ongoing Service Quality Review. The Parties shall
establish an informal mechanism for maintaining communications channels between
their respective network staffs related to service quality on the Routes. In the
event that there arises a service quality issue that a party deems to be
significant and that is not resolved in a satisfactory manner through the
established mechanism, the dissatisfied party may escalate the matter to senior
management of the other party for resolution, at the level of an executive vice
president or higher.
11. Relocation. Unless the circumstances make such notice
impracticable, AT&T shall give @Home at least 90 days prior written notice of
any scheduled relocation of any portion of the @Home Backbone Network, and as
much advance notice as possible of any unscheduled relocation. AT&T shall have
the right to direct any relocation of any portion of the @Home Backbone Network,
including but not limited to the right to determine the extent and timing of,
and the methods to be used for, such relocation; provided, however, that unless
otherwise agreed, any such relocation: (i) shall be constructed and tested in
accordance with the Specifications, and (ii) shall not result in any
Interruption in excess of two hours or degradation of the Service Components. In
the event an AT&T POP or a Third-Party POP is relocated or replaced, by a new
site, AT&T shall relocate the applicable @Home Service Components (including any
facilities necessary to continue the AT&T and third-party interconnections in
place immediately prior to the relocation or replacement). Any such relocation
shall be undertaken at no cost to @Home, except in cases where relocation is
accompanied by additions or other work to benefit @Home and for which @Home
agrees in writing to pay.
12. Term of the Agreement. This Agreement is binding on the parties as
of the Effective Date and, subject to the termination provisions of this
Agreement, shall remain in effect for 20 years from the Acceptance Date of all
Routes listed on Exhibit D (the "Term") . This Agreement, including the Service
Components granted under this Agreement, may be renewed upon terms mutually
agreed upon by the parties in writing.
13. Use of the Services and Restriction on Resale. @Home may use the
Service Components for any lawful purpose and @Home represents and warrants that
its use of the Service Components and its offering of services using the @Home
Backbone Network will comply with all applicable government codes, ordinances,
laws, rules, regulations and/or restrictions. @Home may sell, trade, exchange or
otherwise make available to any person or entity any service so long as @Home's
routers and packet switches or packet based successor equipment are used.
14. Indemnification.
<PAGE> 15
Page 15
14.1 @Home shall indemnify, defend, and hold harmless AT&T and
its directors, officers, employees, agents, subsidiaries, affiliates, successors
and assigns from any and all third party claims, damages and expenses whatsoever
(including reasonable attorneys' fees) arising on account of or in connection
with @Home's use of the Service Components provided under this Agreement,
including but not limited to: (a) claims arising from any failure, breakdown,
interruption or deterioration of service components provided by AT&T to @Home or
service provided by @Home to third parties; and (b) claims of patent
infringement arising from combining or using services or equipment furnished by
AT&T in connection with services or equipment furnished by others. @Home's
indemnification obligations do not apply to claims for damages to real or
tangible personal property or for bodily injury or death negligently caused by
AT&T.
14.2 AT&T shall indemnify, defend, and hold harmless @Home and
its directors, officers, employees, agents, subsidiaries, affiliates,
successors, and assigns from all claims of patent infringement arising solely
from the use of the Services.
14.3 The parties hereby expressly recognize and agree that
each party's said obligation to indemnify, defend, protect and save the other
harmless is not a material obligation to the continuing performance of the
parties' other obligations, if any, hereunder. In the event that a party shall
fail for any reason to so indemnify, defend, protect and save the other
harmless, the injured party hereby expressly recognizes that its sole remedy in
such event shall be the right to bring an arbitration proceeding pursuant to the
terms of this Agreement against the other party for its damages as a result of
the other party's said failure to indemnify, defend, protect and save harmless.
These obligations shall survive the expiration or termination of this Agreement.
14.4 Nothing contained herein shall operate as a limitation on
the right of either party hereto to bring an action for damages against any
third party, including indirect, special or consequential damages, based on any
acts or omissions of such third party as such acts or omissions may affect the
construction, operation or use of the AT&T Network or the @Home Backbone
Network, as the case may be; provided, however, that each party hereto shall
assign such rights of claims, execute such documents and do whatever else may be
reasonably necessary to enable the other party to pursue any such action against
such third party.
15. [Reserved]
16. Limitation of Liability.
16.1 EXCEPT AS SET FORTH IN THE SECTIONS ENTITLED DELIVERY AND
LIQUIDATED DAMAGES, AND CREDIT FOR TOTAL INTERRUPTIONS OR AS OTHERWISE SPECIFIED
HEREIN, THE LIABILITY OF AT&T ASSOCIATED WITH THE INSTALLATION, PROVISION, USE,
MAINTENANCE, REPAIR, TERMINATION OR RESTORATION OF SERVICE COMPONENTS PROVIDED
PURSUANT TO THIS AGREEMENT SHALL NOT EXCEED AN AMOUNT EQUAL TO THE PRORATED
PORTION OF CHARGES FOR THE AFFECTED SERVICE COMPONENTS FOR THE PERIOD DURING
WHICH THAT SERVICE COMPONENT WAS AFFECTED.
<PAGE> 16
Page 16
16.2 NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT TO THE
CONTRARY, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY
SPECIAL, INCIDENTAL, INDIRECT, PUNITIVE, RELIANCE OR CONSEQUENTIAL DAMAGES,
WHETHER FORESEEABLE OR NOT, ARISING OUT OF, OR IN CONNECTION WITH, TRANSMISSION
INTERRUPTIONS OR PROBLEMS, INCLUDING, BUT NOT LIMITED TO, DAMAGE OR LOSS OF
PROPERTY OR EQUIPMENT, LOSS OF PROFITS OR REVENUE, COST OF CAPITAL, COST OF
REPLACEMENT SERVICES, OR CLAIMS OF CUSTOMERS, WHETHER OCCASIONED BY ANY REPAIR
OR MAINTENANCE PERFORMED BY, OR FAILED TO BE PERFORMED BY, THE FIRST PARTY OR
ANY OTHER CAUSE WHATSOEVER, INCLUDING, WITHOUT LIMITATION, BREACH OF CONTRACT,
BREACH OF WARRANTY, NEGLIGENCE OR STRICT LIABILITY. THIS PARAGRAPH SHALL NOT BE
CONSTRUED TO LIMIT EITHER PARTY'S ABILITY TO RECOVER UNDER THE SECTION ENTITLED
INDEMNIFICATION WITH RESPECT TO CLAIMS OF THIRD PARTIES BROUGHT AGAINST SUCH
PARTY OR THE RIGHT TO RECOVER LIQUIDATED DAMAGES UNDER THE SECTIONS ENTITLED
DELIVERY AND LIQUIDATED DAMAGES AND OPERATION, MAINTENANCE AND REPAIR.
16.3 PURSUANT TO THIS SECTION, NO PARTY SHALL BE PREVENTED
FROM MAKING A CLAIM OR FILING SUIT AGAINST AN INDEPENDENT CONTRACTOR FOR
SPECIAL, INCIDENTAL, INDIRECT, PUNITIVE, RELIANCE OR CONSEQUENTIAL DAMAGES
ARISING OUT OF SUCH INDEPENDENT CONTRACTOR'S PERFORMANCE OF MAINTENANCE OR
REPAIR SERVICES FOR THE SYSTEM OWNER, BUT THE PARTY MAKING THE CLAIM OR FILING
SUIT AGREES THAT IT WILL NOT SEEK RECOVERY OF SUCH DAMAGES TO THE EXTENT SUCH
INDEPENDENT CONTRACTOR HAS A CONTRACTUAL OR COMMON LAW RIGHT OF RECOVERY AGAINST
OR AN INDEMNITY FROM THE OTHER PARTY.
17. Notice.
17.1 Unless otherwise provided herein, all notices and
communications concerning this Agreement shall be in writing and addressed to
the other party as follows:
If to @Home: At Home Corporation
425 Broadway Street
Redwood City, California 94063
Attention: General Counsel
Telephone: (650) 569-5000
Facsimile No: (650) 482-4606
with a copy to: Michael P. Whalen, Esq.
Riordan & McKinzie
695 Town Center Drive, Suite 1500
Costa Mesa, CA 92626
Facsimile No: (714) 549-3244
<PAGE> 17
Page 17
If to AT&T: AT&T Corp.
4450 Rosewood Drive Room 5155
Pleasanton, California, 94588
Attn: Douglas Markling
General Manager - @Home
Facsimile No: (925) 224-6556
with a copy to: AT&T Corp.
295 North Maple Avenue
Basking Ridge, New Jersey, 07920
Attn: David J. Ritchie
General Attorney - Wholesale Markets
Facsimile No: (908) 953-8360
or at such other address as may be designated in writing to the other party.
17.2 Unless otherwise provided herein, notices shall be sent
by registered or certified U.S. Mail, postage prepaid, or by commercial
overnight delivery service, or by facsimile, and shall be deemed served or
delivered to the addressee or its office on the date of receipt acknowledgment
or, if postal claim notices are given, on the date of its return marked
"unclaimed," provided, however, that upon receipt of a returned notice marked
"unclaimed," the sending party shall make reasonable effort to contact and
notify the other party by telephone.
18. Confidentiality. The parties hereto agree that this Agreement and
the terms hereof are "Confidential Information" as defined in the Nondisclosure
Agreement dated as of September 8, 1998 between the parties. Notwithstanding the
terms of that agreement however, either party may disclose the contents of, or
information concerning, this Agreement to the extent required by law after using
reasonable efforts to consult with the other party regarding such disclosure
and, as applicable, using reasonable efforts to obtain confidential treatment
from the applicable regulatory agency regarding the pricing terms hereof.
18A Use of Marks Nothing in this Agreement creates in a party any
rights in the other party's trade names, trademarks, service marks or any other
intellectual property. Except as may be otherwise agreed between the parties in
writing:
18A.1 Either party may use the other party's trade names,
trademarks, or service marks only to the extent such use is not prohibited by
this Agreement and is otherwise permitted by law (including but not limited to
the Lanham Act).
18A.2 In no event shall either party use or display, in
advertising or otherwise, any of the other party's logos, trade dress, trade
devices or other indicia of origin, or any confusingly similar logos, trade
dress, trade devices or indicia of origin.
18A.3 Neither party shall conduct business under the other
party's corporate or trade name, trademark, service mark, logo, trade dress,
trade device, indicia of origin or other symbol that serves to identify and
distinguish the other party from its competitors, or under any
<PAGE> 18
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confusingly similar corporate or trade name, trademark, service mark, logo,
trade dress, trade device, indicia of origin or other symbol.
18A.4 Neither party (the "First Party") shall indicate or
imply to any third party that the First Party is affiliated with the other
party, that the First Party is authorized by the other party to sell or provide
service to them, that the First Party is providing (or will provide) service to
such party jointly or in collaboration or partnership with the other party, or
as the agent of the other party, or that service provided by the First Party or
another carrier is provided by the other party.
18A.5 Except to the limited extent (if any) as may be required
under law, neither party shall indicate or imply to any existing or potential
end user that any portion of the service provided to the end user by a party is
provided by the other party or is carried over the other party's network or
facilities.
19. Default.
19.1 A party may deliver to the other party a written "Notice
of Default" for: (i) failing to make any payment owed hereunder, when no bona
fide dispute exists (a "Monetary Default"); or (ii) the breaching by either
party or its agents, assigns or affiliates of any Material Provision; or (iii)
the filing or initiating of proceedings by or against a party seeking
liquidation, reorganization or other such relief under any federal or state
bankruptcy or insolvency law (a "Bankruptcy Proceeding"). Such Notice of Default
must prominently contain the following sentences in capital letters: "THIS IS A
FORMAL NOTICE OF A BREACH OF CONTRACT. FAILURE TO CURE SUCH BREACH WILL HAVE
SIGNIFICANT LEGAL CONSEQUENCES."
19.2 A party that has received a Notice of Default arising out
of a Monetary Default shall have 30 days to cure. If @Home fails to cure a
Monetary Default within the cure period, AT&T shall have the right to either (a)
suspend its performance obligations under this Agreement, (b) seek an award for
the past due balance, including interest and reasonable attorneys' fees, and/or
(c) require @Home to post a reasonable deposit or other adequate assurance of
payment as a condition of continuing performance by AT&T. Notwithstanding the
foregoing, AT&T may not disconnect service or revoke the IRU with respect to any
Route except for non-payment of the IRU Fee with respect to any Route.
19.3 A party that has received a Notice of Default arising out
of an alleged breach of a Material Provision shall have 30 days to cure the
alleged breach. If the defaulting party shall have commenced actions in good
faith to cure such defaults which are not susceptible of being cured during such
30-day period, such period shall be extended (but not in excess of 90 additional
days) while such party continues such actions to cure. If such party fails to
cure the breach within the applicable cure period, as long as such default shall
be continuing, the non-defaulting party shall have the right to either (a)
suspend its performance or payment obligations under this Agreement, (b) seek an
order of specific performance, and/or (c) seek the award of compensatory
damages. Any event of default by either party may be waived under the terms of
this Agreement at the other party's option.
<PAGE> 19
Page 19
20. Termination.
20.1 Upon the expiration of the Term of this Agreement, the
Services Components shall terminate and @Home shall owe AT&T no additional
consideration.
20.2 Notwithstanding the foregoing, no termination of this
Agreement shall affect the rights or obligations of any party hereto with
respect to any payment hereunder for services rendered prior to the date of
termination or pursuant to the Sections entitled Indemnification, or Arbitration
herein.
21. Force Majeure. If, by reason of any Force Majeure Event (as
hereinafter defined), a party shall be unable to carry out any of its
obligations (other than the payment of monetary amounts due) under this
Agreement and that party gives the other party prompt written notice thereof,
then, except as otherwise set forth herein, any such obligations shall be
suspended to the extent made necessary by reason of such Force Majeure Event
during its continuance, provided that such party attempts to eliminate insofar
as is reasonably possible the effect of such force majeure with all reasonable
dispatch. The term "Force Majeure Event" shall mean: (i) an act of God, (ii)
fire, (iii) flood, (iv) explosion (v) material shortage or unavailability not
resulting from the responsible Party's failure to timely place orders or take
other necessary actions therefor, (vi) war, civil disorder, earthquake or labor
strikes or (vii) national emergency. The party claiming relief under this
Section shall promptly notify the other in writing of the existence of the
event(s) (i) through (vii) relied on, the expected duration of the Force Majeure
Event, and the cessation or termination of said event.
22. Arbitration
22.1 An "Arbitrable Dispute" is any dispute or disagreement
arising between @Home and AT&T in connection with this Agreement in which the
dollar amount in dispute is less than one million dollars ($1,000,000) or which
involves quality issues not settled by the parties pursuant to the section
entitled ongoing Service Quality Review. Any Arbitrable Dispute which is not
settled to the mutual satisfaction of @Home and AT&T within thirty (30) days
from the date that either party informs the other in writing that such dispute
or disagreement exists, shall be settled by arbitration in San Francisco,
California in accordance with the Commercial Arbitration Rules of the American
Arbitration Association in effect on the date that such notice is given. If the
parties are unable to agree on a single arbitrator within 15 days from the date
of receipt of the notice notifying a party of a dispute or disagreement, each
party shall select an arbitrator within 15 days and the two arbitrators shall
select a third arbitrator within 10 days. The decision of the arbitrator(s)
shall be final and binding upon the parties and shall include written findings
of law and fact, and judgment may be obtained thereon by either party in a court
of competent jurisdiction. Each party shall bear the cost of preparing and
presenting its own case. The cost of the arbitration, including the fees and
expenses of the arbitrator(s), shall be shared equally by the parties hereto
unless the award otherwise provides. The arbitrator(s) shall be instructed by
the parties to establish procedures such that a decision can be rendered by the
arbitrator(s) within 60 days of their appointment.
22.2 The obligation herein to arbitrate shall not be binding
upon any party with respect to requests for preliminary injunctions, temporary
restraining orders, specific performance or other procedures in a court of
competent jurisdiction to obtain interim relief
<PAGE> 20
Page 20
when deemed necessary by such court to preserve the status quo or prevent
irreparable injury pending resolution by arbitration of the actual dispute.
23. Waiver. The failure of either party hereto to enforce any of the
provisions of this Agreement, or the waiver thereof in any instance, shall not
be construed as a general waiver or relinquishment on its part of any such
provision, but the same shall nevertheless be and remain in full force and
effect.
24. Taxes.
24.1 @Home shall pay any applicable local, state and federal
taxes, levied upon the sale, installation, use or provision of the Services
Components, the IRU, or any equipment provided under this Agreement, except to
the extent @Home provides a valid tax exemption certificate to AT&T prior to the
delivery thereof.
24.2 AT&T shall be responsible for and shall timely pay any
and all (i) taxes and franchise, license and permit fees based on the physical
location of the AT&T Network and the @Home Backbone Network; and (ii)
right-of-way payments on the AT&T Network and the @Home Backbone Network. Each
of AT&T and @Home shall be responsible for any and all sales, use, income, gross
receipts or other taxes assessed on the basis of revenues received by such party
due to its use of the AT&T Network and the @Home Backbone Network, respectively.
24A Equipment. AT&T shall retain title to all of its equipment and
facilities used to meet its performance obligations this Agreement.
25. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New York without reference to
its choice of law principles.
26. Rules of Construction.
26.1 The captions or headings in this Agreement are strictly
for convenience and shall not be considered in interpreting this Agreement or as
amplifying or limiting any of its content. Words in this Agreement which import
the singular connotation shall be interpreted as plural, and words which import
the plural connotation shall be interpreted as singular, as the identity of the
parties or objects referred to may require.
26.2 Unless expressly defined herein, words having well-known
technical or trade meanings shall be so construed. All listing of items shall
not be taken to be exclusive, but shall include other items, whether similar or
dissimilar to those listed, as the context reasonably requires.
26.3 Except as set forth to the contrary herein, any right or
remedy of AT&T or @Home shall be cumulative and without prejudice to any other
right or remedy, whether contained herein or not.
<PAGE> 21
Page 21
26.4 Nothing in this Agreement is intended to provide any
legal rights to anyone not an executing party of this Agreement.
26.5 This Agreement has been fully negotiated between and
jointly drafted by the parties.
26.6 In the event of a conflict between the provisions of this
Agreement and those of any Exhibit, the provisions of this Agreement shall
prevail and such Exhibits shall be corrected accordingly.
26.7 All actions, activities, consents, approvals and other
undertakings of the parties in this Agreement shall be performed in a reasonable
and timely manner. Except as specifically set forth herein, for the purpose of
this Section the normal standards of performance within the telecommunications
industry in the relevant market shall be the measure of whether a party's
performance is reasonable and timely.
27. Assignment. Neither Party shall assign or otherwise transfer this
Agreement or its rights or obligations hereunder to any person or entity without
the prior written consent of the other party, which shall not be unreasonably
withheld or delayed; provided, however, that either party shall have the right,
without the consent of the other, to grant a security interest in this Agreement
or the rights hereunder as collateral to any lender, or to assign or otherwise
transfer the Agreement to any person or entity that controls, is under the
control of, or is under common control with the assigning party, or any
corporation into which such party may be merged or consolidated or that
purchases all or substantially all of the assets of such party used by such
party in connection with the Capacity Service; provided, further, that any such
assignment or transfer shall be subject to the other party's rights under this
Agreement and any assignee or transferee (other than a lender, in the case of a
security interest) shall continue to perform the assigning or transferring
party's obligations under this Agreement. This Agreement is intended to pass by
operation of law to any party to whom AT&T may assign all or substantially all
of the AT&T Network, but only to the extent that it is in fact assigned.
28. Representations and Warranties. Each party represents and warrants
that:
28.1 It has the full right and authority to enter into,
execute, deliver and perform its obligations under this Agreement;
28.2 It has taken all requisite corporate action to approve
the execution, delivery and performance of this Agreement;
28.3 This Agreement constitutes a legal, valid and binding
obligation enforceable against such party in accordance with its terms; and
28.4 EXCEPT AS PROVIDED IN THIS SECTION, AT&T MAKES NO
WARRANTIES, EXPRESS OR IMPLIED, UNDER THIS AGREEMENT AND SPECIFICALLY DISCLAIMS
ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. AT&T DOES
NOT WARRANT THAT THE SERVICES WILL BE UNINTERRUPTED OR ERROR-FREE, OR THAT THE
SERVICES WILL MEET CUSTOMER'S REQUIREMENTS OR THAT THE SERVICES WILL PREVENT
UNAUTHORIZED ACCESS BY THIRD PARTIES.
<PAGE> 22
Page 22
28.5 Its execution of and performance under this Agreement
shall not violate any applicable existing regulations, rules, statutes, or court
orders of any local, state or federal governmental agency, court or body.
29. Entire Agreement; Amendment. This Agreement constitutes the entire
and final agreement and understanding between the parties with respect to the
subject matter hereof and supersedes all prior agreements relating to the
subject matter hereof, which are of no further force or effect. The Exhibits
referred to herein are integral parts hereof and are hereby made a part of this
Agreement. This Agreement may only be modified or supplemented by an instrument
in writing executed by a duly authorized representative of each party.
30. No Personal Liability. Each action or claim against any party
arising under or relating to this Agreement shall be made only against such
party as a corporation, and any liability relating thereto shall be enforceable
only against the corporate assets of such party. No party shall seek to pierce
the corporate veil or otherwise seek to impose any liability relating to, or
arising from, this Agreement against any shareholder, employee, officer or
director of the other party. Each of such persons is an intended beneficiary of
the mutual promises set forth in this Section and shall be entitled to enforce
the obligations of this Section.
31. Relationship of the Parties. The relationship between AT&T and
@Home shall be that of independent contractors and not of principal and agent,
franchiser and franchisee, dealer and distributor, partners or joint venturers
for one another, and nothing contained in this Agreement shall be deemed to
constitute a partnership or agency agreement between them for any purposes,
including, but not limited to federal income tax purposes. AT&T and @Home, in
performing any of their obligations hereunder, shall be independent contractors
or independent parties and shall discharge their contractual obligations at
their own risk. Each party acknowledges that nothing in this Agreement
diminishes or restricts in any way the rights of the parties to engage in
competition with each other. Each party acknowledges that it remains at all
times solely responsible for the success and profits of its own business.
32. Export Regulations. The parties acknowledge that any products,
software, and technical information (including, but not limited to, services and
training) provided under this Agreement are subject to U.S. export laws and
regulations and any use of or transfer of such products, software and technical
information must be authorized under those regulations. @Home agrees that it
will not use distribute, transfer or transmit the products, software or
technical information (even if incorporated into other products) except in
compliance with U.S. export regulations. If requested by AT&T, @Home also agrees
to sign written assurances and other export-related documents as may be required
for AT&T to comply with U.S. export regulations.
33. Severability. If any term, covenant or condition herein shall, to
any extent, be invalid or unenforceable in any respect under the laws governing
this Agreement, the remainder of this Agreement shall not be affected thereby,
and each term, covenant or condition of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
<PAGE> 23
Page 23
34. Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, in confirmation of their consent to the terms and
conditions contained in this Agreement and intending to be legally bound
thereby, the parties have executed this IRU Capacity Agreement on the dates
shown below but effective for all purposes as of the Effective Date.
AT&T CORP. AT HOME CORPORATION
By: /s/ MIKE ARMSTRONG By: /s/ THOMAS A. JERMALUK
------------------------------- ---------------------------------
Title: Title:
---------------------------- ------------------------------
Date: Dec. 19, 1998 Date: Dec. 19, 1998
----------------------------- -------------------------------
<PAGE> 24
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EXHIBITS
Exhibit A [Reserved]
Exhibit B Technical Specifications
Exhibit C Phase Two Capacity
Exhibit D Phase Three Capacity
Exhibit E AT&T POPs
Exhibit F Collocation Agreement
Exhibit G Third Party POPs
Exhibit H [Reserved]
Exhibit I Payment Terms
<PAGE> 25
EXHIBIT I PAGE 1
PAYMENT TERMS
IRU Fee. @Home shall pay proportionate amounts (the "Route Payments") of the IRU
Fee Payment as listed below.
[*]
- ------------
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 26
EXHIBIT B PAGE 1
AT&T/@Home Proprietary
Subject to non-disclosure obligations
TECHNICAL SPECIFICATIONS
The technical specifications for the Capacity are as set forth in the following
AT&T Technical References, as revised from time to time, and such other
Technical References (or successor documents that state generally applicable
service specifications for applicable levels of service) that apply with respect
to the Capacity furnished to @Home under this Agreement:
- AT&T Technical Reference 54018 (OC-3)
- AT&T Technical Reference 54077 (OC-12)
- AT&T Technical Reference 54078 (OC-48)
Notwithstanding specifications set forth in such Technical References (or
successor documents):
(a) the average quarterly OC-48 circuit availability during
each day will be equal to or greater than [ * ]; and
(b) the OC-48 error performance rate shall not exceed [ * ]
errored seconds (ES) per day and [ * ] severely errored seconds (SES)
per day.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 27
EXHIBIT C PAGE 1
PHASE TWO CAPACITY
@Home will be provided total bandwidth of [ * ] (either provisioned by
[ * ] or an [ * ]) between each of these city pairs by [ * ]:
<TABLE>
<CAPTION>
CITY A CITY Z CLLI CODE A CLLI CODE Z MILES
<S> <C> <C> <C> <C>
San Diego, CA San Jose, CA SNDGCA02 SNJSCA02 454
Camden, NJ New York City, NY CMDNNJCE NYCMNYBW 156
San Francisco, CA Seattle, WA SNFCCA21 STTLWA06 731
San Francisco, CA San Jose, CA SNFCCA21 SNJSCA02 45
Mishawaka, IN Toledo, OH MSHWINQ0010 TOLDOH21 339
San Jose, CA Salt Lake City, UT SNJSCA02 SLKCUTMA 731
Lamesa, TX San Diego, CA LAMSTXR0010 SNDGCA02 1,059
Dallas, TX Lamesa, TX DLLSTXTL LAMSTXR0010 438
Birmingham, AL New Orleans, LA BRHMALMT NWORLAMA 408
Greenville, SC Norfolk, VA GNVLSCTL NRFLVABS 422
Norfolk, VA Washington DC NRFLVABS WASHDCSWW20 174
Cleveland, OH Camden, NJ CLEVOH02S10 CMDNNJCE 417
Hartford, CT New Haven, CT HRFRCT03 NWHNCT02 333
Buffalo, NY Hartford, CT BFLONYFR HRFRCT03 463
Atlanta, GA Miami, FL ATLNGATL MIAMFLAC 666
Miami, FL New Orleans, LA MIAMFLAC NWORLAMA 884
Longmont, CO Omaha, NE LNMTCO01 OMAHNENW 546
Amarillo, TX Lamesa, TX AMRLTXDR LAMSTXR0010 220
Anaheim, CA Los Angeles, CA ANHMCA01 LSANCA03 43
Camden, NJ Newark, NJ CMDNNJCE NWRKNJ02 146
Newark, NJ New York City, NY NWRKNJ02 NYCMNYBW 9
San Francisco, CA San Jose, CA SNFCCA21 SNJSCA02 45
Detroit, MI Toledo, OH DTRTMIBA TOLDOH21 70
San Jose, CA Salt Lake City, UT SNJSCA02 SLKCUTMA 731
Los Angeles, CA Santa Barbara, CA LSANCA03 SNBBCA01 88
San Diego, CA Phoenix, AZ SNDGCA02 PHNXAZMA 418
Lamesa, TX Phoenix, AZ LAMSTXR0010 PHNXAZMA 641
Fort Worth, TX Lamesa, TX FTWOTXED LAMSTXR0010 406
Indianapolis, IN Louisville, KY IPLSINAT LSVLKYCS 110
Cleveland, OH Indianapolis, IN CLEVOH02S10 IPLSINAT 389
Birmingham, AL New Orleans, LA BRHMALMT NWORLAMA 408
Greenville, SC Norfolk, VA GNVLSCTL NRFLVABS 422
Norfolk, VA Washington DC NRFLVABS WASHDCSWW20 174
Baltimore, MD Camden, NJ BLTMMDCHT10 CMDNNJCE 124
Cleveland, OH Pittsburgh, PA CLEVOH02S10 PITBPADGW10 155
Camden, NJ Philadelphia, PA CMDNNJCE PHLAPASL 3
New Haven, CT Providence, RI NWHNCT02 PRVDRIGR 99
Cambridge, MA Providence, RI CMBRMA01 PRVDRIGR 131
Cambridge, MA Hartford, CT CMBRMA01 HRFRCT03 103
Buffalo, NY Hartford, CT BFLONYFR HRFRCT03 463
Atlanta, GA Orlando, FL ATLNGATL ORLDFLMA 439
Miami, FL Orlando, FL MIAMFLAC ORLDFLMA 228
Miami, FL Sarasota, FL MIAMFLAC SRSTFLMA 182
New Orleans, LA Sarasota, FL NWORLAMA SRSTFLMA 702
Longmont, CO Omaha, NE LNMTCO01 OMAHNENW 546
</TABLE>
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 28
EXHIBIT C PAGE 2
<TABLE>
<S> <C> <C> <C> <C>
Amarillo, TX Lamesa, TX AMRLTXDR LAMSTXR0010 220
</TABLE>
<PAGE> 29
EXHIBIT C PAGE 3
@Home will be provided an [*] between each of these city pairs by [*]:
<TABLE>
<CAPTION>
CITY A CITY Z CLLI CODE A CLLI CODE Z MILES
<S> <C> <C> <C> <C>
Longmont, CO Seattle, WA LNMTCO01 STTLWA06 1,201
Longmont, CO Salt Lake City, UT LNMTCO01 SLKCUTMA 446
Amarillo, TX Longmont, CO AMRLTXDR LNMTCO01 558
Amarillo, TX Tulsa, OK AMRLTXDR TULSOKTB 342
Dallas, TX Tulsa, OK DLLSTXTL TULSOKTB 248
Omaha, NE Tulsa, OK OMAHNENW TULSOKTB 406
Chicago, IL Omaha, NE CHCGILCLW60 OMAHNENW 433
Birmingham, AL Cleveland, OH BRHMALMT CLEVOH02S10 841
Chicago, IL Cleveland, OH CHCGILCLW60 CLEVOH02S10 669
Dallas, TX New Orleans, LA DLLSTXTL NWORLAMA 556
Atlanta, GA Birmingham, AL ATLNGATL BRHMALMT 141
Atlanta, GA Greenville, SC ATLNGATL GNVLSCTL 400
Camden, NJ Washington DC CMDNNJCE WASHDCSWW20 162
Buffalo, NY Cleveland, OH BFLONYFR CLEVOH02S10 173
New Haven, CT New York City, NY NWHNCT02 NYCMNYBW 86
Spokane, WA Seattle, WA SPKNWA01 STTLWA06 313
Billings, MT Spokane, WA BLNGMTMA SPKNWA01 460
Billings, MT Longmont, CO BLNGMTMA LNMTCO01 429
San Francisco, CA Portland, OR SNFCCA21 PTLDOR62 572
Portland, OR Seattle, WA PTLDOR62 STTLWA06 159
Longmont, CO Salt Lake City, UT LNMTCO01 SLKCUTMA 446
Santa Barbara, CA San Jose, CA SNBBCA01 SNJSCA02 243
Anaheim, CA San Diego, CA ANHMCA01 SNDGCA02 80
Dallas, TX Fort Worth, TX DLLSTXTL FTWOTXED 32
Amarillo, TX Denver, CO AMRLTXDR DNVRCOMA 522
Denver, CO Longmont, CO DNVRCOMA LNMTCO01 36
Amarillo, TX Oklahoma City, OK AMRLTXDR OKCYOKCE 245
Oklahoma City, OK Tulsa, OK OKCYOKCE TULSOKTB 97
Dallas, TX Tulsa, OK DLLSTXTL TULSOKTB 248
Kansas City, MO Tulsa, OK KSCYMO09 TULSOKTB 227
Kansas City, MO Omaha, NE KSCYMO09 OMAHNENW 180
Chicago, IL Des Moines, IA CHCGILCLW60 DESMIADT 312
Des Moines, IA Omaha, NE DESMIADT OMAHNENW 121
Birmingham, AL Nashville, TN BRHMALMT NSVLTNMT 183
Louisville, KY Nashville, TN LSVLKYCS NSVLTNMT 158
Chicago, IL Cleveland, OH CHCGILCLW60 CLEVOH02S10 669
Detroit, MI Mishawaka, IN DTRTMIBA MSHWINQ0010 269
Dallas, TX Houston, TX DLLSTXTL HSTNTX01 225
Baton Rouge, LA Houston, TX BTRGLAMA HSTNTX01 256
Baton Rouge, LA New Orleans, LA BTRGLAMA NWORLAMA 75
Atlanta, GA Birmingham, AL ATLNGATL BRHMALMT 141
Atlanta, GA Greenville, SC ATLNGATL GNVLSCTL 400
Baltimore, MD Washington DC BLTMMDCHT10 WASHDCSWW20 38
Buffalo, NY Cleveland, OH BFLONYFR CLEVOH02S10 173
Philadelphia, PA Pittsburgh, PA PHLAPASL PITBPADGW10 259
New Haven, CT New York City, NY NWHNCT02 NYCMNYBW 86
</TABLE>
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 30
EXHIBIT C PAGE 4
[*]
<TABLE>
<CAPTION>
CITY A CITY Z
<S> <C>
San Diego, CA San Jose, CA
Camden, NJ New York City, NY
San Francisco, CA Seattle, WA
San Francisco, CA San Jose, CA
Mishawaka, IN Toledo, OH
San Jose, CA Salt Lake City, UT
Lamesa, TX San Diego, CA
Dallas, TX Lamesa, TX
Birmingham, AL New Orleans, LA
Greenville, SC Norfolk, VA
Norfolk, VA Washington DC
Cleveland, OH Camden, NJ
Hartford, CT New Haven, CT
Buffalo, NY Hartford, CT
Atlanta, GA Miami, FL
Miami, FL New Orleans, LA
Longmont, CO Omaha, NE
Amarillo, TX Lamesa, TX
CITY A CITY Z
Longmont, CO Seattle, WA
Longmont, CO Salt Lake City, UT
Amarillo, TX Longmont, CO
Amarillo, TX Tulsa, OK
Dallas, TX Tulsa, OK
Omaha, NE Tulsa, OK
Chicago, IL Omaha, NE
Birmingham, AL Cleveland, OH
Chicago, IL Cleveland, OH
Dallas, TX New Orleans, LA
Atlanta, GA Birmingham, AL
Atlanta, GA Greenville, SC
Camden, NJ Washington DC
Buffalo, NY Cleveland, OH
New Haven, CT New York City, NY
</TABLE>
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 31
Page 1
EXHIBIT D
@Home will be provided an [*] between each of these city pairs by [*]:
[*]
<TABLE>
<CAPTION>
CITY A CITY Z CLLI CODE A CLLI CODE Z MILES
<S> <C> <C> <C> <C>
Longmont, CO Seattle, WA LNMTCO01 STTLWA06 1,201
San Francisco, CA Seattle, WA SNFCCA21 STTLWA06 731
San Francisco, CA San Jose, CA SNFCCA21 SNJSCA02 45
Longmont, CO Salt Lake City, UT LNMTCO01 SLKCUTMA 446
San Jose, CA Salt Lake City, UT SNJSCA02 SLKCUTMA 731
San Diego, CA San Jose, CA SNDGCA02 SNJSCA02 454
Lamesa, TX San Diego, CA LAMSTXR0010 SNDGCA02 1,059
Dallas, TX Lamesa, TX DLLSTXTL LAMSTXR0010 438
Amarillo, TX Longmont, CO AMRLTXDR LNMTCO01 558
Amarillo, TX Tulsa, OK AMRLTXDR TULSOKTB 342
Dallas, TX Tulsa, OK DLLSTXTL TULSOKTB 248
Omaha, NE Tulsa, OK OMAHNENW TULSOKTB 406
Chicago, IL Omaha, NE CHCGILCLW60 OMAHNENW 433
Birmingham, AL Cleveland, OH BRHMALMT CLEVOH02S10 841
Chicago, IL Cleveland, OH CHCGILCLW60 CLEVOH02S10 669
Mishawaka, IN Toledo, OH MSHWINQ0010 TOLDOH21 339
Dallas, TX New Orleans, LA DLLSTXTL NWORLAMA 556
Birmingham, AL New Orleans, LA BRHMALMT NWORLAMA 408
Atlanta, GA Birmingham, AL ATLNGATL BRHMALMT 141
Atlanta, GA Greenville, SC ATLNGATL GNVLSCTL 400
Greenville, SC Norfolk, VA GNVLSCTL NRFLVABS 422
Norfolk, VA Washington, DC NRFLVABS WASHDCSWW20 174
Camden, NJ Washington DC CMDNNJCE WASHDCSWW20 162
Buffalo, NY Cleveland, OH BFLONYFR CLEVOH02S10 173
Cleveland, OH Camden, NJ CLEVOHO2S10 CAMDNNJCE 417
Camden, NJ New York City, NY CMDNNJCE NYCMNYBW 156
New Haven, CT New York City, NY NWHNCT02 NYCMNYBW 86
Hartford, CT New Haven, CT HRFRCT03 NWHNCT02 333
Buffalo, NY Hartford, CT BFLONYFR HRFCT03 463
Atlanta, GA Miami, FL ATLAGATL MIAMFLAC 666
Miami, FL New Orleans, LA MIAMFLAC NWORLAMA 884
Longmont, CO Omaha, NE LNMTCO01 OMAHNENW 548
Amarillo, TX Lamesa, TX AMRLTXDR LAMSTXR0010 220
Spokane, WA Seattle, WA SPKNWA01 STTLWA06 313
Billings, MT Spokane, WA BLNGMTMA SPKNWA01 460
Billings, MT Longmont, CO BLNGMTMA LNMTCO01 429
San Francisco, CA Portland, OR SNFCCA21 PTLDOR62 572
Portland, OR Seattle, WA PTLDOR62 STTLWA06 159
San Francisco, CA San Jose, CA SNFCCA21 SNJSCA02 45
Longmont, CO Salt Lake City, UT LNMTCO01 SLKCUTMA 446
San Jose, CA Salt Lake City, UT SNJSCA02 SLKCUTMA 731
Santa Barbara, CA San Jose, CA SNBBCA01 SNJSCA02 243
</TABLE>
AT&T/@Home Proprietary
Subject to non-disclosure obligations
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 32
Exhibit D
<TABLE>
<CAPTION>
CITY A CITY 2 CLLI CODE A CLLI CODE Z MILES
<S> <C> <C> <C> <C>
Los Angeles, CA Santa Barbara, CA LSANCA03 SNBBCA01 88
Anaheim, CA Los Angeles, CA ANHMCA01 LSANCA03 43
Anaheim, CA San Diego, CA ANHMCA01 SNDGCA02 80
San Diego, CA Phoenix, AZ SNDGCA02 PHNXAZMA 418
Lamesa, TX Phoenix, AZ LAMSTXR0010 PHNXAZMA 641
Dallas, TX Fort Worth, TX DLLSTXTL FTWOTXED 32
Fort Worth, TX Lamesa, TX FTWOTXED LAMSTXR0010 406
Amarillo, TX Denver, CO AMRLTXDR DNVRCOMA 522
Denver, CO Longmont, CO DNVRCOMA LNMTCO01 36
Amarillo, TX Oklahoma City, OK AMRLTXDR OKCYOKCE 245
Oklahoma City, OK Tulsa, OK OKCYOKCE TULSOKTB 97
Dallas, TX Tulsa, OK DLLSTXTL TULSOKTB 248
Kansas City, MO Tulsa, OK KSCYMOO9 TULSOKTB 227
Kansas City, MO Omaha, NE KBCYMOO9 OMAHNENW 180
Chicago, IL Des Moines, IA CHCGILCLW60 DESMIADT 312
Des Moines, IA Omaha, NE DESMIADT OMAHNENW 121
Birmingham, AL Nashville, TN BRHMALMT NSVLTNMT 183
Louisville, KY Nashville, TN LSVLKYCS NSVLTNMT 158
Indianapolis, IN Louisville, KY IPLSINAT LSVLKYCS 110
Cleveland, OH Indianapolis, IN CLEVOH02S10 IPLSINAT 389
Chicago, IL Cleveland, OH CHCGILCLW00 CLEVOH02S10 669
Detroit, MI Mishawaka, IN DTRTMIBA MSHWINQ0010 269
Detroit, MI Toledo, OH DTRTMIBA TOLDOH21 70
Dallas, TX Houston, TX DLLSTXTL HSTNTX01 225
Baton Rouge, LA Houston, TX BTRGLAMA HSTNTX01 256
Baton Rouge, LA New Orleans, LA BTRGLAMA NWORLAMA 75
Birmingham, AL New Orleans, LA BRHMALMT NWORLAMA 406
Atlanta, GA Birmingham, AL ATLNGATL BRHMALMT 141
Atlanta, GA Greenville, SC ATLNGATL GNVLSCTL 400
Greenville, SC Norfolk, VA GNVLSCTL NRFLVABS 422
Norfolk, VA Washington, DC NRFLVABS WASHDCSWW20 174
Baltimore, MD Camden, NJ BLTMMDCHT10 CMDNNJCE 124
Baltimore, MD Washington, DC BLTMMDCHT10 WASHDCSWW20 38
Buffalo, NY Cleveland, OH BFLONYFR CLEVOH02S10 173
Cleveland, OH Pittsburgh, PA CLEVOH02S10 PITBPADGW10 155
Philadelphia, PA Pittsburgh, PA PHLAPASL PITBPADGW10 259
Camden, NJ Philadelphia, PA CMDNNJCE PHLAPASL 3
Camden, NJ Newark, NJ CMDNNJCE NWRKNJ02 146
Newark, NJ New York City, NY NWRKNJ02 NYCMNYBW 9
New Haven, CT New York City, NY NWHNCT02 NYCMNYBW 86
New Haven, CT Providence, RI NWHNCT02 PRVDRIGR 99
Cambridge, MA Providence, RI CMBRMA01 PRVDRIGR 131
Cambridge, MA Hartford, CT CMBRMA01 HRFRCT03 103
Buffalo, NY Hartford, CT BFLONYFR HRFRCT03 463
Atlanta, GA Orlando, FL ATLNGATL ORLDFLMA 439
Miami, FL Orlando, FL MIAMFLAC ORLDFLMA 228
Miami, FL Sarasota, FL MIAMFLAC SRSTFLMA 182
New Orleans, LA Sarasota, FL NWORLAMA SRSTFLMA 702
Longmont, CO Omaha, NE LNMTCO01 OMAHNENW 546
Amarillo, TX Lamesa, TX AMRLTXDR LAMSTXR0010 220
</TABLE>
<PAGE> 1
EXHIBIT 10.34
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of October 19,
1998, by and between At Home Corporation ("Borrower") and Silicon Valley Bank
("Bank").
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other
documents, a Loan and Security Agreement, dated September 24, 1997, as may be
amended from time to time, (the "Loan Agreement"). The Loan Agreement provided
for, among other things, a Committed Equipment Line in the original principal
amount of Eight Million Dollars ($8,000,000) (the "Equipment Facility"). Defined
terms used but not otherwise defined herein shall have the same meanings as in
the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
secured by the Collateral as described in the Loan Agreement.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification(s) to Loan Agreement
1. The defined terms as set forth in Section 1.1 entitled
"Definitions" are hereby amended or added to read as follows:
"Committed Equipment Line" means a credit extension of Fifteen
Million Dollars ($15,000,000).
"Libor Rate" has the meaning set forth in the Libor Supplement
attached hereto.
"Maturity Date" means October 19, 2002.
"Payment Date" means the nineteenth (19th) calendar day of
each month, commencing on the first such date after the
Closing Date and ending on the Maturity Date.
"Prepayment Fee" means a fee on any portion of the Obligations
with a fixed interest rate (the "Fixed Obligations") that is
paid before the payment due date. The Prepayment Fee is
calculated as follows: first, Bank determines a "Current
Market Rate" based on what the Bank would receive if it loaned
the amount on the prepayment date in a wholesale funding
market matching maturity, principal amount and principal
amount and principal and interest payment dates (such
aggregate payments received being deemed the "Current Market
Rate Amount"). Bank, in its sole discretion, may select any
wholesale funding market as the Current Market Rate. Second,
Bank will take the prepayment amount and calculate the present
value of each principal and interest payment which,. without
prepayment, the Bank would have received during the term of
the Fixed Obligations using the applicable interest rate set
forth in this Agreement. The sum of the present value
calculations is the "Mark to Market Amount". Third, the Bank
will subtract the Mark to Market Amount from the Current
Market Rate Amount. Any amount greater than zero is the
Prepayment Fee.
<PAGE> 2
"Treasury Yield Percentage Rate". Treasury Yield Percentage
shall be defined as the most recent weekly average yield on
actively traded U.S. Treasury obligations having a final
maturity approximate to the then remaining average life of the
principal amount to be repaid as determined by reference to
the week ending figures published in the most recent Federal
Reserve Statistical Release which shall become available at
least two business days prior to the date as of which such
yield is to be determined, or if a Statistical Release is not
then published, the arithmetic average (rounded to the nearest
.01%) of the per annum yields to maturity for each business
day during the week ending at least two business days prior to
the date such determination is made, of all issues of actively
traded marketable United States Treasury fixed interest rate
securities with a constant maturity equal to, or not more than
30 days longer or 30 days shorter than the average life of the
payments of principal and interest that are avoided by any
prepayment (excluding all such securities which can be
surrendered at the option of the holder at the face value of
payment of any Federal estate tax, or which provide for tax
benefits to the holder).
2. The first sentence of sub-section (a) of Section 2.1.1
entitled "Equipment Advances" is hereby amended to read as
follows:
Subject to and upon the terms and conditions of this
Agreement, at any time from the date hereof through October
19, 1999 (the "Equipment Availability End Date"), Bank agrees
to make advances (each an "Equipment Advance" and
collectively, the "Equipment Advances") to Borrower in an
aggregate outstanding amount not to exceed (i) the Committed
Equipment Line, minus (ii) the face amount of all outstanding
Letters of Credit (including all drawn but unreimbursed
Letters of Credit), minus (iii) the Foreign Exchange Reserve,
minus (iv) the Cash Management Sublimit.
3. Sub-section (b) of Section 2.1.1 entitled "Equipment Advances"
is hereby amended in its entirety to read as follows:
Interest shall accrue from the date of each outstanding
Equipment Advance and shall be payable in accordance with
Sub-section (a) of Section 2.2 entitled "Interest Rates,
Payments, and Calculations".
4. Sub-section (a) of Section 2.2 entitled "Interest Rates,
Payments and Calculations" is hereby amended in its entirety
to read as follows:
Interest shall accrue from the date of each outstanding
Equipment Advance at Borrowers election of either (i) a
variable per annum rate equal to the Prime Rate ("Option 1")
or (ii) a fixed rate of the Libor Rate plus 250 basis points
("Option 2"). In the event Borrower elects Option 1, interest
shall be payable monthly for each month through the month in
which the Equipment Availability End Date falls. In the event
Borrower elects Option 2 interest will be paid in accordance
with the terms of the Libor Supplement, provided however, no
Interest Period (as defined therein) may extend beyond the
Equipment Availability End Date. Any Equipment Advances that
are outstanding on the Equipment Availability End Date will be
amortized and payable quarterly and will accrue interest at
Borrower's election as follows: (i) a fixed rate equal to the
Libor Rate plus 250 basis points (ii) a variable rate equal to
the Prime Rate or (iii) a fixed rate equal to the Bank's 36
month Treasury Rate plus 275 basis points and will be payable
in twelve (12) equal quarterly installments of principal plus
all accrued interest beginning on the Payment Date of each
month following the Equipment Availability End Date and ending
on the Maturity Date, at which time all Equipment Advances
under this Section 2.1 and all other amounts due under this
Agreement shall be immediately due and payable.
2
<PAGE> 3
Equipment Advances once borrowed and repaid may not be
reborrowed and shall reduce the amount available to be
borrowed under the Committed Equipment Line.
5. The following Sub-section is hereby incorporated as (e) under
Section 2.2 entitled "Interest Rates, Payments, and
Calculations to read as follows:
Any Equipment Advances subject to a fixed rate and prepaid
earlier than due shall be subject to a Prepayment Fee.
6. Item "(a)" under Section 2.1.2 entitled "Letters of Credit" is
hereby amended in part to (i) increase the limit of the
aggregate face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit and any
Letter of Credit Reserve) to an amount not to exceed Fifteen
Million Dollars ($15,000,000) and (ii) provide that Bank may
issue Letters of Credit at any time prior to the Equipment
Availability End Date.
7. Item "(a)" under Section 2.1.3 entitled "Foreign Exchange
Contract; Foreign Exchange Settlements" is hereby amended to
increase the limit of the aggregate amount of Exchange
Contracts to an amount not to exceed Fifteen Million Dollars
($15,000,000), the Contract Limit.
8. Item "(c)" under Section 2.1.3 entitled "Foreign Exchange
Contract; Foreign Exchange Settlement" is hereby amended in
part to increase the Settlement Limit to an amount not to
exceed Fifteen Million Dollars ($15,000,000).
9. Section 2.1.4 entitled "Cash Management Sublimit" is hereby
amended in part to increase the aggregate amount of the Cash
Management Sublimit not to an amount not to exceed Fifteen
Million Dollars ($15,000,000).
10. Section 2.1.5 entitled "Executive Guarantee Reserve" is hereby
deleted in its entirety.
11. The following Sub-section is hereby incorporated as (c) under
Section 2.4 entitled "Fees" to read as follows:
"Non-usage Fee". Borrower shall pay to Bank a non-usage fee
equal to .20% of the unused Committed Equipment Line,
quarterly, in arrears (the "Non-usage Fee"). For purpose of
calculation, unused commitment shall represent $15,000,000
minus Equipment Advances and outstandings under Letters of
Credit, Cash Management and Foreign Exchange sublimits.
12. Section 6.8 entitled "Tangible Net Worth" is hereby amended in
its entirety to read as follows:
Borrower shall maintain, as of the last day of each calendar
month, a Tangible Net Worth of not less than One Hundred Forty
Million, increasing quarterly by 75% of net income and/or new
equity (with no allowance for losses).
13. The first sentence of Section 6.9 entitled "Remaining Months
Liquidity" is hereby amended in its entirety to read as
follows:
Subject to Section 6.10, Borrower shall maintain, as of the
last day of each month, at least eleven (11) months Remaining
Months Liquidity.
3
<PAGE> 4
14. The last sentence of Section 6.10 entitled "Liquidity, Debt
Service Coverage" is hereby amended in its entirety to read as
follows:
For purposes of this Section, "Liquidity Ratio" means as of
any date for which it is tested, the ratio of (a) unrestricted
cash and cash equivalents to (b) the aggregate amount of
outstanding Equipment Advances and the aggregate face amount
of outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit and any Letter of Credit
Reserve).
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
5. PAYMENT OF LOAN FEE. Borrower shall pay to Bank a fee in the amount of Five
Thousand and 00/100 Dollars ($5,000.00) (the "Loan Fee"), plus all out-of-pocket
expenses.
6. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
below) agrees that, as of the date hereof, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing below)
understands and agrees that in modifying the existing Indebtedness, Bank is
relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to modifications
to the existing Indebtedness pursuant to this Loan Modification Agreement in no
way shall obligate Bank to make any future modifications to the Indebtedness.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Indebtedness. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. No maker, endorser, or guarantor will be
released by virtue of this Loan Modification Agreement. The terms of this
paragraph apply not only to this Loan Modification Agreement, but also to all
subsequent loan modification agreements.
8. CONDITIONS. The effectiveness of this Loan Modification Agreement shall be
conditioned upon the payment of the Loan Fee.
4
<PAGE> 5
This Loan Modification Agreement is executed as of the date first
written above.
BORROWER: BANK:
AT HOME CORPORATION SILICON VALLEY BANK
By:_______________________________ By:_________________________________
Name:_____________________________ Name:_______________________________
Title:____________________________ Title:______________________________
5
<PAGE> 6
LIBOR SUPPLEMENT TO AGREEMENT
This LIBOR Supplement to Agreement (the "Supplement") is a supplement
to the Loan and Security Agreement (the "Loan Agreement") dated as of September
27, 1997, as incorporated pursuant to that Certain Loan Modification Agreement
dated as of October 19, 1998, between Silicon Valley Bank ("Bank") and At Home
Corporation ("Borrower"), and forms a part of and is incorporated into the Loan
Agreement. Defined terms used but not otherwise defined shall have the same
meanings as in the Loan Agreement.
1. Definitions.
"Business Day" means a day of the year (a) that is not a Saturday,
Sunday or other day on which banks in the State of California or the City of
London are authorized or required to close and (b) on which dealings are carried
on in the interbank market in which Bank customarily participates.
"Interest Period" means for each LIBOR Rate Loan, a period of
approximately one, two or three months as the Borrower may elect, provided that
the last day of an Interest Period for a LIBOR Rate Loan shall be determined in
accordance with the practices of the LIBOR interbank market as from time to time
in effect, provided, further, in all cases such period shall expire not later
than the applicable Maturity Date (or with respect to Equipment Advances prior
to the Equipment Availability End Date, no later than such date).
"Interest Rate" shall mean as to: (a) Prime Rate Loans, a rate equal to
the Prime Rate; and (b) LIBOR Rate Loans, a rate of 250 basis points excess of
the LIBOR Rate (based on the LIBOR Rate applicable for the Interest Period
selected by the Borrower).
"LIBOR Base Rate" means, for any Interest Period for a LIBOR Rate Loan,
the rate of interest per annum determined by Bank to be the per annum rate of
interest as which deposits in United States Dollars are offered to Bank in the
London interbank market in which Bank customarily participates at 11:00 A.M.
(local time in such interbank market) TWO (2) BUSINESS DAYS before the first day
of such Interest Period for a period approximately equal to such Interest Period
and in an amount approximately equal to the amount of such Loan.
"LIBOR Rate" shall mean, for any Interest Period for a LIBOR Rate Loan,
a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%)
equal to (i) the LIBOR Base Rate for such Interest Period divided by (ii) 1
minus the Reserve Requirement for such Interest Period.
"LIBOR Rate Loans" means any Loans made or a portion thereof on which
interest is payable based on the LIBOR Rate in accordance with the terms hereof.
"Prime Rate" means the variable rate of interest per annum, most
recently announced by Bank as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank. The interest rate applicable to the
Prime Rate Loans shall change on each date there is a change in the Prime Rate.
"Prime Rate Loans" means any Loans made or a portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms hereof.
"Regulatory Change" means, with respect to Bank, any change on or after
the date of this Loan Agreement in United States federal, state or foreign laws
or regulations, including Regulation D, or the adoption or making on or after
such date of any interpretations, directives or requests applying to a class of
lenders including Bank of or under any United States federal or state, or any
foreign, laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
<PAGE> 7
"Reserve Requirement" means, for any Interest Period, the average
maximum rate at which reserves (including any marginal, supplemental or
emergency reserves) are required to be maintained during such Interest Period
under Regulation D against "Eurocurrency liabilities" (as such term is used in
Regulation D) by member banks of the Federal Reserve System. Without limiting
the effect of the foregoing, the Reserve Requirement shall reflect any other
reserves required to be maintained by Bank by reason of any Regulatory Change
against (i) any category of liabilities which includes deposits by reference to
which the LIBOR Rate is to be determined as provided in the definition of "LIBOR
Base Rate" or (ii) any category of extensions of credit or other assets which
include Loans.
2. Requests for Loans; Confirmation of Initial Loans. Each LIBOR Rate
Loan shall be made upon the irrevocable written request of Borrower RECEIVED BY
BANK NOT LATER THAN 11:00 A.M. (SANTA CLARA, CALIFORNIA TIME) ON THE BUSINESS
DAY THREE (3) BUSINESS DAYS PRIOR TO THE DATE SUCH LOAN IS TO BE MADE. Each such
notice shall specify the date such Loan is to be made, which day shall be a
Business Day; the amount of such Loan, the Interest Period for such Loan, and
comply with such other requirements as Bank determines are reasonable or
desirable in connection therewith.
Each written request for a LIBOR Rate Loan shall be in the form of a
LIBOR Rate Loan Borrowing Certificate as set forth on Exhibit A, which shall be
duly executed by the Borrower.
EACH PRIME RATE LOAN SHALL BE MADE UPON THE IRREVOCABLE WRITTEN REQUEST
OF BORROWER RECEIVED BY BANK NOT LATER THAN 11:00 A.M. (SANTA CLARA, CALIFORNIA
TIME) ON THE BUSINESS DAY ONE (1) BUSINESS DAY PRIOR TO THE DATE SUCH LOAN IS TO
BE MADE. Each such notice shall specify the date such Loan is to be made, which
day shall be a Business Day and the amount of such Loan, and comply with such
other requirements as Bank determines are reasonable or desirable in connection
therewith.
3. Conversion/Continuation of Loans.
(a) Borrower may from time to time submit in writing a request that
Prime Rate Loans be converted to LIBOR Rate Loans or that any existing LIBOR
Rate Loans continue for an additional Interest Period. Such request shall
specify the amount of the Prime Rate Loans which will constitute LIBOR Rate
Loans (subject to the limits set forth below) and the Interest Period to be
applicable to such LIBOR Rate Loans. Each written request for a conversion to a
LIBOR Rate Loan or a continuation of a LIBOR Rate Loan shall be substantially in
the form of a LIBOR Rate Conversion/Continuation Certificate as set forth on
Exhibit B, which shall be duly executed by the Borrower. Subject to the terms
and conditions contained herein, THREE (3) BUSINESS DAYS AFTER BANK'S RECEIPT OF
SUCH A REQUEST FROM BORROWER, such Prime Rate Loans shall be converted to LIBOR
Rate Loans or such LIBOR Rate Loans shall continue, as the case may be provided
that:
(i) no Event of Default or event which with notice or passage of time
or both would constitute an Event of Default exists;
(ii) no party hereto shall have sent any notice of termination of this
Supplement or of the Loan Agreement.
(iii) Borrower shall have complied with such customary procedures as
Bank has established from time to time for Borrower's requests for LIBOR Rate
Loans;
(iv) the amount of a LIBOR Rate Loan shall be $500,000 or such greater
amount which is an integral multiple of $50,000; and
(v) Bank shall have determined that the Interest Period or LIBOR Rate
is available to Bank which can be readily determined as of the date of the
request for such LIBOR Rate Loan.
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Any request by Borrower to convert Prime Rate Loans to LIBOR Rate Loans
or continue any existing LIBOR Rate Loans shall be irrevocable. Notwithstanding
anything to the contrary contained herein, Bank shall not be required to
purchase United States Dollar deposits in the London interbank market or other
applicable LIBOR Rate market to fund any LIBOR Rate Loans, but the provisions
hereof shall be deemed to apply as if Bank had purchased such deposits to fund
the LIBOR Rate Loans.
(b) Any LIBOR Rate Loans shall automatically convert to Prime Rate
Loans upon the last day of the applicable Interest Period, UNLESS BANK HAS
RECEIVED AND APPROVED A COMPLETE AND PROPER REQUEST TO CONTINUE SUCH LIBOR RATE
LOAN AT LEAST THREE (3) BUSINESS DAYS PRIOR TO SUCH LAST DAY in accordance with
the terms hereof. Any LIBOR Rate Loans shall, at Bank's option, convert to Prime
Rate Loans in the event that (i) an Event of Default, or event which with the
notice or passage of time or both would constitute an Event of Default, shall
exist, (ii) this Supplement or the Loan Agreement shall terminate, or (iii) the
aggregate principal amount of the Prime Rate Loans which have previously been
converted to LIBOR Rate Loans, or the aggregate principal amount of existing
LIBOR Rate Loans continued, as the case may be, at the beginning of an Interest
Period shall at any time during such Interest Period exceeds the COMMITTED
EQUIPMENT LINE. Borrower agrees to pay to Bank, upon demand by Bank (or Bank
may, at its option, charge Borrower's loan account) any amounts required to
compensate Bank for any loss (including loss of anticipated profits), cost or
expense incurred by such person, as a result of the conversion of LIBOR Rate
Loans to Prime Rate Loans pursuant to any of the foregoing.
(c) On all Loans, Interest shall be payable by Borrower to Bank monthly
in arrears not later than the nineteenth (19th) day of each calendar month at
the applicable Interest Rate.
4. Additional Requirements/Provisions Regarding LIBOR Rate Loans; Etc.
(a) IF FOR ANY REASON (INCLUDING VOLUNTARY OR MANDATORY PREPAYMENT OR
ACCELERATION), BANK RECEIVES ALL OR PART OF THE PRINCIPAL AMOUNT OF A LIBOR RATE
LOAN PRIOR TO THE LAST DAY OF THE INTEREST PERIOD FOR SUCH LOAN, BORROWER SHALL
IMMEDIATELY NOTIFY BORROWER'S ACCOUNT OFFICER AT BANK AND, ON DEMAND BY BANK,
PAY BANK THE AMOUNT (if any) by which (i) the additional interest which would
have been payable on the amount so received had it not been received until the
last day of such Interest Period exceeds (ii) the interest which would have been
recoverable by Bank by placing the amount so received on deposit in the
certificate of deposit markets or the offshore currency interbank markets or
United States Treasury investment products, as the case may be, for a period
starting on the date on which it was so received and ending on the last day of
such Interest Period at the interest rate determined by Bank in its reasonable
discretion. Bank's determination as to such amount shall be conclusive absent
manifest error.
(b) Borrower shall pay to Bank, upon demand by Bank, from time to time
such amounts as Bank may determine to be necessary to compensate it for any
costs incurred by Bank that Bank determines are attributable to its making or
maintaining of any amount receivable by Bank hereunder in respect of any Loans
relating thereto (such increases in costs and reductions in amounts receivable
being herein called "Additional Costs"), in each case resulting from any
Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to
Bank under this Supplement in respect of any Loans (other than changes which
affect taxes measured by or imposed on the overall net income of Bank by the
jurisdiction in which such Bank has its principal office); or
(ii) imposes or modifies any reserve, special deposit or
similar requirements relating to any extensions of credit or other assets of, or
any deposits with or other liabilities of Bank (including any Loans or any
deposits referred to in the definition of "LIBOR Base Rate"); or
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(iii) imposes any other condition affecting this Supplement
(or any of such extensions of credit or liabilities).
Bank will notify Borrower of any event occurring after the date of the Loan
Agreement which will entitle Bank to compensation pursuant to this section as
promptly as practicable after it obtains knowledge thereof and determines to
request such compensation. Bank will furnish Borrower with a statement setting
forth the basis and amount of each request by Bank for compensation under this
Section 4. Determinations and allocations by Bank for purposes of this Section 4
of the effect of any Regulatory Change on its costs of maintaining its
obligations to make Loans or of making or maintaining Loans or on amounts
receivable by it in respect of Loans, and of the additional amounts required to
compensate Bank in respect of any Additional Costs, shall be conclusive absent
manifest error.
(c) Borrower shall pay to Bank, upon the request of Bank, such amount
or amounts as shall be sufficient (in the sole good faith opinion of such Bank)
to compensate it for any loss, costs or expense incurred by it as a result of
any failure by Borrower to borrow a Loan on the date for such borrowing
specified in the relevant notice of borrowing hereunder.
(d) If Bank shall determine that the adoption or implementation of any
applicable law, rule, regulation or treaty regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Bank (or its
applicable lending office) with any respect or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on capital of Bank or any person or entity controlling Bank (a "Parent")
as a consequence of its obligations hereunder to a level below that which Bank
(or its Parent) could have achieved but for such adoption, change or compliance
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by Bank to be material, then from time to time, within 15 days
after demand by Bank, Borrower shall pay to Bank such additional amount or
amounts as will compensate Bank for such reduction. A statement of Bank claiming
compensation under this Section and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive absent manifest error.
(e) If at any time Bank, in its sole and absolute discretion,
determines that: (i) the amount of the LIBOR Rate Loans for periods equal to the
corresponding Interest Periods are not available to Bank in the offshore
currency interbank markets, or (ii) the LIBOR Rate does not accurately reflect
the cost to Bank of lending the LIBOR Rate Loan, then Bank shall promptly give
notice thereof to Borrower, and upon the giving of such notice Bank's obligation
to make the LIBOR Rate Loans shall terminate, unless Bank and the Borrower agree
in writing to a different interest rate Loans shall terminate, unless Bank and
the Borrower agree in writing to a different interest rate applicable to LIBOR
Rate Loans. If it shall become unlawful for Bank to continue to fund or maintain
any Loans, or to perform its obligations hereunder, upon demand by Bank,
Borrower shall prepay the Loans in full with accrued interest thereon and all
other amounts payable by Borrower hereunder (including, without limitation, any
amount payable in connection with such prepayment pursuant to Section 4(a)).
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EXHIBIT 10.35
BUILD TO SUIT OPTION AGREEMENT
THIS BUILD TO SUIT OPTION AGREEMENT ("Agreement") is made and entered
into as of this 25th day of October, 1996, by and between MARTIN/CAMPUS
ASSOCIATES, L.P., a Delaware limited partnership ("Owner"), and AT HOME
CORPORATION, a Delaware corporation ("AtHome").
R E C I T A L S
This Agreement is made and entered into with reference to and upon the
basis of the following facts, intentions and understandings of the parties:
A. Owner is the owner of (a) that certain real property situated
in the City of Redwood City, County of San Mateo, State of California, which is
described on Exhibit A hereto (the "North Expansion Parcel"); provided, however,
that Owner holds an unconditional option to purchase, but does not own, the
so-called "Sears Parcel," as further described on Exhibit A-1 hereto (the "Sears
Parcel"); and (b) that certain unimproved real property situated in the City of
Redwood City, County of San Mateo, State of California, which is described on
Exhibit B hereto (the "South Expansion Parcel"). The North Expansion Parcel and
the South Expansion Parcel shall be hereinafter from time to time collectively
referred to as the "Property".
B. Owner and AtHome have entered into that certain Lease dated as
of October 18, 1996 (the "Broadway Lease") pursuant to which Owner is leasing to
AtHome, and AtHome is leasing from Owner, that certain real property commonly
known as 425 Broadway, situated in the City of Redwood City, County of San
Mateo, State of California (the "Broadway Premises").
C. As part of the consideration for the Broadway Lease, Owner
desires to give to AtHome, and AtHome desires to obtain from Owner, the option
to lease all or certain portions of the conditions, and the option to acquire a
portion of the Property on certain agreed terms and conditions.
D. Owner and AtHome now desire to enter into this Agreement to set
forth their agreement with respect to the above-described options and rights to
make a first offer.
E. All capitalized terms no specifically defined in this Agreement
shall have the same meanings given to them in the Broadway Lease.
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NOW, THEREFORE, in consideration of the payment by AtHome to Owner of
the sum of One Hundred Dollars ($100) and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged by
Owner, Owner and AtHome hereby agree as follows:
1. Term. The term of this Agreement shall commence upon the execution
of this Agreement by Owner and AtHome, and shall expire upon the expiration or
earlier termination of this Agreement in accordance with the terms set forth
below; provided, however, that if the First Option is not validly and timely
exercised in accordance with the provisions of Paragraph 2.5, then the First
Option, the Second Option, and the Third Option (all as defined below), and the
option to purchase the Second Option Subparcel, shall immediately expire (if
this Agreement has not already expired or been terminated) on the First Option
Notice Date (as defined below), and this Agreement shall automatically
terminate as of the First Option Notice Date; if the Second Option is not
validly and timely exercised in accordance with the provisions of Paragraph
2.6, then the Second Option and the Third Option, and the option to purchase
the Second Option Subparcel, shall immediately expire (if this Agreement has
not already expired or been terminated) on the Second Option Notice Date (as
defined below); and if the Third Option is not validly and timely exercised in
accordance with the provisions of Paragraph 2.7, then the Third Option shall
immediately expire (if this Agreement has not already expired or been
terminated) on the Third Option Notice Date (as defined below); and provided
further, that if the owner of the Sears Parcel defaults under the option
agreement with Owner for the Sears Parcel, this Agreement shall terminate with
respect to the Sears Parcel. Notwithstanding the foregoing, if the owner of the
Sears Parcel defaults under the option agreement with Owner for the Sears
Parcel, and Owner nevertheless obtains title to the Sears Parcel, then so long
as Owner and AtHome agree that it is feasible to do so, this agreement shall
again apply to the Sears Parcel, with the same force and effect as if the
Sears Parcel had always been part of the North Expansion Parcel; provided
however, that the foregoing shall not be interpreted to require Owner to take
any action to enforce the option agreement for the Sears Parcel, including
without limitation commencing an action for specific performance of the option
agreement.
1.1 Other Documents. Upon expiration of the term of this
Agreement with respect to any portion of the Property, or upon the expiration
of the First Option, the Second Option, or the Third Option, AtHome shall
execute, acknowledge and deliver to Owner an appropriate instrument prepared by
Owner which Owner may then record in the Official Records of San Mateo County
to expunge this Agreement and any memorandum thereof from the public record
with respect to such portion of the Property. In addition, AtHome hereby
irrevocably constitutes and appoints Owner as its true and lawful attorney in
fact, in its name and in its behalf, to make, execute, acknowledge, deliver,
and file any
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and all such instruments that AtHome so fails or refuses to execute. AtHome
expressly understands and acknowledges that the foregoing special power of
attorney is coupled with an interest, is irrevocable, and shall survive the
dissolution or insolvency of AtHome, or the transfer by AtHome of the whole or
any portion of its interest in this Agreement (provided that any such transfer
shall be subject to the restrictions set forth in this Agreement).
2. AtHome's Options. AtHome shall have the option to lease certain
property located in the Project on a build-to-suit basis (each, a "Build to
Suit Option", and collectively, the "Build to Suit Options") on the terms and
conditions described in this Agreement.
2.1. Option Deposit. AtHome shall, upon the execution of
this Agreement by Owner and AtHome, deposit with Owner the sum of Five Hundred
Thousand Dollars ($500,000.00) (the "Option Deposit"), as both consideration
for Owner's willingness to grant the Build to Suit Options, and as security for
AtHome performance of its obligations under the Build to Suit Options. As and
when AtHome validly and timely exercises any of the Build to Suit Options in
accordance with the provisions of this Agreement, Owner shall refund to AtHome
that portion of the Option Deposit that equals Five Hundred Thousand Dollars
($500,000.00) multiplied by a fraction, the numerator of which shall be the
amount of square feet of Rentable Area to be located in the Proposed Building
(as defined below) that is the subject of the Build to Suit Option then being
exercised, and the denominator of which shall equal Four Hundred Ten Thousand
(410,000); provided, however, that in no event shall AtHome be entitled to
receive a refund in excess of the total remaining amount of the Option Deposit
then being held by Owner; provided further, that if the total aggregate amount
of Rentable Area approved by the City of Redwood City for the First Option
Building, the Second Option Building and the Third Option Building (as those
terms are defined below) is less than Four Hundred Ten Thousand (410,000)
square feet, the denominator of such fraction shall equal the greater of (a)
the total aggregate amount of Rentable Area approved by the City of Redwood
City for the First Option Building, the Second Option Building and the Third
Option Building, or (b) Three Hundred Eighty-Five Thousand (385,000) square
feet. Notwithstanding anything to the contrary set forth above, in no event
shall Owner be required to refund more than Five Hundred Thousand Dollars
($500,000.00) to Tenant pursuant to this Paragraph 2. If AtHome fails to
exercise any Build to Suit Option in accordance with the provisions of this
Paragraph 2, or if any Build to Suit Option terminates as set forth in this
Paragraph 2, then (i) AtHome shall immediately reimburse Owner for any and all
costs, expenses and fees incurred by Owner to third parties in the process of
carrying out any and all actions described or permitted under this Paragraph 2
(including without limitation causing Architect to work on the conceptual
plans, the Preliminary Plans and/or the Final Plans
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(as those terms are defined below)), so long as such costs, expenses and fees
have been approved as part of the budgeting process described in Paragraph
2.1.1, and (ii) the entire remaining balance of the Option Deposit shall
immediately become the property of Owner, and AtHome shall have no further
right, title, claim, or interest in or to any portion of the Option Deposit.
Owner shall not be required to segregate the Option Deposit from Owner's
general funds; Owner's obligations with respect to the Option Deposit shall be
those of a debtor and not a trustee, and AtHome shall not be entitled to any
interest on the Option Deposit.
2.1.1. Approval of Budget. From time to time during the design
and planning process for the Proposed Buildings described in this Paragraph 2,
Owner shall present to AtHome a budget (each, a "Budget") showing in reasonable
detail the upcoming actions Owner intends to undertake pursuant to this
Paragraph 2, and the amount of costs, expenses and fees Owner estimates it will
incur to third parties in the course of carrying out such actions. AtHome shall
have ten (10) days after its receipt of any such Budget to review and approve
the same, provided that its approval of any such Budget shall not be
unreasonably withheld. If AtHome disapproves any matter or line item contained
in such Budget, then Owner may at its election either submit a revised Budget
for AtHome's review and approval (in which event AtHome and Owner shall continue
to follow the procedures set forth in this Paragraph 2.1.2), or proceed with the
actions described in the originally submitted Budget without obtaining AtHome's
approval thereof. If AtHome neither approves nor disapproves the Budget within
such 10-day period, AtHome shall be deemed to have approved such Budget as
submitted.
2.2. Architect. Within a reasonable period of time after the
execution of this Agreement, Owner shall notify AtHome in writing of the name
and address of the licensed architect whom Owner desires to engage for the
preparation of conceptual designs for the Expansion Project (as defined below).
Owner's architect ("Architect") shall be subject to AtHome's prior written
approval, which approval shall not be unreasonably withheld or delayed. Owner
shall not replace the Architect without obtaining AtHome's prior written
approval, which approval shall not be unreasonably withheld or delayed. For the
purposes of this Agreement, the term "Expansion Project" shall mean the Proposed
Buildings consisting of approximately Four Hundred Ten Thousand (410,000) square
feet of Rentable Area that Owner may develop for AtHome on the North Expansion
Parcel and the South Expansion Parcel under the Build to Suit Options; and the
term "Proposed Building" shall mean the building or buildings to be constructed
pursuant to any Build to Suit Option.
2.2.1. Initial Design Process. Commencing between January 1,
1997 and March 31, 1997, Owner and AtHome shall work with Architect to develop
conceptual designs for the Expansion Project consistent with those certain
plans prepared by
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Ken Rodriguez, copies of which are attached hereto as Exhibit F (the "Basic Site
Plans"). The conceptual designs shall set forth, without limitation, the size,
elevations, locations, and proposed phasing for the development of the Proposed
Buildings to be included in the Expansion Project; schematic plans for the
Proposed Buildings; and design development information sufficient to enable the
parties to obtain preliminary pricing from Contractor (as defined below) for the
construction of the Proposed Building. The parties acknowledge and agree that
the size and location of the Proposed Building to be constructed under each of
the Build to Suit Options, and the proposed phasing for the development of the
Proposed Buildings, is of critical importance under this Agreement, and AtHome
agrees to provide the proposed size ad location of such Proposed Building, and
the proposed phasing for the development of the Proposed Buildings, as early in
the process described in this Paragraph 2.2.1 as shall be feasibly possible. The
size of each Proposed Building shall be subject to the minimum sizes set forth
in Paragraphs 2.5, 2.6 and 2.7; the size and location of each Proposed Building
shall be subject to the reasonable approval of Owner; and the phasing for the
development of the Proposed Buildings shall be subject to the approval of Owner,
which may be withheld in Owner's sole discretion. Owner shall have no right to
disapprove the size or location of any Proposed Building to the extent that the
size or location proposed by AtHome is consistent with the Basic Site Plans.
Each Proposed Building shall at a minimum be designed to the following standard
(the "Minimum Building Standard"): a multi-story steel-framed structure suitable
for office use, with a glass and drivet exterior. For the purposes of this
Agreement, the "phasing" for the development of the Proposed Buildings shall
mean the timing for the development of the First Option Building, the Second
Option Building, and the Third Option Building, and the areas within the
Property where the First Option Building, the Second Option Building, and the
Third Option Building shall be located; and the "location" of a Proposed
Building shall mean the placement and alignment of the footprint of such
Proposed Building within the building area described in the phasing for the
development of the Proposed Buildings.
2.2.2. Conceptual Designs. Based on the information
provided by AtHome as described above, Owner shall cause Architect to prepare
conceptual designs for the Expansion Project consistent with the Basic Site
Plans, and shall provide AtHome with copies of and the opportunity to comment
upon, all drafts of such conceptual designs. To the extent that AtHome offers
specific written comments to any such designs, and such comments are reasonably
acceptable to Owner, Owner shall use reasonable efforts to cause Architect to
consider such comments and/or incorporate such comments into a revised draft of
such designs. The collaborative process described in this Paragraph 2.2 shall
continue until the first to occur of (a) August 31, 1997, or (b) such time as
Owner and AtHome reach agreement upon the conceptual designs for the Expansion
Project. However, if
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Owner and AtHome fail to agree upon such conceptual designs by August 31, 1997,
then Owner shall cause Architect to prepare and submit to AtHome on or before
September 30, 1997, and AtHome shall be deemed to have approved, a conceptual
design ("Landlord's Conceptual Design") for the Expansion Project consistent
with the Basic Site Plans that calls for each of the Proposed Buildings to be
constructed to the Minimum Building Standard. Landlord's Conceptual Design
shall reflect Owner's reasonable determination of the size and location of the
Proposed Buildings (so long as such size and location is consistent with the
Basic Site Plans), and the schematic plans and design development information
for the Proposed Buildings, all taking into consideration the standards set
forth in this Agreement and the information and requests submitted by Tenant.
The conceptual designs for the Proposed Buildings prepared pursuant to this
Paragraph 2.2.2, whether agreed upon by Owner and AtHome, or prepared as
Landlord's Conceptual Design by Architect at Owner's request, shall hereafter
be collectively called the "Approved Conceptual Designs".
2.3. Build to Suit Notice. In order to elect to exercise any of the
Build to Suit Options, AtHome shall deliver to Owner, on or before the
applicable Option Notice Date (as defined below), a written notice (with each
such notice being called a "Build to Suit Notice") setting forth AtHome's
exercise of the Build to Suit Option, and identifying the Proposed Building to
which such Build to Suit Notice applies, the proposed size and location of the
Proposed Building, and the proposed phasing for the development of the Proposed
Buildings. The size and location of the Proposed Building shall be subject to
the reasonable approval of Owner; and the phasing for the development of the
Proposed Buildings shall be subject to the approval of Owner, which may be
withheld in Owner's sole discretion. Owner shall have no right to disapprove
the size or location of any Proposed Building to the extent that the size or
location proposed by AtHome is consistent with the Basic Site Plans. The Build
to Suit Notice must be accompanied by (i) two copies of a Lease identical to
the form of the Lease attached hereto as Exhibit C, executed by AtHome and with
all blanks filled in with appropriate information satisfactory to Landlord, and
(ii) AtHome's check payable to Owner in an amount equal to the aggregate of the
advance payment of monthly rent set forth in the second grammatical paragraph
of Paragraph 5.A of the Lease, and the security deposit set forth in Paragraph
6 of the Lease. The parties acknowledge and agree that the process described in
this Paragraph 2.3 is only intended to apply to the construction of the Shell
and Core of each Proposed Building (as those terms are defined in Exhibit D
attached hereto), and that the design and planning of the tenant improvements
for each Proposed Building will be handled in the manner set forth in the work
letter to be attached to each respective Lease for a Proposed Building.
2.3.1. Preliminary Plans. Owner shall cause Architect to
prepare preliminary plans (the "Preliminary Plans")
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for the Proposed Building, based upon the Approved Conceptual Designs. Owner
shall use reasonable efforts to cause Architect to deliver the Preliminary Plans
to AtHome within fifteen (15) days after Owner's receipt of the Build to Suit
Notice for such Proposed Building; provided, however, that Owner may in its sole
discretion elect to cause Architect to commence preparing the Preliminary Plans
prior to completion of the Approved Conceptual Designs. Within five (5) days
after AtHome's receipt of the Preliminary Plans, AtHome shall either approve or
disapprove the Preliminary Plans. If AtHome disapproves the Preliminary Plans,
then AtHome shall state in reasonable detail the changes which AtHome requires
to be made thereto. Owner shall use reasonable efforts to cause Architect to
submit to AtHome revised Preliminary Plans within five (5) days after Owner's
receipt of AtHome's disapproval notice. Following AtHome's receipt of the
revised Preliminary Plans from Owner, AtHome shall have the right to review and
approve the revised Preliminary Plans pursuant to this Paragraph 2.3.1. AtHome
shall give Owner written notice of its approval or disapproval of the revised
Preliminary Plans within five (5) days after the date of AtHome's receipt
thereof. If AtHome disapproves the revised Preliminary Plans, then AtHome and
Owner shall continue to follow the procedures set forth in this Paragraph 2.3.1
until either (a) AtHome and Owner approve the Preliminary Plans in accordance
with this Paragraph 2.3.1, or (b) the date that is thirty (30) days after
Owner's receipt of the Build to Suit Notice, whichever shall first occur. If
AtHome and Owner do not mutually agree upon the Preliminary Plans within such
30-day period, then AtHome may, in its sole discretion, elect by written notice
(the "Preliminary Plan Acceptance Notice") delivered to Owner within three (3)
days after AtHome's receipt of written notice from Owner that such 30-day period
has expired (and Owner shall have the right to deliver such notice to AtHome as
early as three (3) days before the expiration of such 30-day period), to either
(i) accept the last version of the Preliminary Plans submitted by Owner to
AtHome pursuant to this Paragraph 2.3.1, or (ii) agree that Architect shall
prepare an initial version of the Final Plans (as defined below) for the
Proposed Building based upon the Minimum Building Standard, and that no
Preliminary Plans are required under this Paragraph 2.3.1. If AtHome and Owner
do not mutually agree upon the Preliminary Plans within the 30-day period
described above, and AtHome does not deliver the Preliminary Plan Acceptance
Notice to Owner within the 3-day period described above, then such Build to Suit
Option and all unexercised Build to Suit Options shall terminate and cease to be
of any force or effect, effective upon the expiration of such 30-day period. If
AtHome neither approves nor disapproves the Preliminary Plans or the revised
Preliminary Plans within the applicable time periods provided above, AtHome
shall be deemed to have disapproved such Preliminary Plans as submitted.
2.3.2. Final Plans. Owner shall use reasonable efforts to cause
Architect to deliver to AtHome, within ten (10) days after approval by AtHome
and Owner of the
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Preliminary Plans, complete plans and specifications which incorporate and are
consistent with the approved Preliminary Plans, and which show in detail the
intended design, construction and finishing of all portions of the Proposed
Building (the "Final Plans"). Within five (5) days after AtHome's receipt of the
Final Plans, AtHome shall either approve or disapprove the Final Plans. If
AtHome disapproves the Final Plans, then AtHome shall state in reasonable detail
the changes which AtHome requires to be made thereto. Owner shall use reasonable
efforts to cause Architect to submit to AtHome revised Final Plans within five
(5) days after Owner's receipt of AtHome's disapproval notice. Following
AtHome's receipt of the revised Final Plans from Owner, AtHome shall have the
right to review and approve the revised Final Plans pursuant to this Paragraph
2.3.2. AtHome shall give Owner written notice of its approval or disapproval of
the revised Final Plans within five (5) days after the date of AtHome's receipt
thereof. If AtHome disapproves the revised Final Plans, then AtHome and Owner
shall continue to follow the procedures set forth in this Paragraph 2.3.2 until
either (a) AtHome and Owner approve such Final Plans in accordance with this
Paragraph 2.3.2, or (b) the date that is sixty (60) days after Owner's receipt
of the Build to Suit Notice. If AtHome and Owner do not mutually agree upon the
Final Plans within such 60-day period, then AtHome may, in its sole discretion,
elect by written notice (the "Final Plan Acceptance Notice") delivered to Owner
within three (3) days after AtHome's receipt of written notice from Owner that
such 60-day period has expired (and Owner shall have the right to deliver such
notice to AtHome as early as three (3) days before the expiration of such 60-day
period), to either (i) accept the last version of the Final Plans submitted by
Owner to AtHome pursuant to this Paragraph 2.3.2, or (ii) agree that Owner may
proceed with the construction of the Proposed Building by utilizing plans and
specifications to be prepared by Architect based upon the Minimum Building
Standard, that AtHome shall have no right to approve or reject such plans and
specifications, and that such plans and specifications shall be deemed to
constitute the "Final Plans" for the purposes of this Agreement. If AtHome and
Owner do not mutually agree upon the Final Plans within the 60-day period
described above, and AtHome does not deliver the Final Plan Acceptance Notice to
Owner within the 3-day period described above, then such Build to Suit Option
and all unexercised Build to Suit Options shall terminate and cease to be of any
force or effect, effective upon the expiration of such 60-day period. If AtHome
neither approves nor disapproves the Final Plans within the applicable time
periods provided above, AtHome shall be deemed to have disapproved the Final
Plans as submitted.
2.3.3 Construction Budget. Owner intends to retain
Devcon Construction ("Contractor" as the general contractor for the
construction of the Proposed Buildings. AtHome shall have the right to approve
the construction contract between Owner and Contractor for the construction of
any Proposed Building, which approval shall not be unreasonably withheld or
delayed; provided, however, that AtHome shall have no right to
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disapprove such construction contract if such construction contract conforms in
all material respects with the applicable AIA form contract and general
conditions. Owner shall have the right to replace the Contractor at any time,
provided that any other contractor proposed by Owner shall not be designated as
the "Contractor" under this Agreement without AtHome's prior written approval,
which approval shall not be unreasonably withheld or delayed. Upon approval by
Owner and AtHome of the Final Plans, Owner shall instruct Contractor to obtain
competitive bids for the Proposed Building 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; provided, however,
that Owner shall review the proposed costs of such design/build mechanical and
electrical work, and use reasonable efforts to keep the overall costs of such
design/build mechanical and electrical work at commercially reasonable levels),
and to submit the same to Owner and AtHome for their review and approval. Upon
selection of the subcontractors and approval of the bids, Contractor shall
prepare a cost estimate for the Proposed Building described in such Final
Plans, based upon the bids submitted by the subcontractors selected. Contractor
shall submit such cost estimate to Owner and AtHome for their review and
approval, based upon the terms set forth in Paragraph 2 of Exhibit D hereto.
Owner and AtHome may reject such cost estimate only if (a) those Development
Costs (as defined in Exhibit D) described in Paragraph 2.2 of Exhibit D hereto
exceed the Adjustable Cost Limit (as defined in Exhibit D), or (b) the annual
rent for the Proposed Building will be less than the minimum return described
in Paragraph 2.2 of Exhibit D hereto, and AtHome does not agree to increase the
rent payable under that Build to Suit Lease pursuant to Paragraph 2.3 of
Exhibit D hereto. If either Owner or AtHome rejects such cost estimate in
accordance with this Paragraph 2.3.3, and Owner and AtHome fail to agree on
revisions to the Final Plans within ten (10) days after their receipt of the
cost estimate, then such Build to Suit Option shall terminate and cease to be
of any force or effect in accordance with Paragraph 2.3 of Exhibit D hereto,
and all unexercised Build to Suit Options shall also terminate effective upon
the termination of such Build to Suit Option. Following any submission of
revised Final Plans to Contractor and a resolicitation of bids by Contractor,
Owner and AtHome shall again follow the procedures set forth in this Paragraph
2.3.3 with respect to the submission and approval of the cost estimate from
Contractor until either (i) Owner and AtHome approve such cost estimate in
accordance with this Paragraph 2.3.3, or (ii) the date that is ninety (90) days
after Owner's receipt of AtHome's Build to Suit Notice. If Owner and AtHome do
not mutually agree upon the cost estimate within such 90-day period, and AtHome
does not agree to increase the rent payable under that Build to Suit Lease
pursuant to Paragraph 2.3 of Exhibit D hereto, then such Build to Suit Option
and all unexercised Build to Suit Options shall terminate and cease to be of
any force or effect in accordance with Paragraph 2.3 of Exhibit D hereto, and
all unexercised Build to Suit Options shall also terminate
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effective upon the termination of such Build to Suit Option. If either Owner or
AtHome neither approves nor disapproves the cost estimate within the applicable
time periods provided above, such party shall be deemed to have disapproved the
cost estimate as submitted.
2.3.4. Construction Financing. If Owner and AtHome have both
accepted Contractor's cost estimate for the Proposed Building pursuant to
Paragraph 2.3.3 above, Owner shall have a period of thirty (30) days after such
mutual acceptance of the cost estimate to use reasonable efforts to attempt to
obtain a loan for the costs of constructing the Proposed Building ("Construction
Financing"), in an amount not less than the total amount of estimated
Development Costs (as defined in Paragraph 1 of Exhibit D hereto), less the Land
Value (as defined in Paragraph 1.1 of Exhibit D hereto), under such commercially
reasonable terms and conditions as shall be reasonably acceptable to Owner
(including, if necessary, a commercially reasonable completion guaranty provided
by Owner); provided, however, that in no event shall Owner be required to
provide any other form of credit enhancement or any third party guaranty as
security for such Construction Financing, including without limitation any
guaranty from the partners or members of Owner. If Owner is unable to obtain
Construction Financing under such commercially reasonable terms, Owner may, by
giving written notice to AtHome within such 30-day period, elect to terminate
its obligation to construct such Proposed Building, in which event such Build to
Suit Option and all unexercised Build to Suit Options shall terminate and cease
to be of any force or effect, effective upon the expiration of such 30-day
period; provided, however, that if within such 30-day period AtHome delivers
written notice to Owner whereby AtHome covenants and agrees to provide the
"AtHome Loan" (as defined below) to Owner to finance the cost of constructing
the Proposed Building, and AtHome funds the AtHome Loan in accordance with the
following terms and conditions, then such Build to Suit Option and all
unexercised Build to Suit Options shall remain in full force and effect. The
AtHome Loan shall be interest-free; in an amount not less than the total amount
of estimated Development Costs less the Land Value; and for a term, with a
funding schedule, and on such other terms and conditions as shall be
commercially reasonable, as reasonably determined by Owner (including, if
necessary, a commercially reasonable completion guaranty provided by Owner);
provided, however, that in no event shall Owner be required to provide any other
form of credit enhancement or any third party guaranty as security for the
AtHome Loan. The AtHome Loan shall be evidenced by such commercially reasonable
loan documents as shall be mutually acceptable to Owner and AtHome.
2.4. Agreement as to Terms. Should the parties reach
agreement on the location and design of the Proposed Building and the cost and
schedule for the construction of the Proposed Building within the applicable
time periods described in this Paragraph 2, such agreement shall be evidenced by
a written
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lease agreement (each, a "Build to Suit Lease") in substantially the form of the
Lease attached hereto as Exhibit C, but containing (a) the terms and conditions
to which Owner and AtHome have specifically agreed pursuant to this Paragraph 2
(the "Specific Terms"), and (b) the terms and conditions set forth on Exhibit D
attached to this Agreement (the "General Terms"). To the extent there is any
discrepancy between the Specific Terms and the General Terms, the Specific Terms
shall be controlling.
2.5. First Option. AtHome shall have until September 30, 1997
(the "First Option Notice Date") to deliver to Owner AtHome's first Build to
Suit Notice (the "First Option"); provided, however, that AtHome shall not be
entitled to exercise the First Option unless and until AtHome has either (a)
both (i) raised at least Thirty-Five Million Dollars ($35,000,000.00) in
additional equity funds (over and above those equity funds raised by AtHome on
or prior to the date the Broadway Lease is executed by Owner and AtHome), and
(ii) demonstrated to Owner's reasonable satisfaction that AtHome's assets
include currently available funds equal to least Thirty-Five Million Dollars
($35,000,000.00), or (b) completed an initial public offering of its common
stock on a national stock exchange or on an over-the-counter basis. The failure
of AtHome so to exercise the First Option on or before the First Option Notice
Date shall terminate AtHome's rights to exercise the First Option and all other
Build to Suit Options. If AtHome validly and timely exercises that First Option
in accordance with this Paragraph 2.5, the Second Option and the Third Option
shall remain in full force and effect. The Proposed Building(s) under the First
Option (which may be made up of two separate buildings) (collectively, the
"First Option Building") shall contain a minimum Rentable Area of not less than
One Hundred Fifty Thousand square feet (150,000); provided, however, that if at
the time AtHome exercises the First Option, AtHome has previously exercised its
option to lease the entire building within the Project commonly known as 2945
Bay Road (the "Bay Road Premises"), the minimum Rentable Area of the First
Option Building would be One Hundred Fifty Thousand (150,000) square feet minus
the Rentable Area of the Bay Road Premises.
2.6. Second Option. If AtHome exercises the First Option in
accordance with Paragraph 2.5, and Owner and AtHome execute a Build to Suit
Lease with respect to the First Option, then AtHome shall have until March 30,
1998 (the "Second Option Notice Date") to deliver to Owner AtHome's second Build
to Suit Notice (the "Second Option"); provided, however, that AtHome shall not
be entitled to exercise the Second Option unless and until AtHome has completed
an initial public offering of its common stock on a national stock exchange or
on an over-the-counter basis. The failure of AtHome so to exercise the Second
Option on or before the Second Option Notice Date shall terminate AtHome's
rights to exercise the Second Option and the Third Option, and shall terminate
AtHome's right to exercise its option to purchase the Second Option Subparcel
(as defined below)
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pursuant to Paragraph 3. If AtHome validly and timely exercises the Second
Option in accordance with this Paragraph 2.6, the Third Option shall remain in
full force and effect. The Proposed Building under the Second Option (which may
be made up of two (2) separate buildings) (collectively, the "Second Option
Building") shall contain a minimum Rentable Area of not less than One Hundred
Fifty Thousand (150,000) square feet; provided, however, that if at the time
AtHome exercises the Second Option, AtHome has previously leased the Bay Road
Premises and the First Option Building, the minimum Rentable Area of the Second
Option Building would be reduced by the extent to which (a) the sum of the
Rentable Area of the Bay Road Premises, and the Rentable Area of the First
Option Building, exceeds (b) One Hundred Fifty Thousand (150,000) square feet.
2.7. Third Option. If AtHome exercises the First Option and
the Second Option in accordance with Paragraphs 2.5 and 2.6, and Owner and
AtHome have executed Build to Suit Leases with respect to the First Option and
the Second Option, then AtHome shall have until December 31, 1998 (the "Third
Option Notice Date") to deliver to Owner the third Build to Suit Notice (the
"Third Option"). The failure of AtHome so to exercise the Third Option on or
before the Third Option Notice Date shall terminate AtHome's right to exercise
the Third Option. The failure of AtHome so to exercise the Third Option on or
before the Third Option Notice Date shall terminate AtHome's rights to exercise
the Third Option. The Proposed Building under the Third Option (the "Third
Option Building") shall consist of the entire amount of remaining entitled
office space situated in the South Expansion Parcel, and the North Expansion
Parcel. The First Option Notice Date, the Second Option Notice Date, and the
Third Option Notice Date shall be collectively called the "Option Notice Dates".
2.8. Conditions to Exercise. The effectiveness of AtHome's
right to exercise the Build to Suit Options, as set forth in this Paragraph 2,
is in each instance conditioned on the following: (a) AtHome has not previously
entered into a Sublet of any Build to Suit Lease or the Broadway Lease (other
than a Permitted Transfer); and (b) no monetary or other default by AtHome
exists under the Broadway Lease which remains uncured after the giving of any
applicable notice and the expiration of any applicable cure period. In
addition, if any of the conditions specified under clauses (a) or (b) above do
not continue to be satisfied as of the date on which the Build to Suit Lease is
to commence, then unless Owner waives in writing any of such conditions,
AtHome's exercise of the Build to Suit Option under this Paragraph 2 shall be
null and void, and this Agreement and the Build to Suit Lease shall terminate
effective as of the date on which the Build to Suit Lease was to commence.
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3. Option to Purchase.
3.1 Option to Purchase Second Option Subparcel. Owner shall use
reasonable efforts to subdivide the property on which the Second Option Building
is to be situated so that one of the buildings comprising the Second Option
Building becomes situated on one or more legal parcels (which parcel or parcels,
together with all rights and appurtenances thereto, are collectively called the
"Second Option Subparcel"), separate and apart from any other areas of the
Project and the North Expansion Parcel. If Owner so creates the Second Option
Subparcel in a configuration acceptable to Owner, then upon AtHome's exercise of
the Second Option in accordance with the requirements set forth in Paragraph 2.3
above, AtHome shall have the option to (in lieu of requiring Owner to develop
the Second Option Building to be situated on the Second Option Subparcel)
acquire, on an all cash basis, in the manner set forth in Paragraph 3.2, fee
title to the Second Option Subparcel, so long as the Second Option Subparcel is,
in Owner's judgment, of sufficient size and has been granted sufficient
entitlements to develop a building containing at least Seventy-Five Thousand
(75,000) square feet of Rentable Area. The purchase price for the Second Option
Subparcel shall be equal to the product of Sixty-Five and 25/100ths Dollars
($65.25) multiplied by the total amount of square feet of Rentable Area approved
by the City of Redwood City for the Second Option Building to be constructed on
the Second Option Subparcel, but in no event shall the purchase price be less
than Four Million Eight Hundred Ninety-Three Thousand Seven Hundred Fifty
Dollars ($4,893,750.00). In order to elect to exercise its option to acquire the
Second Option Subparcel, AtHome shall deliver to Owner, concurrently with its
delivery to Owner of AtHome's notice exercising the Second Option, a written
notice setting forth AtHome's exercise of its option to acquire the Second
Option Subparcel (the "Second Option Subparcel Notice"). The Second Option
Subparcel Notice shall not be effective unless it includes the following: (i)
immediately available funds in an amount equal to five percent (5%) of the
purchase price for the Second Option Subparcel (the "Deposit"), and (ii)
AtHome's execution of the liquidated damage provision set forth in Exhibit E
attached to this Agreement. The Deposit shall be held by the Title Company,
defined in Exhibit E, in an interest bearing account and shall constitute
liquidated damages, and shall be paid to Owner in the event AtHome fails to
consummate the purchase of the Second Option subparcel in accordance with the
terms of this Paragraph 3, other than as a direct result of Owner's failure to
perform its obligations under this Paragraph 3 or Exhibit E. Escrow for the sale
of the Second Option Subparcel to AtHome shall close thirty (30) days after
Owner's receipt of the Second Option Subparcel Notice, or such other date as
Owner and AtHome shall mutually agree. AtHome's acquisition of the Second Option
Subparcel shall be subject to the provisions of Paragraphs 3.2. If AtHome does
not deliver the Second Option Subparcel Notice to Owner as described above, then
AtHome's option to purchase the Second Option Subparcel shall terminate and
cease to be of any
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force or effect as of the Second Option Notice Date. All closing, title
insurance and transfer costs, including without limitation applicable sales and
transfer taxes, associated with AtHome's acquisition of the Second Option
Subparcel shall be paid by Owner and AtHome in accordance with the custom in
San Mateo County.
3.1.1. Effect of Exercise. Notwithstanding anything to
the contrary set forth in Paragraph 3.1 above, AtHome's exercise of its option
to acquire the Second Option Subparcel pursuant to Paragraph 3.1 shall have no
affect upon AtHome's right and obligation to lease the balance of the Second
Option Building in accordance with the terms and conditions set forth in
Paragraph 2; provided, however, that such terms and conditions shall be
equitably adjusted as may be reasonably necessary in order to account for the
fact that AtHome is purchasing rather than leasing the Second Option Subparcel.
3.2 Conditions. The effectiveness of AtHome's option to
acquire the Second Option Subparcel, as set forth in this Paragraph 3, is
conditioned on the following: (a) AtHome has not previously entered into a
Sublet of any Build to Suit Lease or the Broadway Lease that requires Owner's
consent; and (b) no monetary or other material default by AtHome exists under
either any Build to Suit Lease or the Broadway Lease which remains uncured
after the giving of any applicable notice and the expiration of any applicable
cure period. In addition, if any of the conditions specified under clauses (a)
or (b) above do not continue to be satisfied as of the date on which the escrow
for the sale of the Second Option Subparcel to AtHome is scheduled to close,
then unless Owner waives in writing any such conditions, AtHome's exercise of
its right to acquire the Second Option Subparcel under this Paragraph 3 shall
be null and void, and this Agreement shall terminate effective as of the date
on which the escrow for the sale of the Second Option Subparcel to AtHome was
scheduled to close.
3.3 Process. Should AtHome exercise its option to acquire
the Second Option Subparcel within the applicable period of time set forth in
this Paragraph 3, AtHome's acquisition of the Second Option Subparcel shall be
carried out on (a) the terms and conditions described in this Paragraph 3 (the
"Agreed Second Option Subparcel Terms"), and (b) the terms and conditions set
forth on Exhibit E 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.
4. Rights Personal. The options granted to AtHome under Paragraphs
2 and 3 shall all be personal to AtHome, and shall not be assigned, sold,
conveyed or otherwise transferred to any other party (including without
limitation any assignee or sublessee of such AtHome) without the prior written
consent of Owner, which consent may be withheld in Owner's sole discretion;
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provided, however, that the rights granted to AtHome under Paragraph 3 without
Owner's consent may be transferred to the transferee of AtHome's interest in
the Broadway Lease pursuant to a Permitted Transfer. For the purposes of this
Agreement, the term "AtHome" shall be deemed to include any such transferee to
whom AtHome has assigned its rights under Paragraph 3.
5. Events Of Default And Remedies Upon Default.
5.1. Events of Default. The occurrence of any of the
following, whatever the reason therefor, shall constitute an "Event of Default"
by AtHome under this Agreement:
(a) AtHome fails to perform or observe any of its
obligations under this Agreement; or
(b) AtHome fails to cure within any applicable grace
period any default by AtHome or any of its Affiliates under any other agreement
by and between Owner (or Owner's successors and assigns) and AtHome, or their
respective Affiliates, including without limitation each Build to Suit Lease,
the Broadway Lease, that certain Agreement Granting Right of First Offer of
even date herewith ("First Offer Agreement"), and that certain Option Agreement
(Bay Road) of even date herewith ("Bay Road Option"), and any and all leases
entered into by and between Owner and AtHome, or their respective Affiliates,
pursuant to the First Offer Agreement or the Bay Road Option (collectively, the
"Other Documents").
5.2. Remedies Upon Default. Upon the occurrence of any
Event of Default, Owner may, at its option terminate this Agreement by
delivering written notice of such termination to AtHome, in which event Owner
shall, as of the date of delivery of such notice, be free to enter into a lease
with a third party or parties for all or any portion of the Property (separately
or together with any other premises) upon any terms whatsoever. The provisions
of this Paragraph 5 shall have no effect upon Owner's ability to exercise any
and all of its rights under the Other Documents.
6. Brokers. Owner and AtHome acknowledge and agree that
certain real estate brokers (including without limitation Colliers Parrish
International, AMB Corporate Real Estate Advisors and BT Commercial) have been
involved in the Broadway Lease. AtHome warrants and represents that it has had
no dealings with any other real estate broker or agent in connection with the
negotiation of this Agreement, 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
Agreement. AtHome shall indemnify, defend and hold Owner harmless from and
against any and all claims, causes of action, liability or costs, including
reasonable attorney's fees, arising as a result of a breach of the foregoing
warranty and representation. Nothing contained in
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this Paragraph 6 shall be deemed to obligate or require Owner to pay any
commission whatsoever to any real estate broker __________ (including without
limitation Colliers Parrish International, AMB Corporate Real Estate Advisors
and BT Commercial) with respect to this Agreement; the payment of any such
commission (if any) shall be governed by a separate written agreement between
Owner and the real estate broker or brokers in question.
7. Notices. The address of each party for the purpose of all
notices permitted or required by this Agreement is as follows:
To Owner: Martin/Campus Associates, L.P.
100 Bush Street
San Francisco, CA 94104
Attn: Cathy Greenwold
To AtHome: At Home Corporation
385 Ravendale Drive
Mountain View, CA 94043
Attn: Ken Goldman
Any notice or demand required or desired to be given under this
Agreement 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 Agreement 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. Either party may change its
address by giving notice of same in accordance with this Paragraph 7.
8. Captions. The captions and headings used in this Agreement are
for the purpose of convenience only and shall not be construed to limit or
extend the meaning of any part of this Agreement.
9. Executed Copy. Any fully executed copy of this Agreement shall
be deemed an original for all purposes.
10. Time. Time is of the essence for the performance of each term,
condition and covenant of this Agreement.
11. Separability. If one or more of the provisions contained herein,
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 Agreement, but this Agreement shall be construed as if such
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invalid, illegal or unenforceable provision had not been contained herein.
12. Choice of Law. This Agreement and the rights and obligations of the
parties hereunder shall be construed and enforced in accordance with the laws
of the State of California as applied to contracts made and entirely performed
therein. The language in all parts of this Agreement shall in all cases be
construed as a whole according to its fair meaning and not strictly for or
against either Owner or AtHome.
13. Gender; Singular, Plural. When the context of this Agreement
requires, the neuter gender includes the masculine, the feminine, a partnership
or corporation or joint venture, and the singular includes the plural.
14. Binding Effect. The covenants and agreement contained in this
Agreement shall be binding on, and inure to the benefit of, the parties hereto
and on their respective successors and assigns to the extent this Agreement is
assignable.
15. Waiver. The waiver by Owner of any breach of any term, condition or
covenant, of this Agreement 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 Agreement. No covenant, term or condition of this Agreement
shall be deemed to have been waived by Owner unless such waiver is in writing
signed by Owner. This Agreement may be modified only by a written agreement so
specifying, duly executed by both parties.
16. Entire Agreement. This Agreement 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 Agreement shall be binding unless in writing and
signed by the parties hereto.
17. Authority. If AtHome is a corporation or a partnership, each
individual executing this Agreement on behalf of said corporation or
partnership, as the case may be, represents and warrants that he is duly
authorize to execute and deliver this Agreement 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 Agreement is binding
upon said entity in accordance with its terms. Owner, at its option, may
require a copy of such written authorization to enter into this Agreement.
18. Attorneys' Fees. If either party brings any action or legal
proceeding for damages for an alleged breach of any provision of this
Agreement, or to enforce, protect or establish any term, condition or covenant
of this Agreement or right of either party, the prevailing party shall be
entitled to
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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 (a) collection
efforts, (b) any appellate proceedings, and (c) any bankruptcy, insolvency or
arbitration proceedings.
19. Exhibits. The following exhibits, to which reference is made in
this Agreement, are deemed incorporated into this Agreement in their entirety
and made a part hereof:
Exhibit A - Description of North Expansion Parcel
Exhibit A-1 - Description of Sears Site
Exhibit B - Description of South Expansion Parcel
Exhibit C - Form of Build to Suit Lease
Exhibit D - General Terms for Build to Suit Lease
Exhibit E - Standard Terms for Purchase of Property
Exhibit F - Basic Site Plans
20. Change in Property Description. Owner has recorded on October __,
1996, in the Official Records of San Mateo County a parcel map creating and
describing the various parcels comprising the Property (the "Parcel Map"). The
parties acknowledge and agree the boundaries of the South Expansion Parcel are
subject to change in Owner's reasonable discretion in relation to the
development and use of the South Expansion Parcel and certain adjoining
property, that Owner may from time to time adjust the boundaries of the South
Expansion Parcel by means of one or more lot line adjustments or similar
mechanisms, and that the adjusted dimensions of the South Expansion Parcel may
be as much as one-half (1/2) acre different from the description shown on the
Parcel Map without affecting the rights and obligations of the parties
hereunder. No such change in the boundaries of the South Expansion Parcel shall
detrimentally affect the rights of AtHome under this Agreement. If as a result
of such adjustment(s) the final dimensions of the South Expansion Parcel are
more than one-half (1/2) acre different from the description shown on the
Parcel Map, then AtHome may elect to terminate this Agreement by delivering
written notice of such election to Owner within ten (10) days after Owner
notifies AtHome of such discrepancy. If AtHome does not exercise such
termination right within such 10-day period, then AtHome shall have no further
right to terminate this Agreement pursuant to this Paragraph 20 and AtHome
shall have no other rights or remedies with respect to
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such change in the final dimensions of the South Expansion Parcel.
21. Effect of Subdivision. Owner may from time to time subdivide all
or any portion of the Property into separate legal parcels (each, a "Separate
Parcel"). At any and each time as Owner effectuates any such subdivision of the
Property, this Agreement shall automatically terminate, and Owner and AtHome
shall execute separate agreements for each Separate Parcel (each, a "Replacement
Agreement"). Each Replacement Agreement shall encumber only one of the Separate
Parcels, and shall be in the same form as this Agreement. If AtHome fails or
refuses to execute any such Replacement Agreement upon Owner's request, then
Owner shall have the right to obtain specific performance of AtHome's obligation
to execute such Replacement Agreement. In addition, AtHome hereby irrevocably
constitutes and appoints Owner as its true and lawful attorney in fact, in its
name and in its behalf, to make, execute, acknowledge, deliver, and file any and
all such Replacement Agreements that AtHome so fails or refuses to execute.
AtHome expressly understands and acknowledges that the foregoing special power
of attorney is coupled with an interest, is irrevocable, and shall survive the
dissolution or insolvency of AtHome, or the transfer by AtHome of the whole or
any portion of its interest in this Agreement (provided that any such transfer
shall be subject to the restrictions set forth above in this Agreement).
22. No Maintenance Obligations. Owner shall have no obligation
whatsoever to repair or maintain the Property or any buildings at any time
situated on the Property, or any portion thereof.
23. Subordination. This Agreement is or may become subject and
subordinate to underlying leases, mortgages, deeds of trust, easements, and
CC&Rs (as defined below) (collectively, "Encumbrances") which may now or
hereafter affect the Property of any portion thereof, and to all renewals,
amendments, modifications, consolidation, replacements and extensions thereof.
Owner shall have the right to cause this Agreement to be and become and remain
subject and subordinate to any and all Encumbrances which are now or may
hereafter be executed covering the Property 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. In the event of termination of any such lease
or upon the foreclosure of any such mortgage or deed of trust, this Agreement
shall automatically terminate, and the holder or holders of any such Encumbrance
(collectively, "Holder") shall be under no obligation to recognize AtHome's
rights under this Agreement. Within fifteen (15) days after Owner's written
request, AtHome shall execute any and all documents reasonably required by Owner
or the Holder to make this Agreement subordinate to any lien of
19
<PAGE> 20
the Encumbrance (including, without limitation, subordination to all CC&Rs).
If AtHome fails to do so, such failure shall constitute a default under this
Agreement, and it shall be deemed that this Agreement is subordinated to such
Encumbrance. If Owner elects to purchase the Second Option Subparcel pursuant
to Paragraph 3, it shall accept title to the Second Option Subparcel as
provided in Paragraph 3, subject to any and all Encumbrances.
23.1 CC&Rs. For the purposes of this Agreement, "CC&Rs" shall
mean any declaration of conditions, covenants and/or restrictions, or similar
instrument, that now encumbers, or may in the future encumber the Property, as
adopted by Owner or its successors in interest from time to time, and any
modifications or amendments thereto.
23.2 Foreclosure of an Encumbrance. If any Holder acquires
title to either or both of the North Expansion Parcel or the South Expansion
Parcel by means of judicial foreclosure, a trustee's sale, or a deed in lieu of
foreclosure under an Encumbrance (collectively, a "Foreclosure Event"), then
this Agreement shall automatically terminate as of the date of such Foreclosure
Event, and Owner shall within a reasonable time after the occurrence of the
Foreclosure Event refund to AtHome the total remaining amount of the Option
Deposit then being held by Owner. So long as Owner has given to AtHome prior
written notice of the impending Foreclosure Event, which notice describes the
default on which the Foreclosure Event is based (the "Owner's Default"), not
less than ten (10) days prior to the scheduled occurrence of such Foreclosure
Event, then if AtHome fails to cure such Owner's Default prior to the
Foreclosure Event (or, if such Owner's Default is not susceptible of cure by
AtHome, AtHome fails to pay in full the indebtedness upon which the Foreclosure
Event is based), effective upon the payment of the above-described refund of
the Option Deposit to AtHome, Owner shall have no further obligations or
liability under this Agreement. Owner shall, within five (5) days after
receipt, give AtHome copies of any and all notices of default received by Owner
from any Holder with respect to any Encumbrance. If AtHome so cures such
Owner's Default (or, if such Owner's Default is not susceptible of cure by
AtHome, AtHome pays in full the indebtedness upon which the Foreclosure Event
is based) prior to the Foreclosure Event, and the Foreclosure Event does not
occur, the this Agreement shall remain in full force and effect, and any
amounts paid by AtHome to such Holder to cure the Owner's Default (the "AtHome
Advance") shall be credited to AtHome as an offset against the next
installment(s) of rent due under the Build to Suit Lease for the Option
Building situated on that portion of the Property with respect to which Owner's
Default occurred, until such time as AtHome has received a full refund of the
AtHome Advance, provided that the unpaid balance of the AtHome Advance shall
bear interest on a per annum basis at the same rate of interest that applied to
the indebtedness upon which the Foreclosure Event was based. Notwithstanding
the foregoing, the unpaid balance of any AtHome Advance made with respect to the
20
<PAGE> 21
indebtedness owed by Owner to Ampex Corporation that is secured by the Property
shall bear interest at the rate of eight percent (8%) per annum. If this
Agreement expires or is otherwise terminated prior to the execution of a Build
to Suit Lease for the First Option Building for any reason other than a default
by AtHome, then Owner shall pay to AtHome an amount equal to the AtHome Advance
within thirty (30) days after the date the Agreement expires or is otherwise
terminated. If this Agreement expires or is otherwise terminated prior to the
execution of a Build to Suit Lease for the First Option Building due to a
default by AtHome, then AtHome shall not be entitled to receive, and Owner
shall not be required to pay to AtHome, any refund of the AtHome Advance, or
any amount in consideration or in lieu thereof, and Owner shall have no further
obligations or liability under this Agreement; provided, however, that in such
event AtHome shall be entitled to utilize the unpaid balance of the AtHome
Advance as an offset against any claim made by Owner against AtHome.
24. Estoppel Certificates. AtHome shall within fifteen (15) days
following written request by Owner execute and deliver to Owner any documents,
including estoppel certificates, in the form prepared by Owner (a) certifying
that this Agreement is unmodified and in full force and effect or, if modified,
stating the nature of such modification and certifying that this Agreement, as
so modified, is in full force and effect, and (b) acknowledging that there are
not, to AtHome's knowledge, any uncured defaults on the part of Owner, or, if
there are uncured defaults on the part of the Owner, stating the nature of such
uncured defaults, (c) evidencing the status of the Agreement as may be required
either by a lender making a loan to owner to be secured by deed of trust or
mortgage covering the Property or a purchaser of the Property from Owner, and
(d) such other matters as may be reasonably requested by Owner. AtHome's failure
to deliver an estoppel certificate within fifteen (15) days after delivery of
Owner's written request therefor shall be conclusive upon AtHome (i) that this
Agreement is in full force and effect, without modification except as may be
represented by Owner, and (ii) that there are now no uncured defaults in Owner's
performance.
If AtHome fails to so deliver a requested estoppel certificate within
the prescribed time it shall be conclusively presumed that this Agreement is
unmodified and in full force and effect except as represented by Owner.
25. Transfer of the Property by Owner. In the event of any conveyance
of all or any portion of the Property and assignment by Owner of this Agreement
(including without limitation any transfer of the Property pursuant to a
Foreclosure Event), Owner 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 Agreement occurring after the date of such conveyance and
assignment with respect to the
21
<PAGE> 22
portion of the Property so transferred by Owner, and AtHome agrees to attorn to
such transferee provided such transferee assumes Owner's obligations under this
Agreement; provided, however, that this Paragraph 25 shall be subject to the
provisions of Paragraph 23.2 above.
26. Limitation on Owner's Liability. Owner shall never be personally
liable under this Agreement, and AtHome shall look solely to Owner's interest
in the Property for recovery of any damages for breach of this Agreement by
Owner or on any judgment in connection therewith. None of the persons or
entities comprising or representing Owner (whether partners, shareholders,
officers, directors, trustees, employees, beneficiaries, agents or otherwise)
shall ever be personally liable under this Agreement or for any such damages or
judgment, and AtHome 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 AtHome to enforce any such judgment, and any
levy of execution thereon, shall be subject and subordinate to all Encumbrances
as specified in Paragraph 23 above. Notwithstanding the foregoing, if under the
terms of this Agreement Owner is required to return the Option Deposit, or any
portion thereof, to AtHome, and Owner breaches its obligation to do so in
accordance with the terms of this Agreement, Owner shall be liable to AtHome
for the return of the Option Deposit, or such portion thereof.
27. Recordation. This Agreement shall not be recorded without the prior
consent of both Owner and AtHome; provided, however, that upon the written
request of AtHome, Owner and AtHome shall execute and acknowledge, in
recordable form, a memorandum of this Agreement in form reasonably acceptable
to both Owner and AtHome, and shall cause such memorandum to be recorded in the
Official Records of the County of San Mateo, State of California. Upon
expiration of the term of this Agreement with respect to any portion of the
Property, AtHome shall execute, acknowledge and deliver to Owner an appropriate
instrument prepared by Owner which Owner may then record in the Official
Records of San Mateo County to expunge this Agreement and any memorandum
thereof from the public record with respect to such portion of the Property. In
addition, AtHome hereby irrevocably constitutes and appoints Owner as its true
and lawful attorney in fact, in its name and in its behalf, to make, execute,
acknowledge, deliver, and file any and all such instruments that AtHome so
fails or refuses to execute. AtHome expressly understands and acknowledges that
the foregoing special power of attorney is coupled with an interest, is
irrevocable, and shall survive the dissolution or insolvency of AtHome, or the
transfer by AtHome of the whole or any portion of its interest in this
Agreement (provided that any such transfer shall be subject to the restrictions
set forth in this Agreement).
22
<PAGE> 23
28. Survival. This Agreement shall survive the execution of each
Build to Suite Lease.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first hereinabove set forth.
"Owner"
MARTIN/CAMPUS ASSOCIATES, L.P.,
a Delaware limited partnership
By: Martin/Redwood Partners
L.P., a California limited
partnership, its General
Partner
By: The Martin Group of
Companies, Inc., a
California corporation,
its General Partner
By: /s/
--------------------------
Its:
--------------------------
"AtHome"
AT HOME CORPORATION,
A Delaware corporation
By: /s/ KENNETH A. GOLDMAN
------------------------------------
Its: CFO
------------------------------------
By:
------------------------------------
Its:
------------------------------------
23
<PAGE> 24
FIRST AMENDMENT TO BUILD TO SUIT OPTION AGREEMENT
THIS FIRST AMENDMENT TO BUILD TO SUIT OPTION AGREEMENT
("Amendment") is made and entered into as of this _____ day of June, 1998, by
and between MARTIN/CAMPUS ASSOCIATES, L.P., a Delaware limited partnership
("Owner"), and AT HOME CORPORATION, a Delaware corporation ("AtHome").
R E C I T A L S
This Amendment is made and entered into with reference to and upon the
basis of the following facts, intentions and understandings of the parties:
A. Owner is the owner of (i) that certain real property situated in the
City of Redwood City, County of San Mateo, State of California, which is
depicted on Exhibit A hereto (the "North Expansion Parcel") and (ii) that
certain unimproved real property situated in the City of Redwood City, County of
San Mateo, State of California, which is depicted on Exhibit B hereto (the
"South Expansion Parcel"). The North Expansion Parcel and the South Expansion
Parcel shall be hereinafter from time to time collectively referred to as the
"Property".
B. Owner and AtHome have entered into that certain Build to Suit Option
Agreement dated as of October 25, 1996 (the "Agreement"), whereby Owner has
granted to AtHome (i) options to lease all or certain portions of the Property
on a build to suit basis and on certain agreed terms and conditions, and (ii) an
option to acquire a portion of the Property, as defined in the Agreement as the
Second Option Subparcel, on certain agreed terms and conditions.
C. Owner and AtHome now desire to amend the Agreement to cancel the
option to acquire the Second Option Subparcel and to grant in lieu thereof an
option to acquire the South Expansion Parcel and a right to participate in the
proceeds of the sale of the Second Option Subparcel to a third party, upon the
terms and conditions set forth herein.
D. All capitalized terms not specifically defined in this Amendment
shall have the same meanings ascribed to them in the Agreement.
NOW, THEREFORE, in consideration of the payment by AtHome to Owner of
the sum of One Hundred Dollars ($100) and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged by
Owner, Owner and AtHome hereby agree as follows:
1. Second Option. Owner acknowledges that AtHome has timely exercised
the Second Option pursuant to the terms of Paragraph 2.6 of the Agreement.
2. Third Option. The second sentence of Paragraph 2.7 of the Agreement
is hereby deleted and the following sentence is inserted in place thereof:
1
<PAGE> 25
"The failure of AtHome so to exercise the Third Option on or
before the Third Option Notice Date shall terminate AtHome's
right to exercise the Third Option and shall terminate AtHome's
right to exercise its option to purchase the South Expansion
Parcel pursuant to Paragraph 3 unless Tenant delivers the South
Expansion Parcel Option Notice on or before the Third Option
Notice Date (in which case AtHome's rights and obligations shall
be governed by Paragraph 3 below)."
3. Option to Purchase. Paragraph 3 of the Agreement is deleted in its
entirety and the following Paragraph 3 is inserted in place thereof:
"3. Option to Purchase.
"3.1. Option to Purchase South Expansion Parcel. AtHome
shall have the option (in lieu of requiring Owner to develop the
Third Option Building to be situated on the South Expansion
Parcel) to acquire, on an all cash basis, in the manner set forth
in Paragraph 3.2, fee title to the South Expansion Parcel. The
purchase price for the South Expansion Parcel shall be Two
Million Eighteen Thousand Four Hundred Seventy Seven and 00/100
Dollars ($2,018,477.00) (the "Base Purchase Price"), subject to
adjustment as provided herein. The Base Purchase Price has been
agreed upon by Owner and AtHome based upon the entitlements for
the South Expansion Parcel obtained as of March 31, 1998 for the
construction of a building containing 48,569 Rentable Area. Owner
and AtHome have agreed to adjust the Base Purchase Price in the
event Owner obtains sufficient entitlements for the construction
of a building containing up to 110,000 square feet of Rentable
Area on the South Expansion Parcel. Prior to the Third Option
Notice Date, Owner shall use reasonable good faith efforts to
obtain such entitlements. In the event that Owner is successful
in obtaining entitlements for increased Rentable Area, the Base
Purchase Price shall be increased by an amount equal to the
product of Sixty and 00/100 Dollars ($60.00) multiplied by the
total amount of square feet of Rentable Area approved by the City
of Redwood City in excess of 48, 569 square feet for the Third
Option Building to be constructed on the South Expansion Parcel.
The Base Purchase Price as adjusted is hereinafter referred to as
the "Adjusted Purchase Price." In order to elect to exercise its
option to acquire the South Expansion Parcel, AtHome shall
deliver to Owner, in lieu of its delivery to Owner of AtHome's
notice exercising the Third Option, a written notice setting
forth AtHome's exercise of its option to acquire the South
Expansion Parcel (the "South Expansion Parcel Option Notice").
The South Expansion Parcel Option Notice shall not be effective
unless it includes the following: (i) immediately available funds
in an amount equal to five percent (5%) of the Base Purchase
Price or the Adjusted Purchase Price, as the case may be, for the
South Expansion Parcel (the "Deposit"), and (ii) AtHome's
execution of the liquidated damage provision set forth in Exhibit
E attached to this Agreement. The Deposit shall be held by the
Title Company, defined in Exhibit E, in an interest bearing
account and shall constitute liquidated damages, and shall
2
<PAGE> 26
be paid to Owner in the event AtHome fails to consummate the
purchase of the South Expansion Parcel in accordance with the
terms of this Paragraph 3, other than as a direct result of
Owner's failure to perform its obligations under this Paragraph 3
or Exhibit E. Escrow for the sale of the South Expansion Parcel
to AtHome shall close thirty (30) days after Owner's receipt of
the South Expansion Parcel Option Notice, or such other date as
Owner and AtHome shall mutually agree. AtHome's acquisition of
the South Expansion Parcel shall be subject to the provisions of
Paragraph 3.2. If AtHome does not deliver the South Expansion
Parcel Option Notice to Owner as described above, then AtHome's
option to purchase the South Expansion Parcel shall terminate and
cease to be of any force or effect as of the Third Option Notice
Date. All closing, title insurance and transfer costs, including
without limitation applicable sales and transfer taxes,
associated with AtHome's acquisition of the South Expansion
Parcel shall be paid by Owner and AtHome in accordance with the
custom in San Mateo County.
"3.2. Conditions. The effectiveness of AtHome's option to
acquire the South Expansion Parcel, as set forth in this
Paragraph 3, is conditioned on the following: (a) AtHome has not
previously entered into a Sublet of any Build to Suit Lease or
the Broadway Lease that requires Owner's consent; and (b) no
monetary or other material default by AtHome exists under either
any Build to Suit Lease or the Broadway Lease which remains
uncured after the giving of any applicable notice and the
expiration of any applicable cure period. In addition, if any of
the conditions specified under clauses (a) or (b) above do not
continue to be satisfied as of the date on which the escrow for
the sale of the South Expansion Parcel to AtHome is scheduled to
close, then unless Owner waives in writing any such conditions,
AtHome's exercise of its right to acquire the South Expansion
Parcel under this Paragraph 3 shall be null and void, and this
Agreement shall terminate effective as of the date on which the
escrow for the sale of the South Expansion Parcel to AtHome was
scheduled to close.
"3.3. Process. Should AtHome exercise its option to
acquire the South Expansion Parcel within the applicable period
of time set forth in this Paragraph 3, AtHome's acquisition of
the South Expansion Parcel shall be carried out on (a) the terms
and conditions described in this Paragraph 3 (the "Agreed
Terms"), and (b) the terms and conditions set forth on Exhibit E
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."
4. Exhibits. Exhibit E to the Agreement is hereby deleted and Exhibit E
attached hereto is inserted in place thereof. The attached Exhibit E deletes all
references to the defined term "Second Option Subparcel" and inserts in place
thereof the defined term "South Expansion Parcel" and deletes all references to
the "Purchase Price" and inserts in place thereof a reference to either the Base
Purchase Price or the Adjusted Purchase Price, as the case may be. All
references to Exhibit E in the Agreement shall be deemed to reference Exhibit E
attached hereto.
3
<PAGE> 27
5. Sale of Second Option Subparcel. The following is inserted as a new
Paragraph 29 of the Agreement:
"29. Sale of Second Option Subparcel. Owner shall use reasonable
efforts to subdivide the property on which the Second Option
Building is situated so that one of the buildings comprising the
Second Option Building becomes situated on one or more legal
parcels (which parcel or parcels, together with all rights and
appurtenances thereto, are collectively called the "Second Option
Subparcel"), separate and apart from any other areas of the
Project and the North Expansion Parcel. In the event Owner
succeeds in creating the Second Option Subparcel and and
subsequently sells the Second Option Subparcel to a third party
(other than an Affiliate (as defined below) of Owner, At Home
shall have the right to participate in the Net Sale Proceeds (as
defined below) provided that close of escrow for such sale occurs
on or before March 31, 2003, subject to the terms and conditions
of this Paragraph 29, in consideration for At Home's agreement to
cancel its option to acquire the Second Option Subparcel. At
Home's participation shall be equal to seventeen and one/half
percent (17.5%) of the amount that (i) Net Sales Proceeds exceed
(ii) the product of Two Hundred Sixty and 00/100 Dollars
($260.00) multiplied by the total amount of square foot of the
Second Option Building located on the Second Option Subparcel at
the time of the sale. In the event that Owner sells in a single
transaction the Second Option Subparcel together with all or any
part of any other areas of or improvements within the Project,
Owner shall use reasonable good faith efforts to allocate the Net
Sales Proceeds attributable to the Second Option Subparcel. As
used herein, Net Sales Proceeds shall mean the Gross Sum paid to
Owner in connection with the sale, less the sum of the following,
if and to the extent applicable: all closing costs, escrow fees,
title insurance costs, recording costs, survey costs, brokerage
or selling commissions or fees, finder's fees, attorneys' fees,
closing prorations and other costs or expenses reasonably and
necessarily incurred, in connection with such sale. As used
herein, the term "Gross Sum" shall mean the total financial
consideration paid to Owner in connection with the sale reduced
by any reserves or purchase price hold-backs required to be
established by Owner (but only if, and to the extent, such
reserves or hold-backs actually are retained by the purchaser,
unless disbursed to Owner for reimbursement of Owner's cost to
repair or remediate pursuant to the purchase and sale agreement).
As used herein, the term "Affiliate" shall mean any person or
entity directly or indirectly controlled by, controlling or under
common control of Owner or The Martin Group of Companies, Inc., a
California corporation ("TMG"); any partnership, corporation or
other entity resulting from the merger or consolidation of Owner;
any partnership, corporation or other entity in which Owner or a
constituent partner of Owner or TMG owns an interest; any person
or entity which acquires all or substantially all of the
constituent interests in Owner or TMG, any person or entity who
is a partner or has an ownership interest directly or indirectly
in any of the foregoing."
4
<PAGE> 28
6. Credit Against Option Price. The following is inserted as a new
Paragraph 30 of the Agreement:
"30. Credit Against Option Price. To accommodate Owner's
construction financing, AtHome has entered into various
agreements with or for the benefit of Guaranty Federal Bank,
F.S.B. ("Lender"), including a side letter dated April 6, 1998
(the "Side Letter"). Under the Side Letter, AtHome may be
required to cure a default by Owner under Owner's loan agreement
(which, together with the note, deed of trust and other ancillary
instruments evidencing and/or securing such loan are called the
"Construction Loan Documents") with Lender in order to secure the
release of the South Expansion Parcel from Lender's deed of
trust. To induce AtHome to enter into the agreements with and for
the benefit of Lender, Owner hereby covenants and agrees that all
sums paid by AtHome to Lender, as permitted by the Side Letter or
otherwise, for the purpose of curing any actual or alleged
default of Owner under the Construction Loan Documents and/or
securing a partial release to remove the deed of trust from the
South Expansion Parcel (together with interest thereon at the
lesser of the maximum lawful rate or a per annum rate of seven
percent (7%) above the Federal Reserve discount rate) shall be
due and payable by Owner upon demand. If Owner fails to make any
such payment, AtHome shall be entitled to offset the full amount
of such principal and interest against the Base Purchase Price
(or the Adjusted Purchase Price, if applicable) for the South
Expansion Parcel under Paragraph 3.1 above."
7. Ratification. Except as expressly amended hereby, the Agreement is
hereby ratified and confirmed and shall remain in ful force and effect in all
other respects.
8. Choice of Law. This Amendment and the rights and obligations of the
parties hereunder shall be construed and enforced in accordance with the laws of
the State of California as applied to contracts made and entirely performed
therein.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first hereinabove set forth.
[SIGNATURES TO FOLLOW ON THE NEXT PAGE]
5
<PAGE> 29
"Owner"
MARTIN/CAMPUS ASSOCIATES, L.P.,
a Delaware limited partnership
By: Martin/Redwood Partners, L.P.,
a California limited partnership
Its General Partner
By: TMG Redwood LLC,
a California limited liability company
Its General Partner
By: The Martin Group of Companies, Inc.,
a California corporation
Its Managing Member
By: /s/
--------------------------------
Its: Vice President
--------------------------------
By:
--------------------------------
Its:
--------------------------------
"AtHome"
AT HOME CORPORATION,
a Delaware corporation
By: /s/ KENNETH A. GOLDMAN
--------------------------------
Its: CFO
--------------------------------
By:
--------------------------------
Its:
--------------------------------
6
<PAGE> 1
EXHIBIT 10.36
BUILD TO SUIT LEASE
BY AND BETWEEN
MARTIN/CAMPUS ASSOCIATES, L.P.
"LANDLORD"
AND
AT HOME CORPORATION
"TENANT"
For the approximately 90,840 sq. ft. Premises at 420 Broadway
Redwood City, CA 94063
<PAGE> 2
LEASE SUMMARY
Lease Date: July 14, 1998
--------------------------------------------
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: 425 Broadway
Redwood City, CA
Contact: Kenneth Goldman
Telephone: (650) 569-5353
Building Address: 420 Broadway
Redwood City, California
Total Building Square Footage: Approximately 90,840 square feet
Term: Fifteen years from the Commencement
Date under the 450 Broadway Lease
(see Paragraph 4.A.)
Monthly Rent: As provided under Paragraph 5.A, and subject
to adjustment pursuant to Paragraph 4.C and
5.B
Security Deposit: An amount equal to three (3) payments of the
initial Monthly Rent (see Paragraph 7)
Exhibit A: Premises
Exhibit B: Work Letter Agreement
Exhibit C: Site Plan for Project
Exhibit D: Commencement Date Memorandum
Exhibit E: Subordination, Nondisturbance and Attornment Agreement
Exhibit F: Option to Purchase Terms
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Parties..............................................................................2
2. Premises.............................................................................2
3. Definitions..........................................................................2
A. Affiliate.....................................................................2
B. Alterations...................................................................2
C. Broadway Lease................................................................2
D. Capital Improvements..........................................................3
E. CC&Rs.........................................................................3
F. Collateral Agreements.........................................................3
G. Commencement Date.............................................................3
H. Common Area...................................................................3
I. Common Area Maintenance Costs.................................................3
J. Final Plans...................................................................5
K. HVAC..........................................................................5
L. Impositions...................................................................6
M. Improvements..................................................................6
N. Index.........................................................................6
O. Interest Rate.................................................................6
P. INTENTIONALLY DELETED.........................................................6
Q. Landlord's Agents.............................................................6
R. Lease Year....................................................................7
S. Monthly Rent..................................................................7
T. Parking Area..................................................................7
U. Person........................................................................7
V. Project.......................................................................7
W. Real Property Taxes...........................................................7
X. Rent..........................................................................8
Y. Rentable Area.................................................................8
AA. Security Deposit..............................................................8
BB. Sublet........................................................................8
CC. Subrent.......................................................................9
DD. Subtenant.....................................................................9
EE. Tenant Delay..................................................................9
FF. Tenant Improvements...........................................................9
GG. Tenant's Percentage Share.....................................................9
HH. Tenant's Personal Property....................................................9
II. Term.........................................................................10
JJ. Fixed Charge Ratio...........................................................10
4. Lease Term...............................................................................10
A. Term.........................................................................10
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
B. Delays in Completion.........................................................10
C. Option to Extend.............................................................10
5. Rent and Additional Charges.........................................................13
A. Monthly Rent.................................................................13
B. Adjustments to Monthly Rent..................................................14
C. Management Fee...............................................................14
D. Common Area Maintenance Costs................................................15
E. Additional Rent..............................................................16
F. Prorations...................................................................16
G. Interest.....................................................................16
6. Late Payment Charges................................................................16
7. Security Deposit....................................................................17
A. Deposit Required.............................................................17
8. Holding Over........................................................................18
9. Tenant Improvements.................................................................19
10. Condition of Premises...............................................................19
A. Capital Improvements.........................................................19
B. Acceptance of Premises.......................................................19
11. Use of the Premises and Common Area.................................................19
A. Tenant's Use.................................................................20
B. Hazardous Materials..........................................................20
C. Special Provisions Relating to The Americans With Disabilities Act of 1990...24
D. Use and Maintenance of Common Area...........................................25
12. Quiet Enjoyment.....................................................................25
13. Alterations.........................................................................26
A. Alteration Rights............................................................26
B. Performance of Alterations...................................................26
C. Trade Fixtures...............................................................26
14. Surrender of the Premises...........................................................27
15. Impositions and Real Property Taxes.................................................27
A. Payment by Tenant............................................................27
B. Taxes on Tenant Improvements and Personal Property...........................28
C. Proration....................................................................29
16. Utilities and Services..............................................................29
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
17. Repair and Maintenance..............................................................29
A. Landlord's Obligations.......................................................29
B. Tenant's Obligations.........................................................30
C. Conditions Applicable to Repairs.............................................31
D. Landlord's Rights............................................................31
E. Compliance with Governmental Regulations.....................................31
18. Liens...............................................................................31
19. Landlord's Right to Enter the Premises..............................................32
20. Signs...............................................................................32
21. Insurance...........................................................................32
A. Indemnification..............................................................32
B. Tenant's Insurance...........................................................33
C. Premises Insurance...........................................................34
D. Increased Coverage...........................................................34
E. Failure to Maintain..........................................................34
F. Insurance Requirements.......................................................35
G. Waiver and Release...........................................................35
22. Waiver of Subrogation...............................................................35
23. Damage or Destruction...............................................................36
A. Landlord's Obligation to Rebuild.............................................36
B. Right to Terminate...........................................................36
C. Limited Obligation to Repair.................................................37
D. Abatement of Rent............................................................37
E. Damage Near End of Term......................................................37
24. Condemnation........................................................................37
25. Assignment and Subletting...........................................................38
A. Landlord's Consent...........................................................38
B. Tenant's Notice..............................................................38
C. Information to be Furnished..................................................38
D. Landlord's Alternatives......................................................39
E. Proration....................................................................39
F. Parameters of Landlord's Consent.............................................39
G. Permitted Transfers..........................................................40
26. Default.............................................................................40
A. Tenant's Default.............................................................40
B. Remedies.....................................................................41
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
C. Landlord's Default...........................................................42
27. Subordination.......................................................................42
A. Subordination................................................................42
B. Attornment...................................................................43
C. Non-Disturbance..............................................................43
28. Notices.............................................................................43
29. Attorneys' Fees.....................................................................44
30. Estoppel Certificates...............................................................44
31. Transfer of the Premises by Landlord................................................45
32. Landlord's Right to Perform Tenant's Covenants......................................45
33. Tenant's Remedy.....................................................................45
34. Mortgagee Protection................................................................45
35. Brokers.............................................................................46
36. Acceptance..........................................................................46
37. Parking.............................................................................46
38. Right of First Offer to Purchase....................................................46
A. Notice of Sale...............................................................47
B. Acceptance...................................................................47
C. Rejection....................................................................47
D. Offered Terms................................................................48
E. Acceptance of Tenant's Offer.................................................48
F. Conditions...................................................................48
G. Process......................................................................48
H. Rights Personal..............................................................49
39. General.............................................................................49
A. Captions.....................................................................49
B. Executed Copy................................................................49
C. Time.........................................................................49
D. Separability.................................................................49
E. Choice of Law................................................................49
F. Gender; Singular, Plural.....................................................49
G. Binding Effect...............................................................49
H. Waiver.......................................................................50
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
I. Entire Agreement.............................................................50
J. Authority....................................................................50
K. Exhibits.....................................................................50
L. Lease Summary................................................................50
M. Memorandum of Lease..........................................................50
</TABLE>
<PAGE> 8
BUILD TO SUIT LEASE
1. Parties.
THIS BUILD TO SUIT LEASE (the "Lease"), dated as of July 14,
1998, 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 425 Broadway, Redwood City, CA.
2. Premises.
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord those certain premises to situated in a building to be constructed by
Landlord pursuant to the terms of this Lease which shall be commonly known as
420 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"),
which Premises shall consist of a total area of approximately 90,840 square
feet. 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.
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. Broadway Lease. That certain lease dated as of October 18,
1996, by and between Landlord and Tenant, for those certain premises commonly
known as 425 Broadway,
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situated in the City of Redwood City, County of San Mateo, State of California.
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) the
Broadway Lease, (ii) that certain Build to Suit Option Agreement by and between
Landlord and Tenant, dated as of October 25, 1996 (the "Build to Suit
Agreement"), (iii) that certain Agreement Granting Rights of First Offer, by and
between Landlord and Tenant, dated as of October 25, 1996, (iv) that certain
Warrant to Purchase Series A Common Stock of At Home Corporation and that
certain Second Amended and Restated Registration Rights Agreement, executed by
Landlord, Tenant and certain other parties, each dated as of October 18, 1996
(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 (ii) and (iii) above. The "450 Broadway Lease"
shall mean that certain lease between Landlord and Tenant with respect to the
premises commonly known as 450 Broadway, Redwood City, California.
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
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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
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
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
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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; (xvii) any other cost or expense
which this Lease expressly characterizes as a Common Area Maintenance Cost, and
(xviii) all costs and expenses related to the adoption and maintenance of a
portion of Highway 101. 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
(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. Final Plans. As defined in the Work Letter.
K. HVAC. Heating, ventilating and air conditioning.
L. Impositions. Taxes, assessments, charges, excises and levies,
business
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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 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.
M. Improvements. Collectively, the Tenant Improvements and the
Capital Improvements.
N. 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.
O. 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.
P. INTENTIONALLY DELETED
Q. Landlord's Agents. Landlord's authorized agents, partners,
subsidiaries, directors, officers, and employees.
R. Lease Year. A period of twelve (12) consecutive calendar
months during the Term, commencing with the Commencement Date if the
Commencement Date is the first day
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of a calendar month, or commencing with the first day of the month following the
Commencement Date if the Commencement Date is not the first day of a calendar
month. The first Lease Year shall include the period between the Commencement
Date and the first day of the month following the Commencement Date if the
Commencement Date is not the first day of a calendar month. The last Lease Year
shall consist of the period between the date on which the Term expires or
terminates and the day after the last day of the preceding Lease Year.
S. Monthly Rent. The rent payable pursuant to Paragraph 5.A., as
adjusted from time to time pursuant to the terms of this Lease.
T. 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.
U. Person. Any individual, partnership, firm, association,
corporation, limited liability company, trust, or other form of business or
legal entity.
V. Project. That certain real property shown on Exhibit C.
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.
W. 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
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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.
X. Rent. Monthly Rent plus the Additional Rent as defined in
Paragraph 5.E.
Y. 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.
AA. Security Deposit. That amount paid by Tenant pursuant to
Paragraph 7.
BB. 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.
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CC. 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.
DD. Subtenant. The person or entity with whom a Sublet agreement
is proposed to be or is made.
EE. 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.
FF. 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.
GG. 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 ________% (i.e., the Rentable Area
of the Premises 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, buildings are added to or
removed from the Project, 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 unreasonably interfere with ingress to or egress from the Premises).
HH. Tenant's Personal Property. Tenant's trade fixtures,
furniture, equipment and other personal property in the Premises.
II. 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.
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JJ. 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.
4. Lease Term.
A. Term. Subject to adjustment for Tenant Delays pursuant to
Paragraph 4.B below, the Term shall commence on the date of substantial
completion of the Improvements to be constructed by Landlord (the "Commencement
Date"), and terminate on the date that is fifteen (15) years after the
"Commencement Date" under the 450 Broadway Lease. For the purposes of this
Lease, substantial completion shall mean that the Improvements have been
completed in accordance with the Final Plans approved by Landlord and Tenant,
subject only to minor punch-list items, and the City of Redwood City has issued
a final building inspection approval for such Improvements.
B. Delays in Completion. Tenant agrees that if Landlord, for any
reason whatsoever, is unable to substantially complete the Improvements on or
before Landlord's initial estimate of the Commencement Date, Landlord shall not
be liable to Tenant for any loss or damage therefrom, nor shall this Lease be
void or voidable. 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 any provision of this Lease to the contrary,
if at any time after the date of this Lease a Tenant Delay occurs, then the
Commencement Date shall be moved earlier two (2) days for each one (1) day of
Tenant Delay that delays the substantial completion of the Improvements. In
addition, Tenant shall pay any and all costs and expenses incurred by Landlord
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. Option to Extend.
(i) Grant of Option. Landlord hereby grants to Tenant one
(1) option (the "Option to Extend") to extend the Term of this Lease, for an
additional term of five (5) years. The option term (the "Extended Term") shall
commence upon the expiration of the initial Term. The Option to Extend 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 Option to Extend is exercised or
at the time the applicable Extended Term would commence. The Option 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 Option to Extend may be transferred to
the transferee pursuant to a Permitted Transfer without Landlord's consent. The
Option 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 Option to Extend.
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(ii) Manner of Exercise. Tenant may exercise the Option to
Extend the Lease only by giving Landlord written notice not less than one (1)
year prior to the expiration of the Term. If Tenant fails to exercise the Option
to Extend prior to such 1-year period, then the Option to Extend automatically
shall lapse and thereafter Tenant shall have no right to exercise the Option to
Extend.
(iii) Terms and Rent. The initial Monthly Rent for the
Premises for the 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 Extended Term, or (x) an amount equal to the Monthly
Rent payable during the fourteenth (14th) Lease Year of the initial 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 first day of the
fourteenth (14th) Lease Year of the initial Term, and the denominator of which
is the Index published most recently before the first day of the thirteenth
(13th) Lease Year of the initial Term, or (II) one hundred sixteen percent
(116%), or (B) one hundred seven percent (107%). During the Extended Term 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 Term; provided, however, that neither the Option to Extend nor
Landlord's obligations under the Work Letter shall be of any force or effect
during the Extended Term.
(iv) Determination of Rent. For the purposes of
calculating the Monthly Rent for the Extended Term, 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 Term shall be subject to adjustment under 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,
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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 the
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 the 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 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 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:
(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 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 say 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
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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 Extended Term shall equal ninety-five percent (95%) of
such fair market rent; provided, however, that if the 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.
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 balance of the Term (subject to adjustment pursuant
to Paragraph 5.B), the initial Monthly Rent shall equal that amount calculated
pursuant to the Build to Suit Agreement as the Monthly Rent for the Building.
Tenant shall have no obligation to pay Monthly Rent before the Commencement
Date. Until the Monthly Rent is established under the Build to Suit Agreement,
the Monthly Rent shall be deemed to equal that amount designated from time to
time in writing by Landlord to Tenant as Landlord's reasonable estimate of the
amount of Monthly Rent that will be established under the Build to Suit
Agreement upon completion of the construction of the Building (collectively, the
"Estimated Monthly Rent"), based upon Landlord's estimate of the Development
Costs (as defined in the Build to Suit Agreement) that have been or will be
incurred in constructing the Building. Upon the final establishment of the
initial Monthly Rent in accordance with the Build to Suit Agreement, Landlord
and Tenant shall each execute an addendum to this Lease setting forth the
initial Monthly Rent under this Lease. If as of the date the initial Monthly
Rent under this Lease is established (the "Rent Establishment Date"), the
aggregate amount of Estimated Monthly Rent previously paid by Tenant exceeds the
aggregate amount of Monthly Rent payable under this Lease from the Commencement
Date to the Rent Establishment Date, then Landlord may elect, in its sole
discretion, to either refund such excess to Tenant within thirty (30) days after
the Rent Establishment Date, or offset such overpayment against Rent due or
remaining due under this Lease. If as of the Rent Establishment Date the
aggregate amount of Estimated Monthly Rent previously paid by Tenant is less
than
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the aggregate amount of Monthly Rent payable under this Lease from the
Commencement Date to the Rent Establishment Date, then Tenant shall pay the
deficiency to Landlord within thirty (30) days after the Rent Establishment
Date.
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. Tenant shall pay to Landlord an amount equal to one (1)
month's advance payment of Monthly Rent for the Premises 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 may be adjusted
at any time during the Term in accordance with the provisions of Paragraph 2.1.1
of Exhibit D to the Build to Suit Agreement. In addition, 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
Term) (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 and Tenant's obligations
under Paragraph 17.D. Before commencement of the Term and during December of
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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 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.
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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. 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.
G. 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 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, an amount equal to three (3)
payments of the Estimated Monthly Rent under this Lease, as the "Security
Deposit" for the full and faithful performance of every provision of this Lease
to be performed by Tenant. Effective as of the Rent Establishment Date, the
Security Deposit shall be adjusted (if necessary) to equal three (3) payments of
the initial Monthly Rent under this Lease. If as of the Rent Establishment Date
the Estimated
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Monthly Rent exceeds the initial Monthly Rent as determined under Paragraph 5.A
above, then Landlord shall refund to Tenant, within thirty (30) days after the
Rent Establishment Date, any overpayment of the Security Deposit. If as of the
Rent Establishment Date the Estimated Monthly Rent is less than the initial
Monthly Rent as determined under Paragraph 5.A above, then Tenant shall increase
the Security Deposit by paying the deficiency in the Security Deposit to
Landlord within thirty (30) days after the Rent Establishment Date. 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"). 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 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.
(ii) 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
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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.
(ii) 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 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.
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.
9. Tenant Improvements.
Landlord agrees to construct the Tenant Improvements pursuant to
the terms of Exhibit B.
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10. Condition of Premises.
A. Capital Improvements. Landlord shall complete the Capital
Improvements in accordance with the terms of Exhibit B; provided, however, that
the construction of the shell and core of the Building shall be governed by the
terms of the Build to Suit Agreement. 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 Tenant shall conduct a walk-through inspection of the
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.
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.
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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
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 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
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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, "Tenants 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 any 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.
(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.
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(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.
(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
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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
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
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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.
(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.
(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
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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 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.
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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 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 (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
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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 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 assessors 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
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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 (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.
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 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,
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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 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
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($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, 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.
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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.
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 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
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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,
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
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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, 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
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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 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.
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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 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 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
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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 (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
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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 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
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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.
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
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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 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
(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
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(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,
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
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(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 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,
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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
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 E ("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 or Landlord's construction
loan, 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 or the Holder of
the construction loan, 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 or the construction loan.
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
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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. 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 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
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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 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.
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35. Brokers.
Landlord and Tenant acknowledge and agree that they have utilized
the services of real estate brokers (with AMB Corporate Real Estate Advisors and
Colliers Parrish 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.
Tenant shall indemnify, defend and hold Landlord harmless from and against any
and all claims, causes of action, liability or costs, including reasonable
attorney's fees, arising as a result of a breach of the foregoing warranty and
representation. Nothing contained in this Paragraph 35 shall be deemed to
obligate or require Landlord to pay any commission whatsoever to any real estate
broker (including without limitation AMB and BT) with respect to this Lease; the
payment of any such commission (if any) shall be governed by a separate written
agreement between Landlord and the real estate broker or brokers in question.
Tenant shall separately compensate AMB and Colliers Parrish for its services and
no commission shall be payable to AMB and Colliers Parrish 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.
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; provided, however, that Tenant acknowledges and agrees
that during the construction of the Parking Structure (as defined in the Build
to Suit Agreement), the parking ratio for the Building may from time to time be
less than 3.33 spaces per 1,000 square feet of Rentable Area. 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. Right of First Offer to Purchase.
During the term of this Lease, Landlord shall not sell fee title
to the Building to any unaffiliated third party or parties, without first
offering to sell the Building to Tenant upon the terms, covenants and conditions
set forth in this Paragraph 38; provided, however, that as
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provided below this Paragraph 38 may cease to be of any force or effect prior to
the expiration or earlier termination of the term of this Lease. Notwithstanding
any provision of this Lease to the contrary, the provisions of this Paragraph 38
shall not apply to, and Tenant shall have absolutely no rights in connection
with, any of the following: (i) any and all transfers of all or any portion of
the Building, or any interest therein, by means of judicial foreclosure,
trustee's sale, deed in lieu of foreclosure or similar conveyance, (ii) any and
all transfers or conveyances of any ownership interests in Landlord or any of
the parties or entities comprising Landlord (including without limitation
transfers of partnership interests, membership interests, and shares of common
and/or preferred stock), (iii) any and all transfers of tenancy-in-common
interests in the Building by Landlord to, or by and among, the parties or
entities comprising Landlord, (iv) the creation of any liens, encumbrances or
security interests or the transfer of any interest in the Building for security
purposes, and (v) the transfer of all or any portion of the Building, or any
interest in the Building, to any Affiliate of Landlord or any partner, member or
shareholder of Landlord.
A. Notice of Sale. If at any time during the term of this Lease
Landlord desires to sell fee title to the Building to an unaffiliated third
party, Landlord shall give written notice to Tenant specifying the terms,
covenants and conditions upon which Landlord is willing to sell the Building
(the "Acceptable Sale Terms"). The notice shall constitute an irrevocable offer
on the part of Landlord (subject to the conditions described in Paragraph 38.F
below) to sell the Building to Tenant upon the Acceptable Sale Terms, and
Landlord and Tenant shall have a period of thirty (30) days after Landlord's
delivery of the notice within which to negotiate and agree upon the terms and
conditions for the sale to Tenant of the Building (the "Sale Negotiation
Period").
B. Acceptance. If Tenant is interested in acquiring the Building,
Tenant shall give Landlord written notice of such interest ("Notice of Interest
I") within ten (10) days of Tenant's receipt of Landlord's notice (the "Purchase
Response Period"), and Landlord and Tenant shall proceed to negotiate Tenant's
purchase of the Building and the terms and conditions of purchase during the
Sale Negotiation Period. Should the parties reach agreement on the terms and
conditions of Tenant's acquisition of the Building within the Sale Negotiation
Period, then Tenant shall acquire, on an all cash basis, in the manner set forth
in Paragraph 38.G, fee title to the Building, together with any and all
improvements situated thereon. Failure on the part of Tenant either to deliver a
Notice of Interest to Landlord within the Purchase Response Period or to accept
Landlord's offer to sell the Building within the Sale Negotiation Period shall
each constitute Tenant's rejection of Landlord's offer to sell the Building.
C. Rejection. If (i) Tenant informs Landlord within the Sale
Response Period that Tenant does not desire to negotiate the acquisition of the
Building, or (ii) after commencing negotiations, Landlord and Tenant do not
reach agreement upon the terms and conditions of Tenant's purchase of the
Building within the Sale Negotiation Period, or (iii) Tenant otherwise rejects
Landlord's offer to sell the Building, then, in any such event (except as
provided to the contrary in Paragraphs 38.D and 38.E), this Paragraph 38 shall
no longer apply to the Building, and Landlord (and each and every subsequent
owner of the Building) shall be free to offer to sell all or any portion of the
Building (separately or together with any other parcel or parcels) to any third
party or parties upon any terms whatsoever, including without limitation terms
less favorable to Landlord than the Acceptable Sale Terms, without first
offering the Building to
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Tenant.
D. Offered Terms. If Tenant does not accept Landlord's offer as
set forth above, but Tenant does deliver to Landlord within the Sale Negotiation
Period a written offer ("Tenant's Purchase Offer") to acquire the Building for a
purchase price ("Tenant's Offered Price") less than the price contained in the
Acceptable Sale Terms, then Tenant shall be deemed to have made an irrevocable
offer to acquire the Building at Tenant's Offered Price. Tenant's Purchase Offer
shall be deemed to include all of the Acceptable Sale Terms, except that to the
extent there is any discrepancy between the Acceptable Sale Terms and the terms
set forth in Tenant's Purchase Offer, Tenant's Purchase Offer shall be
controlling (except as otherwise provided in Paragraph 38.G below).
E. Acceptance of Tenant's Offer. If Tenant rejects or otherwise
fails to accept Landlord's offer pursuant to this Paragraph 38 but delivers
Tenant's Purchase Offer to Landlord in accordance with Paragraph 38.D, then
Landlord may at any time within sixty (60) days after Landlord's receipt of
Tenant's Purchase Offer, accept Tenant's Purchase Offer and sell the Building to
Tenant in accordance with the terms thereof and the other terms and conditions
set forth in this Paragraph 38. If Landlord thus accepts Tenant's Purchase
Offer, then Tenant shall acquire, on an all cash basis, in accordance with the
provisions of Paragraph 38.G, fee title to the Building, together with the
improvements situated thereon. If Landlord does not accept Tenant's Purchase
Offer within such 60-day period, then upon the expiration of such 60-day period
this Paragraph 38 shall terminate and shall no longer apply to the Building, and
Landlord (and each and every subsequent owner of the Building) shall be free to
sell all or any portion of the Building (separately or together with any other
parcel or parcels) to a third party or parties upon any terms whatsoever,
including without limitation terms less favorable to Landlord than the terms
contained in Tenant's Purchase Offer, without first offering to sell the
Building to Tenant.
F. Conditions. The effectiveness of Tenant's right to offer to
acquire any Building, as set forth in this Paragraph 38, is conditioned on the
following: (i) Tenant has not previously entered into a Sublet of this Lease
(other than a Permitted Transfer); and (ii) no monetary or other material
default by Tenant exists under this Lease which remains uncured after the giving
of any applicable notice and the expiration of any applicable cure period. In
addition, if any of the conditions specified under clauses (i) and (ii) above do
not continue to be satisfied as of the date on which the escrow for the sale of
the Building to Tenant is scheduled to close, then unless Landlord waives in
writing any such conditions, Tenant's exercise of its right to acquire the
Building under this Paragraph 38 shall be null and void, and this Lease shall
terminate effective as of the date on which the escrow for the sale of the
Building to Tenant was scheduled to close.
G. Process. In the event that Landlord and Tenant reach agreement
on the terms and conditions of the sale of the Building within the applicable
period of time set forth in this Paragraph 38, Tenant's acquisition of the
Building shall be carried out on (i) the terms and conditions described in this
Paragraph 38 and/or to which Landlord and Tenant have otherwise specifically
agreed pursuant to this Paragraph 38 (collectively, the "Agreed Terms"), and
(ii) the terms and conditions set forth on Exhibit F attached to this Lease (the
"Standard Terms for Purchase"). To the extent there is any discrepancy between
the Agreed Terms and the Standard
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Terms, the Agreed Terms shall be controlling; provided, however, that
notwithstanding the foregoing, Tenant shall be required to make an earnest money
deposit equal to five percent (5%) of the purchase price for the Building,
pursuant to the Standard Terms.
H. Rights Personal. The rights granted to Tenant under this
Paragraph 38 shall be personal to Tenant, and shall not be assigned, sold,
conveyed or otherwise transferred to any other party (including without
limitation any assignee or sublessee of Tenant) without the prior written
consent of Landlord, which consent may be withheld in Landlord's sole
discretion; provided, however, that the rights granted to Tenant under this
Paragraphs 38 may be transferred without Landlord's consent to the transferee of
Tenant's interest in this Lease pursuant to a Permitted Transfer.
39. General.
A. Captions. The captions and headings used in this Lease are for
the purpose of convenience only and shall not be construed to limit or extend
the meaning of any part of this Lease.
B. Executed Copy. Any fully executed copy of this Lease shall be
deemed an original for all purposes.
C. Time. Time is of the essence for the performance of each term,
condition and covenant of this Lease.
D. Separability. If one or more of the provisions contained
herein, except for the payment of Rent, is for any reason held invalid, illegal
or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision of this Lease, but 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
48
<PAGE> 55
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 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.
M. Memorandum of Lease. This Lease shall not be recorded without
the prior consent of both Landlord and Tenant; provided, however, that upon the
written request of Tenant, Landlord and Tenant shall execute and acknowledge, in
recordable form, a memorandum of this Lease in form reasonably acceptable to
both Landlord and Tenant, and shall cause such memorandum to be recorded in the
Official Records of the County of San Mateo, State of California. Upon
expiration of the term of this Lease or earlier termination of this Lease,
Tenant shall execute, acknowledge and deliver to Landlord an appropriate
instrument prepared by Landlord which Landlord may then record in the Official
Records of San Mateo County to expunge this Lease and any memorandum thereof
from the public record with respect to the Premises. In addition, Tenant hereby
irrevocably constitutes and appoints Landlord as its true and lawful attorney in
fact, in its name and in its behalf, to make, execute, acknowledge, deliver, and
file any and all such instruments that Tenant so fails or refuses to execute.
Tenant expressly understands and acknowledges that the foregoing special power
of attorney is coupled with an interest, is irrevocable, and shall survive the
dissolution or insolvency of Tenant, or the transfer by Tenant of the whole or
any portion of its interest in this Lease (provided that any such transfer shall
be subject to the restrictions set forth in this Lease).
49
<PAGE> 56
THIS LEASE is effective as of the date the last signatory
necessary to execute the Lease shall have executed this Lease.
TENANT:
Dated: ,1998 AT HOME CORPORATION,
--------- a Delaware corporation
By: /s/ KENNETH A. GOLDMAN
---------------------------------------
Its:
---------------------------------------
By:
---------------------------------------
Its:
---------------------------------------
LANDLORD:
Dated: 7/19/98 MARTIN/CAMPUS ASSOCIATES, L.P.,
------------- a Delaware limited partnership
By: Martin/Redwood Partners,
L.P., a California limited
partnership, its General Partner
By: TMG Redwood LLC,
A California limited liability
Company
Its: General Partner
By: The Martin Group of
Companies, Inc., a
California corporation,
Its General Partner
By: /s/
----------------------
Its: Vice President
----------------------
50
<PAGE> 57
EXHIBIT A
PREMISES
<PAGE> 58
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. Pursuant to the Build to Suit
Agreement, Landlord shall construct the Shell and Core and applicable site work
(as defined in the Build to Suit Agreement) (collectively, the "Capital
Improvements"). 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 (subject to the provisions of Paragraph 1.4).
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.
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 Improvement Costs") shall be paid by Tenant in
the manner set forth in Paragraph 5 below, subject to the provisions of
Paragraph 1.4.
1.3 Tenant Improvements Allowance. If the lender for the
Construction Financing (as defined in the Build to Suit Agreement) is willing to
increase the amount of such Construction Financing to cover all or any portion
of the Tenant Improvement Costs, then Landlord shall provide an allowance for
the Tenant Improvement Costs in an amount equal to that portion of the
Construction Financing budgeted for payment of such costs (the "Tenant
Improvements Allowance"); provided, however, that in no event shall the Tenant
Improvements Allowance exceed Thirty Dollars ($30.00) per square foot of
Rentable Area to be situated in the Building.
2. Approval of Plans for Tenant Improvements.
2.1 Architect. Within five (5) days after execution of the Lease,
Tenant shall notify Landlord in writing of the name and address of the licensed
architect which Tenant desires to engage for the preparation of plans for
Tenant's Work ("Architect"). Tenant's proposed architect shall be subject to
Landlord's prior written approval. Tenant shall retain Architect's
administrative services throughout the performance of Tenant's Work. Designers
who are not
<PAGE> 59
licensed architects will not be acceptable.
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 within thirty (30) days after the date on which
the Lease has been signed by Landlord and Tenant. 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. 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. If Landlord reasonably disapproves the
revised Preliminary Plans, then the following shall occur: (i) 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, and (ii) the period between the date of Landlord's
reasonable disapproval and the eventual mutual approval of such Preliminary
Plans shall constitute a Tenant Delay.
2.2.2. Preliminary Budget. Landlord shall retain a
contractor ("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, Tenant shall, within five (5)
days of Tenant's delivery of a written rejection notice to Landlord, require
Architect to revise the Preliminary Plans to reduce the cost of the Tenant
Improvements. Following Tenant'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. Within three (3) days after approval
by Landlord and Tenant of the preliminary budget for the Tenant Improvements,
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
<PAGE> 60
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 ninety (90) days after the date on which the
Lease has been signed by Landlord and Tenant. 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.
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 written notice of its approval or disapproval of the revised Final
Plans within five (5) days after the date of Landlord's receipt thereof. If
Landlord reasonably disapproves the revised Final Plans, then the following
shall occur: (i) 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, and (ii) the period between
the date of Landlord's reasonable disapproval and the eventual mutual approval
of such Final Plans shall constitute a Tenant Delay.
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. Within five (5) days after their receipt of the cost
estimate, Landlord and Tenant shall each either approve or disapprove the cost
estimate, which approval shall not be unreasonably withheld. Tenant's failure to
approve or disapprove the cost estimate within such 5-day period shall
constitute Grounds for the assertion of a Tenant Delay. 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; provided, however that the period between
Tenant's disapproval of the first revised cost estimate and the eventual mutual
approval of a cost estimate shall constitute a Tenant Delay.
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
<PAGE> 61
connection with the Tenant Improvements.
5. Payment for Tenant Improvements. The Tenant Improvement Costs shall
be paid solely by Tenant as follows:
5.1 Method of Payment. If Landlord provides a Tenant Improvements
Allowance for the Building pursuant to Paragraph 1.4 above, Landlord shall bear
the Tenant Improvement Costs up to the amount of such Tenant Improvements
Allowance; and Tenant shall be responsible for paying any excess in the Tenant
Improvement Costs over the amount of such Tenant Improvements Allowance. If
Landlord does not provide a Tenant Improvements Allowance, Tenant shall be
solely responsible for the payment of any and all Tenant Improvement Costs. For
the purposes of this Exhibit B, the term "Tenant's Share of Tenant Improvement
Costs" shall mean the entire amount of all Tenant Improvement Costs, less any
Tenant Improvements Allowance provided by Landlord; provided, however, that if
Landlord does not provide a Tenant Improvements Allowance, then "Tenant's Share
of Tenant Improvement Costs" shall mean the entire amount of all Tenant
Improvement Costs. If required by any lender holding a security interest
encumbering the land on which the Building will be situated, Tenant shall
provide the Set-Aside Funds (as defined in Paragraph 5.1.1) in accordance with
the provisions of Paragraph 5.1.1. If at the time construction of the Building
is scheduled to commence no such lender exists, or if there is such a lender but
such lender does not at any time during the construction of the Building require
Landlord to obtain the Set-Aside Funds from Tenant, then Tenant shall not be
required to provide the Set-Aside Funds for the construction of the Building.
5.1.1. Set-Aside Funds. If Tenant is required to deposit
the Set-Aside Funds pursuant to Paragraph 5.1, then within five (5) days after
the parties have mutually agreed upon a cost estimate for the Tenant
Improvements as provided 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 (a) the entire amount of Tenant's Share of Tenant
Improvement Costs, based on the assumption that the Tenant Improvement Costs
shall equal such cost estimate, and (b) all other amounts to be deposited by
Tenant in such account pursuant to the terms of the Build to Suit Option
Agreement. Landlord shall instruct such financial institution to hold the
Set-Aside Funds in a separate interestbearing account with interest to accrue
for Tenant's account, and shall utilize the Set-Aside Funds to pay for Tenant's
Share of Tenant Improvement Costs and any other obligations of Tenant pursuant
to the Build to Suit Option Agreement. Before commencement of construction of
any subsequent portion of the Tenant Improvements, Tenant shall deposit in such
account an additional amount equal to Tenant's Share of Tenant Improvement Costs
for such subsequent Tenant Improvements.
5.1.2. Payment. If Landlord provides a Tenant Improvements
Allowance pursuant to Paragraph 1.4 above, then within twenty (20) days after
Landlord's receipt of reasonably satisfactory invoices for costs of labor and
materials incurred in connection with the Tenant Improvements, together with
such supporting documentation and lien waivers as Landlord may reasonably
require in order to review the costs covered by the billing, Landlord shall pay
the Tenant Improvement Costs represented by such invoices first coming due for
<PAGE> 62
payment, up to an aggregate amount equal to the Tenant Improvements Allowance.
As and when any amount of Tenant's Share of Tenant Improvement Costs or any
amounts payable by Tenant pursuant to the Build to Suit Option Agreement become
due and payable, Landlord shall request such financial institution to utilize
the remaining SetAside Funds to pay such amounts; provided, however, that if at
any time there are insufficient Set-Aside Funds to pay any amount of Tenant's
Share of Tenant Improvement Costs and/or any other amounts payable by Tenant
pursuant to the Build to Suit Option Agreement, Tenant shall pay any and all
such excess Shell and Core Costs and Tenant Improvement Costs to Landlord within
ten (10) days after the date of Tenant's receipt of Landlord's written request
therefor, together with such supporting documentation and lien waivers as Tenant
may reasonably require in order to review the costs covered by the billing. Any
failure by Tenant to pay any amount of Tenant's Share of Tenant Improvement
Costs or any other amounts payable by Tenant pursuant to the Build to Suit
Option Agreement as and when required under this Exhibit B shall constitute a
default by Tenant under the Lease.
5.1.3. 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 5.1 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 5.1.3,
Tenant shall pay such penalty or late charge as provided in this Paragraph
5.1.3.
5.2 Extra Work. Tenant shall be solely responsible for any and
all costs and expenses arising from any improvements to or installations in the
Building desired by Tenant and approved by Landlord that are outside the scope
of the Final Plans.
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 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
<PAGE> 63
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. Chance 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 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.
9. Acceptance of Building. Within thirty (30) days after completion of
the Tenant Improvements, Tenant shall conduct a walk-through inspection of the
Building with Landlord and complete a punch-list of items needing additional
work. Other than the items specified in the
<PAGE> 64
punch list, if any, by taking possession of the Building, Tenant shall be deemed
to have accepted the Building in good, clean and completed condition and repair,
subject to all applicable laws, codes and ordinances. Any damage to the Building
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
any Tenant Improvements Allowance. Tenant acknowledges that neither Landlord nor
Landlord's agents shall be deemed to have made any representations or warranties
as to the suitability or fitness of the Building for the conduct of Tenant's
business or for any other purpose, nor shall Landlord or Landlord's agents be
deemed to have agreed to undertake any alterations or construct any improvements
to the Building except as expressly provided in the Lease, this Exhibit B, and
the Build to Suit Option Agreement. If Tenant fails to submit a punch-list to
Landlord within such 30-day period, it shall be deemed that there are no items
needing additional work or repair. 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. Landlord shall, upon Tenant's written request, assign
and transfer to Tenant, to the extent reasonably requested by Tenant and
consistent with Landlord's position as the owner of the Building, Landlord's
rights and claims against Contractor arising from Contractor's warranties
(express and implied) with respect to the Building. Nothing contained in this
Paragraph 10 shall limit, restrict, or terminate any right of Landlord or Tenant
to make any claim against Contractor based upon the condition of the Building or
any and all of Contractor's warranties (express and implied) with respect to the
Building.
LANDLORD: TENANT:
MARTIN/CAMPUS ASSOCIATES, L.P., AT HOME CORPORATION,
a Delaware limited partnership a Delaware corporation
By: Martin/Redwood Partners, By: /s/ KENNETH A. GOLDMAN
L.P., a California limited -----------------------------
partnership, its General Its:
Partner -----------------------------
By:
-----------------------------
Its:
-----------------------------
By: The Martin Group of
Companies, Inc., a
California corporation,
its General Partner
By: /s/
----------------------
Its: Vice President
----------------------
<PAGE> 65
EXHIBIT C
SITE PLAN FOR PROJECT
This Exhibit will either be (i) the North Expansion Parcel (see Exhibit
C-1), or (ii) the south campus (see Exhibit C-2), as applicable.
<PAGE> 66
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: ,1998 AT HOME CORPORATION,
--------- a Delaware corporation
By: /s/ KENNETH A. GOLDMAN
---------------------------------------
Its:
---------------------------------------
By:
---------------------------------------
Its:
---------------------------------------
LANDLORD:
Dated: MARTIN/CAMPUS ASSOCIATES, L.P.,
------------- a Delaware limited partnership
By: Martin/Redwood Partners,
L.P., a California limited
partnership, its General Partner
By: TMG Redwood LLC,
A California limited liability
Company
Its: General Partner
By: The Martin Group of
Companies, Inc., a
California corporation,
Its General Partner
By:
----------------------
Its:
----------------------
<PAGE> 67
EXHIBIT E
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
<PAGE> 68
EXHIBIT F
STANDARD TERMS FOR OPTION TO PURCHASE
This Exhibit F sets forth certain standard terms that shall be
applicable to the purchase of the Building pursuant Paragraph 38 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 Building, (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 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
<PAGE> 69
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, 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 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 38 of the Lease and
this Exhibit F, 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 38 of
the Lease and this Exhibit F, 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 38 of the Lease and this Exhibit F, pursuant to this Paragraph 3, then
any Deposit shall be returned to Tenant, and neither Landlord nor Tenant shall
have any further obligations under Paragraph 38 of the Lease or this Exhibit F.
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.
<PAGE> 70
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 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:
<PAGE> 71
"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 /s/
------------
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.
5. Closing.
<PAGE> 72
5.1. Closing. The transaction contemplated by this Exhibit F
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 F. 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 Date. The Closing Date shall be no later
than the date specified in the Agreed Terms.
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 F.
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 F 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 F have been duly 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
<PAGE> 73
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, 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 F.
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.
<PAGE> 74
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. Within five (5) days after Landlord and Tenant have
agreed upon the Agreed Terms, Tenant and Landlord shall deposit an executed
counterpart of this Exhibit F with the Title Company and this Exhibit F 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 F. provided such supplemental escrow instructions
are not in conflict with this Exhibit F. In the event of any conflict between
the provisions of this Exhibit F and any supplementary escrow instructions
signed by Tenant and Landlord, the terms of this Exhibit F 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 F 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 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 F to the contrary, each representation, warranty, covenant or agreement
contained in this Exhibit F (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;
<PAGE> 75
(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 F 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 F; 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.
8. Deposit. Notwithstanding anything to the contrary set forth in the
Agreed Terms or this Exhibit F, within one (1) day after Landlord and Tenant
reach agreement on the Agreed Terms for Tenant's purchase of the Property from
Landlord, Tenant shall deliver to Title Company a cashier's check in the amount
of five percent (5%) of the Purchase Price (the "Deposit"), as an earnest money
deposit on account of the Purchase Price. Title Company shall deposit the
Deposit in an interest-bearing account, and the term "Deposit" as used in this
Exhibit F shall include any interest earned thereon.
9. 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 F 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 THE PARTIES REACH AGREEMENT ON THE
AGREED TERMS, 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 38 OF THE LEASE AND THIS EXHIBIT F 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
<PAGE> 76
BY REASON OF TENANT'S FAILURE TO PURCHASE THE PROPERTY PURSUANT TO THIS EXHIBIT
F. LANDLORD'S RETENTION OF THE DEPOSIT PURSUANT TO THIS PARAGRAPH 9 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
9 TO ESTABLISH THEIR INTENT SO TO LIQUIDATE DAMAGES. NOTWITHSTANDING THE
FOREGOING, NOTHING CONTAINED IN THIS PARAGRAPH 9 SHALL BE DEEMED TO LIMIT: (i)
TENANT'S OBLIGATIONS UNDER THE LEASE; OR (ii) TENANT'S INDEMNIFICATION
OBLIGATIONS CONTAINED IN THIS EXHIBIT F.
Landlord's Tenant's
Initials Initial /s/
---------- ------------
TENANT:
Dated: ,1998 AT HOME CORPORATION,
--------- a Delaware corporation
By: /s/ Kenneth A. Goldman
---------------------------------------
Its:
---------------------------------------
By:
---------------------------------------
Its:
---------------------------------------
LANDLORD:
Dated: MARTIN/CAMPUS ASSOCIATES, L.P.,
------------- a Delaware limited partnership
By: Martin/Redwood Partners,
L.P., a California limited
partnership, its General Partner
By: TMG Redwood LLC,
A California limited liability
Company
Its: General Partner
By: The Martin Group of
Companies, Inc., a
California corporation,
Its General Partner
By:
----------------------
Its:
----------------------
<PAGE> 1
Exhibit 10.37
BUILD TO SUIT LEASE
BY AND BETWEEN
MARTIN/CAMPUS ASSOCIATES, L.P.
"LANDLORD"
AND
AT HOME CORPORATION
"TENANT"
For the approximately 86,904 sq. ft. Premises at 430 Broadway
Redwood City, CA 94063
<PAGE> 2
LEASE SUMMARY
Lease Date: _____________________________________
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: 425 Broadway
Redwood City, CA
Contact: Kenneth Goldman
Telephone: (650) 569-5353
Building Address: 430 Broadway
Redwood City, California
Total Building Square Footage: Approximately 86,904 square feet
Term: Fifteen years from the Commencement
Date under the 450 Broadway Lease
(see Paragraph 4.A.)
Monthly Rent: As provided under Paragraph 5.A, and subject to
adjustment pursuant to Paragraph 4.C and 5.B
Security Deposit: An amount equal to three (3) payments of the initial
Monthly Rent (see Paragraph 7)
Exhibit A: Premises
Exhibit B: Work Letter Agreement
Exhibit C: Site Plan for Project
Exhibit D: Commencement Date Memorandum
Exhibit E: Subordination, Nondisturbance and Attornment Agreement
Exhibit F: Option to Purchase Terms
<PAGE> 3
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C> <C>
1. Parties..................................................................................................2
2. Premises.................................................................................................2
3. Definitions..............................................................................................2
A. Affiliate.......................................................................................2
B. Alterations.....................................................................................2
C. Broadway Lease..................................................................................2
D. Capital Improvements............................................................................3
E. CC&Rs...........................................................................................3
F. Collateral Agreements...........................................................................3
G. Commencement Date...............................................................................3
H. Common Area.....................................................................................3
I. Common Area Maintenance Costs...................................................................3
J. Final Plans.....................................................................................5
K. HVAC............................................................................................5
L. Impositions.....................................................................................6
M. Improvements....................................................................................6
N. Index...........................................................................................6
O. Interest Rate...................................................................................6
P. INTENTIONALLY DELETED...........................................................................6
Q. Landlord's Agents...............................................................................6
R. Lease Year......................................................................................7
S. Monthly Rent....................................................................................7
T. Parking Area....................................................................................7
U. Person..........................................................................................7
V. Project.........................................................................................7
W. Real Property Taxes.............................................................................7
X. Rent............................................................................................8
Y. Rentable Area...................................................................................8
AA. Security Deposit................................................................................8
BB. Sublet..........................................................................................8
CC. Subrent.........................................................................................9
DD. Subtenant.......................................................................................9
EE. Tenant Delay....................................................................................9
FF. Tenant Improvements.............................................................................9
GG. Tenant's Percentage Share.......................................................................9
HH. Tenant's Personal Property......................................................................9
II. Term...........................................................................................10
JJ. Fixed Charge Ratio.............................................................................10
4. Lease Term....................................................................................................10
A. Term...........................................................................................10
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
B. Delays in Completion...........................................................................10
C. Option to Extend...............................................................................10
5. Rent and Additional Charges.............................................................................13
A. Monthly Rent...................................................................................13
B. Adjustments to Monthly Rent....................................................................14
C. Management Fee.................................................................................14
D. Common Area Maintenance Costs..................................................................15
E. Additional Rent................................................................................16
F. Prorations.....................................................................................16
G. Interest.......................................................................................16
6. Late Payment Charges....................................................................................16
7. Security Deposit........................................................................................17
A. Deposit Required...............................................................................17
8. Holding Over............................................................................................18
9. Tenant Improvements.....................................................................................19
10. Condition of Premises...................................................................................19
A. Capital Improvements...........................................................................19
B. Acceptance of Premises.........................................................................19
11. Use of the Premises and Common Area.....................................................................19
A. Tenant's Use...................................................................................20
B. Hazardous Materials............................................................................20
C. Special Provisions Relating to The Americans With Disabilities Act of 1990.....................24
D. Use and Maintenance of Common Area.............................................................25
12. Quiet Enjoyment.........................................................................................25
13. Alterations.............................................................................................26
A. Alteration Rights..............................................................................26
B. Performance of Alterations.....................................................................26
C. Trade Fixtures.................................................................................26
14. Surrender of the Premises...............................................................................27
15. Impositions and Real Property Taxes.....................................................................27
A. Payment by Tenant..............................................................................27
B. Taxes on Tenant Improvements and Personal Property.............................................28
C. Proration......................................................................................29
16. Utilities and Services..................................................................................29
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C>
17. Repair and Maintenance..................................................................................29
A. Landlord's Obligations.........................................................................29
B. Tenant's Obligations...........................................................................30
C. Conditions Applicable to Repairs...............................................................31
D. Landlord's Rights..............................................................................31
E. Compliance with Governmental Regulations.......................................................31
18. Liens...................................................................................................31
19. Landlord's Right to Enter the Premises..................................................................32
20. Signs...................................................................................................32
21. Insurance...............................................................................................32
A. Indemnification................................................................................32
B. Tenant's Insurance.............................................................................33
C. Premises Insurance.............................................................................34
D. Increased Coverage.............................................................................34
E. Failure to Maintain............................................................................34
F. Insurance Requirements.........................................................................35
G. Waiver and Release.............................................................................35
22. Waiver of Subrogation...................................................................................35
23. Damage or Destruction...................................................................................36
A. Landlord's Obligation to Rebuild...............................................................36
B. Right to Terminate.............................................................................36
C. Limited Obligation to Repair...................................................................37
D. Abatement of Rent..............................................................................37
E. Damage Near End of Term........................................................................37
24. Condemnation............................................................................................37
25. Assignment and Subletting...............................................................................38
A. Landlord's Consent.............................................................................38
B. Tenant's Notice................................................................................38
C. Information to be Furnished....................................................................38
D. Landlord's Alternatives........................................................................39
E. Proration......................................................................................39
F. Parameters of Landlord's Consent...............................................................39
G. Permitted Transfers............................................................................40
26. Default.................................................................................................40
A. Tenant's Default...............................................................................40
B. Remedies.......................................................................................41
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C> <C>
C. Landlord's Default.............................................................................42
27. Subordination...........................................................................................42
A. Subordination..................................................................................42
B. Attornment.....................................................................................43
C. Non-Disturbance................................................................................43
28. Notices.................................................................................................43
29. Attorneys' Fees.........................................................................................44
30. Estoppel Certificates...................................................................................44
31. Transfer of the Premises by Landlord....................................................................45
32. Landlord's Right to Perform Tenant's Covenants..........................................................45
33. Tenant's Remedy.........................................................................................45
34. Mortgagee Protection....................................................................................45
35. Brokers.................................................................................................46
36. Acceptance..............................................................................................46
37. Parking.................................................................................................46
38. Right of First Offer to Purchase........................................................................46
A. Notice of Sale.................................................................................47
B. Acceptance.....................................................................................47
C. Rejection......................................................................................47
D. Offered Terms..................................................................................48
E. Acceptance of Tenant's Offer...................................................................48
F. Conditions.....................................................................................48
G. Process........................................................................................48
H. Rights Personal................................................................................49
39. General.................................................................................................49
A. Captions.......................................................................................49
B. Executed Copy..................................................................................49
C. Time...........................................................................................49
D. Separability...................................................................................49
E. Choice of Law..................................................................................49
F. Gender; Singular, Plural.......................................................................49
G. Binding Effect.................................................................................49
H. Waiver.........................................................................................50
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
<S> <C> <C>
I. Entire Agreement...............................................................................50
J. Authority......................................................................................50
K. Exhibits.......................................................................................50
L. Lease Summary..................................................................................50
M. Memorandum of Lease............................................................................50
</TABLE>
<PAGE> 8
BUILD TO SUIT LEASE
1. Parties.
THIS BUILD TO SUIT LEASE (the "Lease"), dated as of ________
1998, 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 425 Broadway, Redwood City, CA.
2. Premises.
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord those certain premises to situated in a building to be constructed by
Landlord pursuant to the terms of this Lease which shall be commonly known as
430 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"),
which Premises shall consist of a total area of approximately 86,904 square
feet. 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.
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. Broadway Lease. That certain lease dated as of October 18,
1996, by and between Landlord and Tenant, for those certain premises commonly
known as 425 Broadway,
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situated in the City of Redwood City, County of San Mateo, State of California.
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) the
Broadway Lease, (ii) that certain Build to Suit Option Agreement by and between
Landlord and Tenant, dated as of October 25, 1996 (the "Build to Suit
Agreement"), (iii) that certain Agreement Granting Rights of First Offer, by and
between Landlord and Tenant, dated as of October 25, 1996, (iv) that certain
Warrant to Purchase Series A Common Stock of At Home Corporation and that
certain Second Amended and Restated Registration Rights Agreement, executed by
Landlord, Tenant and certain other parties, each dated as of October 18, 1996
(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 (ii) and (iii) above. The "450 Broadway Lease"
shall mean that certain lease between Landlord and Tenant with respect to the
premises commonly known as 450 Broadway, Redwood City, California.
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
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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
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
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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
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; (xvii) any other cost or expense
which this Lease expressly characterizes as a Common Area Maintenance Cost, and
(xviii) all costs and expenses related to the adoption and maintenance of a
portion of Highway 101. 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
(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. Final Plans. As defined in the Work Letter.
K. HVAC. Heating, ventilating and air conditioning.
L. Impositions. Taxes, assessments, charges, excises and
levies, business
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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 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.
M. Improvements. Collectively, the Tenant Improvements and the
Capital Improvements.
N. 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.
O. 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.
P. INTENTIONALLY DELETED
Q. Landlord's Agents. Landlord's authorized agents, partners,
subsidiaries, directors, officers, and employees.
R. Lease Year. A period of twelve (12) consecutive calendar
months during the Term, commencing with the Commencement Date if the
Commencement Date is the first day
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of a calendar month, or commencing with the first day of the month following the
Commencement Date if the Commencement Date is not the first day of a calendar
month. The first Lease Year shall include the period between the Commencement
Date and the first day of the month following the Commencement Date if the
Commencement Date is not the first day of a calendar month. The last Lease Year
shall consist of the period between the date on which the Term expires or
terminates and the day after the last day of the preceding Lease Year.
S. Monthly Rent. The rent payable pursuant to Paragraph 5.A.,
as adjusted from time to time pursuant to the terms of this Lease.
T. 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.
U. Person. Any individual, partnership, firm, association,
corporation, limited liability company, trust, or other form of business or
legal entity.
V. Project. That certain real property shown on Exhibit C.
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.
W. 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
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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.
X. Rent. Monthly Rent plus the Additional Rent as defined in
Paragraph 5.E.
Y. 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.
AA. Security Deposit. That amount paid by Tenant pursuant to
Paragraph 7.
BB. 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.
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CC. 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.
DD. Subtenant. The person or entity with whom a Sublet
agreement is proposed to be or is made.
EE. 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.
FF. 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.
GG. 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 ________% (i.e., the Rentable Area
of the Premises 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, buildings are added to or
removed from the Project, 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 unreasonably interfere with ingress to or egress from the Premises).
HH. Tenant's Personal Property. Tenant's trade fixtures,
furniture, equipment and other personal property in the Premises.
II. 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.
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JJ. 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.
4. Lease Term.
A. Term. Subject to adjustment for Tenant Delays pursuant to
Paragraph 4.B below, the Term shall commence on the date of substantial
completion of the Improvements to be constructed by Landlord (the "Commencement
Date"), and terminate on the date that is fifteen (15) years after the
"Commencement Date" under the 450 Broadway Lease. For the purposes of this
Lease, substantial completion shall mean that the Improvements have been
completed in accordance with the Final Plans approved by Landlord and Tenant,
subject only to minor punch-list items, and the City of Redwood City has issued
a final building inspection approval for such Improvements.
B. Delays in Completion. Tenant agrees that if Landlord, for
any reason whatsoever, is unable to substantially complete the Improvements on
or before Landlord's initial estimate of the Commencement Date, Landlord shall
not be liable to Tenant for any loss or damage therefrom, nor shall this Lease
be void or voidable. 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 any provision of this Lease to the contrary,
if at any time after the date of this Lease a Tenant Delay occurs, then the
Commencement Date shall be moved earlier two (2) days for each one (1) day of
Tenant Delay that delays the substantial completion of the Improvements. In
addition, Tenant shall pay any and all costs and expenses incurred by Landlord
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. Option to Extend.
(i) Grant of Option. Landlord hereby grants to
Tenant one (1) option (the "Option to Extend") to extend the Term of this Lease,
for an additional term of five (5) years. The option term (the "Extended Term")
shall commence upon the expiration of the initial Term. The Option to Extend 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 Option to Extend is exercised or
at the time the applicable Extended Term would commence. The Option 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 Option to Extend may be transferred to
the transferee pursuant to a Permitted Transfer without Landlord's consent. The
Option 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 Option to Extend.
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(ii) Manner of Exercise. Tenant may exercise the
Option to Extend the Lease only by giving Landlord written notice not less than
one (1) year prior to the expiration of the Term. If Tenant fails to exercise
the Option to Extend prior to such 1-year period, then the Option to Extend
automatically shall lapse and thereafter Tenant shall have no right to exercise
the Option to Extend.
(iii) Terms and Rent. The initial Monthly Rent for
the Premises for the 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 Extended Term, or (x) an amount equal to
the Monthly Rent payable during the fourteenth (14th) Lease Year of the initial
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 first day of
the fourteenth (14th) Lease Year of the initial Term, and the denominator of
which is the Index published most recently before the first day of the
thirteenth (13th) Lease Year of the initial Term, or (II) one hundred sixteen
percent (116%), or (B) one hundred seven percent (107%). During the Extended
Term 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 Term; provided, however, that neither the Option to Extend
nor Landlord's obligations under the Work Letter shall be of any force or effect
during the Extended Term.
(iv) Determination of Rent. For the purposes of
calculating the Monthly Rent for the Extended Term, 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 Term shall be subject to adjustment under 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,
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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 the
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 the 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 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 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:
(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 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 say 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
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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 Extended Term shall equal ninety-five percent (95%) of
such fair market rent; provided, however, that if the 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.
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 balance of the Term (subject to adjustment
pursuant to Paragraph 5.B), the initial Monthly Rent shall equal that amount
calculated pursuant to the Build to Suit Agreement as the Monthly Rent for the
Building. Tenant shall have no obligation to pay Monthly Rent before the
Commencement Date. Until the Monthly Rent is established under the Build to Suit
Agreement, the Monthly Rent shall be deemed to equal that amount designated from
time to time in writing by Landlord to Tenant as Landlord's reasonable estimate
of the amount of Monthly Rent that will be established under the Build to Suit
Agreement upon completion of the construction of the Building (collectively, the
"Estimated Monthly Rent"), based upon Landlord's estimate of the Development
Costs (as defined in the Build to Suit Agreement) that have been or will be
incurred in constructing the Building. Upon the final establishment of the
initial Monthly Rent in accordance with the Build to Suit Agreement, Landlord
and Tenant shall each execute an addendum to this Lease setting forth the
initial Monthly Rent under this Lease. If as of the date the initial Monthly
Rent under this Lease is established (the "Rent Establishment Date"), the
aggregate amount of Estimated Monthly Rent previously paid by Tenant exceeds the
aggregate amount of Monthly Rent payable under this Lease from the Commencement
Date to the Rent Establishment Date, then Landlord may elect, in its sole
discretion, to either refund such excess to Tenant within thirty (30) days after
the Rent Establishment Date, or offset such overpayment against Rent due or
remaining due under this Lease. If as of the Rent Establishment Date the
aggregate amount of Estimated Monthly Rent previously paid by Tenant is less
than the
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aggregate amount of Monthly Rent payable under this Lease from the Commencement
Date to the Rent Establishment Date, then Tenant shall pay the deficiency to
Landlord within thirty (30) days after the Rent Establishment Date.
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. Tenant shall pay to Landlord an amount equal to
one (1) month's advance payment of Monthly Rent for the Premises 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 may be
adjusted at any time during the Term in accordance with the provisions of
Paragraph 2.1.1 of Exhibit D to the Build to Suit Agreement. In addition, 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 Term) (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 and Tenant's obligations
under Paragraph 17.D. Before commencement of the Term and during December of
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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 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.
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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. 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.
G. 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 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:
/s/ /s/
- ---------------------------------- ------------------------------------
Landlord Tenant
7. Security Deposit.
A. Deposit Required. Tenant shall deposit with Landlord upon
the execution of this Lease by Landlord and Tenant, an amount equal to three (3)
payments of the Estimated Monthly Rent under this Lease, as the "Security
Deposit" for the full and faithful performance of every provision of this Lease
to be performed by Tenant. Effective as of the Rent Establishment Date, the
Security Deposit shall be adjusted (if necessary) to equal three (3) payments of
the initial Monthly Rent under this Lease. If as of the Rent Establishment Date
the Estimated
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Monthly Rent exceeds the initial Monthly Rent as determined under Paragraph 5.A
above, then Landlord shall refund to Tenant, within thirty (30) days after the
Rent Establishment Date, any overpayment of the Security Deposit. If as of the
Rent Establishment Date the Estimated Monthly Rent is less than the initial
Monthly Rent as determined under Paragraph 5.A above, then Tenant shall increase
the Security Deposit by paying the deficiency in the Security Deposit to
Landlord within thirty (30) days after the Rent Establishment Date. 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"). 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 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.
(ii) 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
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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.
(ii) 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 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.
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.
9. Tenant Improvements.
Landlord agrees to construct the Tenant Improvements pursuant
to the terms of Exhibit B.
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10. Condition of Premises.
A. Capital Improvements. Landlord shall complete the Capital
Improvements in accordance with the terms of Exhibit B; provided, however, that
the construction of the shell and core of the Building shall be governed by the
terms of the Build to Suit Agreement. 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 Tenant shall conduct a walk-through
inspection of the 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.
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.
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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 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 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
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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, "Tenants 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 any 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.
(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.
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(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.
(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
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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
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
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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.
(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.
(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
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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 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.
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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 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 (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
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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 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 assessors 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
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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 (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. 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 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,
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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 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
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($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, 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.
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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.
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 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
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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,
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
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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, 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
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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 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.
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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 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 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
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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 (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
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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 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
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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.
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
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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 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
(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
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(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, 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
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(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 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,
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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
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 E ("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 or Landlord's
construction loan, 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 or the
Holder of the construction loan, 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 or the construction loan.
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
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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. 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 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
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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 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.
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35. Brokers.
Landlord and Tenant acknowledge and agree that they have
utilized the services of real estate brokers (with AMB Corporate Real Estate
Advisors and Colliers Parrish 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. Tenant shall indemnify, defend and hold Landlord harmless from and
against any and all claims, causes of action, liability or costs, including
reasonable attorney's fees, arising as a result of a breach of the foregoing
warranty and representation. Nothing contained in this Paragraph 35 shall be
deemed to obligate or require Landlord to pay any commission whatsoever to any
real estate broker (including without limitation AMB and BT) with respect to
this Lease; the payment of any such commission (if any) shall be governed by a
separate written agreement between Landlord and the real estate broker or
brokers in question. Tenant shall separately compensate AMB and Colliers Parrish
for its services and no commission shall be payable to AMB and Colliers Parrish
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.
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; provided, however, that Tenant acknowledges and agrees
that during the construction of the Parking Structure (as defined in the Build
to Suit Agreement), the parking ratio for the Building may from time to time be
less than 3.33 spaces per 1,000 square feet of Rentable Area. 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. Right of First Offer to Purchase.
During the term of this Lease, Landlord shall not sell fee
title to the Building to any unaffiliated third party or parties, without first
offering to sell the Building to Tenant upon the terms, covenants and conditions
set forth in this Paragraph 38; provided, however, that as
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provided below this Paragraph 38 may cease to be of any force or effect prior to
the expiration or earlier termination of the term of this Lease. Notwithstanding
any provision of this Lease to the contrary, the provisions of this Paragraph 38
shall not apply to, and Tenant shall have absolutely no rights in connection
with, any of the following: (i) any and all transfers of all or any portion of
the Building, or any interest therein, by means of judicial foreclosure,
trustee's sale, deed in lieu of foreclosure or similar conveyance, (ii) any and
all transfers or conveyances of any ownership interests in Landlord or any of
the parties or entities comprising Landlord (including without limitation
transfers of partnership interests, membership interests, and shares of common
and/or preferred stock), (iii) any and all transfers of tenancy-in-common
interests in the Building by Landlord to, or by and among, the parties or
entities comprising Landlord, (iv) the creation of any liens, encumbrances or
security interests or the transfer of any interest in the Building for security
purposes, and (v) the transfer of all or any portion of the Building, or any
interest in the Building, to any Affiliate of Landlord or any partner, member or
shareholder of Landlord.
A. Notice of Sale. If at any time during the term of this
Lease Landlord desires to sell fee title to the Building to an unaffiliated
third party, Landlord shall give written notice to Tenant specifying the terms,
covenants and conditions upon which Landlord is willing to sell the Building
(the "Acceptable Sale Terms"). The notice shall constitute an irrevocable offer
on the part of Landlord (subject to the conditions described in Paragraph 38.F
below) to sell the Building to Tenant upon the Acceptable Sale Terms, and
Landlord and Tenant shall have a period of thirty (30) days after Landlord's
delivery of the notice within which to negotiate and agree upon the terms and
conditions for the sale to Tenant of the Building (the "Sale Negotiation
Period").
B. Acceptance. If Tenant is interested in acquiring the
Building, Tenant shall give Landlord written notice of such interest ("Notice of
Interest I") within ten (10) days of Tenant's receipt of Landlord's notice (the
"Purchase Response Period"), and Landlord and Tenant shall proceed to negotiate
Tenant's purchase of the Building and the terms and conditions of purchase
during the Sale Negotiation Period. Should the parties reach agreement on the
terms and conditions of Tenant's acquisition of the Building within the Sale
Negotiation Period, then Tenant shall acquire, on an all cash basis, in the
manner set forth in Paragraph 38.G, fee title to the Building, together with any
and all improvements situated thereon. Failure on the part of Tenant either to
deliver a Notice of Interest to Landlord within the Purchase Response Period or
to accept Landlord's offer to sell the Building within the Sale Negotiation
Period shall each constitute Tenant's rejection of Landlord's offer to sell the
Building.
C. Rejection. If (i) Tenant informs Landlord within the Sale
Response Period that Tenant does not desire to negotiate the acquisition of the
Building, or (ii) after commencing negotiations, Landlord and Tenant do not
reach agreement upon the terms and conditions of Tenant's purchase of the
Building within the Sale Negotiation Period, or (iii) Tenant otherwise rejects
Landlord's offer to sell the Building, then, in any such event (except as
provided to the contrary in Paragraphs 38.D and 38.E), this Paragraph 38 shall
no longer apply to the Building, and Landlord (and each and every subsequent
owner of the Building) shall be free to offer to sell all or any portion of the
Building (separately or together with any other parcel or parcels) to any third
party or parties upon any terms whatsoever, including without limitation terms
less favorable to Landlord than the Acceptable Sale Terms, without first
offering the Building to
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Tenant.
D. Offered Terms. If Tenant does not accept Landlord's offer
as set forth above, but Tenant does deliver to Landlord within the Sale
Negotiation Period a written offer ("Tenant's Purchase Offer") to acquire the
Building for a purchase price ("Tenant's Offered Price") less than the price
contained in the Acceptable Sale Terms, then Tenant shall be deemed to have made
an irrevocable offer to acquire the Building at Tenant's Offered Price. Tenant's
Purchase Offer shall be deemed to include all of the Acceptable Sale Terms,
except that to the extent there is any discrepancy between the Acceptable Sale
Terms and the terms set forth in Tenant's Purchase Offer, Tenant's Purchase
Offer shall be controlling (except as otherwise provided in Paragraph 38.G
below).
E. Acceptance of Tenant's Offer. If Tenant rejects or
otherwise fails to accept Landlord's offer pursuant to this Paragraph 38 but
delivers Tenant's Purchase Offer to Landlord in accordance with Paragraph 38.D,
then Landlord may at any time within sixty (60) days after Landlord's receipt of
Tenant's Purchase Offer, accept Tenant's Purchase Offer and sell the Building to
Tenant in accordance with the terms thereof and the other terms and conditions
set forth in this Paragraph 38. If Landlord thus accepts Tenant's Purchase
Offer, then Tenant shall acquire, on an all cash basis, in accordance with the
provisions of Paragraph 38.G, fee title to the Building, together with the
improvements situated thereon. If Landlord does not accept Tenant's Purchase
Offer within such 60-day period, then upon the expiration of such 60-day period
this Paragraph 38 shall terminate and shall no longer apply to the Building, and
Landlord (and each and every subsequent owner of the Building) shall be free to
sell all or any portion of the Building (separately or together with any other
parcel or parcels) to a third party or parties upon any terms whatsoever,
including without limitation terms less favorable to Landlord than the terms
contained in Tenant's Purchase Offer, without first offering to sell the
Building to Tenant.
F. Conditions. The effectiveness of Tenant's right to offer to
acquire any Building, as set forth in this Paragraph 38, is conditioned on the
following: (i) Tenant has not previously entered into a Sublet of this Lease
(other than a Permitted Transfer); and (ii) no monetary or other material
default by Tenant exists under this Lease which remains uncured after the giving
of any applicable notice and the expiration of any applicable cure period. In
addition, if any of the conditions specified under clauses (i) and (ii) above do
not continue to be satisfied as of the date on which the escrow for the sale of
the Building to Tenant is scheduled to close, then unless Landlord waives in
writing any such conditions, Tenant's exercise of its right to acquire the
Building under this Paragraph 38 shall be null and void, and this Lease shall
terminate effective as of the date on which the escrow for the sale of the
Building to Tenant was scheduled to close.
G. Process. In the event that Landlord and Tenant reach
agreement on the terms and conditions of the sale of the Building within the
applicable period of time set forth in this Paragraph 38, Tenant's acquisition
of the Building shall be carried out on (i) the terms and conditions described
in this Paragraph 38 and/or to which Landlord and Tenant have otherwise
specifically agreed pursuant to this Paragraph 38 (collectively, the "Agreed
Terms"), and (ii) the terms and conditions set forth on Exhibit F attached to
this Lease (the "Standard Terms for Purchase"). To the extent there is any
discrepancy between the Agreed Terms and the Standard
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Terms, the Agreed Terms shall be controlling; provided, however, that
notwithstanding the foregoing, Tenant shall be required to make an earnest money
deposit equal to five percent (5%) of the purchase price for the Building,
pursuant to the Standard Terms.
H. Rights Personal. The rights granted to Tenant under this
Paragraph 38 shall be personal to Tenant, and shall not be assigned, sold,
conveyed or otherwise transferred to any other party (including without
limitation any assignee or sublessee of Tenant) without the prior written
consent of Landlord, which consent may be withheld in Landlord's sole
discretion; provided, however, that the rights granted to Tenant under this
Paragraphs 38 may be transferred without Landlord's consent to the transferee of
Tenant's interest in this Lease pursuant to a Permitted Transfer.
39. General.
A. Captions. The captions and headings used in this Lease are
for the purpose of convenience only and shall not be construed to limit or
extend the meaning of any part of this Lease.
B. Executed Copy. Any fully executed copy of this Lease shall
be deemed an original for all purposes.
C. Time. Time is of the essence for the performance of each
term, condition and covenant of this Lease.
D. Separability. If one or more of the provisions contained
herein, except for the payment of Rent, is for any reason held invalid, illegal
or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision of this Lease, but 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
48
<PAGE> 55
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 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.
M. Memorandum of Lease. This Lease shall not be recorded
without the prior consent of both Landlord and Tenant; provided, however, that
upon the written request of Tenant, Landlord and Tenant shall execute and
acknowledge, in recordable form, a memorandum of this Lease in form reasonably
acceptable to both Landlord and Tenant, and shall cause such memorandum to be
recorded in the Official Records of the County of San Mateo, State of
California. Upon expiration of the term of this Lease or earlier termination of
this Lease, Tenant shall execute, acknowledge and deliver to Landlord an
appropriate instrument prepared by Landlord which Landlord may then record in
the Official Records of San Mateo County to expunge this Lease and any
memorandum thereof from the public record with respect to the Premises. In
addition, Tenant hereby irrevocably constitutes and appoints Landlord as its
true and lawful attorney in fact, in its name and in its behalf, to make,
execute, acknowledge, deliver, and file any and all such instruments that Tenant
so fails or refuses to execute. Tenant expressly understands and acknowledges
that the foregoing special power of attorney is coupled with an interest, is
irrevocable, and shall survive the dissolution or insolvency of Tenant, or the
transfer by Tenant of the whole or any portion of its interest in this Lease
(provided that any such transfer shall be subject to the restrictions set forth
in this Lease).
49
<PAGE> 56
THIS LEASE is effective as of the date the last signatory
necessary to execute the Lease shall have executed this Lease.
TENANT:
Dated: ,1998 AT HOME CORPORATION,
--------- a Delaware corporation
By: /s/ KENNETH A. GOLDMAN
---------------------------------------
Its:
---------------------------------------
By:
---------------------------------------
Its:
---------------------------------------
LANDLORD:
Dated: MARTIN/CAMPUS ASSOCIATES, L.P.,
------------- a Delaware limited partnership
By: Martin/Redwood Partners,
L.P., a California limited
partnership, its General Partner
By: TMG Redwood LLC,
A California limited liability
Company
Its: General Partner
By: The Martin Group of
Companies, Inc., a
California corporation,
Its General Partner
By: /s/
----------------------
Its: Vice President
----------------------
50
<PAGE> 57
EXHIBIT A
---------
PREMISES
--------
<PAGE> 58
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. Pursuant to the Build to Suit
Agreement, Landlord shall construct the Shell and Core and applicable site work
(as defined in the Build to Suit Agreement) (collectively, the "Capital
Improvements"). 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 (subject to the provisions of Paragraph 1.4).
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.
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 Improvement Costs") shall be paid
by Tenant in the manner set forth in Paragraph 5 below, subject to the
provisions of Paragraph 1.4.
1.3 Tenant Improvements Allowance. If the lender for the
Construction Financing (as defined in the Build to Suit Agreement) is willing to
increase the amount of such Construction Financing to cover all or any portion
of the Tenant Improvement Costs, then Landlord shall provide an allowance for
the Tenant Improvement Costs in an amount equal to that portion of the
Construction Financing budgeted for payment of such costs (the "Tenant
Improvements Allowance"); provided, however, that in no event shall the Tenant
Improvements Allowance exceed Thirty Dollars ($30.00) per square foot of
Rentable Area to be situated in the Building.
2. Approval of Plans for Tenant Improvements.
2.1 Architect. Within five (5) days after execution of the
Lease, Tenant shall notify Landlord in writing of the name and address of the
licensed architect which Tenant desires to engage for the preparation of plans
for Tenant's Work ("Architect"). Tenant's proposed architect shall be subject to
Landlord's prior written approval. Tenant shall retain Architect's
administrative services throughout the performance of Tenant's Work. Designers
who are not
<PAGE> 59
licensed architects will not be acceptable.
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 within thirty (30) days after the date
on which the Lease has been signed by Landlord and Tenant. 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. 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. If Landlord reasonably disapproves the
revised Preliminary Plans, then the following shall occur: (i) 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, and (ii) the period between the date of Landlord's
reasonable disapproval and the eventual mutual approval of such Preliminary
Plans shall constitute a Tenant Delay.
2.2.2. Preliminary Budget. Landlord shall retain a
contractor ("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, Tenant shall, within five (5)
days of Tenant's delivery of a written rejection notice to Landlord, require
Architect to revise the Preliminary Plans to reduce the cost of the Tenant
Improvements. Following Tenant'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. Within three (3) days after
approval by Landlord and Tenant of the preliminary budget for the Tenant
Improvements, 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
<PAGE> 60
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 ninety (90) days after the
date on which the Lease has been signed by Landlord and Tenant. 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. 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 written notice of its approval or disapproval of the revised Final
Plans within five (5) days after the date of Landlord's receipt thereof. If
Landlord reasonably disapproves the revised Final Plans, then the following
shall occur: (i) 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, and (ii) the period between
the date of Landlord's reasonable disapproval and the eventual mutual approval
of such Final Plans shall constitute a Tenant Delay.
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. Within five (5) days after their receipt of the cost
estimate, Landlord and Tenant shall each either approve or disapprove the cost
estimate, which approval shall not be unreasonably withheld. Tenant's failure to
approve or disapprove the cost estimate within such 5-day period shall
constitute Grounds for the assertion of a Tenant Delay. 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; provided, however that the period between
Tenant's disapproval of the first revised cost estimate and the eventual mutual
approval of a cost estimate shall constitute a Tenant Delay.
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
<PAGE> 61
connection with the Tenant Improvements.
5. Payment for Tenant Improvements. The Tenant Improvement Costs shall
be paid solely by Tenant as follows:
5.1 Method of Payment. If Landlord provides a Tenant
Improvements Allowance for the Building pursuant to Paragraph 1.4 above,
Landlord shall bear the Tenant Improvement Costs up to the amount of such Tenant
Improvements Allowance; and Tenant shall be responsible for paying any excess in
the Tenant Improvement Costs over the amount of such Tenant Improvements
Allowance. If Landlord does not provide a Tenant Improvements Allowance, Tenant
shall be solely responsible for the payment of any and all Tenant Improvement
Costs. For the purposes of this Exhibit B, the term "Tenant's Share of Tenant
Improvement Costs" shall mean the entire amount of all Tenant Improvement Costs,
less any Tenant Improvements Allowance provided by Landlord; provided, however,
that if Landlord does not provide a Tenant Improvements Allowance, then
"Tenant's Share of Tenant Improvement Costs" shall mean the entire amount of all
Tenant Improvement Costs. If required by any lender holding a security interest
encumbering the land on which the Building will be situated, Tenant shall
provide the Set-Aside Funds (as defined in Paragraph 5.1.1) in accordance with
the provisions of Paragraph 5.1.1. If at the time construction of the Building
is scheduled to commence no such lender exists, or if there is such a lender but
such lender does not at any time during the construction of the Building require
Landlord to obtain the Set-Aside Funds from Tenant, then Tenant shall not be
required to provide the Set-Aside Funds for the construction of the Building.
5.1.1. Set-Aside Funds. If Tenant is required to
deposit the Set-Aside Funds pursuant to Paragraph 5.1, then within five (5) days
after the parties have mutually agreed upon a cost estimate for the Tenant
Improvements as provided 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 (a) the entire amount of Tenant's Share of Tenant
Improvement Costs, based on the assumption that the Tenant Improvement Costs
shall equal such cost estimate, and (b) all other amounts to be deposited by
Tenant in such account pursuant to the terms of the Build to Suit Option
Agreement. Landlord shall instruct such financial institution to hold the
Set-Aside Funds in a separate interestbearing account with interest to accrue
for Tenant's account, and shall utilize the Set-Aside Funds to pay for Tenant's
Share of Tenant Improvement Costs and any other obligations of Tenant pursuant
to the Build to Suit Option Agreement. Before commencement of construction of
any subsequent portion of the Tenant Improvements, Tenant shall deposit in such
account an additional amount equal to Tenant's Share of Tenant Improvement Costs
for such subsequent Tenant Improvements.
5.1.2. Payment. If Landlord provides a Tenant
Improvements Allowance pursuant to Paragraph 1.4 above, then within twenty (20)
days after Landlord's receipt of reasonably satisfactory invoices for costs of
labor and materials incurred in connection with the Tenant Improvements,
together with such supporting documentation and lien waivers as Landlord may
reasonably require in order to review the costs covered by the billing, Landlord
shall pay the Tenant Improvement Costs represented by such invoices first coming
due for
<PAGE> 62
payment, up to an aggregate amount equal to the Tenant Improvements Allowance.
As and when any amount of Tenant's Share of Tenant Improvement Costs or any
amounts payable by Tenant pursuant to the Build to Suit Option Agreement become
due and payable, Landlord shall request such financial institution to utilize
the remaining SetAside Funds to pay such amounts; provided, however, that if at
any time there are insufficient Set-Aside Funds to pay any amount of Tenant's
Share of Tenant Improvement Costs and/or any other amounts payable by Tenant
pursuant to the Build to Suit Option Agreement, Tenant shall pay any and all
such excess Shell and Core Costs and Tenant Improvement Costs to Landlord within
ten (10) days after the date of Tenant's receipt of Landlord's written request
therefor, together with such supporting documentation and lien waivers as Tenant
may reasonably require in order to review the costs covered by the billing. Any
failure by Tenant to pay any amount of Tenant's Share of Tenant Improvement
Costs or any other amounts payable by Tenant pursuant to the Build to Suit
Option Agreement as and when required under this Exhibit B shall constitute a
default by Tenant under the Lease.
5.1.3. 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 5.1 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 5.1.3,
Tenant shall pay such penalty or late charge as provided in this Paragraph
5.1.3.
5.2 Extra Work. Tenant shall be solely responsible for any and
all costs and expenses arising from any improvements to or installations in the
Building desired by Tenant and approved by Landlord that are outside the scope
of the Final Plans.
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 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
<PAGE> 63
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. Chance 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 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.
9. Acceptance of Building. Within thirty (30) days after completion of
the Tenant Improvements, Tenant shall conduct a walk-through inspection of the
Building with Landlord and complete a punch-list of items needing additional
work. Other than the items specified in the
<PAGE> 64
punch list, if any, by taking possession of the Building, Tenant shall be deemed
to have accepted the Building in good, clean and completed condition and repair,
subject to all applicable laws, codes and ordinances. Any damage to the Building
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
any Tenant Improvements Allowance. Tenant acknowledges that neither Landlord nor
Landlord's agents shall be deemed to have made any representations or warranties
as to the suitability or fitness of the Building for the conduct of Tenant's
business or for any other purpose, nor shall Landlord or Landlord's agents be
deemed to have agreed to undertake any alterations or construct any improvements
to the Building except as expressly provided in the Lease, this Exhibit B, and
the Build to Suit Option Agreement. If Tenant fails to submit a punch-list to
Landlord within such 30-day period, it shall be deemed that there are no items
needing additional work or repair. 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. Landlord shall, upon Tenant's written request, assign
and transfer to Tenant, to the extent reasonably requested by Tenant and
consistent with Landlord's position as the owner of the Building, Landlord's
rights and claims against Contractor arising from Contractor's warranties
(express and implied) with respect to the Building. Nothing contained in this
Paragraph 10 shall limit, restrict, or terminate any right of Landlord or Tenant
to make any claim against Contractor based upon the condition of the Building or
any and all of Contractor's warranties (express and implied) with respect to the
Building.
LANDLORD: TENANT:
MARTIN/CAMPUS ASSOCIATES, L.P., AT HOME CORPORATION,
a Delaware limited partnership a Delaware corporation
By: Martin/Redwood Partners, By: /s/ KENNETH A. GOLDMAN
L.P., a California limited -------------------------------
partnership, its General Its:
Partner -------------------------------
By:
-------------------------------
Its:
-------------------------------
By: The Martin Group of
Companies, Inc., a
California corporation,
its General Partner
By: /s/
------------------
Its: Vice President
------------------
<PAGE> 65
EXHIBIT C
---------
SITE PLAN FOR PROJECT
---------------------
This Exhibit will either be (i) the North Expansion Parcel (see Exhibit
C-1), or (ii) the south campus (see Exhibit C-2), as applicable.
<PAGE> 66
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: ,1998 AT HOME CORPORATION,
--------- a Delaware corporation
By: /s/ KENNETH A. GOLDMAN
---------------------------------------
Its:
---------------------------------------
By:
---------------------------------------
Its:
---------------------------------------
LANDLORD:
Dated: MARTIN/CAMPUS ASSOCIATES, L.P.,
------------- a Delaware limited partnership
By: Martin/Redwood Partners,
L.P., a California limited
partnership, its General Partner
By: TMG Redwood LLC,
A California limited liability
Company
Its: General Partner
By: The Martin Group of
Companies, Inc., a
California corporation,
Its General Partner
By:
----------------------
Its:
----------------------
<PAGE> 67
EXHIBIT E
---------
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
-------------------------------------------------------
<PAGE> 68
EXHIBIT F
---------
STANDARD TERMS FOR OPTION TO PURCHASE
-------------------------------------
This Exhibit F sets forth certain standard terms that shall be
applicable to the purchase of the Building pursuant Paragraph 38 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 Building, (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 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
<PAGE> 69
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, 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 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 38 of the Lease and
this Exhibit F, 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 38 of
the Lease and this Exhibit F, 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 38 of the Lease and this Exhibit F, pursuant to this Paragraph 3, then
any Deposit shall be returned to Tenant, and neither Landlord nor Tenant shall
have any further obligations under Paragraph 38 of the Lease or this Exhibit F.
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.
<PAGE> 70
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 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:
<PAGE> 71
"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: /s/
----------------
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.
5. Closing.
<PAGE> 72
5.1. Closing. The transaction contemplated by this Exhibit F
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 F. 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 Date. The Closing Date shall be no
later than the date specified in the Agreed Terms.
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 F.
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 F 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 F have been duly 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
<PAGE> 73
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, 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 F.
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.
<PAGE> 74
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. Within five (5) days after Landlord and Tenant
have agreed upon the Agreed Terms, Tenant and Landlord shall deposit an executed
counterpart of this Exhibit F with the Title Company and this Exhibit F 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 F. provided such supplemental escrow instructions
are not in conflict with this Exhibit F. In the event of any conflict between
the provisions of this Exhibit F and any supplementary escrow instructions
signed by Tenant and Landlord, the terms of this Exhibit F 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 F 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 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 F to the contrary, each representation, warranty, covenant or agreement
contained in this Exhibit F (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;
<PAGE> 75
(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 F 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 F; 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.
8. Deposit. Notwithstanding anything to the contrary set forth in the
Agreed Terms or this Exhibit F, within one (1) day after Landlord and Tenant
reach agreement on the Agreed Terms for Tenant's purchase of the Property from
Landlord, Tenant shall deliver to Title Company a cashier's check in the amount
of five percent (5%) of the Purchase Price (the "Deposit"), as an earnest money
deposit on account of the Purchase Price. Title Company shall deposit the
Deposit in an interest-bearing account, and the term "Deposit" as used in this
Exhibit F shall include any interest earned thereon.
9. 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 F 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 THE PARTIES REACH AGREEMENT ON THE
AGREED TERMS, 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 38 OF THE LEASE AND THIS EXHIBIT F 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
<PAGE> 76
BY REASON OF TENANT'S FAILURE TO PURCHASE THE PROPERTY PURSUANT TO THIS EXHIBIT
F. LANDLORD'S RETENTION OF THE DEPOSIT PURSUANT TO THIS PARAGRAPH 9 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
9 TO ESTABLISH THEIR INTENT SO TO LIQUIDATE DAMAGES. NOTWITHSTANDING THE
FOREGOING, NOTHING CONTAINED IN THIS PARAGRAPH 9 SHALL BE DEEMED TO LIMIT: (i)
TENANT'S OBLIGATIONS UNDER THE LEASE; OR (ii) TENANT'S INDEMNIFICATION
OBLIGATIONS CONTAINED IN THIS EXHIBIT F.
Landlord's Tenant's
Initials:_____ Initials /s/
TENANT:
Dated: ,1998 AT HOME CORPORATION,
--------- a Delaware corporation
By: /s/ KENNETH A. GOLDMAN
---------------------------------------
Its:
---------------------------------------
By:
---------------------------------------
Its:
---------------------------------------
LANDLORD:
Dated: MARTIN/CAMPUS ASSOCIATES, L.P.,
------------- a Delaware limited partnership
By: Martin/Redwood Partners,
L.P., a California limited
partnership, its General Partner
By: TMG Redwood LLC,
A California limited liability
Company
Its: General Partner
By: The Martin Group of
Companies, Inc., a
California corporation,
Its General Partner
By:
----------------------
Its:
----------------------
<PAGE> 1
EXHIBIT 23.01
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 333-31115, 333-38833 and 333-60037) pertaining to the 1996
Incentive Stock Option Plan, 1996 Incentive Stock Option Plan No. 2, 1997
Employee Stock Purchase Plan and 1997 Equity Incentive Plan of At Home
Corporation of our report dated January 19, 1999, with respect to the
consolidated financial statements of At Home Corporation included in this Annual
Report (Form 10-K) for the year ended December 31, 1998.
/s/ Ernst & Young
San Jose, California
February 19, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 300,702
<SECURITIES> 118,587
<RECEIVABLES> 10,910
<ALLOWANCES> 252
<INVENTORY> 0
<CURRENT-ASSETS> 433,328
<PP&E> 72,903
<DEPRECIATION> 23,663
<TOTAL-ASSETS> 780,631
<CURRENT-LIABILITIES> 43,004
<BONDS> 229,344
0
0
<COMMON> 719,680
<OTHER-SE> (225,814)
<TOTAL-LIABILITY-AND-EQUITY> 780,631
<SALES> 0
<TOTAL-REVENUES> 48,045
<CGS> 0
<TOTAL-COSTS> 46,965
<OTHER-EXPENSES> 151,672
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,996
<INCOME-PRETAX> (144,179)
<INCOME-TAX> 0
<INCOME-CONTINUING> (144,179)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (144,179)
<EPS-PRIMARY> (1.26)
<EPS-DILUTED> (1.26)
</TABLE>
