<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended June 30, 1999.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______________ to
_______________.
COMMISSION FILE NUMBER 000-26153
HIGH SPEED ACCESS CORP.
(Exact name of Registrant as specified in its charter)
DELAWARE 61-1324009
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
4100 East Mississippi Avenue
Denver, Colorado 80246
(Address of principal executive offices, including zip code)
303/256-2000
(Registrant's telephone number, including area code)
FORMER NAME, FORMER ADDRESS, AND FORMER YEAR, IF CHANGED SINCE LAST REPORT:
NOT APPLICABLE
- - - - - - -
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 [ ] NO [X]
<TABLE>
<S> <C>
Number of shares of Common Stock outstanding as of August 9, 1999..........................54,137,952
</TABLE>
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Index
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999
(Unaudited) and December 31, 1998
Condensed Consolidated Statements of Operations for the
three-months ended June 30, 1999 (Unaudited), the period April
3, 1998 (Inception) through June 30, 1998 (Unaudited) and the
six-months ended June 30, 1999 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the
six-months ended June 30, 1999 (Unaudited) and the period
April 3, 1998 (Inception) through June 30, 1998 (Unaudited)
Notes to Condensed Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Item 2 - Changes in Securities and Use of Proceeds
Item 3 - Defaults upon Senior Securities
Item 4 - Submission of Matters to a Vote of Security Holders
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
Signatures
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
HIGH SPEED ACCESS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 218,200 $ 17,888
Accounts receivable, net of allowance for doubtful accounts of $58
and $13 as of June 30, 1999 and December 31, 1998, respectively 463 83
Prepaid expenses and other current assets 1,414 123
--------- ---------
Total current assets 220,077 18,094
Property, equipment and improvements, net 18,694 5,807
Intangible assets, net 3,629 3,603
Deferred distribution agreement costs, net 614 --
Other assets 656 --
--------- ---------
Total assets $ 243,670 $ 27,504
========= =========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 7,222 $ 2,741
Accrued compensation and related expenses 1,140 744
Other current liabilities 1,934 395
Long-term debt, current portion 447 8
Capital lease obligations, current portion 704 44
--------- ---------
Total current liabilities 11,447 3,932
Long-term debt 1,669 530
Capital lease obligations 1,266 219
--------- ---------
Total liabilities 14,382 4,681
--------- ---------
Commitments and Contingencies
Mandatorily redeemable convertible preferred stock:
Series A, $.01 par value, 0 and 5,000,000 shares designated, issued and
outstanding at June 30, 1999 (unaudited) and December 31, 1998, respectively -- 47,050
Series B, $.01 par value, 0 and 10,000,000 shares designated, issued and
outstanding at June 30, 1999 (unaudited) and December 31, 1998, respectively -- 102,200
Series C, $.01 par value, 5,000,000 shares designated, no shares issued
and outstanding (unaudited) -- --
--------- ---------
Total mandatorily redeemable convertible preferred stock -- 149,250
--------- ---------
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 20,000,000 shares authorized, none
issued and outstanding -- --
Common stock, $.01 par value, 400,000,000 shares authorized, 54,117,802
issued and outstanding (unaudited) - June 30, 1999; 6,200,000 shares
authorized, issued and outstanding - December 31, 1998 541 62
Class A common stock, 100,000,000 shares authorized (unaudited) -
June 30, 1999; none issued and outstanding -- --
Additional paid-in-capital 614,194 4,237
Deferred compensation (324) (84)
Accumulated deficit (385,123) (130,642)
--------- ---------
Total stockholders' equity (deficit) 229,288 (126,427)
--------- ---------
Total liabilities, mandatorily redeemable convertible preferred
stock and stockholders' equity (deficit) $ 243,670 $ 27,504
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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HIGH SPEED ACCESS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED APRIL 3, 1998 ENDED
JUNE 30, (INCEPTION) TO JUNE 30,
1999 JUNE 30, 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net Revenue $ 641 $ 91 $ 940
Costs and expenses:
Operating 4,027 261 6,150
Engineering 2,071 398 3,556
Sales and Marketing 3,619 657 5,657
General and Administrative 2,361 564 3,647
Non-cash compensation expense from stock options 1,157 -- 2,680
Amortization of distribution agreement costs 3,305 -- 3,305
------------ ------------ ------------
Total costs and expenses 16,540 1,880 24,995
------------ ------------ ------------
Loss from operations (15,899) (1,789) (24,055)
Interest income (expense), net 647 (4) 766
------------ ------------ ------------
Net loss (15,252) (1,793) (23,289)
Mandatorily redeemable convertible preferred stock dividends (604) (24) (1,122)
Accretion of redemption value of mandatorily redeemable convertible
Preferred stock (123,916) -- (229,148)
------------ ------------ ------------
Net loss available to common stockholders $ (139,772) $ (1,817) $ (253,559)
============ ============ ============
Basic and diluted net loss available to common stockholders per
share $ (7.47) $ (0.29) $ (20.30)
============ ============ ============
Weighted average shares used in computation of basic and diluted net
loss available to common stockholders per share 18,711,305 6,200,000 12,490,214
Pro forma basic and diluted net loss per share $ (0.38) $ (0.67)
============ ============
Weighted average shares used in computation of pro forma basic and
diluted net loss per share 39,719,003 34,612,869
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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HIGH SPEED ACCESS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS APRIL 3, 1998
ENDED (INCEPTION) TO
JUNE 30, 1999 JUNE 30, 1998
------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (23,289) $ (1,793)
Adjustments to reconcile net loss to cash used
in operating activities:
Depreciation and amortization 2,237 298
Non-cash compensation expense from stock options 2,680 --
Amortization of distribution agreement costs 3,305
Changes in operating assets and liabilities excluding the effects of acquisitions:
Accounts receivable (380) (38)
Prepaid expenses and other current assets (1,328) (319)
Other assets (656) --
Accounts payable 2,904 224
Accrued compensation and related expenses 396 (54)
Other current liabilities 1,539 259
--------- ---------
Net cash used in operating activities (12,592) (1,423)
--------- ---------
INVESTING ACTIVITIES
Purchase of property, equipment and improvements, net of leases (11,612) (686)
Cash acquired in the purchase of CATV and HSAN -- 907
Purchase of customer base (290) --
--------- ---------
Net cash used in investing activities (11,902) 221
--------- ---------
FINANCING ACTIVITIES
Net proceeds from issuance of common stock 197,754 --
Net proceeds from issuance of mandatorily redeemable convertible preferred
stock 24,987 1,500
Payments on capital lease obligations (73) --
Proceeds from long-term debt 1,682 --
Payments on long-term debt (104) (75)
Other 560 --
--------- ---------
Net cash provided by financing activities 224,806 1,425
--------- ---------
Net change in cash and cash equivalents 200,312 223
Cash and cash equivalents, beginning of period 17,888 --
--------- ---------
Cash and cash equivalents, end of period $ 218,200 $ 223
========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock and employee stock options in connection with the
purchase of CATV and HSAN $ -- $ 3,215
Equipment acquired under capital leases $ 1,780 $ --
Issuance of note payable as consideration for advance from related party $ -- $ 650
Property and equipment purchases payable $ 3,006 $ 366
Distribution of Darwin Networks, Inc. subsidiary to shareholders $ 923 $ --
Warrants issued in connection with acquisitions $ 208 $ --
Warrants issued in connection with Microsoft Corp. agreements $ 3,235 $ --
Warrants earned in connection with distribution agreements $ 684 $ --
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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ITEM 1 - NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements included
herein reflect all adjustments, consisting only of normal recurring adjustments,
which in the opinion of management are necessary to fairly present High Speed
Access Corp.'s (hereinafter referred to as the Company, we, us, or our)
financial position, results of operations and cash flows for the periods
presented. Certain information and footnote disclosures normally included in
audited financial information prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the Securities
and Exchange Commission's rules and regulations. The results of operations for
the periods ended June 30, 1999 are not necessarily indicative of the results to
be expected for any subsequent quarter or for the entire fiscal year ending
December 31, 1999. These financial statements should be read in conjunction with
the financial statements and notes thereto for the year ended December 31, 1998,
which are included in the Company's Registration Statement on Form S-1 (File No.
333-74667) which was declared effective by the Securities and Exchange
Commission on June 3, 1999.
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.
NOTE 2 - STOCKHOLDERS' EQUITY
Series C Preferred Stock
In April 1999, the Company received $25 million in cash proceeds from
the sale of 5,000,000 shares of Series C mandatorily redeemable convertible
preferred stock to Vulcan Ventures Incorporated ("Vulcan").
Recapitalization
In May 1999, the Company completed a 1.55 for 1 split of its common
stock. This stock split resulted in a corresponding change in the conversion
rate for all shares of the Company's Series A, B and C mandatorily redeemable
convertible preferred stock ("Preferred Stock") such that each share of
Preferred Stock was convertible into 1.55 shares of common stock after the
split. In addition, certain outstanding warrants, if earned, may be exercised to
acquire 1.55 shares of stock after the split. The accompanying financial
statements have been restated for all periods presented to reflect the effects
of the stock split.
Also, the Board of Directors of the Company authorized 100 million
shares of Class A common stock and increased the number of shares of the
Company's $.01 par value common stock authorized to 400 million shares.
Initial Public Offering and Conversion of Preferred Stock
In June 1999, the Company sold 14,950,000 shares of its common stock in
an initial public offering (the "Offering"), including the underwriters'
over-allotment option, which generated proceeds of $179.3 million, net of the
underwriters' discount and other offering costs. Concurrently with the Offering,
the Company registered and sold 618,557 shares, 82,474 shares, and 824,742
shares of common
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stock to Cisco Systems, Inc. ("Cisco"), Com21, Inc. ("Com21") and Microsoft
Corp. ("Microsoft"), respectively, under stock purchase agreements which
generated $18.5 million.
Upon the closing of the Offering, all 20,000,000 shares of the
Preferred Stock outstanding at the time of the Offering were converted into an
aggregate of 31,000,000 shares of common stock. In addition, unpaid accumulated
dividends on the Preferred Stock of $1.5 million were paid by the issuance of
115,887 shares of common stock. Prior to the conversion of the Preferred Stock,
the Company had charged accumulated deficit to increase the carrying value of
the shares of each series of Preferred Stock to its estimated redemption value
at the time of the Offering of $13 per share. During the three-month and
six-month periods ended June 30, 1999, the Company recorded $123.9 million and
$229.1 million, respectively, related to this charge. In addition, the Company
accrued dividends on the Preferred Stock of $604,000 and $24,000 for the
three-month periods ended June 30, 1999 and 1998, respectively, and $1.1 million
for the six-month period ended June 30, 1999.
Distribution to Stockholders of Darwin Networks, Inc.
In March 1999, the Company transferred to Darwin Networks, Inc., a
newly created Delaware corporation, all of the assets used in the Company's
digital subscriber line service, which had a net book value of approximately
$330,000, in exchange for 100% of the outstanding Darwin common stock. These
assets consisted primarily of computer equipment and furniture and fixtures. In
March 1999, the Company distributed all of the outstanding Darwin common stock
to the Company's common and preferred stockholders. This distribution has been
recorded as a net reduction of stockholders equity in the accompanying condensed
consolidated financial statements. In connection with the asset transfer, the
Company entered into a services agreement with Darwin pursuant to which it will
provide various financial, accounting and other professional staff services to
Darwin and will be compensated for its costs at fair market value. The services
agreement is for an initial six month term. The Company also agreed to loan
Darwin up to $500,000 for working capital pursuant to a six month
uncollateralized revolving credit note bearing interest at the prime rate of
which Darwin has drawn $494,000 as of June 30, 1999. In connection with the
note, Darwin issued to the Company a warrant to purchase 1,000,000 shares of
Darwin common stock at an exercise price of $5.00 per share, which the Company
has valued at $7,000. Subsequently, Darwin executed a stock split under which
the warrant split to 5,000,000 shares at $1.00 per share. Expenses related to
the Darwin service line approximated $175,000 in 1998 and $302,000 for the three
months ended March 31, 1999. No revenue was realized in 1998 or 1999 associated
with Darwin.
NOTE 3 - NET LOSS PER SHARE
The Company computes net loss per share under the provisions of SFAS
No. 128 "Earnings per Share" (SFAS 128) and SEC Staff Accounting Bulletin No. 98
(SAB 98). Under the provisions of SFAS 128 and SAB 98, basic and diluted net
loss per share is computed by dividing the net loss available to common
stockholders for the period by the weighted average number of shares of common
stock outstanding during the period.
Diluted earnings per share is determined in the same manner as basic
earnings per share except that the number of shares is increased assuming
exercise of dilutive stock options and warrants using the treasury stock method
and assuming conversion of the Company's Preferred Stock. In addition, income or
loss is adjusted for dividends and other transactions relating to preferred
shares for which conversion is assumed. The diluted earnings per share amount
equals basic earnings per share because the Company has a net loss and the
impact of the assumed exercise of the stock options and the assumed preferred
stock conversion is not dilutive. Options and warrants to purchase 2,213,690
shares of common stock at June 30, 1999 (unaudited), were excluded from the
calculation above because they are antidilutive.
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The pro forma net loss per share assumes the conversion of the
Preferred Stock to Common Stock as if it had been converted at the date of
issuance, even though the result is antidilutive.
The following table presents the unaudited calculation of basic and
diluted and pro forma net loss per share (dollars in thousands, except per share
amounts):
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<TABLE>
<CAPTION>
Three Months Ended June 30, 1999 Six Months Ended June 30, 1999
(Unaudited) (Unaudited)
---------------------------------------- -----------------------------------------
Denominator Denominator
Numerator (weighted Numerator (weighted
(Net Loss) average shares) Per Share (Net Loss) average shares) Per Share
------------ --------------- --------- ------------ --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic and diluted net loss
available to common
stockholders ................. $ (139,772) 18,711,305 $(7.47) $ (253,559) 12,490,214 $(20.30)
Mandatorily redeemable
convertible preferred stock
dividends .................... 604 1,122
Accretion of redemption value
of mandatorily redeemable
convertible preferred stock .. 123,916 229,148
Assumed conversion of shares
of mandatorily redeemable
convertible preferred stock
into shares of common stock
at April 3, 1998 or issuance
(if later) ................... 21,007,698 22,122,655
------------ ------------ ------ ------------ ------------ ------
Pro forma basic and diluted net
loss per common share ........ $ (15,252) 39,719,003 $(0.38) $ (23,289) 34,612,869 $(0.67)
============ ============ ====== ============ ============ ======
</TABLE>
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In addition, there is a potential to issue additional warrants pursuant
to the agreements set forth in Notes 4 and 8. These potential warrants have been
excluded from the calculation above because they are not currently measurable
and would be antidilutive. In the future, we also may issue additional stock or
warrants to purchase our common stock in connection with our efforts to expand
the distribution of our services. Stockholders could face additional dilution
from these possible future transactions.
NOTE 4 - DISTRIBUTION AGREEMENTS
Vulcan Ventures Incorporated
In November 1998, the Company entered into a series of agreements with
Vulcan, a related party, in which the Company issued shares of Preferred Stock
to Vulcan and entered into agreements under which it will provide Internet
access services to customers in certain cable systems controlled by Vulcan.
These agreements included a systems access and investment agreement
with Vulcan and its affiliate Charter Communications ("Charter"), a programming
content agreement with Vulcan, and a related network services agreement with
Charter. Under these agreements, Charter committed to provide the Company
exclusive access to at least 750,000 homes passed. Charter has an equity
incentive to provide us additional homes passed, although it is not obligated to
do so. Under the agreements, we agreed to pay Charter 50% of our gross revenues
for cable modem access services, 15% of our gross revenues for dial up access
services, and 50% of our gross revenues for all other optional services. In
addition, if we sell equipment to a subscriber, we agreed to pay Charter 50% of
the gross profit we receive from the sale. If Charter sells equipment to a
subscriber, Charter keeps 100% of the gross revenues from the sale. We also
agreed that Charter's share of gross revenues will not be less than that paid to
other cable operators to whom we provide services. Charter can terminate the
agreement, remove a particular agreement or terminate exclusivity rights, on a
system-by-system basis, if the Company fails to meet performance benchmarks or
otherwise breaches our agreement, including our agreement to provide content
designated by Vulcan. The performance benchmarks include requiring us to achieve
minimum penetration rates, to add equipment or bandwidth capacity when Internet
data traffic on a system reaches set levels, to maintain a designated response
rate at our call center and resolve a designated percentage of all non-cable
plant related trouble calls within specific time frames, and to provide monthly
reports to Charter tracking our compliance with these requirements. Charter can
also terminate this agreement, for any reason, as long as it purchases the
associated cable headend equipment and modems at book value and pays the Company
a termination fee based on the net present value of revenues the Company
otherwise would earn for the remaining term of the agreement from end users
subscribing to the Company's services as of the termination date. During the
term of the agreements, the Company has agreed not to compete with Charter in
any market in which it owns or operates a cable system and will not deploy
Worldgate, Web TV(R) or various other digital TV products in the market areas of
any committed system or in areas in which Charter operates a cable system. The
agreements will continue until the Company ceases to provide services to an end
user residing in a home passed in a committed system.
As an inducement to Vulcan to cause Charter to commit additional
systems to the Company, we granted Vulcan warrants to purchase up to 7,750,000
shares of the Company's common stock at a purchase price of $3.23 per share.
Vulcan subsequently assigned the warrants to Charter. The warrants are
exercisable by Charter at the rate of 1.55 shares of common stock for each home
passed committed to the Company by Charter in excess of 750,000. 3,875,000
warrants may be earned by Charter on or before
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July 31, 2001 and must be exercised on or before July 31, 2002 or these warrants
will expire. 3,875,000 warrants may be earned by Charter on or before July 31,
2003 and must be exercised on or before July 31, 2004 or these warrants will
expire. The warrants may be forfeited in certain circumstances, generally if the
number of homes passed in a committed system is reduced.
In May 1999, Charter and the Company entered into a limited service
agreement which reduced the number of warrants issued per home passed in
exchange for a reduction in the revenue share and a more beneficial cost sharing
arrangement for the Company in certain specified cable systems. Under the terms
of this limited service agreement, Charter will earn only 1 warrant per every
three homes passed if it commits systems totaling less than 1 million homes
passed, and 1 warrant for every 2 homes passed if the systems total 1 million or
more homes passed.
As of June 30, 1999, Charter has earned warrants to purchase 69,587
shares of common stock under these agreements. The Company recognizes an
addition to equity for the fair value of any warrants issued, and recognizes the
related expense over the term of the service agreement with the cable system to
which the warrants relate, generally four to five years, in accordance with
Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments
that are Issued to other than Employees for Acquiring or in Conjunction with
Selling, Goods or Services. Deferred distribution agreement costs of $684,000
was recorded in conjunction with the warrants during the quarter ended June 30,
1999. Amortization of distribution agreement costs of $69,800 was recognized in
the statement of operations for the same period. Additional deferred
distribution agreement costs may be recorded and amortized in future periods
should Charter earn the right to purchase additional common shares based on the
number of homes committed to the Company.
Microsoft Corp.
Microsoft purchased $10.0 million of the Company's common stock
concurrently with the Offering at the offering price net of the underwriting
discount. At the time of the Offering, the Company also had a non-binding letter
of intent with Microsoft covering a number of potential areas of strategic
relationship.
Pursuant to the non-binding letter of intent and subsequent letter
agreement entered into in June 1999, the Company granted Microsoft warrants to
purchase 387,500 shares of common stock at an exercise price of $16.25 per
share. Under the terms of these agreements, Microsoft has agreed, among other
things, to introduce the benefits of the Company's services to Comcast Corp., a
multiple system cable operator. The warrants also provide Microsoft the right to
purchase one share of common stock at an exercise price of $16.25 per share, for
each 10 homes passed over 2,500,000 that are committed by Comcast Corp. to the
Company by May 1, 2002.
The Company recorded charges to earnings of $3.2 million during the
quarter ended June 30, 1999 related to the issuance of these warrants based on
the fair value of the shares at the time of grant. Additional expense may also
be recognized in future periods should Microsoft earn the right to purchase
additional common shares based on the number of homes committed to the Company
by Comcast Corp.
NOTE 5 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
In April 1999, the Company entered into a $3.0 million loan facility of
which $1.7 million has been drawn down at June 30, 1999. The terms of the master
loan agreement provide for interest at the rate of the 3-year U.S. Treasury Note
yield plus 9.76%, 36 equal monthly payments and a balloon payment of 12.5% of
the original loan balance in the 37th month and collateral of the headend, data
center
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and other field equipment of the Company. These terms are effective on the date
of, and applied separately to, each draw on the total loan facility.
In May 1999, the Company entered into a $3.0 million capital lease
facility to provide operating equipment. Financing of approximately $1.8 million
had been obtained under this agreement at June 30, 1999. The minimum lease
payments for outstanding obligations at June 30, 1999 are $289,000, $651,000,
$651,000 and $362,000 for the periods ended December 31, 1999, 2000, 2001 and
2002, respectively.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company is not a party to any material legal proceedings. In the
opinion of management, the amount of ultimate liability with respect to any
known actions will not materially affect the financial position of the Company.
NOTE 7 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivatives and
Hedging Activities (SFAS 133), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. SFAS 133, as amended by SFAS 137, is effective for the
Company's year ending December 31, 2001. As the Company does not currently
engage in or plan to engage in derivatives, or hedging transactions there will
be no impact on the Company's results of operations, financial position or cash
flows upon the adoption of SFAS 133.
NOTE 8 - SUBSEQUENT EVENTS
Road Runner Agreement
In July 1999, the Company entered into an agreement with ServiceCo LLC,
the entity that provides Road Runner's cable Internet access and content
aggregation services. The agreement establishes general terms and conditions
under which Road Runner may, if it wishes, engage the Company as a
subcontractor to provide all or some of the Company's network integration
services to cable operators who contract with Road Runner to deploy Road
Runner-branded Internet content and access services. The agreement also grants
ServiceCo LLC a warrant to purchase one share of common stock at a price of $5
per share for each home passed, up to a maximum of 5 million homes, for each
home passed in those systems where ServiceCo LLC engages the Company to serve
as a subcontractor of services.
Classic Cable and Cable Management Associates
In July 1999, the Company entered into service and warrant agreements
to provide its turnkey services to Classic Cable (Classic) and Etan Industries,
Inc. d/b/a Cable Management Associates (CMA). Under the agreements, the Company
expects to deploy its services to 45,000 Classic homes passed and 112,000 CMA
homes passed over the next two years, subject to various clustering
requirements. The agreements also provide for the issue of warrants to purchase
one share of the Company's common stock at a price of $13 per share for each
home passed committed by Classic and CMA to the Company for deployment of
services, up to 600,000 and 200,000 homes passed, respectively.
Loan Facility
The Company entered into a commitment for a $5.0 million loan facility
in July 1999. The terms of the loan facility provide for interest at the rate of
the 3-year U.S. Treasury Note yield plus 7.77%, 36 equal monthly payments and a
balloon payment of 5.0% of the original loan balance in the 37th month and
collateral of the headend, data center and other field equipment of the Company.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Such statements are only predictions, involve risks
and uncertainties, and actual events or results may differ materially from the
results discussed in the forward-looking statements. Factors and Risk Factors
that could cause or contribute to such differences include those discussed below
as well as those discussed in other filings made by the Company with the
Securities and Exchange Commission, including the Company's registration
statement on Form S-1 declared effective on June 3, 1999 and form of final
prospectus under Rule 424(e) filed on June 7, 1999.
OVERVIEW
High Speed Access Corp. (hereinafter referred to as the Company, we, or
our) is a leading provider of high speed Internet access via cable modem to
residential and commercial end users in exurban areas. We generate revenue
primarily from the monthly fees we receive from end users for our cable
modem-based Internet access service and for the traditional dial-up services we
offer as part of our end user acquisition strategy. We report these revenues net
of the percentage split we pay to our cable partners. For promotional purposes,
we often provide new end users with 30 days of free Internet access when they
subscribe to our services. As a result, our revenue does not reflect new end
users until the end of the promotional period. We also receive revenues from
renting cable modems to end users. Although we also earn revenues from the
one-time fees we charge for the installation of the cable modem at the end
user's home or business, we frequently waive this fee.
Our revenue from dial up services currently is a significant part of
our total revenue. However, we expect this business mix to shift over time as
our dial-up end users migrate to high speed Internet access and as end users
generally become aware of the benefits of high speed Internet access. Moreover,
although we expect cable modem rentals to be a significant part of our revenue
during the next two years, we expect our cable modem rental income to decline as
cable modems become commercially available at lower costs through retail stores
and as they become standard features of personal computers. However, we will
save the cost of purchasing and installing cable modems for end users. In the
future we expect to earn revenues from the local content we provide and, subject
to our agreement with Vulcan Ventures Incorporated ("Vulcan"), from additional
services such as Internet telephony.
Our expenses consist of the following:
o Operating costs, which consist primarily of salaries for help desk and
network operations center employees; telecommunications expenses,
including charges for Internet backbone and telecommunications
circuitry; allocated cost of facilities; costs of installing cable
modems for our end users; and depreciation and maintenance of
equipment. In one-way cable systems, we must support the telephone
return path from the local telephone company's central office to the
cable headend. Accordingly, we incur greater telecommunications costs
in a one-way system than we incur in a two-way system. Consequently,
the rate at which our cable partners upgrade their systems to two-way
capability will affect our operating margins. We expect our operating
costs to grow significantly as we roll out services in new systems.
Many of our operating costs are relatively fixed in the short term.
However, as we add new end users we will be able to spread these costs
over a larger revenue base, and, accordingly, decrease our costs per
subscriber and improve our operating margins.
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o Engineering expenses, which consist primarily of salaries and related
costs for network design and installation of the telecommunications and
data network hardware and software; system testing and project
management expenses; allocated cost of facilities; and depreciation and
maintenance on the equipment used in our engineering processes. We
expect our engineering expenses to grow significantly as we introduce
our services in new markets and expand our network.
o Sales and marketing expenses, which consist primarily of salaries,
commissions and related personnel expenses and costs associated with
the development of sales and marketing materials, database market
analytics, direct mail and telemarketing. We expect that our sales and
marketing expenses will increase significantly as we pursue our growth
strategy.
o General and administrative expenses, which consist primarily of
salaries for our executive, administrative, finance and human resource
personnel; amortization of goodwill; and fees for professional
services. We expect to hire additional support personnel and to incur
other additional expenses associated with being a public company,
including costs of directors' and officers' insurance and increased
legal and accounting fees.
o Non-cash compensation expense from stock options, which equals the
excess of the fair market value of our stock at the time of grant over
the exercise price of the stock options granted to employees and
directors amortized over the vesting period.
o Amortization of distribution agreement costs, which relates to warrants
issued to cable and strategic partners in connection with network
services and other distribution related agreements, collectively
referred to as distribution agreements. We measure the cost of warrants
issued to cable and strategic partners based on the fair values of the
warrants when earned by those partners. Because the fair value of the
warrant is dependent to a large extent on the price of our common
stock, the cost of warrants earned in the future may vary
significantly. Costs of warrants granted in connection with
distribution agreements are amortized over the term of the underlying
agreement. Warrants not directly associated with long-term distribution
agreements are expensed as earned.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999
(UNAUDITED), THE PERIOD APRIL 3, 1998 (INCEPTION) TO JUNE 30, 1998 (UNAUDITED)
AND FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
On April 3, 1998, we acquired CATV.net, Inc. and High Speed Access
Network, Inc. in a transaction recorded under the purchase method of accounting.
We had no operations prior to these acquisitions. Accordingly, the following
discussion reflects our results of operations since April 3, 1998.
Our operating results have varied on a quarterly basis during our short
operating history and may fluctuate significantly in the future due to a variety
of factors, many of which are outside our control. In addition, the results of
any quarter do not indicate the results to be expected for a full fiscal year.
As a result of the foregoing factors, our annual or quarterly results of
operations may be below the expectations of public market analysts or investors,
in which case the market price of the common stock could be materially and
adversely affected. Finally, the results of operations for the six months ended
June 30, 1999 are not directly comparable to the period April 3, 1998
(Inception) to June 30, 1998 ("Inception Period"). Therefore, no attempt to
compare these periods is included in this discussion.
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Revenues. Net revenue consists primarily of net monthly subscription
fees for cable modem-based and traditional dial-up Internet services, cable
modem rental income, and installation fees and other up front fees. Total net
revenue for the three months ended June 30, 1999 was $641,000, an increase of
$550,000 over net revenues of $91,000 for the Inception Period. For the second
quarter and first half of 1999, cable modem based subscription fees contributed
approximately 33% and 38% of our net revenue, traditional dial up service fees
contributed 47% and 43%, cable modem rental fees contributed 16% and 15%, and
installation and other up front fees contributed 4% and 4%, respectively. For
the Inception Period, cable modem based subscription fees contributed
approximately 35% of the net revenue; traditional dial up service fees
contributed 33% and cable modem rental fees, installation fees and other up
front fees contributed approximately 32%. Total net revenue for the six months
ended June 30, 1999 was $940,000.
Costs and Expenses
Operating. Operating costs for the three months ended June 30, 1999
were $4.0 million, an increase of $3.7 million over operating costs of $0.3
million for the Inception Period. The increase in operating costs resulted
primarily from an increase in personnel and personnel related costs for
additional staff in our network operations centers, help desk and field
technical support department, an increase in telecommunications expense from the
rollout of our service to new markets and larger subscriber base and
depreciation of capital equipment from the expansion of our network and the
installation of cable modems for a growing subscriber base. Operating costs were
$6.2 million for the six months ended June 30, 1999.
Engineering. Engineering expenses for the three months ended June 30,
1999 were $2.1 million, an increase of $1.7 million over engineering expenses of
$0.4 million for the Inception Period. The increase in engineering expenses
resulted from personnel and personnel related costs for additional technical
staff to support the installation of cable headend hardware and software in our
cable partners' systems, continued network design, system testing, and project
management as we evaluated new equipment and possible new product offerings.
Engineering costs were $3.6 million for the six months ended June 30, 1999.
Sales and Marketing. Sales and marketing expenses for the three months
ended June 30, 1999 were $3.6 million, an increase of $2.9 million over sales
and marketing expenses of $0.7 million for the Inception Period. The increase in
sales and marketing expenses resulted primarily from an increase in personnel
and personnel related cost to expand our residential and commercial end user
sales force, new cable partner sales force and telemarketing sales force, as
well as an increase in direct marketing and advertising expenses. For the six
months ended June 30, 1999, sales and marketing expenses were $5.7 million.
General and Administrative. General and administrative expenses were
$2.4 million for the three months ended June 30, 1999, an increase of $1.8
million over general and administrative expenses of $0.6 million for the
Inception Period. The increase in general and administrative expenses resulted
from additional personnel costs as we hired personnel to implement procedures
and controls to support our planned expansion and to administer finance, legal
and human resource functions. General and administrative expenses also included
amortization of intangible assets of $252,000 for the three months ended June
30, 1999 and $216,000 for the Inception Period resulting from our acquisitions
of CATV.net, Inc. and High Speed Access Network, Inc. General and administrative
expenses were $3.6 million for the six months ended June 30, 1999 including
amortization of intangible assets of $472,000 related to the acquisitions
mentioned above.
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Non-cash Compensation Expense from Stock Options. Non-cash compensation
expense from stock options for the three months ended June 30, 1999 was $1.2
million. There was no expense of this nature during the Inception Period.
Non-cash compensation expense represents the excess of the fair market value of
our common stock over the exercise price of the stock options granted. This
expense is principally related to 227,695 options issued under the 1998 stock
option plan that vested upon execution of the initial public offering ("the
Offering"). Non-cash compensation expense from stock options was $2.7 million
for the six months ended June 30, 1999. The remaining amount of deferred
compensation expense will be recognized over the vesting period of the options.
Amortization of Distribution Agreement Costs. Amortization of
distribution agreement costs for the three months ended June 30, 1999 was $3.3
million. There were no expenses of this nature during the Inception Period.
These costs represent the stock warrants issued to cable and strategic partners.
The increase in this account is primarily due to charges totaling $3.2 million
related to 387,500 warrants issued under the terms of a non-binding letter of
intent and subsequent letter agreement with Microsoft Corp. ("Microsoft"). The
remainder relates to amortization of distribution agreement costs resulting from
69,587 warrants earned by Charter Communications ("Charter"). We could incur
additional material non-cash charges related to further issuance of stock
warrants to our cable and strategic partners in the future. The Company will
recognize an addition to equity for the fair value of any warrants issued, and
recognize the related expense over the term of the service agreement with the
cable or strategic partner to which the warrants relate. The amount of any such
charges is not determinable until such warrants are earned. The use of warrants
in these and similar transactions may increase the volatility of our earnings in
the future. Amortization of distribution agreement costs for the six months
ended June 30, 1999 was $3.3 million.
Net Interest Income (Expense). Net interest income was $647,000 for the
three months ended June 30, 1999, an increase of $651,000 over net interest
expense of $4,000 for the Inception Period. The primary reason for the increase
in interest income relates to returns on investment of the net proceeds of the
Offering. Net interest income represents interest earned by the Company on cash
and cash equivalents, less interest expense on capital lease obligations and
long-term debt. Net interest income for the six months ended June 30, 1999 was
$766,000.
Income Taxes. At June 30, 1999, we had accumulated net operating loss
carryforwards for federal and state tax purposes of approximately $31.4 million,
which will expire at various times through 2019. At June 30, 1999, we had a net
deferred tax asset of $9.8 million relating principally to our accumulated net
operating losses. Our ability to realize the value of our deferred tax asset
depends on our future earnings, if any, the timing and amount of which are
uncertain. We have recorded a valuation allowance for the entire net deferred
tax asset as a result of those uncertainties. Accordingly, we did not record any
income tax benefit for net losses incurred for the three months ended June 30,
1999, the Inception Period, or the six months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, we had cash and cash equivalents of $218.2 million
compared to $17.9 million at December 31, 1998. We had significant negative cash
flows from operating activities for the six months ended June 30, 1999. Cash
used in operating activities was $12.6 million for the six months ended June 30,
1999 caused primarily by a net loss of $23.3 million and an increase in current
and non-current assets of $2.4 million, substantially offset by non-cash
expenses of $8.2 million and increases in accounts payable, accrued expenses and
other current liabilities of $4.9 million.
Cash used in investing activities was $11.9 million for the six months
ended June 30, 1999, the result of capital expenditures of $11.6 million. The
principal capital expenditures incurred during this
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period were for the purchase of headend data network hardware and software,
cable modems and equipment necessary for monitoring our network, reflecting our
expansion into new markets.
Cash provided by financing activities for the six months ended June 30,
1999 was $224.8 million comprised primarily of $179.3 million in net proceeds
from the Offering, $18.5 million in proceeds from the concurrent offering to
Cisco, Com21 and Microsoft, $25.0 million in net proceeds from the issuance of
mandatorily redeemable convertible preferred stock, and $1.7 million in proceeds
from long-term debt.
We expect to experience substantial negative cash flow from operating
activities and negative cash flow from investing activities for at least the
next several years due to continued deployment of our services into new markets
and the enhancement of our network and operations. Our future cash requirements
will depend on a number of factors including:
o The pace of the rollout of our service to our cable partners,
including the impact of substantial capital expenditures and
related operating expenses;
o The rate at which we enter into contracts with cable operators for
additional systems;
o The rate at which end users subscribe to our services;
o Changes in revenue splits with our cable partners;
o Price competition in the Internet and cable industries;
o Capital expenditures and costs related to infrastructure
expansion;
o The rate at which our cable partners convert their systems from
one-way to two-way systems;
o End user turnover rates;
o Our ability to protect our systems from telecommunications
failures, power loss and software-related system failures;
o Changes in our operating expenses including, in particular,
personnel expenses;
o The introduction of new products or services by us or our
competitors;
o Our ability to enter into strategic alliances with content
providers; and
o Economic conditions specific to the Internet and cable industries,
as well as general economic and market conditions.
We expect to incur approximately $16.0 million of additional capital
expenditures for the remainder of 1999 principally related to the installation
of headend data network hardware and software, cable modems, central network
hardware and software for e-mail, network monitoring and web hosting and a
billing and customer care system. Actual capital expenditures will be
significantly affected by the rate at which end users subscribe for our cable
modem Internet access services, which requires us to purchase a cable modem for
each new end user, as well as by the pace of the roll out of our systems, which
requires us to purchase headend data network hardware and software.
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We believe our current cash and cash equivalents, together with the
proceeds from a $3.0 million loan facility entered into in April 1999, and a
$3.0 million capital lease facility entered into in May 1999, as well as
additional loan and lease facilities will be sufficient to meet our working
capital requirements, including operating losses, and capital expenditure
requirements for the next 18 months, assuming we achieve our business plan.
There can be no assurance that we will be able to raise additional capital,
should that become necessary, on terms acceptable to us or at all. The sale of
additional equity or convertible debt securities may result in additional
dilution to our stockholders. If financing is not available at terms acceptable
to us, management has the intent and the ability to reduce expenditures so as to
delay the need for additional financing.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivatives and
Hedging Activities (SFAS 133), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. SFAS 133, as amended by SFAS 137, is effective for the
Company's year ending December 31, 2001. As the Company does not currently
engage or plan to engage in derivatives, or hedging transactions there will be
no impact on the Company's results of operations, financial position or cash
flows upon the adoption of SFAS 133.
YEAR 2000 COMPLIANCE
We have exposure and risk if the systems upon which we are dependent to
conduct our operations are not Year 2000 compliant. Should any of our "date
dependent" equipment, circuits or software fail as a result, our services could
be severely affected. Our potential areas of exposure include information
technology, including computers and software that we purchase or licenses from
third parties, and non-information technology, such as telephone systems and
other equipment that we acquire and use internally. Other potential areas of
exposure include the systems of business partners upon whom our services are
dependent, including our cable partners and their RF-cable TV plants, and
Internet backbone providers and telephone companies.
We have engaged a third party consultant to perform a Year 2000
assessment study. The planning, inventory, and business impact analysis portions
of our Year 2000 assessment project are complete.
o We have tested our internal PC-based and other local area computer
networks. We have identified only minor issues that we will
remediate by routine upgrades, patches and replacements by the end
of September 1999.
o We are continuing to seek verification from our cable affiliates
that the cable plants over which our service operates are Year
2000 compliant. Our major cable partner, Charter Communications,
Inc., has indicated that it expects to be fully Year 2000
compliant by August 31, 1999. Our other cable partners are in
various states of Year 2000 readiness and testing, but we believe
the risk posed to our services by our cable partners' headend
equipment to be slight. To the extent our cable partners are not
presently compliant, we are asking them to provide us with a
description of their plans to become so. To the extent that our
cable affiliates fail to provide certification that they are Year
2000 compliant by August 31, 1999, we will reassess the possible
impact on our business and the nature of our electronic
interdependencies at that time, and take appropriate remediation
action to the extent possible, including developing contingency
plans.
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o We are also verifying that the equipment, systems and services of
our other vendors and suppliers provide to us are Year 2000
compliant. To date, virtually all of the non-software vendors and
suppliers that we consider vital to our operations have certified
Year 2000 compliant status to us, or have indicated that they will
do so. To the extent that vendors fail to provide certification
that they are Year 2000 compliant by August 31, 1999, we expect to
terminate and replace those relationships.
We expect to resolve our Year 2000 compliance issues primarily through
normal upgrades of hardware and software, or, when necessary, through
replacement of existing software with Year 2000 compliant applications. We have
spent $270,000 to date of our estimated $500,000 total cost to develop and
implement our Year 2000 compliance. We do not expect to capitalize any of this
cost. The remainder of these costs will be funded from cash on hand.
We believe that our current Year 2000 compliance plan is sufficient to
eliminate any material impact on operations. There are, however, dependencies on
third party vendors and cable operators completing their commitments. To reduce
the impact of failure, we have initiated contingency plans to deal with the
worst-case scenario that might occur if technologies we are dependent upon are
not Year 2000 compliant and fail to operate effectively. We expect to have those
plans in place by the end of the third quarter of 1999. Nonetheless, if our
present efforts to address our potential Year 2000 compliance issues are not
successful, or if our cable partners, vendors, and other third parties with
which we conduct business do not successfully address these issues, or if our
contingency plans are not effective, our business and financial results could be
materially and adversely affected.
RISK FACTORS
You should carefully consider the following factors and other
information in this Form 10-Q and other filings made by the Company with the
Securities and Exchange Commission before trading in our common stock. If any of
the following risks actually occur, our business and financial results could be
materially and adversely affected. In that case, the trading price of our common
stock could decline and you could lose all or part of your investment.
RISKS RELATED TO OUR OPERATIONS
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING
HISTORY.
Our predecessor companies began offering services to cable operators in
October 1997. We have recognized limited revenues since our inception. In
addition, our senior management team and other employees have worked together at
our company for only a short period of time. Consequently, we have a limited
operating history upon which our business can be evaluated.
WE HAVE NOT BEEN PROFITABLE AND EXPECT FUTURE LOSSES.
Since our founding, we have not been profitable. We have incurred
substantial costs to create and introduce our broadband Internet access
services, to operate these services, and to grow our business. We incurred net
losses of approximately $31.4 million from April 3, 1998 (Inception) through
June 30, 1999. Our limited operating history and our ambitious growth plans make
predicting our operating results, including operating expenses, difficult.
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We expect to incur substantial losses and experience substantial
negative cash flows from operations for at least the next several years as we
expand our business. The principal costs of expanding our business will include:
o Substantial direct and indirect selling, marketing and promotional
costs;
o System operational expenses, including the lease of our Internet
backbone, which has a traffic capacity in excess of our current
needs;
o Costs incurred in connection with higher staffing levels to meet
our growth;
o The acquisition and installation of the equipment, software and
telecommunications circuits necessary to enable our cable partners
to offer our services; and
o Costs in connection with acquisitions, divestitures, business
alliances or changing technologies.
If any of these costs or expenses is not accompanied by an increase in
revenues, then our business and financial results could be materially and
adversely affected.
WE CANNOT PREDICT OUR SUCCESS BECAUSE OUR BUSINESS MODEL IS UNPROVEN.
Our success depends on continued growth in the use of the Internet and
high speed access services. Although Internet usage and popularity have grown
rapidly, we cannot be certain that this growth will continue in its present
form, or at all. Critical issues concerning the increased use of the
Internet--including security, reliability, cost, ease of access and quality of
service--remain unresolved and are likely to affect the development of the
market for our services. Relatively few companies currently offer cable-based
Internet access, and we do not believe any of those has been profitable.
Moreover, many industry analysts believe that Internet access providers will
become increasingly reliant upon revenues from content due to competitive
pressures to provide low cost or even free Internet access.
The success of our business ultimately will depend upon the acceptance
of our services by end users, who will purchase or rent a cable modem from us
and pay both installation fees and monthly access charges for our services. We
have launched full operations in only 51 cable systems and we have approximately
5,195 residential cable modem end users. Additionally, although our primary
service offering is high bandwidth Internet access, we currently derive a
substantial portion of our revenues from standard dial-up Internet access, which
we offer as a feeder for our high speed offerings. We cannot predict whether
demand for our high speed Internet access services will develop, particularly at
the volume or prices we need to become profitable.
OUR ABILITY TO ATTRACT AND RETAIN END USERS DEPENDS ON MANY FACTORS WE CANNOT
CONTROL.
Our ability to increase the number of our end users, and our ability to
retain end users, will depend on a number of factors, many of which are beyond
our control. These factors include:
o Our ability to enter into and retain agreements with cable
operators;
o The speed at which we are able to deploy our services,
particularly if we cannot obtain on a timely basis the
telecommunications circuitry necessary to connect our cable
headend equipment to our Internet backbone;
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o Our success in marketing our service to new and existing end
users;
o Competition, including new entrants advertising free or lower
priced Internet access and/or alternative access technologies;
o Whether our cable partners maintain their cable systems or upgrade
their systems from one-way to two-way service;
o The quality of the customer and technical support we provide; and
o The quality of the content we offer.
In addition, our service is currently priced at a premium to many other
online services and many end users may not be willing to pay a premium for our
service. Because of these factors, our actual revenues or the rate at which we
will add new end users may differ from past increases, the forecasts of industry
analysts, or a level that meets the expectations of investors.
OUR QUARTERLY OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND MAY BE
BELOW THE EXPECTATIONS OF ANALYSTS AND INVESTORS.
Our revenues and expenses, and in particular our quarterly revenues,
expenses and operating results have varied in the past and may fluctuate
significantly in the future due to a variety of factors, many of which are
outside of our control. These factors include:
o The pace of the rollout of our service to our cable partners,
including the impact of substantial capital expenditures and
related operating expenses;
o The rate at which we enter into contracts with cable operators for
additional systems;
o The rate at which end users subscribe to our services;
o Changes in revenue splits with our cable partners;
o Price competition in the Internet and cable industries;
o Capital expenditures and costs related to infrastructure
expansion;
o The rate at which our cable partners convert their systems from
one-way to two-way systems;
o End user turnover rates;
o Our ability to protect our systems from telecommunications
failures, power loss and software-related system failures;
o Changes in our operating expenses including, in particular,
personnel expenses;
o The introduction of new products or services by us or our
competitors;
o Our ability to enter into strategic alliances with content
providers; and
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o Economic conditions specific to the Internet and cable industries,
as well as general economic and market conditions.
In addition, our operating expenses are based on our expectations of
the future demand for our services and are relatively fixed in the short term.
We may be unable to adjust spending quickly enough to offset any unexpected
demand shortfall. A shortfall in revenues in relation to our expenses could have
a material and adverse effect on our business and financial results.
The quarter-to-quarter comparisons of our results of operations should
not be relied upon as an indication of future performance. It is possible that
in some future periods our results of operations may be below the expectations
of public market analysts and investors. In that event, the price of our common
stock is likely to fall.
WE MAY NOT BE ABLE TO ESTABLISH OR MAINTAIN ACCEPTABLE RELATIONSHIPS WITH CABLE
OPERATORS.
Our success depends, in part, on our ability to gain access to cable
customers. We gain that access through agreements with our cable partners. There
can be no assurance that we will be able to establish or maintain relationships
with cable operators. Even if we are able to establish and maintain those
relationships, there can be no assurance that we will be able to do so on terms
favorable to us or in the quantities we need to become profitable. In addition,
our failure to form partnerships with a large number of cable operators as
quickly as possible permits other cable-based broadband service providers to
enter into exclusive agreements and effectively exclude us from the systems
covered by those agreements. Furthermore, in order to rapidly deploy our
services within a market, we typically begin installation of our equipment and
related telecommunications circuits prior to the execution of final
documentation. If we are unable to finalize our contractual relationship with a
cable operator, if the exclusive relationship between us and our cable partners,
or between our cable partners and their cable customers, is impaired, or if we
do not become affiliated with a sufficient number of cable operators, our
business and financial results could be materially and adversely affected.
OUR LARGEST CABLE PARTNER CAN TERMINATE ITS CONTRACT WITH US.
Our largest cable partner is Charter Communications. Charter is an
affiliate of Vulcan, which owns 37.4% of our outstanding common stock as of June
30, 1999. Charter has provided us exclusive access to at least 750,000 homes
passed. Charter has equity incentives to provide us additional homes passed,
although it is not obligated to do so. Under our network service agreement,
Charter can terminate our exclusivity rights, on a system-by-system basis, if we
fail to meet performance benchmarks or otherwise breach our agreement, including
our commitment to provide content designated by Vulcan. Moreover, Charter can
terminate our agreement, for any reason, as long as it purchases the associated
cable headend equipment and modems at book value and pays us a termination fee
based on the net present value of the revenues we otherwise would earn for the
remaining term of the agreement from those end users subscribing to our services
as of the date of termination. There can be no assurances we will meet the
benchmarks related to our customer penetration rates or that Charter will not
decide to terminate our agreement for any other reason. If Charter were to
terminate this agreement, in whole or for any material system, our business and
financial results would be materially and adversely affected.
OUR AGREEMENTS WITH VULCAN VENTURES COULD CONSTRAIN OUR ABILITY TO GENERATE
REVENUES FROM PROVIDING CONTENT AND FUTURE SERVICES OUR END USERS MAY DEMAND.
Under our programming content agreement with Vulcan, Vulcan has the
right to require us to carry, on an exclusive basis in all cable systems we
serve, content it designates. Vulcan content may
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include start-up and related web pages, electronic programming guides, other
multimedia information and telephony services. We will not share in any revenues
Vulcan may earn through the content or telephony services it provides. We must
provide all equipment necessary for the delivery of Vulcan content, although
Vulcan will reimburse us for any costs we incur in excess of $3,000 per cable
headend. Vulcan cannot charge us for any Vulcan content through November 25,
2008; after that date we will be obligated to pay Vulcan for this content at the
lowest fee charged to any Internet service provider who subscribes to Vulcan
content.
Vulcan has the right to prohibit us from providing content or telephony
services that compete with Vulcan content in Vulcan's discretion and can require
us to remove competing content. Many industry analysts believe that Internet
access will become increasingly reliant upon revenues from content due to
competitive pressures to provide low cost or even free Internet access. If
Vulcan were to require us to remove our content or substitute its telephony
services for any we might provide, we could lose a source of additional revenues
and might not recover all related costs of providing our content or telephony
services. Vulcan's ability to prohibit us from providing content and telephony
services means that Vulcan's interests are not necessarily aligned with those of
our other stockholders.
OUR AGREEMENT WITH ROAD RUNNER MAY NOT BENEFIT US.
We recently entered into an agreement with ServiceCo LLC, the entity
that provides Road Runner's cable Internet access and content aggregation
services. Under the agreement, we will provide our services as a Road Runner
subcontractor to cable operators that we and Road Runner jointly designate to
receive our services. We can offer no assurances that this agreement will be of
material benefit to us. In addition, we may not be able to meet the system
deployment schedule proposed by Road Runner. Moreover, while we expect that only
a portion of the homes under the agreement will be deployed on a partial turnkey
basis, Road Runner could ask us to deploy more partial turnkey homes than we
anticipate. In a partial turnkey solution, we will deliver fewer services and
possibly incur lower costs than in a full turnkey solution, but will also earn a
smaller percentage of the subscription revenue. Since the agreement provides
that Road Runner will earn one warrant per home passed in cable systems
designated to receive service regardless of whether we deploy a partial or full
turnkey solution, our stockholders could suffer dilution in exchange for
potentially less profitable homes.
INVESTORS MAY SUFFER SUBSTANTIAL DILUTION FROM OTHER TRANSACTIONS.
As an inducement to cause Charter Communications to commit additional
systems to us, we have granted Charter warrants to purchase up to 7,750,000
shares of our common stock at an exercise price of $3.23 per share. These
warrants become exercisable at the rate of 1.55 shares for each home passed
committed to us by Charter in excess of 750,000. To the extent that Charter
becomes eligible to exercise all or a significant portion of these warrants, our
stockholders will experience substantial dilution. In addition, we have granted
Microsoft a warrant to purchase 387,500 shares of our common stock at an
exercise price of $16.25, with additional warrants issuable for homes passed
above 2,500,000 homes committed to us by Comcast. Our agreement with ServiceCo
LLC provides for granting of warrants to purchase one share of our common stock
at a price of $5 per share up to a maximum of 5 million shares. In the future,
we also may issue additional stock or warrants to purchase our common stock in
connection with our efforts to expand the distribution of our services.
Stockholders could face additional dilution from these possible future
transactions.
23
<PAGE> 24
DARWIN, OUR FORMER DIGITAL SUBSCRIBER LINE TECHNOLOGY DIVISION, AND OUR
PRINCIPAL STOCKHOLDERS ARE NOT RESTRICTED FROM PROVIDING COMPETING HIGH SPEED
INTERNET ACCESS SERVICES.
In March 1999, we transferred all of the assets used in our digital
subscriber line technology division to Darwin Networks, Inc., a newly-formed
subsidiary, and distributed all of the Darwin common stock to our current
stockholders. Darwin's digital subscriber line technology is an alternative
method of providing high speed Internet access to end users using the telephone
infrastructure. Although Darwin is at an early stage of its development, if
Darwin were to deploy this technology successfully in future partnerships with
wireline telephone providers in markets where we provide our high speed Internet
access, Darwin could become one of our competitors. Neither Darwin nor our
principal stockholders, including Vulcan, will be restricted from providing
competing high speed digital subscriber line Internet access.
ONE-WAY CABLE SYSTEMS INCREASE OUR OPERATING COSTS AND MAY NOT PROVIDE THE
QUALITY NECESSARY TO ATTRACT CUSTOMERS.
Although our service can operate in one-way cable systems, where data
can be transmitted at high speeds from the cable headend to the end user, the
end user in a one-way system can only transmit data back to the cable headend
via a standard phone line. Because we must support the telephone return
component of the system, we incur higher operating costs in one-way systems.
Presently only one-third of the systems where we are or will soon operate our
services are two-way systems. Over time, however, we expect most, if not all, of
our cable partners to upgrade and or rebuild their plants to provide increased
bandwidth and two-way capabilities. We believe faster uploads and the
elimination of phone line return costs make our service more valuable and may
lead to higher customer penetration rates, which in turn benefits the cable
operator through higher revenue. However, upgrading a cable system can be
expensive and time-consuming for the cable operator. Moreover, we do not require
our cable partners to make these upgrades and they have no legal obligation to
do so. Consequently, if our cable partners do not upgrade to two-way capability
at the rate we anticipate, our financial results may be negatively affected.
WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH PLANS.
To manage our anticipated growth, we must continue to implement and
improve our operational, financial and management information systems; hire,
train and retain additional qualified personnel; continue to expand and upgrade
core technologies; and effectively manage our relationships with our end users,
suppliers and other third parties. Our expansion could place a significant
strain on our services and support operations, sales and administrative
personnel, and other resources. In fact, our predecessor companies had
inadequate accounting controls and procedures in place. While we believe that we
generally have adequate controls and procedures in place for our current
operations, our billing software is not adequate to meet our growth plans. We
are in the process of replacing our billing software with an integrated billing
and customer care software system that we believe is capable of meeting our
planned future needs. We could also experience difficulties meeting demand for
our products and services. Additionally, if we are unable to provide training
and support for our products, the implementation process will be longer and
customer satisfaction may be lower. Our growth plan may include acquisitions. If
we acquire a company, we could have difficulty assimilating its operations, or
assimilating and retaining its key personnel. In addition if the demand for our
service exceeds our ability to provide our services on a timely basis, we may
lose customers. There can be no assurance that our systems, procedures or
controls will be adequate to support our operations or that our management will
be capable of exploiting fully the market for our products and services. The
failure to manage our growth effectively could have a material adverse effect on
our business and financial results.
THE MARKET FOR INTERNET SERVICES IS HIGHLY COMPETITIVE.
We face competition from many competitors with significantly greater
financial, sales and marketing resources, larger customer bases, longer
operating histories, greater name recognition and more
24
<PAGE> 25
established relationships with advertisers, content and application providers
and/or other strategic partners than we have. We expect the level of this
competition to intensify in the future. We face competition from other cable
modem service providers for partnerships with cable operators and from providers
of other types of data and Internet services for end users. Due to this intense
competition, there may be a time-limited market opportunity for our cable-based
high speed access services. There can be no assurance that we will be successful
in achieving widespread acceptance of our services before competitors offer
services similar to our current offerings, which might preclude or delay
purchasing decisions by potential customers.
Our competitors in the cable-based Internet access market are those
companies that have developed their own cable-based services and market those
services to cable system operators. Other competitors in the cable-based
Internet access market are those companies seeking to establish distribution
arrangements with cable system operators in exurban markets and/or provide
one-way system capability. In addition, other cable system operators have
launched their own cable-based Internet services that could limit the market for
our services. Widespread commercial acceptance of any of these competitors'
products could significantly reduce the potential customer base for our
services, which could have a material adverse effect on our business and
financial results.
We also compete with traditional Internet service providers and other
competing broadband technologies including ISDNs, DSLs, wireless and satellite
data services. Moreover, competitors include long distance inter-exchange
carriers, regional Bell operating companies and other local exchange carriers.
Many of these carriers are offering diversified packages of telecommunications
services, including Internet access, and could bundle these services together,
putting us a competitive disadvantage. Widespread commercial acceptance of any
of these competing technologies or competitors' products could significantly
reduce the potential customer base for our services, which could have a material
adverse effect on our business and financial results.
OUR ABILITY TO INCREASE THE CAPACITY AND MAINTAIN THE SPEED OF OUR NETWORK IS
UNPROVEN.
We face risks related to our ability to increase the transmission
capacity of our network to meet expected end user levels while maintaining
superior performance. While peak downstream data transmission speeds across the
cable infrastructure approach 10 Mbps in each 6 megahertz (Mhz) channel, actual
downstream data transmission speeds are likely to be significantly slower,
depending on a variety of factors, including bandwidth capacity constraints
between the cable headend and the Internet backbone, the type and location of
content, Internet traffic, the number of active end users on a given cable
network node, the number of 6 Mhz channels allocated to us by our cable partner,
the capabilities of the cable modems used and the service quality of the cable
partners' facilities. The actual data delivery speed that an end user realizes
also will depend on the end user's hardware, operating system and software
configurations. There can be no assurance that we will be able to achieve or
maintain a speed of data transmission sufficiently high to enable us to attract
and retain our planned number of end users, especially as the number of the end
users grows. Because end users will share the available capacity on a cable
network node, we may underestimate the capacity we need to provide in order to
maintain peak transmission speeds. A perceived or actual failure to achieve or
maintain sufficiently high speed data transmission could significantly reduce
end user demand for our services or increase costs associated with customer
complaints and have a material adverse effect on our business and financial
results.
OUR NETWORK MAY BE VULNERABLE TO SECURITY RISKS.
Despite our implementation of industry-standard security measures, our
or our cable partners' networks may be vulnerable to unauthorized access,
computer viruses and other disruptive problems. Internet and online service
providers in the past have experienced, and in the future may experience,
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<PAGE> 26
interruptions in service as a result of the accidental or intentional actions of
Internet users. Because the cable infrastructure is a shared medium, it is
inherently more vulnerable to security risks than dedicated telephony
technologies such as digital subscriber lines. Moreover, we have no control over
the security measures that our cable partners and end users adopt. Unauthorized
access could also potentially jeopardize the security of confidential
information stored in the computer systems maintained by us and our end users.
These events may result in liability to us or harm to our end users. Eliminating
computer viruses and alleviating other security problems may require
interruptions, delays or cessation of service to our end users, which could have
a material adverse effect on our business and financial results. In addition,
the threat of these and other security risks may deter potential end users from
purchasing our services, which could have a material adverse effect on our
business and financial results.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE AND IT MAY NOT BE AVAILABLE ON
ACCEPTABLE TERMS.
The development of our business may require significant additional
capital in the future to fund our operations, to finance the substantial
investments in equipment and corporate infrastructure needed for our planned
expansion, to enhance and expand the range of services we offer and to respond
to competitive pressures and perceived opportunities, such as investment,
acquisition and international expansion activities. To date, our cash flow from
operations has been insufficient to cover our expenses and capital needs. We
believe our current cash and cash equivalents, together with the proceeds from a
$3.0 million loan facility entered into in April 1999, and $3.0 million capital
lease financing facility entered into in July 1999, as well as additional loan
and lease financing facilities will be sufficient to meet our working capital
requirements, including operating losses, and capital expenditure requirements
for the next 18 months, assuming we achieve our business plan. There can be no
assurance that additional financing will be available on terms favorable to us,
or at all. Moreover, Charter can require any lender with liens on our equipment
placed in Charter head ends to deliver to Charter a non-disturbance agreement as
a condition to such financings. We can offer no assurance that we will be able
to obtain secured equipment financing for Charter systems subject to such a
condition or that a potential lender will be able to negotiate acceptable terms
of non-disturbance with Charter. If adequate funds are not available on
acceptable terms, we may be forced to curtail or cease our operations. Moreover,
even if we are able to continue our operations, the failure to obtain additional
financing could have a material and adverse effect on our business and financial
results and may need to delay the deployment of our services. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
WE FACE RISKS FROM POTENTIAL YEAR 2000 PROBLEMS.
We engaged a third-party consultant to complete a Year 2000 assessment
study. The third-party consultant identified only minor issues that we will
remediate by routine upgrades, patches and replacements by the end of the third
quarter of 1999. We are continuing to seek verification from our cable partners,
vendors and suppliers that they are Year 2000 compliant. To the extent that our
cable affiliates fail to provide certification that they are Year 2000 compliant
by August 1999, we will reassess the possible impact on our business and the
nature of our interdependencies at that time, and take appropriate remediation
action to the extent possible, including developing contingency plans. Our
inability to correct a significant Year 2000 problem, if one exists, could
result in an interruption in, or a failure of, certain of our normal business
activities and operations. In addition, a significant Year 2000 problem
concerning our high speed access services could cause our users to consider
seeking alternate providers of Internet access. Any significant Year 2000
problem could require us to incur significant unanticipated expenses to remedy
the problem and could divert management's time and attention, either of which
could have a material adverse effect on our business, results of operation and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations
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<PAGE> 27
- -- Year 2000 Compliance" for information on our state of readiness, potential
risks and contingency plans regarding the Year 2000 issue.
WE MAY BECOME SUBJECT TO RISKS OF INTERNATIONAL OPERATIONS.
We are currently at the early stages of evaluating international
expansion opportunities. If we expand internationally, we would become subject
to the risks of conducting business internationally, including:
o Foreign currency fluctuations, which could result in reduced
revenues or increased operating expenses;
o Inability to locate qualified local partners and suppliers;
o The burdens of complying with a variety of foreign laws and trade
standards;
o Tariffs and trade barriers;
o Difficulty in accounts receivable collection;
o Potentially longer payment cycles;
o Foreign taxes;
o Unexpected changes in regulatory requirements including the
regulation of Internet access; and
o Uncertainty regarding liability for information retrieved and
replicated in foreign countries.
If we expand internationally, we will also be subject to general
geopolitical risks, such as political and economic instability and changes in
diplomatic and trade relationships. There can be no assurance that the risks
associated with our proposed international operations will not materially and
adversely affect our business and financial results.
RISKS RELATED TO THE MARKET FOR HIGH SPEED INTERNET ACCESS
OUR CABLE PARTNERS COULD SELL THEIR SYSTEMS OR BE ACQUIRED.
In recent years, the cable television industry has undergone
substantial consolidation. If one of our cable partners is acquired by a cable
operator that already has a relationship with one of our competitors or that
does not enter into a contract with us, we could lose the ability to offer our
cable modem access services in the systems formerly served by our cable partner,
which could have a material and adverse effect on our business and financial
results. Many of the cable operators with whom we have contracts operate
multiple systems, thus increasing the risk to us if they are acquired. Moreover,
it is common in the cable industry for operators to swap systems, which could
cause us to lose our contract for a swapped system. Even though many of our
contracts obligate our cable partners to pay us a termination fee if they sell
their system to another operator who does not assume our contract, the potential
termination fee may not be adequate to ensure that the successor operator
assumes our contract, or to compensate us fully for the loss of future business
in that system.
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<PAGE> 28
OUR CABLE PARTNERS COULD LOSE THEIR FRANCHISES.
Cable television companies operate under franchises granted by local or
state authorities that are subject to renewal and renegotiation from time to
time. A franchise is generally granted for a fixed term ranging from five to 15
years, although in many cases the franchise is terminable if the franchisee
fails to comply with the material provisions of its franchise agreement. No
assurance can be given that the cable operators that have contracts with us will
be able to retain or renew their franchises. The non-renewal or termination of
any of these franchises would result in the termination of our contract with the
applicable cable operator.
OUR MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE AND OUR SERVICES COULD
BECOME OBSOLETE OR FAIL TO GAIN MARKET ACCEPTANCE.
The market for our services is characterized by rapid technological
advances, evolving industry standards, changes in end user requirements and
frequent new service introductions and enhancements. For example, the North
American cable industry has adopted a set of interface specifications, known as
"DOCSIS," for hardware and software to support cable-based data delivery using
cable modems. Our ability to adapt to rapidly changing technology and industry
standards, such as DOCSIS, and to develop and introduce new and enhanced
products and service offerings will be significant factors in maintaining or
improving our competitive position and our prospects for growth. If technologies
or standards applicable to our services become obsolete or fail to gain
widespread consumer acceptance, then our business and financial results will be
materially and adversely affected.
We currently anticipate that we will use a significant portion of our
working capital to acquire headend, cable modem and other related capital
equipment. The technology underlying that equipment is continuing to evolve. It
is possible that the equipment we acquire could become obsolete prior to the
time we would otherwise intend to replace it, which could have a material
adverse effect on our business and financial results.
WE DEPEND ON A DATA TRANSMISSION INFRASTRUCTURE LARGELY MAINTAINED BY THIRD
PARTIES OR SUBJECT TO DISRUPTION BY EVENTS OUTSIDE OUR CONTROL.
Our success will depend upon the capacity, reliability and security of
the infrastructure used to carry data between our end users and the Internet. A
significant portion of that infrastructure is owned by third parties.
Accordingly, we have no control over its quality and maintenance. For example,
we rely on our cable partners to maintain their cable infrastructures. We also
rely on other third parties to provide a connection from the cable
infrastructure to the Internet. Currently, we have transit agreements with
UUNet, a division of MCI WorldCom, and others to support the exchange of traffic
between our data servers, the cable infrastructure and the Internet. Our
operations also depend on our ability to avoid damages from fires, earthquakes,
floods, power losses, telecommunications failures, network software flaws,
transmission cable cuts, Year 2000 problems and similar events. The occurrence
of any of these events could interrupt our services. The failure of the Internet
backbone, our servers, or any other link in the delivery chain, whether from
operational disruption, natural disaster or otherwise, resulting in an
interruption in our operations could have a material adverse effect on our
business and financial results.
WE MAY BE HELD LIABLE FOR DEFAMATORY OR INDECENT CONTENT, AS WELL AS INFORMATION
RETRIEVED OR REPLICATED.
In part, our business involves supplying information and entertainment
to customers over the cable systems of our cable system partners. Accordingly we
face the same types of risks that apply to all businesses that publish or
distribute information, such as potential liability for defamation, libel,
invasion
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<PAGE> 29
of privacy and similar claims, as well as copyright or trademark infringement
and similar claims. A number of third parties have claimed that they hold
patents covering various forms of online transactions or online technologies. In
addition, our errors and omissions and liability insurance may not cover
potential patent or copyright infringement claims and may not adequately
indemnify us for any liability that may be imposed.
The law relating to the liability of Internet and online service
providers for information carried or disseminated through their networks is
unsettled. There are some federal laws regarding the distribution of obscene or
indecent material over the Internet under which we are subject to potential
liability. These risks are mitigated by two federal laws. One, passed in 1996,
immunizes Internet service providers from liability for defamation and similar
claims for materials the Internet service provider did not create, but merely
distributed. The other, passed in 1998, creates a "safe harbor" from copyright
infringement liability for Internet service providers who comply with its
requirements, which we intend to do. These laws apply only in the United States;
if we expand our operations to other countries, our potential liability under
the laws of those countries could be greater.
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION.
The part of our business that involves installing and maintaining the
equipment used by cable systems to transmit high-speed data in a
computer-accessible format is not regulated, but cable businesses are. Changes
in cable regulations, as they relate to our service, could negatively affect our
business in several ways. First, cable operators usually classify our service as
a "cable service." If our service is not considered a cable service, some cable
franchising authorities, in most cases usually cities or counties, might claim
that our cable partners need a separate franchise to offer it. This franchise
may not be obtainable on reasonable terms, or at all. In the alternative, even
if the service is treated as cable service, local franchising authorities may
seek to impose "non-discrimination" or "open access" obligations on our cable
partners as a condition of franchise transfer or renewal. Also, even if our
service is not considered a cable service, it might be treated as a
"telecommunications service," which could subject our cable partners, and
possibly us, to federal and state regulation as "telecommunications carriers."
This could negatively affect our business in various ways. For example, if we or
our cable partners were either classified as telecommunications common carriers,
or otherwise subject to common carrier-like access and non-discrimination
requirements in the provision of our Internet over cable service, we or they
could potentially be subject to government-regulated terms, conditions and
prices for Internet connection services, as well as become obligated to make
contributions to the universal service support fund. We may also provide
Internet telephony services over cable plant, and this service may be regulated
in the future as a common carrier telecommunications service. Moreover, we or
our cable partners might then have to get a "telecommunications franchise" from
some localities, which might not be available on reasonable terms, or at all. In
addition, our contracts with our cable partners make us the exclusive supplier
of high-speed data on the cable systems where our service is offered. Firms such
as America Online and large telephone companies are seeking to have regulators
ban such exclusive arrangements. If such arrangements are banned, we could face
additional competition from other Internet access providers using the cable
system to connect to their customers, which could have a material adverse effect
on our business and financial results. Finally, any future regulatory decisions
that make DSL technology services easier for competing telephone companies to
deploy over normal telephone lines, and less expensive for customers to buy,
could negatively affect our business.
WE DEPEND ON OUR KEY PERSONNEL AND MAY HAVE DIFFICULTY ATTRACTING AND RETAINING
THE SKILLED EMPLOYEES WE NEED TO EXECUTE OUR GROWTH PLAN.
Our future success depends on the continued service of our key
personnel, especially our President, Chief Operating Officer and Chief
Technology Officer. We do not carry key person life
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<PAGE> 30
insurance on most of our personnel. Given our early stage and plans for rapid
expansion, the loss of the services of any of our executive officers or the loss
of the services of other key employees could have a material adverse effect on
our business and financial results. Our future success also depends on our
ability to attract, retain and motivate highly skilled employees, particularly
engineering and technical personnel. Competition for employees in our industry
is intense. We may not be able to retain our key employees or attract,
assimilate or retain other highly qualified employees in the future. From time
to time we have experienced, and we expect to continue to experience in the
future, difficulty in hiring and retaining highly skilled employees.
RISK RELATED TO TRADING IN THE COMPANY'S STOCK
BECAUSE OF OUR RELATIONSHIP WITH VULCAN VENTURES, NEW INVESTORS WILL HAVE LITTLE
INFLUENCE OVER MANAGEMENT DECISIONS.
Vulcan owns 37.4% of our outstanding stock. Vulcan's affiliate, Charter
Communications, also has warrants to purchase up to an additional 7.75 million
shares of our common stock, which become exercisable at the rate of 1.55 shares
per home passed committed to us by Charter, in excess of 750,000. Accordingly,
Vulcan will be able to significantly influence and possibly exercise control
over most matters requiring approval by our stockholders, including the election
of directors and approval of significant corporate transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control. In addition, conflicts of interest may arise as a consequence
of Vulcan's control relationship with us, including:
o Conflicts between Vulcan, as our controlling stockholder, and our
other stockholders, whose interests may differ with respect to,
among other things, our strategic direction or significant
corporate transactions,
o conflicts related to corporate opportunities that could be pursued
by us, on the one hand, or by Vulcan, on the other hand, or
o conflicts related to existing or new contractual relationships
between us, on the one hand, and Vulcan and its other affiliates,
on the other hand.
In particular, Vulcan is the owner of Charter, currently our largest cable
partner. Additionally, Vulcan has the exclusive right to provide or designate
the first page our end users see when they log on to our service and, if it
provides that first page, will be entitled to all of the related revenues.
Moreover, Vulcan can prohibit us from providing content that competes with
content it chooses to provide, and can prohibit us from providing telephony
service if it chooses to provide those services. See "Certain Transactions."
THE FUTURE SALE OF SHARES MAY HURT OUR MARKET PRICE.
A substantial number of shares of our common stock are available for
resale. If our stockholders sell substantial amounts of our common stock in the
public market, the market price of our common stock could fall. These sales also
might make it more difficult for us to sell equity securities in the future at
times and prices that we deem appropriate.
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK; OUR STOCK PRICE IS LIKELY
TO BE HIGHLY VOLATILE.
Prior to our initial public offering in June 1999, there was no public
market for our common stock. We cannot predict the extent to which investor
interest in us will lead to the development of an
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<PAGE> 31
active trading market in our stock or how liquid that market might become. The
stock market has experienced extreme price and volume fluctuations. In
particular, the market prices of the securities of Internet-related companies
have been especially volatile. In the past, companies that have experienced
volatility in the market price of their stock have been the object of securities
class action litigation. If we were the object of securities class action
litigation, it could result in substantial costs and a diversion of our
management's attention and resources.
WE HAVE ANTI-TAKEOVER PROVISIONS.
Certain provisions of our certificate of incorporation, our bylaws and
Delaware law, in addition to the concentration of ownership in Vulcan, could
make it difficult for a third party to acquire us, even if doing so might be
beneficial to our other stockholders.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.
None.
Item 2 - Changes in Securities and Use of Proceeds.
On June 4, 1999, the Company consummated its initial public offering
(the "Offering") of its common stock, par value $.01 per share (the "Common
Stock"). The registration statement relating to this Offering (File No.
333-74667) was declared effective on June 3, 1999. Lehman Brothers, Inc., J. P.
Morgan Securities, Inc., Banc of America Securities LLC and CIBC World Markets
Corp. were the managing underwriters of the Offering. The Offering terminated
upon the consummation of the sale of all of the shares subject to the
underwriters' over-allotment option. The number of shares registered, the
aggregate price of the Offering amount registered, the amount sold and the
aggregate offering price of the amount sold by the Company in the Offering were
as follows:
<TABLE>
<CAPTION>
Shares Aggregate Price Amount Aggregate Price
Registered of Amount Registered Sold of Amount Sold
---------- -------------------- ------------ ---------------
<S> <C> <C> <C> <C>
The Company 14,950,000 $194,350,000 14,950,000 * $ 194,350,000 *
Microsoft, Cisco and Com21 1,525,773 $ 18,500,000 1,525,773 $ 18,500,000
</TABLE>
The Company incurred the following expenses with respect to the
Offering, none of which were direct or indirect payments to directors, officers,
general partners of the Company or their associates or to persons owning 10% or
more of any class of equity securities of the Company or to affiliates of the
Company:
<TABLE>
<CAPTION>
Underwriting Discounts Underwriters' Other Estimated Total
and Commissions Finders' Fees Expenses Expenses Expenses
- ---------------------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
$ 11,375,000 $ - $ - $ 2,015,211 $ 13,390,211
</TABLE>
The estimated net Offering proceeds to the Company after deducting the
foregoing discounts, commissions, fees and expenses were $179,253,541, of which
$23,643,750 relates to the exercise of the underwriters' over-allotment option.
Concurrent with the initial public offering, the Company sold 618,557 shares,
82,474 shares, and 824,742 shares of common stock to Cisco Systems, Com21 and
Microsoft, respectively, under stock purchase agreements which generated
$18,500,000. None of the proceeds have been used as of June 30, 1999. The
proceeds are invested in short-term money market instruments as of June 30,
1999. None of such payments were direct or indirect payments to directors,
officers, general partners of the Company or their associates or to persons
owning 10% or more of any class of equity securities of the Company or to
affiliates of the Company. At the time of the initial public offering,
31,000,000 shares of the Company's Series A, B and C preferred stock were
converted to common stock and accrued dividends on preferred stock were paid
through issuance of 115,887 shares of common stock. The Company expects to use
the net proceeds from the initial public offering to fund capital expenditures
to be incurred in the deployment of services in new and existing cable systems,
to fund operating losses, and for working capital and other general corporate
purposes. The Company may also use a portion of the proceeds for acquisitions or
other investments.
* Amounts reflect exercise of the underwriters' over-allotment option. The
underwriters' over-allotment option included 1,950,000 shares on behalf of the
Company for an aggregate price of $23,643,750.
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Underwriting discounts and commissions pertaining to the Company's portion of
the over-allotment option were $1,706,250.
Item 3 - Defaults upon Senior Securities.
None.
Item 4 - Submission of Matters to a Vote of Security Holders.
None.
Item 5 - Other Information.
None.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits
See attached exhibit index incorporated by reference herein.
(b) Reports on Form 8-K
No such reports were filed during the quarter ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
HIGH SPEED ACCESS CORP.
Date 8/13/99 By /s/ RON S. PITCOCK
------------ -----------------------
Title President
Date 8/13/99 By /s/ GEORGE E. WILLETT
------------ -----------------------
Title Chief Financial Officer
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Exhibit Index
<TABLE>
<CAPTION>
Exhibit Number Exhibit Title
-------------- -------------
<S> <C>
10.1 Master Agreement dated July 22, 1999 between High
Speed Access Corp. and ServiceCo LLC.
10.2 Securities Purchase Warrant dated July 22, 1999
between High Speed Access Corp. and ServiceCo LLC.
10.3 Letter Agreement dated June 15, 1999 between
Microsoft Corp. and High Speed Access Corp.
10.4 Securities Purchase Warrant dated June 15, 1999
between Microsoft Corp. and High Speed Access Corp.
10.5 Master Agreement to Lease Equipment dated May 18,
1999 between Cisco Systems Capital Corporation and
High Speed Access Corp.
10.6 Form of Securities Purchase Warrant entered into
between High Speed Access Corp. and cable partners.
10.7 Additional System Notice and Partial HSAC Services
Supplement dated as of April 28, 1999 between Charter
Communications, Inc. and High Speed Access Corp.
10.8 Letter Agreement dated as of May 26, 1999 between
Vulcan Ventures, Incorporated, Marcus Cable Operating
Company, LLC, Charter Communications, Inc. and
HighSpeed Access Corp.
27. Financial Data Schedule
</TABLE>
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EXHIBIT 10.1
MASTER AGREEMENT
This MASTER AGREEMENT ("Agreement") is dated as of this 22nd day of
July, 1999, ("Effective Date") by and between:
HIGH SPEED ACCESS CORP.
1000 West Ormsby Ave., Suite 210
Louisville, Kentucky 40210 (" HSAC")
and
SERVICECO LLC
13241 Woodland Park Road ("Road Runner")
Herndon, Virginia 20171
Recitals
A. Road Runner is in the business of providing to multiple system
operators ("MSOs" or "Cable Operators") (i) a branded online Broadband
delivered, IP-based service comprised of content and applications optimized for
full screen display on personal computers and aggregated from third-party
sources or created by Road Runner or its affiliates, such as, by way of example
and not limitation, primary user interfaces, navigational links, branded
applications, one or more custom browsers to such content and applications; and
(ii) direct Broadband Internet Backbone Services, pursuant to separate
Affiliation Agreements.
B. HSAC provides to MSOs end-to-end, full and partial turn key high
speed Internet access systems over cable, including installing, operating and
maintaining such high speed Internet access systems.
C. Road Runner desires to subcontract to HSAC certain services which
Road Runner may agree to provide to its customers, and HSAC desires to provide
such services to Road Runner's customers (each, a "Service Affiliate" in a
"Designated System" as defined in Section 2.4 below), as the parties may agree,
pursuant to the terms and conditions herein and as specified in a separate and
individual written agreement (a "Subcontractor Agreement") by and between Road
Runner and HSAC.
NOW, THEREFORE, in consideration of the premises and mutual
covenants and agreements set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties agree as follows:
1. DEFINITIONS. In addition to the other capitalized terms defined
elsewhere in this Agreement, the following terms will have the meanings set
forth below:
<PAGE> 2
1.1 "Broadband" means any technology that is capable of supporting (i)
downstream data transmission over any medium (e.g., satellite, cable modem, XDSL
and other wireline and wireless technologies) at speeds not less than 128 kbps
and (ii) a persistent return path during any user session.
1.2 "Cable Subscriber" means a cable TV subscriber or potential
subscriber residing in a Home Passed (residence or commercial establishment)
in a Cable System.
1.3 "Cable System(s)" means any radio frequency ("RF") cable television
franchise or hybrid fiber-coaxial RF Plant distribution system ("RF Plant")
serving a geographically proximal group of residences, businesses, or other
locations. Cable Systems include both One-Way Systems and Two-Way Systems.
1.4 "Confidential Information" means any information, communication or
data in any form, including, but not limited to oral, written, graphic or
electronic forms, which the disclosing party desires to protect against
unrestricted disclosure or use and is designated as proprietary or confidential
in the following manner: (i) if in writing or other tangible form, shall be
conspicuously labeled as "confidential" or "proprietary" at the time of
delivery; and (ii) if oral, shall be identified as "confidential" or
"proprietary" prior to disclosure, and after disclosure shall be reduced to
writing or other tangible form that is labeled as described in the preceding
clause (i), and delivered to the receiving party no later than thirty (30) days
after such disclosure. Without limiting the generality of the foregoing, the
Confidential Information of Road Runner shall include all Data Subscriber
Information, information of each Designated System, the terms and conditions of
this Agreement and Road Runner's software source code. The term "Confidential
Information" shall not include information which: (a) is or becomes generally
known to the public through no act or omission of the receiving party; (b) was
in the receiving party's possession prior to the disclosure hereunder; (c) is
disclosed to the receiving party by a third party who was not violating any
obligation of confidentiality to the disclosing party in making such disclosure;
(d) was independently developed by the receiving party; or (e) is required by
law or regulatory authority to be disclosed, provided, that in such event the
receiving party shall make all reasonable efforts to notify the disclosing party
of the pending disclosure prior to making such disclosure.
1.5 "Content" means web pages, web sites, other multimedia information
now known or hereafter developed, in digital or analog form, or such other forms
as may now exist or hereafter become available. Content includes, without
limitation, text, graphics, audio, video, audiovisual images, still images,
animation, hypertext documents, interface designs, advertising, data, and the
like or similar materials.
1.6 "Content Revenue" means banner ad/advertising, click-through or
other e commerce tolling or any other revenues derived from the deployment,
provisioning, use or hosting of the Content.
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1.7 "Data Subscriber" means a Cable Subscriber residing in a Home
Passed (defined below) in the Designated System who or which subscribes to the
Road Runner Service regardless of whether such subscriber subscribes to a
Designated System's cable TV service.
1.8 "Gross Revenues" means the gross revenues actually collected from
Data Subscribers, and which, as used herein, does not include (i) applicable
sales or use taxes, (ii) federal, state or local franchise fees, and (iii) Home
Equipment Package rental charges and installation fees/set-up charges as
described in a Subcontract Agreement.
1.9 "Home Equipment Package" means the cable modem/other set-top device
and related power converter/supply, network interface card (NIC), patch cabling,
and required software for each Data Subscriber.
1.10 "Home(s) Passed" means residences and commercial establishments
that are connected (i.e., a residence with an installed cable "drop" from a
Designated System or which is eligible for such cable "drop" by virtue of a
Designated System passing such residence) to a Designated System's cable RF
Plant for such Cable System, regardless of whether the persons residing in such
residences subscribe to cable TV services. For purposes of this definition, the
number of Homes Passed in a multiple dwelling unit shall equal the number of
potential subscribers in such multiple dwelling unit.
1.11 "HSAC Equipment" means the equipment owned (or leased) and used by
HSAC to provide HSAC Services to a Designated Systems, including, without
limitation, all monitoring devices, telecommunications equipment, storage
devices, computing and data processing equipment, CMTS units and software.
1.12 "HSAC Services" means, in "full turnkey" mode and unless otherwise
agreed in the applicable Subcontract Agreement for a particular Designated
System, the design, installation, activation, testing, operation, marketing,
provision, customer service and "call center" support, customer acquisition and
direct marketing, billing, and maintenance of HSAC's high-speed "data over
cable" connection/transmission services from and between HSAC's Internet
ISP/portal and the HSAC Equipment and Home Equipment Packages interfaced with
the Designated System, as more fully described in Schedule A hereto.
1.13 "HSAC Warrant" means the securities purchase warrant in the form
attached hereto as Exhibit A granted to Road Runner under Section 9 hereof.
1.14 "Internet Backbone" means a network which: (x) can or does (i)
assign IP addresses or manage IP address assignments for machines or networks to
which it is connected, (ii) accept or deliver IP datagrams from machines or
networks to which it is connected, or (iii) maintain and route IP packet traffic
to other machines or networks; and (y) provides IP connectivity on a regional,
national or international basis; provided, however, that such a network which
provides connectivity solely within a single metropolitan area shall not be
deemed an Internet Backbone.
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1.15 "Internet Backbone Services" means services consisting of Internet
Backbone transmission, network management and/or associated support function
services.
1.16 "IP" means the Internet Protocols as defined by the document
titled RFC791, by John Pastell of the University of Southern California, dated
1981, or subsequent revisions thereof.
1.17 "ISP" means HSAC or its successor Internet/information service
provider designated by HSAC to provide Internet access to Data Subscribers.
1.18 "Local Content" means Content, including but not limited to local
and regional weather and news, community bulletin boards, shopping guides, etc.,
designed, created, or acquired by HSAC and distributed to Data Subscribers in a
particular geographic region or Designated System where HSAC provides HSAC
Services pursuant to a Subcontract Agreement.
1.19 "Local Content Revenue" means banner ad/advertising, click-through
or other e-commerce tolling or any other revenues derived from the deployment,
provisioning, use or hosting of the Local Content.
1.20 "Marks" means, collectively, trademarks, trade names, service
marks, designs, characters and logos.
1.21 "National Content" means all Content included in the Road Runner
Services except Local Content.
1.22 "National Content Revenue" means banner ad/advertising,
click-through or other e-commerce tolling or any other revenues derived from the
deployment, provisioning, use or hosting of the National Content.
1.23 "One-Way" means a Cable System that can only deliver television
signals, data, or other digital or analog information downstream from the cable
head end to the Cable Subscriber, and must use another means, including without
limitation a telephone line and modem, to send any information from the Cable
Subscriber to an Internet portal.
1.24 "Road Runner Service" means (i) a branded online Broadband
delivered IP based service (including premium services) comprised of National
Content and related applications optimized for full screen display on personal
computers and aggregated from third party sources or created by the Company,
such as, by way of example and not limitation, primary user interfaces,
navigational links, branded applications, one or more custom browsers and
electronic program guides to such content and applications and (ii) the
provision of direct Broadband Internet Backbone Services.
1.25 "Two-Way" means a Cable System that can both send and deliver
television signals, data, or other digital or analog information upstream and
downstream to and from the cable
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head-end to and from the Cable Subscriber, without using another means to send
or receive any information from the Cable Subscriber to an Internet portal.
2. DESIGNATED SYSTEMS. In the event that Road Runner wishes to
subcontract to HSAC the provision of services for a Service Affiliate under an
existing or prospective Road Runner Affiliation Agreement, Road Runner shall so
inform HSAC whereupon Road Runner and HSAC shall in a mutually agreeable time
frame engage in negotiations regarding the services to be provided to such Cable
Operator. Examples of the services which Road Runner may desire to subcontract
to HSAC are set forth in Schedule A attached hereto. A draft form of subcontract
agreement for HSAC's performance of such services is set forth in Schedule B
attached hereto. In the event Road Runner and HSAC mutually agree upon terms and
conditions under which HSAC would provide services hereunder and the applicable
Subcontractor Agreement (the "HSAC Services") to a Cable Operator in particular
Cable System(s) owned or controlled by such Cable Operator, then, for purposes
of this Agreement, the Cable Operator shall be deemed to be a "Service
Affiliate" and its Cable Systems(s) shall be deemed a "Designated System."
3. PROJECT PLAN.
3.1 Promptly after the execution of this Agreement, Road Runner and
HSAC shall discuss, mutually agree upon and implement a plan (the "Project
Plan") to integrate their respective technical capabilities in order for HSAC to
perform services for Road Runner's Service Affiliates in conformance with Road
Runner's standards. When completed and mutually agreed upon, the Project Plan
shall be attached hereto as Schedule C. In the event the parties do not mutually
agree upon the Project Plan within six (6) months after the Effective Date of
this Agreement, then either party may terminate this Agreement upon notice to
the other party. At least once every three (3) months, Road Runner and HSAC
shall review the Project Plan and mutually agree upon any modifications to the
Project Plan that are necessary or advisable to ensure HSAC's delivery of
services to Road Runner's Service Affiliates in conformance with Road Runner's
standards.
3.2 Network Operations Centers. The Project Plan shall include but not
be limited to integrating the Road Runner network operations center ("NOC") with
the HSAC NOC and customer service/help desk. Within ninety (90) business days
after the Effective Date, Road Runner and HSAC shall prepare specifications for
integration of the Road Runner NOC with the HSAC NOC and shall test such
integration in accordance with testing procedures to be jointly developed by
Road Runner and HSAC and incorporated into the Project Plan. In the event that
the integration fails to perform in accordance with the specifications for such
NOC integration, Road Runner and HSAC will work together to determine the cause
of such failure, and the entity whose NOC is the cause of such failure shall
correct such failure within a period of time which is reasonable based upon the
nature of the failure. Following such correction, Road Runner and HSAC shall
re-test the NOC integration. The foregoing procedures shall be repeated until
HSAC and Road Runner agree that the NOC integration performs in accordance with
the specifications for such NOC integration.
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3.3 Training. In accordance with the Project Plan, Road Runner shall
provide (0 reasonable amounts of training to HSAC personnel on the Road Runner
Services and any upgrades thereto, and (ii) Road Runner software tools as Road
Runner determines are reasonably necessary for HSAC to provide the HSAC
Services. HSAC acknowledges that the quality of the HSAC Services, and the image
presented to the Designated Systems, is important to the success of the HSAC
Services. HSAC agrees that it shall ensure that HSAC personnel providing
services hereunder have received the proper training including without
limitation training on the Road Runner Services and any upgrades thereto
necessary to provide the HSAC Services.
3.4 Contract Management. Each party agrees to appoint individuals, who
may be changed from time to time upon reasonable advance written notice to the
other party, to coordinate its respective activities pursuant to the Project
Plan ("Relationship Manager"). The Relationship Managers will have general
responsibility for implementation of the activities described in the Project
Plan. The Relationship Managers will hold status review meetings no less
frequently than monthly, unless otherwise mutually agreed by the Relationship
Managers, (a) at an HSAC or Road Runner office, (b) via conference call, or (c)
at other locations as mutually agreed by the Relationship Managers.
3.5 Responsibilities. Road Runner shall be solely responsible for the
performance of the tasks designated as "Road Runner Responsibilities" in the
Project Plan. HSAC shall be solely responsible for the performance of the tasks
designated as "HSAC Responsibilities" in the Project Plan. In the event of any
conflict between the main terms and conditions of this Agreement and the Project
Plan, the main terms and conditions of this Agreement shall govern.
3.6 Standards. HSAC acknowledges that Road Runner may, from time to
time, modify the standards for the performance of services for its Service
Affiliates. Any such modifications shall apply to all future prospective
Designated Systems and shall apply, if at all, to any then-existing subcontract
agreement between Road Runner and HSAC only in accordance with the terms of such
subcontract agreement.
4. TRANSITION /UPGRADES.
4.1 Transition Services. Within sixty (60) days of the Effective Date,
HSAC shall provide Road Runner with the written Transition Plan (described
below) which upon approval of Road Runner will be attached hereto as Schedule D.
The Transition Plan will describe the tasks HSAC will perform (the "Transition
Services") to enable HSAC to migrate the responsibilities included in the HSAC
Services from HSAC to Road Runner or its designee following expiration or
termination of a particular Subcontract Agreement (the "Transition") in order to
facilitate an orderly transition and continuation of services to Data
Subscribers without interruption or adverse effect. Such Transition Services
shall include pre-migration planning, acquisition by Road Runner of equipment
and resources necessary to provide the HSAC Services required for the provision
of the HSAC Services, coordination with any third party vendors, appropriate
coordination with Road Runner personnel and other tasks as reasonably requested
by Road Runner from time to time. HSAC
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shall plan, prepare for and conduct the Transition in accordance with a written
transition plan approved by Road Runner (the "Transition Plan" ).
4.2 Timing of Transition Services. Commencing six (6) months prior to
the scheduled expiration date of this Agreement or a particular Subcontract
Agreement or on such earlier date as Road Runner may request, or commencing upon
the delivery of any notice of termination or non-renewal of this Agreement and
continuing for a period of time not to exceed ninety (90) days after the date of
the expiration or termination (the "Transition Assistance Period"), HSAC shall
provide to Road Runner, or at Road Runner's request to Road Runner's designee,
the applicable Transition Services. Upon at least fifteen (15) days prior notice
to HSAC, Road Runner may, from time to time, extend the Termination Assistance
Period until the six-month anniversary of the effective date of the expiration
or termination of this Agreement. Road Runner shall reimburse HSAC for its
reasonable expenses incurred in rendering such Transition Services as provided
in Schedule D, and Road Runner shall assume any circuit expense and HSAC Network
Equipment expense associated with continuing the post-termination or
post-expiration Road Runner Services and HSAC Services in such Designated
System.
4.3 Upgrades. HSAC shall upgrade the HSAC Services and the HSAC Network
Equipment as necessary to the delivery of the joint Road Runner Service/HSAC
Services as the Road Runner Services may be enhanced or upgraded from time to
time provided that such enhancements and upgrades apply to substantially all
Road Runner Service deployments to substantially all Service Affiliates.
5. OTHER HSAC RESPONSIBILITIES.
5.1 Data Subscriber Information. In the event that HSAC provides Local
Content for a Designated System, HSAC agrees to adhere to the Privacy Policy
attached hereto as Schedule E with regards to the disclosure by HSAC to third
parties of any personally identifiable information of a Data Subscriber
collected by HSAC (except as necessary for the use of the Local Content). HSAC
shall not provide Data Subscriber names, screen names, addresses or other
identifying information, including without limitation any navigational
information obtained by HSAC through any tracking system ("Data Subscriber
Information"), if any, to any third party in a manner which identifies Data
Subscribers as subscribers to the Road Runner Service.
6. GRANT OF RIGHTS.
6.1 HSAC Equipment License. HSAC hereby grants to Road Runner during
the Term a royalty-free, exclusive right and license to use or have used on its
behalf the HSAC Equipment necessary for the provision of the Road Runner Service
and the HSAC Services to the Designated Systems and for no other purpose without
Road Runner's prior written approval.
6.2 HSAC Trademark License. HSAC hereby grants Road Runner during the
Term a royalty-free, non-exclusive license, non-transferable license, without
the right to sublicense,
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to use the HSAC Marks set forth on Schedule F attached hereto in connection with
the advertising, marketing and promotion (on-line and otherwise) of the HSAC
Services solely to Designated Systems and to the Cable Subscribers. Road Runner
acknowledges that the HSAC Marks including without limitation the names and
marks "HSA", "HSAC", "HSA Network", "High Speed Access Network", and the "HSA
Data Network" are the exclusive property of HSAC. Except as provided in this
Agreement, Road Runner has not and will not acquire any proprietary rights
thereto by reason of the Agreement, and Road Runner shall not publish or
disseminate any material that includes HSAC Marks.
6.3 Road Runner Trademark License. Road Runner hereby grants HSAC
during the Term a royalty-free, non-exclusive, non-transferable license, without
the right to sublicense, to use the Road Runner Marks set forth on Schedule G
solely in accordance with Road Runner guidelines with respect thereto, and
solely to promote the Road Runner Service; provided, however, that all such uses
outside specific usage guidelines established from time to time by Road Runner
shall require the prior written approval of Road Runner. A copy of Road Runner's
current guidelines for the use of the Road Runner Marks is attached hereto as
Schedule H. HSAC acknowledges that the Road Runner Marks are the exclusive
property of Road Runner (or its licensors), that all use thereof shall inure
solely to the benefit of Road Runner (or its licensors) and that HSAC has not
acquired nor will acquire any proprietary rights therein, or any goodwill
associated therewith, by reason of this Agreement. HSAC shall not use the Road
Runner Marks in any manner other than as is expressly provided for in this
Agreement. Road Runner shall have the right, in its sole discretion, to amend
Schedule G hereto, to add or delete Road Runner Marks. Such amendment shall
become effective upon HSAC's receipt of written notice to such effect whereupon
(i) any added Road Runner Marks shall become subject to all of the provisions of
this Agreement, and (ii) HSAC shall, as soon as reasonably practicable, cease
using any Road Runner Marks which have been deleted from Schedule G.
7. CONTENT MANAGEMENT. Except as otherwise provided herein, Road Runner
shall have the sole and exclusive discretion and responsibility to determine and
provide the National Content of the Road Runner Service. With respect to those
Designated Systems for which HSAC is to provide Local Content in accordance with
the terms of the applicable Subcontract Agreement, HSAC shall have the
responsibility to develop and configure the Local Content of the Road Runner
Service in accordance with the Local Content Guidelines attached hereto as
Schedule I, including, without limitation, any "Style Guidelines" for Content
and local advertising; provided, that in the event Road Runner reasonably
determines that any such Local Content created by HSAC does not conform to the
overall "look and feel" of the Road Runner Service, HSAC shall modify the Local
Content as directed by Road Runner to achieve conformity with the Road Runner
Service.
8. COMPENSATION.
8.1 Each Subcontract Agreement shall specify HSAC's fees for services
rendered pursuant to such Subcontract Agreement based on a percentage of Gross
Revenues or as otherwise set forth in the applicable Subcontract Agreement.
Examples of such fees with respect to
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Configurations A and B of the HSAC Services are specified in Schedule A. With
respect to Designated Systems where HSAC is the billing party, HSAC shall retain
its share of Gross Revenues (or as otherwise set forth in the applicable
Subcontract Agreement) and pay to Road Runner and the Designated MSOS their
respective shares of Gross Revenues each calendar quarter no later than thirty
(30) days after the end of such calendar quarter (or as otherwise set forth in
the applicable Subcontract Agreement), accompanied by a statement in a form
mutually agreed to by Road Runner and HSAC showing the calculation of such
payment. With respect to Designated Systems where Road Runner is the billing
party, Road Runner shall pay to HSAC its respective shares of Gross Revenues (or
as otherwise set forth in the applicable Subcontract Agreement) each calendar
quarter no later than thirty (30) days after the end of such calendar quarter,
accompanied by a statement in a form mutually agreed to by Road Runner and HSAC
showing the calculation of such payment.
8.2 Road Runner and HSAC shall each have the right to collect and
retain or receive, for their sole and exclusive benefit respectively, such
percentage of the National Content Revenues relating to the Road Runner Service
as may be determined in a particular Subcontract Agreement.
8.3 If HSAC provides Local Content under a Subcontractor Agreement, as
between Road Runner and HSAC, HSAC shall have the right to collect and retain or
receive, for its sole and exclusive benefit, any and all Local Content Revenues
relating to the Road Runner Service. HSAC acknowledges and agrees that the
Service Affiliate and/or Road Runner, as the case may be, shall establish all
pricing for the Road Runner Service to Data Subscribers. The applicable
Subcontract Agreement shall specify the pricing for the HSAC Services, rental
rates and installation fees for Home Equipment Packages, etc.
8.4 Audit Rights. Upon not less than thirty (30) days' prior written
notice, HSAC and Road Runner shall have the right to examine during normal
business hours the books and records of the other which are related to the Road
Runner Service and the HSAC Service to the extent necessary to verify the fees
due hereunder. Such examination shall be at the expense of the party conducting
the examination, unless the examination results show that ninety-five percent
(95%) or less of fees owing for the examined period were actually paid, in which
event the party being audited shall bear all expenses of the examination. Such
examinations shall be limited to fees payable during the then current calendar
year and the prior calendar year.
8.5 HSAC acknowledges that Road Runner cannot and has not represented
that the Road Runner Service may or will achieve a certain number or level of
Data Subscribers or that HSAC may or will achieve any level of revenue,
including without limitation, Gross Revenues hereunder. Road Runner acknowledges
that HSAC cannot and has not represented that the Road Runner Service alone or
in conjunction with any HSAC Services may or will achieve a certain number or
level of Data Subscribers or that Road Runner may or will achieve any level of
revenue, including without limitation, Gross Revenues hereunder.
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9. WARRANTS FOR HSAC COMMON SHARES.
9.1 Concurrently with the execution and delivery of this Agreement,
HSAC and Road Runner will enter into the Warrant Purchase Agreement set forth in
Exhibit A. Pursuant to the Warrant Purchase Agreement and the HSAC Warrant
issued thereunder, HSAC will grant to Road Runner the right, during the Term, to
purchase one (1) share of HSAC common stock (a "Warrant Share") for each Home
Passed within a Designated System on the date HSAC and Road Runner enter into a
Subcontract Agreement for such Designated System. As used herein and in the HSAC
Warrant, "Warrant Share" share shall be deemed to mean one (1) share of HSAC's
post-IPO common capital stock.
9.2 The HSAC Warrant shall be deemed effective (eligible for
exercise) immediately after any initial public offering of HSAC's securities,
subject to an applicable 180-day post-HSAC IPO lockout, and shall expire on
December 31, 2005.
10. CONFIDENTIAL INFORMATION.
10.1 HSAC and Road Runner may disclose to one another certain
Confidential Information which is considered by the disclosing party to be
proprietary or confidential. Each party agrees that it shall not, during the
Term of this Agreement, permit the duplication, use, or disclosure of any
Confidential Information to any person (other than an employee, agent, or
representative of the other party who must have such information for the
performance of its obligation hereunder), unless such duplication, use or
disclosure is specifically authorized by the other party in writing. All such
Confidential Information shall remain the sole property of the disclosing party.
Each party shall (a) not disclose any Confidential Information to any third
person without the express written consent of the disclosing party; (b) not use,
directly, indirectly, or in concert with any other person, any Confidential
Information for any purpose other than the performance of their obligations
under this Agreement; (c) use reasonable diligence, and in no event less than
that degree of care which such party uses in respect to its own confidential
information of like nature, to prevent the unauthorized disclosure or
reproduction of such information for a period from the date hereof until one
year after expiration of the Term. Without limiting the generality of the
foregoing, to the extent that this Agreement permits the copying of Confidential
Information, all such copies shall bear the same confidentiality notices,
legends, and intellectual property rights designations that appear in the
original versions. Nothing in this Section 10 shall be deemed to alter or
derogate from any other confidentiality or non-disclosure agreement(s) between
or among the parties.
10.2 Maintenance of Data Subscriber Information. Following a Data
Subscriber disconnect from the Road Runner Service, HSAC shall at all times
maintain its obligations of confidentiality but shall not (for reasons of
internal audit, audit under Section 8.4 above, and compliance with tax laws) be
required to delete or destroy information pertaining to such Data Subscriber
until such time as HSAC's regular procedures for elimination of data would
normally delete or destroy such information.
10.3 Future Products. HSAC and Road Runner may now market or have under
development products or services which are competitive with products or services
now offered or
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which may be offered by the other, may now be having or have in the future
discussions with others concerning subject matters similar to the subject matter
of this Agreement and may receive information from others similar to the other
party's Confidential Information. Subject to the express terms and conditions of
this Agreement, neither this Agreement nor discussions and/or communications
between HSAC and Road Runner will impair the right of either such party to
develop, make, use, procure and/or market any products or services, alone or
with others, now or in the future, including those which may be competitive with
those offered by the other.
10.4 Public Announcements. Except as required by applicable law or
regulation or stock exchange rules, neither HSAC nor Road Runner shall make any
public announcement about this Agreement or its contents without prior written
consent of the other.
11. REPRODUCTION OF MANUALS AND DOCUMENTATION. Road Runner shall have
the right, at no additional charge, to reproduce solely for its internal use,
all manuals and documentation furnished by HSAC relating to the HSAC Services,
regardless of whether such manual or documentation is copyrighted by HSAC. All
copies of manuals or documentation made by Road Runner shall include any
proprietary notice or stamp that has been affixed or is requested to be affixed
by HSAC. HSAC shall have the right, at no additional charge, to reproduce solely
for its internal use, all manuals and documentation furnished by Road Runner
relating to the Road Runner Services, regardless of whether such manual or
documentation is copyrighted by Road Runner. All copies of manuals or
documentation made by HSAC shall include any proprietary notice or stamp that
has been affixed or is requested to be affixed by Road Runner.
12. REPRESENTATIONS AND WARRANTIES.
12.1 Each of HSAC and Road Runner represents and warrants to the other,
as of the date hereof, that it has the full authority to enter into and fully
perform its obligations under this Agreement, it has obtained all permits,
licenses, and other governmental authorizations and approvals required for its
performance under this Agreement; and when executed and delivered by such party
this Agreement will constitute the legal valid and binding obligation of such
party, enforceable against such party in accordance with its terms.
12.2 THE WARRANTIES STATED HEREIN ARE EXPRESSLY IN LIEU OF ALL OTHER
WARRANTIES AND UNLESS OTHERWISE EXPRESSLY STATED HEREIN, NEITHER PARTY MAKES
ANY OTHER WARRANTIES, EXPRESS OR IMPLIED INCLUDING BUT NOT LIMITED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
13. INDEMNITY.
13.1 HSAC and Road Runner hereby indemnifies and agrees to save
harmless the other from and against any and all cost, expenses, liabilities,
judgments, damages, claims, or demands owed to third parties (including amounts
paid in settlement and reasonable attorneys' fees
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on account thereof) (collectively, "Claims") for (i) injuries, including death
to persons, resulting from the indemnifying party's negligent or willful acts or
omissions or those of persons employed by the indemnifying party, its agents, or
subcontractors, and (ii) arising out of or in connection with its breach (or
alleged breach) of any covenants, warranties, or representations made herein.
13.2 Notice. Any person or entity entitled to indemnification hereunder
shall promptly notify the indemnifying party of any action, suit, proceeding or
investigation ("Proceeding") for which indemnification is sought, provided that
any failure to so notify the indemnifying party will not relieve the
indemnifying party from any liability or obligation which it may have to any
indemnified person except to the extent of any material prejudice to the
indemnifying party resulting from such failure. If any Proceeding is brought
against an indemnified person, the indemnifying party will be entitled to
participate therein and to assume the defense thereof, with counsel reasonably
satisfactory to the indemnified person, within fifteen (15) days after notice
shall have been given to it by the indemnified person pursuant to the preceding
sentence. Each indemnified person will be obligated to cooperate reasonably with
the indemnifying party, at the expense of the indemnifying party, in connection
with such defense and the compromise or settlement of any such Proceeding.
14. LIMITATION OF LIABILITY.
14.1 UNDER NO CIRCUMSTANCES SHALL HSAC OR ROAD RUNNER BE LIABLE TO ONE
ANOTHER FOR ANY SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR
EXEMPLARY OR PUNITIVE, INCLUDING, BUT NOT LIMITED TO, LOSS OF REVENUE, LOST
BUSINESS OR LOSS OF PROFITS ARISING FROM OR RELATED TO ANY BREACH OF ANY
COVENANTS, WARRANTIES OR REPRESENTATIONS IN THIS AGREEMENT, EVEN IF HSAC OR ROAD
RUNNER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
14.2 Road Runner and HSAC agree to (a) exercise their respective
commercially reasonable efforts to maintain the secrecy of (and occasionally
rotate) their software passwords, and notify the other if they become aware that
their system passwords may be or have become compromised, and (b) maintain, at
each party's own expense, appropriate policies of general liability, casualty
and workers compensation insurance to cover their respective employees against
injury to themselves or others and casualty accidents while working on a Service
Affiliate's premises or Designated System. All such policies shall name the
other and the Service Affiliate as additional insured to the extent they may
legally do so. Road Runner shall furnish HSAC with a list of the Designated
System offices and head-ends for HSAC's insurance brokers.
15. TERM AND TERMINATION.
15.1 Term. The Term (defined below) of this Agreement shall commence
upon the Effective Date and shall continue, unless terminated in accordance with
this Section 15, for five (5) years; provided, however, this Agreement shall
continue to remain in effect with respect to any
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<PAGE> 13
Subcontractor Agreement until such Subcontractor Agreement is itself terminated
or performance thereunder is completed ("Initial Term"). Thereafter, the
Agreement will be automatically renewed for successive additional one-year terms
(each, a "Renewal Term" and the Initial Term together with all Renewal Terms,
the "Term") unless either party provides written notice to the other, pursuant
to Section 21, not later than six (6) months prior to the expiration of the
Initial Term or any Renewal Term of such party's intention not to renew this
Agreement.
15.2 Termination For Default. If either party defaults in any material
respect in the performance of any of its material obligations hereunder and such
default shall not be cured within thirty (30) days after receipt of written
notice thereof from the party alleging the breach, or if either party becomes
insolvent, or if a petition under any bankruptcy act shall be filed by or
against either party (which petition, if filed against any affiliate of either
party, shall not have been dismissed within thirty (30) days thereafter), or if
either party executes an assignment for the benefit of creditors, or if a
receiver is appointed for the assets of either party, or if either party takes
advantage of any insolvency or any like statute (any of the above acts are
hereinafter called "Event of Default"), then the other party may at its option,
in addition to any and all other rights which party may have, declare a default
and terminate this Agreement by giving written notice to the other party within
ten (10) business days from the date of the maturity of any Event of Default.
Notwithstanding any other provision of this Agreement, neither HSAC or Road
Runner will be deemed in default of this Agreement to the extent any delays in
their respective performance are reasonably and demonstrably attributable to the
actions or inaction of the other or events and circumstances outside of their
reasonable control, including, but not limited to, the actions, inaction or
negligence of third party vendors. For example, HSAC will not be deemed in
default of this Agreement if (i) a Regional Bell Operating Company ("RBOC") or
other telephone network provider (a "telco") is late in installing T-1 or other
transport from a System head-end to the ISP portal following the submission of a
timely order by HSAC, (ii) an equipment vendor (e.g., Motorola) fails to meet
its delivery deadlines with respect to HSAC Network Equipment or Home Equipment
Packages, or (iii) the Internet backbone fails to function properly.
16. OBLIGATIONS UPON TERMINATION.
16.1 HSAC's Obligations Upon Termination. Upon the expiration or
termination of this Agreement, upon request of Road Runner, HSAC shall:
(a) Return to Road Runner all materials, documentation and data
that are the property of Road Runner including without limitation all
Confidential Information of Road Runner, information of each
Designated System, and the Data Subscriber Information; provided,
however, that HSAC shall be permitted to keep one (1) copy of such
Confidential Information if necessary to comply with any audit, tax
and reporting obligations;
(b) Return to Road Runner within thirty (30) days after the
expiration or termination of this Agreement, any and all of Road
Runner's assets;
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<PAGE> 14
(c) Cease using and terminate access, if any, to Road Runner
databases including, without limitation, Road Runner's call management
system, and return all copies of all information obtained from such
databases.
16.2 Road Runner's Obligations Upon Termination. Upon the expiration or
termination of this Agreement, upon request from HSAC, Road Runner shall:
(a) Return all Confidential Information of HSAC; provided,
however, that Road Runner shall be permitted to keep one (1) copy of
such Confidential Information if necessary to comply with any reporting
obligations.
(b) Return to HSAC within thirty (30) days after the expiration or
termination of this Agreement, any and all of HSAC assets;
(c) Cease using and terminate access, if any, to HSAC databases
including without limitation HSAC's call management system, and return
all copies of all information obtained from such databases.
16.3 License Rights. Upon the expiration or termination of this
Agreement for any reason, the license rights granted herein shall terminate.
17. INDEPENDENT CONTRACTOR. All work performed by each party in
connection with the Joint Road Runner/HSAC Services described in this Agreement
shall be performed by such party as an independent contractor and not as the
agent, employee, joint venture or partner of the other party. All persons
furnished by either party shall be for all purposes solely such party's
employees or agents and shall not be deemed to be employees of the other party
for any purpose whatsoever. Each party shall furnish, employ, and have exclusive
control of all persons to be engaged by it in performing services under this
Agreement and shall prescribe and control the means and methods of performing
such services by providing adequate and proper supervision. Nothing contained
herein shall be deemed to create a relationship of joint venture, associates,
principal and agent or partnership between the parties hereto, and neither party
shall hold itself out as having such a relationship with the other party. Each
party is acting as principal hereunder.
18. FORCE MAJEURE. Neither party shall be responsible for any delay or
failure in performance of any part of this Agreement to the extent that such
delay or failure is caused by fire, flood, explosion, war, lightning, embargo,
government requirement, riots or civil commotion, acts of civil or military
authority, strikes or other labor unrest, power surges, acts or omissions of
carriers/utilities, acts of God, or other similar causes or contingencies beyond
its reasonable control (i.e., a "Force Majeure"); provided, that if any such
event of Force Majeure occurs, the party delayed or unable to perform shall give
immediate notice to the other party and a projection of the period in which the
party delayed or unable to perform expects to effect a cure and shall use
commercially reasonable efforts to cure any failure to perform as promptly as
possible. The party affected by the other's delay or inability to perform may
elect to suspend performance of its allocable portions or
14
<PAGE> 15
duties with respect to the joint Road Runner/HSAC Services for the duration of
the condition. The affected party or parties may resume performance of its
duties once the condition ceases, and the term of this Agreement shall by notice
be deemed to be extended for such affected System up to the length of time the
condition endured.
19. ASSIGNMENT. This Agreement shall be binding on the parties hereto
and their respective successors and assigns; provided, that each party hereto
shall be permitted, upon thirty (30) days advance written notice to the other,
to assign (by assets purchase or other written agreement, merger, consolidation,
sale of assets, operation of law or otherwise) its rights, title and interest
under this Agreement to a successor entity which specifically assumes the
assignor's rights, title and interest under this Agreement prior to or
contemporaneous with the closing of such assignment. No such assignment shall
relieve a party of its obligations hereunder. All assignments in contravention
of this section shall be null and void. In addition, each party will be
permitted to collaterally assign and grant a security interest in its contract
rights and tangible/intangible property interests (including the HSAC Network
Equipment and Home Equipment Packages) arising under this Agreement for purposes
of securing financing from its commercial lenders.
20. AMENDMENTS, MODIFICATIONS, OR SUPPLEMENTS. Amendments, modifications,
or supplements to this Agreement shall be permitted, provided all such changes
shall be in writing signed by the authorized representatives of both parties,
and all such changes shall reference this Agreement and identify the specific
articles or sections of this Agreement that is amended, modified, or
supplemented.
21. NOTICES. All notices, demands, or other communications herein
provided to be given or that may be given by any party to the other shall be
deemed to have been duly given when made in writing and delivered in person, or
upon receipt of confirmation on the sender's facsimile machine that all pages
have been received by the recipient, if sent by facsimile, or upon receipt, if
(a) deposited in the U.S. mail, postage prepaid, certified mail, return receipt
requested; or (b) sent by nationally recognized overnight courier in a postpaid
wrapper, addressed as follows:
Notices to HSAC: HIGH SPEED ACCESS CORP.
4100 E. Mississippi Ave., Suite 1150
Denver, CO 80246
Attn: Ron Pitcock, Sr., President
cc: Jeff Tokar, Vice President
Phone: 303-256-2005, fax: -2050
With a copy to: HIGH SPEED ACCESS CORP.
1000 West Ormsby Ave., Suite 210
Louisville, KY 40210
Attn: John G. Hundley, General Counsel
Phone: 502-515-3342, fax: -3101
15
<PAGE> 16
Notices to
Road Runner: SERVICECO LLC
13241 Woodland Park Road
Herndon, Virginia 20171
Attn.: Robert Rusak, Vice President,
Business Development
Phone: 703-345-2403, fax: 703-345-2515
With a copy to: SERVICECO LLC
13241 Woodland Park Road
Herndon, Virginia 20171
Attn: General Counsel
Phone: 703-345-2482, fax: 703-345-2515
or to such address as the parties may provide to each other in writing from time
to time.
22. OBLIGATIONS TO SURVIVE TERMINATION. The parties recognize and agree
that the obligations of the other party under Sections 11. 13 and 14 of this
Agreement shall survive the termination or expiration of this Agreement.
23. GOVERNING LAW. The validity, construction, interpretation, and
performance of this Agreement shall be governed by and construed in accordance
with the laws (without reference to the conflicts of laws rules) of the State of
New York.
24. NON-SOLICITATION. Road Runner and HSAC agree that, during the Term
of and for a period of one (1) year thereafter, neither party will employ, make
an offer of employment to, or solicit an employee of the other who was in any
way involved in the provision or execution of the Road Runner Services and HSAC
Services, without the prior consent of such other party.
25. ARBITRATION.
(a) Each of HSAC and Road Runner agrees that in the event of any
dispute relating to this Agreement, the parties hereto shall promptly meet and
confer in an effort to resolve such dispute through good-faith consultation and
negotiation. In the event the parties are unable to resolve any dispute within
thirty (30) days after such meeting, either HSAC or Road Runner may then refer
such dispute for final resolution in accordance with Section 25(b) hereof.
(b) Any unresolved claim, controversy or dispute arising out of or
relating to this Agreement or the breach, termination or validity hereof, shall
be finally settled by arbitration conducted expeditiously in accordance with the
American Arbitration Association Commercial Arbitration Rules. A single
arbitrator engaged in the practice of law shall conduct the arbitration under
the then current rules of the American Arbitration Association. The arbitrator
shall be jointly selected by the parties hereto; and if they are unable to
agree, then the arbitrator shall be selected by the manager of the Washington,
D.C. office of the American Arbitration Association. The arbitration
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<PAGE> 17
shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1-16,
and judgment upon the award rendered by the Arbitrator may be entered by any
court having jurisdiction thereof. The place of arbitration shall be in New
York, New York, and the laws of the State of New York shall govern the
construction and interpretation of this Agreement, without reference to the laws
relating to conflicts of law. The Arbitrator is not empowered to award damages
in excess of compensatory damages, and each party hereby irrevocably waives any
damages in excess of compensatory damages. The prevailing party, as determined
by the arbitrator, shall be entitled to an award of reasonable attorneys' fees
and costs. The procedures specified in this Section 25 shall be the sole and
exclusive procedures for the resolution of disputes between the parties arising
out of or relating to this Agreement; provided, however, that a party may seek a
preliminary injunction or other provisional judicial relief if in its judgment
such action is necessary to avoid irreparable damage or to preserve the status
quo. Despite such action, the parties will continue to participate in good faith
in the procedures specified in this Section 25. All applicable statutes of
limitation and defenses based upon the passage of time shall be tolled while the
procedures specified in this Section 25 are pending. The parties will take such
action, if any, required to effect such tolling. Each party is required to
continue to perform its obligations under this Agreement pending final
resolution of any dispute arising out of or relating to this Agreement.
26. HEADINGS. The headings contained in this Agreement are for
convenience of reference only and are not intended to have any substantive
significance in interpreting this Agreement.
27. WAIVERS. Any waiver by either party of any breach of any term or
condition hereof shall be effective only if in writing and such writing shall
not be deemed to be a waiver of any subsequent or other breach, term or
condition of this Agreement.
28. COUNTERPARTS: NO CONFLICTING AGREEMENT. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original and all
of which when taken together shall constitute one and the same document. Each
party represents that it is not bound by any other agreement that would prevent
full performance of this Agreement.
29. Y2K. Road Runner and HSAC represent and warrant to the other that each
has taken all actions necessary and appropriate to assure that there shall be no
material adverse change to its respective business or electronic systems or
material interruptions in the operation and delivery of the Road Runner Services
and HSAC Services, as the case may be, as provided in this Agreement (aside from
normal data packet delays, distortions, and losses (i) on the Internet backbone,
(ii) during transport to the Internet backbone on telecommunication lines leased
from a third party, or (iii) during transport from Cable Subscribers to HSAC
over a coaxial cable or fiber optic line) by reason of the advent of the year
2000, including, without limitation, that all its respective computer-based
systems, embedded microchips and other data processing capabilities have been
designed or modified and fully tested in such a manner that such computer-based
systems, embedded microchips and other data processing capabilities will not
generate any invalid and/or incorrect date-related results or cause any of the
problems commonly referred to as "Year 2000
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<PAGE> 18
problems" and will, without interruption or manual intervention, continue to
operate consistently, predictably and accurately and in accordance with all of
the requirements of this Agreement, including without limitation, meeting all
specifications and/or functionality and performance requirements, when used
during any year prior to, during or after the calendar year 2000. Neither Road
Runner nor HSAC warrant that interruptions in joint Road Runner/HSAC Services
will not occur due to the network or systems failures of other parties,
including utilities and phone services, caused by ~ Year 2000 problems. "
30. REGULATORY COMPLIANCE. HSAC and Road Runner agree to comply with all
applicable federal, state and local laws and regulations, including specifically
those pertinent regulations promulgated by the public utilities commission in
the Service Affiliate's states (or where the Designated System is situated) and
the Federal Communications Commission, which may governor affect the provision
of Road Runner Services and HSAC Services to Data Subscribers covered by this
Agreement.
31. ENTIRE AGREEMENT. This Agreement and the Exhibits hereto constitute the
entire agreement between the parties and any parties who have in the past or who
are now representing either of the parties hereto, and replaces and supersedes
all prior agreements, written and oral, relating to the subject matter hereof,
between the parties to this Agreement. Each Subcontractor Agreement, except as
its terms otherwise expressly provide, shall be a complete statement of its
subject matter and shall supplement and modify the terms and conditions of this
Agreement for the purposes of that engagement only.
* * *
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
HIGH SPEED ACCESS CORP.
BY: /s/ HIGH SPEED ACCESS CORP.
----------------------------
NAME:
--------------------------
TITLE:
-------------------------
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<PAGE> 19
SERVICECO LLC
BY: /s/ SERVICECO LLC
----------------------------
NAME:
--------------------------
TITLE:
-------------------------
19
<PAGE> 20
SCHEDULE B TO MASTER AGREEMENT
Form of
Subcontract Agreement between Road Runner and HSAC
(To be agreed upon within 90 days of the Effective Date and attached hereto)
<PAGE> 21
SCHEDULE C TO MASTER AGREEMENT
Project Plan
For Integration of Technical Capabilities
(To be agreed upon within 90 days of the Effective Date and attached hereto)
<PAGE> 22
SCHEDULE D TO MASTER AGREEMENT
Transition Plan
(DRAFT - may be modified)
In the event a Subcontract Agreement is terminated or expires, HSAC agrees
to work with Road Runner and the Service Affiliate to develop transition and
conversion procedures to protect the normal service levels provided to Data
Subscribers.
HSAC will provide continuing network and call center and NOC support to
Data Subscribers and the successor ISP for a period of 120 days following such
termination, withdrawal or expirations to ensure seamless Internet access to
Data Subscribers. Service Affiliate and/or Road Runner will reimburse HSAC for
HSAC for its actual, out-of-pocket expenses relating to such post-termination or
post-expiration Transition Services, and HSAC shall continue to receive its
share of Gross Revenues from any Data Subscriber for whom HSAC is still
providing Internet Access. In addition, during the transition period, HSAC will
provide Road Runner or Service Affiliate with all customer database information
in machine readable form that complies with widely accepted industry formats.
<PAGE> 23
SCHEDULE E TO MASTER AGREEMENT
Privacy Policy
HSAC Privacy Policy
[DRAFT - SUBJECT TO REVISION]
HSAC takes privacy very seriously. We are committed to the principle that our
members must be secure in the knowledge that information they disclose is used
for the purpose for which it was collected and not sold, bartered or traded to
third parties in a manner that is inconsistent with member expectations. Having
a relationship founded on trust with our subscribers is not only good manners,
but also good business.
HSAC will use basic customer information from you to provide the service. When
you sign up for the HSAC service you are required to provide your name, address,
phone number and appropriate billing information. That information is available
only to authorized HSAC personnel for installing, maintaining and billing the
HSAC service
HSAC will use information that you give us to offer a more customer-tailored
online experience. For example, since we know your zip code we can deliver local
weather information on the home page and we might offer you a home page of
localized news or content relevant to interests that you specify.
HSAC or our content partners will send promotional e-mail messages to specific
groups of people based on our database of subscriber information (for example,
subscribers living in a specific geographic area). However, when sending
messages tailored to a specific group, the actual names and personal information
about individual subscribers is not disclosed. While HSAC reserves the right to
send out administrative mailings to all its members (for example, changes in
pricing or operating policies), you can advise us that you don't want to receive
promotional mailings and we will honor that request (go to Member Services,
E-mail Services, Mailing Lists).
HSAC or our content and commerce partners will collect and use billing and
shipping information when you purchase good online. Billing and shipping
information includes name, email address, shipping address and credit card
information. This information is necessary to deliver the service or product to
you. When you use a credit card, the basic payment information is transmitted to
the appropriate financial institution for purposed of processing the
transaction. We take care to associate with partners who are credible and
trustworthy. However, if you are concerned about their reputation and
trustworthiness, we encourage you to check the privacy policies of any online
vendors you use.
HSAC or our content partners will use personal information if you participate in
a contest. If you enter a contest you might be required to provide information
about how we can contact you. This information will be used to contact you if
you win the contest and aggregate information may be
<PAGE> 24
used for marketing or research purposes. However, like other information you
provide to HSAC, personal details about you will not be shared with others or
used to send you promotional email messages if you indicate you do not wish to
receive them.
HSAC will release personal information if compelled by court order. We will take
great care in protecting your personal information though we may be compelled to
reveal such details to law enforcement officials in response to a
properly-issued court order or legal process in accordance with applicable law.
WHAT HSAC WILL NOT DO WITH INFORMATION ABOUT YOU
HSAC will not share personally-identifiable information with advertisers,
content and commerce partners, providers of unrelated services or other
outsiders without your consent, unless we are compelled to disclose the messages
along with personally-identifiable information to comply with a valid court
order or if we believe that a state of emergency exists where it is necessary to
disclose this information to protect HSAC's property or an individual's safety
or security.
HSAC will not read your outgoing or incoming e-mail, private chat or instant
messages. We do store e-mail messages on our computer systems for a brief period
of time and could be compelled to disclose the messages along with
personally-identifiable information to comply with a valid court order or if we
believe that a state of emergency exists where it is necessary to disclose this
information to protect HSAC's property or an individual's safety or security.
HSAC will not send promotional e-mail messages to you if you ask us not to do
so. We do send promotional messages to our members from time to time. However,
we will stop sending you such messages if you advise us that you no longer wish
to receive them.
HSAC will not share personally-identifiable information about where you go on
the service or on the Web. We do, however, review this information in aggregate
form to better understand how the service is being used and to help us determine
the popularity of our various service features. We may also, under compulsion of
law, be required to divulge your identity to law enforcement agencies.
HSAC will not record any information that you provide to any Web site other than
ones operated by HSAC. You should be warned, however, that HSAC's Privacy Policy
does not apply to Web sites operated by persons or organizations other than
HSAC. So, if you're on a Web site, you should look for the Web site's privacy
policy and use discretion regarding any information you provide there. HSAC's
role in guiding you to Web sites is similar to that of an airline's role in
helping you travel to distant cities. We can help you get there quickly and
safely, but once you're there, we can't protect you or keep you out of trouble.
The cable companies offering you the HSAC services also have policies relating
to the protection of customer information. These policies are provided to you by
your cable operator at the time of
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installation of your cable service (or cable Internet service) and are sent to
you annually thereafter so long as you continue to be a customer.
Public message boards and chat rooms are by definition not private. Posting to a
public area is like making a statement in an open meeting: anyone there can
record what you say and pass it on to others. You should only post information
in these places if you are comfortable sharing publicly.
Cookies are small files stored on your computer's hard drive to simplify and
improve your Web navigation experience. A Web site may store information about
your computer configuration so that it can more efficiently provide information
to you the next time you visit. Or, your browser might save a text file with
your username and password so that a Web site" server will recognize you the
next time you access the site. This way, you won't have to log into the site
again if you happen to leave and return again later.
HSAC uses cookie files to identify your locale and time zone so that you can
access information for your local area. Additionally, we use cookies to deliver
personalized content based on preferences you've previously chosen on our
service. We do not store your name or other personally identifiable information
in cookies.
Never provide any information to a Web site that doesn't post a privacy policy
unless you have reason to trust that site.
Never say anything in a public chat room or a forum (newsgroup) that you don't
want the public to know about. Be very cautious before posting your name,
address, telephone number, place of work or any other information that could
identify you. Information that you post in such areas can be seen by anyone and
archived for use later on.
Keep your passwords private. HSAC personnel will never ask you for your
password. Children should be instructed not to give out their passwords to
anyone other than their parents.
When shopping online be sure you are dealing with reputable businesses who
handle transactions securely before giving out credit card numbers or other
personally-identifiable information.
Instruct your children never to give out information about themselves without
first checking with you. Please check out Safety Guidelines for Parents at
(http://www.safekids.com/parent guidelines.htm) and make sure your children are
familiar with Kids Rules for Online Safety which can be found at
(http://www.safekids.com/kidsrules.htm).
The Internet is rapidly changing the way all of us communicate and interact with
each other. While the Internet allows each of us access to a greater array of
information and services than has ever been available, these new online
activities do raise many new challenges such as the privacy issues addressed by
this policy. HSAC is committed to working with public policy organizations,
industry groups and government institutions to understand and address these
challenges as they come up. As
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we stated at the beginning of this policy, having a relationship with our
subscribers that is founded on trust is not only good manners, but also good
business.
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<PAGE> 27
SCHEDULE G TO MASTER AGREEMENT
Road Runner Marks
(see attached)
<PAGE> 28
SCHEDULE H TO MASTER AGREEMENT
Local Content Guidelines/Guidelines for Use of Road Runner Marks
(see attached)
<PAGE> 29
EXHIBIT A
Securities Purchase Warrant
(see attached [incorporated by reference herein to Exhibit 10.2])
<PAGE> 1
EXHIBIT 10.2
THIS WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN ACQUIRED IN A TRANSACTION NOT INVOLVING ANY PUBLIC
OFFERING AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT"), OR THE LAWS OF ANY STATE. NEITHER THIS WARRANT NOR
SUCH SECURITIES MAY BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM UNDER SUCH ACT, THE LAWS OF ANY APPLICABLE STATE, THE
PROVISIONS OF THIS WARRANT, OR THE RECEIPT BY THE ISSUER OF AN OPINION OF
COUNSEL, WHICH SHALL BE REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT
THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE ACT AND SUCH STATE
SECURITIES LAWS.
JULY 22, 1999
SECURITIES PURCHASE WARRANT
TO SUBSCRIBE FOR AND PURCHASE COMMON STOCK
OF
HIGH SPEED ACCESS CORP.
VOID IF NOT EXERCISED DURING THE EXERCISE PERIOD DESCRIBED HEREIN
WARRANT NO. __________
1. Grant of Warrant; Conditional Exercise. THIS CERTIFIES that, for
value received, SERVICECO LLC, a Delaware limited liability company ("Road
Runner"), or its permitted assigns (the "Holder"), is entitled, subject to the
terms and conditions hereinafter set forth, to earn on or prior to June 30, 2004
(the "Calculation Date"), the right to subscribe for and purchase from High
Speed Access Corp., a Delaware corporation (the "Company" or "HSAC"), at any
time during the Exercise Period, a number of fully paid, nonassessable shares of
the Company's Common Stock, $0.01 par value, equal to the "Earned Shares," (as
defined below), but not more than Five Million (5,000,000) shares, (: the
"Maximum Number of Earned Shares") at a price equal to the Exercise Price. This
Securities Purchase Warrant ("Warrant") is issued pursuant to the terms and
conditions of, and is qualified by and subject to, Section 9 of the Master
Agreement of even date herewith between Road Runner and HSAC (the "Agreement")
to which this Warrant is attached. This Warrant may not be exercised unless
accompanied by a signed Subscription Form in the form attached hereto as Exhibit
D-1.
2. Definitions. Unless otherwise defined herein, as used in this
Securities Purchase Warrant, the following terms shall have the meanings
ascribed to them as follows:
(a) "Affiliate" means, with respect to the Holder, any entity
or person controlled, directly or indirectly, by Road Runner. As used in the
foregoing sentence, "controlled" means (i) with respect to any entity, the
ability to exercise voting power with respect to at least 50% of the outstanding
voting securities of such entity.
(b) "Cable System" shall have the meaning given it in Section
1.2 of the Agreement to which this Warrant is attached.
<PAGE> 2
(c) "Common Stock" means the shares of common stock of $.01
par value that the Company is authorized to issue in accordance with its Amended
Certificate of Incorporation, and all securities into which such Common Stock is
exchanged or converted.
(d) "Company" means High Speed Access Corp., a Delaware
corporation, or such successor company as may result from any merger or other
business combination or reorganization of High Speed Access Corp.
(e) "Designated System" shall have the meaning given it in
Section 2.4 of the Agreement.
(f) "Earned Shares" means the number of shares of Common Stock
that this Warrant entitles the Holder to subscribe for and receive upon the
Holder's exercise of this Warrant in accordance with Section 3 but in no event
greater than the Maximum Number of Earned Shares.
(g) "Exercise Period" means, with respect to any Earned Share,
subject to and limited by the requirements of the vesting of such Earned Shares
set forth in Section 3(a) and any extension or extensions of the period pursuant
to Section 7(c), the period beginning on the date of this Warrant and ending on
May 3 1, 2005.
(h) "Exercise Price" means the price per Earned Share of
$5.00, subject to adjustment as provided in Section 6 hereof.
(i) "Holder" means SERVICECO LLC, a Delaware limited liability
company, or any other Person to whom this Warrant is transferred in accordance
with Section 5 hereof.
(j) "Homes Passed" shall have the meaning given it in
Section 1.9 of the Agreement.
(k) "Office" means the Company's office at 1000 W. Ormsby Ave,
Suite 210, Louisville, KY 40210, or such other office as the Company may
designate by written notice to the Holder.
(1) "Person" means any person, firm, Company, or other entity.
(m) "Receipt" means a written receipt, deliverable by the
Company to the Holder pursuant to Section 4, (a) acknowledging the Company's
receipt of the Exercise Price and the Holder's timely and proper exercise of
this Warrant, and (b) obligating the Company to issue a Stock Certificate to the
Holder within 30 working days after this Warrant's surrender to the Company.
(n) [Left Intentionally Blank]
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<PAGE> 3
(o) "Secretary" means John G. Hundley or his duly elected and
qualified successor as the Company's Secretary, or any duly elected and
qualified Assistant Secretary of the Company.
(p) "Securities Laws" means the Securities Act of 1933, as
amended, or the securities laws of any state, or any similar successor federal
or state statutes and rules and regulations thereunder, all as the same shall be
in effect from time to time.
(q) "Stock Certificate" means an appropriate certificate
issued in the Holder's name representing the Subscribed Shares.
(r) "Subscribed Shares" means, collectively, the number of
whole Earned Shares that the Holder designates on the Subscription Form as
Earned Shares that the Holder wishes to purchase upon this Warrant's surrender
to the Company, which shall not exceed 5,OOO,OOO shares of Common Stock
(adjusted, if appropriate, pursuant to Sections 6).
(s) "Subscription Form" means the subscription form attached
as Exhibit D-1 to this Warrant.
(t) "Warrant" means this Securities Purchase Warrant.
(u) "Warrant Period" means the period beginning on the date
hereof and ending on the last date of the Exercise Period.
3. Exercise of Warrant.
(a) Subject to the vesting requirements set forth below, this
Warrant entitles the Holder to subscribe, from time-to-time and upon the terms
and conditions set forth in this Warrant but in no event later than the
Effective Date, and purchase during the Exercise Period, Subscribed Shares in
any amount equal to the number of Homes Passed (not to exceed 5,000,000) in the
Designated Systems, on a one (1) Earned Share per each Home Passed basis, as the
case may be), in accordance with Section 9 of the Agreement; provided that as to
each Designated System, twenty percent (20%) of the Subscribed Shares associated
with such Designated System shall vest (: be eligible for exercise) as of the
date HSAC and Road Runner execute a Subcontract Agreement for such Designated
System, and an additional twenty percent (20%) of the Subscribed Shares
associated with such Designated System shall vest on the first, second, third
and fourth anniversary dates of the date of execution of such Subcontract
Agreement; and provided further, that vesting with respect to Earned Shares
attributed to such Designated System will cease and any unvested Earned Shares
will be deemed forfeit if such Subcontract Agreement is terminated or lapses
prior to a full sixty (60) month term.
(b) To exercise this Warrant an authorized officer of Holder
shall, during the Exercise Period, on the day the Holder wishes to exercise this
Warrant (the "Exercise Date"):
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<PAGE> 4
(1) Complete and certify the Subscription Form by
designating the number of Subscribed Shares to which the Holder (or
such permitted transferee) is entitled to exercise and wishes to
exercise pursuant to such Subscription Form and Section 1 hereof (which
may be less than or equal to the Maximum Number of Earned Shares);
(2) Surrender this Warrant to the Secretary at the
Company's Office, and
(3) Upon the surrender of this Warrant to the
Secretary, deliver to the Secretary at the Company's Office a certified
or cashier's check payable to the Company's order in an amount equal to
(i) the number of Subscribed Shares, times (ii) the Exercise Price.
The Holder may at its option, in lieu of tendering a certified or cashier's
check as provided in subparagraph (3) above, exercise this Warrant by
submitting, during normal business hours, a duly executed exercise notice marked
to reflect "Net Issue Exercise," and specifying the number of shares of Earned
Shares to be exercised. Upon a Net Issue Exercise, Holder shall be entitled to
receive Earned Shares equal to the value of this Warrant (or the portion thereof
being exercised by Net Issue Exercise) by surrender of this Warrant to the
Company together with notice of such election, in which event the Company shall
issue to Holder a number of shares of the Company's Common Stock computed as of
the date of surrender of this Warrant to the Company using the following
formula:
X = Y x (A-B)
---------
A
Where X = the number of Earned Shares to be issued to
Holder;
Y = the number of Earned Shares purchasable under
this Warrant (at the date of such calculation).
A = the Current Market Price of one share of the
Company's Common Stock (at the date of such
calculation);
B = the Exercise Price (as adjusted to the date of
such calculation).
As used above, "Current Market Price" means, if the Company's Common Stock is
traded on a national securities exchange, the NASDAQ National Market System or
the over-the-counter market, the average of the last reported price over the
five (5) trading days immediately preceding the date of valuation at which the
Common Stock has traded on such national securities exchange, the NASDAQ
National Market System or the average of the bid and asked prices on the
over-the-counter market on the date of valuation.
(c) Notwithstanding any delay in the actual issuance of a
Stock Certificate or Receipt pursuant to Section 4 hereof, the Earned Shares
shall be deemed issued for all purposes as of the opening of business on the
Exercise Date, and the Holder shall for all purposes be deemed to be the holder
of record of the Subscribed Shares to which the Receipt or the Stock Certificate
pertains.
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<PAGE> 5
4. Issuance of Certificate for Subscribed Shares. Upon the Holder's
exercise of this Warrant in accordance with Section 3, the Company shall deliver
to the Holder:
(a) If the Subscribed Shares constitutes the Maximum Number of
Earned Shares (and as the Company chooses), either (1) a Stock Certificate, or
(2) a Receipt.
(b) If the Subscribed Shares constitutes less than the Maximum
Number of Earned Shares (and as the Company chooses), either
(1) (i) a Stock Certificate, together with (ii) a new
Securities Purchase Warrant, containing the same terms and conditions
as this Warrant, evidencing the Holder's continued right to subscribe
(during the Exercise Period) for the remainder of the Maximum Number of
Earned Shares; or
(2) (i) a Receipt, together with (ii) a new
Securities Purchase Warrant, containing the same terms and conditions
as this Warrant, evidencing the Holder's continued right to subscribe
(during the Exercise Period) for the remainder of the Maximum Number of
Earned Shares.
5. Transfer of Warrant.
(a) This Warrant shall be registered on the books of the
Company, which shall be kept at its Office for that purpose, and shall be
transferable in whole or in part but only on such books, by the Holder (or
Holder's duly authorized representative) in person or by duly authorized
attorney substantially in the form of Exhibit D-2 hereof, and only in compliance
with paragraph (b) below. The Company may issue appropriate stop orders to its
Secretary or transfer agent to prevent a transfer in violation of this Section 5
and Section 7.
(b) The Holder may transfer this Warrant during the Warrant
Period by completing and signing the transfer form (the "Transfer Form") in the
form of transfer form attached as Exhibit D-2 to this Warrant; provided,
however, that without the prior written consent of the Company, this Warrant and
all rights hereunder may be transferred only (i) to an Affiliate, or (ii) in
accordance with the requirements of Section 7 hereof and pursuant to the
registration of this Warrant or the Earned Shares under the Securities Laws
(except as otherwise limited by any applicable shareholders buy-sell,
registration rights, or voting agreements binding upon the Holder) or subsequent
to any applicable holding period an exemption under Rule 144 or other exemption
from such registration. If at least fifteen (15) working days before the end of
the Warrant Period the Holder completes and signs the Transfer Form and
surrenders this Warrant to the Secretary at the Company's Office, the Company
shall, within ten ( 10) working days after this Warrant's surrender, issue to
the transferee or transferees identified on the completed Transfer Form one or
more new Securities Purchase Warrants (containing the same terms and conditions
as this Warrant) evidencing the transferee's or transferees' right or rights to
subscribe (during the Exercise Period) for all or part of the Earned Shares.
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<PAGE> 6
(c) The Company shall pay all expenses, taxes (other than
stock transfer taxes, if any) and other charges payable in connection with the
preparation, issues and delivery of this Warrant and any Earned Shares.
6. Adjustments. The Exercise Price and the number of Earned Shares
purchasable hereunder are subject to adjustment from and after the Effective
Date as follows:
(a) Merger/Consolidation/Reorganization. etc. If the Company,
at any time while this Warrant, or any portion thereof, remains outstanding and
unexpired, merges or consolidates with or into any other corporation, entity or
person, or any other corporate reorganization, in which the Company shall not be
the continuing or surviving entity of such consolidation, merger or
reorganization, or any transaction in which in excess of 50% of the Company's
voting power is transferred to persons or entities not stockholders immediately
prior to the consummation of such transaction, or any sale of all or
substantially all of the assets of the Company, or by reclassification of
securities or otherwise, shall change any of the securities as to which purchase
rights under this Warrant exist into the same or a different number of
securities of any other class or classes (any such transaction being hereinafter
referred to as a "Reorganization"), then, in each case, on exercise hereof at
any time after the consummation or effective date of such Reorganization, Holder
shall receive, in lieu of the Common Stock issuable on such exercise prior to
the date of such Reorganization, the stock and other securities and property
(including cash) to which such holder would have been entitled upon the date of
such Reorganization if such holder had exercised this Warrant immediately prior
thereto, all subject to further adjustment as provided in this Section 6. The
provisions of this section shall apply to successive Reorganizations.
(b) Split, Subdivision or Combination of Shares. If the
Company, at any time while this Warrant, or any portion thereof, remains
outstanding and unexpired, shall split, subdivide or combine the securities as
to which purchase rights under this Warrant exist, into a different number of
securities of the same class, then (i) in the case of a split or subdivision,
the Exercise Price for such securities shall be proportionately decreased and
the securities issuable upon exercise of this Warrant shall be proportionately
increased, and (ii) in the case of a combination, the Exercise Price for such
securities shall be proportionately increased and the securities issuable upon
exercise of this Warrant shall be proportionately decreased.
(c) Adjustments for Dividends in Stock or Other Securities or
Property. If while this Warrant, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Warrant exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Warrant shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this
Warrant, and without payment of any additional consideration therefor, the
amount of such other or additional stock or other securities or property (other
than cash) of the Company that such holder would hold on the date of such
exercise had it been the holder of record of the security receivable
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<PAGE> 7
upon exercise of this Warrant on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and/or all other additional stock available by it as aforesaid
during such period, giving effect to all adjustments called for during such
period by the provisions of this Section 6.
(d) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 6, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder of this Warrant a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request, at any time, of any such Holder, furnish or cause to be
furnished to such Holder a like certificate setting forth: (i) such adjustments
and readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares and the amount, if any, of other property that at the time
would be received upon the exercise of the Warrant.
(e) No Impairment. The Company will not, by any voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 6
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holders of this Warrant against impairment.
(f) Fractional Shares. No fractional shares or scrip
representing fractional Common Shares shall be issued upon the exercise hereof.
Upon exercise by any Holder, such Holder shall be entitled to receive the
aggregate full number of Common Shares in which all the Earned Shares being
subscribed for by such Holder may exercise and in lieu of any fractional share
to which such Holder would otherwise be entitled, an amount equal to such
fractional share multiplied by the then fair market value (as hereafter defined)
of Common Shares shall be paid by the Company in cash to such holder.
(g) Validity of Shares. All Common Shares which may be issued
upon exercise of this Warrant will, upon issuance, be legally and validly
issued, fully paid and non-assessable and free from all taxes, liens and charges
with respect to the issue thereof.
(h) Fair Market Value. For the purposes of this Section 6, if
the Company's Common Shares shall be regularly traded in any market, its "fair
market value" shall be based on (i) if the Common Shares are listed on a
national stock exchange, the closing price on the principal stock exchange where
the Common Shares are listed and traded, or if there is no trading on a given
day, the mean between the closing bid and asked prices on such day on said
exchange, or (ii) if the Common Shares are not so listed, the mean between the
closing bid and asked prices on the over-the-counter market as furnished by a
national quotation service or the principal broker making a market; and in each
case the daily values so obtained shall be averaged over a period of ten (10)
consecutive trading days immediately prior to the date of the determination and
the average so obtained shall be deemed to be the "fair market value" of the
Common Shares hereunder. If the
7
<PAGE> 8
Common Shares are not regularly traded in any market, its "fair market value"
may be currently determined by the Board of Directors of the Company for the
purpose of any transaction hereunder, and such determination shall be final and
binding upon the Holders if it is made in good faith and with due care.
7. Representations and Warranties. The Company hereby represents and
warrants to the Holder as follows (which representations and warranties shall
survive the execution and delivery of this Warrant and the Common Stock issued
pursuant hereto):
(a) The Company has filed and made available to Holders all
forms, reports, statements and other documents f led or required to be filed
with the Securities and Exchange Commission (the "SEC") since March 13, 1999,
including, without limitation, (i) the Company's Registration Statement on Form
S-1, (ii) all proxy statements relating to meetings of stockholders (whether
annual or special), (iii) all Reports on Form 8-K, (iv) all other reports or
registration statements and (vi) all amendments and supplements to all such
reports and registration statements (collectively, the "Company SEC Reports').
The Company SEC Reports (i) were at the time they were filed compliant in all
material respects with the requirements of the 1933 Act and the Securities
Exchange Act of 1934 (the "Exchange Act") and the rules and regulations of the
SEC thereunder applicable to such Company SEC Reports, and (ii) did not at the
time they were filed contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(b) Each of the financial statements (including, in each case,
any notes thereto) contained in the Company SEC Reports has been prepared in
accordance with the published rules and regulations of the SEC and generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods indicated and each fairly presents, in all material respects, the
financial position, results of the respective periods indicated in the notes
hereto) and each fairly presents or will present fairly, in all material
respects, the financial position, results of the respective periods indicated
therein, except, with respect to Company SEC Reports filed prior to the date
hereof, as otherwise indicated in the notes thereto (subject, in the case of
unaudited statements, to normal and recurring year-end adjustments.
(c) If the Company shall have filed a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant to the requirements of the 1938 Act, the Company will file
the reports required to be filed by it under the Exchange Act (or, if the
Company is not required to file such reports, will, upon the request of any
Holder, or holder of Subscribed Shares, makes publicly available other
information) and will take such further action as any Holder, or holder of
Subscribed Shares, may reasonably request, all to the extent required from time
to time to enable such Holder, or holder of Subscribed Shares, to sell
Subscribed Share without registration under the 1933 Act within the limitation
of the exemptions provided by (a) Rule 144 under the 1933 Act, or (b) any
similar rule or regulation hereafter adopted
8
<PAGE> 9
by the SEC. Upon the request of any Holder, or holder of Subscribed Shares, a
written statement as to whether it has complied with such requirements.
(d) The provisions of the Section 7 shall survive the
termination or exercise of this Warrant so long as the Holder, or holder of
Subscribed Shares, of their successors or assigns, hold this Warrant or
Subscribed Shares which have not previously been sold to the public pursuant to
a registration statement under the 1933 Act or pursuant to Rule 144.
8. Sale of Warrant or Earned Shares. Neither this Warrant nor the
Earned Shares have been registered under the Securities Act of 1933, as amended,
or under the securities laws of any state. Neither this Warrant nor the Earned
Shares may be sold, transferred, pledged, or hypothecated, in the absence of (i)
an effective registration statement for this Warrant or the Earned Shares, as
the case may be, under the Act and such registration or qualification as may be
necessary under the securities laws of any state, or (ii) an opinion of counsel
reasonably satisfactory to the Company that such registration or qualification
is not required. The Company shall cause a Certificate or Certificates
evidencing all or any part of the Earned Shares prior to any such registration
or qualification of Earned Shares to bear the following legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of
any state (the "Securities Laws"). These securities may not be offered,
sold, transferred, pledged, or hypothecated in the absence of
registration under applicable Securities Laws, or the availability of
an exemption therefrom. This Certificate will not be transferred on the
books of the Company or any transfer agent acting on behalf of the
Company except upon the receipt of an opinion of counsel, satisfactory
to the Company, that the proposed transfer is exempt from the
registration requirements of all applicable Securities Laws, or the
receipt of evidence, satisfactory to the Company, that the proposed
transfer is the subject of an effective registration statement under
all applicable Securities Laws.
9. Replacement of Warrant. At the request of the Holder and on
production of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant, the Company at its expense
will issue in lieu thereof a new Warrant of like tenor.
10. No Voting Rights. Except as otherwise provided herein, this Warrant
shall not be deemed to confer upon the Holder any right to vote or to consent to
or receive notice as a stockholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a stockholder, prior
to the exercise hereof.
11. Investment Representation and Covenant. The Holder (i) by its
acceptance of this Warrant covenants and understands that this Warrant is not,
and the Earned Shares issued hereunder will not be, registered under the
Securities Act, or under any state securities laws, and is being offered and
sold in reliance upon federal and state exemptions for transactions not
involving any
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<PAGE> 10
public offering, and may not be resold in the absence of registration unless
such sale is exempt from registration under the Securities Act and any
applicable state securities laws, (ii) is being acquiring solely for Holder's
own account for investment purposes, and not with a view to the distribution
thereof, (iii) is a sophisticated investor with knowledge and experience in
business and financial matters, (iv) has received certain information concerning
the Company and has had the opportunity to obtain additional information as
desired in order to evaluate the merits and the risks inherent in holding the
Warrant and Earned Shares, (v) is able to bear the economic risk and lack of
liquidity inherent in holding the Company's Warrant and Earned Shares, and is an
"accredited investor" (as defined in Regulation D promulgated under the
Securities Act ("Regulation D")) for the reasons set forth in Rule 501(a)(5) of
Regulation D.
12. Certain Covenants. The Company covenants and agrees that:
(a) it will at all times reserve and set apart and have, free
from preemptive rights, a sufficient number of shares of authorized but unissued
Common Stock to provide for the issuance of the Earned Shares upon the exercise
of this Warrant;
(b) before taking any action that would cause an adjustment
reducing the Exercise Price below the then par value of the Earned Shares
issuable upon exercise of this Warrant, the Company will take any corporate
action that may be necessary in order that the Company may validly and legally
issue fully paid and nonassessable shares of such Common Stock at such adjusted
Exercise Price.
13. Lock-Up Agreement. The Holder hereby agrees that it not, without
the prior written consent of the Company, offer, pledge, margin, sell, contract
to sell, grant any option for the sale of, enter into any hedging or derivatives
transaction involving, or otherwise dispose of, directly or indirectly, any of
the Earned Shares, or the Warrant, prior to December 4, 1999.
14. Miscellaneous.
(a) This Warrant shall be governed by and construed in
accordance with the laws (without reference to the conflicts of laws rules) of
the State of New York.
(b) This Warrant shall bind the Company, its successors and
assigns (including any Successor Company), and shall benefit and bind the
Holder, the Holder's successors and permitted assigns.
(c) The Section headings in this Warrant have been included
solely for ease of reference and shall not be considered in the interpretation
or construction of this Warrant. All references in this Warrant to "Sections"
shall be construed as references to numbered Sections of this Warrant.
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<PAGE> 11
(d) Any notice or delivery required or permitted by this
Warrant shall be deemed given or made for all purposes of this Warrant when (1)
the notice is in writing, and (2) the notice or the delivery is delivered by
hand or is mailed by registered mail, return receipt requested, addressed to the
intended recipient at (A) in the Company's case, the Company's Office, or (B) in
the Holder's case, the Holder's address as set forth in the Company's records or
at such other address as the Holder may designate by written notice to the
Company.
IN WITNESS WHEREOF, this Warrant has been executed as of the
_____ day of July, 1999.
HIGH SPEED ACCESS CORP. SERVICECO LLC
By /s/ HIGH SPEED ACCESS CORP. By /s/ SERVICECO LLC
--------------------------- ---------------------------
Name Name
------------------------- -------------------------
Title Title
------------------------ ------------------------
Date Date
------------------------- -------------------------
11
<PAGE> 12
Exhibit D- 1
SUBSCRIPTION FORM TO BE EXECUTED
UPON EXERCISE OF THE WARRANT
Date:_____________________
To HIGH SPEED ACCESS CORP.:
The undersigned, as Holder, hereby subscribes, at the price and upon the other
terms and conditions set forth on in this Securities Purchase Warrant of which
this subscription form is a part, for __________ shares of the common stock,
$.01 par value, of High Speed Access Corp.
SERVICECO LLC.
By:___________________________
Name:_________________________
Title:________________________
Address:______________________
______________________
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<PAGE> 13
Exhibit D-2
TRANSFER FORM
[To be completed and signed only upon transfer of Warrant before exercise.]
For value received, the undersigned hereby transfers this Warrant
entitling the Holder to subscribe for _________________ shares of the common
stock with $.01 par value of High Speed Access Corp. to
_____________________________________. The undersigned represents, warrants and
covenants that it has this transfer conforms to the requirements of Section 5 of
the Warrant.
Dated ________________, ________
----------------------------------
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<PAGE> 1
EXHIBIT 10.3
June 15, 1999
Robert S. Saunders
Vice Chairman
High Speed Access Corp.
4100 East Mississippi Avenue
Denver, CO 80246
Attention: Bob Saunders
Dear Bob:
Previously, Microsoft Corporation ("Microsoft") and High Speed Access Corp.
(HSA) entered into a letter agreement setting forth a statement of the
intentions of the parties with respect to a strategic relationship and related
arrangements as outlined therein (the "Original Letter Agreement"). The parties
acknowledge that such proposals are subject to the final negotiation and
execution of definitive documents.
In continuing our discussions, Microsoft has agreed to accelerate
discussions regarding the negotiation and execution of definitive agreements on
the proposals set forth in the Original Letter Agreement to occur within the
next six months. Further, Microsoft has agreed that HSA shall have the right to
purchase commercially available Microsoft products and technology at preferred
pricing consistent with other "strategic partners" of Microsoft, considering
such factors as volume of purchases, class of customer utilizing the software,
the type of software used and distribution channel.
In consideration of the foregoing, HSA will promptly upon signing this
letter grant Microsoft a warrant to purchase 137,500 shares of HSA common stock
at a price of $16.25 per share. The form of the warrant shall be identical in
all material respects to the HSA warrant previously granted to Microsoft.
If this letter accurately expresses the current discussions between the
parties, and the spirit of our potential future relationship, please indicate
by executing below:
Sincerely,
MICROSOFT CORPORATION
/s/ AMAR NEHRU
- ----------------------------------
Amar Nehru, General Manager, Corporate Development
Accepted and agreed:
Effective as of June __, 1999
HIGH SPEED ACCESS CORP.
/s/ BOB SAUNDERS
- ----------------------------------
Bob Saunders, Vice Chairman
<PAGE> 1
EXHIBIT 10.4
THIS WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF HAVE BEEN ACQUIRED IN A TRANSACTION NOT INVOLVING ANY
PUBLIC OFFERING AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT"), OR THE LAWS OF ANY STATE. NEITHER THIS
WARRANT NOR SUCH SECURITIES MAY BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT, THE LAWS OF ANY
APPLICABLE STATE, THE PROVISIONS OF THIS WARRANT, OR THE RECEIPT BY THE
ISSUER OF AN OPINION OF COUNSEL, WHICH SHALL BE REASONABLY SATISFACTORY TO
THE ISSUER, TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION
UNDER THE ACT AND SUCH STATE SECURITIES LAWS.
JUNE 15, 1999
SECURITIES PURCHASE WARRANT
to Subscribe for and Purchase Common Stock
of
HIGH SPEED ACCESS CORP.
Void If Not Exercised During The Exercise Period Described Herein
Warrant No. R-01
1. Grant of Warrant; Conditional Exercise. THIS CERTIFIES that, for
value received, MICROSOFT CORPORATION, a Washington corporation ("Microsoft"),
or its permitted assigns (the "Holder"), is entitled, subject to the terms and
conditions hereinafter set forth, to subscribe for and purchase from High Speed
Access Corp., a Delaware corporation (hereinafter called the "Company"), during
the Exercise Period, One Hundred Thirty-seven Thousand Five Hundred (137,500)
fully paid, nonassessable shares of the Company's Common Stock, $0.01 par value
(the "Warrant Shares"), at a price equal to the Exercise Price (defined below).
This Warrant may not be exercised unless accompanied by a signed Subscription
Form in the form attached hereto as Exhibit A.
2. Definitions. Unless otherwise defined herein, as used in this
Securities Purchase Warrant, the following terms shall have the meanings
ascribed to them as follows:
(a) "Affiliate" means, with respect to the Holder, any entity
or person controlling or controlled, directly or indirectly, by Microsoft. As
used in the foregoing sentence, "controlled" means with respect to any entity,
the ability to exercise voting power with respect to at least 50% of the
outstanding voting securities of such entity.
(b) "Common Stock" means the shares of common stock of $.01
par value that the Company is authorized to issue in accordance with its Amended
and Restated Certificate of
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<PAGE> 2
Incorporation as of the date hereof, and all securities into which such Common
Stock is exchanged or converted.
(c) "Company" means High Speed Access Corp., a Delaware
corporation, or such successor company as may result from any merger or other
business combination or reorganization of High Speed Access Corp.
(d) "Exercise Period" means, with respect to any Warrant
Share, the period beginning on the date of this Warrant and ending on May 1,
2004.
(e) "Exercise Price" means $16.25 per Warrant Share (adjusted
if appropriate pursuant to Section 6).
(f) "Holder" means Microsoft Corporation, or any other Person
to whom this Warrant is transferred in accordance with Section 5 hereof.
(g) "Office" means the Company's office at 1000 W. Ormsby Ave,
Suite 210, Louisville, Kentucky 40210, or such other office as the Company may
designate by written notice to the Holder.
(h) "Person" means any person, firm, Company, or other entity.
(i) "Receipt" means a written receipt, deliverable by the
Company to the Holder pursuant to Section 4, (a) acknowledging the Company's
receipt of the Exercise Price and the Holder's timely and proper exercise of
this Warrant, and (b) obligating the Company to issue a Stock Certificate to the
Holder within 30 working days after this Warrant's surrender to the Company.
(j) "Secretary" means John G. Hundley or his duly elected and
qualified successor as the Company's Secretary, or any duly elected and
qualified Secretary of the Company.
(k) "Securities Laws" means the Securities Act of 1933, as
amended, or the securities laws of any state, or any similar successor federal
or state statutes and rules and regulations thereunder, all as the same shall be
in effect from time to time.
(l) "Stock Certificate" means an appropriate certificate
issued in the Holder's name representing the Subscribed Shares.
(m) "Subscribed Shares" means, collectively, the number of
whole Warrant Shares that the Holder designates on the Subscription Form as
Warrant Shares that the Holder wishes to purchase upon this Warrant's surrender
to the Company, which shall not exceed 137,500 shares of Common Stock (adjusted,
if appropriate, pursuant to Section 6).
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<PAGE> 3
(n) "Subscription Form" means the subscription form attached
as Exhibit A to this Warrant.
(o) "Warrant" means this Securities Purchase Warrant.
(p) "Warrant Shares" means, collectively, the number of shares
of Common Stock that this Warrant entitles the Holder to subscribe for and
receive upon the Holder's exercise of this Warrant in accordance with Section 3,
or, as appropriate if the context requires, these same shares of Common Stock as
they may be issued and outstanding in the hands of the Holder after exercise of
this Warrant.
3. Exercise of Warrant.
(a) This Warrant entitles the Holder to purchase during the
Exercise Period, Subscribed Shares in any amount up to 137,500.
(b) To exercise this Warrant an authorized officer of Holder
(or its permitted transferee) shall, during the Exercise Period, on the day the
Holder wishes to exercise this Warrant (the "Exercise Date"):
(1) Complete and certify the Subscription Form by
designating the number of Subscribed Shares to which the Holder (or
such permitted transferee) is entitled to exercise and wishes to
exercise pursuant to such Subscription Form and Section 1 hereof (which
may be less than or equal to the number of Warrant Shares);
(2) Surrender this Warrant to the Secretary at the
Company's Office, and
(3) Upon the surrender of this Warrant to the
Secretary, deliver to the Secretary at the Company's Office a certified
or cashier's check payable to the Company's order in an amount equal to
(i) the number of Subscribed Shares, times (ii) the Exercise Price.
The Holder may at its option, in lieu of tendering a certified or cashier's
check as provided in subparagraph (3) above, exercise this Warrant by
submitting, during normal business hours, a duly executed exercise notice marked
to reflect "Net Issue Exercise," and specifying the number of shares of Warrant
Shares to be exercised. Upon a Net Issue Exercise, Holder shall be entitled to
receive Warrant Shares equal to the value of this Warrant (or the portion
thereof being exercised by Net Issue Exercise) by surrender of this Warrant to
the Company together with notice of such election, in which event the Company
shall issue to Holder a number of shares of the Company's Common Stock computed
as of the date of surrender of this Warrant to the Company using the following
formula:
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<PAGE> 4
X = Y x (A-B)
---------
A
Where X = the number of Warrant Shares to be issued to Holder;
Y = the number of Warrant Shares purchasable under this
Warrant (at the date of such calculation).
A = the Current Market Price of one share of the Company's
Common Stock (at the date of such calculation);
B = the Exercise Price (as adjusted to the date of such
calculation).
As used above, "Current Market Price" means, if the Company's Common Stock is
traded on a national securities exchange, the NASDAQ National Market System or
the over-the-counter market, the average of the last reported price over the
five (5) trading days immediately preceding the date of valuation at which the
Common Stock has traded on such national securities exchange, the NASDAQ
National Market System or the average of the bid and asked prices on the
over-the-counter market on the date of valuation.
(c) Notwithstanding any delay in the actual issuance of a
Stock Certificate or Receipt pursuant to Section 4 hereof, the Warrant Shares
shall be deemed issued for all purposes as of the opening of business on the
Exercise Date and the Holder shall for all purposes be deemed to be the holder
of record of the Subscribed Shares to which the Receipt or the Stock Certificate
pertains.
4. Issuance of Certificate for Subscribed Shares. Upon the Holder's
exercise of this Warrant in accordance with Section 3, the Company shall deliver
to the Holder:
(a) If the Subscribed Shares constitutes all of the Warrant
Shares (and as the Company chooses), either (1) a Stock Certificate, or (2) a
Receipt.
(b) If the Subscribed Shares constitute less than all of the
Warrant Shares (and as the Company chooses), either
(1) (i) a Stock Certificate, together with (ii) a new
Securities Purchase Warrant, containing the same terms and conditions
as this Warrant, evidencing the Holder's continued right to subscribe
(during the Exercise Period) for the remainder of the Warrant Shares;
or
(2) (i) a Receipt, together with (ii) a new
Securities Purchase Warrant, containing the same terms and conditions
as this Warrant, evidencing the Holder's continued right to subscribe
(during the Exercise Period) for the remainder of the Warrant Shares.
4
<PAGE> 5
5. Transfer of Warrant.
(a) This Warrant shall be registered on the books of the
Company, which shall be kept at its Office for that purpose, and shall be
transferable in whole or in part but only on such books, by the Holder (or
Holder's duly authorized representative) in person or by duly authorized
attorney substantially in the form of Exhibit B hereof, and only in compliance
with paragraph (b) below. The Company may issue appropriate stop orders to its
Secretary or transfer agent to prevent a transfer in violation of this Section 5
and Section 7.
(b) The Holder may transfer this Warrant during the Warrant
Period by completing and signing the transfer form (the "Transfer Form") in the
form of transfer form attached as Exhibit B to this Warrant; provided, however,
that without the prior written consent of the Company, this Warrant and all
rights hereunder may be transferred only (i) to an Affiliate, or (ii) in
accordance with the requirements of Section 7 hereof and pursuant to the
registration of this Warrant or the Warrant Shares under the Securities Laws
(except as otherwise limited by any applicable shareholders buy-sell,
registration rights, or voting agreements binding upon the Holder) or subsequent
to any applicable holding period an exemption under Rule 144 or other exemption
from such registration. If at least fifteen (15) working days before the end of
the Exercise Period the Holder completes and signs the Transfer Form and
surrenders this Warrant to the Secretary at the Company's Office, the Company
shall, within ten (10) working days after this Warrant's surrender, issue to the
transferee or transferees identified on the completed Transfer Form one or more
new Securities Purchase Warrants (containing the same terms and conditions as
this Warrant) evidencing the transferee's or transferees' right or rights to
subscribe (during the Exercise Period) for all or part of the Warrant Shares.
6. Adjustments. The Exercise Price and the number of Warrant Shares
purchasable hereunder are subject to adjustment as follows:
(a) Reclassification, etc. If the Company, at any time while
this Warrant, or any portion thereof, remains outstanding and unexpired by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 6.
(b) Split, Subdivision or Combination of Shares. If the
Company, at any time while this Warrant, or any portion thereof, remains
outstanding and unexpired, shall split, subdivide or combine the securities as
to which purchase rights under this Warrant exist, into a different number of
securities of the same class, then (i) in the case of a split or subdivision,
the Exercise Price for such
5
<PAGE> 6
securities shall be proportionately decreased and the securities issuable upon
exercise of this Warrant shall be proportionately increased, and (ii) in the
case of a combination, the Exercise Price for such securities shall be
proportionately increased and the securities issuable upon exercise of this
Warrant shall be proportionately decreased.
(c) Adjustments for Dividends in Stock or Other Securities or
Property. If while this Warrant, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Warrant exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Warrant shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this
Warrant, and without payment of any additional consideration therefor, the
amount of such other or additional stock or other securities or property (other
than cash) of the Company that such holder would hold on the date of such
exercise had it been the holder of record of the security receivable upon
exercise of this Warrant on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and/or all other additional stock available by it as aforesaid
during such period, giving effect to all adjustments called for during such
period by the provisions of this Section 6.
(d) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 6, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder of this Warrant a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request, at any time, of any such Holder, furnish or cause to be
furnished to such Holder a like certificate setting forth: (i) such adjustments
and readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares and the amount, if any, of other property that at the time
would be received upon the exercise of the Warrant.
(e) No Impairment. The Company will not, by any voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 6
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holders of this Warrant against impairment.
(f) Fractional Shares. No fractional shares or scrip
representing fractional Common Shares shall be issued upon the exercise hereof.
Upon exercise by any Holder, such Holder shall be entitled to receive the
aggregate full number of Common Shares in which all the Warrant Shares being
subscribed for by such Holder may exercise and in lieu of any fractional share
to which such Holder would otherwise be entitled, an amount equal to such
fractional share multiplied by the
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<PAGE> 7
then fair market value (as hereafter defined) of Common Shares shall be paid by
the Company in cash to such holder.
(g) Validity of Shares. All Common Shares which may be issued
upon exercise of this Warrant will, upon issuance, be legally and validly
issued, fully paid and non-assessable and free from all taxes, liens and charges
with respect to the issue thereof.
(h) Fair Market Value. For the purposes of this Section 6, if
the Company's Common Shares shall be regularly traded in any market, its "fair
market value" shall be based on (i) if the Common Shares are listed on a
national stock exchange, the closing price on the principal stock exchange where
the Common Shares are listed and traded, or if there is no trading on a given
day, the mean between the closing bid and asked prices on such day on said
exchange, or (ii) if the Common Shares are not so listed, the mean between the
closing bid and asked prices on the over-the-counter market as furnished by a
national quotation service or the principal broker making a market; and in each
case the daily values so obtained shall be averaged over a period of ten (10)
consecutive trading days immediately prior to the date of the determination and
the average so obtained shall be deemed to be the "fair market value" of the
Common Shares hereunder. If the Common Shares are not regularly traded in any
market, its "fair market value" may be currently determined by the Board of
Directors of the Company for the purpose of any transaction hereunder, and such
determination shall be final and binding upon the Holders if it is made in good
faith and with due care.
7. Sale of Warrant or Warrant Shares. Neither this Warrant nor the
Warrant Shares have been registered under the Securities Act of 1933, as
amended, or under the securities laws of any state. Neither this Warrant nor the
Warrant Shares may be sold, transferred, pledged, or hypothecated, in the
absence of (i) an effective registration statement for this Warrant or the
Warrant Shares, as the case may be, under the Act and such registration or
qualification as may be necessary under the securities laws of any state, or
(ii) an opinion of counsel reasonably satisfactory to the Company that such
registration or qualification is not required. The Company shall cause a
Certificate or Certificates evidencing all or any part of the Warrant Shares
prior to any such registration or qualification of Warrant Shares to bear the
following legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of
any state (the "Securities Laws"). These securities may not be offered,
sold, transferred, pledged, or hypothecated in the absence of
registration under applicable Securities Laws, or the availability of
an exemption therefrom. This Certificate will not be transferred on the
books of the Company or any transfer agent acting on behalf of the
Company except upon the receipt of an opinion of counsel, satisfactory
to the Company, that the proposed transfer is exempt from the
registration requirements of all applicable Securities Laws, or the
receipt of evidence, satisfactory to the Company, that the proposed
transfer is the subject of an effective registration statement under
all applicable Securities Laws.
8. Replacement of Warrant. At the request of the Holder and on
production of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant, the Company at its expense
will issue in lieu thereof a new Warrant of like tenor.
7
<PAGE> 8
9. No Voting Rights. Except as otherwise provided herein, this Warrant
shall not be deemed to confer upon the Holder any right to vote or to consent to
or receive notice as a stockholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a stockholder, prior
to the exercise hereof.
10. Investment Covenant. The Holder by its acceptance of this Warrant
covenants that this Warrant is, and the Warrant Shares issued hereunder will be,
acquired for investment purposes, and that the Holder will not distribute this
Warrant or the Warrant Shares in violation of any state or federal law or
regulations. Holder will also upon execution hereof deliver to the Company an
opinion of Holder's counsel in form and substance reasonably satisfactory to
Company which states the placement of the Warrant to Holder is exempt from the
registration requirements of the Securities Act of 1933, as amended.
11. Lock-Up Agreement. The Holder hereby agrees that until December 9,
1999, the Holder will not, without the prior written consent of the Company,
offer, pledge, margin, sell, contract to sell, grant any option for the sale of,
enter into any hedging or derivatives transaction involving, or otherwise
dispose of, directly or indirectly, any of the Warrant Shares, or the Warrant.
12. Miscellaneous.
(a) This Warrant shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to the
conflict of law principles thereof.
(b) This Warrant shall bind the Company, its successors and
assigns (including any Successor Company), and shall benefit and bind the
Holder, the Holder's successors and permitted assigns.
(c) The Section headings in this Warrant have been included
solely for ease of reference and shall not be considered in the interpretation
or construction of this Warrant. All references in this Warrant to "Sections"
shall be construed as references to numbered Sections of this Warrant.
(d) Any notice or delivery required or permitted by this
Warrant shall be deemed given or made for all purposes of this Warrant when (1)
the notice is in writing, and (2) the notice or the delivery is delivered by
hand or is mailed by registered mail, return receipt requested, addressed to the
intended recipient at (A) in the Company's case, the Company's Office, or (B) in
the Holder's case, the Holder's address as set forth in the Company's records or
at such other address as the Holder may designate by written notice to the
Company.
8
<PAGE> 9
IN WITNESS WHEREOF, this Warrant has been executed as of the date first
above written.
HIGH SPEED ACCESS CORP. MICROSOFT CORPORATION
By /s/ Ron Pitcock By /s/ Microsoft Corporation
-------------------------------- ---------------------------------
Name: Ron Pitcock Name:
----------------------------- ------------------------------
Title: President Title:
---------------------------- -----------------------------
Date: August 3, 1999 Date:
----------------------------- ------------------------------
9
<PAGE> 10
Exhibit A
SUBSCRIPTION FORM TO BE EXECUTED
UPON EXERCISE OF THE WARRANT
Date:________________
To HIGH SPEED ACCESS CORP.:
The undersigned, as Holder, hereby subscribes, at the price and upon the other
terms and conditions set forth on in this Securities Purchase Warrant of which
this subscription form is a part, for _________ shares of the common stock, $.01
par value, of High Speed Access Corp.
MICROSOFT CORPORATION
By:________________________________
Name:______________________________
Title:_____________________________
Address:___________________________
---------------------------
10
<PAGE> 11
Exhibit B
TRANSFER FORM
[To be completed and signed only upon transfer of Warrant before exercise.]
For value received, the undersigned hereby transfers this Warrant
entitling the Holder to subscribe for ________________ shares of the common
stock with $.01 par value of High Speed Access Corp. to
____________________________. The undersigned represents, warrants and covenants
that it has this transfer conforms to the requirements of Section 5 of the
Warrant.
Dated _________________, _______.
----------------------------------
11
<PAGE> 1
EXHIBIT 10.5
Master Lease No. 2392
MASTER AGREEMENT TO LEASE EQUIPMENT
THIS MASTER AGREEMENT TO LEASE EQUIPMENT (this "Agreement") is entered
into as of MAY 18, 1999 by and between CISCO SYSTEMS CAPITAL CORPORATION
("Lessor"), having its principal place of business at 170 West Tasman Drive, San
Jose, California 95134 and HIGH SPEED ACCESS CORP., a Delaware Corporation
("Lessee"), having a principal place of business at 1000 W. Ormsby Avenue, Suite
210, Louisville, KY 40210.
I. THE LEASE
1.1 LEASE OF EQUIPMENT. In accordance with the terms and
conditions of this Agreement, Lessor shall lease to Lessee, and Lessee shall
lease from Lessor, the personal property, including all substitutions,
replacements, repairs, parts and attachments, improvements and accessions
thereto and therein (the "EQUIPMENT"), described in the lease schedule(s) (each,
a "LEASE") to be entered into from time to time into which this Agreement is
incorporated. Each Lease shall constitute a separate, distinct, and independent
lease and contractual obligation of Lessee. Lessor or its assignee shall at all
times retain the full legal title to the Equipment, it being expressly agreed by
both parties that each Lease is an agreement of lease only.
1.2 TERM OF LEASE. The original term (the "ORIGINAL TERM") OF
THE EQUIPMENT shall commence on the Commencement Date and, subject to Sections
3.3 and 3.5 below, shall terminate on the date specified in the Lease.
Notwithstanding the foregoing, the Original Term for the Equipment shall
automatically extend for successive 30-day periods after its expiration (each,
an "EXTENDED TERM") unless either party gives the other party written notice, at
least thirty (30) days prior to the expiration of the Original Term or any
Extended Term, as the case may be, of its intent not to so extend the applicable
Lease. Except as specifically provided in this Section 1.2, no Lease may be
terminated by Lessor or Lessee, for any reason whatsoever, prior to the end of
the Original Term or any Extended Term (collectively, the "LEASE TERM").
Notwithstanding any provision to the contrary contained in this Agreement,
Lessee shall be deemed to accept the Equipment on the Commencement Date (as
specified in each Lease).
1.3 RENTAL PAYMENTS. Lessee shall pay Lessor rent ("RENT") for
the Equipment in the amounts and at the times specified in the Lease. All Rent
and other amounts payable by Lessee to Lessor hereunder shall be paid to Lessor
at the address specified above, or at such other place as Lessor may designate
in writing to Lessee from time to time.
1.4 RETURN OF EQUIPMENT. Upon expiration of the Lease Term of
the Equipment, Lessee shall immediately return the Equipment to Lessor as
provided in Section 3.3 below. If Lessee fails to return any of the Equipment
upon demand therefor by Lessor, Lessee shall pay Lessor, as the measure of
Lessor's damages, the Casualty Value (as defined in the applicable Lease) of
such Equipment.
<PAGE> 2
II. DISCLAIMERS AND WARRANTIES; INTELLECTUAL PROPERTY
2.1 DISCLAIMERS; WARRANTIES. Lessee represents and
acknowledges that the Equipment is of a size, design, capacity and manufacture
selected by it, and that it is satisfied that the Equipment is suitable for its
purposes. LESSOR LEASES THE EQUIPMENT AS IS. AND.
NOT BEING THE MANUFACTURER OF THE EQUIPMENT, THE MANUFACTURER'S AGENT OR THE
SELLER'S AGENT MAKES NO WARRANTY OR REPRESENTATION. EITHER EXPRESS OR IMPLIED,
AS TO THE MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE, DESIGN OR
CONDITION OF THE EQUIPMENT. LESSOR SHALL NOT BE RESPONSIBLE FOR ANY LOSS OR
DAMAGE RESULTING FROM THE INSTALLATION, OPERATION OR OTHER USE, OR
DEINSTALLATION OF THE EQUIPMENT, INCLUDING, WITHOUT LIMITATION, ANY DIRECT,
INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGE OR LOSS. Lessee shall look
solely to the manufacturer or the supplier of the Equipment for correction of
any problems that may arise with respect thereto, and, provided no Event of
Default (as defined in Section 4.1) has occurred and is continuing, all
warranties made by the manufacturer or such supplier are, to the degree
possible, hereby assigned to Lessee for the Lease Term. To the extent any such
warranty requires performance of any kind by the beneficiary of the warranty,
Lessee shall perform in accordance therewith.
2.2 INTELLECTUAL PROPERTY. Except as otherwise expressly
provided in each Lease, LESSOR MAKES NO WARRANTIES OR REPRESENTATIONS WHATSOEVER
WITH RESPECT TO THE INTELLECTUAL PROPERTY RIGHTS, INCLUDING. WITHOUT LIMITATION,
ANY PATENT, COPYRIGHT AND TRADEMARK RIGHTS, OF ANY THIRD PARTY VV1TH RESPECT TO
THE EQUIPMENT, WHETHER RELATING TO INFRINGEMENT OR OTHERWISE. Lessor shall, when
requested in writing by Lessee and at Lessee's cost and expense, exercise rights
of indemnification, if any, for patent, copyright or other intellectual property
infringement obtained from the manufacturer under any agreement for purchase of
the Equipment. If notified promptly in writing of any action brought against
Lessee based on a claim that the Equipment infringes a United States patent,
copyright or other intellectual property right, Lessor shall promptly notify the
manufacturer thereof for purposes of exercising, for the benefit of Lessee,
Lessor's rights with respect to such claim under any such agreement.
III. COVENANTS OF LESSEE
3.1 PAYMENTS UNCONDITIONAL; TAX BENEFITS; ACCEPTANCE. EACH
LEASE SHALL BE A NET LEASE, AND LESSEE'S OBLIGATION TO PAY ALL RENT AND OTHER
SUMS THEREUNDER, AND THE RIGHTS OF LESSOR IN AND TO SUCH PAYMENTS, SHALL BE
ABSOLUTE AND UNCONDITIONAL, AND SHALL NOT BE SUBJECT TO ANY ABATEMENT,
REDUCTION, SETOFF, DEFENSE, COUNTERCLAIM, INTERRUPTION, DEFERMENT OR RECOUPMENT,
FOR ANY
2
<PAGE> 3
REASON WHATSOEVER It is the intent of Lessor, and an inducement to Lessor, to
enter into each Lease, to claim all available tax benefits of ownership with
respect to the Equipment subject thereto. Lessee's acceptance of the Equipment
subject to a Lease shall be conclusively and irrevocably evidenced by Lessee
executing an Acceptance Certificate with respect to such Equipment, and upon
acceptance, such Lease shall be noncancellable for the Lease Term unless
otherwise agreed to in writing by Lessor. Any nonpayment of Rent or other
amounts payable under any Lease shall result in Lessee's obligation to promptly
pay Lessor as additional Rent on such overdue payment, for the period of time
during which it is overdue (without regard to any grace period), interest at a
rate equal to the lesser of (a) fourteen percent (14%) per annum, or (b) the
maximum rate of interest permitted by law.
3.2 USE OF EQUIPMENT. Lessee shall use the Equipment solely in
the conduct of its business, in a manner and for the use contemplated by the
manufacturer thereof, and in compliance with all laws, rules and regulations of
every governmental authority having jurisdiction over the Equipment or Lessee
and with the provisions of all policies of insurance carried by Lessee pursuant
to Section 3.6 below. Lessee shall pay all costs, expenses, fees and charges
incurred in connection with the use and operation of the Equipment.
3.3 DELIVERY; INSTALLATION; RETURN; MAINTENANCE AND REPAIR;
INSPECTION. Lessee shall be solely responsible, at its own expense, for (a) the
delivery of the Equipment to Lessee, (b) the packing, rigging and delivery of
the Equipment back to Lessor, upon expiration or termination of the Lease Term,
in good repair, condition and working order, ordinary wear and tear excepted, at
the location(s) within the continental United States specified by Lessor, and
(c) the installation, de-installation, maintenance and repair of the Equipment.
During the Lease Term, Lessee shall ensure that the Equipment is covered by a
maintenance agreement, to the extent available, with the manufacturer of the
Equipment or such other party, reasonably acceptable to Lessor. Lessee shall, at
its expense, keep the Equipment in good repair, condition and working order,
ordinary wear and tear excepted, and, at the expiration or termination of the
Lease Term, or any renewal term, with respect to any of the Equipment, have such
Equipment inspected and certified acceptable for maintenance service by the
manufacturer. In the event any of the Equipment, upon its return to Lessor, is
not in good repair, condition and working order, ordinary wear and tear
excepted, Lessee shall be obligated to pay Lessor for the out-of-pocket expenses
Lessor incurs in bringing such Equipment up to such status, but not in excess of
the Casualty Value (as defined in the applicable Lease) for such Equipment,
promptly after its receipt of an invoice for such expenses. Lessor shall be
entitled to inspect the Equipment at Lessee's location at reasonable times.
3.4 TAXES. Lessee shall be obligated to pay, and hereby
indemnifies Lessor and its successor and assigns against, and holds each of them
harmless from, all license fees, assessments, and sales, use, property, excise
and other taxes and charges, other than those measured by Lessor's net income,
now and hereafter imposed by any governmental body or agency upon or
with respect to any of the Equipment, or the possession, ownership, use or
operation thereof, or any Lease or the consummation of the transactions
contemplated in any Lease or this Agreement. Notwithstanding the foregoing,
Lessor shall file all required personal property tax returns, and shall
3
<PAGE> 4
pay all personal property taxes payable, with respect to the Equipment, Lessee
shall pay to Lessor, as additional Rent, the amount of all such personal
property taxes within fifteen (15) days of its receipt of an invoice for such
taxes.
3.5 LOSS OF EQUIPMENT. Lessee shall bear the entire risk of
the Equipment being lost, destroyed or otherwise permanently unfit or
unavailable for use from any cause whatsoever (an "EVENT OF LOSS") after it has
been delivered to common carrier for shipment to Lessee. If an Event of Loss
shall occur with respect to any item of Equipment, Lessee shall promptly notify
Lessor thereof in writing. On the rental payment date following Lessor's receipt
of such notice, Lessee shall pay to Lessor an amount equal to the rental payment
or payments due and payable with respect to such item of Equipment on or prior
to such date, plus a sum equal to the Casualty Value of such item of Equipment
as of the date of such payment as set forth in such Lease. Upon the making of
such payment by Lessee regarding any item of Equipment, the Rent for such item
of Equipment shall cease to accrue, the term of this Lease as to such item of
Equipment shall terminate and (except in the case of loss, theft or complete
destruction) Lessor shall be entitled to recover possession of such item of
Equipment in accordance with the provisions of Section 3.3 above. Provided that
Lessor has received the Casualty Value of any item of Equipment, Lessee shall be
entitled to the proceeds of any recovery in respect of such item of Equipment
from insurance or otherwise.
3.6 INSURANCE. Lessee shall obtain and maintain for the Lease
Term at its own expense, property damage and liability insurance and insurance
against loss or damage to the Equipment (including so-called extended coverage),
as a result of theft and such other risks of loss as axe normally maintained on
equipment of the type leased hereunder by company's carrying on the business in
which Lessee is engaged, in such amounts, in such form and with such insurers
as shall be satisfactory to Lessor. Each insurance policy will name Lessee as
insured and Lessor as an additional insured and loss payee thereof as Lessor's
interests may appear and shall provide that it may not be canceled or altered
without at least thirty (30) days prior written notice thereof being given to
Lessor or its successor and assigns.
3.7 INDEMNITY. Except with respect to the gross negligence or
willful misconduct of Lessor, Lessee hereby indemnifies, protects, defends and
holds harmless Lessor and its successors and assigns, from and against any and
all claims, liabilities (including negligence, tort and strict liabilities),
demands, actions, suits, and proceedings, losses, costs, expenses and damages,
including without limitation, reasonable attorneys' fees and costs
(collectively, "CLAIMS"), arising out of, connected with, or resulting from this
Agreement, any Lease or any of the Equipment, including, without limitation, the
manufacture, selection, purchase, delivery, possession, condition, use,
operation, or return of the Equipment. Each of the parties shall give the other
prompt written notice of any Claim of which it becomes aware. The provisions of
this Section 3.7 shall survive the expiration or termination of this Agreement
or any Lease.
3.8 PROHIBITIONS RELATED TO LEASE AND EQUIPMENT. Without the
prior written consent of Lessor, which consent as it pertains to subsections (b)
and (d) below shall not be unreasonably withheld, Lessee shall not: (a) assign,
transfer, pledge, encumber, hypothecate or
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<PAGE> 5
otherwise dispose of this Lease or any rights or obligations thereunder; (b)
sublease any of the Equipment; (c) create or incur, or permit to exist, any lien
or encumbrance with respect to any of the Equipment, or any part thereof; (d)
move any of the Equipment from the location at which it is first installed; or
(e) permit any of the Equipment to be moved outside the continental limits of
the United States.
3.9 IDENTIFICATION. Lessee shall place and maintain permanent
markings provided by Lessor on the Equipment evidencing ownership, security and
other interests therein, as specified from time to time by Lessor.
3.10 ALTERATIONS AND MODIFICATIONS. Lessee shall not make any
additions, attachments, alterations or improvements to the Equipment without the
prior written consent of Lessor. Any addition, attachment, alteration or
improvement to any item of Equipment shall belong to and become the property of
Lessor unless, at the request of Lessor, it is removed prior to the return of
such item of equipment by Lessee. Lessee shall be responsible for all costs
relating to such removal and shall restore such item of Equipment to its
operating condition that existed at the time it became subject to the applicable
Lease.
3.11 EQUIPMENT TO BE PERSONAL PROPERTY. Lessee acknowledges
and represents that the Equipment shall be and remain personal property,
notwithstanding the manner in which it may be attached or affixed to realty, and
Lessee shall do all acts and enter into all agreements necessary to ensure that
the Equipment remains personal property.
3.12 FINANCIAL STATEMENTS. Lessee shall promptly furnish to
Lessor such financial or other statements respecting the condition and
operations of Lessee, and information respecting the Equipment, as Lessor may
from time to time reasonably request.
3.13 LESSEE REPRESENTATIONS. Lessee hereby represents that,
with respect to this Agreement and each Lease: (a) the execution, delivery and
performance thereof by Lessee have been duly authorized by all necessary
corporate action; and (b) the individual executing such document is duly
authorized to do so; (c) such document constitutes a legal, valid and binding
obligations of Lessee, enforceable in accordance with its terms.
IV. DEFAULT AND REMEDIES
4.1 EVENTS OF DEFAULT. The occurrence of any of the following
shall constitute an "Event of Default" hereunder: (a) Lessee shall fail to pay
any Rent or other payment due hereunder within five (5) days after it becomes
due and payable; (b) any representation or warranty of Lessee made in this
Agreement, any Lease, or in any document furnished pursuant to the provisions of
this Agreement or otherwise, shall prove to have been false or misleading in any
material respect as of the date when it was made; (c) Lessee shall fail to
perform any covenant, condition or agreement made by it under any Lease, and
such failure shall continue for twenty (20) days after its receipt of notice
thereof; (d) bankruptcy, receivership, insolvency, reorganization,
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dissolution, liquidation or other similar proceedings shall be instituted by or
against Lessee or all or any part of its property under the Federal Bankruptcy
Code or other law of the United States or of any other competent jurisdiction,
and, if such proceeding is brought against Lessee, it shall consent thereto or
shall fail to cause the same to be discharged within thirty (30) days after it
is filed; (e) Lessee shall default under any agreement with respect to the
purchase or installation of any of the Equipment; or (f)Lessee or any guarantor
of Lessee's obligations under any Lease shall default under any other agreement
with Lessor or Cisco Systems, Inc.
4.2 REMEDIES. If an Event of Default hereunder shall occur and
be continuing, Lessor may exercise any one or more of the following remedies:
(a) terminate any or all of the Leases and Lessee's rights thereunder; (b)
proceed, by appropriate court action or actions, to enforce performance by
Lessee of the applicable covenants of any or all of the Leases or to recover
damages for the breach thereof; (c) recover from Lessee an amount equal to the
sum of (i) all accrued and unpaid Rent and other amounts due under any or all of
the Leases (ii) as liquidated damages for loss of a bargain and not as a
penalty, the present value of (A) the balance of all Rent and other amounts
under any or all of the Leases discounted at a rate of five percent (5%) per
annum, and (B) Lessor's estimated fair market value of the Equipment at the
expiration of the Original Term (d) personally, or by its agents, take immediate
possession of any or all of the Equipment from Lessee and, for such purpose,
enter upon Lessee's premises where any of the Equipment is located with or
without notice or process of law and free from all claims by Lessee; and (e)
require the Lessee to assemble the Equipment and deliver the Equipment to Lessor
at a location which is reasonably convenient to Lessor and Lessee; The exercise
of any of the foregoing remedies by Lessor shall not constitute a termination of
any Lease or this Agreement unless Lessor so notifies Lessee in writing.
4.3 DISPOSITION OF EQUIPMENT. In the event, upon the
occurrence of an Event of Default, Lessor repossesses any of the Equipment,
Lessor may sell or lease any or all of such Equipment, at one or more public or
private sales. The proceeds of (i) any rental of the Equipment for the balance
of the Original Term (discounted to present value at the rate of five percent
(5%) per annum) or (ii) any sale of the Equipment shall be applied to the
payment of (A) all costs and expenses (including, without limitation, reasonable
attorneys' fees) incurred by Lessor in retaking possession of, and removing,
storing, repairing, refurbishing and selling or leasing such Equipment and (B)
the obligations of Lessee to Lessor pursuant to this Agreement. Lessee shall
remain liable to Lessor for any deficiency.
4.4 THIRD PARTY CURE RIGHTS. The person(s) or entities
identified on Schedule 4.4 attached hereto (the "Cable Companies"), will have
the following "cure rights" as third party beneficiaries under this Agreement.
If Lessee is in default under Section 4.1 of this Agreement, Lessor will give
Lessee written notice prior to taking possession or control of the Equipment. If
Lessee does not cure the default within 3 business days after the date of
written notice, Lessor will give each of the Cable Companies ninety (90) days
advance written notice prior to taking possession or control of the Equipment or
requiring Lessee to assemble and deliver Equipment to Lessor. Within ninety (90)
days of the date of Lessor's notice to the Cable Companies, respectively, each
Cable Company may cure Lessee's default with respect to the Equipment, in which
event Lessor will
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not take possession or control of the same or require Lessee to assemble and
deliver the same to Lessor so long as no new Event of Default has occurred and
is continuing.
4.5 DEFAULT RESERVE. Lessee shall deliver to Lessor a
non-refundable default reserve (the "Default Reserve") in an amount equal to
three monthly Rent payments due under each Lease on or before the effective date
of each such Lease. Notwithstanding any provision to the contrary contained in
Section 4.4 above, Lessor may, without notice to or demand upon Lessee, apply
any amounts on deposit in the Default Reserve to satisfy any monetary Event of
Default existing under this Agreement or any Lease. Following any such
application of amounts in the Default Reserve by Lessor, Lessee shall, within
five (5) days after written notice from Lessor, deliver to Lessor funds
sufficient to restore the funds on deposit in the Default Reserve to the amount
of the original deposit. Failure to deliver such funds to Lessor shall
constitute an Event of Default under this Agreement and the applicable Lease
and, subject to the terms of Section 4.4 above, Lessor shall thereafter have the
right to exercise any and all rights and remedies available to Lessor under this
Agreement or the applicable Lease. Lessor may apply the amounts on deposit in
the Default Reserve to Lessee's rent payment obligations for the final three
months of the Lease Term.
V. MISCELLANEOUS
5.1 PERFORMANCE OF LESSEE'S OBLIGATIONS. Upon Lessee's failure
to pay Rent (or any other sum due hereunder) or perform any obligation hereunder
when due, Lessor shall have the right, but shall not be obligated, to pay such
sum or perform such obligation, whereupon such sum or cost of such performance
shall immediately become due and payable hereunder as additional Rent, with
interest thereon at the highest legal rate from the date such payment or
performance was made.
5.2 QUIET ENJOYMENT. So long as no Event of Default shall have
occurred and be continuing, neither Lessor nor its assignee shall interfere with
Lessee's right of quiet enjoyment and use of the Equipment.
5.3 FURTHER ASSURANCES. Lessee shall, upon the request of
Lessor, from time to time, execute and deliver such further documents and do
such further acts as Lessor may reasonably request in order fully to effect the
purpose of any release and Lessor's rights thereunder. Lessor is authorized to
file a financing statement, signed only by Lessor in accordance with the Uniform
Commercial Code or signed by Lessor as Lessee's attorney in fact, with respect
to any of the Equipment.
5.4 RIGHT AND REMEDIES. Each and every right and remedy
granted to Lessor under any Lease shall be cumulative and in addition to any
other right or remedy therein specifically granted or now or hereafter existing
in equity, at law, by virtue of statute or otherwise, and may be exercised by
Lessor from time to time concurrently or independently and as often and in such
order as Lessor may deem expedient. Any failure or delay on the part of Lessor
in exercising any such right or remedy, or abandonment or discontinuance of
steps to enforce the same, shall not operate
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as a waiver thereof or affect Lessor's right thereafter to exercising the same.
Waiver of any right or remedy on one occasion shall not be deemed to be a waiver
of any other right or remedy or of the same right or remedy on any other
occasion.
5.5 NOTICES. Any notice, request, demand, consent, approval or
other communication provided for or permitted hereunder shall be in writing and
shall be conclusively deemed to have been received by a party hereto on the day
it is delivered to such party at its address set forth above (or at such other
addresses such party shall specify to the other party in writing), or if sent by
registered or certified mail, return receipt requested, on the fifth day after
the day on which it is mailed, postage prepaid, addressed to such party.
5.6 SECTION HEADINGS; COUNTERPARTS. Section headings are
inserted for convenience of reference only and shall not affect any construction
or interpretation of this Agreement. This Agreement and each Lease may be
executed in counterparts, and when so executed each counterpart shall be deemed
to be an original, and such counterparts together shall constitute one and the
same instrument.
5.7 ENTIRE LEASE. This Agreement and each Lease constitute the
entire agreement between Lessor and Lessee with respect to the lease of the
Equipment. No amendment of, or any consent with respect to, any provision of
this Agreement or any Lease shall bind either party unless set forth in a
writing, specifying such waiver, consent, or amendment, signed by both parties.
TO THE EXTENT PERMITTED BY APPLICABLE LAW AND NOT OTHERWISE SPECIFICALLY
PROVIDED TO LESSEE IN THIS AGREEMENT, LESSEE HEREBY WAIVES ANY AND ALL RIGHTS OR
REMEDIES CONFERRED UPON A LESSEE UNDER THE CALIFORNIA COMMERCIAL CODE, AND ANY
OTHER APPLICABLE SIMILAR CODE OR STATUTES OF ANOTHER JURISDICTION, WITH RESPECT
TO ,6 DEFAULT BY LESSOR UNDER THIS AGREEMENT OR ANY LEASE.
5.8 SEVERABILITY. Should any provision of this Agreement or
any Lease be or become invalid, illegal, or unenforceable under applicable law,
the other provisions of this Agreement and such Lease shall not be affected and
shall remain in full force and effect.
5.9 ATTORNEYS' FEES. Should either party institute any action
or proceeding to enforce this Agreement or any Lease, the prevailing party shall
be entitled to receive from the other party all reasonable out-of-pocket costs
and expenses, including, without limitation, attorneys' fees.
5.10 GOVERNING LAW AND JURISDICTION. THIS LEASE SHALL BE
GOVERNED IN ALL RESPECTS BY THE LAWS OF THE STATE OF CALIFORNIA
WITH RESPECT TO AGREEMENTS ENTERED INTO, AND TO BE PERFORMED, ENTIRELY IN
CALIFORNIA. LESSOR AND LESSEE WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY
LITIGATION ARISING FROM THIS AGREEMENT OR ANY LEASE. LESSEE CONSENTS TO THE
NON-EXCLUSIVE JURISDICTION OF THE STATE
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COURTS OF CALIFORNIA, AND THE FEDERAL COURTS SITTING IN THE STATE OF CALIFORNIA,
FOR THE RESOLUTION OF ANY DISPUTES HEREUNDER.
5.11 SURVIVAL. All obligations of Lessee to make payments to
Lessor under any Lease or to indemnify Lessor, pursuant to Section 3.4 or 3.7
above, with respect to a Lease, and all rights of Lessor hereunder with respect
to a Lease, shall survive the termination of such Lease.
LESSEE, BY THE SIGNATURE BELOW OF ITS AUTHORIZED REPRESENTATIVE, ACKNOWLEDGES
THAT IT HAS READ THIS LEASE, UNDERSTANDS IT, AND AGREES TO BE BOUND BY ITS TERMS
AND CONDITIONS.
LESSOR: LESSEE:
CICSO SYSTEMS CAPITAL HIGH SPEED ACCESS CORP.
CORPORATION
By: /s/ Cisco Systems Capital Corporation By: /s/ High Speed Access Corp.
------------------------------------- ----------------------------
(Authorized Signature) (Authorized Signature)
- ----------------------------------------- --------------------------------
(Name/Title) (Legal Name/Title)
- ----------------------------------------- --------------------------------
(Date) (Date)
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SCHEDULE 4.4
to Master Agreement to Lease Equipment
List of Cable Companies
Charter Communications
Vulcan Ventures
Marcus Cable, Inc.
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<PAGE> 1
EXHIBIT 10.6
THIS WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN ACQUIRED IN A TRANSACTION NOT INVOLVING ANY PUBLIC
OFFERING AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT"), OR THE LAWS OF ANY STATE. NEITHER THIS WARRANT NOR
SUCH SECURITIES MAY BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM UNDER SUCH ACT, THE LAWS OF ANY APPLICABLE STATE, THE
PROVISIONS OF THIS WARRANT, OR THE RECEIPT BY THE ISSUER OF AN OPINION OF
COUNSEL, WHICH SHALL BE REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT
THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE ACT AND SUCH STATE
SECURITIES LAWS.
______, 1999
SECURITIES PURCHASE WARRANT
to Subscribe for and Purchase Common Stock
of
HIGH SPEED ACCESS CORP.
Void If Not Exercised During The Exercise Period Described Herein
Warrant No. R-____
1. Grant of Warrant; Conditional Exercise. THIS CERTIFIES that, for
value received, ___________________________, or its permitted assigns (the
"Holder"), is entitled, subject to the terms and conditions hereinafter set
forth, to earn on or prior to December 31, ____, subscribe for and purchase from
High Speed Access Corp., a Delaware corporation (hereinafter called the
"Company"), at any time on or prior to December 31, ____, during the Exercise
Period, not more than ____________________ (_______), fully paid, nonassessable
shares of the Company's post Qualified Public Offering Common Stock, $0.01 par
value, of the Company (i.e., the "Maximum Number of Warrant Shares") at the
price equal to the Exercise Price (defined below). This Securities Purchase
Warrant ("Warrant") is issued pursuant to the terms and conditions of, and is
qualified by and subject to, Sections 1.14, 2.1 and 5 of a certain Systems
Access Agreement (defined below), which is incorporated herein by reference.
This Warrant may not be exercised unless accompanied by a signed Subscription
Form in the form attached hereto as Exhibit A.
2. Definitions. Unless otherwise defined herein, as used in this
Securities Purchase Warrant, the following terms shall have the meanings
ascribed to them as follows:
(a) "Affiliate" means, with respect to the Holder, any entity
or person controlled, directly or indirectly, by ____________________ or related
by common ownership.
<PAGE> 2
As used in the foregoing sentence, "controlled" means (i) with respect to any
entity, the ability to exercise voting power with respect to at least 50% of the
outstanding voting securities of such entity.
(b) "Cable System" shall have the meaning given it in
Section 1.2 of the Systems Access Agreement.
(c) "Common Stock" means the shares of common stock of $.01
par value that the Company is authorized to issue in accordance with its Amended
Certificate of Incorporation, and all securities into which such Common Stock is
exchanged or converted.
(d) "Company" means High Speed Access Corp., a Delaware
corporation, or such successor company as may result from any merger or other
business combination or reorganization of High Speed Access Corp.
(e) "Committed System" shall have the meaning given it in
Section 1.3 of the Systems Access Agreement.
(f) "Effective Date" means the date on which the Holder
satisfies the Minimum Commitment which shall cause Warrant Shares to become
automatically issuable in accordance with the provisions hereof and the Systems
Access Agreement, and which shall in no event be later than December 31, ____.
(g) "Exercise Period" means, with respect to any Warrant
Share, subject to any extension or extensions of the period pursuant to Section
7(c), the period beginning on the Effective Date of this Warrant and ending on
December 31, ____.
(h) "Exercise Price" means ________ Dollars ($_____) per share
(adjusted if appropriate pursuant to Sections 6 or 7).
(i) "Holder" means ___________________________, or any other
Person to whom this Warrant is transferred in accordance with Section 5 hereof.
(j) "Homes Passed" shall have the meaning given it in Section
1.11 of the Systems Access Agreement.
(k) "Network Services Agreement" means the Network Services
Agreement dated _____________, between the Company and ____________________.
(l) "Office" means the Company's office at 1000 W. Ormsby Ave,
Suite 210, Louisville, KY 40210, or such other office as the Company may
designate by written notice to the Holder.
(m) "Person" means any person, firm, Company, or other entity.
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(n) "Receipt" means a written receipt, deliverable by the
Company to the Holder pursuant to Section 4, (a) acknowledging the Company's
receipt of the Exercise Price and the Holder's timely and proper exercise of
this Warrant, and (b) obligating the Company to issue a Stock Certificate to the
Holder within 30 working days after this Warrant's surrender to the Company.
(o) [Left Intentionally Blank]
(p) "Secretary" means John G. Hundley or his duly elected and
qualified successor as the Company's Secretary, or any duly elected and
qualified Assistant Secretary of the Company.
(q) "Securities Laws" means the Securities Act of 1933, as
amended, or the securities laws of any state, or any similar successor federal
or state statutes and rules and regulations thereunder, all as the same shall be
in effect from time to time.
(r) "Stock Certificate" means an appropriate certificate
issued in the Holder's name representing the Subscribed Shares.
(s) "Subscribed Shares" means, collectively, the number of
whole Warrant Shares that the Holder designates on the Subscription Form as
Warrant Shares that the Holder wishes to purchase upon this Warrant's surrender
to the Company, which shall not exceed _______ shares of Common Stock (adjusted,
if appropriate, pursuant to Sections 6).
(t) Subscription Form" means the subscription form attached as
Exhibit A to this Warrant.
(u) "Systems Access Agreement" means a certain Systems Access
Agreement dated _____________, between the Company and ____________________.
(v) "Warrant" means this Securities Purchase Warrant.
(w) "Warrant Period" means the period beginning on the date
hereof and ending on the last date of the Exercise Period.
(x) "Warrant Shares" means, collectively, the minimum and
maximum number of shares of Common Stock that this Warrant entitles the Holder
to subscribe for and receive upon the Holder's exercise of this Warrant in
accordance with Section 3, or, as appropriate if the context requires, these
same shares of Common Stock as they may be issued and outstanding in the hands
of the Holder after exercise of this Warrant.
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3. Exercise of Warrant.
(a) This Warrant entitles the Holder to earn, from
time-to-time and upon the terms and conditions set forth in this Warrant but in
no event later than the Effective Date, and purchase during the Exercise Period,
Subscribed Shares in any amount equal to the number of Homes Passed (not to
exceed _______) in Cable Systems which the Operator has designated as Committed
Systems, on a ___ (__) Warrant Share per each Home Passed basis, as the case may
be), in accordance with Section 5.1 of the Systems Access Agreement; provided
that:
(1) the number of Subscribed Shares issuable under
this Warrant, to the extent of the Committed Systems designated under
Sections 2.1 and 2.2 of the Systems Access Agreement, will be canceled
and deemed forfeited by Holder (or its permitted transferee) in the
event (i) any Operator withdraws Committed Systems under the Network
Agreement for any reason other than pursuant to Section 13 of the
Network Agreement or, (ii) subject to the clustering requirements of
Section 4.2 of this Agreement, HSAC declines or is unable to deliver
service to the Committed Systems within 180 days of notice by Holder
except to the extent Holder or such Operator replaces the Homes Passed
in such withdrawn Committed System with the same number of Homes Passed
in another Committed System(s)or additional Committed Systems,
provided, that if at any time prior to December 31, ____ (i) Holder has
exercised any Warrants hereunder or any Class B Warrants applicable to
Homes Passed in a Committed System, (ii) any Operator withdraws a
Committed System from the Network Agreement for any reason other than
pursuant to Section 13 of the Network Agreement, and (iii) Operators
have not replaced the Homes Passed in such withdrawn Committed System
with at least the number of Homes Passed as of December 31, ____, the
parties shall effect a reconciliation of the total number of Homes
Passed in all Committed Systems under the Systems Access Agreement, and
the number of Warrant Shares. If such reconciliation reveals that the
total number of Homes Passed in all Committed Systems under the Systems
Access Agreement is different than the total number of all outstanding
Warrant Shares (the "Shortfall"), then the number of Warrant Shares
issuable hereunder will be adjusted upward or downward, and the
Shortfall will be canceled and deemed forfeited by Holder (or its
permitted transferee), as the case may be. If the number of unexercised
Warrants then held by ____________________ is insufficient to cover the
Shortfall, then ____________________ (or its permitted transferee)
shall return to HSAC a number of Warrant Shares necessary to meet the
Shortfall, and HSAC shall refund to ____________________ the exercise
price paid by ____________________ for such returned Warrant Shares.;
(2) the inspection and commissioning procedures set
forth in Section 2.3 of the Network Agreement have been satisfied, and
(3) at no time may the number of such Subscribed
Shares/Warrant Shares exceed, in the aggregate, the Maximum Number of
Warrant Shares.
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(b) To exercise this Warrant an authorized officer of Holder
(or its permitted transferee) shall, during the Exercise Period, on the day the
Holder wishes to exercise this Warrant (the "Exercise Date"):
(1) Complete and certify the Subscription Form by
designating the number of Subscribed Shares to which the Holder (or
such permitted transferee) is entitled to exercise and wishes to
exercise pursuant to such Subscription Form and Section 1 hereof (which
may be less than or equal to the Maximum Number of Warrant Shares);
(2) Surrender this Warrant to the Secretary at the
Company's Office, and
(3) Upon the surrender of this Warrant to the
Secretary, deliver to the Secretary at the Company's Office a certified
or cashier's check payable to the Company's order in an amount equal to
(i) the number of Subscribed Shares, times (ii) the Exercise Price.
In the event the Company has completed a Qualified Public Offering and Holder
has satisfied the Minimum Commitment, the Holder may at its option, in lieu of
tendering a certified or cashier's check as provided in subparagraph (3) above,
exercise this Warrant by submitting, during normal business hours, a duly
executed exercise notice marked to reflect "Net Issue Exercise," and specifying
the number of shares of Warrant Shares to be exercised. Upon a Net Issue
Exercise, Holder shall be entitled to receive Warrant Shares equal to the value
of this Warrant (or the portion thereof being exercised by Net Issue Exercise)
by surrender of this Warrant to the Company together with notice of such
election, in which event the Company shall issue to Holder a number of shares of
the Company's Common Stock computed as of the date of surrender of this Warrant
to the Company using the following formula:
X = Yx(A-B)
-------
A
Where X = the number of Warrant Shares to be issued to Holder;
Y = the number of Warrant Shares purchasable under this Warrant
(at the date of such calculation).
A = the Current Market Price of one share of the Company's Common
Stock (at the date of such calculation);
B = the Exercise Price (as adjusted to the date of such
calculation).
As used above, "Current Market Price" means, if the Company's Common Stock is
traded on a national securities exchange, the NASDAQ National Market System or
the over-the-counter market, the average of the last reported price over the
five (5) trading days immediately preceding the date
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<PAGE> 6
of valuation at which the Common Stock has traded on such national securities
exchange, the NASDAQ National Market System or the average of the bid and asked
prices on the over-the-counter market on the date of valuation.
(c) Notwithstanding any delay in the actual issuance of a
Stock Certificate or Receipt pursuant to Section 4 hereof, the Warrant Shares
shall be deemed issued for all purposes as of the opening of business on the
Exercise Date subject to the provisions of Section 6.1.3 of the Systems Access
Agreement, and the Holder shall for all purposes be deemed to be the holder of
record of the Subscribed Shares to which the Receipt or the Stock Certificate
pertains.
4. Issuance of Certificate for Subscribed Shares. Upon the Holder's
exercise of this Warrant in accordance with Section 3, the Company shall deliver
to the Holder:
(a) If the Subscribed Shares constitutes the Maximum Number of
Warrant Shares (and as the Company chooses), either (1) a Stock Certificate, or
(2) a Receipt.
(b) If the Subscribed Shares constitute less than the Maximum
Number of Warrant Shares (and as the Company chooses), either
(1) (i) a Stock Certificate, together with (ii) a new
Securities Purchase Warrant, containing the same terms and conditions
as this Warrant, evidencing the Holder's continued right to subscribe
(during the Exercise Period) for the remainder of the Maximum Number of
Warrant Shares; or
(2) (i) a Receipt, together with (ii) a new
Securities Purchase Warrant, containing the same terms and conditions
as this Warrant, evidencing the Holder's continued right to subscribe
(during the Exercise Period) for the remainder of the Maximum Number of
Warrant Shares.
5. Transfer of Warrant.
(a) This Warrant shall be registered on the books of the
Company, which shall be kept at its Office for that purpose, and shall be
transferable in whole or in part but only on such books, by the Holder (or
Holder's duly authorized representative) in person or by duly authorized
attorney substantially in the form of Exhibit B hereof, and only in compliance
with paragraph (b) below. The Company may issue appropriate stop orders to its
Secretary or transfer agent to prevent a transfer in violation of this Section 5
and Section 7.
(b) The Holder may transfer this Warrant during the Warrant
Period by completing and signing the transfer form (the "Transfer Form") in the
form of transfer form attached as Exhibit B to this Warrant; provided, however,
that without the prior written consent of the Company, this Warrant and all
rights hereunder may be transferred only (i) to an Affiliate, or (ii? in
accordance with the requirements of Section 7 hereof and pursuant to the
registration of this Warrant
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or the Warrant Shares under the Securities Laws (except as otherwise limited by
any applicable shareholders buy-sell, registration rights, or voting agreements
binding upon the Holder) or subsequent to any applicable holding period an
exemption under Rule 144 or other exemption from such registration. If at least
fifteen (15) working days before the end of the Exercise Period the Holder
completes and signs the Transfer Form and surrenders this Warrant to the
Secretary at the Company's Office, the Company shall, within ten (10) working
days after this Warrant's surrender, issue to the transferee or transferees
identified on the completed Transfer Form one or more new Securities Purchase
Warrants (containing the same terms and conditions as this Warrant) evidencing
the transferee's or transferees' right or rights to subscribe (during the
Exercise Period) for all or part of the Warrant Shares.
(c) Piggyback Registration. If the Company at any time or from
time to time proposes to register any shares of its Common Stock for any holder
thereof (a "Secondary Registration") under the Securities Act of 1933, as
amended (the "Act") (except with respect to any registration statement filed on
Form S-8 or Form S4 or such other similar form then in effect under the Act), it
will, at each such time promptly give written notice to Operator of its
intention to do so, together with the name of the proposed underwriter(s), if
any, and, upon Operator's written request, which must be given within twenty
(20) days after receipt of such notice (which request shall state the number of
shares of Common Stock desired to be registered by Operator), the Company will
use its best efforts to cause to be included in the Secondary Registration such
shares of Common Stock held by Operator pro rata on the basis of the number of
shares held by Operator and other selling stockholders requested to be included
in the Secondary Registration (provided, however, that the Company may at any
time withdraw or cease proceeding with any such Secondary Registration if it
shall at the same time withdraw or cease proceeding with the registration of
such other shares of Common Stock originally proposed by it to be registered).
Operator shall pay its pro rata portion of all registration and selling expenses
in connection with the Secondary Registration, including, without limitation,
all registration and filing fees, printing expenses, listing fees, fees and
disbursements of counsel and accountants, fees of the NASD, transfer taxes, fees
of transfer agents and all underwriting discounts and selling commissions
applicable to the sale of the shares. In any underwritten Secondary
Registration, the Operator shall enter into an underwriting agreement containing
reasonable and customary representations, warranties and indemnities, and will
complete and execute all questionnaires, powers of attorney and other reasonable
and customary documents reasonably required under the terms of such underwriting
agreement or otherwise in order to facilitate the sale of the shares pursuant
thereto.
In connection with any Secondary Registration in which Operator is
participating, Operator will furnish to the Company in writing such information
with respect to Operator as the Company or the underwriters reasonably request
for use in connection with any such registration statement or prospectus and
shall indemnify the Company, its directors and officers and each person who
controls the Company (within the meaning of the Act) against any losses, claims,
damages, liabilities and expenses, joint or several (including reimbursement of
legal fees and any amounts paid in settlement), to which the Company or any such
other persons may become subject under any applicable laws arising out of, based
upon or otherwise caused by any untrue or alleged untrue
7
<PAGE> 8
statement of a material fact or any omission or alleged omission of a material
fact required to be stated in the registration statement, prospectus or
preliminary prospectus (or any amendment thereof or supplement thereto) or
necessary to make the statements therein (in the case of a prospectus or
preliminary prospectus, in the light of the circumstances under which they were
made) not misleading, to the extent that such untrue statement or omission is
contained in any information with respect to Operator so furnished in writing by
Operator.
6. Adjustments. The Exercise Price and the number of Warrant Shares
purchasable hereunder are subject to adjustment from and after the Effective
Date as follows:
(a) Reclassification, etc. If the Company, at any time while
this Warrant, or any portion thereof, remains outstanding and unexpired by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 6.
(b) Split, Subdivision or Combination of Shares. If the
Company, at any time while this Warrant, or any portion thereof, remains
outstanding and unexpired, shall split, subdivide or combine the securities as
to which purchase rights under this Warrant exist, into a different number of
securities of the same class, then (i) in the case of a split or subdivision,
the Exercise Price for such securities shall be proportionately decreased and
the securities issuable upon exercise of this Warrant shall be proportionately
increased, and (ii) in the case of a combination, the Exercise Price for such
securities shall be proportionately increased and the securities issuable upon
exercise of this Warrant shall be proportionately decreased.
(c) Adjustments for Dividends in Stock or Other Securities or
Property. If while this Warrant, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Warrant exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or Property (other than cash) of the Company by way of dividend, then
and in each case, this Warrant shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this
Warrant, and without payment of any additional consideration therefor, the
amount of such other or additional stock or other securities or Property (other
than cash) of the Company that such holder would hold on the date of such
exercise had it been the holder of record of the security receivable upon
exercise of this Warrant on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and/or all other additional stock available by it as aforesaid
during such period, giving effect to all adjustments called for during such
period by the provisions of this Section 6.
8
<PAGE> 9
(d) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 6, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder of this Warrant a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request, at any time, of any such Holder, furnish or cause to be
furnished to such Holder a like certificate setting forth: (i) such adjustments
and readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares and the amount, if any, of other Property that at the time
would be received upon the exercise of the Warrant.
(e) No Impairment. The Company will not, by any voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 6
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holders of this Warrant against impairment.
(f) Fractional Shares. No fractional shares or scrip
representing fractional Common Shares shall be issued upon the exercise hereof.
Upon exercise by any Holder, such Holder shall be entitled to receive the
aggregate full number of Common Shares in which all the Warrant Shares being
subscribed for by such Holder may exercise and in lieu of any fractional share
to which such Holder would otherwise be entitled, an amount equal to such
fractional share multiplied by the then fair market value (as hereafter defined)
of Common Shares shall be paid by the Company in cash to such holder.
(g) Validity of Shares. All Common Shares which may be issued
upon exercise of this Warrant will, upon issuance, be legally and validly
issued, fully paid and non-assessable and free from all taxes, liens and charges
with respect to the issue thereof.
(h) Fair Market Value. For the purposes of this Section 6, if
the Company's Common Shares shall be regularly traded in any market, its "fair
market value" shall be based on (i) if the Common Shares are listed on a
national stock exchange, the closing price on the principal stock exchange where
the Common Shares are listed and traded, or if there is no trading on a given
day, the mean between the closing bid and asked prices on such day on said
exchange, or (ii) if the Common Shares are not so listed, the mean between the
closing bid and asked prices on the over-the-counter market as furnished by a
national quotation service or the principal broker making a market; and in each
case the daily values so obtained shall be averaged over a period of ten (10)
consecutive trading days immediately prior to the date of the determination and
the average so obtained shall be deemed to be the "fair market value" of the
Common Shares hereunder. If the Common Shares are not regularly traded in any
market, its "fair market value" may be currently determined by the Board of
Directors of the Company for the purpose of any transaction hereunder, and such
determination shall be final and binding upon the Holders if it is made in good
faith and with due care.
9
<PAGE> 10
7. Sale of Warrant or Warrant Shares. Neither this Warrant nor the
Warrant Shares have been registered under the Securities Act of 1933, as
amended, or under the securities laws of any state. Neither this Warrant nor the
Warrant Shares may be sold, transferred, pledged, or hypothecated, in the
absence of (i) an effective registration statement for this Warrant or the
Warrant Shares, as the case may be, under the Act and such registration or
qualification as may be necessary under the securities laws of any state, or
(ii) an opinion of counsel reasonably satisfactory to the Company that such
registration or qualification is not required. The Company shall cause a
Certificate or Certificates evidencing all or any part of the Warrant Shares
prior to any such registration or qualification of Warrant Shares to bear the
following legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of
any state (the "Securities Laws"). These securities may not be offered,
sold, transferred, pledged, or hypothecated in the absence of
registration under applicable Securities Laws, or the availability of
an exemption therefrom. This Certificate will not be transferred on the
books of the Company or any transfer agent acting on behalf of the
Company except upon the receipt of an opinion of counsel, satisfactory
to the Company, that the proposed transfer is exempt from the
registration requirements of all applicable Securities Laws, or the
receipt of evidence, satisfactory to the Company, that the proposed
transfer is the subject of an effective registration statement under
all applicable Securities Laws.
8. Replacement of Warrant. At the request of the Holder and on
production of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant, the Company at its expense
will issue in lieu thereof a new Warrant of like tenor.
9. No Voting Rights. Except as otherwise provided herein, this Warrant
shall not be deemed to confer upon the Holder any right to vote or to consent to
or receive notice as a stockholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a stockholder, prior
to the exercise hereof.
10. Investment Covenant. The Holder by its acceptance of this Warrant
covenants that this Warrant is, and the Warrant Shares issued hereunder will be,
acquired for investment purposes, and that the Holder will not distribute this
Warrant or the Warrant Shares in violation of any state or federal law or
regulations. Holder will also upon execution hereof deliver to the Company an
opinion of Holder's counsel in form and substance reasonably satisfactory to
Company which states the placement of the Warrant to Holder is exempt from the
registration requirements of the Securities Act of 1933, as amended.
11. Lock-Up Agreement. The Holder hereby agrees that for a period of
six (6) months after the effective date of the closing of a Qualified Public
Offering of the Company's Common Stock pursuant to a registration statement
filed under the Act, the Holder will not, without the prior written consent of
the Company, offer, pledge, margin, sell, contract to sell, grant any option for
the sale of, enter into any hedging or derivatives transaction involving, or
otherwise dispose of, directly or indirectly, any of the Warrant Shares, or the
Warrant.
10
<PAGE> 11
12. Miscellaneous.
(a) This Warrant shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to the
conflict of law principles thereof.
(b) This Warrant shall bind the Company, its successors and
assigns (including any Successor Company), and shall benefit and bind the
Holder, the Holder's successors and permitted assigns.
(c) The Section headings in this Warrant have been included
solely for ease of reference and shall not be considered in the interpretation
or construction of this Warrant. All references in this Warrant to "Sections"
shall be construed as references to numbered Sections of this Warrant.
(d) Any notice or delivery required or permitted by this
Warrant shall be deemed given or made for all purposes of this Warrant when (1)
the notice is in writing, and (2) the notice or the delivery is delivered by
hand or is mailed by registered mail, return receipt requested, addressed to the
intended recipient at (A) in the Company's case, the Company's Office, or (B) in
the Holder's case, the Holder's address as set forth in the Company's records or
at such other address as the Holder may designate by written notice to the
Company.
IN WITNESS WHEREOF, this Warrant has been executed as of the _____day
of _________.
HIGH SPEED ACCESS CORP. _____________________________________
By____________________________________ By___________________________________
Name:_________________________________ Name:________________________________
Title:________________________________ Title:_______________________________
Date:_________________________________ Date:________________________________
11
<PAGE> 12
Exhibit A
SUBSCRIPTION FORM TO BE EXECUTED
UPON EXERCISE OF THE WARRANT
Date:_______________
To HIGH SPEED ACCESS CORP.:
The undersigned, as Holder, hereby subscribes, at the price and upon the other
terms and conditions set forth on in this Securities Purchase Warrant of which
this subscription form is a part, for ________ shares of the common stock, $.01
par value, of High Speed Access Corp.
------------------------------------------
By:_______________________________________
Name:_____________________________________
Title:____________________________________
Address:__________________________________
----------------------------------
12
<PAGE> 13
Exhibit B
TRANSFER FORM
[To be completed and signed only upon transfer of Warrant before exercise.]
For value received, the undersigned hereby transfers this Warrant
entitling the Holder to subscribe for __________shares of the common stock with
$.01 par value of High Speed Access Corp. to ______________________________. The
undersigned represents, warrants and covenants that it has this transfer
conforms to the requirements of Section 5 of the Warrant.
Dated _______________, _____
------------------------------------------
13
<PAGE> 1
EXHIBIT 10.7
ADDITIONAL SYSTEM NOTICE
AND
PARTIAL HSAC SERVICES SUPPLEMENT
This is an Additional System Notice and Partial HSAC Services
Supplement dated as of April 28, 1999 ("Notice and Supplement"), between:
CHARTER COMMUNICATIONS, INC.
12444 Powerscourt Dr., Suite 400
St. Louis, MO 63131 ("Charter")
and
HIGH SPEED ACCESS CORP.
1000 West Ormsby Ave., Suite 210
Louisville, KY 40210 ("HSAC")
Recitals
A. Charter and HSAC are parties to a Systems Access and Investment
Agreement and a Network Services Agreement, each dated November 25, 1998 (the
"Primary Service Agreements").
B. Charter and HSAC wish to enter into this Notice and Supplement to
provide for Charter's election to commit its Cable Systems in Montivallo,
Alabama (61,000 Homes Passed) and Gardendale, Alabama (45,000 Homes Passed)
(together, the "Birmingham Systems") to the deployment of Partial HSAC Services
(defined below) as Committed Systems under the Primary Service Agreements.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties agrees as follows:
1. Unless otherwise defined herein, all capitalized terms used in this
Notice and Supplement shall have the meanings given them in the Primary Service
Agreements.
2. Charter hereby designates the Birmingham Systems as Committed
Systems under the Primary Service Agreements; provided, that HSAC shall be
obligated only to provide Partial HSAC Services (defined in paragraph 3 below)
to the Birmingham Systems under the Primary Service Agreements. Charter agrees
that HSAC's covenants, responsibilities, representations and warranties, and
indemnities under the Primary Service Agreements with respect to the Birmingham
Systems shall apply only insofar as they are reasonably consistent with the
provisioning and rendition of Partial HSAC Services. HSAC agrees that for
purposes of rendering Partial HSAC Services to the Birmingham Systems, HSAC's
Share (Exhibit D to the Network Services Agreement) of Gross Revenues shall be
the greater of 19% of Gross Revenues or $5.50 per Data Subscriber.
1
<PAGE> 2
3. As used in this Notice and Supplement, "Partial HSAC Services" means
HSAC Services (as defined in the Primary Service Agreements), but excluding any
services or activities related to:
(a) network design and procurement of head end/HSAC Network
Equipment and telecommunications circuits/Internet backbone
transport (unless otherwise agreed);
(b) post-installation beta testing of the HSAC Network Equipment;
(c) the purchase/rental and installation of Home Equipment
Packages;
(d) billing of Data Subscribers;
(e) Data Subscriber acquisition, sign-up, modem provisioning, and
sales and marketing (and compliance with Minimum Penetration
Rates);
(f) Tier 3 NOC/Customer Support (as described in Exhibit D to the
Network Services Agreement)
(g) post-installation maintenance and operation (except by remote
Tier 2 NOC surveillance) of the HSAC Network Equipment;
(h) any services other than Internet access services for Data
Subscribers;
To the extent HSAC provisions any headend/HSAC Network Equipment or
telecommunications circuits to, between or among the Internet Portal, head end
and Home Equipment Packages on Charter's behalf, Charter will reimburse and/or
indemnify HSAC for any associated expenditures or expense.
4. HSAC agrees to treat the Birmingham Systems as Committed Systems for
purposes the Class A Warrant issued to Vulcan under Section 6 of the Systems
Access and Investment Agreement, provided that the right to accrue and exercise
the Class A Warrant for Warrant Shares arising from Partial HSAC Services
rendered to the Birmingham Systems and any other Additional Committed Systems
shall accrue and be exerciseable at the rate of (i) one (1) Warrant Share per
every three (3) Homes Passed if the aggregate number of Homes Passed committed
by Charter in such systems total less than one million (1,000,000), or (ii) one
(1) Warrant Share per every two (2) Homes Passed if the aggregate number of
Homes Passed committed by Charter in such systems total one million (1,000,000)
or more.
IN WITNESS WHEREOF, the parties have executed this Partial HSAC
Services Supplement to be effective as of the day and year first written above.
CHARTER COMMUNICATIONS, INC.
By: /s/ Charter Communications, Inc.
--------------------------------
Date:
-------------------------------
HIGH SPEED ACCESS CORP.
By: /s/ High Speed Access Corp.
--------------------------------
Date:
-------------------------------
2
<PAGE> 1
EXHIBIT 10.8
May 26, 1999
Vulcan Ventures, Incorporated
110 110th Avenue NE
Bellevue, WA 98004
Attn: Bill Savoy
Marcus Cable Operating Company, LLC,
c/o Charter Communications, Inc.
12444 Powerscourt Dr., Suite 400
St. Louis, MO 63131
Attn: Curt Shaw
Charter Communications, Inc.
12444 Powerscourt Dr., Suite 400
St. Louis, MO 63131
Attn: Curt Shaw
Re: "Nondisturbance Agreement"
Dear Ladies and Gentlemen:
As an inducement to Vulcan Ventures, Incorporated, having a place of
business at 110 110th Avenue NE, Bellevue, WA 98004 ("VULCAN"); Charter
Communications, Inc., having a place of business at 12411 Powerscourt Dr., Suite
400, St. Louis, MO 63131 ("CHARTER"); and Marcus Cable, Inc., having a place of
business at 2911 Turtle Creek Blvd., Suite 1300, Dallas, TX 75219 ("Marcus")
(collectively, the "OPERATORS") to enter into the agreements hereinafter set
forth referring to certain financing arrangements, including between Finova
Capital Corporation, a Delaware corporation ("FINOVA") and High Speed Access
Corp., having a place of business at 1000 West Ormsby Ave., Suite 210,
Louisville, KY 40210 ("HSA"), and for other good and valuable consideration, me
receipt and sufficiency of which are hereby acknowledged, HSA hereby
acknowledges and agrees as follows:
1. This letter is retroactively effective to April 14, 1999 and is
intended to replace in its entirety the inducement letter sent by HSA on April
14, 1999 to Vulcan, Marcus, and Charter.
2. HSA and one or more of the Operators are parties to, as applicable,
The System Access and Investment Agreement effective as of November 25, 1998
("SYSTEMS ACCESS AGREEMENT"); the Programming Content Agreement effective as of
November 25, 1998 ("CONTENT AGREEMENT"), and the Network Service Agreement
effective as of November 25, 1998 ("NETWORK AGREEMENT") (collectively, the
"Operator Agreements").
3. HSA is familiar with Section 15.4 of the Systems Access Agreement,
Section 22 of the Network Agreement, and Section 13.3 of the Content Agreement,
which prohibit HSA
<PAGE> 2
from granting a security interest in contract rights and tangible/intangible
property interests (including HSAC Network Equipment and Home Equipment
Packages) that are used for supplying HSAC Services ("COLLATERAL") unless the
secured party has executed a nondisturbance agreements ("NDA") in a form and
substance satisfactory to the Operators that must require any secured party and
its assignees to agree, notwithstanding any exercise of its rights as a secured
creditor, not to disturb, affect, or interfere with HSA's provision of the HSAC
Services.
4. The "Third Party Cure Rights" addendum to the Master Loan and
Security Agreement to be entered into between Finova and HSA does not meet the
requirements for a nondisturbance agreement as set out in the Operator
Agreements and that by consenting to the financing arrangements between Finova
and HSA notwithstanding, the Operators are waiving an important contractual
right.
5. In return for such waiver by the Operators, in the event that any
Operator receives a written notice from Finova or any assignee either pursuant
to the Third Party Cure Rights Section of the Master Loan and Security Agreement
by and between Finova and HSA ("LOAN Agreement") or in any form that notifies
such Operator that Finova or any such assignee intends to disturb, affect, or
interfere with equipment or other tangible property that disturbs, affects, or
interferes, with HSA's provision of the HSAC Services, then the receipt of such
notice will be deemed a Termination Event (effective upon receipt of such
notice) under the Network Services Agreement for any Committed System that is
likely to be negatively impacted by the removal or disturbance of any equipment
or tangible property covered by such notice. As further consideration for such
waiver by the Operators, HSA will provide Operators at least ninety (90) days
advance written notice before HSA disturbs, affects, or interferes with
equipment or other tangible property that disturbs, affects, or interferes; with
HSA's provision of the HSAC Services regardless of whether or not such
disturbance, affect, or interference results from Finova's or any assignee's
request pursuant to the Remedies, Default Interest, Late Fees Section of the
Loan Agreement.
6. Notwithstanding the consent of the Operators to the financing
between Finova and HSA, if in the future HSA grants any other security interests
in, or leases, its Collateral, and also each secured party or lessor, as
applicable, first executes a NDA in which such secured party or lessor agrees to
give Operators at least ninety (90) days advance written notice before such
secured party or lessor directly or indirectly disturbs, affects, or interferes
with equipment or other tangible property that disturbs, affects, or interferes,
with HSA's provision of the HSAC Services, then no further specific consent from
the Operators will be necessary for such grants of security interests or leases
but such security interests or leases shall be governed by this letter, provided
that HSA notifies operator of such granting of security interests or leases by
providing a copy of the draft that is eventually signed of such grant or lease
at least five (5) business days before executing such grant or lease.
7. However, subject to and without limiting the generality of paragraph
S, absent express agreement to the contrary, if in the future in connection with
any leases or any other loan agreements that effect a lease to HSA of, or grant
a security interest in, its Collateral, Operators
2
<PAGE> 3
receive a written notice from a secured party or lessee or any assignee that
notifies such Operator that such secured party or lessee or assignee intends to
directly or indirectly disturb, affect or interfere with equipment or other
tangible property that disturbs, affects, or interferes with HSA's provision of
the HSAC Services, then the receipt of such notice will be deemed a Termination
Event (effective upon receipt of such notice) (regardless of whether HSA has a
right to cure whatever breach caused such notice to be sent) under the Network
Services Agreement for any Committed System that is likely to be negatively
impacted by the removal or disturbance of any equipment or other tangible
property covered by such notice.
8. Nothing in this letter, the NDAs, or the Loan Agreement will in any
way limit the Operator's termination rights or other rights under the Operator
Agreements in the event that Finova or any other secured party or lessee removes
or disturbs any equipment or other tangible property that results in HSAC
breaching the Operator Agreements in any way.
9. All of the terms that appear in this letter in initial capital
letters that are not otherwise defined in this Agreement will have the same
meaning given them in the Network Services Agreement.
10. No termination or modification of the Operator Agreements, and no
waiver of the Operator's or HSA's rights or obligations hereunder, shall be
effective without Operator's prior written consent, which consent may be granted
or withheld in Operator's sole and absolute discretion.
11. This letter, and the rights and obligations of the parties
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware (without reference to any conflicts of law rules)
applicable to contracts entered into and fully performed therein. This Agreement
will bind and benefit all successors and assigns (including, but not limited to,
any "Potential Operators" as defined in any of the Operator Agreements) of each
of the undersigned. This Agreement may be executed in counterparts, any of which
may be deemed an original, but all of which taken together will constitute one
and the same instrument. This Agreement may be executed and delivered by
facsimile.
By the signature below, HSA acknowledges that HSA's representatives
have reviewed carefully what has been expressed in this letter and the Loan
Agreement, which HSA understands are legally binding documents, and that the
understandings and agreements expressed in these documents are binding upon HSA.
High Speed Access Corp.
By: /s/ High Speed Access Corp.
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Date:
----------------------------------
3
<PAGE> 4
ACCEPTED AND AGREED:
Vulcan Ventures, Incorporated
By: /s/ Vulcan Ventures, Incorporated
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Date:
----------------------------------
Charter Communications, Inc.
By: /s/ Charter Communications, Inc.
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Date:
----------------------------------
Marcus Cable, Inc.
By: /s/ Marcus Cable, Inc.
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Date:
----------------------------------
4
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 218,200
<SECURITIES> 0
<RECEIVABLES> 521
<ALLOWANCES> 58
<INVENTORY> 0
<CURRENT-ASSETS> 220,077
<PP&E> 21,291
<DEPRECIATION> 2,488
<TOTAL-ASSETS> 243,670
<CURRENT-LIABILITIES> 11,447
<BONDS> 1,669
0
0
<COMMON> 541
<OTHER-SE> 228,747
<TOTAL-LIABILITY-AND-EQUITY> 243,670
<SALES> 0
<TOTAL-REVENUES> 940
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 24,995
<LOSS-PROVISION> 117
<INTEREST-EXPENSE> 75
<INCOME-PRETAX> (23,289)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
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<NET-INCOME> (23,289)
<EPS-BASIC> (1.86)
<EPS-DILUTED> (1.86)
</TABLE>
