<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1999
REGISTRATION NO. 333-74667
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
HIGH SPEED ACCESS CORP.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7370 61-1324009
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
4100 EAST MISSISSIPPI AVENUE
DENVER, COLORADO 80246
(303) 256-2000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------
Copy to:
<TABLE>
<S> <C>
MR. RON PITCOCK, SR. MR. W. KENT OYLER, III
PRESIDENT CHIEF OPERATING OFFICER
HIGH SPEED ACCESS CORP. HIGH SPEED ACCESS CORP.
4100 EAST MISSISSIPPI AVENUE 1000 W. ORMSBY AVENUE
DENVER, COLORADO 80246 LOUISVILLE, KENTUCKY 40210
(303) 256-2000 (502) 515-3333
</TABLE>
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
------------------------
Copies to:
<TABLE>
<S> <C>
RICHARD R. PLUMRIDGE, ESQ. JEREMY W. DICKENS, ESQ.
JOHN E. HAYES III, ESQ. WEIL, GOTSHAL & MANGES LLP
BRUCE E. CUNNINGHAM, ESQ. 767 FIFTH AVENUE
BROBECK, PHLEGER & HARRISON LLP NEW YORK, NEW YORK 10153
1125 17TH STREET, SUITE 2525 (212) 310-8000
DENVER, COLORADO 80202
(303) 293-0760
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM
CLASS OF SECURITIES TO NUMBER OF SHARES OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
BE REGISTERED TO BE REGISTERED(1) PER SHARE(2) PRICE REGISTRATION FEE(3)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share.... 16,758,407 $13.00 $217,859,291 $60,565
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 1,950,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Represents the aggregate filing fee for this offering. A fee of $33,360 was
paid in connection with the initial filing of this Registration Statement,
and the additional fee of $27,205 is being submitted in connection with this
amendment.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTE
This registration statement covers the registration of 14,950,000 shares of
common stock offered by the registrant pursuant to an underwritten public
offering, which includes 1,950,000 shares of common stock issuable upon exercise
of the Underwriters' over-allotment option. This registration statement also
covers up to 1,808,407 shares of common stock to be offered to Cisco Systems,
Inc., Com21, Inc. and Microsoft Corporation in a concurrent offering that is not
underwritten. The concurrent offering consists of $7.5 million of common stock
offered to Cisco, $1 million of common stock offered to Com21, and $10 million
of common stock offered to Microsoft, in each case at the offering price, net of
the underwriting discount. Therefore, this registration statement contains two
forms of prospectus: one to be used in connection with the public offering and
the other to be used in connection with the concurrent offerings to Cisco, Com21
and Microsoft. The public offering prospectus and the concurrent offering
prospectus are identical in all respects except for the front cover pages, the
tables of contents, the descriptions of the plan of distribution and the
descriptions of legal matters. The alternate pages of the concurrent offering
prospectus are included herein after the final page of the public offering
prospectus and are labeled "Alternate Page for Concurrent Offering Prospectus."
Final forms of each prospectus will be filed with the Securities and Exchange
Commission under Rule 424(b).
<PAGE> 3
THIS INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MAY 5, 1999
PROSPECTUS
13,000,000 SHARES
[HIGH SPEED ACCESS LOGO]
COMMON STOCK
- --------------------------------------------------------------------------------
This is our initial public offering of shares of common stock. We are offering
13,000,000 shares.
No public market currently exists for our shares.
We propose to list the shares on the Nasdaq National Market under the symbol
"HSAC."
Anticipated Price Range $11.00 to $13.00 per share.
INVESTING IN THE SHARES INVOLVES RISKS. RISK FACTORS BEGIN ON PAGE 7.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds to High Speed Access Corp.......................... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to 1,950,000
additional shares of common stock on the same terms and conditions as set forth
above solely to cover over-allotments, if any.
In addition to the shares offered in this prospectus, Cisco Systems, Inc. has
agreed to purchase $7,500,000 of our common stock, Com21, Inc. has agreed to
purchase $1,000,000 of our common stock and Microsoft Corporation has agreed to
purchase $10,000,000 of our common stock, in each case at the offering price,
net of the underwriting discount, in a concurrent offering.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------
LEHMAN BROTHERS J.P. MORGAN & CO.
Joint Lead Managers
NATIONSBANC MONTGOMERY SECURITIES LLC
CIBC WORLD MARKETS
, 1999
<PAGE> 4
[ARTWORK TO BE PROVIDED]
Description of Graphic for inside front cover.
[Map of the United States showing homes affiliated but not deployed,
homes deployed but not marketed and homes marketed, with the caption
"HSA's Cable System Affiliations."]
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 7
Sale of Shares to Cisco, Com21 and
Microsoft........................... 18
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 21
Selected Financial Data............... 22
Management's Discussion and Analysis
of Financial Condition and Results
of
Operations.......................... 24
Business.............................. 30
Management............................ 45
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certain Transactions.................. 55
Principal Stockholders................ 58
Description of Securities............. 61
United States Federal Income Tax
Consequences to Non-U.S. Holders.... 65
Shares Eligible for Future Sale....... 68
Underwriting.......................... 69
Legal Matters......................... 71
Experts............................... 71
Available Information................. 71
Reports to Stockholders............... 72
Glossary of Technical Terms........... A-1
Index to Financial Statements......... F-1
</TABLE>
ABOUT THIS PROSPECTUS
You should only rely on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.
This preliminary prospectus is subject to completion prior to this offering.
Among other things, this preliminary prospectus describes our company as we
currently expect it to exist at the time of the offering.
See the section of this prospectus entitled "Risk Factors" for a discussion
of certain factors that you should consider before investing in our common
stock. All trademarks and trade names appearing in this prospectus are the
property of their respective holders. Many of the technical terms we use in this
prospectus, which are commonly used in our industry, are explained in the
"Glossary of Technical Terms."
Unless otherwise indicated, all information in this prospectus:
- Reflects the conversion of all of our preferred stock into common stock
upon the closing of this offering;
- Reflects a 1.55-for-1 split of our common stock;
- Assumes a price to public of $12.00 per share, and a price to Cisco,
Com21 and Microsoft of $11.16 per share;
- Assumes the filing of our amended and restated certificate of
incorporation, which, among other things, will authorize 10 million
shares of undesignated preferred stock, 400 million shares of common
stock and 100 million shares of limited voting Class A common stock; and
- Assumes no exercise of the underwriters' over-allotment option.
References in this prospectus to "HSA," "we," "our," and "us" refer to High
Speed Access Corp., a Delaware corporation. High Speed Access Corp. was
incorporated in Delaware on April 2, 1998. Our principal executive offices are
located at 4100 East Mississippi Avenue, Denver, Colorado 80246. Our telephone
number at that address is (303) 256-2000. Our principal operating offices are
located at 1000 W. Ormsby Avenue, Louisville, Kentucky 40210. Our telephone
number at that location is (502) 515-3333. INFORMATION CONTAINED ON OUR WEB SITE
DOES NOT CONSTITUTE PART OF THIS PROSPECTUS.
Until , 1999, all dealers selling shares of the common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
i
<PAGE> 6
[THIS PAGE INTENTIONALLY LEFT BLANK]
ii
<PAGE> 7
PROSPECTUS SUMMARY
HIGH SPEED ACCESS CORP.
We are a leading provider of high speed Internet access via cable modem to
residential and commercial end users in exurban areas. We believe that we
provide the most comprehensive turnkey solution available to the cable operator
in exurban markets. Our service enables subscribers to receive Internet access
at speeds substantially faster than traditional Internet access at minimal cost
to the cable operator. We enter into long term exclusive contracts with cable
operators to provide them with our service. In exchange for providing us access
to their customers, we pay our cable partners a portion of the monthly fees we
receive from the end users.
We target exurban markets, defined as cable systems with fewer than 100,000
homes passed. The term "homes passed" refers to the number of homes that
potentially can be served by a cable system. The exurban market encompasses
approximately 48 million homes, or approximately one-half of the homes passed by
cable in the United States. We have exclusive agreements to provide our services
to 20 cable operators, covering 51 systems and approximately 982,000 homes
passed. We also have non-binding letters of intent to provide these services to
another 14 operators representing an additional 23 systems and approximately
303,000 homes passed. We have commenced full operations in 21 systems covering
approximately 319,000 homes marketed, initiated operations in another 21 systems
covering an additional 402,000 homes, and have approximately 3,900 high speed
end users.
Vulcan Ventures, Incorporated, an affiliate of Microsoft co-founder Paul
Allen, beneficially owns 54.2% of our common stock before the offering. Vulcan
also owns Charter Communications, Inc., one of the ten largest cable system
operators in the United States. Charter has agreed to provide us with exclusive
access to at least 750,000 homes passed, and has an equity incentive to provide
us up to an additional 5 million homes passed.
We recently entered into a non-binding letter of intent with ServiceCo LLC,
the entity that provides Road Runner's cable Internet access and content
aggregation services, and we and ServiceCo are currently in the process of
negotiating a definitive agreement. ServiceCo is a joint venture among
affiliates of Time Warner, Inc., MediaOne Group, Inc., Microsoft Corporation,
Compaq Corp. and Advance/Newhouse. This letter of intent contemplates that we
will provide our services to cable systems designated by ServiceCo and us, and
enter into a revenue sharing arrangement among HSA, ServiceCo and the cable
operator. We also would grant ServiceCo a warrant to purchase one share of
common stock at a price of $5 per share for each home passed that we jointly
designate to receive our services, up to a maximum of 5 million homes. In
addition, ServiceCo would be entitled to provide Road Runner content in these
designated systems.
We seek to provide our services to the rapidly expanding number of
households and businesses in the United States that are online. According to
industry analysts, there were 26.5 million households with Internet access in
the United States in 1998. Industry analysts expect this number to grow to
nearly 58.4 million households by the end of 2002. One recent industry report
estimated that, by the end of 2002, 15.8 million U.S. households will have
broadband Internet connections. We believe that cable modems will become the
leading method of broadband Internet access for residential end users. Because
cable modems can operate at peak transmission speeds of up to 10 megabits per
second, compared with 56 kilobits per second for standard telephone modems,
cable modem users will be better able to use increasingly complex entertainment
and commercial service offerings that integrate voice, video and data on the
Internet. In addition, a cable modem provides the potential for an always-on
connection to the Internet, eliminating the inconvenience associated with the
timing out of a telephone modem connection and generally avoiding the need for
dial-up procedures. We believe that many businesses located in our target
markets also will find our scalable, cable-based Internet access to be the most
cost-effective solution for their Internet needs because of the limited
availability and high cost of obtaining competing high speed telephone circuitry
in many exurban markets.
1
<PAGE> 8
BENEFITS TO THE CABLE OPERATOR
To take advantage of the increased usage of the Internet, many cable
operators are seeking a rapid and cost-effective means of providing high speed
Internet access to their customers. We have developed a comprehensive solution
that provides the following benefits:
- Full turnkey solution requiring minimal effort by the cable operator;
- Rapid implementation of high speed access in either upgraded or
non-upgraded systems;
- Source of additional revenues with minimal associated operating or
capital cost; and
- Dedicated onsite local and national end user marketing provided by us.
Our exclusive focus on high speed Internet access enables the cable
operator, who may otherwise lack the necessary experience and resources, to
provide broadband Internet access quickly and cost effectively. We have
developed a standardized implementation and engineering process based on our
experience in the 42 systems we have installed to date, of which 21 are in full
operation. As a result, we generally are able to commence full operations in a
system within 90 days after we have entered into a contract with our cable
partner.
STRATEGY
Our strategy has the following key elements:
- Focus on the exurban market where there is less competition and cable
operators have a greater need for our turnkey services;
- Rapidly expand our base of cable partners;
- Offer a full turnkey value proposition to the cable operator and create
long term partnerships;
- Provide a range of products and services to residential and commercial
end users;
- Increase end user penetration through dedicated marketing and local
content;
- Leverage economies of scale inherent in our business;
- Leverage the media and cable industry experience of our investors,
directors and management; and
- Selectively explore international expansion and domestic acquisition
opportunities.
HISTORY, SPONSORSHIP AND STRATEGIC RELATIONSHIPS
In April 1998, Broadband Solutions, one of our founding investors,
sponsored our acquisition of High Speed Access Network, Inc. of Denver, Colorado
and CATV.net, Inc. of Louisville, Kentucky. In November 1998, Vulcan Ventures
invested $20 million in our company. In April 1999, Vulcan exercised its right
to purchase 5 million shares of our Series C convertible preferred stock for
$5.00 per share, which will be converted into 7.75 million shares of our common
stock upon completion of the offering. Vulcan's subsidiary, Charter
Communications, has entered into an agreement giving us exclusive access to at
least 750,000 homes passed in its exurban markets. Charter also has warrants to
purchase up to an additional 7.75 million shares of our common stock, for $3.23
per share, which become exercisable at the rate of 1.55 shares per home passed
committed to us by Charter in excess of 750,000. Vulcan has substantial
investments in media, Internet and new media companies, including Go2Net, Inc.,
USA Networks, ZDTV, Beyond.com, N2K, Inc., Northpoint Communications, Inc., Wink
Communications, Value America, Inc. and Priceline.com. Certain of the principals
of Broadband Solutions, which beneficially owns 29.2% of our common stock before
the offering, co-founded and invested in Premier Parks Inc., Regal Cinemas, Inc.
and Regent Communications, Inc. (subsequently sold to Jacor Communications). The
investor group that founded High Speed Access Network, Inc. includes cable
television pioneer Joseph Gans, III.
2
<PAGE> 9
Concurrently with this offering, Cisco, and Com21, two of our major
equipment suppliers, have agreed to purchase $7.5 million and $1.0 million,
respectively, of our common stock at the initial public offering price, net of
the underwriting discount. Additionally, Microsoft, a strategic marketing
partner, has agreed to purchase $10 million of our common stock at the initial
public offering price, net of the underwriting discount. We believe that both
our sponsor and strategic relationship groups and their knowledge of, and
extensive connections in, the media, Internet and cable industries help position
us to compete in the high speed cable modem Internet access market.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about us and our industry
that address, among other things, the demand for high speed Internet access in
exurban markets and our ability to expand our business, develop additional
revenue sources and create strategic relationships. These statements may be
found in the sections of this prospectus entitled "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," and in this prospectus
generally. These forward-looking statements involve risks and uncertainties. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of many factors, as more fully described
in the "Risk Factors" section and elsewhere in this prospectus.
THIS SUMMARY HIGHLIGHTS SOME OF THE INFORMATION FROM THIS PROSPECTUS AND
MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU.
3
<PAGE> 10
THE OFFERING
Common Stock Offered............. 13,000,000 shares
Common Stock Offered to Cisco.... 672,043 shares
Common Stock Offered to Com21.... 89,606 shares
Common Stock Offered to
Microsoft........................ 896,057 shares
Total Common Stock Offered....... 14,657,706 shares
Use of Proceeds.................. We intend to use the net proceeds of this
offering to fund operating losses and
capital expenditures to be incurred in the
deployment of our services, and for working
capital and other general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National
Market Symbol.................. "HSAC"
Excluding the underwriters' over-allotment option, 51,932,872 shares of
common stock will be outstanding after the offering. These shares are comprised
of the following:
- 14,657,706 shares of common stock issued in this offering.
- 37,275,166 shares of common stock held by current stockholders.
We also may issue shares of common stock pursuant to our stock option
plans, as follows:
- Under our 1998 stock option plan, we have granted options to purchase
839,325 shares at a weighted average exercise price of $1.67 per share,
all of which will become exercisable upon completion of the offering. No
more options will be granted under our 1998 stock option plan.
- Under our 1999 stock option plan, we have reserved 3.1 million shares for
issuance. We have granted options to purchase 46,500 of these shares at
an exercise price of $3.23 per share, and 21,000 of these shares at an
exercise price equal to the initial public offering price per share. None
of the options granted under the 1999 stock option plan is currently
exercisable. In addition, we expect to issue options for an additional
465,065 shares at an exercise price equal to the initial public offering
price after the completion of the offering.
- Under our 1999 non-employee director stock option plan, we have reserved
465,000 shares for issuance. We have granted options to purchase 189,875
shares at an exercise price of $3.23 per share, all of which are
currently exercisable.
In addition, we have issued or may issue warrants to purchase shares of
common stock, as follows:
- Charter has warrants to purchase up to 7.75 million shares of our common
stock at an exercise price of $3.23 per share. These warrants became
exercisable at the rate of 1.55 shares per home passed committed to us by
Charter in excess of 750,000. See "Certain Transactions."
- Microsoft has a warrant to purchase 250,000 shares of our common stock at
an exercise price of 125% of the initial public offering price. This
warrant will provide Microsoft the right to purchase one additional share
of our common stock for each additional 10 homes passed above 2.5 million
homes Comcast commits to us by May 1, 2002.
- A non-binding letter of intent we recently signed with ServiceCo LLC, the
entity that provides Road Runner's cable Internet access and content
aggregation services, contemplates that we will grant warrants to
purchase one share of our common stock at a price of $5 per share for
each home passed that we jointly designate to receive our services, up to
a maximum of 5 million shares.
4
<PAGE> 11
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
COMBINED
PRO FORMA THREE MONTHS
APRIL 3, 1998 YEAR ENDED ENDED
(INCEPTION) TO DECEMBER 31, MARCH 31,
DECEMBER 31, 1998 1998(1) 1999
----------------- ------------ ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue........................................ $ 337 $ 450 $ 299
Costs and expenses:
Operating costs.................................. 2,067 2,401 2,123
Engineering...................................... 2,266 2,372 1,485
Sales and marketing.............................. 3,696 4,078 2,038
General and administrative....................... 2,323 2,616 1,286
Non-cash compensation expense from the issuance
of stock options.............................. 947 1,523
---------- ---------- ----------
Total costs and expenses................. 10,352 12,414 8,455
---------- ---------- ----------
Loss from operations............................... (10,015) (11,964) (8,156)
Interest income, net............................... 40 41 119
---------- ---------- ----------
Net loss........................................... (9,975) (11,923) (8,037)
Accretion of redemption value of mandatorily
redeemable convertible preferred stock and
mandatorily redeemable convertible preferred
stock dividends.................................. (120,667) (120,667) (105,750)
---------- ---------- ----------
Net loss available to common stockholders.......... $ (130,642) $ (132,590) $ (113,787)
========== ========== ==========
Basic and diluted net loss per share............... $ (21.07) $ (21.39) $ (18.35)
Pro forma basic and diluted net loss per
share(2)(3) (unaudited).......................... $ (.71) $ (.76) $ (.27)
Weighted average shares outstanding used in basic
and diluted per share calculation................ 6,200,000 6,200,000 6,200,000
Weighted average shares outstanding used in pro
forma basic and diluted per share
calculation(2)(3) (unaudited).................... 14,091,935 15,680,904 29,450,000
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
DECEMBER 31, -----------------------------------------
1998 PRO FORMA
ACTUAL ACTUAL PRO FORMA(4) AS ADJUSTED(5)
------------ --------- ------------ --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 17,888 $ 7,350 $ 32,350 $193,930
Working capital.............................. 14,162 1,459 26,459 188,039
Total assets................................. 27,504 23,297 48,297 209,877
Notes payable -- related parties and capital
lease obligations, less current portion.... 749 806 806 806
Mandatorily redeemable convertible preferred
stock...................................... 149,250 255,000 340,000 --
Total stockholders' (deficit) equity......... (126,427) (238,934) (298,934) 202,646
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, APRIL 29,
1998 1999 1999
------------ --------- ---------
<S> <C> <C> <C>
OTHER DATA:
Systems under contract...................................... 41 46 51
Homes passed under contract................................. 863,000 912,000 982,000
Homes marketed(6)........................................... 145,000 319,000 319,000
Residential cable modem end users........................... 1,619 3,169 3,510
</TABLE>
5
<PAGE> 12
- ---------------
(1) Gives effect to our acquisition of CATV.net, Inc. and High Speed Access
Network, Inc. as if those acquisitions had occurred on January 1, 1998.
(2) Pro forma basic and diluted net loss per share for the historical periods
April 3, 1998 through December 31, 1998 and for the three months ended March
31, 1999 give effect to the assumed conversion of our Series A and Series B
convertible preferred stock into shares of common stock at the date the
shares of convertible preferred stock were issued. As a result of the
assumed conversion, dividends and accretion of redemption value of the
preferred stock are excluded from net loss available to common stockholders.
(3) Pro forma basic and diluted net loss per share for the combined pro forma
year ended December 31, 1998 assumes that (a) our Series A convertible
preferred stock had been issued on January 1, 1998 and immediately converted
into shares of common stock and (b) that our Series B convertible preferred
stock had been immediately converted into common stock upon the respective
dates of issuance of the Series B convertible preferred stock. As a result
of the assumed conversion, dividends and accretion of redemption value of
the preferred stock are excluded from the net loss available to common
stockholders.
(4) The pro forma balance sheet data is adjusted to give effect to the sale for
$5.00 per share of $25 million of our Series C preferred stock to Vulcan
Ventures in April 1999 and a $60 million charge to accumulated deficit to
increase the carrying value of the preferred stock to its redemption value.
(5) The pro forma as adjusted balance sheet data is adjusted to give effect to
the pro forma adjustments, as well as:
- The automatic conversion at the closing of the offering of all
outstanding shares of Series A, Series B and Series C convertible
preferred stock into 31,000,000 shares of common stock;
- The issuance of 75,166 shares of common stock to the holders of our
Series A and Series B convertible preferred stock as a payment in kind
for outstanding dividends.
- The sale of an estimated 1,657,706 shares of common stock in the
aggregate to Cisco, Com21 and Microsoft at an assumed price of $12.00 per
share net of the underwriting discount.
- The sale of 13,000,000 shares in this offering at an assumed price of
$12.00 per share, after deducting underwriting discounts and offering
expenses.
(6) Homes marketed represents the number of homes passed in systems where we are
actively offering our cable modem Internet access services.
6
<PAGE> 13
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to invest 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 you can evaluate our business.
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 $18 million from April 3, 1998 (Inception) through March
31, 1999. Our limited operating history and our ambitious growth plans make
predicting our operating results, including operating expenses, difficult.
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:
- Substantial direct and indirect selling, marketing and promotional costs;
- System operational expenses, including the lease of our Internet
backbone, which has a traffic capacity in excess of our current needs;
- Costs incurred in connection with higher staffing levels to meet our
growth;
- The acquisition and installation of the equipment, software and
telecommunications circuits necessary to enable our cable partners to
offer our services; and
- 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 22 cable systems and we have approximately
3,510 cable modem end users. Additionally, although our primary service offering
is high
7
<PAGE> 14
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:
- Our ability to enter into and retain agreements with cable operators;
- 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;
- Our success in marketing our service to new and existing end users;
- Competition, including new entrants advertising free or lower priced
Internet access and/or alternative access technologies;
- Whether our cable partners maintain their cable systems or upgrade their
systems from one-way to two-way service;
- The quality of the customer and technical support we provide; and
- 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:
- The pace of the rollout of our service to our cable partners, including
the impact of substantial capital expenditures and related operating
expenses;
- The rate at which we enter into contracts with cable operators for
additional systems;
- The rate at which end users subscribe to our services;
- Changes in revenue splits with our cable partners;
- Price competition in the Internet and cable industries;
- Capital expenditures and costs related to infrastructure expansion;
- The rate at which our cable partners convert their systems from one-way
to two-way systems;
- End user turnover rates;
- Our ability to protect our systems from telecommunications failures,
power loss and software-related system failures;
- Changes in our operating expenses including, in particular, personnel
expenses;
- The introduction of new products or services by us or our competitors;
8
<PAGE> 15
- Our ability to enter into strategic alliances with content providers; and
- 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.
You should not rely on quarter-to-quarter comparisons of our results of
operations 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 owned by
Vulcan Ventures, which beneficially owns 54.2% of our common stock before the
offering. Charter has committed to provide 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 services
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 Ventures, 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 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
9
<PAGE> 16
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.
ANY AGREEMENT THAT WE MAY SIGN WITH ROAD RUNNER MAY NOT BENEFIT US.
We recently entered into a non-binding letter of intent with ServiceCo LLC,
the entity that provides Road Runner's cable Internet access and content
aggregation services. The letter of intent contemplates that 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 we will be able to reach a definitive agreement with ServiceCo or that, if
reached, a definitive agreement will be of material benefit to us. In addition,
we may not be able to meet the system deployment schedule ultimately proposed by
Road Runner. Moreover, while we expect that only a portion of the homes
contemplated under the letter of intent 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 letter of intent
contemplates 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 7.75 million
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 250,000 shares of our common stock at an
exercise price of 125% of the initial public offering price, with additional
warrants issuable for homes passed above 2.5 million homes committed to us by
Comcast. Our letter of intent with ServiceCo LLC contemplates our 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.
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. Furthermore, although we
will have a warrant to purchase one million shares of Darwin's common stock,
representing approximately a 20% interest in Darwin on a fully-diluted
10
<PAGE> 17
basis immediately after the spin-off, if Darwin is successful, our current
stockholders, and not those investing in us in this offering, will realize a
greater proportion of Darwin's success. Neither Darwin nor our principal
stockholders, Vulcan Ventures and Broadband Solutions, will be restricted from
providing competing high speed digital subscriber line Internet access. See
"Certain Transactions."
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 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.
11
<PAGE> 18
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. See
"Business -- Competition."
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, 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.
12
<PAGE> 19
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. 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 have engaged a third-party consultant to complete a Year 2000 assessment
study by the end of May 1999, and plan to implement all necessary remediation
measures by the end of the third quarter of 1999. We are also seeking
verification from our cable partners, vendors and suppliers that they are Year
2000 compliant. Following this assessment study and after contacting these cable
partners, vendors and licensors, we will be better able to make a complete
evaluation of our Year 2000 readiness to determine what costs will be necessary
to be Year 2000 compliant, and to determine whether contingency plans need to be
developed. 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 these problems 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 -- 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:
- Foreign currency fluctuations, which could result in reduced revenues or
increased operating expenses;
- Inability to locate qualified local partners and suppliers;
- The burdens of complying with a variety of foreign laws and trade
standards;
- Tariffs and trade barriers;
- Difficulty in accounts receivable collection;
- Potentially longer payment cycles;
- Foreign taxes;
- Unexpected changes in regulatory requirements including the regulation of
Internet access; and
- Uncertainty regarding liability for information retrieved and replicated
in foreign countries.
13
<PAGE> 20
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.
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 the
proceeds from this offering 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
14
<PAGE> 21
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 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
15
<PAGE> 22
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 PLANS.
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 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.
RISKS RELATED TO THE OFFERING
BECAUSE OF OUR RELATIONSHIP WITH VULCAN VENTURES, NEW INVESTORS WILL HAVE LITTLE
INFLUENCE OVER MANAGEMENT DECISIONS.
Vulcan will beneficially own approximately 38.8% of our outstanding common
stock following the completion of the offering. Vulcan's wholly-owned
subsidiary, 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:
- 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,
- conflicts related to corporate opportunities that could be pursued by us,
on the one hand, or by Vulcan, on the other hand, or
- 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
services 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
within a short period of time after the offering. If our stockholders sell
substantial amounts of our common stock in the public market following the
offering, the market price of our common stock could fall. These sales also
might
16
<PAGE> 23
make it more difficult for us to sell equity securities in the future at times
and prices that we deem appropriate. See "Shares Eligible for Future Sale."
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK; OUR STOCK PRICE IS LIKELY
TO BE HIGHLY VOLATILE.
Prior to the offering, there has been 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 active trading market in our stock or how liquid that
market might become. The initial public offering price for the shares will be
determined by negotiations between us and the representatives of the
underwriters and may not be indicative of prices that will prevail in any future
trading market. 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 WILL HAVE BROAD DISCRETION IN USING THE PROCEEDS OF THIS OFFERING.
Our management will have broad discretion over the allocation of the net
proceeds from the offering as well as over the timing of their expenditure. As a
result, investors will be relying upon management's judgment with only limited
information about its specific intentions for the use of the proceeds.
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 you or our other stockholders.
NEW INVESTORS WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
Investors purchasing shares in the offering will incur immediate and
substantial dilution in net tangible book value per share. To the extent
outstanding options and warrants to purchase common stock are exercised in the
future, there will be further dilution to new investors. See "Dilution."
17
<PAGE> 24
SALE OF SHARES TO CISCO, COM 21 AND MICROSOFT
Cisco, Com21 and Microsoft have each agreed to purchase shares of our
common stock concurrently with the offering. Each of them will purchase shares
at the initial public offering price per share, net of the underwriting
discount. In addition, each has represented that it will be purchasing such
shares for investment and not with a view to resale, and has agreed to a 180-day
lock-up following the completion of the offering. The aggregate purchase prices
they will pay and the numbers of shares of our common stock they would purchase
based on the estimated public offering price of $12.00, net of the underwriters
discount, are as follows:
<TABLE>
<CAPTION>
INVESTMENT SHARES
----------- ---------
<S> <C> <C>
Cisco....................................................... $ 7,500,000 672,043
Com21....................................................... $ 1,000,000 89,606
Microsoft................................................... $10,000,000 896,057
----------- ---------
$18,500,000 1,657,706
=========== =========
</TABLE>
USE OF PROCEEDS
We estimate the net proceeds to us from the offering, after deducting the
underwriting discounts and offering expenses payable by us, and the sale of
$18.5 million of our common stock in the concurrent offering to Cisco, Com21 and
Microsoft, will be approximately $161.6 or $183.3 if the underwriters' exercise
their over-allotment option in full, assuming an initial public offering price
of $12.00 per share.
We expect to use the net proceeds of the offering to fund capital
expenditures to be incurred in the deployment of our services in new and
existing cable systems, to fund operating losses, and for working capital and
other general corporate purposes. We may also use a portion of the proceeds for
acquisitions or other investments. However, we have no present understanding or
agreement relating to any material acquisition or investment.
We have not yet determined the amount of net proceeds to be used
specifically for each of the foregoing purposes. Accordingly, management will
have significant flexibility in applying the net proceeds of the offering.
Pending their use, we intend to invest the net proceeds of the offering in high
quality, interest-bearing instruments. See "Risk Factors -- Risks Related to the
Offering -- We will have broad discretion in using the proceeds of this
offering."
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock since
inception and we do not expect to pay cash dividends for the foreseeable future.
We currently intend to retain future earnings, if any, to finance the expansion
of our business.
18
<PAGE> 25
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999. Our
capitalization is presented:
- On an actual basis; and
- On a pro forma basis to reflect the sale to Vulcan Ventures at $5.00
per share of 5 million shares of Series C convertible preferred stock
in April 1999 and a $60 million charge to accumulated deficit to
increase the carrying value of the preferred stock to its redemption
value.
- On a pro forma as adjusted basis to reflect:
- the sale of the 13,000,000 shares offered hereby at an assumed
initial public offering price of $12.00 per share, after deducting
underwriting discounts and estimated offering expenses payable by
us;
- the sale of an estimated 1,657,706 shares of common stock in the
aggregate to Cisco, Com21 and Microsoft at the assumed initial
public offering price of $12.00, net of the underwriting discount;
- the automatic conversion of all outstanding shares of Series A,
Series B and Series C convertible preferred stock into 31,000,000
shares of common stock concurrently with the completion of the
offering; and
- the issuance of 75,166 shares of common stock to the holders of our
Series A and Series B convertible preferred stock as a payment in
kind for outstanding dividends.
19
<PAGE> 26
You should read this information in conjunction with our financial
statements appearing elsewhere in this prospectus, and with the sections of the
prospectus entitled "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................. $ 7,350 $ 32,350 $ 193,930
========= ========= =========
Notes payable -- related parties and capital lease
obligations, less current portions...................... $ 806 $ 806 $ 806
--------- --------- ---------
Mandatorily redeemable convertible preferred stock:
Series A, $.01 par value, 5,000,000 shares
designated, issued and outstanding on an actual
basis and pro forma basis; no shares authorized,
issued or outstanding on a pro forma as adjusted
basis.............................................. 85,000 85,000 --
Series B, $.01 par value, 10,000,000 shares
designated, issued and outstanding on an actual
basis and pro forma basis; no shares authorized,
issued or outstanding on a pro forma as adjusted
basis.............................................. 170,000 170,000 --
Series C, $.01 par value, 5,000,000 shares designated
and no shares issued or outstanding on an actual
basis; 5,000,000 shares issued and outstanding on a
pro forma basis; no shares authorized, issued or
outstanding on a pro forma as adjusted basis....... -- 85,000 --
Stockholders' (deficit) equity:
Preferred stock, $.01 par value, 20,000,000 shares
authorized, 20,000,000 shares designated on an
actual basis and a pro forma basis; 10,000,000
shares authorized, none designated, issued and
outstanding on a pro forma as adjusted basis....... -- -- --
Common stock, $.01 par value, 77,500,000 shares
authorized on an actual basis and an a pro forma
basis; 400,000,000 shares authorized on a pro forma
as adjusted basis; 6,200,000 shares issued and
outstanding on an actual basis and pro forma basis;
51,932,872 shares issued and outstanding on a pro
forma as adjusted basis............................ 62 62 519
Class A common stock, no shares authorized on an
actual basis and pro forma basis; 100,000,000
shares authorized on a pro forma as adjusted basis;
none issued and outstanding........................
Additional paid-in capital........................... 7,856 7,856 508,979
Deferred compensation................................ (1,481) (1,481) (1,481)
Accumulated deficit.................................. (245,371) (305,371) (305,371)
--------- --------- ---------
Total stockholders' (deficit) equity............ (238,934) (298,934) 202,646
--------- --------- ---------
Total capitalization....................... $ 16,872 $ 41,872 $ 203,452
========= ========= =========
</TABLE>
The foregoing table does not include options and warrants, which are more fully
described on page 4. See "Summary -- The Offering."
20
<PAGE> 27
DILUTION
As of March 31, 1999, our net tangible book value on a pro forma basis
giving effect to the sale of $25 million of preferred stock in April 1999 and
the conversion of all our convertible preferred stock into common stock upon
consummation of the offering was $37.3 million or $1.00 per share of common
stock. "Net tangible book value" per share represents the amount of our total
tangible assets reduced by the amount of our total liabilities, divided by the
number of shares of common stock outstanding. Immediate dilution is the
difference between the purchase price per share paid by a new investor and the
net tangible book value of each share immediately after the offering. As of
March 31, 1999, our net tangible book value, on a pro forma basis as further
adjusted for the sale of the 13,000,000 shares offered in the offering after
deducting the underwriting discounts and commissions and other estimated
offering expenses and an estimated 1,657,706 shares in the aggregate to be sold
to Cisco, Com21 and Microsoft and application of the net proceeds from such
sales of $161.6 million, would have been approximately $3.83 per share. This
represents an immediate increase of $2.83 per share to existing shareholders and
an immediate dilution of $8.17 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share as of March
31, 1999............................................. $1.00
Increase attributable to Cisco, Com21 and Microsoft.... .32
Increase attributable to new investors................. 2.51
-----
Net tangible book value per share after the offering........ 3.83
------
Dilution per share to new investors......................... $ 8.17
======
</TABLE>
The following table summarizes on a pro forma basis as of March 31, 1999,
the differences between the total consideration paid and the average price per
share paid by existing stockholders and new investors with respect to the number
of shares of common stock purchased from us based on the assumed initial public
offering price:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 37,275,166 71.8% $ 58,200,000 25.0% $ 1.56
Cisco, Microsoft and Com21...... 1,657,706 3.2% 18,500,000 8.0% 11.16
New investors................... 13,000,000 25.0% 156,000,000 67.0% 12.00
---------- ----- ------------ ----- ------
Total...................... 51,932,872 100.0% $232,700,000 100.0% $ 4.48
========== ===== ============ ===== ======
</TABLE>
The foregoing tables and calculations exclude options and warrants which,
if exercised, would cause further dilution on page 4. See "Summary -- The
Offering".
21
<PAGE> 28
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The balance sheet data at December 31, 1998 and the statement of operations
data for the period from April 3, 1998 (Inception) through December 31, 1998
have been derived from financial statements audited by PricewaterhouseCoopers,
LLP, independent accountants appearing elsewhere in this prospectus.
We prepared the unaudited pro forma financial information for the year
ended December 31, 1998 by combining the historical results of the two companies
we acquired, High Speed Access Network, Inc. and CATV.net, Inc., with our
historical results. We have presented this information to give you a better
picture of what our business might have looked like if we had acquired both of
these companies as of January 1, 1998. These companies may have performed
differently if they had been combined with our operations. You should not rely
on the unaudited pro forma information as being indicative of the historical
results that we would have had after the acquisitions or the future results that
we will experience.
The selected financial data at March 31, 1999 and for the three months then
ended have been derived from unaudited financial statements appearing elsewhere
in this prospectus. The unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments, which we consider necessary for
the fair presentation of our financial position and results of operations for
this period. Operating results for the three months ended March 31, 1999 are not
necessarily indicative of the results that we will experience for the entire
year. Historical results are not necessarily indicative of the results to be
expected in the future.
<TABLE>
<CAPTION>
COMBINED
APRIL 3, 1998 PRO FORMA THREE MONTHS
(INCEPTION) YEAR ENDED ENDED
TO DECEMBER 31, 1998 DECEMBER 31, 1998 MARCH 31, 1999
-------------------- ----------------- --------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................ $ 337 $ 450 $ 299
Costs and expenses:
Operating costs........................ 2,067 2,401 2,123
Engineering............................ 2,266 2,372 1,485
Sales and marketing.................... 3,696 4,078 2,038
General and administrative............. 2,323 2,616 1,286
Non-cash compensation expense from the
issuance of stock options............ 947 1,523
---------- ---------- ----------
Total costs and expenses.......... 10,352 12,414 8,455
---------- ---------- ----------
Loss from operations........................ (10,015) (11,964) (8,156)
Interest income, net........................ 40 41 119
---------- ---------- ----------
Net loss.................................... (9,975) (11,923) (8,037)
Accretion of redemption value of mandatorily
redeemable convertible preferred stock and
mandatorily redeemable convertible
preferred stock dividends................. (120,667) (120,667) (105,750)
---------- ---------- ----------
Net loss available to common stockholders... $ (130,642) $ (132,590) $ (113,787)
========== ========== ==========
Basic and diluted net loss per share........ $ (21.07) $ (21.39) $ (18.35)
Pro forma basic and diluted net loss per
share(1)(2) (unaudited)................... (.71) (.76) $ (.27)
Weighted average shares outstanding used in
basic and diluted per share calculation... 6,200,000 6,200,000 6,200,000
Weighted average shares outstanding used in
pro forma basic and diluted per share
calculation(1)(2) (unaudited)............. 14,091,935 15,680,904 29,450,000
</TABLE>
22
<PAGE> 29
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------------------------------
PRO FORMA
DECEMBER 31, 1998 ACTUAL PRO FORMA(3) AS ADJUSTED(4)
----------------- ------------- ----------------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 17,888 $ 7,350 $ 32,350 $193,930
Working capital................... 14,162 1,459 26,459 188,039
Total assets...................... 27,504 23,297 48,297 209,877
Notes payable -- related parties
and capital lease obligations,
less current portion............ 749 806 806 806
Mandatorily redeemable convertible
preferred stock................. 149,250 255,000 340,000 --
Total stockholders' (deficit)
equity.......................... (126,427) (238,934) (298,934) 202,646
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999 APRIL 29, 1999
----------------- -------------- -----------------
<S> <C> <C> <C>
OTHER DATA:
Systems under contract......................... 41 46 51
Homes passed under contract.................... 863,000 912,000 982,000
Homes marketed(5).............................. 145,000 319,000 319,000
Residential cable modem end users.............. 1,619 3,169 3,510
</TABLE>
- ---------------
(1) Pro forma basic and diluted net loss per share for the historical period
April 3, 1998 through December 31, 1998 and for the three months ended March
31, 1999 gives effect to the assumed conversion of our Series A and Series B
convertible preferred stock into shares of common stock at the date the
shares were issued. As a result of the assumed conversion, dividends and
accretion of redemption value of the preferred stock is excluded from net
loss available to common stockholders.
(2) Pro forma basic and diluted net loss per share for the combined pro forma
year ended December 31, 1998 assumes that (a) our Series A convertible
preferred stock had been issued on January 1, 1998 and immediately converted
into shares of common stock and (b) that our Series B convertible preferred
stock had been immediately converted into common stock upon the respective
dates of issuance of the Series B convertible preferred stock. As a result
of the assumed conversion, dividends and accretion of redemption value of
the preferred stock is excluded from the net loss available to common
stockholders.
(3) The pro forma balance sheet data is adjusted to give effect to:
- The sale for $5.00 per share of $25 million of our Series C convertible
preferred stock to Vulcan Ventures in April 1999 and a $60 million charge
to accumulated deficit to increase the carrying value of the Preferred
Stock to its redemption value;
(4) The Pro Forma As Adjusted balance sheet data is adjusted to give effect to:
- The automatic conversion upon completion of the offering of all
outstanding shares of Series A, Series B and Series C convertible
preferred stock into common stock;
- The sale of an estimated 1,657,706 shares of common stock in the
aggregate to Cisco, Com21 and Microsoft at an assumed price of $12.00 per
share, net of the underwriting discount; and
- The sale of 13,000,000 shares in this offering at an assumed price of
$12.00 per share, after deducting underwriting discounts and offering
expenses.
- The issuance of 75,166 shares of common stock to the holders of Series A
and Series B convertible preferred stock as a payment in kind for
outstanding dividends.
(5) Homes marketed represents the number of homes passed in systems where we are
actively offering our cable modem Internet access services.
23
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read together with the financial statements included in
this prospectus. This discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ significantly
from those anticipated in these forward-looking statements as a result of
factors including, but not limited to, those set forth under "Risk Factors" and
included in other portions of this prospectus.
OVERVIEW
We are 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 from
additional services such as Internet telephony.
Our expenses consist of the following:
- 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.
- 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.
- 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.
24
<PAGE> 31
- 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.
- Non-cash compensation expense from the issuance of 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.
RESULTS OF OPERATIONS FOR THE PERIOD APRIL 3, 1998 (INCEPTION) TO DECEMBER 31,
1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 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 that acquisition. Accordingly, the following discussion
reflects our results of operations since April 3, 1998.
Revenues. Net revenue consists primarily of net monthly subscription fees for
cable modem-based and traditional dial-up Internet services, and cable modem
rental income. Total net revenue was $337,000 for the period April 3, 1998
(Inception) to December 31, 1998 ("Inception Period") and $299,000 for the first
quarter of 1999. For the Inception Period, cable modem based subscription fees
contributed approximately 45% of the net revenue, traditional dial up services
contributed 35% and cable modem rental and installation fees each contributed
approximately 10%. For the first quarter of 1999, cable modem based subscription
fees contributed approximately 48% of our net revenue, traditional dial up
services contributed 35%, cable modem rental fees contributed 15% and
installation charges contributed 2%.
Costs and Expenses
Operating. Operating costs were $2.1 million for the Inception Period and
$2.1 million for the first quarter of 1999. During each period, we incurred
significant personnel cost to staff our network operations center and help desk
on a full-time basis. Telecommunications expenses were significant for the
periods as we rolled out our service to new markets.
Engineering. Engineering expenses were $2.3 million for the Inception
Period and $1.5 million for the first quarter of 1999. During each period we
hired additional technical personnel to support the installation of cable
headend hardware and software in our cable partners' systems. We also incurred
significant expenses for network design, system testing and project management,
and for evaluation of new equipment and possible new product offerings.
Sales and Marketing. Sales and marketing expenses were $3.7 million for the
Inception Period and $2.0 million for the first quarter of 1999. During the
periods we incurred substantial sales and marketing expenses, primarily due to
the expansion of our sales force, related travel and entertainment expenses, and
marketing activities associated with gaining residential and commercial end
users and new cable partners, including expenditures for trade shows and
advertising.
General and Administrative. General and administrative expenses were $2.3
million for the Inception Period and $1.3 million for the first quarter of 1999.
During the periods 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 goodwill of $626,000 for the Inception Period and $212,000 for
the first quarter of 1999 resulting from our acquisitions of CATV.net and High
Speed Access Network.
Non-cash Compensation from the issuance of Stock Options. Non-cash
compensation expense from the issuance of stock options for the first quarter of
1999 was $1.5 million which 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 189,875 options issued to our directors in
January 1999 which immediately
25
<PAGE> 32
vested. The amount of the compensation expense is recognized over the vesting
period of the option, which is generally five years. Upon completion of this
offering, a non-cash stock compensation charge of approximately $1.1 million
will be recognized for stock options which vest contemporaneously with the
offering.
We also could incur material non-cash charges related to the issuance of
warrants to our cable partners. We 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 operator. The amount of any such
charges is not determinable until such warrants are earned.
Net Interest Income. Net interest income was $40,000 for the Inception
Period and $119,000 for the first quarter of 1999. Net interest income
represents interest earned by us on our cash and short-term cash investments,
less interest expense on capital lease obligations and notes payable.
Income Taxes. At December 31, 1998, we had net operating loss
carryforwards for federal and state tax purposes of approximately $8.5 million,
which will expire at various times through 2018. At December 31, 1998, we had a
net deferred tax asset of $3.8 million relating principally to our net operating
loss. 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 from April 3, 1998 (Inception) through March 31, 1999.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data for our
four most recent fiscal quarters. This information has been derived from our
unaudited financial statements. In our opinion, this information has been
prepared on the same basis as the annual consolidated financial statements and
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations for such periods.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS THREE MONTHS
APRIL 3, 1998 ENDED ENDED ENDED
TO SEPTEMBER 30, DECEMBER 31, MARCH 31,
JUNE 30, 1998 1998 1998 1999
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenues.......................... $ 91 $ 101 $ 145 $ 299
Costs and expenses:
Operating costs..................... 261 673 1,133 2,123
Engineering......................... 398 705 1,163 1,485
Sales and marketing................. 657 1,434 1,605 2,038
General and administrative.......... 564 784 975 1,286
Non-cash compensation expense from
the issuance of stock options.... -- -- -- 1,523
------- ------- ------- -------
Total costs and expenses.... 1,880 3,596 4,876 8,455
------- ------- ------- -------
Loss from operations.................. (1,789) (3,495) (4,731) (8,156)
Interest income (expense), net........ (4) (11) 55 119
------- ------- ------- -------
Net loss before accretion of
redemption value of
mandatorily redeemable
convertible preferred
stock and mandatorily
redeemable convertible
preferred stock
dividends................. $(1,793) $(3,506) $(4,675) $(8,037)
======= ======= ======= =======
</TABLE>
Net revenues increased in each quarter as a result of the expansion of our
services.
26
<PAGE> 33
Quarterly expenses increased sequentially as a result of increased business
activities. As our Internet access service has been initiated in additional
geographic areas, we have incurred added marketing, customer service, personnel,
and telecommunications expenses. Total cost and expenses for the first quarter
of 1999 increased 173% in comparison to the quarter ended December 31, 1998. The
company increased its business activities and expanded its workforce due to the
rollout of our services in the Charter systems and to increase our capacity to
rollout service into new markets. Also, a $1.5 million non-cash charge related
to the grant of compensatory stock options contributed to the increase in
expenses. We believe continued expansion of our operations, as well as expansion
of our Internet backbone network, is critical to the achievement of our goals
and we anticipate that these costs and expenses will continue to increase in
each quarter for the foreseeable future.
Our operating results have varied on a quarterly basis during our short
operating history and may fluctuate significantly in the future. In addition,
the results of any quarter do not indicate the results to be expected for a full
fiscal year. Finally, 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.
LIQUIDITY AND CAPITAL RESOURCES
We had significant negative cash flows from operating activities for the
period ended December 31, 1998 and for the first quarter of 1999. Cash used in
operating activities was $7.2 million for the Inception Period and $4.8 million
for the first quarter of 1999. In 1998, the use of cash was primarily due to a
net loss of $10.0 million and an increase in current assets of $142,000, offset
by non-cash expenses of $1.3 million and increases in accounts payable, accrued
expenses and other current liabilities of $1.6 million. In the first quarter of
1999, the use of cash was primarily due to a net loss of $8.0 million, offset by
non-cash expenses of $2.4 million and $800,000 in net changes in assets and
liabilities.
Cash used in investing activities was $3.3 million for the Inception Period
and $5.7 million for the first quarter of 1999. Cash used for investing
activities for these periods was primarily the result of capital expenditures.
Capital expenditures were $4.2 million for the Inception Period and $5.5 million
for the first quarter of 1999. The principal capital expenditures incurred
during these periods were for the purchase of headend data network hardware and
software, cable modems and equipment necessary for monitoring our network. The
higher level of capital expenditures during the first quarter of 1999 reflects
our expansion into new markets. During the Inception Period, $907,000 of the
capital expenditures were funded with cash acquired in the acquisition of
CATV.net and High Speed Access Network.
Cash provided by financing activities was $28.4 million for the Inception
Period resulting primarily from $27.6 million in net proceeds from the issuance
of convertible preferred stock. Cash used by financing activities for the first
quarter of 1999 was $17,000 resulting from payments on long-term debt and
capital lease repayments.
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:
- The pace of the rollout of our service to our cable partners, including
the impact of substantial capital expenditures and related operating
expenses;
- The rate at which we enter into contracts with cable operators for
additional systems;
- The rate at which end users subscribe to our services;
- Changes in revenue splits with our cable partners;
- Price competition in the Internet and cable industries;
- Capital expenditures and costs related to infrastructure expansion;
27
<PAGE> 34
- The rate at which our cable partners convert their systems from one-way
to two-way systems;
- End user turnover rates;
- Our ability to protect our systems from telecommunications failures,
power loss and software-related system failures;
- Changes in our operating expenses including, in particular, personnel
expenses;
- The introduction of new products or services by us or our competitors;
- Our ability to enter into strategic alliances with content providers; and
- Economic conditions specific to the Internet and cable industries, as
well as general economic and market conditions.
We expect to incur approximately $20 million of capital expenditures in 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.
Since inception, we have financed our operations primarily through a
combination of private sales of equity securities and capital equipment leases.
At March 31, 1999, the primary source of our liquidity was $7.3 million of cash
and cash equivalents. We believe that the net proceeds from this offering,
together with existing cash, $18.5 million in proceeds from the sale of common
stock to Cisco, Com21 and Microsoft, $25 million in proceeds from the sale of 5
million shares of Series C preferred stock to Vulcan Ventures in April 1999,
proceeds from a $3.0 million loan facility entered into in April 1999 and
capital lease financing 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998 the AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities (SOP 98-5). SOP 98-5, which is effective for fiscal
years beginning after December 15, 1998, provides guidance on the financial
reporting of start-up costs and organization costs. It requires costs of start
up activities and organization costs to be expensed as incurred. As the Company
has expensed these costs historically, the adoption of this standard is not
expected to have a significant impact on the Company's results of operations,
financial position or cash flows.
In June 1998 the FASB issued 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 and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. As the Company
does not currently engage or plan to engage in derivative or hedging activities,
there will be no impact to the Company's results of operations, financial
position or cash flows upon the adoption of SFAS 133.
YEAR 2000 COMPLIANCE
We may realize 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
28
<PAGE> 35
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.
- We have tested most of our internal PC-based or other local area computer
networks, and expect to complete the balance of this testing by May 31,
1999. We have identified only minor issues that we will remediate by
routine upgrades, patches and replacements by the end of the second
quarter 1999.
- We have begun and are continuing to interview and 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 planning, but we believe the risk posed
to our services by our cable partners' head end 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 30, 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.
- 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 by July 31, 1999. To
the extent that vendors fail to provide certification that they are Year
2000 compliant by August 30, 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
estimate that our total cost to develop and implement our Year 2000 compliance
assessment plan will not exceed $250,000, which will be funded from cash on
hand.
Although we believe that we can quickly address any difficulties that may
arise, in the event that our Web-hosting servers and network facilities are not
Year 2000 compliant, all or portions of our Internet access services, including
our web sites, could be unavailable to deliver services to our cable affiliates
and customers. This in turn could expose us to claims and liabilities of unknown
and potentially material proportions. We are currently working on specific
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, and expect to have those plans in place by the end of the
second quarter of 1999. But 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, our business and financial results could be materially and
adversely affected.
29
<PAGE> 36
BUSINESS
OVERVIEW
We are a leading provider of high speed Internet access via cable modem to
residential and commercial end users in exurban areas. We believe that we
provide the most comprehensive turnkey service available in exurban markets. Our
service enables subscribers to receive Internet access at speeds substantially
faster than traditional Internet access at minimal cost to the cable operator.
We enter into long term exclusive contracts with cable operators to provide them
with our service. In exchange for providing us access to their customers, we pay
our cable partners a portion of the monthly fees we receive from the end users.
We have exclusive agreements to provide our services to 20 cable operators,
covering 51 systems and approximately 982,000 homes passed. The term "homes
passed" refers to the number of homes that potentially can be served by a cable
system. We also have non-binding letters of intent with another 14 operators
representing an additional 23 systems and approximately 303,000 homes passed.
Under these letters of intent we have the exclusive right to negotiate with
these operators for a limited period of time to provide our services. We have
commenced full operations in 21 systems covering approximately 319,000 homes
marketed, initiated operations in another 21 systems covering an additional
402,000 homes, and have approximately 3,900 high speed end users.
Vulcan Ventures, Incorporated, an affiliate of Microsoft co-founder Paul
Allen, beneficially owns 54.2% of our common stock before the offering. Vulcan
also owns Charter Communications, Inc., one of the ten largest cable system
operator in the United States. Charter has agreed to provide us with exclusive
access to at least 750,000 homes passed and Charter has an equity incentive to
provide us up to an additional 5 million homes passed.
MARKET OPPORTUNITY
We seek to provide our services to the rapidly expanding number of
households and businesses in the United States that are online. According to
industry analysts, there were 26.5 million households with Internet access in
the United States in 1998. Industry analysts expect this number to grow to
nearly 58.4 million households by the end of 2002. One recent industry report
estimated that, by the end of 2002, 15.8 million U.S. households will have
broadband Internet access. We believe that cable modems will become the leading
method of high speed Internet access for residential end users.
Our target exurban market, defined as cable systems with fewer than 100,000
homes passed, encompasses approximately 48 million of the 95.4 million U.S.
households passed by the cable infrastructure. Our target market also includes
businesses and other establishments, such as hospitals, hotels, local
governments, universities and colleges, churches, and multiple dwelling units.
We have exclusive agreements giving us the right to provide high speed Internet
access to approximately 982,000 homes passed and we have letters of intent
relating to approximately 303,000 additional homes passed.
Of the 48 million homes passed in the exurban market, approximately 27.8
million are within systems owned by operators who have entered into agreements
for high speed Internet access with @Home or Road Runner. Although several of
the operators who have contracted with @Home and Road Runner have committed all
of their systems to them, we believe that some of these operators have
contracted with @Home and Roadrunner on a system-by-system basis. We believe we
have an opportunity to provide our services to those operators in their
uncommitted systems. For example, Marcus Cable, prior to the announcement of its
acquisition by Charter, had entered into an agreement with @Home covering its
Ft. Worth, Texas cable system and had entered into a letter of intent with us
for its Eau Claire, Wisconsin system. Moreover, even when an operator has
committed all its systems to one of our competitors, we believe there is still
an opportunity for us to provide our service in some of these exurban markets by
partnering with the cable operator directly or with another high speed Internet
access provider. For example, we recently signed a letter of intent with
ServiceCo LLC, which provides the Road Runner high
30
<PAGE> 37
speed online and content aggregation services. Under the non-binding letter of
intent, we and ServiceCo have agreed to negotiate in good faith toward an
agreement under which we would provide our turnkey service as a Road Runner
subcontractor to cable systems we jointly designate. In connection with this
agreement, we also expect to grant, Road Runner warrants to purchase up to 5
million shares of our common stock at an exercise price of $5 per share based
upon the number of homes passed to which we provide our joint services.
The remaining 19.1 million households in our target exurban market,
excluding markets we have under contract or letter of intent, are located in
systems owned by operators that are using one of our smaller competitors, not
currently providing high speed Internet access, or providing an internally
developed high speed Internet access service without the assistance of an
outsourced high speed access provider. We believe that our full turnkey solution
is particularly appealing for those operators not yet offering high speed
Internet access. In addition, operators currently providing their own Internet
access may prefer to use our services to eliminate the capital and operating
costs associated with providing high speed Internet access.
The foregoing discussion of our target exurban market is based on data
compiled by Warren Publishing's 1998 Cable and TV Factbook and is as of October
1997. Since October 1997, there have been numerous changes in the cable
industry, including continued consolidation and cable system swaps. However,
based on management's knowledge of the cable industry, we do not believe these
subsequent events have materially changed the size or composition of, or
competitive conditions in, the exurban market.
THE HSA SOLUTION
We believe our full turnkey service is uniquely responsive to the needs of
cable operators and end users in the large and currently underserved exurban
market. We earn our revenues primarily from monthly subscription fees paid by
the end user, a portion of which we share with our cable partners. Therefore, to
be successful, we must provide an attractive service to both our cable partners
and to our end users.
CABLE OPERATOR
Our management team has extensive experience in all aspects of the cable
business, including sales and marketing, engineering, operations and product
development. We believe this experience provides a unique perspective that has
allowed us to tailor our solution to meet the needs of cable operators.
Full Turnkey Solution Requiring Minimal Effort by the Cable Operator. We
believe we offer the most comprehensive solution of its kind available to cable
operators. We are responsible for all aspects of our Internet access system. Our
local cable partners' only responsibilities are to provide space in the headend
for our equipment, allow us to access the necessary bandwidth to provide our
services and to maintain the integrity and performance of the cable plant.
Specifically, we provide:
- Detailed roll-out plan and network design;
- Purchase and installation of the telecommunications and data network
hardware and software necessary to offer our services;
- System testing and project management;
- Arrangements for the installation of a cable modem at the end user's home
or business;
- Connection to, and maintenance of, our Internet backbone system;
- On-going local and corporate-level sales and marketing efforts;
- 24-hour, seven-days-a-week help desk assistance for end users;
- 24-hour, seven-days-a-week monitoring of our network and our cable
partner's cable plant; and
- Direct customer billing.
Rapid Implementation of High Speed Access In Either Upgraded or
Non-Upgraded Systems. We believe we provide not only the most comprehensive
means for a cable operator to implement high speed access services, but also one
of the most expedient. Implementation generally begins immediately after we
31
<PAGE> 38
sign a letter of intent for network services. Based on our extensive experience
in the 42 cable systems we have installed to date and our standardized
implementation and engineering process, we target full implementation within 90
days after the cable operator authorizes us to deploy our services, and often
are able to complete it sooner. In addition, because we do not require the cable
operator to upgrade its system to two-way capability, we can deploy one-way
broadband access to some communities sooner than many of our competitors.
However, two-way capability allows a cable operator to provide other valuable
services, such as interactive program guides, impulse pay-per-view, video on
demand and telephony. Our services and the related revenue may serve as an
impetus for a cable operator to upgrade its system to two-way capability, which
could have other benefits for the operator.
Source of Additional Revenues With Minimal Associated Operating or Capital
Cost. In addition to splitting monthly fees with the cable operator, we offer
cable operators incremental revenue opportunities from local content provided
through our services. We also provide non-cable services such as residential
Internet access through dial-up and other feeder technologies, as well as
commercial Internet access, the revenues from which we also share with our cable
partners. As with our cable-based access services, we bear the capital and
operating costs associated with providing these services. In addition, we also
expect to provide our cable partners with revenue streams from future broadband
services, such as Internet telephony services, video conferencing, home alarm,
child care and utility monitoring, local and community-based e-commerce and
interactive video games.
Dedicated On Site and National End User Marketing Provided by Us. Our
management team has experience in marketing high speed Internet access and,
unlike our major competitors, we assume primary responsibility for selling our
services to end users. Our dedicated national marketing effort includes the
development of sales and marketing materials, database market analytics, direct
mail and centralized telemarketing. Additionally, we typically maintain a local
manager and sales staff in each service area to focus on commercial sales and to
coordinate with corporate-level residential sales and marketing programs.
Additional Benefits to the Cable Operators. We provide cable operators
24-hours-a-day, seven-days-a-week network monitoring. We continuously
troubleshoot and monitor for problems over the cable infrastructure that could
cause an interruption of cable service or Internet access. Our product enables
the local cable operator to provide, generally under its own name, high speed
Internet access services and local content and community information equal to or
exceeding similar services offered in many major metropolitan areas. We believe
our services will increase cable penetration and enhance the operator's
reputation in the community, which may make it easier for the operator to obtain
renewal of its cable franchise.
END USERS
Residential
We believe our services are attractive to residential end users for the
following reasons:
High Speed Access. We offer the end user Internet access at transmission
speeds up to 10 Mbps compared to standard 56 Kbps dial-up access. Our high speed
access allows end users to more efficiently use bandwidth-intensive multimedia
applications such as interactive games, high-quality audio and distance learning
and online commerce applications such as retailing, financial services and
online software distribution.
User Friendly, Always-on Internet Access. In a two-way cable system, we
provide the end user with Internet access that is always on, eliminating the
inconvenience associated with timing out of telephone modem connections, and
generally avoiding the need for dial-up procedures. Additionally, unlike
standard dial-up access, the high bandwidth nature of cable allows our end users
to maintain full use of their telephone and television while online.
Superior Price/Performance. Cable-based Internet access is a competitively
priced alternative to other high speed technologies such as ISDN, DSL, wireless
and satellite. In two-way cable systems, the
32
<PAGE> 39
cost of our service to the end user is approximately the cost of standard
dial-up Internet access plus the cost of an additional phone line. In addition,
cable based Internet access is capable of significantly faster speeds than
competing technologies, and is better suited for the exurban market where ISDN
and DSL service offerings are limited.
Local Content and Online Communities. We aggregate and provide local
content online. We believe local content will be popular in communities where
local news and information may not be available online or from a single source.
We focus on local news, sports, weather, education, government and community
events that may not be available online or from a single source. We intend to
create local online communities using customized home pages, community chat
rooms and local e-commerce sites.
Commercial
Our services provide the commercial end user in exurban markets with the
most cost effective solution available for high speed Internet access as a
result of our scalable bandwidth and the capabilities of the cable plant. Our
target commercial market includes businesses, local governments, hospitals,
hotels, universities and colleges, churches and multiple dwelling units. The
benefits for commercial end users include:
Reliable, Low-cost Internet Gateway. Our technology provides high quality,
reliable Internet access suitable for commercial end users often at a
significant savings to telephone-based Internet access options. In some of our
markets, for example, the only other broadband alternative for businesses is the
installation of expensive circuitry by the local telephone company.
Scalable Bandwidth. We have the ability to offer varying bandwidths to a
commercial end user, depending on its needs. We currently offer bandwidths of up
to 10 Mbps for our commercial customers. We plan to provide greater bandwidth
offerings over time, based on demand.
Value Added Business Services. Our high bandwidth capability allows us to
offer commercial end users value added services such as virtual private
networks. Virtual private networks allow a business to extend its corporate
network to remote employees and external organizations. Services such as virtual
private networks allow hospitals, universities and small businesses to have the
benefits of a dedicated wide-area network, including high speed and security, at
a fraction of the cost of a traditional network. For example, in Eau Claire,
Wisconsin, we provide virtual private network services to the University of
Wisconsin for use by students in telecommuting. We also offer commercial
Internet services, such as e-mail, news groups and web hosting. In the future,
our commercial services may include Internet telephony, which is a means of
using the Internet to connect a company's local telephone network to remote
users, such as telecommuters. We also plan to offer commercial end users gateway
telephony, which involves using the Internet for secure, reliable, long-distance
communications.
Alternative Technologies. In markets where we offer our cable-based
services and a commercial end user does not have direct access to the cable
infrastructure, we are "technology agnostic." We are capable of using
alternative technologies such as wireless or DSL connections to link a business
to the cable headend. We intend to deploy these alternative technologies in
partnership with our cable partners.
STRATEGY
Our objective is to be the leading provider of high speed Internet access
in exurban markets. Our strategy has the following key elements:
Focus on the Exurban Market Where There is Less Competition and Cable
Operators Have a Greater Need for Our Turnkey Services. Exurban markets include
small cities and towns, as well as suburban
33
<PAGE> 40
communities with fewer than 100,000 homes passed. We believe the exurban market
offers a substantial opportunity because:
- It represents a large underserved market segment;
- Cable system operators in these markets typically have a greater need for
the full turnkey solution we offer, including our technical expertise and
comprehensive sales and marketing program;
- Management believes the potential penetration in these markets may be
higher than in urban markets; and
- We can gain the substantial advantage of being first to market in many
exurban cable systems because our services are compatible with two-way,
one-way and migrating cable systems.
Although the exurban market is our primary focus, from time to time we may
consider opportunities to service larger markets to the extent we believe it is
economically attractive to do so. We may also provide services on a less than
full turnkey basis.
Rapidly Expand Our Base of Cable Partners. We have installed 42 systems,
covering 721,000 homes passed, and we have contracts or letters of intent to
deploy our services in an additional 32 systems, covering 564,000 homes passed,
in the United States. We have a dedicated team of experienced cable industry
professionals who are actively marketing to the largest 100 cable multiple cable
system operators, as well as to other independent cable operators. A large
multiple system operator may operate cable systems in both urban and exurban
markets.
Offer a Full Turnkey Value Proposition to the Cable Operator and Create
Long Term Partnerships. We have designed our services to offer substantial value
to cable operators. We believe we provide a more complete and valuable service
than any of our competitors and that our service is particularly well suited to
exurban markets. Based on our full turnkey service, superior marketing and
capital investments we expect to create long-term partnerships with our cable
partners. Once a cable operator implements services under an exclusive
arrangement in a specific cable system, we believe a significant barrier to
entry is created in that system.
Provide a Range of Products and Services to Residential and Commercial End
Users. We strive to deliver a range of products and services to our end users.
We provide our services over one-way systems, two-way systems and systems in the
process of being upgraded. As a "feeder" in those markets where we offer high
speed Internet access, we also offer standard 56 Kbps dial-up access and in the
future may offer other entry level Internet access technologies, such as Web
TV(R)-like broadband access and network computers. Our feeder strategy provides
consumers new to the Internet, or unfamiliar with the benefits of high speed
access, the option of initiating the most basic level of Internet access, and
upgrading their level of service over time. For commercial end users we provide
high speed Internet access with bandwidth alternatives ranging from 500 Kbps to
10 Mbps. We also offer virtual private network services to commercial end users,
as well as commercial Internet service provider facilities, such as e-mail and
web hosting. In the future our commercial services may include Internet
telephony and gateway telephony.
Increase End User Penetration through Dedicated Marketing and Local
Content. We believe our focus on end user marketing, combined with our
specialization in broadband access services, will increase market penetration.
We use traditional marketing techniques such as print, radio, television and
cable system mailers. More importantly, we employ sophisticated database
marketing and telemarketing techniques and employ sales personnel in the field.
We believe our local presence and our local community programming and content,
together with our plans to provide online local content and online local
communities will both attract and retain end users.
Leverage Economies of Scale Inherent in Our Business. As we increase our
installed base of systems, we expect to realize economies of scale at both the
local and national level, the benefits of which we will be able to share with
our cable partners. We actively seek to create a cluster of systems in a
geographic region, allowing us to economically serve a number of smaller cable
systems. Nationally, we can spread the
34
<PAGE> 41
costs of centralized services such as the network operations center, customer
service and help desk over a larger end user base, obtain better volume pricing
discounts for equipment, and lower our telecommunications cost as the level of
traffic increases. As we install more systems, we gain valuable cumulative
experience, which allows us to increase the rate of penetration, increase the
speed and reliability of our system installations and reduce costs.
Leverage the Media and Cable Industry Experience of Our Investors,
Directors and Management. We also expect to capitalize on our sponsoring
investors' media and cable industry experience. For example, Vulcan Ventures,
our largest stockholder, owns Charter Communications, one of the ten largest
cable system operator in the United States, and has substantial investments in
media, Internet and new media companies, including Go2Net, Inc., USA Networks,
ZDTV, Beyond.com, N2K, Inc., Northpoint Communications, Inc., Wink
Communications, Inc., Value America, Inc. and Priceline.com. Moreover, certain
of the principals of Broadband Solutions, which founded the company, co-founded
and invested in Premier Parks Inc., Regal Cinemas, Inc. and Regent
Communications, Inc. We believe that our sponsor group and their knowledge of
and extensive connections in the media and cable industries help position us to
compete in the high speed cable modem Internet access market.
Selectively Explore International Expansion and Domestic Acquisition
Opportunities. Although international expansion is not our primary focus, we are
selectively evaluating potential international expansion opportunities as they
become available to capitalize on the growing worldwide demand for high speed
Internet access. If we expand internationally, we will do so only if we can work
with a qualified local partner. In addition, primarily as a customer acquisition
feeder strategy, we will selectively evaluate potential acquisitions of local
Internet service providers in a current cable market to help further expand our
base of potential high speed access end users.
PRODUCTS AND SERVICES
We offer the following products and services:
Residential High Speed Internet Access. We offer our basic high speed
Internet service to residential end users for a monthly fee of typically less
than $40, which approximates the monthly fee for standard dial-up Internet
access plus the cost of a second phone line. Monthly service includes unlimited
access time, multiple e-mail accounts and Web browser software. We also provide
10 hours of standard dial-up Internet access per month to the end user who
wishes to access the Internet while away from home. In addition, we typically
rent cable modems to the residential end user for an additional $9.95 per month.
Almost all of our high speed access end users currently rent a cable modem from
us. Our high speed access services are available to end users in two-way cable
systems, one-way systems or migrating systems. A two-way cable system provides
always-on access and does not require the use of a phone line to transmit data
from the home to the Internet. In pricing our services, we do not differentiate
between end users in one-way and two-way systems, although we incur higher costs
in a one-way system because we must support the telephone return component. As a
cable operator upgrades its system to two-way service, we incur only a minimal
one-time cost because we can reprogram our software remotely. Once a system is
upgraded, our telecommunications costs for that system typically decrease.
Residential Entry Level Internet Access. As a feeder for our high speed
Internet access service, in markets where we provide our cable-based access
service, we also offer standard 56 Kbps dial-up access, and may in the future
offer other entry level Internet access technologies such as Web TV(R)-like
devices and network computers. Our dial-up alternative represents a customer
acquisition strategy that provides consumers new to the Internet, or unfamiliar
with the benefits of broadband access, the option of initiating the most basic
level of Internet access, and upgrading their level of service over time. We
expect that over time end users will upgrade their level of service as they
experience the slow transmission speeds associated with standard dial-up access,
as their needs increase, or as additional bandwidth-intensive multimedia
applications emerge. Monthly fees for feeder services, which we share with our
cable partners, are priced competitively with other "narrowband" Internet
service providers and provide us an incremental source of revenue at very low
cost.
35
<PAGE> 42
Commercial High-Speed Internet Access. We provide high speed Internet
access to commercial end users for a monthly fee that varies based on the level
of service. Our commercial end users may choose bandwidth alternatives ranging
from 500 Kbps to 10 Mbps. We have the ability to track the end user's usage to
determine when a bandwidth upgrade may be appropriate. We currently offer
e-mail, web hosting, news groups, telecommuting packages and virtual private
network services to commercial customers. In markets where we offer our
cable-based services, if a business does not have direct access to the cable
infrastructure, we are "technology agnostic." We are capable of using
alternative technologies, such as wireless or DSL connections, to link
commercial end users to the cable headend.
Local Content. We provide local content targeting the interests of local
communities, including civic, commercial and school related issues, and
information on local services, including shops, restaurants and events currently
not focused on by national, regional or city-wide content aggregation services.
We believe local content will be popular in communities where local news and
information may not be available online or from a single source. Accordingly, we
use local content as a means of attracting and retaining additional end users
and differentiating our service. We are seeking to enter into agreements with
content providers, local advertisers and local e-commerce merchants under which
we will receive a share of revenue from purchases of goods and services by our
customers. Our ability to provide and earn revenues from content is subject to
our agreements with Vulcan Ventures. See "Risk Factors" and "Certain
Transactions."
Future Services. Our high speed access services may allow end users to take
advantage of numerous other applications and services in the future. Additional
future residential services could include Internet telephony services, various
multimedia applications (such as video conferencing, high-quality audio and
distance learning), home alarm, child care and utility monitoring, e-commerce
applications (such as retailing, financial services and online software
distribution), set-top boxes and interactive video games. Among our planned
commercial services are Internet telephony, video conferencing and gateway
telephony. Additionally, our high bandwidth capability may allow us to offer
other business services when new technologies emerge. Prices for these
additional services will depend upon market conditions and we will negotiate
future revenue sharing arrangements with our cable partners. Our ability to
provide and earn revenues from telephony services is subject to our agreements
with Vulcan Ventures. See "Risk Factors" and "Certain Transactions."
36
<PAGE> 43
CABLE PARTNERS AND STRATEGIC ALLIANCES
We began offering cable-based Internet services in late 1997 in Maysville,
Kentucky and St. Mary's County, Maryland. We market our services to
approximately 319,000 homes passed, are implementing services to approximately
402,000 additional homes passed and have contracts and letters of intent
covering an additional 564,000 homes passed to which we expect to provide
service in the future. Many of these letters of intent by their terms have
expired, but negotiations for definitive agreements have continued. Most of our
network services agreements provide for a five-year exclusive term from the date
we commence full operation within the cable system.
The following table summarizes cable partners with whom we have contracts,
the number of homes passed and the areas served by each cable partner's systems
as of April 29, 1999:
<TABLE>
<CAPTION>
HOMES
CABLE PARTNER PASSED AREAS SERVED BY CABLE PARTNERS' SYSTEMS
- ------------- --------- ---------------------------------------
<S> <C> <C>
Network Service Agreements:
City of Covington, Georgia................. 15,000 Covington (Newton County) GA
Coast Communications....................... 3,500 Ocean Shores, WA
Country Cable.............................. 4,000 San Diego, CA (Ramona)
E.T.S. Cablevision, Inc.................... 150 Cypress, TX
E.T.S. Cablevision, Inc.................... 150 Missouri City, TX
Falcon/Capital Cable Partners, L.P......... 5,000 Columbia, MO
Gans Multimedia Partnership................ 6,000 King George County, VA
Gans Multimedia Partnership................ 23,000 St. Mary's, MD
Gans Multimedia Partnership................ 4,350 Tucson, AZ
Genesis Cable Communications, LLC.......... 28,000 Winder, GA
Grafton Cable Communications............... 6,700 Grafton, OH
Irvine Community TV, Inc................... 5,500 Irvine, KY
Limestone Cablevision...................... 6,000 Maysville, KY
Mid-Atlantic Telcom Plus, LLC.............. 6,200 Howard County, MD
Mid-Atlantic Telcom Plus, LLC.............. 1,050 Prince William, VA
Mid-Coast Cable Television, Inc............ 7,950 Edna/El Campo, TX
Nesbe Cable................................ 16,000 Rustburg, VA
Plantation Cablevision..................... 4,000 Greensboro, GA (Eatonton)
Searle Communications, Inc./Tri-Lakes...... 7,500 Monument, CO
Shen Heights TV Association, Inc........... 6,700 Shenandoah, PA
Ultronics, Inc. ........................... 11,000 Chula Vista, CA
Vista Communications....................... 44,000 Smyrna, GA
Western Cable.............................. 5,600 Plainfield, IL
---------
Subtotal....................... 217,350
Charter Service Agreements:
Charter.................................... 33,191 Newnan, GA
Charter.................................... 21,230 Lanett, AL
Charter.................................... 73,877 Eau Claire, WI
Charter.................................... 26,093 LaGrange, GA
Charter.................................... 52,046 Henry Co, GA
Charter.................................... 11,829 Thomaston, GA
Charter.................................... 4,925 Manchester, GA
Charter.................................... 47,030 Albertville, AL
Charter.................................... 10,513 Gunthersville, AL
Charter.................................... 51,415 Morristown, TN
Charter.................................... 15,510 Camp Lejeune, NC
Charter.................................... 43,264 Rosemount, MN
</TABLE>
37
<PAGE> 44
<TABLE>
<CAPTION>
HOMES
CABLE PARTNER PASSED AREAS SERVED BY CABLE PARTNERS' SYSTEMS
- ------------- --------- ---------------------------------------
<S> <C> <C>
Charter.................................... 23,858 Hartselle, AL
Charter.................................... 35,499 Johnson City, TN
Charter.................................... 65,938 Hammond, LA
Charter.................................... 11,507 Dublin, GA
Charter.................................... 19,919 Alexander City, AL
Charter.................................... 34,965 Buncombe County, NC
Charter.................................... 16,036 Gaffney, SC
Charter.................................... 24,636 Sanford, NC
Charter.................................... 7,000 Ashland, WI
Charter.................................... 28,000 Onalaska, WI
Charter.................................... 28,000 Bristol, TN
Charter.................................... 11,000 Black Mountain, NC
Charter.................................... 22,638 Waynesville, NC
Charter.................................... 7,000 Red Wing, MN
Charter.................................... 28,251 Erwin-Buies Creek, NC
Charter.................................... 9,650 Union, SC
---------
Subtotal......................... 764,820
---------
Total homes passed under
contract....................... 982,170
Homes passed under Letters of Intent....... 302,909
---------
Total homes passed under contract
and letters of intent.......... 1,285,079
=========
</TABLE>
We have approximately 3,900 high speed cable modem end users and
approximately 3,400 dial-up end users. Approximately 1,506, or 39.0% of our high
speed cable modem end users and approximately 290, or 8.5% of our dial-up end
users are from cable systems affiliated with Charter.
Cisco Systems, Inc. Cisco, one of our major equipment suppliers, has agreed
to purchase $7.5 million of our common stock at the initial public offering
price, net of the underwriting discount, concurrently with this offering.
Road Runner. We recently signed a non-binding letter of intent with
ServiceCo LLC, the entity that provides Road Runner's cable Internet access and
content aggregation service. Under the letter of intent, we and ServiceCo have
agreed to negotiate in good faith toward an agreement under which we would
provide our service as a Road Runner subcontractor to cable systems we jointly
designate to receive our services. In addition to the revenue split we would
share with ServiceCo and the cable operator, we would grant ServiceCo warrants
to purchase one share of our common stock at a price of $5 per share for each
home passed that we jointly designate to receive our services, up to a maximum
of 5 million shares. Additionally, ServiceCo would be entitled to provide its
Road Runner content in the designated systems.
Microsoft. We have a non-binding letter of intent with Microsoft
Corporation covering a number of potential areas of strategic relationship. No
assurance can be given that we will sign a definitive agreement with Microsoft
for any or all of the items of strategic relationship or that a definitive
agreement will be of material benefit to us. Microsoft has agreed to assist us
in marketing HSA services to multiple system cable operators. We also issued a
warrant to Microsoft to purchase 250,000 shares of common stock at 125% of the
initial public offering price, exercisable until May 2004. This warrant will
provide Microsoft the right to purchase one additional share of our common stock
for each additional 10 homes passed above 2.5 million homes Comcast Corp.
commits to us by May 1, 2002. Microsoft has agreed to purchase $10 million of
our common stock concurrently with the offering at the initial public offering
price per share, net of the underwriting discount. Based on the estimated public
offering price, Microsoft would purchase 896,057 shares of our common stock.
38
<PAGE> 45
National Cable Television Cooperative. We recently signed an agreement with
the National Cable Television Cooperative, an organization which represents over
950 multiple system operators with approximately 10 million cable customers in
all 50 states. Under the agreement, cable operators who are members of the
cooperative will have the ability to take and offer our services to their
subscribers under standardized terms and conditions.
Vulcan Ventures. Vulcan Ventures, which owns Charter, beneficially owns
54.2% of our common stock before the offering. Charter is one of the ten largest
cable system operator in the United States. Charter has already committed to us
approximately 765,000 homes passed. We granted Charter warrants to purchase up
to 7.75 million shares of our common stock for $3.23 per share. These warrants,
which Vulcan has assigned to Charter, become exercisable at the rate of 1.55
shares of common stock per home passed committed to us by Charter in excess of
750,000.
Com21, Inc. Com21, one of our major equipment suppliers, has agreed to
purchase $7.5 million of our common stock at the initial public offering price,
net of the underwriting discount, concurrently with the offering.
END USER SALES AND MARKETING
After entering into a network services agreement with a cable operator, we
begin efforts to raise customer awareness and interest in our services. Our
promotional efforts typically include direct mail of standardized marketing
materials, local television and radio advertising, and a public relations and
media campaign. Our cable partners often participate in our promotional efforts.
For example, a cable operator may provide air time for our advertisements or
include our marketing materials in its customer bills. Our selling efforts for
residential end users focus largely on inbound and outbound telemarketing.
Telemarketing may either be conducted in-house or outsourced. We also focus on
local events, such as public on-site demonstrations in shopping malls and
computer stores, as well as demonstrations for educational and civic
organizations. We design some of our programs to create "word of mouth" interest
in our services. For example, we provide free broadband access to elementary and
secondary schools in our service areas. We also generally contract the
installation of cable modems at the end user site to local computer stores,
which we believe also increases community awareness of our services. We conduct
our promotional efforts either at the corporate level or through a local manager
and sales staff maintained in each geographic area in which we operate.
In contrast to our residential sales philosophy, we believe commercial
selling is established through personal relationships with the potential
commercial account, together with personal demonstrations of our services.
Commercial selling is conducted largely through our local manager and sales
staff. Moreover, after the installation and initial promotion of our services
are complete, commercial sales becomes the primary ongoing responsibility of our
local manager and sales staff.
39
<PAGE> 46
The following table shows as of April 29, 1999, the markets where we are
actively marketing our services, the number and composition of our end users,
our penetration rate and our months in full service in these markets:
<TABLE>
<CAPTION>
END USER PENETRATION RATE
------------------------------------------ ---------------------
HOMES RESIDENTIAL COMMERCIAL RESIDENTIAL MONTHS IN
MARKET MARKETED BROADBAND BROADBAND DIAL-UP TOTAL BROADBAND DIAL-UP SERVICE
- ------ -------- ----------- ---------- ------- ----- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
St. Mary's, MD............... 23,000 527 14 1,900 2,441 2.3% 8.3% 15
Maysville, KY................ 6,000 335 48 -- 383 5.6 0.0 13
Columbia, MO................. 5,000 47 -- -- 47 0.9 0.0 9
Eau Claire, WI............... 49,000.. 800 33 256 1,089 1.6 0.5 8
Rice Lake, WI................ 9,125 173 7 32 212 1.9 0.4 8
Winder, GA................... 28,000 183 1 170 354 0.7 0.6 8
Monument, CO................. 7,500 107 6 32 145 1.4 0.4 5
Newnan, GA................... 25,786 278 -- -- 278 1.1 0.0 5
Burnsville, NC............... 6,000 15 3 121 139 0.3 2.0 4
Myrtle Beach, SC............. 9,000 39 5 80 124 0.4 0.9 4
El Campo, TX................. 5,700 15 4 70 89 0.3 1.2 3
Atlanta, GA.................. N/A -- 204 306 510 0.0 0.0 2
Covington, GA................ 15,000 69 -- 18 87 0.5 0.1 2
Ocean Shores, WA............. 3,500 100 4 172 276 2.9 4.9 2
Plainfield, IL............... 5,600 97 -- 22 119 1.7 0.4 2
Shenandoah, PA............... 6,700 26 2 113 141 0.4 1.7 2
Smyrna, GA................... 44,000 281 -- 1 282 0.6 0.0 2
Chula Vista, CA.............. 11,000 105 -- 2 107 1.0 0.0 1
Grafton, OH.................. 6,700 88 4 43 135 1.3 0.6 1
Irvine, KY................... 5,500 24 2 65 91 0.4 1.2 1
LaGrange, GA................. 26,093 146 13 2 161 0.6 0.0 1
Lanett, AL................... 21,230 55 1 -- 56 0.3 0.0 1
------- ----- --- ----- ----- --- ---
Total.............. 319,434 3,510 351 3,405 7,266 1.1% 1.1%
======= ===== === ===== ===== === ===
</TABLE>
Approximately 53% of our current end users are cable modem users, and 47%
are dial-up users.
NETWORK OPERATIONS
Our network strategy is to provide a flexible, scalable design that allows
us to optimize performance to the end user while allowing us to achieve
operating cost efficiencies. We provide high speed access by first connecting
our end users through our cable headend to the cable or telephone
infrastructure. We then connect through high speed data lines provided by local
exchange carriers to backbone facilities provided by UUNet and others, which
connect our systems to the Internet.
Key elements of our network architecture include:
Network Operations Center. Our network operations center staff monitors our
entire data network 24 hours a day, from the cable modem in a home or business,
all the way through our backbone connection to the Internet. Continuous
surveillance of our data network assists in fault identification and correction
as well as capacity management and optimization. We continuously troubleshoot
and monitor for problems over the cable infrastructure that could cause an
interruption of cable service or Internet access. Our
40
<PAGE> 47
primary network operations center is located in Louisville, Kentucky, in a
secure building with redundant Internet access equipment and backup power
supplies. We plan to construct a second network operations center. Located in
the network operations center is our data center, which contains servers that
provide critical customer services such as our e-mail, news groups and web
hosting servers. We monitor these redundant servers continuously. We plan to
construct regional data centers as our end user count and geographical
clustering increases. In some cases we also host web pages and e-mail at the
headend in order to enhance network performance.
Backbone and Internet Connections. We have designed a scalable network
architecture that takes advantage of the existing high speed data backbone
operated by UUNet and other well established Internet access providers.
Management believes that it is more advantageous at this time to provision data
backbone services from well established national suppliers than to lease and
manage a new private network. Our current backbone network is fully redundant
and fully meshed, and utilizes high speed routers supporting speeds of up to 622
Mbps. We typically lease telecommunications links between the cable headends and
our backbone connection from the regional Bell operating companies. We plan to
periodically use point-to-point wireless or satellite technology to provide
temporary connections from the cable headend to the backbone during the
implementation of our service.
Cable Headends. We install servers, routers, switches and other network
devices in each cable headend. This equipment is capable of operating even if
connections with the data center or network operations center are lost. Our
major suppliers of cable headend equipment include Cisco, Sun Microsystems,
Com21, Lucent and Terayon. Using these widely available network devices, we
provide the necessary system integration required to install our service at the
cable headend.
To improve the speed of the local network and to balance demands on the
backbone facilities, we utilize caching technologies in the cable headend and in
our data center. We also plan to utilize satellite technology to supplement our
caching efforts. Caching allows us to store popular web content enabling an end
user to access this content more quickly. By using caching technology to move
content closer to the end user, we are able to control our telecommunications
costs and increase the speed of delivery because we refresh this content
periodically, rather than each time an end user seeks access to the content.
Cable Modems and Television Set-Top Boxes. We currently provide a custom
installation CD that allows a cable modem user to install a web browser along
with a selection of popular utility programs. We currently use cable modems
manufactured by Com21 and Terayon, which we either sell or rent to the end user.
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. We expect that DOCSIS specifications will
facilitate the retail availability of lower cost cable modems, which has three
effects. First, it will save us the cost of purchasing and installing cable
modems for end users. Second, we expect that increased availability of lower
cost cable modems will result in increased demand for our services. Third, we
would also expect a loss of revenue from cable modem rentals. We also expect
computer manufacturers to begin integrating DOCSIS cable modems into their
products. We intend to deploy DOCSIS compliant modems and modem controllers,
when DOCSIS becomes available. In the future, residential end users also may be
able to connect to the Internet via an integrated television set-top box.
CUSTOMER SERVICE AND BILLING
Customer Service. We operate a toll free help desk 24-hours-a-day,
7-days-a-week to provide customer service. The help desk assists end users with
high speed modem questions and problems, as well as basic computer and software
configuration questions and billing inquiries. We also operate and staff a
24-hours-a-day customer service center in our Network Operation Center to handle
problems referred by the help desk. We plan to deploy regional technical and
operating staff to assist our end users and cable partners. Computerized trouble
tickets are opened on all customer service issues, which we track to assure
resolution of all customer service calls received. We also rent cable modems to
our customers and arrange
41
<PAGE> 48
for their installation. Currently we charge end users up to $150 to install the
cable modem, however, we frequently waive this fee. We typically rent cable
modems to the end user for $9.95 per month.
Billing. We typically prepare and mail the bill for our services, which we
send to the end user under our cable partner's name and logo. Where we have
billing responsibilities we manage cash and credit card payments and remit a
portion of the amount collected to our cable partners, along with a detailed
accounting. We are installing a new billing system to further enhance our
services.
COMPETITION
We face competition primarily in the areas of competition for partnerships
with cable operators from other cable modem-based providers of Internet access
services and competition for end users from providers of other types of data and
Internet services.
We believe the major competitive factors in the market for partnerships
with cable operators include breadth of service, speed and ease of deployment,
revenue sharing arrangements, cash and equity incentives and operating
experience. We believe the major competitive factors in the market to provide
high speed Internet access to end users include financial, marketing and sales
resources, established customer relationships, price, ease of access and use,
transmission speed, reliability of service, quantity and quality of content,
network security and customer support. Moreover, due to intense competition,
there may be a time-limited market opportunity for our cable-based high speed
access. 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.
For the reasons discussed below, we may not be able to compete successfully
against current or future competitors, and competitive pressures we face could
materially and adversely affect our business and financial results.
Cable-Based Internet Access Market. 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. In
particular, @Home, Road Runner, the ISP Channel, Online System Services, Inc.,
Convergence.com and their respective cable partners, are deploying high speed
Internet access services over cable networks. @Home, through its @Home Solutions
product, has begun to market to systems in the exurban market with at least
20,000 homes passed. We also compete directly with the ISP Channel and
Convergence.com in 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. Many of our
competitors and potential competitors in the market for partnerships with cable
operators, in particular @Home and Road Runner, have substantially greater
financial, sales and marketing resources, larger customer bases, longer
operating histories, greater name recognition and more established relationships
with cable operators, advertisers and content and application providers than we
do.
Other Technologies. Long distance inter-exchange carriers, such as AT&T,
Sprint and MCI WorldCom, have deployed large-scale Internet access networks and
sell Internet access to business and residential customers. The regional Bell
operating companies and other local exchange carriers have also entered this
field and are providing price competitive services. Many of these carriers are
offering diversified packages of telecommunications services, including Internet
access, to residential customers, and could bundle these services together,
which could put us at a competitive disadvantage. Many of these competitors are
offering, or may soon offer, technologies that will compete with some or all of
our high speed data service offerings. Such competing technologies include
integrated services digital networks and digital subscriber lines. Many of our
competitors and potential competitors, particularly regional Bell operating
companies, have substantially greater financial, sales and marketing resources
than we have, and also may compete favorably in terms of price, ease of access
and use, transmission speed and reliability of service. Other potential
competing technologies now being deployed for high speed access include wireless
and satellite data services. Widespread commercial acceptance of digital
subscriber line or other competing
42
<PAGE> 49
technologies could significantly reduce the potential customer base for our
services, which could have a material adverse effect on our business and
financial results. Additionally, as a result of the distribution of the Darwin
common stock to our current stockholders, with the exception of the warrant we
will receive from Darwin, the benefits of providing this service will no longer
accrue to our stockholders.
Internet and Online Service Providers. We also compete with traditional
Internet service providers, which provide basic Internet access to residential
and commercial end users and businesses, generally using the existing telephone
network. While not offering the advantages of broadband access, these services
are widely available and inexpensive. Indeed, Internet service providers
recently have announced free Internet access services. Many online service
providers, such as America Online, have the advantage of large customer bases,
industry experience, longer operating histories, greater name recognition,
established relationships with advertisers and content and application
providers, and significant financial, marketing and sales resources. Moreover,
America Online recently announced alliances with SBC Communications and Bell
Atlantic to offer AOL's services via digital subscriber line connections to be
installed by these regional Bell operating companies. The pace at which AOL and
its telephone company partners roll out DSL service could limit our ability to
attract and retain end users in areas where our service offerings overlap.
GOVERNMENT REGULATION
Our business has two main parts. First, we will supply information and
entertainment to customers over the cable systems of our cable system partners.
This information and entertainment will include materials that we obtain from
third parties (including Vulcan Ventures and its affiliates) as well as
information generally available on the Internet that our customers will reach by
means of our service. Second, we will install and maintain the equipment needed
to transmit that information to customers over the cable systems of our cable
partners in a form that can be understood by customers' personal computers.
There are certain risks associated with both aspects of this business.
With regard to supplying information, we are subject to the same types of
risks that apply to all businesses that publish, broadcast or distribute
information. These include potential liability for defamation, libel, invasion
of privacy and similar claims, as well as potential liability for copyright or
trademark infringement and similar claims. In addition, the law relating to the
liability of Internet and online service providers for information carried on or
disseminated through their networks is unsettled. There are also some specific
federal laws regarding the distribution of obscene or indecent content by means
of communications facilities (including distribution of such content to minors)
under which we are subject to potential liability. These risks are mitigated to
some extent by a federal law passed in 1996 that immunizes Internet service
providers from legal liability for defamation and similar claims in connection
with information that the Internet service provider did not itself create. The
law regarding these issues is controversial, and could be changed in ways that
would expose us to greater liability. Also, the Digital Millennium Copyright
Act, passed in 1998, creates a "safe harbor" from copyright infringement
liability for Internet service providers who meet its requirements, which we
intend to do. Finally, if we expand our operations to other countries with less
extensive legal protections for publishers and speakers, our potential liability
for our activities in those countries could be much greater than in the United
States.
The other main aspect of our business -- installing and maintaining the
equipment needed to permit cable systems to transmit information in a
computer-accessible format -- is not currently regulated by state or federal
governments. Even so, the business of our cable partners is subject to
regulation by the federal government and by local governments (which issue
franchises to cable systems) in accordance with federal law. There are four main
ways that these regulations could change that might severally and negatively
affect our business.
First, our service is generally classified by cable operators as a "cable
service." This means that our cable partners may offer our service over their
cable systems under their present franchise rights. If our service is not a
cable service, then some franchising authorities (usually cities or countries)
might claim that our cable partners need separate authorization to offer it.
This separate authorization may not be obtainable on reasonable terms, or at
all. In the alternative, even if the service is treated as cable service,
43
<PAGE> 50
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.
Second, if our service is not a "cable service," it could be reclassified
as a "telecommunications service." This could subject our cable partners (and
possibly us) to regulation as "telecommunications carriers" at the state and
federal level. 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. It is not clear what impact compliance with those
regulations would have on our business, but the impact could be severe.
Moreover, we or our cable partners might then have to get a "telecommunications
franchise" from some localities. This franchise might not be available on
reasonable terms, or at all.
Third, we have exclusive contracts with our cable partners to be the only
supplier of high-speed data on the cable systems where our service is offered. A
variety of parties, including firms with much greater resources than ours, are
trying to have such exclusive arrangements banned. If they are successful, cable
systems might have to accommodate several suppliers of high-speed data services
and we could face additional competition from such other suppliers. We believe
that our exclusive arrangements are very valuable to our business. If such
arrangements are banned, the impact on our business could be severe.
Fourth, regulatory action could create a more favorable environment for our
competitors than exists today. For example, it is possible to send high-speed
data over many normal telephone lines using a technology called "digital
subscriber line" or "DSL." This technology may be used either by the existing
telephone company that owns the telephone lines, or by competing telephone
companies that have the right to lease those lines. Regulatory decisions that
make DSL services easier for competing telephone companies to deploy, and less
expensive for customers to buy, would negatively affect our business.
EMPLOYEES
As of April 15, 1999, we employed 207 people. None of our employees is
subject to any collective-bargaining arrangements, and we consider our relations
with employees to be good.
FACILITIES
Our principal executive office is located in Denver, Colorado, where we
lease approximately 13,000 square feet. Our principal operating office is in
Louisville, Kentucky, where we lease approximately 25,000 square feet. We
believe that our existing facilities are adequate for current requirements and
that additional space can be obtained on commercially reasonable terms to meet
future requirements.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
44
<PAGE> 51
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Our executive officers, key employees and directors, and their ages,
positions and brief biographies, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
EXECUTIVE OFFICERS
Ron Pitcock........................... 51 President
Kent Oyler............................ 41 Chief Operating Officer, Secretary and
Treasurer
George E. Willett..................... 37 Chief Financial Officer and Assistant
Treasurer
Atul C. Doshi......................... 49 Chief Technology Officer
Ferris Peery.......................... 52 Executive Vice President, Industry
Sales
Christopher P. Britton................ 41 Senior Vice President, Sales and
Marketing
John G. Hundley....................... 39 Vice President, Assistant Secretary
and General Counsel
KEY EMPLOYEES
Edward J. Callahan.................... 63 Senior Vice President, Advanced
Technology
Harold E. Cook........................ 60 Senior Vice President, Program
Management
Brenda Fox............................ 54 Senior Vice President, Business
Development
Richard S. George..................... 38 Vice President, International Business
Development
Bill Krempasky, Sr. .................. 64 Senior Vice President, MSO Sales
Thorn Landers......................... 42 Vice President, Consumer Sales
Marian Neely-Carlson.................. 45 Vice President, Corporate
Communications
Richard J. Pulley..................... 49 Vice President, Operations
David T. Richardson................... 34 Vice President, Finance
Jorge Salinger........................ 42 Vice President, Engineering
Tammy L. Smith........................ 39 Vice President, Affiliate Relations
Jeff Tokar............................ 36 Vice President, Affiliate Relations
DIRECTORS
David A. Jones, Jr. .................. 41 Chairman of the Board and Director
Robert S. Saunders.................... 47 Vice Chairman and Director
Irving W. Bailey, II.................. 57 Director
Michael E. Gellert.................... 67 Director
Jerald L. Kent........................ 42 Director
William D. Savoy...................... 34 Director
Stephen E. Silva...................... 39 Director
</TABLE>
Executive Officers
RON PITCOCK co-founded HSA's predecessor, High Speed Access Network, in
July 1997 and has served as our President since April 1998. From 1992 to 1997,
Mr. Pitcock served as Executive Vice President of ANTEC, a cable technology
equipment supplier, where he oversaw sales and marketing of telewire products
and management of U.S. locations. From 1980 to 1992, Mr. Pitcock served in
various capacities with ANTEC, including manager of international sales. Mr.
Pitcock received a B.A. from Corpus Christi State University and a Masters from
Denver University.
45
<PAGE> 52
KENT OYLER co-founded HSA's predecessor, CATV.net, in March 1997 and has
served as our Chief Operating Officer since January 1999 and as Chief Executive
Officer from April 1998 to December 1998. From 1982 to 1997, Mr. Oyler was
employed by Henry Vogt Co., a Louisville, Kentucky based manufacturer, where he
held several positions, including Treasurer, Vice President and Chief Financial
Officer. While serving at Henry Vogt, Mr. Oyler founded several independent
entrepreneurial ventures, including six start-up ventures. Mr. Oyler received a
B.S. and an M.B.A. from the University of Louisville.
GEORGE E. WILLETT has served as our Chief Financial Officer since June
1998. From 1997 to 1998, Mr. Willett served as Chief Financial Officer of
American Pathology Resources, Inc. and, from 1994 to 1997, as Chief Financial
Officer of Regent Communications. Previously, Mr. Willett served as corporate
accounting manager for United States Shoe Corporation and held various positions
with Coopers & Lybrand. Mr. Willett received a B.S. from Xavier University.
ATUL C. DOSHI has served as our Chief Technology Officer since January
1999. From 1996 to 1998, Mr. Doshi served as Regional Vice President-Engineering
and Construction for MediaOne Group's National Markets Region. From 1993 to
1996, Mr. Doshi served as Director, Multi-Media Services for MCI. Prior to that
time, Mr. Doshi was responsible for operations and engineering at New York
Telephone, and served as Director of Advanced Engineering at Warner-Amex Cable
Communications. Mr. Doshi received a B.S. from the University of Baroda in
India, and an M.S. from Columbia University.
FERRIS PEERY has served as our Executive Vice President, Industry Sales,
since March 1999. From 1991 to 1999, Mr. Peery served as an Executive Vice
President of ANTEC. Previously, he served as Area Vice President of Anixter
Bros. Wire and Cable Division and as National Sales Manager of Comscope Cable TV
Converters.
CHRISTOPHER P. BRITTON has served as our Senior Vice President, Marketing
and Sales, since July 1998. From 1997 to 1998, Mr. Britton served as Executive
Director and General Director of Enterprise Data Networking, a unit of U S WEST.
From 1996 to 1997, Mr. Britton served as Director of Customer Service and
Operations Support for Business and Government Services at U S WEST, and, from
1994 to 1995, as Director of Strategy and Process Reengineering/Network Services
at Ameritech Telecom. Mr. Britton received a B.A. from the University of
Colorado and an M.B.A. from Northwestern University.
JOHN G. HUNDLEY has served as our Vice President, Assistant Secretary and
General Counsel since May 1998. From 1997 to 1998, Mr. Hundley served as General
Counsel and Vice President of Development for OPM Services, Inc. and Icelease
Partners, Ltd/Vogt Ice. From 1995 to 1997, he served as development officer and
general counsel for Normal Life, Inc., a multi-state assisted living provider.
From 1991 to 1995, Mr. Hundley served as Vice President of Legal Affairs for
Cardinal Group Corporation, and then Transitional Health Services, a multi-state
nursing home operator. Previously, Mr. Hundley practiced in the corporate
transactions and finance group of Brown, Todd & Heyburn, Louisville, Kentucky.
Mr. Hundley received a B.B.A. from the University of Kentucky and a J.D./M.B.A.
from the University of Tennessee.
Key Employees
EDWARD J. CALLAHAN has served as our Senior Vice President, Advanced
Technology, since 1998. From 1995 to 1998, Mr. Callahan served as a consultant
to the telecommunications industry. From 1990 to 1995, Mr. Callahan was employed
by ANTEC, first as Vice President, Research and Development, and later as Vice
President, Technology. Previously, Mr. Callahan served as Vice President of
Research and Development for United Cable Television Corporation and as Director
of Research for American Television and Communications Corporation. Mr. Callahan
received a B.A. from Marist College.
HAROLD E. COOK has served as our Senior Vice President, Program Management,
since January 1999. From 1992 to 1998, Mr. Cook served as a marketing consultant
in the hydraulic equipment industry, prior to which he was employed by NASA
developing guidance platforms. Mr. Cook received a B.S. from the University of
Connecticut.
46
<PAGE> 53
BRENDA FOX has served as our Senior Vice President, Business Development,
since March 1999. From 1995 to 1999, Ms. Fox served as Vice President Government
Relations for Continental Cablevision, and its successors, U S WEST. and
MediaOne Group. From 1992 to 1995, Ms. Fox was a Senior Partner of Dow, Lohnes &
Albertson, a law firm specializing in communications law. Previously, Ms. Fox
served as General Counsel and Vice President for Special Policy Projects for the
National Cable Television Association. Ms. Fox received a B.A. from the
University of California at Los Angeles and a J.D. from George Washington
University.
RICHARD S. GEORGE has served as our Vice President, International Business
Development, since April 1999. From 1998 to 1999, Mr. George served as Vice
President of International Business Development for Constellation
Communications, Inc. From 1995 to 1998, Mr. George served as Vice President of
South American Ventures for Continental Cablevision and its successor, MediaOne
Group. From 1992 to 1995, he served as director of the European and C.I.S.
International Ventures Division of Comsat Corporation. From 1989 to 1992, Mr.
George managed marketing and business development in Europe, South America and
Asia for General Dynamics Commercial Launch Services, Inc. Previously, he served
as International Marketing Manager for Martin Marietta Commercial Title, Inc.
Mr. George received a B.A. from American University's School of International
Service and an LL.B. from the McGill University School of Law.
BILL KREMPASKY, SR. has served as our Senior Vice President, MSO Sales,
since March 1998. From 1968 to 1998, Mr. Krempasky was employed by ANTEC,
serving most recently as its Executive Vice President of Sales and Marketing.
THORN LANDERS has served as our Vice President, Consumer Sales, since
August 1998. From 1996 to 1998, Mr. Landers served as Vice President of
Marketing at Cox Communications where he was responsible for the launch of high
speed data, cable and telephony services. Prior to 1996, Mr. Landers worked in
marketing and sales at American Express. Mr. Landers received a B.A. from the
University of Colorado and an M.B.A. from the University of Virginia.
MARIAN NEELY-CARLSON has served as our Vice President, Corporate
Communications, since August 1998. From 1997 to 1998, Ms. Neely-Carlson was a
principal in Neely-Carlson Communications, a public relations firm specializing
in the telecommunications industry. Before founding that firm, Ms. Neely-
Carlson served as manager and then Director of Corporate Communications for TCI
from 1995 to 1997. She served as Community Relations Manager in the Tampa Bay
Time Warner Cable Division from 1989 to 1994. Ms. Neely-Carlson holds a B.A. and
an M.A. from George Peabody College at Vanderbilt University.
RICHARD J. PULLEY has served as our Vice President, Operations, since June
1998. From 1988 to 1998, Mr. Pulley was Director of Purchasing for Comcast Cable
Communications. He previously served as director of Materials Management for
Avery Corporation, Sobar Division, and Production Control Manager for Plumb Tool
Company. Mr. Pulley received a B.S. from Shippensburg University.
DAVID T. RICHARDSON has served as our Vice President, Finance, since March
1999. From 1997 to 1999, Mr. Richardson served as Vice President of Finance,
CFO, and Director of Quality Assurance and Regulatory Affairs for Medworks, a
start-up medical device development company in Louisville, Kentucky. From 1996
to 1997, Mr. Richardson served as Controller for Mas-Hamilton Group, Inc. From
1994 to 1996, he served as a senior accountant with Coopers & Lybrand, LLP, and,
from 1987 to 1992 as Assistant Vice President for the U.S. Corporate Division of
Wachovia Bank in Atlanta, Georgia. Mr. Richardson received a B.S. from the
University of Tennessee and an M.B.A. from the University of Virginia and is a
certified public accountant.
JORGE SALINGER has served as our Vice President, Engineering, since
December 1998. From 1994 to 1998, Mr. Salinger served as Senior Director of
Digital Services Engineering at Adelphia Communications Corp. Prior to that, he
served as Assistant Director of Telecommunications at Florida International
University, and held engineering positions at Systems Engineering Consultants,
the National Hurricane
47
<PAGE> 54
Center and AT&T's Latin America business division. He received a B.A. and an
M.S. in electrical engineering from Florida International University.
TAMMY L. SMITH has served as our Vice President, Affiliate Relations, since
May 1998. From 1996 to 1998, Ms. Smith served as Director of Product Management
for Ameritech New Media, and from 1993 to 1996 as Corporate Marketing Manager
for TCI. Previously, Ms. Smith was a partner with Smith & Ross Advertising, a
Vice President at DDB Needham Worldwide, and Regional Marketing Manager for
Wendy's International. Ms. Smith received a B.B.M. from Abilene Christian
University.
JEFF TOKAR has served as our Vice President, Affiliate Relations, since
January 1999. From 1996 to 1998, Mr. Tokar served as Director of New Business
and Technology for Marcus Cable. From 1994 to 1996, he served as the Director of
Sales Engineering for ANTEC, prior to which he served as Manager of Systems
Engineering for EMI Communications Corporation. Mr. Tokar received a B.S. from
the United States Military Academy at West Point and an M.S. from Golden Gate
University.
Directors
DAVID A. JONES, JR. has served as a director and our Chairman of the Board
since April 1998. He is Chairman of Chrysalis Ventures, a private equity
management firm in Louisville, Kentucky. Mr. Jones serves as Vice Chairman of
Humana Inc., a managed care company, and as a director of MidAmerica Bancorp and
several private companies. Prior to forming Chrysalis in 1994, Mr. Jones
practiced corporate law in Louisville (1992-1993) and served in the U.S.
Department of State general counsel's office (1988-1992). Mr. Jones earned a
B.A. from Yale University in 1980, and a J.D. from Yale Law School in 1988.
ROBERT S. SAUNDERS has served as a director since April 1998 and became
Vice Chairman of the Board in November 1998. From 1998 to the present, Mr.
Saunders has served as Senior Managing Director of Chrysalis Ventures, a private
equity management firm in Louisville, Kentucky. From 1993 to 1997, Mr. Saunders
served as Chief Planning Officer and Managing Director for Strategic Planning
and Business Development at Providian Capital Management, Inc. From 1988 to
1993, Mr. Saunders was Managing Director of Saunders Capital Group, Inc., a
Boston-based private equity group. From 1986 to 1988, Mr. Saunders was Senior
Vice President for the Krupp Companies in Boston, a privately held financial
services and real estate investment company. Mr. Saunders began his career in
1978 as a business strategy consultant with Boston Consulting Group and joined
Bain & Co. in 1982. Mr. Saunders received a B.A. from Stanford University, an
M.Sc from the London School of Economics, and an M.A. from Harvard University.
IRVING W. BAILEY, II has served as a director of HSA since April 1998. From
1997 to the present, Mr. Bailey has served as President of Bailey Capital
Corporation, a private investment company, and serves as Vice Chairman of Aegon
USA, Inc. From 1981 to 1997, Mr. Bailey served in various executive capacities
with Providian Corporation, and was Chairman and Chief Executive Officer from
1988 to 1997, when it was acquired by Aegon NV. Mr. Bailey is a director of
Computer Sciences Corporation and several private companies and a former
director of BellSouth Telecommunications, Inc. and Providian Corporation. Mr.
Bailey received a B.A. from the University of Colorado and an M.B.A. from New
York University Graduate School of Business.
MICHAEL E. GELLERT has served as a director of HSA since April 1998. From
1967 to the present, Mr. Gellert has served as a General Partner of Windcrest
Partners, New York, New York, a private investment company. Mr. Gellert served
in various capacities with Drexel Burnham Lambert and its predecessors from 1958
to 1989. Mr. Gellert serves as a director of Devon Energy Corp., Humana Inc.,
Premier Parks, Inc., Seacor Smit Inc., Smith Barney World Funds, Smith Barney
Worldwide Securities Ltd., and Smith Barney Worldwide Special Fund NV. Mr.
Gellert received an A.B. from Harvard University and an M.B.A. from the Wharton
School of Finance and Commerce.
JERALD L. KENT, has served as a director of HSA since November 1998. Mr.
Kent co-founded Charter Communications, Inc. and, from 1992 to the present, has
served in various executive capacities at Charter. He has served as President
since 1996 and as Chief Executive Officer since 1997. Previously, Mr. Kent
48
<PAGE> 55
served in various executive capacities with Cencom Cable Associates, Inc. He
joined Cencom in 1983 as Senior Vice President of Corporate Development and
served as Executive Vice President and Chief Financial Officer from 1987 to
1992. Mr. Kent serves as a director of Charter and Cable Television
Laboratories, Inc. Mr. Kent received a B.A. and an M.B.A. from Washington
University and is a certified public accountant.
WILLIAM D. SAVOY, has served as a director of HSA since November 1998.
Since 1990, Mr. Savoy has served as President of Vulcan Northwest, Inc. and is
Vice President of Vulcan Ventures, Incorporated, both venture capital firms
wholly-owned by Paul Allen. From 1987 until 1990, Mr. Savoy was employed by
Layered, Inc., a company controlled by Mr. Allen, and became its President in
1988. Mr. Savoy serves as a director of CNET, Inc., Harbinger Corporation,
Metricom, Inc., Telescan, Inc., Ticketmaster Online-CitySearch, Inc., USA
Networks, Inc., and U.S. Satellite Broadcasting Co., Inc. Mr. Savoy received a
B.S. from Atlantic Union College.
STEPHEN E. SILVA has served as a director of HSA since November 1998. From
1995 to the present, Mr. Silva served in various executive capacities at
Charter, where he currently serves as Vice President, Corporate Development and
Technology. From 1985 to 1995, Mr. Silva served in various capacities at
Cabledata, Inc. and its predecessors.
BOARD COMPOSITION
Upon completion of this offering, our board of directors will consist of
three classes that serve staggered three-year terms as follows:
<TABLE>
<CAPTION>
CLASS EXPIRATION MEMBERS
----- ---------- -------
<S> <C> <C>
Class I 2000 Bailey, Silva
Class II 2001 Gellert, Kent
Class III 2002 Jones, Saunders, Savoy
</TABLE>
BOARD COMMITTEES
The executive committee consists of Messrs. Bailey, Gellert, Jones,
Saunders and Savoy. The executive committee has all the authority of the board,
except with respect to items requiring shareholder approval or submission.
The audit committee consists of Messrs. Bailey, Gellert, Jones, Saunders
and Kent. The audit committee makes recommendations to the board of directors
regarding the selection of independent public accountants, reviews the results
and scope of the audit and other services provided by our independent public
accountants and reviews and evaluates our internal control functions.
The compensation committee consists of Messrs. Bailey, Gellert, Jones,
Saunders and Silva. The compensation committee administers the issuance of stock
options under our stock option plans, makes recommendations to the board of
directors regarding the various incentive compensation and benefit plans and
determines salaries for the executive officers and incentive compensation for
employees.
DIRECTOR COMPENSATION
Our directors do not currently receive any cash compensation for serving on
the board of directors or any committee of the board, but directors may be
reimbursed for their reasonable expenses incurred in connection with attendance
at board and committee meetings. However, non-employee directors receive
automatic grants of stock options under one of our option plans. See "Stock
Option Plans -- 1999 Non-Employee Directors Plan".
We have entered into indemnification agreements with each member of the
board of directors providing for the indemnification of directors to the fullest
extent authorized, permitted or allowed by Delaware law.
49
<PAGE> 56
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between the board of directors or
compensation committee and the board of directors or compensation committee of
any other company.
CONFLICT OF INTEREST TRANSACTIONS
Three of our directors are affiliates of Vulcan and Charter. Conflicts of
interest may arise as a consequence of their relationships with Vulcan and
Charter, including conflicts related to corporate opportunities that could be
pursued by us, on the one hand, or by Vulcan and Charter, on the other hand, or
conflicts related to existing or new contractual relationships between us, on
the one hand, or by Vulcan and Charter, on the other hand. All future
transactions between us and our officers, directors and principal shareholders
and their affiliates will be approved by a majority of the board of directors,
including a majority of the independent and disinterested outside directors.
EXECUTIVE COMPENSATION
The following table sets forth compensation awarded to, earned by or paid
to the two individuals who served as our Chief Executive Officer during 1998. No
other executive officer received annual salary and bonus exceeding $100,000 in
1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------
NAME AND PRINCIPAL POSITION YEAR SALARY
--------------------------- ----- ---------
<S> <C> <C>
Ron Pitcock, President...................................... 1998 $112,792
Kent Oyler, Chief Operating Officer......................... 1998 $ 64,375
</TABLE>
STOCK OPTION PLANS
1998 Stock Option Plan
We adopted the 1998 Stock Option Plan in April 1998 and authorized options
to purchase up to 1,395,000 shares of common stock for issuance under the plan.
Options to purchase 839,325 shares of common stock have been granted under the
plan, at a weighted average exercise price of $1.67 per share, all of which will
become exercisable upon consummation of the offering. The plan provides for
grants of incentive stock options and nonqualified stock options to our
designated employees and directors. In January 1999, the board of directors
elected not to grant additional options under the plan.
Administration of the Plan. The compensation committee of the board of
directors administers and interprets the plan. The compensation committee:
- Determines the individuals to whom grants are made under the plan;
- Determines the type, size and terms of the grants made to each such
individual;
- Determines the time when the grants are made and the duration of any
applicable exercise period; and
- Deals with any other matters arising under the plan.
Grants. Grants under the plan consist of:
- Options intended to qualify as incentive stock options within the meaning
of Section 422 of the Internal Revenue Code; and
- Nonqualified stock options not intended to so qualify.
50
<PAGE> 57
The exercise price of shares of common stock underlying options granted
under the plan is determined by the compensation committee and is equal to or
greater than the fair market value of a share of common stock on the date of
grant, as determined by the compensation committee.
A participant may pay the exercise price of shares of common stock
underlying options granted:
(1) in cash;
(2) by delivering shares of common stock owned by the participant; or
(3) by such other method as the compensation committee approves, including
payment through a broker in accordance with specified procedures.
Options vest according to the terms and conditions determined by the
compensation committee and specified in the grant instrument, but in no case at
a rate less than 20% per year over five years from the grant date, subject to
acceleration in certain events, including the closing of an initial public
offering. The term of all options granted under the plan does not exceed ten
years from the date of grant.
Change of Control. Upon a change of control, all outstanding options under
the plan immediately vest. Upon a change of control where we are not the
surviving entity or where we survive only as a subsidiary of another entity, all
outstanding options will be assumed by or replaced with comparable options or
stock by the surviving corporation. A "change of control" is defined to have
occurred:
(1) if any "person", other than persons who are our shareholders as of the
effective date of the plan, acquires all of the then outstanding shares of
common stock;
(2) if we merge or consolidate with another corporation and Broadband
Solutions, LLC will not beneficially own, immediately after the transaction,
shares of the surviving corporation; or
(3) upon the closing of the sale of our common stock in an underwritten
public offering, including this offering.
Tax Consequences. The following description of the tax consequences of
awards under the 1998 stock option plan is based on present federal tax laws and
does not purport to be a complete description of the tax consequences of the
1998 stock option plan.
There are generally no federal tax consequences as to the optionee or to us
upon the grant of an option. On the exercise of an incentive stock option, the
optionee will not recognize any income, and we will not be entitled to a
deduction for tax purposes, although such exercise may give rise to liability
for the optionee under the alternative minimum tax provisions of the Internal
Revenue Code. However, if the optionee disposes of shares acquired upon the
exercise of an incentive stock option within two years of the date of grant or
one year of the date of exercise, the optionee will recognize ordinary income,
and we will be entitled to a deduction for tax purposes in the amount of the
excess of the fair market value of the shares of common stock on the date of
exercise over the option exercise price (or the gain on sale, if less); the
remainder of any gain, and any loss, to the optionee will be treated as capital
gain or loss to the optionee. On the exercise of a nonqualified stock option,
the amount by which the fair market value of common stock on the date of the
exercise exceeds the option exercise price will generally be taxable to the
optionee as ordinary income and will generally be deductible for tax purposes by
us. The disposition of shares acquired upon exercise of a non-qualified option,
or an incentive stock option, if after the one year and two year periods
described above, will generally result in capital gain or loss to the optionee
but will have no tax consequences to us.
Section 162(m). Under Section 162(m) of the Internal Revenue Code, we may
be precluded from claiming a federal income tax deduction for total remuneration
in excess of $1 million paid to the chief executive officer or to any of the
other four most highly compensated officers in any one year. Total remuneration
generally would include amounts received upon the exercise of stock options
granted under the plan. An exception exists, however, for amounts received upon
exercise of stock options pursuant to certain grandfathered plans. Options
granted under the plan satisfy this exception.
51
<PAGE> 58
1999 Stock Option Plan
We adopted the 1999 Stock Option Plan in January 1999. The plan provides
for grants of options to our designated employees, officers and directors.
General. The plan authorizes options to purchase up to 3,100,000 shares of
common stock for issuance. The maximum number of shares for which options may be
granted to any individual in any calendar year will not exceed 465,000. If
options granted under the plan expire or are terminated for any reason without
being exercised, the shares of common stock underlying such grant will again be
available for purposes of the plan.
Administration of the Plan. The compensation committee of the board of
directors administers and interprets the plan. The compensation committee will
consist of two or more persons appointed by the board of directors from among
its members, each of whom must be a "non-employee director" as defined by Rule
16b-3 under the Securities Exchange Act of 1934, and an "outside director" as
defined by Section 162(m) of the Internal Revenue Code. The compensation
committee has the sole authority to:
- Determine the employees to whom grants will be made under the plan;
- Determine the type, size and terms of the grants to be made to each
employee;
- Determine the time when the grants will be made and the duration of any
applicable exercise or restriction period, including the criteria for
vesting; and
- Deal with any other matters arising under the plan.
Types of Grants. Grants under the plan may consist of:
- Options intended to qualify as incentive stock options within the meaning
of Section 422 of the Internal Revenue Code; and
- Nonqualified stock options that are not intended to so qualify.
Eligibility for Participation. Grants may be made to any of our employees,
officers and directors. As of April 29, 1999, we had granted options to purchase
46,500 shares at an exercise price of $3.23 per share and 21,000 shares at an
exercise price equal to the initial public offering price per share. In
addition, we expect to issue options for an additional 465,065 shares at an
exercise price equal to the initial public offering price per share upon
completion of the offering.
Terms of Options. The exercise price of common stock underlying an option
will be determined by the compensation committee, and may be equal to, greater
than, or less than the fair market value of a share of common stock on the date
of grant, provided that
(a) the exercise price of an incentive stock option will be equal to or
greater than the fair market value of a share of common stock on the date the
incentive stock option is granted, and
(b) the exercise price of an incentive stock option granted to an employee
who owns more than 10% of the common stock may not be less than 110% of the fair
market value of the underlying shares of common stock on the date of grant.
The participant may pay the exercise price:
(1) in cash;
(2) by delivering shares of common stock owned by the participant; or
(3) by any other method the compensation committee approves, including
payment through a broker in accordance with specified procedures.
All options granted under the plan vest at a rate of 20% per year over five
years from the grant date.
The compensation committee will determine the term of each option which may
be up to a maximum of ten years from the date of grant, except that the term of
an incentive stock option granted to an
52
<PAGE> 59
employee who owns more than 10% of the common stock may not exceed five years
from the date of grant.
Change of Control. Upon a change of control, where the surviving or
acquiring entity does not assume all outstanding options or replace them with
comparable options, the compensation committee may accelerate the vesting of all
outstanding options as of the participant's next vesting date so that they
become exercisable prior to the consummation of the change of control at such
times and on such conditions as the compensation committee determines.
A change of control is defined to have occurred in the event of:
(1) a dissolution or liquidation of the company;
(2) a merger or consolidation in which we are not the surviving corporation
unless there is no substantial change in the stockholders of the company and
outstanding options are assumed by the successor corporation;
(3) a merger in which we are the surviving company but our stockholders
cease to own any shares in the company;
(4) the sale of substantially all the assets of the company; or
(5) the acquisition, sale or transfer of more than 50% of our outstanding
shares by tender offer or similar transaction (except for acquisitions of more
than 50% of our outstanding shares by Vulcan or an affiliate of Vulcan).
Amendment and Termination of the Plan. The compensation committee may amend
or terminate the plan at any time; except that it may not make any amendment
that requires stockholder approval pursuant to Rule 16b-3 of the Securities
Exchange Act of 1934 or Sections 162(m) or 422 of the Internal Revenue Code
without stockholder approval. The plan will terminate on the tenth anniversary
of its effective date, unless the compensation committee terminates the plan
earlier or extends it with approval of the stockholders.
Tax Consequences. The tax consequences of options granted under the 1999
stock option plan will generally be the same as the tax consequences of options
granted under the 1998 stock option plan.
Section 162(m). Under Section 162(m) of the Internal Revenue Code, we may
be precluded from claiming a federal income tax deduction for total remuneration
in excess of $1 million paid to the chief executive officer or to any of the
other four most highly compensated officers in any one year. Total remuneration
would include amounts received upon the exercise of stock options. An exception
exists, however, for "performance-based compensation," including amounts
received upon the exercise of stock options pursuant to a plan approved by
stockholders that meets certain requirements. The plan has been approved by
stockholders and it is intended that grants of options thereunder meet the
requirements of "performance-based compensation."
1999 NON-EMPLOYEE DIRECTORS PLAN
We adopted the 1999 Non-Employee Directors Plan in January 1999. As of
April 29, 1999, options to purchase 189,875 shares at an exercise price of $3.23
per share were outstanding under the plan. Under the plan, each non-employee
director is automatically granted an option to purchase 27,125 shares of our
common stock on the effective date of the plan, or the date on which the person
first becomes a non-employee director. Subsequent grants of options to purchase
11,625 shares of common stock are made to each non-employee director on the
first business day of each subsequent year, provided the director has served on
the board for at least the prior six months. Additional options may be granted
under the plan from time to time by the compensation committee to reward
extraordinary services by a director, subject to the consent of the remaining
directors.
The plan authorizes up to 465,000 shares of common stock for issuance. If
options granted under the plan expire or are terminated for any reason without
being exercised, the shares of common stock underlying the grant will again be
available for purposes of the plan.
53
<PAGE> 60
The compensation committee of the board of directors interprets the plan.
The exercise price of options granted under the plan will be equal to the fair
market value of a share of common stock on the date the option is granted. Each
director's initial grant of options under the plan vests immediately upon grant.
Subsequent options granted to a director under the plan will vest ratably over
the director's then current term of service. Initial options and each subsequent
option granted will have a term of ten years.
EMPLOYMENT AGREEMENTS
Under an employment agreement dated February 23, 1998, Kent Oyler agreed to
be our Chief Executive Officer. Under this employment agreement, Mr. Oyler
receives a base monthly salary of $6,250, and a bonus of up to $40,000 per year
based on performance objectives established at the sole discretion of the
compensation committee. Under the employment agreement, Mr. Oyler has agreed
that he will not compete with us in any manner for a two year period following
the termination of his employment for any reason. The employment agreement can
be terminated at any time. In January 1999, we and Mr. Oyler amended his
agreement to provide for a change in his position to Chief Operating Officer.
Under an employment agreement dated April 3, 1998, Ron Pitcock agreed to be
our President. Under the employment agreement, Mr. Pitcock is entitled to
receive a base monthly salary of $9,167, and a bonus of up to $50,000 per year
based on performance objectives established at the sole discretion of the
compensation committee. Under the employment agreement, Mr. Pitcock has agreed
that he will not compete with us in any manner for a two year period following
the termination of his employment for any reason. The employment agreement can
be terminated at any time.
54
<PAGE> 61
CERTAIN TRANSACTIONS
Ron Pitcock and Kent Oyler, both executive officers of HSA, David Gibbs, a
former executive officer of HSA, and Joseph S. Gans, III, a former director of
HSA, were involved in our founding and organization. At its formation in
February 1998, CATV.net, Inc., our subsidiary following our formation in April
1998, issued an aggregate of 1 million shares of common stock to OPM Services,
Inc. and Colorado Limited Partnership, affiliates of Mr. Oyler, and 1 million
shares of common stock to the Gibbs Family Limited Partnership, an affiliate of
Mr. Gibbs. CATV.net issued the shares to OPM Services, the Colorado Limited
Partnership and the Gibbs Family Limited Partnership in exchange for their units
of CATV.net, LLC, in connection with the reorganization of the LLC as a
corporation. The LLC units were originally issued to Mr. Gibbs and Mr. Oyler for
nominal consideration upon the formation of the LLC. Additional units were
issued to Mr. Oyler in consideration of the cancellation of $117,000 due Mr.
Oyler. In April 1998, the shares of CATV.net issued to OPM Services and the
Colorado Limited Partnership were exchanged for 1.55 million shares of our
common stock and the shares of CATV.net issued to the Gibbs Family Limited
Partnership were exchanged for 1.55 million shares of our common stock in
connection with our formation and the reorganization of CATV.net as our
subsidiary. OPM Services, the Colorado Limited Partnership and the Gibbs Family
Limited Partnership are entitled to certain registration rights with respect to
their shares of common stock. See "Description of Capital Stock--Registration
Rights". In April 1998, High Speed Access Network, Inc., our subsidiary
following our formation, issued 980,000 shares of common stock to the Pitcock
Family Limited Partnership, an affiliate of Mr. Pitcock, and 816,000 shares of
common stock to Mr. Gans for nominal consideration. The shares of common stock
of High Speed Access Network issued to the Pitcock Family Limited Partnership
and to Mr. Gans were exchanged for 1.5 million and 1.3 million shares
respectively of our common stock in April 1998 in connection with our formation
and the reorganization of High Speed Access Network as our subsidiary.
Since our formation we have issued 20 million shares of convertible
preferred stock, which will automatically convert into 31 million shares of
common stock upon or immediately prior to the completion of this offering. No
dividends have been declared or paid on the convertible preferred stock;
however, the cumulative, accrued and unpaid dividends on the convertible
preferred stock will be paid in shares of common stock upon conversion of the
preferred stock. We estimate that as of March 31, 1999 the holders of the
convertible preferred stock would have received 75,166 shares of common stock in
payment of the accrued and unpaid dividends. The holders of common stock issued
upon conversion of the convertible preferred stock are entitled to registration
rights. See "Description of Capital Stock--Registration Rights".
From April to November 1998 we sold 5 million shares of Series A
convertible preferred stock to Broadband Solutions, LLC and 2 million shares of
Series B convertible preferred stock to Broadband Solutions II, LLC. The
purchase price of $1.00 per share, $5 million in the aggregate, for the Series A
convertible preferred stock was paid in cash. The purchase price of the Series B
convertible preferred stock of $2.50 per share, $5 million in the aggregate, was
paid in cash and/or in exchange for a note owing to Broadband. In December 1998
and April 1999, Broadband Solutions, LLC and Broadband Solutions II, LLC
distributed the 5 million shares of Series A convertible preferred stock and the
2 million shares of Series B convertible preferred stock to their members. Until
the completion of the offering, Broadband Solutions, LLC has voting power with
respect to the Series A convertible preferred stock and Series B convertible
preferred stock pursuant to irrevocable proxies granted to it by the members of
Broadband Solutions, LLC and Broadband Solutions II, LLC and by River Cities
Capital Fund Limited Partnership, a former member. David A. Jones, Jr., our
Chairman of the Board, is the managing member, and Robert S. Saunders, our Vice
Chairman, Irving W. Bailey, II and Michael E. Gellert, directors, are managers
of Broadband Solutions, LLC and Broadband Solutions II, LLC. In addition,
entities controlled by them are members of Broadband Solutions, LLC and
Broadband Solutions II, LLC. These entities are entitled to registration rights
with respect to the shares of common stock to be issued upon conversion of the
convertible preferred stock owned by them. See "Description of Capital
Stock--Registration Rights".
In connection with the sale of the Series A convertible preferred stock to
Broadband Solutions, LLC, we agreed to pay Chrysalis Ventures a consulting fee
of $20,000 per quarter, upon approval by the board
55
<PAGE> 62
of directors. Mr. Jones is the Chairman and Mr. Saunders is the Senior Managing
Director of Chrysalis Ventures. In 1998, we accrued $60,000 payable to Chrysalis
Ventures under the consulting agreement.
In November 1998, we entered into a systems access and investment agreement
with Vulcan Ventures and Charter Communications, a programming content agreement
with Vulcan, and a related network services agreement with Charter. Under these
agreements, Charter committed to provide us 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. 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. 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 end users subscribing to our services as of the termination date.
During the term of the agreements, we have agreed not to deploy Worldgate(SM),
Web TV(R), digital TV or related products in the market areas of any committed
system or in any area which Charter operates a cable system. The agreements will
continue until we cease to provide services to an end user residing in a home
passed in a committed system.
Concurrently with our entering into these agreements, we issued 8 million
shares of Series B convertible preferred stock to Vulcan at a purchase price of
$2.50 per share, which it acquired for $20 million in cash. Vulcan also
subscribed to purchase 2.5 million shares of our Series C convertible preferred
stock at a purchase price of $5.00 per share on or before November 25, 2000, and
received an option to purchase an additional 2.5 million shares of our Series C
convertible preferred stock at a purchase price of $5.00 per share on or before
November 25, 2000. In April 1999, Vulcan purchased the entire 5 million shares
of Series C convertible preferred stock for $25 million in cash. The shares of
Series B and Series C convertible preferred stock issued to Vulcan will
automatically convert at a price of $3.23 per share into 20.15 million shares of
common stock upon completion of this offering. Vulcan is entitled to
registration rights with respect to the shares of common stock to be issued upon
conversion of the Series B and Series C convertible preferred stock owned by it.
See "Description of Capital Stock--Registration Rights."
As an inducement to Vulcan to cause Charter to commit additional systems to
us, we granted Vulcan warrants to purchase up to 7.75 million shares of our
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 us by
Charter in excess of 750,000. 3.9 million warrants may be earned by Charter on
or before July 31, 2001 and must be exercised on or before July 31, 2002. 3.9
million warrants may be earned by Charter on or before July 31, 2003 and must be
exercised on or before July 31, 2004. The warrants may be forfeited in certain
circumstances, generally if the number of homes passed in a committed system is
reduced. All shares of common stock issuable upon exercise of the warrants have
registration rights. See "Description of Capital Stock -- Registration Rights".
In February 1998, CATV.net, Inc. and OPM Services, Inc., an entity
controlled by Kent Oyler, our Chief Operating Officer, entered into a services
agreement under which OPM agreed to provide, on CATV's behalf, certain
financial, accounting, professional staffing and legal services. During 1998,
OPM received fees of $71,160 under the agreement. The agreement was terminated
on December 31, 1998.
In October 1997, HSA and Gans Multimedia Partnership, an entity owned by
Joseph S. Gans, III, a founder and former director of HSA, entered into a cable
affiliate agreement under which Gans Multimedia granted us the exclusive right
to provide the customers of three cable systems owned by Gans Multimedia with
high speed Internet access. The agreement has a five year term and provides that
Gans Multimedia will receive 25% of the gross revenues we receive under the
agreement. During 1998, we paid Gans Multimedia $76,116 under the agreement.
In April 1998, we borrowed $650,000 from Gans Multimedia. The note bears
interest at the rate of 7% per annum. We repaid $150,000 of the principal in
December 1998 and the remaining
56
<PAGE> 63
$500,000 balance matures on April 1, 2001. The loan is secured by various
operating assets we own in St. Mary's County, Maryland.
In October 1998, Broadband Solutions II, LLC lent us $1 million, pursuant
to a 12% promissory note. Broadband exchanged the note for 400,000 shares of our
Series B convertible preferred stock and $10,750 in cash, representing accrued
and unpaid interest under the note, in November 1998.
In March 1999, we formed Darwin Networks, Inc. a wholly-owned subsidiary,
and transferred to Darwin all of the assets used in our digital subscriber line
technology division in exchange for 4 million shares of Darwin common stock. We
subsequently distributed the 4 million shares of Darwin common stock to our
stockholders. In the distribution, Vulcan received 2,166,667 shares, Broadband
Solutions, LLC received 488,125 shares, Broadband Solutions II, LLC received
423,042 shares, OPM Services received 55,555 shares, the Colorado Limited
Partnership received 111,111 shares, the Gibbs Family Limited Partnership
received 166,667 shares and the Pitcock Family Limited Partnership received
163,333 shares. As of March 31, 1999, the date of the distribution to
stockholders, the outstanding shares of Darwin common stock were valued at
approximately $0.24 per share. The distribution of the Darwin shares to our
existing stockholders resulted in a $549,000 reduction in our net operating loss
carryforward.
In connection with the transaction, we agreed to provide Darwin various
financial, accounting and other professional staff services and will be
compensated for our costs at fair market value. The services agreement is for an
initial six month term, and may be terminated on 30 days notice by us or Darwin.
We also entered into an agreement with Darwin under which Darwin agreed to
provide us the deployment of digital subscriber line technology in our systems,
as needed and requested by us from time to time, at negotiated rates. We also
agreed to loan Darwin up to $500,000 for working capital pursuant to a six month
unsecured revolving credit note bearing interest at the prime rate. The note is
payable by Darwin on September 15, 1999. In connection with the note, Darwin
issued us a warrant to purchase 1 million shares of Darwin common stock at an
exercise price of $5.00 per share. The warrant is exercisable for a period
commencing on March 15, 1999 and ending on the earlier of March 15, 2004 or the
completion of an initial public offering by Darwin. Four of our directors, David
A. Jones, Jr., Michael E. Gellert, Robert S. Saunders and William D. Savoy, are
also directors of Darwin. David F. Gibbs, a current stockholder and former
officer of HSA, is the President of Darwin.
For information regarding the grant of stock options to executive officers
and directors, see "Management--Compensation of Directors," "--Stock Option
Plans" and "Principal Stockholders."
57
<PAGE> 64
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of April 29, 1999
with respect to the beneficial ownership of our common stock by:
- each person known by us to own beneficially more than five percent, in
the aggregate, of the outstanding shares of our common stock,
- our directors and each individual who served as our Chief Executive
Officer during 1998, and
- all executive officers and directors as a group.
Share ownership in each case includes shares issuable upon exercise of
outstanding options and warrants that are exercisable within 60 days of April
29, 1999 as described in the footnotes below, but does not include shares of
common stock we will issue in payment of accrued and unpaid dividends on the
outstanding shares of convertible preferred stock upon its conversion to common
stock. Percentages of ownership are calculated pursuant to SEC Rule 13-(d)(1).
The number of shares outstanding after the offering assumes a price to public of
$12.00 per share. Unless otherwise indicated, the address for each stockholder
is c/o High Speed Access Corp., 4100 East Mississippi Avenue, Denver, Colorado
80246.
<TABLE>
<CAPTION>
PERCENT OF OWNERSHIP
NUMBER OF SHARES ---------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
---------------- ------------------ --------------- --------------
<S> <C> <C> <C>
Vulcan Ventures, Incorporated.................... 20,172,971(1) 54.2% 38.8%
110 110th Avenue, N.E.
Bellevue, WA 98004
Irving W. Bailey, II............................. 10,877,125(2) 29.2% 3.0%
205 Worth Avenue
Suite 201
Palm Beach, FL 33480
Michael E. Gellert............................... 10,877,125(3) 29.2% 3.0%
122 E. 42nd Street
49th Floor
New York, NY 10168-0137
David A. Jones, Jr. ............................. 10,877,125(4) 29.2% 8.0%
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202
Robert S. Saunders............................... 10,877,125(5) 29.2% *
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202
Robert J. Gellert................................ 10,850,000(6) 29.2% 3.0%
122 E. 42nd Street
34th Floor
New York, NY 10168-0127
J. David Grissom................................. 10,850,000(7) 29.2% 2.0%
Suite 2510
400 West Market Street
Louisville, KY 40202
Broadband Solutions, LLC......................... 10,850,000(8) 29.2% *
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202
</TABLE>
58
<PAGE> 65
<TABLE>
<CAPTION>
PERCENT OF OWNERSHIP
NUMBER OF SHARES ---------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
---------------- ------------------ --------------- --------------
<S> <C> <C> <C>
River Cities Capital Fund Limited Partnership.... 2,376,150(9) 6.4% 4.6%
Suite 2250
221 East 4th Street
Cincinnati, OH 45202
W. Kent Oyler, III............................... 1,550,000(10) 4.2% 3.0%
Ron Pitcock, Sr. ................................ 1,519,775(11) 4.1% 3.0%
Jerald L. Kent................................... 27,125(12) * *
William D. Savoy................................. 20,200,096(13) 54.2% 38.9%
Stephen E. Silva................................. 27,125(14) * *
All executive officers and directors as a group
(14 persons)................................... 34,487,996(15) 91.7% 59.4%
</TABLE>
- ---------------
* Represents beneficial ownership of less than one percent of the outstanding
shares of our common stock.
(1) Includes 20,150,000 shares of common stock to be issued upon automatic
conversion of all shares of preferred stock owned by Vulcan, and 22,971
shares of common stock issuable upon the exercise of warrants held by
Charter Communications, an affiliate of Vulcan. In addition, Charter holds
warrants to purchase up to an additional 7,727,029 shares of common stock.
Paul Allen owns 100% of the outstanding shares of Vulcan.
(2) Consists of (i) 10,850,000 shares of common stock to be issued upon
automatic conversion of all shares of preferred stock over which Broadband
Solutions has sole voting power pursuant to irrevocable proxies until
completion of this offering, including 1,550,510 shares held by IWB
Investments, LP, and (ii) 27,125 shares of common stock issuable upon the
exercise of stock options. Mr. Bailey is a manager of Broadband, and IWB
Investments, LP is a member of Broadband. Mr. Bailey is the president and
principal shareholder of IWB Investments, Inc., the general partner of IWB
Investments, LP, and will have sole voting and investment power over the
shares held by IWB Investments after the offering.
(3) Consists of (i) 10,850,000 shares of common stock to be issued upon
automatic conversion of all shares of preferred stock over which Broadband
Solutions has sole voting power pursuant to irrevocable proxies until
completion of this offering, including 1,550,510 shares held by Windcrest
Partners, of which Mr. Gellert is a general partner, and (ii) 27,125 shares
of common stock issuable upon the exercise of stock options. Mr. Gellert is
a manager of Broadband, and Windcrest Partners is a member of Broadband.
Mr. Gellert will share voting and investment power over the shares held by
Windcrest Partners after the offering.
(4) Consists of (i) 10,850,000 shares of common stock to be issued upon
automatic conversion of all shares of preferred stock over which Broadband
Solutions, LLC has sole voting power pursuant to irrevocable proxies until
completion of this offering, including 4,133,661 shares held by JG Funding,
LLC, and (ii) 27,125 shares of common stock issuable upon the exercise of
stock options. Mr. Jones is a manager of Broadband, and JG Funding is a
member of Broadband. Chrysalis Ventures, LLC, of which Mr. Jones is the
Chairman and principal shareholder, will have sole voting and investment
power with respect to the shares held by JG Funding, LLC after the
offering.
(5) Consists of (i) 10,850,000 shares of common stock to be issued upon
automatic conversion of all shares of preferred stock over which Broadband
Solutions has sole voting power pursuant to irrevocable proxies until
completion of this offering, including 115,044 shares held by Saunders
Capital Group, LLC and 91,484 shares held by Saunders Capital Group Profit
Sharing Plan, each of which is controlled by Mr. Saunders, and (ii) 27,125
shares of common stock issuable upon the exercise of stock options. Mr.
Saunders is a manager of Broadband, and each of Saunders Capital Group and
Saunders Capital Group Profit Sharing Plan is a member of Broadband. Mr.
Saunders
59
<PAGE> 66
will have sole voting and investment power over the shares held by Saunders
Capital Group and Saunders Capital Group Profit Sharing Plan after the
offering.
(6) Consists of 10,850,000 shares of common stock to be issued upon automatic
conversion of all shares of preferred stock over which Broadband Solutions
has sole voting power pursuant to irrevocable proxies until completion of
this offering, including 1,550,510 shares held by Windcrest Partners, a
member of Broadband. Mr. Gellert is a general partner of Windcrest Partners
and will share voting and investment power over the shares held by
Windcrest Partners after the offering.
(7) Consists of 10,850,000 shares of common stock to be issued upon automatic
conversion of all shares of preferred stock over which Broadband Solutions
has sole voting power pursuant to irrevocable proxies until completion of
this offering, including 1,033,261 shares held by Mr. Grissom, a manager
and member of Broadband. Mr. Grissom will have sole voting and investment
power over the 1,033,261 shares after the offering.
(8) Consists of 10,850,000 shares of common stock to be issued upon automatic
conversion of 10,850,000 shares of preferred stock over which Broadband has
sole voting power pursuant to irrevocable proxies granted to it by IWB
Investments, LP, Windcrest Partners, JG Funding, LLC, Saunders Capital
Group, LLC, Saunders Capital Group Profit Sharing Plan, J. David Grissom
and River Cities Capital Fund Limited Partnership. The irrevocable proxies
granted to Broadband will expire upon completion of the offering.
(9) Consists of common stock to be issued upon automatic conversion of all
shares of preferred stock owned by River Cities Capital Fund Limited
Partnership. River Cities has granted Broadband an irrevocable proxy with
respect to such shares, which will expire upon completion of the offering.
Glen Mayfield and Edward T. Robinson are the principals and owners of
Mayson, Inc., which is the general partner of River Cities Management,
Inc., the general partner of River Cities Capital Fund Limited Partnership.
The address of Mr. Mayfield and Mr. Robinson is Suite 2250, 221 East Fourth
Street, Cincinnati, OH 45202.
(10) Consists of 516,666 shares held of record by OPM Services, Inc. and
1,033,334 shares held of record by the Colorado Limited Partnership, both
of which Mr. Oyler controls.
(11) Consists of 1,519,000 shares held of record by the Pitcock Family Limited
Partnership, which Mr. Pitcock controls, and 775 shares of common stock
issuable upon the exercise of stock options held by Mr. Pitcock's spouse
which will become exercisable upon completion of this offering.
(12) Includes 27,125 shares of common stock issuable upon the exercise of stock
options.
(13) Includes 20,172,971 shares of common stock beneficially owned by Vulcan and
27,125 shares of common stock issuable upon the exercise of stock options.
Mr. Savoy is the Vice President of Vulcan. Mr. Savoy disclaims beneficial
ownership of shares held by Vulcan, and Vulcan disclaims beneficial
ownership of shares owned by Mr. Savoy.
(14) Includes 27,125 shares of common stock issuable upon the exercise of stock
options.
(15) Includes 189,875 shares of common stock issuable upon the exercise of stock
options within 60 days of April 29, 1999, 205,375 shares of common stock
issuable upon the exercise of stock options which will become exercisable
upon completion of this offering, and 22,971 shares of common stock
issuable upon the exercise of warrants.
60
<PAGE> 67
DESCRIPTION OF SECURITIES
At the closing of the offering our authorized capital stock will consist of
400 million shares of common stock, par value $.01 per share, 100 million shares
of Class A common stock, par value $.01 per share, and 10 million shares of
preferred stock, par value $.01 per share. We are a Delaware corporation,
subject to the Delaware General Corporation Law.
COMMON STOCK
Holders of our common stock are entitled to receive, as, when and if
declared by the board of directors from time to time, such dividends and other
distributions in cash, stock or property from our assets or funds legally
available for such purposes subject to the rights of any preferred stock that
may be authorized. Holders of common stock are entitled to one vote for each
share held of record on all matters on which shareholders may vote.
There are no preemptive, conversion, redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable. In the event of our liquidation, dissolution or winding
up, holders of common stock are entitled to share ratably in the assets
available for distribution, subject to the rights of any preferred stock that
may be authorized.
CLASS A COMMON STOCK
Our board of directors, without further action by the stockholders, is
authorized to issue an aggregate of 100 million shares of Class A common stock.
Upon completion of this offering, no shares of Class A common stock will be
outstanding and we have no plans to issue any Class A common stock. Our board of
directors may, without stockholder approval, issue Class A common stock in one
or more series and fix the designations, powers, preferences and rights of the
shares, provided that any series of Class A common stock issued will either be
nonvoting or will have voting rights junior to the common stock and will be pari
passu with or rank junior to the common stock upon liquidation. Issuances of
Class A common stock could have the effect of making it more difficult for a
third party to acquire, or could discourage or delay a third party from
acquiring, a majority of our outstanding stock.
PREFERRED STOCK
Our board of directors, without further action by the stockholders, is
authorized to issue an aggregate of 10 million shares of preferred stock. Upon
completion of this offering, no shares of preferred stock will be outstanding
and we have no plans to issue a new series of preferred stock. Our board of
directors may, without stockholder approval, issue preferred stock with dividend
rates, redemption prices, preferences on liquidation or dissolution, conversion
rights, voting rights and any other preferences, which rights and preferences
could adversely affect the voting power of the holders of common stock.
Issuances of preferred stock, while providing desirable flexibility in
connection with possible acquisitions or other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or could
discourage or delay a third party from acquiring, a majority of our outstanding
stock.
OPTIONS
Options to purchase a total of 3.1 million shares of common stock may be
granted under the 1999 stock option plan and options to purchase 465,000 shares
of common stock may be granted under the 1999 non-employee directors stock
option plan. There are outstanding options to purchase a total of 257,375 shares
of common stock under these plans and 839,325 shares of common stock under the
1998 stock option plan. Of the total options outstanding, options to purchase
1,029,200 shares will be exercisable upon the closing of this offering. In
addition, we intend to issue options to purchase 465,065 shares of common stock
under the 1999 stock option plan at an exercise price equal to the initial
public offering price per share contemporaneously with the completion of this
offering. Any shares issued upon exercise of these options will be immediately
available for sale in the public market 90 days after the date of this
prospectus or upon our filing of a registration statement after the offering
relating to our stock option
61
<PAGE> 68
plans, subject to the terms of lock-up agreements entered into between certain
of our optionholders and the underwriters. See "Management--Stock Option Plans"
and "Shares Eligible for Future Sale."
WARRANTS
We are a party to certain warrant agreements that will under certain
circumstances entitle Charter to purchase 7.75 million shares of common stock at
a purchase price of $3.23 per share. The warrants are exercisable on the basis
of 1.55 shares of common stock for each home passed in a Charter cable system in
excess of 750,000 homes passed with respect to which we are retained to provide
high speed Internet access services. The warrants will be forfeited as to 3.9
million shares if they do not become exercisable on or before July 31, 2001, and
as to 3.9 million shares if they do not become exercisable on or before July 31,
2003. The warrants may be forfeited in certain other circumstances, generally if
the number of homes passed in a committed system is reduced. As of April 29,
1999, Charter had earned warrants to purchase 22,971 shares. The exercise price
and the number of shares of common stock that may be issued under the warrants
are subject to adjustment upon the occurrence of certain events, including
certain issuances of capital stock, rights, options, warrants or other
securities; stock splits; stock dividends; reorganizations; reclassifications;
consolidations or mergers. All shares of common stock issuable upon exercise of
all warrants have certain registration rights. See "Description of Capital
Stock--Registration Rights".
We have also issued a warrant to Microsoft to purchase 250,000 shares of
common stock at 125% of the initial public offering price, exercisable until May
2004. The warrant provides Microsoft the right to purchase one additional share
of our common stock for each additional 10 homes passed above 2.5 million homes
Comcast commits to us by May 1, 2002.
In March 1999, we issued warrants to purchase 20,150 shares of our common
stock at a purchase price of $6.45 per share in connection with our acquisition
of the assets of Atlanta Online InterNet, Inc.
OTHER EQUITY-BASED AGREEMENTS
From time to time in connection with the negotiation of material
agreements, we may use equity-based arrangements, including warrants to purchase
shares of common stock, as an incentive for a strategic partner to enter into an
agreement with us.
REGISTRATION RIGHTS
We have entered into registration rights agreements with certain of our
stockholders. After the completion of this offering, the holders of 31 million
shares of common stock issuable upon the conversion of all of the outstanding
preferred stock, and warrants to purchase an additional 7.75 million shares of
common stock, will be entitled to certain demand registration rights with
respect to the registration of their registrable securities under the Securities
Act. The holders of 25% or more of the registrable securities are entitled to
demand that we register their registrable securities under the Securities Act.
We are not required to effect more than two registrations pursuant to these
demand registration rights. These holders are also entitled to require us to
include their registrable securities in future registration statements that we
may file. In addition, after the completion of the offering, the holders of 3.1
million shares of common stock may demand that we register up to 20% of their
shares under the Securities Act. We are not required to effect more than one
registration pursuant to this demand registration right. In addition, these
holders may require us to include their shares in future registration statements
that we may file. These registration rights are subject to various conditions
and limitations, including the right of the underwriters of an offering to limit
the number of registrable securities that may be included in the offering. In
addition, holders of all of these shares will be restricted from exercising
their demand rights until 180 days after the date of this prospectus. We are
generally required to bear all of the expenses of these registrations, except
underwriting discounts and selling commissions. Registration of any of the
registrable securities held by security holders with registration rights will
result in shares becoming freely tradable without restriction under the
Securities Act immediately upon the effectiveness of such registration.
62
<PAGE> 69
DELAWARE BUSINESS COMBINATION STATUTE
Section 203 of the Delaware General Corporation Law generally prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
interested stockholder attained such status with the approval of the board of
directors or unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, fifteen percent
(15%) or more of the corporation's outstanding voting stock. This statute could
prohibit or delay a change in control of our company and could discourage
potential acquisition proposals.
BOARD OF DIRECTORS VACANCIES
Our bylaws authorize the board of directors to fill vacant directorships or
increase the size of the board of directors. This may deter a stockholder from
attempting to remove incumbent directors and simultaneously gaining control of
our board of directors by filling the vacancies created with its own nominees.
STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
Our amended and restated certificate of incorporation provides that
stockholders may not take action by written consent, but only at duly called
annual or special meetings of stockholders. The certificate further provides
that special meetings of our stockholders may be called only by the board of
directors, or by our chairman.
CLASSIFIED BOARD OF DIRECTORS
Our amended and restated certificate of incorporation divides our board of
directors into three classes, with regular three-year staggered terms and
initial terms of one year for the class I directors, two years for the class II
directors and three years for the class III directors. This could prevent a
party who acquires control of a majority of our outstanding voting stock from
obtaining control of the board of directors.
Our stockholders do not have the right to cumulative voting in the election
of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
Our bylaws provide that stockholders seeking to bring business before an
annual meeting of stockholders, or to nominate candidates for election as
directors at an annual meeting of stockholders, must provide advance notice to
us in writing. These provisions may preclude stockholders from bringing matters
before or from making nominations for directors at an annual meeting of
stockholders.
AUTHORIZED BUT UNISSUED SHARES
The ability of the board of directors to establish the rights of, and to
issue, substantial amounts of preferred stock without the need for shareholder
approval, may have the effect of discouraging, delaying or preventing a change
in control. Such preferred stock, among other things, may be used to create
voting impediments with respect to any changes in control or to dilute the stock
ownership of holders of common stock seeking to obtain control.
AMENDMENTS TO OUR CERTIFICATE AND BYLAWS
Under Delaware law, the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporation's certificate
of incorporation or bylaws.
63
<PAGE> 70
LIMITATION OF LIABILITY
Our amended and restated certificate of incorporation provides that none of
our directors will be personally liable to us or our stockholders for monetary
damages for any breach of fiduciary duty as a director except for liability for
breach of the director's duty of loyalty to our stockholders, for acts or
omissions which are not in good faith or which involve intentional misconduct or
knowing violations of law, for actions leading to improper personal benefit to
the director, and for the payment of dividends or approval of stock repurchases
or redemptions that are prohibited by Delaware law. This provision does not
affect the directors' responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.
INDEMNIFICATION
Section 145 of the Delaware corporate laws provide for the power to
indemnify any directors and officers and to purchase insurance with respect to
liability arising out of their capacity or status as directors and officers. The
indemnification provisions are not exclusive of any other rights to which the
directors and officers may be entitled under the corporation's bylaws, any
agreement, a vote of stockholders or otherwise.
Our amended and restated certificate of incorporation provides a right to
indemnification to the maximum extent permitted by Delaware law to any person
who was or is a party or is threatened to be made a party to or becomes involved
in any action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was our director or
officer, or is or was serving at our request as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement reasonably incurred by such
person in connection with such action, suit or proceeding. The certificate of
incorporation provides for the advancement of expenses incurred by any of our
directors, officers or other employees in the defense of any such actions, suits
or proceedings, so long as any director, officer or employee engaged in such a
defense is not later found ineligible for indemnification. The certificate of
incorporation also permits us to secure insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions, regardless of whether Delaware law would permit indemnification.
We have entered into agreements to indemnify our executive officers and
directors, in addition to the indemnification provided for in our certificate of
incorporation. We believe that these provisions and agreements are necessary to
attract and retain qualified directors and executive officers. We maintain
liability insurance to provide directors and officers with insurance coverage
for losses arising from claims based on breaches of duty, negligence, error and
other wrongful acts.
At present, there is no pending litigation or proceeding, and we are not
aware of any threatened litigation or proceeding, that may result in a claim for
such indemnification involving any director, officer, employee or agent as to
which indemnification will be required or permitted under the certificate of
incorporation.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American
Securities Transfer & Trust, Inc., Denver, Colorado.
64
<PAGE> 71
UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of common stock
applicable to Non-U.S. Holders of common stock who acquire and own it as a
capital asset within the meaning of section 1221 of the Internal Revenue Code. A
"Non-U.S. Holder" is any person other than
- a citizen or resident of the United States,
- a corporation or partnership created or organized in the United States or
under the laws of the United States or of any state, or
- an estate whose income is includable in gross income for United States
federal income tax purposes regardless of its source, or
- a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust.
For purposes of the withholding tax on dividends discussed below, a
non-resident fiduciary of an estate or trust will be considered a Non-U.S.
Holder. An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a non-resident alien) by virtue of being present
in the United States on at least 31 days in the calendar and for an aggregate of
at least 183 days during a three-year period in the current calendar year
(counting for these purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second succeeding year). Resident aliens are subject
to U.S. federal tax as if they were U.S. citizens and, thus, are not Non-U.S.
Holders for purposes of this discussion.
This discussion does not consider specific facts and circumstances that may
be relevant to a particular Non-U.S. Holder's tax position, including the fact
that in the case of a Non-U.S. Holder that is a partnership, the U.S. tax
consequences of holding and disposing of shares of common stock may be affected
by certain determinations made at the partner level, and does not consider U.S.
state and local or non-U.S. tax consequences. Further, it does not consider
Non-U.S. Holders subject to special tax treatment under the federal income tax
laws, including banks and insurance companies, dealers in securities, and
holders of securities held as part of a "straddle," "hedge" or "conversion
transaction". In addition, persons that hold the common stock through "hybrid
entities" may be subject to special rules and may not be entitled to the
benefits of a U.S. income tax treaty. The following discussion is based on
provisions of the Internal Revenue Code and administrative and judicial
interpretations as of the date hereof, all of which are subject to change,
possibly on a retroactive basis, any change could affect the continuing validity
of this discussion. THE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL
INFORMATION. ACCORDINGLY, IF YOU ARE A NON-U.S. HOLDER, WE URGE YOU TO CONSULT A
TAX ADVISOR WITH RESPECT TO THE UNITED STATES FEDERAL TAX CONSEQUENCES OF
HOLDING AND DISPOSING OF OUR COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES THAT
MAY ARISE UNDER THE LAWS OF ANY U.S. STATE, LOCAL OR OTHER NON-U.S. TAXING
JURISDICTION.
Dividends. In general, assuming we have, and to the extent of, tax earnings
and profits at the time of any dividends, dividends paid to a Non-U.S. Holder
will be subject to withholding of U.S. federal income tax at a 30% rate unless
this rate is reduced by an applicable income tax treaty. Dividends that are
effectively connected with the holder's conduct of a trade or business in the
United States, or, if a tax treaty applies, attributable to a permanent
establishment or in the case of an individual a "fixed base," in the United
States ("U.S. trade or business income") are generally subject to U.S. federal
income tax at regular rates and are not generally subject to withholding if the
Non-U.S. Holder files the appropriate form with the payor. Any U.S. trade or
business income received by a non U.S. corporation may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate,
or any lower rate that may be applicable under an income tax treaty.
65
<PAGE> 72
Under current law, dividends paid to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
that country for purposes of the withholding discussed above, and under the
current interpretation of U.S. Treasury regulations, for purposes of determining
the applicability of a tax treaty rate. Under final U.S. Treasury regulations,
effective January 1, 2000, however, a Non-U.S. Holder of common stock who wishes
to claim the benefit of an applicable treaty rate would be required to satisfy
applicable certification and other requirements, which would include the
requirements that the Non-U.S. Holder file a Form W-8 which contains the
holder's name and address.
A Non-U.S. Holder of common stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for a refund
with the U.S. Internal Revenue Service.
Disposition of Common Stock. Except as described below, a Non-U.S. Holder
generally will not be subject to U.S. federal income tax in respect of gain
recognized on a disposition of common stock provided that
- the gain is not U.S. trade or business income,
- the Non-U.S. Holder is not an individual who is present in the United
States for 183 or more days in the taxable year of the disposition and
who meets certain other requirements,
- the Non-U.S. Holder is not subject to tax pursuant to the provisions of
U.S. tax law applicable to certain United States expatriates, and
- the Company has not been and does not become a "United States real
property holding corporation" for U.S. federal income tax purposes.
The Company believes that it has not been, is not currently, and is not
likely to become, a United States real property holding corporation. However, no
assurance can be given that the Company will not be a United States real
property corporation when a Non-U.S. Holder sells its shares of common stock.
Federal Estate Taxes. In general, an individual who is a Non U.S. Holder
for U.S. estate tax purposes will incur liability for U.S. federal estate tax if
the fair market value of property included in the individual's taxable estate
for U.S. federal estate tax purposes exceeds the statutory threshold amount. For
these purposes, common stock owned, or treated as owned, by an individual who is
a Non-U.S. Holder at the time of death will be included in the individual's
gross estate for U.S. federal tax purposes, unless an applicable estate tax
treaty provides otherwise.
U.S. Information Reporting Requirements and Backup Withholding Tax. We are
required to report annually to the Internal Revenue Service and to each Non-U.S.
Holder the amount of dividends paid to, and the tax withheld with respect to,
each Non-U.S. Holder. These reporting requirements apply regardless of whether
withholding was reduced or eliminated by an applicable tax treaty. Copies of
these information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authorities in the country in which the
Non-U.S. Holder resides. Under current regulations, the United States backup
withholding tax, which generally is a withholding tax imposed at the rate of 31%
on certain payments to persons that fail to furnish the information reporting
requirements, will generally not apply to dividends paid on the common stock to
a Non-U.S. Holder at an address outside the United States. Under final Treasury
regulations, effective January 1, 2000, a Non-U.S. Holder generally would not be
subject to backup withholding at a 31% rate if the beneficial owner certifies to
that owner's foreign status on a valid Form W-8.
Non-U.S. Holders will not be subject to information reporting or backup
withholding with respect to the payment of proceeds from the disposition of
common stock effected by a foreign office of a foreign broker provided however
that if the broker is a U.S. person or a "U.S. related person," information
reporting but not backup holding would not apply unless the broker receives a
statement from the owner, signed under penalties of perjury, certifying its
foreign status or otherwise establishing an exemption or the
66
<PAGE> 73
broker has documentary evidence in its files as to the Non-U.S. Holder's foreign
status and the broker has no actual knowledge to the contrary. For this purpose,
a "U.S. related person" is
- a "controlled foreign corporation" for U.S. federal income tax purposes,
- a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding
the payment (or for the part of the period that the broker has been in
existence) is derived from activities that are effectively connected with
the conduct of a U.S. trade or business,
- a foreign partnership that is either engaged in a U.S. trade or business
or in which U.S. persons hold more than 50% of the income or capital
interest, or
- certain U.S. branches of foreign banks or insurance companies.
Non-U.S. Holders will be subject to information reporting and backup
withholding at a rate of 31% with respect to the payment of proceeds from the
disposition of common stock effected by to or through the United States office
of a broker, U.S. or foreign, unless the Non-U.S. Holder certifies as to its
foreign status under penalties of perjury or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder's U.S.
federal income tax, and any amounts withheld in excess of the Non-U.S. Holder's
federal income tax liability will be refunded, provided that the required
information is furnished to the Internal Revenue Service.
67
<PAGE> 74
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock in the public market following
the offering could adversely affect the market price of the common stock and
could impair our ability to raise capital.
Of the 51.9 million shares of common stock outstanding after the offering
(assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options or warrants), the 13 million shares sold in the offering
and the 1.7 million shares to be sold to Cisco, Com21 and Microsoft will be
freely tradable in the public market, unless such shares are held by
"affiliates" as that term is defined in Rule 144 under the Securities Act, and
subject to the terms of certain lockup agreements entered into between certain
stockholders and the underwriters. For purposes of Rule 144, an "affiliate" of
an issuer is a person that, directly or indirectly, through one or more
intermediaries, controls, or is controlled by or is under common control with,
such issuer. The remaining 37.2 million shares of common stock are "restricted
securities" as defined under Rule 144. Restricted securities may be sold in the
public market only if registered or upon the expiration of certain holding
periods under Rule 144, subject to the volume, manner of sale and other
limitations of Rule 144.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of the completion of the
offering, a number of shares that does not exceed the greater of (i) 1% of the
then outstanding shares of common stock (approximately 519,000 shares
immediately after the offering) or (ii) the average weekly trading volume in the
common stock during the four calendar weeks preceding the date on which notice
of such sale is filed. In addition, a person who is not an affiliate at any time
during the 90 days preceding a sale and who has beneficially owned the shares
proposed to be sold for at least two years is entitled to sell all those shares
under Rule 144(k) without regard to the volume limitations, manner of sale
provisions or public information requirements. To the extent that shares are
acquired from one of our affiliates in a privately negotiated transaction, the
holding period under Rule 144 of the person acquiring the shares being sold by
our affiliate commences on the date of transfer from the affiliate.
As of the date of this prospectus, options to purchase a total of 1,096,700
shares of common stock are outstanding under our stock option plans, 1,029,200
of which will be exercisable upon completion of the offering and warrants to
purchase a total of 8.1 million shares of common stock are outstanding. In
addition, we intend to issue options to purchase 465,065 shares of common stock
under the 1999 stock option plan at an exercise price equal to the initial
public offering price per share contemporaneously with the completion of this
offering. See "Management--Compensation of Directors" and "--Stock Option
Plans."
We and our directors, officers, substantially all current stockholders,
holding an aggregate of 37.2 million shares of common stock and warrants to
purchase up to 7.75 million shares of common stock, and Cisco, Com21 and
Microsoft have agreed not to offer to sell, sell or otherwise dispose of,
directly or indirectly, any shares of common stock during the 180-day period
following the date of the prospectus without the prior written consent of Lehman
Brothers, except that the holders of 5.5 million shares may transfer these
shares by gift provided that the donee signs a similar lock up agreement, and we
may issue, and grant options to purchase, shares of common stock under our
option plans. In addition, we may issue shares of common stock in connection
with any acquisition of another company if the terms of such issuance provide
that such common stock will not be resold prior to the expiration of the 180-day
period referenced in the preceding sentence.
Following the offering, holders of 34.1 million shares of our outstanding
common stock and holders of warrants to purchase up to 7.75 million shares of
common stock will have demand registration rights with respect to their shares
of common stock (subject to the 180-day lock-up arrangement described above),
under certain circumstances and conditions, to require us to register their
shares of common stock under the Securities Act, and rights to participate in
any future registration of securities by us. If those holders, by exercising
their registration rights, cause a large number of shares to be registered and
sold in the public market, such sales could have an adverse effect on the market
price for the common stock. Holders of registrable securities have agreed to be
subject to a lock-up period of not more than 180 days following the date of this
prospectus. See "Description of Securities--Registration Rights."
68
<PAGE> 75
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, each of the underwriters
named below, for whom Lehman Brothers Inc., J.P. Morgan Securities Inc.,
NationsBanc Montgomery Securities LLC and CIBC Oppenheimer Corp. are acting as
representatives, has agreed to purchase from us the respective number of shares
of common stock shown opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
UNDERWRITERS COMMON STOCK
------------ -------------------
<S> <C>
Lehman Brothers Inc. .......................................
J.P. Morgan Securities Inc. ................................
NationsBanc Montgomery Securities LLC.......................
CIBC World Markets Corp. ...................................
-----------
Total............................................. 13,000,000
===========
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock are subject to certain conditions, and that if
any of the foregoing shares of common stock are purchased by the underwriters
pursuant to an underwriting agreement, all of the shares of common stock that
the underwriters have agreed to purchase pursuant to the underwriting agreement
must be so purchased.
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus, and to certain selected dealers,
who may include the underwriters, at such public offering price less a selling
concession not in excess of $ per share. The underwriters may allow, and the
selected dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the offering, the underwriters may change the
offering price and other selling terms.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
TOTAL
--------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by us..... $ $ $
Expenses payable by us................................ $ $ $
</TABLE>
We have granted to the underwriters an option to purchase up to an
aggregate of 1,950,000 additional shares of common stock, exercisable solely to
cover over-allotments, if any, at the public offering price less the
underwriting discounts and commissions shown on the cover page of this
prospectus. Such option may be exercised at any time, and from time to time,
until 30 days after the date of the underwriting agreement. To the extent that
the underwriters exercise this option, each underwriter will be committed,
subject to certain conditions, to purchase a number of additional shares of
common stock proportionate to
69
<PAGE> 76
such underwriter's initial commitment, as indicated in the preceding table, and
we will be obligated, under such over-allotment option, to sell such shares of
common stock to the underwriters.
We and our directors, officers, and substantially all current stockholders,
holding an aggregate of 34.1 million shares of common stock and warrants to
purchase 7.75 million shares of common stock, and Cisco, Com21 and Microsoft
have agreed not to offer to sell, sell or otherwise dispose of, directly or
indirectly, any shares of common stock during the 180-day period following the
date of the prospectus without the prior written consent of Lehman Brothers,
except that the holders of 5.5 million shares may transfer these shares by gift
provided that the donee signs a similar lock up agreement and we may issue, and
grant options to purchase, shares of common stock under our option plans. In
addition, we may issue shares of common stock in connection with any acquisition
of another company if the terms of that issuance provide that the common stock
will not be resold prior to the expiration of the 180-day period referenced in
the preceding sentence. See "Risk Factors -- Investors may suffer substantial
dilution from other transactions" and "Shares Eligible for Future Sale."
Prior to the offering, there has been no public market for the shares of
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions, our historical performance and capital
structure, estimates of our business potential and earning prospects, an overall
assessment of our management and the consideration of the above factors in
relating to market valuation of companies in related businesses.
Application has been made to have the common stock approved for quotation
on the Nasdaq National Market under the symbol "HSAC."
We have agreed to indemnify the underwriters against liabilities related to
the offering, including liabilities under the Securities Act, and to contribute,
under defined circumstances, to payments that the underwriters may be required
to make in respect thereof.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
certain selling group members to bid for and purchase shares of common stock. As
an exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of common stock. These transactions may
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the common stock.
If the underwriters create a short position in the common stock in
connection with the offering (i.e., they sell more shares than are set forth on
the cover page of this prospectus), the representatives may reduce that short
position by purchasing common stock in the open market. The representatives also
may elect to reduce any short position by exercising all or part of the
over-allotment option described herein.
The underwriters have informed us that they do not intend to confirm sales
to discretionary accounts that exceed 5% of the total number of shares of common
stock offered by them.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares of
common stock in the open market to reduce the underwriters' short position or to
stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. The
imposition of a penalty bid could have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will
70
<PAGE> 77
engage in these stabilizing transactions or that these transactions, once
commenced, will not be discontinued without notice.
Any offers in Canada will be made only pursuant to an exemption from the
requirements to file a prospectus in the relevant province of Canada in which a
sale is made.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
of this prospectus.
At our request, the underwriters have reserved up to 7.5% of the common
stock offered hereby for sale to certain of our employees, directors and friends
at the initial public offering price set forth on the cover page of this
prospectus. These persons must commit to purchase no later than the close of
business on the day following the date of this prospectus. The number of shares
available for sale to the general public will be reduced to the extent these
persons purchase such reserved shares.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Brobeck, Phleger & Harrison LLP, Denver, Colorado. Certain legal
matters in connection with the offering will be passed upon for the underwriters
by Weil, Gotshal & Manges LLP, New York, New York.
EXPERTS
The financial statements of High Speed Access Corp. as of December 31, 1998
and for the period from April 3, 1998 through December 31, 1998; CATV.net, Inc.
as of December 31, 1997 and April 2, 1998 and for the periods from March 12,
1997 through December 31, 1998 and January 1, 1998 through April 2, 1998; and
High Speed Access Network, Inc. as of December 31, 1997 and April 3, 1998 and
for the periods from July 21, 1997 through December 31, 1998 and January 1, 1998
through April 3, 1998, included in this prospectus, have been so included in
reliance on the report of PricewaterhouseCoopers, LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1, including the exhibits, schedules and amendments thereto,
under the Securities Act with respect to the shares of common stock to be sold
in the offering. This prospectus does not contain all the information set forth
in the registration statement. For further information with respect to us and
the shares of common stock to be sold in the offering, we refer you to the
registration statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract, agreement or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference.
You may read and copy all or any portion of the registration statement or
any other information we file at the Securities and Exchange Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the Securities and Exchange Commission. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. Our Securities and Exchange Commission filings,
including the registration statement, are also available to you on the SEC's Web
site (http://www.sec.gov).
As a result of the offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended, and,
in accordance therewith, will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission. Upon approval of
71
<PAGE> 78
the common stock for the quotation on the Nasdaq National Market, such reports,
proxy and information statements and other information may also be inspected at
the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
REPORTS TO STOCKHOLDERS
We intend to furnish our stockholders annual reports containing audited
financial statements and will make available copies of quarterly reports for the
first three quarters of each year containing unaudited interim financial
information.
72
<PAGE> 79
GLOSSARY OF TECHNICAL TERMS
56 Kbps Equivalent to a single high-speed telephone service
line, capable of transmitting one voice call or 56
Kbps of data.
Backbone Very high-capacity, long-distance lines that carry
enormous amounts of Internet traffic and data from
one regional network to another.
Bandwidth The number of bits of information which can move
over a communications medium in a given amount of
time; the capacity of a telecommunications
circuit/network to carry voice, data and video
information. Typically measured in Kbps and Mbps.
Bandwidth from public networks is typically
available to business and residential end-users in
increments from 56 Kbps to T-3.
Broadband A transmission that has a bandwidth greater than
128 Kbps
Coaxial Cable A large-capacity data transmission medium
consisting of insulated wires grouped together
inside an insulated cable. Used for broadband and
baseband communications networks and cable TV;
usually free from most external interferences and
capable of high transmission rates over
long-distances.
COPA The Children's Online Protection Act of 1998.
Dial-up Line Communications circuit that is established by a
switched-circuit connection using the telephone
network.
DOCSIS Data Over Cable Service Interface Specification.
Cable modem specification set by the MCNS
partnership of North American cable operators.
DSL Digital Subscriber Line. Point-to-point public
network access technologies that allow multiple
forms of data, voice and video to be carried over
twisted-pair copper wire on the local loop between
a network service provider's central office and the
customer site at limited distances.
Downstream The data path from service provider to customer.
End user The ultimate residential or business consumer of
high speed Internet access.
Exurban Markets/Areas Cable systems with fewer than 100,000 homes passed.
FCC The Federal Communications Commission.
Headend The central distribution point in a cable
television system that typically serves tens of
thousands to hundreds of thousands of homes via
high-speed fiber-optic connections to the nodes. In
addition to receiving television transmissions from
satellites and having Internet access via
high-speed links to the Internet, the headend often
contains high-speed Internet servers.
Homes Passed The number of homes that potentially can be served
by a cable system.
Internet An open global network of interconnected
commercial, educational and governmental computer
networks which utilize TCP/IP, a common
communications protocol.
A-1
<PAGE> 80
ISDN Integrated Services Digital Network. An
internationally accepted standard for voice, data
and signaling that makes all transmission circuits
end-to-end digital and defines a standard
out-of-band signaling system.
ISP Internet Service Provider.
Kbps Kilobits per second. Thousand bits per second.
Migrating Cable Systems Cable systems that are in the process of upgrading
from one-way to two-way.
Mbps Megabits per second. Million bits per second.
MCNS Multimedia Cable Network System. Industry
specification that defines the technical
requirement for interoperability of high-speed
cable modem and headend equipment.
Modem A device for transmitting information over an
analog communications channel, such as a POTS
telephone circuit.
Node A single local area network that is connected via
high-speed fiber-optic lines to a Headend. In a
cable system, each town or city is divided into
neighborhoods of approximately 500 homes, all of
which are connected to a single node. Both
television and Internet data travel to and from
those 500 homes to the node via coaxial cables.
Non-upgraded Cable System A cable system that has not upgraded to two-way
capabilities.
POTS Plain old telephone service. Standard analog
telephone service used by many telephone companies
throughout the United States.
Router A device for interconnecting local area networks
that have dissimilar operating protocols but which
share a common network interconnection protocol. A
router receives and transmits data packs between
segments in a network or different networks.
Turnkey service An outsourced service that enables a cable operator
to provide Internet access and ancillary services.
Upgraded Cable Systems A cable system that has upgraded to two-way
capabilities.
Upstream The data path from the customer to the service
provider.
VPN Virtual Private Network. A public circuit-switched
data network that transports private data reliably
and securely to the end user and making use of the
public switched telephone network. Circuit
switching refers to the process of setting up and
keeping a circuit open between two or more users,
such that the users have exclusion and full use of
the circuit until the connection is released. The
public switched telephone network refers to the
worldwide voice telephone network accessible to all
those with telephone and access privileges.
A-2
<PAGE> 81
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
High Speed Access Corp. and Subsidiaries
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets at December 31, 1998 and March
31, 1999 (unaudited)................................... F-3
Consolidated Statements of Operations for the period from
April 3, 1998 (inception) through December 31, 1998 and
the three months ended March 31, 1999 (unaudited)...... F-4
Consolidated Statements of Changes in Stockholders'
Deficit for the period from April 3, 1998 (inception)
through December 31, 1998 and the three months ended
March 31, 1999 (unaudited)............................. F-5
Consolidated Statements of Cash Flows for the period from
April 3, 1998 (inception) through December 31, 1998 and
the three months ended March 31, 1999 (unaudited)...... F-6
Notes to Consolidated Financial Statements................ F-7
CATV.net, Inc.
Report of Independent Accountants......................... F-24
Balance Sheets at December 31, 1997 and April 2, 1998..... F-25
Statements of Operations for the period from March 12,
1997 (inception) through December 31, 1997 and the
period from January 1, 1998 through April 2, 1998...... F-26
Statement of Changes in Stockholders' Deficit for the
period from March 12, 1997 (inception) through December
31, 1997 and the period from January 1, 1998 through
April 2, 1998.......................................... F-27
Statements of Cash Flows for the period March 12, 1997
through December 31, 1997 and the period from January
1, 1998 through April 2, 1998.......................... F-28
Notes to Financial Statements............................. F-29
High Speed Access Network, Inc.
Report of Independent Accountants......................... F-36
Balance Sheets as of December 31, 1997 and April 3,
1998................................................... F-37
Statements of Operations for the periods from July 21,
1997 (inception) through December 31, 1997 and from
January 1, 1998 through April 3, 1998.................. F-38
Statement of Changes in Stockholders' Deficit for the
periods from July 21, 1997 (inception) through December
31, 1997 and from January 1, 1998 through April 3,
1998................................................... F-39
Statements of Cash Flows for the periods from July 21,
1997 (inception) through December 31, 1997 and from
January 1, 1998 through April 3, 1998.................. F-40
Notes to Financial Statements............................. F-41
Unaudited Pro Forma Combined Statement of Operations
High Speed Access Corp. and Subsidiaries
Unaudited Pro Forma Combined Statement of Operations
for the year ended December 31, 1998.................. F-46
Notes to Unaudited Pro Forma Condensed Combined
Financial Statements.................................. F-47
</TABLE>
F-1
<PAGE> 82
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
High Speed Access Corp.
The recapitalization described in Note 14 to the consolidated financial
statements has not been consummated at May 3, 1999. When it has been
consummated, we will be in a position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheet and the
related consolidated statement of operations, changes in stockholders'
deficit and of cash flows present fairly, in all material respects, the
consolidated financial position of High Speed Access Corp. and Subsidiaries
at December 31, 1998 and the results of their operations and their cash
flows for the period from April 3, 1998 (inception) through December 31,
1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above."
/s/ PRICEWATERHOUSECOOPERS LLP
Louisville, Kentucky
March 12, 1999
except as to the third paragraph of Note 8 and Note 14,
for which the date is May 3, 1999
F-2
<PAGE> 83
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS STOCKHOLDERS'
ENDED EQUITY
DECEMBER 31, MARCH 31, MARCH 31,
1998 1999 1999
------------ ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 17,888 $ 7,350
Accounts receivable, net of allowance for doubtful
accounts of $13 and $18, respectively................... 83 250
Prepaid expenses and other assets......................... 123 284
--------- ---------
Total current assets................................ 18,094 7,884
Property, equipment and improvements, net................... 5,807 10,824
Intangible assets, net...................................... 3,603 3,718
Other assets................................................ 871
--------- ---------
Total assets........................................ $ 27,504 $ 23,297
========= =========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 2,741 $ 3,955
Accrued compensation and related expenses................. 744 1,125
Other current liabilities................................. 395 1,283
Notes payable -- related parties, current portion......... 8 3
Capital lease obligations, current portion................ 44 59
--------- ---------
Total current liabilities........................... 3,932 6,425
--------- ---------
Notes payable -- related parties............................ 530 529
Capital lease obligations................................... 219 277
--------- ---------
Total liabilities................................... 4,681 7,231
--------- ---------
Commitments and contingencies
Mandatorily redeemable convertible preferred stock:
Series A, $.01 par value, 5,000,000 shares designated,
issued and outstanding, no shares outstanding pro forma
(unaudited)............................................. 47,050 85,000 $ --
Series B, $.01 par value, 10,000,000 shares designated,
issued and outstanding, no shares outstanding pro forma
(unaudited)............................................. 102,200 170,000 --
Series C, $.01 par value, 5,000,000 shares designated, no
shares issued and outstanding, actual and pro forma
(unaudited)............................................. -- -- --
--------- --------- ---------
Total mandatorily redeemable convertible preferred
stock............................................. 149,250 255,000 --
--------- --------- ---------
Stockholders' (deficit) equity:
Preferred stock, $.01 par value, 20,000,000 shares
authorized, 20,000,000 shares designated actual;
10,000,000 shares authorized, none designated, issued
and outstanding pro forma (unaudited)................... -- -- --
Common stock, $.01 par value, 77,500,000 shares and
400,000,000 (unaudited) shares authorized, actual and
pro forma; 6,200,000 and 29,525,166 (unaudited) shares
issued and outstanding, actual and pro forma............ 62 62 295
Class A common stock, 100,000,000 shares authorized pro
forma (unaudited); none issued and outstanding.......... -- -- --
Additional paid-in capital................................ 4,237 7,856 262,623
Deferred compensation..................................... (84) (1,481) (1,481)
Accumulated deficit....................................... (130,642) (245,371) (245,371)
--------- --------- ---------
Total stockholders' (deficit) equity................ (126,427) (238,934) $ 16,066
--------- --------- =========
Total liabilities, mandatorily redeemable
convertible preferred stock and stockholders'
deficit........................................... $ 27,504 $ 23,297
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 84
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 3, 1998 THREE MONTHS
(INCEPTION) ENDED
THROUGH MARCH 31,
DECEMBER 31, 1998 1999
----------------- ------------
(UNAUDITED)
<S> <C> <C>
Net revenue................................................. $ 337 $ 299
Costs and expenses:
Operating costs........................................... 2,067 2,123
Engineering............................................... 2,266 1,485
Sales and marketing....................................... 3,696 2,038
General and administrative................................ 2,323 1,286
Non-cash compensation expense from the issuance of stock
options................................................ 1,523
---------- ----------
Total costs and expenses.......................... 10,352 8,455
---------- ----------
Loss from operations........................................ (10,015) (8,156)
Interest income, net........................................ 40 119
---------- ----------
Net loss.......................................... (9,975) (8,037)
Mandatorily redeemable convertible preferred stock
dividends................................................. (385) (518)
Accretion of redemption value of mandatorily redeemable
convertible preferred stock............................... (120,282) (105,232)
---------- ----------
Net loss available to common stockholders......... $ (130,642) $ (113,787)
========== ==========
Basic and diluted net loss available to common stockholders
per share................................................. $ (21.07) $ (18.35)
========== ==========
Weighted average shares used in computation of basic and
diluted net loss available to common stockholders per
share..................................................... 6,200,000 6,200,000
Pro forma basic and diluted net loss per share
(unaudited)............................................... $ (.71) $ (.27)
========== ==========
Weighted average shares used in computation of pro forma
basic and diluted (unaudited)............................. 14,091,935 29,450,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 85
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE PERIOD APRIL 3, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998
AND THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT DEFICIT
--------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock in
connection with acquisition
of CATV and HSAN............. 6,200,000 $62 $3,153 $ -- $ 3,215
Grant of option to purchase
Series C mandatorily
redeemable preferred stock... 1,000 1,000
Mandatorily redeemable
convertible preferred stock
dividends.................... -- -- -- (385) (385)
Accretion of redemption value
of mandatorily redeemable
convertible preferred
stock........................ -- -- -- (120,282) (120,282)
Deferred compensation from
grants of stock options to
purchase common stock........ 84 (84)
Net loss....................... -- -- -- (9,975) (9,975)
--------- --- ------ --------- --------- ---------
BALANCES AT DECEMBER 31,
1998......................... 6,200,000 62 4,237 (84) (130,642) (126,427)
Mandatorily redeemable
convertible preferred stock
dividends (unaudited)........ (517) (517)
Accretion of redemption value
of mandatorily redeemable
convertible preferred stock
(unaudited).................. (105,232) (105,232)
Distribution of Darwin
Networks, Inc. stock to
shareholders (unaudited)..... 569 (943) (374)
Issuance of common stock
warrants in connection with
acquisition of customer base
(unaudited).................. 130 130
Issuance of vested compensatory
stock options (unaudited).... 1,470 1,470
Deferred compensation from
grants of stock options to
purchase common stock
(unaudited).................. 1,450 (1,450)
Amortization of deferred
compensation (unaudited)..... 53 53
Net loss (unaudited)........... (8,037) (8,037)
--------- --- ------ --------- --------- ---------
BALANCES AT MARCH 31, 1999
(UNAUDITED).................. 6,200 $62 $7,856 $ (1,481) $(245,371) $(238,934)
========= === ====== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 86
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
APRIL 3, 1998 ENDED
(INCEPTION) THROUGH MARCH 31,
DECEMBER 31, 1998 1999
------------------- ------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(9,975) $ (8,037)
Adjustments to reconcile net loss to cash used in operating
activities:
Depreciation and amortization............................. 1,344 897
Non-cash compensation expense from the issuance of stock
options................................................. 1,523
Changes in assets and liabilities, excluding effects of
acquisitions:
Accounts receivable..................................... (36) (167)
Prepaid expenses and other current assets............... (106) (197)
Other assets............................................ (871)
Accounts payable........................................ 739 763
Accrued compensation and related expenses............... 629 374
Other current liabilities............................... 211 895
------- --------
Net cash used in operating activities.............. (7,194) (4,820)
------- --------
INVESTING ACTIVITIES
Purchase of property, equipment and improvements, net of
leases.................................................... (4,235) (5,497)
Cash acquired in purchase of CATV and HSAN.................. 907
Purchase of customer base................................... (204)
------- --------
Net cash used in investing activities.............. (3,328) (5,701)
------- --------
FINANCING ACTIVITIES
Net proceeds from issuance of mandatorily redeemable
convertible preferred stock............................... 27,583
Proceeds from notes payable -- related parties.............. 1,000
Payments on capital lease obligations....................... (17) (11)
Payments on long-term debt.................................. (156) (6)
------- --------
Net cash provided by financing activities.......... 28,410 (17)
------- --------
Net increase in cash and cash equivalents................... 17,888 (10,538)
Cash and cash equivalents, beginning of period.............. -- 17,888
------- --------
Cash and cash equivalents, end of period.................... $17,888 $ 7,350
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest.................... $ 14 $ 8
SUPPLEMENTAL SCHEDULE OF NONCASH 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................... $ 241 $ 84
Issuance of note payable as consideration for advance from
related party........................................... $ 650
Issuance of preferred stock in exchange for cancellation
of notes payable -- related parties..................... $ 1,000
Property and equipment purchases payable.................. $ 1,429 $ 1,880
Distribution of Darwin Networks, Inc. to shareholders..... $ 943
Issuance of common stock warrants in connection with
customer base acquisition............................... $ 130
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 87
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. THE COMPANY AND BASIS OF PRESENTATION
The Company
High Speed Access Corp. and Subsidiaries (the Company) provides high speed
Internet access via cable modems to residential and commercial customers in
exurban areas. The Company is among the first providers to offer cable
modem-based high speed Internet access in exurban markets. The Company defines
exurban markets as cable systems with fewer than 100,000 homes passed which it
estimates includes approximately 48 million homes, or approximately one-half of
the homes passed by cable in the United States. The Company enters into
long-term exclusive contracts with cable system operators to provide them with a
comprehensive "turnkey" service. That service enables a cable system's customers
to receive high speed Internet access. In exchange for providing the Company
with access to its customers, the Company pays the cable operator a portion of
the monthly fees received from an end user that subscribes to the services. The
Company operates in one business segment.
Business Combination and Basis of Presentation
High Speed Access Corp. was incorporated on April 2, 1998. No initial
capitalization transactions occurred on that date. The current Chairman of the
Board of Directors was named the sole director on formation. He also holds
significant investments in Broadband Solutions I, LLC and Broadband Solutions
II, LLC (collectively Broadband Solutions), two entities with identical
ownership. Broadband Solutions had voting control of two separate companies,
High Speed Access Network, Inc. and CATV.net, Inc. through its cash investments
in redeemable preferred stock of each company.
On April 3, 1998, the Company issued 6,200,000 shares of common stock and
1,000,000 shares of Series A Preferred Stock for all of the outstanding stock of
High Speed Access Network, Inc. (HSAN) and CATV.net, Inc. (CATV) (together, the
"Predecessors"). Broadband Solutions acquired the Company's Series A preferred
stock issued in the transactions in exchange for the redeemable convertible
preferred stock with a fair value of $500 in each of HSAN and CATV that it
already owned at the time of the transaction. The Company valued the common
stock issued in the acquisition of the Predecessors at approximately $.52 per
share and valued the Series A mandatorily redeemable convertible preferred stock
issued in the acquisition at $1.00 per share. The Series A mandatorily
redeemable convertible preferred stock was valued based on the sales prices of
similar securities issued by the Predecessors to Broadband Solutions in nearly
contemporaneous transactions. In connection with the purchase of CATV, the
Company issued 93,000 stock options in exchange for options held by CATV
employees. The options were valued at $15 based upon a valuation using an
established option pricing model. The value of options issued has been included
in the calculation of the purchase price of the Predecessors and is reflected in
additional paid-in capital in the accompanying consolidated financial
statements.
The acquisitions have been accounted for as purchases. Accordingly, the
assets and liabilities of the Predecessors were recorded at their fair values as
of the acquisitions. The accompanying statement of operations includes the
results of the Predecessors subsequent to April 3, 1998.
F-7
<PAGE> 88
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Assets acquired and liabilities assumed in the transaction were as follows:
<TABLE>
<CAPTION>
CATV HSAN
------ ------
<S> <C> <C>
Fair value of assets acquired............................... $2,334 $3,486
Fair value of liabilities assumed........................... (219) (1,386)
Fair value of mandatorily redeemable convertible preferred
stock issued.............................................. (500) (500)
Fair value of common stock and common stock options
issued.................................................... (1,615) (1,600)
------ ------
Cash paid................................................... $ -- $ --
====== ======
</TABLE>
The excess of cost over net identifiable assets acquired of $1,839 relating
to CATV and $2,332 to HSAN has been allocated to goodwill and is being amortized
on a straight-line basis over 5 years.
The following unaudited pro forma financial information presents the
combined results of operations of the Company, CATV and HSAN as if the
acquisitions had occurred on January 1, 1998. The pro forma adjustment relates
to the amortization of the excess of cost over net identifiable assets acquired
of $4,171 for the period January 1, 1998 through April 2, 1998.
<TABLE>
<S> <C>
Net revenues................................................ $ 450
Net loss.................................................... $ (11,923)
Net loss attributable to common shareholders................ $(132,590)
Basic and diluted net loss per share attributable to common
shareholders.............................................. $ (21.39)
</TABLE>
2. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements for the periods ended December 31,
1998 and March 31, 1999 include the operations of the Company for the period
from April 3 (inception) through December 31, 1998 and the three months ended
March 31, 1999, respectively. All significant intercompany transactions and
balances have been eliminated in consolidation.
Interim Financial Information
The interim financial information as of March 31, 1999 and for the three
months then ended is unaudited but includes all adjustments, consisting only of
normal recurring adjustments, that the Company considers necessary for a fair
presentation of its financial position at such date and its results of
operations and cash flows for the period. The financial and other data disclosed
in these notes to the financial statements for this period are also unaudited.
Operating results for the three months ended March 31, 1999 are not necessarily
indicative of results that may be expected for any future periods.
Revenue Recognition
Monthly customer subscription revenue, consisting of fees for cable-modem
Internet access services and traditional dial-up services, is reported net of
the contractual share paid to cable system operators and is recognized as
services are provided. Included in subscription revenues are revenues related to
the rental of cable modems to customers in connection with subscription
contracts. Rental revenue under such agreements is directly related to the
customer's subscription agreement and is recognized ratably over the rental
period. Subscription revenue and revenue from rentals of cable modems to
customers billed in advance are recorded as deferred revenue initially and
recognized as income in the period in which the services are provided.
F-8
<PAGE> 89
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-Lived Assets
The Company reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
would be recognized when estimated future cash flows expected to result from the
use of the asset and its eventual disposition is less than its carrying amount.
No such impairment losses have been identified by the Company.
Property, Equipment and Improvements
Property, equipment and improvements are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful life of the assets for equipment and software (3 years) and furniture and
fixtures (5 years), or the shorter of useful life or lease term for leasehold
improvements or capital leases. Retirements, sales and disposals of assets are
recorded by removing the cost and accumulated depreciation from the accounts
with any resulting gain or loss recognized in income.
Intangible Assets
The excess of cost over net identifiable assets acquired in the purchases
of the Predecessors has been recorded as goodwill and is being amortized over
five years on a straight-line basis. Amortization expense for the period ended
December 31, 1998 was $626. In connection with the acquisition of HSAN, the
Company recognized an intangible asset of $80 for the acquisition of a customer
base from an internet service provider. The customer base acquisition cost is
being amortized over a three year period on a straight-line basis. Amortization
expense of customer acquisition cost for the period ended December 31, 1998 was
$22.
Capitalized Software Costs
The Company capitalizes costs associated with the design and implementation
of internal use software, including internally and externally developed
software, in accordance with American Institute of Certified Public Accountants
(AICPA) Statement of Position (SOP) 98-1. Capitalized external software costs
include the actual costs to purchase existing software from vendors. Capitalized
internal software costs generally include personnel costs incurred in the
enhancement and implementation of purchased software packages.
Income Taxes
The Company accounts for income taxes under the liability method. Deferred
tax assets and liabilities are determined based on differences between the
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
Stock-based Employee Compensation
The Company accounts for stock-based awards to employees in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB Opinion No. 25) and has adopted the disclosure-only requirements
of Statement Financial of Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123).
F-9
<PAGE> 90
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
The Company's financial instruments principally consist of cash and cash
equivalents, accounts receivable, accounts payable, and capital lease
obligations that are carried at cost, which approximates fair value because of
the short-term nature of these instruments. Notes payable are with related
parties, and as a result, while the Company believes that the fair value of such
instruments approximates carrying value, the fair value is not readily
determinable.
Cash and Cash Equivalents
Cash and cash equivalents include all short-term, highly liquid investments
that mature within three months of their acquisition date. At December 31, 1998
and March 31, 1999 (unaudited), cash equivalents consist principally of
interest-bearing demand deposit accounts with a single financial institution.
Engineering
Engineering costs are expensed as incurred.
Concentration of Credit Risk
The Company's customers consist of residential and commercial customers in
the various markets served by the Company. As such, no single customer accounted
for greater than 10% of total revenues or accounts receivable balances for the
period ended December 31, 1998. The Company maintains an allowance for doubtful
accounts receivable based upon its historical experience and the expected
collectibility of all accounts receivable. The Company recorded an allowance for
doubtful accounts of $3 related to the accounts receivable acquired from CATV
and has recorded an additional allowance of $10 during the period ended December
31, 1998.
Unaudited Pro Forma Information
The Company is planning to file a registration statement with the
Securities and Exchange Commission that would permit the Company to sell shares
of common stock in an initial public offering (IPO). The unaudited pro forma
balance sheet information and the pro forma net loss per share reflect the
effects of the automatic conversion of all series of the Company's mandatorily
redeemable convertible preferred stock to common stock upon the closing of the
IPO. The unaudited pro forma information gives effect to the conversion of
accrued dividends on mandatorily redeemable convertible preferred stock into
shares of common stock based upon the accrued dividends of $902 as of March 31,
1999 (unaudited) and a conversion price of $12 per share. Actual dividends and
the conversion price will be different upon actual conversion.
Recent Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants
(AICPA) issued SOP 98-5, Reporting on the Costs of Start-Up Activities. SOP
98-5, which is effective for fiscal years beginning after December 15, 1998,
provides guidance on the financial reporting of start-up costs and organization
costs. It requires costs of start-up activities and organization costs to be
expensed as incurred. As the Company has expensed these costs, the adoption of
this standard is not expected to have a significant impact on the Company's
results of operations, financial position or cash flows.
In June 1998, the Financial Accounting Standards Board (FASB) 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.
F-10
<PAGE> 91
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. As the Company does not currently engage or plan to engage in
derivatives, or hedging transactions there will be no impact to the Company's
results of operations, financial position or cash flows upon the adoption of
SFAS 133.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported results of operations during the reporting period.
Actual results could differ from those estimates.
3. PROPERTY, EQUIPMENT AND IMPROVEMENTS
The components of property, equipment and improvements at December 31, 1998
and March 31, 1999 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
Equipment............................................ $6,286 $11,835
Furniture and fixtures............................... 181 231
Leasehold improvements............................... 36 112
------ -------
6,503 12,178
Less accumulated depreciation........................ 696 1,354
------ -------
$5,807 $10,824
====== =======
</TABLE>
Equipment includes assets acquired under capital leases, principally
telephone equipment, of $282 at December 31, 1998 and $365 at March 31, 1999
(unaudited). Accumulated depreciation of these assets was $34 at December 31,
1998 and $48 at March 31, 1999 (unaudited). Total depreciation expense was $696
for the period ended December 31, 1998 and $658 for three months ended March 31,
1999 (unaudited).
4. LEASE OBLIGATIONS
The Company leases certain office facilities under non-cancelable operating
leases that expire at various dates through 2003, and which require the Company
to pay operating costs, including property taxes, insurance and maintenance.
These facility leases generally contain renewal options and provisions adjusting
the lease payments based upon changes in the consumer price index and increases
in real estate taxes and operating expenses or in fixed increments. Rent expense
is reflected on a straight-line basis over the terms of the leases. Facility
rent expense for the period ended December 31, 1998 was $144.
F-11
<PAGE> 92
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also has obligations under capital equipment leases. Future
minimum lease payments under non-cancelable operating and capital leases having
terms in excess of one year as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
Year Ending December 31,
1999..................................................... $198 $ 68
2000..................................................... 107 68
2001..................................................... 31 68
2002..................................................... 13 68
2003..................................................... 6 49
Thereafter............................................... 14
---- ----
Total minimum lease payments..................... $355 335
====
Less amounts representing interest......................... 72
----
Present value of minimum capital lease obligations......... 263
Less current portion....................................... 44
----
Noncurrent portion......................................... $219
====
</TABLE>
One of the capital leases is with a company affiliated with an officer of
HSA. The present value of the minimum capital lease payments associated with
this lease is $34 at December 31, 1998.
5. INCOME TAXES
As of December 31, 1998, the Company had deferred tax assets of
approximately $3,780 primarily related to federal and state net operating loss
carryforwards. The net deferred tax asset has been fully offset by a valuation
allowance based upon the Company's history of operating losses. The federal and
state net operating loss carryforwards of approximately $8,500 at December 31,
1998 expire in 2018. Utilization of these net operating losses may be subject to
a substantial annual limitation based upon changes in the Company's ownership as
provided as provided in Section 382 of the Internal Revenue Code of 1986 and
similar state provisions. The annual limitation may result in the expiration of
net operating losses before utilization.
The Company's income tax provision (benefit) for the period ended December
31, 1998 differs from the income tax benefit determined by applying the U.S.
federal statutory rate to the net loss as follows:
<TABLE>
<S> <C>
Tax provision (benefit) of U.S. statutory rate.............. $(3,392)
Net operating losses and temporary differences not
recognized................................................ 3,159
Goodwill and other permanent differences.................... 233
-------
Total............................................. $ --
=======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax
F-12
<PAGE> 93
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purposes. Significant components of the Company's deferred tax assets and
liabilities for federal and state income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 3,401
Accrued expenses, not currently deductible................ 383
-------
Total gross deferred tax assets................... 3,784
Less valuation allowance.................................. (3,784)
-------
Net deferred tax assets........................... $ --
=======
</TABLE>
6. RETIREMENT PLAN
The Company has established a deferred compensation plan in accordance with
Section 401(k) of the Internal Revenue Code. Under the retirement plan,
participating employees may defer a portion of their pretax earnings up to the
annual contribution limit. The Company may make contributions to the plan at the
discretion of the Board of Directors. To date, no such contributions have been
made by the Company.
7. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
Series A, B, and C mandatorily redeemable convertible preferred stock,
("Preferred Stock") at December 31, 1998 consists of the following:
<TABLE>
<CAPTION>
SHARES PROCEEDS NET ACCRETION TO
ISSUE ISSUED AND OF ISSUANCE ACCRUED REDEMPTION REDEMPTION LIQUIDATION
SERIES PRICE OUTSTANDING COSTS DIVIDENDS VALUE VALUE VALUE
- ------ ----- ----------- ------------ --------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
A $1.00 5,000,000 4,990 190 41,870 47,050 5,673
B $2.50 10,000,000 23,593 195 78,412 102,200 25,698
C $5.00 -- -- -- -- -- --
</TABLE>
The first 1,000,000 shares of Series A Preferred Stock were issued in
exchange for 500,000 shares of redeemable convertible preferred stock of each of
HSAN and CATV in the acquisition on April 3, 1998. The remaining Series A shares
were issued from April through August 1998. Series B shares were issued from
September through November 1998.
Preferred Stock ranks senior to the common stock and equal with each other
with respect to the payment of dividends, distribution of assets, and rights
upon liquidation, dissolution or winding up of the Company.
Dividends
The holders of Preferred Stock are entitled to receive dividends in
preference to holders of common stock. Dividends accrue on the Series A, B and C
Preferred Stock at an annual rate of $.07, $.175 and $.35 per share,
respectively. Dividends accrue on each share from its date of issuance, whether
or not earned or declared by the Company. Such dividends are cumulative, and
must be paid before any dividend or distribution is declared on common stock.
Any accumulation of dividends on the Preferred Stock do not bear interest. In
lieu of cash, a holder of Preferred Stock is entitled to receive common stock
valued at its current fair market value.
F-13
<PAGE> 94
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Liquidation
Upon any liquidation of the Company, before any distribution is made to
holders of common stock, the holders of Preferred Stock are entitled to receive
from the assets of the Company the issue price per share for the Series plus a
25% percent compounded annual return on the investment, less any dividends
already paid on the shares. However, if the amount to be distributable for each
share of common stock, assuming conversion of the Preferred Stock plus accrued
and unpaid dividends to common stock, is higher, the holders of the Preferred
Stock may elect to receive that per share amount.
In the case of the sale or merger of the Company, as defined, the holders
of Preferred Stock are permitted to convert their Preferred Stock in a manner
that will allow the holder to obtain the issue price for the shares plus a 25%
compounded annual return on the investment, less any dividends paid on the
shares. If the Company issues common shares, or warrants, options, convertible
securities or other securities entitling the holders to obtain common stock, for
a consideration per share which is less than the issue price of the Preferred
Stock, then the conversion price is to be adjusted to reflect the lower price.
In such an instance, the holders of the Preferred Stock would be able to receive
additional common shares upon conversion. The terms of the conversion are also
adjusted in the case of stock splits and dividends, capital reorganizations and
other specified events to allow the holders of Preferred Stock to receive the
same rights that would have been received had the conversion taken place before
the event occurred.
Redemption
If the Company has not completed a qualified IPO of common stock, the
holders of Preferred Stock may require the Company to redeem the shares on or
after April 3, 2003 in the case of Series A, and on or after November 25, 2003
in the case of Series B and C. The required redemption price is to be the
greater of the initial purchase price plus accrued but unpaid dividends or the
fair value per share based on a qualified appraisal acceptable to both the
Company and the holders of Preferred Stock. The shares of Preferred Stock are
not redeemable at the Company's option.
As a result of these provisions, the Company accrued dividends of $190 and
$276 as of December 31, 1998 and March 31, 1999 (unaudited), respectively, on
Series A and $195 and $626 on Series B as of December 31, 1998 and March 31,
1999 (unaudited), respectively. In addition, the Company charged $120,282 to its
accumulated deficit during 1998 to increase the carrying value of the Preferred
Stock to its estimated redemption value at December 31, 1998 of $9.41 per share
for Series A and $10.22 per share for Series B Preferred Stock. For the three
months ended March 31, 1999 (unaudited), the Company charged $105,232 to its
accumulated deficit to increase the carrying value of the Preferred Stock to its
estimated redemption value at March 31, 1999 of $17.00 per share for both Series
A and Series B Preferred Stock.
Conversion
Each Series of Preferred Stock is convertible at the option of the holder
into 1.55 shares of common stock. Upon conversion of any share of Preferred
Stock, all accrued but unpaid dividends are to be paid in shares of common stock
based on the fair value of the common stock (or the IPO price, if applicable) at
the date of the conversion. The Company is required to reserve a sufficient
number of authorized but unissued common shares to allow for the Preferred Stock
conversion rights to be satisfied. Each share of Preferred Stock is to be
automatically converted to common stock immediately upon the closing of a
qualified IPO.
Voting Rights
All shares of Preferred Stock have voting rights. Each share has the number
of votes equal to the number of shares of common stock into which the Preferred
Stock are convertible. In addition, the Company must obtain the consent from the
holders of a majority of each Series of Preferred Stock
F-14
<PAGE> 95
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding in order to pursue certain specific actions. For purposes of this
consent, each share of Preferred Stock has one vote in determining whether a
majority of the shares of the class will vote to consent to the action.
The specified actions which require consent include: a liquidation or
substantial change of the Company's business; amendment of the Company's bylaws
in most instances; redemption of common stock, or paying dividends or
distributions to common shareholders without redeeming or paying equal dividends
on the Preferred Stock; issuance of new equity shares except in certain
instances; certain transactions with shareholders or officers; any merger or
sale of substantially all of the Company's assets; acquisition of any assets for
a purchase price in excess of $2,500, or a series of transactions with an
aggregate purchase price in excess of $7,500; or any action that would
materially and adversely affect the holders of the Preferred Stock. However,
should either of the holders of a majority of a Series of Preferred Stock
transfer more than 30% of their holdings in the Company's stock, as defined,
then the company does not thereafter require the consent of the Series of shares
controlled by that investor.
A Voting Agreement provides for four members of the Company's Board of
Directors to be named by Broadband Solutions and three members of the board of
directors to be named by Vulcan Ventures, Inc. The Voting Agreement specifies
the conditions under which, based on reductions of either investor's investment
in the company, an investor may lose the right to name one or more directors.
The consent provisions discussed above and the Voting Agreement terminate
upon the completion of an IPO, upon consent of each party or after ten years.
Adjustment of Terms
The terms of the Preferred Stock with respect to dividends, liquidation,
redemption, conversion and voting rights are adjusted upon a stock split,
dividend or other recapitalization to maintain the same rights that would have
been received before the recapitalization under the original terms. Upon an IPO,
all Preferred Stock is automatically converted to common stock and all
preferential rights are terminated.
8. TRANSACTIONS WITH VULCAN VENTURES, INC.
On November 25, 1998, the Company entered into a series of agreements with
Vulcan Ventures Incorporated (Vulcan), 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.
The Company issued 8,000,000 shares of its Series B Preferred Stock to
Vulcan at a purchase price of $2.50 per share. The Company also agreed to sell,
and Vulcan to buy, 2,500,000 shares of Series C Preferred Stock for $12.5
million if certain conditions were met. Vulcan also obtained the option to
acquire 2,500,000 additional shares of Series C Preferred Stock at $5 per share.
The Company valued this option to purchase Series C Preferred Stock at $1,000
using an accepted option pricing model. The $1,000 option was recognized as an
addition to paid-in capital and a reduction to the net proceeds of the issuance
of Series B preferred stock. The commitment to issue the Series C Preferred
shares to Vulcan expires on November 25, 2000.
As further described in Note 14, Vulcan subsequently purchased the
5,000,000 shares of Series C Preferred Stock.
In November 1998, the Company entered into 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, and will receive the
F-15
<PAGE> 96
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
warrants described in the following paragraph as an incentive to provide the
Company additional homes passed, although it is not obligated to do so. Charter
can terminate these exclusivity rights, on a system-by-system basis, if the
Company fails to meet performance benchmarks or otherwise breach our agreement.
Charter can terminate the agreement without cause as long as it purchases the
associated cable head end equipment and modems at book value and pays the
Company a termination fee based on the net present value of the 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.
The Company also agreed to issue a warrant to Charter that will, in the
aggregate, entitle Charter to purchase 7,750,000 shares of the Company's common
stock at a purchase price of $3.23 per share. The warrants become exercisable at
the rate of 1.55 shares of common stock for each home passed in excess of
750,000. A minimum of 3,875,000 warrants must be earned by Charter on or before
July 31, 2001, and a minimum of 3,875,000 warrants must be earned by Charter on
or before July 31, 2003. Each warrant issued to Charter must be exercised on or
before one year from the date that the warrants may be earned. The warrants may
be forfeited in certain circumstances, generally if the number of homes passed
in committed systems is reduced. As of March 31, 1999 (unaudited), the Company
had issued no warrants to purchase shares of common stock to Charter.
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 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.
9. STOCK OPTION PLAN
In April 1998, the Company's Board of Directors adopted the 1998 Stock
Option Plan (the 1998 Plan). A total of 1,395,000 shares of common stock were
reserved for issuance under this Plan.
The exercise price for the options is determined by the Board of Directors,
but shall not be less than 100% of the estimated fair market value of the common
stock on the date the option is granted. Generally, the options vest over a
five-year period after the date of grant and expire ten years after the date of
grant. The Plan provides for accelerated vesting should there be a change in
control or an IPO of the Company's common stock. Option holders that terminate
their employment with the Company forfeit all non-vested options. Employees, key
advisors and non-employee directors of the Company are eligible to receive
awards under the Plan.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock-Issued to Employees" and related interpretations in accounting for its
stock option plan. Under APB No. 25, compensation expense is recognized based on
the amount by which the fair value of the Company's common stock exceeds the
exercise price of the stock options at the date of grant. Stock options with an
exercise price of $.65 and $1.61 were granted with an exercise price equal to
the price per share at which Preferred Stock was issued during the month in
which the options were granted. Stock options granted with an exercise price of
$3.23 December were later determined to be compensatory based on a revised
estimate of the fair value of the Company's common stock and the Company will
recognize expense of approximately $84 over the five year vesting period of the
options. Recognition of this expense will be
F-16
<PAGE> 97
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accelerated to the period in which a change in control or a IPO occurs. Expense
recognized in 1998 was insignificant.
Options to acquire an additional 140,740 shares under the 1998 Plan were
granted in January 1999. These options were also considered compensatory, and
the Company recorded deferred compensation of approximately $1,090 during the
three months ended March 31, 1999 (unaudited). Recognition of this expense will
also be over a five period, unless accelerated by a change in control or an IPO
occurs.
The Company adopted the 1999 Stock Option Plan and the 1999 Non-Employee
Directors Plan (the Directors Plan) in January 1999. Under the 1999 Stock Option
Plan, 3,100,000 shares are reserved for issuances. Options to purchase 46,500
shares were granted with an exercise price of $3.23 per share. These stock
options were considered to be compensatory, and accordingly, the Company
recorded deferred compensation of $360. The Company will recognize this amount
over the five year vesting period of these options. Options to purchase 21,000
shares were also granted with an exercise price equal to the greater of $6.45 or
the IPO price per share. None of the options under this plan are currently
exercisable.
Under the 1999 Directors Plan, options to purchase 189,875 shares with an
exercise price of $3.23 per share, all of which were immediately exercisable,
were granted in January 1999. The Company recognized expense of $1,470 during
the three months ended March 31, 1999 (unaudited) related to the issuance of
these options. Under the 1999 Directors Plan, 465,000 shares are reserved for
issuances.
The Company has adopted the disclosure only provisions of SFAS 123. The
weighted average fair value of stock options granted was $.42 and $8.14 for the
periods ended December 31, 1998 and March 31, 1999 (unaudited), respectively.
Had compensation expense been recognized pursuant to SFAS 123, the Company's net
loss would have been increased to the pro forma amounts indicated below for the
periods ended December 31, 1998 and March 31, 1999:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
Net loss available to common stockholders -- as reported.... $(130,642) $(113,787)
Basic and diluted net loss available to common stockholders
per share -- as reported.................................. $ (21.08) $ (18.35)
Pro forma basic and diluted net loss available to common
stockholders.............................................. $(130,654) $(113,876)
Pro forma basic and diluted net loss available to common
stockholders per share.................................... $ (21.08) $ (18.37)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value option pricing method with the following weighted average
assumptions used for grants for the year ended December 31, 1998 and March 31,
1999 (unaudited):
<TABLE>
<CAPTION>
1998
-------
<S> <C>
Expected life of options in years........................... 5 years
Risk-free interest rate..................................... 5%
Expected dividend yield..................................... 0%
Expected volatility......................................... N/A
</TABLE>
F-17
<PAGE> 98
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the activity in the Plan:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at April 3, 1998....................... --
Options granted.................................. 709,435 $1.36
Options cancelled................................ (4,650) $1.48
--------- -----
Outstanding at December 31, 1998................... 704,785 $1.35
Options granted (unaudited)...................... 398,115 $3.55
Options cancelled (unaudited).................... (6,200) $1.09
--------- -----
Outstanding at March 31, 1999 (unaudited).......... 1,096,700 $2.19
========= =====
</TABLE>
At December 31, 1998, there were no options exercisable. At March 31, 1999
(unaudited), 18,600 options were exercisable under the 1998 Plan and none were
exercisable under the 1999 Stock Option Plan. Under the Directors Plan, 189,875
options were exercisable. The following table summarizes information about
options outstanding at March 31, 1999 (unaudited):
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING
NUMBER OF CONTRACTUAL
EXERCISE PRICE SHARES LIFE (IN YEARS)
- -------------- --------- ---------------
<S> <C> <C>
$.65................................................. 326,120 9.1
$1.61................................................ 286,285 9.5
$3.23................................................ 463,298 9.7
$11.00............................................... 21,000 10.0
</TABLE>
10. EARNINGS (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. The calculation of diluted net loss per
share excludes potential common shares if the effect is antidilutive. Basic
earnings per share is computed by dividing income or loss applicable to common
shareholders by the weighted average number of shares of common stock
outstanding during this 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.
Under the Company's Certificate of Incorporation, each share of outstanding
Preferred Stock will convert into 1.55 shares of Common Stock upon the closing
of the Company's IPO of Common Stock. The unaudited 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.
F-18
<PAGE> 99
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the calculation of basic and diluted and pro
forma net loss per share:
<TABLE>
<CAPTION>
APRIL 3, 1998 (INCEPTION) THREE MONTHS ENDED MARCH 31, 1999
THROUGH DECEMBER 31, 1998 (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.............. $(130,642) 6,200,000 $(21.07) $(113,787) 6,200,000 $(18.35)
Mandatorily redeemable
convertible preferred
stock dividends........... 385 -- 518 --
Accretion of redemption
value of mandatorily
redeemable convertible
preferred stock........... 120,282 -- 105,232 --
Assumed conversion of shares
of mandatorily redeemable
convertible preferred
stock into shares of
common stock at April 3,
1998 or issuance, (if
later).................... -- 7,891,935 -- 23,250,000
--------- ---------- --------- ----------
Pro forma basic and diluted
net loss per common share
(unaudited)............... $ (9,975) 14,091,935 $ (.71) $ (8,037) 29,450,000 $ (.27)
========= ========== ======= ========= ========== =======
</TABLE>
Options and issued warrants to purchase 704,785 and 1,109,700 shares of
common stock at December 31, 1998 and March 31, 1998 (unaudited), respectively,
were excluded from the calculation above because they are antidilutive.
On April 30, 1999 the Company issued 5,000,000 shares of Series C Preferred
Stock. If these shares had been outstanding at December 31, 1998 or March 31,
1999, it would have materially impacted the number of potential common shares
outstanding at the end of the periods.
11. RELATED PARTY TRANSACTIONS
General
In November 1998, the Company entered into a systems access agreement with
Vulcan, Charter and Marcus a programming content agreement with Vulcan, and a
related networks services agreement with Charter and Marcus, pursuant to which
Vulcan, Charter and Marcus retained the Company to offer and provide Internet
access and related services to cable customers of various cable systems owned
and operated by Charter and Marcus. Vulcan is a significant stockholder and has
the right to name three of the members of the Company's board of directors. See
Note 8 "Transactions with Vulcan Ventures, Inc." for more information on these
agreements.
The Company has an agreement with Gans Multimedia Partnership, an entity
owned by Joseph S. Gans, III, a founder and former director of HSA, under which
Gans Multimedia granted the Company the exclusive right to provide the customers
of two cable systems owned by Gans Multimedia with high speed Internet access.
The agreement has a five year term and provides that Gans Multimedia will
receive
F-19
<PAGE> 100
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
25% of the gross revenues the Company receives under the agreement. During 1998,
the Company paid Gans Multimedia $76 under the agreement.
The Company has an agreement to pay $20 each quarter for financial
consulting services provided by a private investment firm managed by two of the
Company's directors. The Company has a payable of $60 to the private investment
firm at December 31, 1998. These fees are payable upon the earlier of a
determination by the Company's Board of Directors that the Company has
sufficient cash flow to pay the fees or the Company achieves $100 or more in
after-tax quarterly profits for two consecutive quarters.
An officer of the Company is associated with a private company that entered
into a service agreement with the Company to provide certain financial,
accounting, professional staffing and legal services to the Company. The Company
paid fees of $71 relating to these services during the period ended December 31,
1998. This service agreement was terminated on December 31, 1998. The private
company also leased certain equipment to the Company as described in Note 4.
Lease payments paid by the Company on this capital lease were $6 for the period
ended December 31, 1998.
Notes Payable -- Related Party
During October, 1998, Broadband Solutions, LLC, the holder of the Series A
Preferred Stock, made a loan to the Company of $1,000 bearing interest at 12%
which was exchanged for 400,000 shares of Series B preferred stock on November
13, 1998. Interest paid to Broadband Solutions, LLC was $11.
As part of its acquisition of HSAN, the Company assumed a note payable in
the aggregate principal amount of $ 650, evidenced by a promissory note and
assignment and security agreement, owing to Gans Multimedia Partnership. The
note bears interest at a rate of 7% per annum. The Company repaid $150 of the
note in December 1998 and the remaining $500 balance matures on April 1, 2001.
Certain tangible assets of the Company serve as collateral for this note. The
loan represents working capital of HSAN funded by Gans Multimedia Partnership
from July 1997 to April 1998.
As part of its acquisition of CATV, the Company assumed a note payable in
the aggregate principal amount of $44, evidenced by a promissory note and
assignment and security agreement, from a private company associated with an
officer of the Company. The note bears interest at a rate of 7% per annum. The
Company paid $6 of the note prior to December 31, 1998, with the remaining
balance of $38 payable in monthly installments of approximately $1 through
February 5, 2003. The loan represents working capital of CATV funded by the
private company from March 1998 to April 1998.
The aggregate amounts of notes payable -- related parties maturities are as
follows:
<TABLE>
<S> <C>
Year Ending December 31,
1999...................................................... $ 8
2000...................................................... 9
2001...................................................... 509
2002...................................................... 9
2003...................................................... 3
----
Total principal payments.......................... $538
====
</TABLE>
12. 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.
F-20
<PAGE> 101
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. RISKS AND UNCERTAINTIES
Requirements for Additional Financing
The Company expects to experience substantial negative cash flows from
operating activities and investing activities for at least the next several
years due to the deployment of its services into new markets and the enhancement
of its network and operations. During 1998, the Company has raised cash through
the sale of the Company's mandatorily redeemable convertible preferred stock. At
December 31, 1998, the primary source of liquidity for the Company was $17,888
of cash and cash equivalents. The Company believes that additional financing of
$25 million will be obtained from the planned sale of Series C Preferred Stock
to Vulcan Ventures. The Company also intends to obtain additional equity from an
initial public offering of its common stock during 1999. Other financing may be
obtained from debt and leasing activities, among other alternatives. Management
believes these financing sources will be sufficient to meet the Company's
working capital requirements, including operating losses, and capital
expenditure requirements for at least the next 18 months. There can be no
assurance as to the availability or terms upon which such financing and equity
might be obtained. If financing is not available at terms acceptable to the
company, management has the intent and believes it has the ability to reduce
expenditures so as to delay the need for additional financing.
Dependence on Key Technology Suppliers and Cable Companies
The Company currently depends on a limited number of suppliers for certain
key technologies used to build and manage the Company's services. Although the
Company believes that there are alternative suppliers for each of these
technologies, the Company has established favorable relationships with each of
its current suppliers, and it could take a significant period of time to
establish relationships with alternative suppliers and substitute their
technologies. The loss of any of the Company's relationships with its current
suppliers could have a material, adverse effect on the Company's financial
condition and results of operations. Should the Company not obtain additional
cable systems for distribution, it could have a material, adverse effect on the
Company's financial condition and results of operations.
The Company's business plan is dependent on cable companies to distribute
its service to its subscribers. The Company has an agreement with several of its
shareholders to provide exclusive Internet access on certain cable systems
controlled by them. However, there is no guarantee that the shareholders will
provide additional cable systems for distribution by the Company. In addition,
the Company's agreements with individual cable systems are for terms of no more
than 5 years, and they may be terminated prior to that date under certain
circumstances.
The Company's ability to provide its services is also dependent on the
availability and reliability of the infrastructure of the cable system
operators. Currently, many cable system operators in the Company's markets and
potential markets have not upgraded their systems to allow the Company to
efficiently provide its services. These cable system operators are under no
obligation to undertake an upgrade of their systems, and the Company is
therefore dependent on cable system operators to make the improvements that will
allow the Company to provide its services.
14. SUBSEQUENT EVENTS
Initial Public Offering
In February 1999 the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission that would
permit the Company to sell shares of the Company's common stock in connection
with a proposed IPO. The Company has subsequently authorized the sale of $18,500
of common stock to Cisco Systems, Inc., Com 21, Inc. and Microsoft Corporation
in a concurrent offering.
F-21
<PAGE> 102
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, in
exchange for 100% of the outstanding Darwin common stock. These assets consisted
primarily of computer equipment and furniture and fixtures. On March 31, 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 March 31, 1999 (unaudited)
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 for
working capital pursuant to a six month uncollateralized revolving credit note
bearing interest at the prime rate. 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.
Expenses related to the Darwin service line approximated $175 in 1998 and $302
for the three months ended March 31, 1999. No revenue was realized in 1998 or
1999 associated with Darwin.
Debt
In April 1999, the Company entered into a $3,000 master loan and security
facility. Each advance under the agreement is to be repaid over 36 months. As of
April 30, 1999, $1.7 million had been drawn under the facility. The loan is
collateralized by certain assets of the Company.
Series C Preferred Stock
On April 30, 1999, the Company received $25 million in cash proceeds from
the sale of 5,000,000 shares of Series C Preferred Stock to Vulcan.
Road Runner Letter of Intent
The Company signed a non-binding letter of intent in April 1999 with
ServiceCo LLC, the entity that provides Road Runner's cable internet access and
content aggregation services. Under any definitive agreement that the Company
may sign, based on the letter of intent, the Company would grant ServiceCo LLC a
warrant to purchase one share of common stock at a price of $5 per share for
each home, up to a maximum of 5 million homes, that the Company and ServiceCo
LLC designate to receive their joint services.
Warrants Issued to Microsoft
In April 1999, the Company granted Microsoft a warrant to purchase 250,000
shares of common stock at an exercise price of 125% of the IPO price. Microsoft
has agreed to introduce the benefits of the Company's services to Comcast Corp.,
a multiple system cable operator. The warrant also provides Microsoft the right
to purchase one additional share of common stock for each 10 additional homes
over 2.5 million that are committed by Comcast to the Company by May 1, 2002.
Recapitalization
In May 1999, the Company expects to complete a 1.55 for 1 split of its
common stock. This stock split will result in a corresponding change in the
conversion rate for all shares of the Company's redeemable convertible preferred
stock such that each share of Preferred Stock will be convertible into
F-22
<PAGE> 103
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1.55 shares of common stock. All outstanding warrants, if earned, may be
exercised to acquire 1.55 shares of common stock after the contemplated 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 expects to authorize 100 million shares of
Class A common stock and increase the number of Common Stock authorized to 400
million shares. The increases in authorized shares have been reflected in the
unaudited pro forma balance sheet information as of March 31, 1999.
F-23
<PAGE> 104
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
CATV.net, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholders' deficit and of cash flows present
fairly, in all material respects, the financial position of CATV.net, Inc. at
December 31, 1997 and April 2, 1998 and the results of its operations and its
cash flows for the periods from March 12, 1997 (inception) through December 31,
1997 and January 1, 1998 through April 2, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Louisville, Kentucky
March 12, 1999
F-24
<PAGE> 105
CATV.NET, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 2,
1997 1998
------------ --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1 $ 332
Accounts receivable, net of allowance for doubtful
accounts of $3 in 1998................................. 1 29
Prepaid expenses and other assets......................... 4 4
----- -------
Total current assets.............................. 6 365
Property and equipment, net................................. 36 130
----- -------
Total assets...................................... $ 42 $ 495
===== =======
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 55 $ 143
Other current liabilities................................. 3 8
Notes payable -- related parties, current portion......... 117 7
Capital lease obligations, current portion................ -- 6
----- -------
Total current liabilities......................... 175 164
----- -------
Notes payable -- related parties............................ -- 37
Capital lease obligations................................... -- 33
----- -------
Total liabilities................................. 175 234
----- -------
Mandatorily redeemable convertible preferred stock:
No par value, 2,500,000 shares designated; 500,000 shares
issued and outstanding; 2,000,000 shares subscribed.... -- 2,500
Subscription receivable................................... -- (2,000)
----- -------
Total mandatorily redeemable convertible preferred
stock........................................... 500
----- -------
Stockholders' deficit:
Member units, 500,000 outstanding, 1997...................
Common stock, no par value, 4,950,000 shares authorized;
2,000,000 shares issued and outstanding, 1998.......... -- --
Additional paid-in capital................................ -- 117
Accumulated deficit....................................... (133) (356)
----- -------
Total stockholders' deficit....................... (133) (239)
----- -------
Total liabilities, mandatorily redeemable
convertible preferred stock and stockholders'
deficit......................................... $ 42 $ 495
===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 106
CATV.NET, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 12, 1997 JANUARY 1, 1998
(INCEPTION) THROUGH THROUGH
DECEMBER 31, 1997 APRIL 2, 1998
------------------- ---------------
<S> <C> <C>
Net revenue................................................. $ 117 $ 26
Costs and expenses:
Operating costs........................................... 108 87
Engineering............................................... 50 58
Sales and marketing....................................... 35 67
General and administrative................................ 57 38
----- -----
Total costs and expenses.......................... 250 250
----- -----
Loss from operations........................................ (133) (224)
Interest income, net........................................ -- 1
----- -----
Net loss.......................................... $(133) $(223)
===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 107
CATV.NET, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S DEFICIT
FOR THE PERIODS FROM MARCH 12, 1997 (INCEPTION) THROUGH DECEMBER 31, 1997 AND
JANUARY 1, 1998 THROUGH APRIL 2, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MEMBER UNITS COMMON STOCK TOTAL
------------------ ------------------- ADDITIONAL ACCUMULATED STOCKHOLDERS'
UNITS AMOUNT SHARES AMOUNT PAID IN CAPITAL DEFICIT DEFICIT
-------- ------- --------- ------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of member units in
connection with the formation
of the Company................ 500,000 --
Net loss........................ $(133) $(133)
-------- ------- --------- ------- --- ----- -----
BALANCES AT DECEMBER 31, 1997... 500,000 -- -- -- (133) (133)
Conversion of note payable --
related party to member
units......................... 100,000 117 117
Issuance of common stock........ 30 -- --
Exchange of shares related to
the merger of CATV.net LLC and
CATV.net, Inc................. (600,000) 1,999,970 --
Net loss........................ (223) (223)
-------- ------- --------- ------- --- ----- -----
BALANCES AT APRIL 2, 1998....... -- -- 2,000,000 -- 117 (356) (239)
======== ======= ========= ======= === ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 108
CATV.NET, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS, (EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 12, 1997 JANUARY 1,
(INCEPTION) 1998
THROUGH THROUGH
DECEMBER 31, APRIL 2,
1997 1998
-------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(133) $(223)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization.......................... 3 5
Accounts receivable.................................. (1) (28)
Prepaid expenses and other current assets............ (4) --
Accounts payable..................................... 55 88
Other current liabilities............................ 3 5
----- -----
Net cash used in operating activities............. (77) (153)
----- -----
INVESTING ACTIVITIES
Purchase of property, equipment and improvements, net of
capital leases......................................... (39) (58)
----- -----
Net cash used in investing activities............. (39) (58)
----- -----
FINANCING ACTIVITIES
Net proceeds from issuance of redeemable convertible
preferred stock........................................... -- 500
Advances from related parties............................... 117 44
Payments on capital lease obligations....................... -- (2)
----- -----
Net cash provided by financing activities......... 117 542
----- -----
Net increase in cash and cash equivalents................... 1 331
Cash and cash equivalents, beginning of period.............. -- 1
----- -----
Cash and cash equivalents, end of period.......... $ 1 $ 332
===== =====
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Equipment acquired under capital leases................... -- $ 41
Issuance of note payable as consideration for advance from
related party.......................................... $ 117 $ 44
Issuance of CATV.net, LLC member units in exchange for
cancellation of notes payable -- related parties....... -- $ 117
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE> 109
CATV.NET, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS FROM MARCH 12, 1997
(INCEPTION) THROUGH DECEMBER 31, 1997
AND JANUARY 1, 1998 TO APRIL 2, 1998
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
CATV.net, Inc. ("the Company") provides high speed Internet access via
cable modems to residential and commercial customers in exurban areas. The
Company enters into long-term exclusive contracts with cable system operators to
provide them with a comprehensive "turnkey" service. That service enables a
cable system's customers to receive high speed Internet. In exchange for
providing the Company access to its customers, the cable operator receives a
portion of the monthly fees received from the customer that subscribes to the
services.
The Company also provides consulting services focused on enabling cable
operators to provide Internet access services and sells related equipment to the
operator. In addition, the Company installs cable modems for residential and
commercial customers generally through the use of independent contractors.
Basis of Presentation
CATV.net LLC was organized on March 12, 1997. No capital contributions were
received in exchange for the member units issued upon inception. On January 1,
1998, CATV.net LLC issued 100,000 additional member units in repayment of $117
due to one of its officers. On February 23, 1998, CATV.net LLC reorganized as a
corporation, CATV.net Inc., without changing its ownership. Also on February 23,
1998, CATV.net Inc. entered into a Convertible Preferred Stock Purchase
Agreement with Broadband Solutions LLC ("Broadband Solutions"), an investor
group. Broadband Solutions agreed to purchase 2,500,000 shares of Preferred
Stock from CATV.net LLC for $1 per share. Broadband paid for the purchase of the
first 500,000 shares on February 23, 1998.
On April 3, 1998, the Company effected a 10-to-1 split of its common and
mandatorily redeemable convertible preferred stock. All balances of the common
and mandatorily redeemable convertible preferred stock have been adjusted to
reflect this stock split.
Revenue Recognition
Revenues from the sale of equipment and consulting services are recognized
when earned. Monthly customer subscription revenue is recognized in the period
in which subscription services are provided. Subscription revenue billed in
advance is deferred until the related services are provided.
Long-Lived Assets
The Company reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
would be recognized when estimated future cash flows expected to result from the
use of the asset and its eventual disposition is less than its carrying amount.
No such impairment losses have been identified by the Company.
Property and Equipment
Property, equipment, and improvements are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful life of the assets for equipment
F-29
<PAGE> 110
CATV.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3 years) and furniture and fixtures (5 years), or the shorter of useful life or
lease term for capital leases. Retirements, sales and disposals of assets are
recorded by removing the cost and accumulated depreciation from the accounts
with any resulting gain or loss recognized in income.
Stock-based Employee Compensation
The Company accounts for stock-based awards to employees in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB Opinion No. 25) and has adopted the disclosure-only requirements
of Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123).
Fair Value of Financial Instruments
The Company's financial instruments principally consist of cash and cash
equivalents, accounts receivable, accounts payable, and capital lease
obligations that are carried at cost, which approximates fair value because of
the short-term nature of these instruments. Notes payable are with related
parties, and as a result, while the Company believes that the fair value of such
instruments approximates carrying value, the carrying amount may not necessarily
reflect fair value.
Cash and Cash Equivalents
Cash and cash equivalents include all short-term, highly liquid investments
that mature within three months of their acquisition date.
Engineering
Engineering costs are expensed as incurred.
Concentration of Credit Risk
The Company's customers consist of residential and commercial customers in
the various markets served by the Company. As such, no single customer accounted
for greater than 10% of total revenues or accounts receivable balances for the
periods ended December 31, 1997 and April 2, 1998. The Company maintains an
allowance for doubtful accounts receivable based upon its historical experience
and expected collectibility of all accounts receivable.
Recent Accounting Pronouncements
In April 1998 the American Institute of Certified Public Accountants issued
Statement of Position 98-5, Reporting on the Costs of Start-Up Activities (SOP
98-5). SOP 98-5, which is effective for fiscal years beginning after December
15, 1998, provides guidance on the financial reporting of start-up costs and
organization costs. It requires costs of start up activities and organization
costs to be expensed as incurred. As the Company has expensed these costs, the
adoption of this standard is not expected to have a significant impact on the
Company's results of operations, financial position or cash flows.
In June 1998 the Financial Accounting Standards Board issued 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 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. As the Company does not
currently engage or plan to engage in derivatives, there will be no impact to
the Company's results of operations, financial position or cash flows upon the
adoption of SFAS 133.
F-30
<PAGE> 111
CATV.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported results of operations during the reporting period.
Actual results could differ from those estimates.
2. PROPERTY, EQUIPMENT AND IMPROVEMENTS
The components of property, equipment and improvements are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 2,
1997 1998
------------ --------
<S> <C> <C>
Equipment............................................... $39 $134
Furniture and fixtures.................................. -- 4
--- ----
39 138
Less accumulated depreciation and amortization.......... 3 8
--- ----
$36 $130
=== ====
</TABLE>
Equipment includes amounts for assets acquired under capital leases of $41
at April 2, 1998. Accumulated amortization for these assets was $1 at April 2,
1998. Total depreciation and amortization expense for the periods ended December
31, 1997 and April 2, 1998 was $3 and $5.
3. LEASE OBLIGATIONS
The Company leases certain office facilities on a month-to-month basis,
which require the Company to pay operating costs, including property taxes,
insurance and maintenance. These facility leases generally contain renewal
options and provisions adjusting the lease payments based upon changes in the
consumer price index and increases in real estate taxes and operating expenses
or in fixed increments. Facility rent expense for the periods ended December 31,
1997 and April 2, 1998 amounted to $2 and $3 respectively.
The Company also has obligations under capital equipment leases. The
capital lease is with a company affiliated with an officer of the Company.
Future minimum lease payments capital leases having terms in excess of one year
as of April 2, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL
LEASES
-------
<S> <C>
Year Ending December 31,
1999...................................................... $10
2000...................................................... 10
2001...................................................... 10
2002...................................................... 10
2003...................................................... 9
Thereafter................................................ --
---
Total minimum lease payments...................... 49
Less amounts representing interest........................ 10
---
Present value of minimum capital lease obligations........ 39
Less current portion...................................... 6
---
Noncurrent portion........................................ $33
===
</TABLE>
F-31
<PAGE> 112
CATV.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (SFAS 109) Accounting for Income Taxes which
provides for the establishment of deferred tax assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. As of
April 2, 1998, the Company had deferred tax assets of approximately $53
primarily related to federal and state net operating loss carryforwards. The net
deferred tax asset has been fully offset by a valuation allowance based upon the
Company's history of operating losses. The federal and state net operating loss
carryforwards of approximately $133 at April 2, 1998 expire in 2018. Utilization
of these net operating losses may be subject to a substantial annual limitation
provided by the Internal Revenue Code of 1986 and similar state provisions. The
annual limitation may result in the expiration of net operating losses before
utilization.
Prior to the February 23, 1998 conversion of the Company from a limited
liability company to a corporation (CATV.net, Inc.), the Company was treated as
a flow-through entity for federal income tax purposes. The losses of the Company
were reported by its members on their individual federal and state income tax
returns, and CATV.net LLC did not pay income taxes or receive income tax
benefits.
5. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
Outstanding mandatorily redeemable convertible preferred stock, ("Preferred
Stock") at April 2, 1998 consists of the following:
<TABLE>
<CAPTION>
SHARES ISSUED PROCEEDS OF
AND NET OF LIQUIDATION
ISSUE PRICE OUTSTANDING ISSUANCE COSTS VALUE
- ----------- ------------- -------------- -----------
<S> <C> <C> <C>
$1.00................................... 500,000 500 510
</TABLE>
The Company issued 500,000 shares of its Preferred Stock on February 23,
1998. The holder of the Preferred Stock has subscribed to an additional
2,000,000 shares, payable at the option of the Company. The Preferred Stock
ranks senior to the common stock with respect to the payment of dividends,
distribution of assets, and rights upon liquidation, dissolution or winding up
of the company.
Dividends
The holders of Preferred Stock are entitled to receive dividends in
preference to holders of common shares. Dividends accrue on the shares at an
annual rate of $.07 per share. Dividends accrue on each share whether or not
earned or declared by the company. Such dividends are cumulative, and must be
paid before any dividend or distribution is declared on common stock. Any
accumulation of dividends on the preferred shares do not bear interest. In lieu
of cash, a holder of preferred shares is entitled to receive common stock valued
at its current fair market value.
Liquidation
Upon any liquidation of the Company, before any distribution is made to
common stock holders, the holders of Preferred Stock are entitled to receive
from the assets of the Company the issue price per share plus a 25% compounded
annual return on the investment, less any dividends already paid on the shares.
However, if the amount to be distributable for each share of common stock,
assuming conversion of the Preferred Shares plus accrued and unpaid dividends to
common shares, is higher, the holders of the Preferred Shares may elect to
receive that per share amount.
F-32
<PAGE> 113
CATV.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Redemption
If the Company has not completed a qualified initial public offering of
common stock, the holders of Preferred Stock may require the Company to redeem
the shares on or after April 3, 2003. The required redemption price is to be the
greater of the initial purchase price plus accrued but unpaid dividends or the
fair value per share based on a qualified appraisal acceptable to both the
Company and the shareholder. The shares of preferred stock are not redeemable at
the Company's option.
Conversion
The Preferred Stock is convertible at the option of the holder into an
equal number of common shares. Upon conversion of any share of Preferred Stock,
all accrued but unpaid dividends are to be paid in shares of common stock based
on the fair value of the common stock at the date of the conversion. The Company
is required to reserve a sufficient number of authorized but unissued common
shares to allow for the Preferred Stock conversion rights to be satisfied. Each
share of Preferred Stock is to be automatically converted to common shares
immediately upon the closing of a qualified initial public offering.
In the case of the sale or merger of the Company, as defined, the holders
of Preferred Stock are permitted to convert their Preferred Shares in a manner
that will allow the holder to obtain the issue price for the shares plus a 25%
compounded annual return on the investment, less any dividends paid on the
shares. If the company issues common shares, or warrants, options, convertible
securities or other securities entitling the holders to obtain common stock, for
a consideration per share which is less than the par value of the Preferred
Stock, then the conversion price is to be adjusted to reflect the lower price.
As a result, the holders of the Preferred Stock would be able to receive
additional common shares upon conversion. The terms of the conversion are also
adjusted in the case of stock splits and dividends, capital reorganizations and
other specified events to allow the holders of Preferred Stock to receive the
same rights that would have been received had the conversion taken place before
the event occurred. The holders of the Preferred Stock waived their right to
exercise this provision in the exchange of preferred shares on April 3, 1998.
Voting
All shares of preferred stock have voting rights. The number of votes per
preferred shares are adjusted so that at any time the total votes attributable
to Preferred Stock is equal to 2,500,000 common shares. As a result, the holders
of Preferred Stock have a majority voting interest in the Company at April 2,
1998.
6. STOCK OPTION PLAN
In February 1998, the Company's Board of Directors adopted the 1998 Stock
Option Plan (the Plan). A total of 45,000 shares of common stock were reserved
for issuance under this Plan.
The exercise price for the options is determined by the Board of Directors,
but shall not be less than 100% of the fair market value of the common stock on
the date the option is granted. Generally, the options vest over a five-year
period after the date of grant and expire ten years after the date of grant. The
Plan provides for accelerated vesting should there be a change in control, or an
initial public offering of the Company's common stock. Option holders that
terminate their employment with the Company forfeit all non-vested options.
Employees, key advisors and non-employee directors of the Company are eligible
to receive awards under the Plan.
F-33
<PAGE> 114
CATV.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the activity of the Company's stock option
plan:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------ --------------
<S> <C> <C>
Outstanding at January 1, 1998........................... --
Options granted to employees........................... 6,000 $1.00
Options cancelled......................................
----- -----
Outstanding at April 2, 1998............................. 6,000 $1.00
===== =====
</TABLE>
At April 2, 1998 there were no options exercisable under the Plan. The
following table summarizes information about options outstanding at April 2,
1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING
NUMBER OF CONTRACTUAL
EXERCISE PRICE SHARES LIFE (IN YEARS)
- -------------- --------- ---------------
<S> <C> <C>
$1.00................................................ 6,000 9.8
</TABLE>
The Company applies APB No. 25, and related interpretations in accounting
for its stock option plan. Under APB No. 25, compensation expense is recognized
based on the amount by which the fair value of the Company's common stock
exceeds the exercise price of the stock options at the date of grant. No expense
was recognized during the period ended April 2, 1998.
The Company has adopted the disclosure only provisions of SFAS 123. The
weighted average fair value of the options granted as of April 2, 1998 was $.24
per option. Had compensation expense been recognized pursuant to SFAS No. 123,
the Company's net loss would have been increased to the pro forma amounts
indicated below for the period ended April 21, 1998:
<TABLE>
<S> <C>
Net loss -- as reported..................................... $223
Net loss -- pro forma....................................... $224
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value option pricing method with the following weighted average
assumptions used for grants for the period ended April 2, 1998:
<TABLE>
<CAPTION>
1998
-------
<S> <C>
Expected life of options in years........................... 5 years
Risk-free interest rate..................................... 5%
Expected dividend yield..................................... 0%
Expected volatility......................................... N/A
</TABLE>
7. RELATED PARTY TRANSACTIONS
The Company incurred fees for financial advisory services provided by a
private investment firm managed by two of the Company's directors. Total fees
for these services were $7 for the period ended April 2, 1998.
An officer of the Company is associated with a private company that entered
into a service agreement with the Company to provide certain financial,
accounting, professional staffing and legal services to the Company. The Company
paid fees of $1 and $28 relating to these services during the periods ended
December 31, 1997 and April 2, 1998, respectively.
F-34
<PAGE> 115
CATV.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In February, 1998, the Company borrowed $44 from a private company
associated with an officer of the Company. The note bears interest at a rate of
7% per annum with monthly installments of approximately $1 through February 5,
2003. The loan represents working capital funded by the private company from
March 1998 to April 1998.
8. RISKS AND UNCERTAINTIES
Dependence on Key Technology Suppliers
The Company currently depends on a limited number of suppliers for certain
key technologies used to build and manage the Company's services. Although the
Company believes that there are alternative suppliers for each of these
technologies, the Company has established favorable relationships with each of
its current suppliers, and it could take a significant period of time to
establish relationships with alternative suppliers and substitute their
technologies. The loss of any of the Company's relationships with its current
suppliers could have a material, adverse effect on the Company's financial
condition and results of operations. Should the company not obtain additional
cable systems for distribution, it could have a material, adverse effect on the
Company's financial condition and results of operations.
Dependence on Cable Companies
The Company's business plan is dependent on cable companies to distribute
its service to its subscribers. The Company has an agreement with several of its
shareholders to provide exclusive Internet access on certain cable systems
controlled by them. However, there is no guarantee that the shareholders will
provide additional cable systems for distribution by the Company. In addition,
the Company's agreements with individual cable systems are for terms of no more
than 5 years, and they may be terminated prior to that date under certain
circumstances.
The Company's ability to provide its services is also dependent on the
availability and reliability of the infrastructure of the cable system
operators. Currently, many cable system operators in the Company's markets and
potential markets have not upgraded their systems to allow the Company to
efficiently provide its services. These cable system operators are under no
obligation to undertake an upgrade of their systems, and the Company is
therefore dependent on cable system operators to make the improvements that will
allow the Company to provide its services.
9. SUBSEQUENT EVENTS
The Company was acquired by High Speed Access Corp. in an exchange of stock
on April 3, 1998.
F-35
<PAGE> 116
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
High Speed Access Network, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholders' deficit and of cash flows present
fairly, in all material respects, the financial position of High Speed Access
Network, Inc. at December 31, 1997 and April 3, 1998 and the results of its
operations and its cash flows for the periods from July 21, 1997 (inception)
through December 31, 1997 and January 1, 1998 through April 3, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/PRICEWATERHOUSECOOPERS, LLP
Louisville, Kentucky
March 12, 1999
F-36
<PAGE> 117
HIGH SPEED ACCESS NETWORK, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 3,
1997 1998
------------ --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 9 $ 575
Accounts receivable....................................... -- 18
Receivable from vendor.................................... 113 --
Prepaid expenses and other assets......................... 7 13
----- -------
Total current assets.............................. 129 606
Property, equipment and improvements, net................... 211 468
Intangible assets, net...................................... 87 80
----- -------
Total assets...................................... $ 427 $ 1,154
===== =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 45 $ 430
Advances from related parties............................. 741 922
Accrued compensation and related expenses................. 7 115
Other current liabilities................................. 7 129
----- -------
Total current liabilities......................... 800 1,596
----- -------
Mandatorily redeemable convertible preferred stock:
No par value, 2,500,000 shares designated; 500,000 shares
issued and outstanding; 2,000,000 shares subscribed.... -- 2,500
Subscription receivable................................... -- (2,000)
----- -------
-- 500
----- -------
Stockholders' deficit:
Common stock, $.01 par value, 4,900,000 shares authorized;
1 share issued and outstanding, 1997; 2,000,000 shares
issued and outstanding, 1998.............................. -- --
Additional paid-in capital................................ -- 947
Accumulated deficit....................................... (373) (1,889)
----- -------
Total stockholders' deficit....................... (373) (942)
----- -------
Total liabilities and stockholders' deficit....... $ 427 $ 1,154
===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE> 118
HIGH SPEED ACCESS NETWORK, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 21, 1997 (INCEPTION) JANUARY 1, 1998 THROUGH
THROUGH DECEMBER 31, 1997 APRIL 3, 1998
------------------------- -----------------------
<S> <C> <C>
Net revenue..................................... $ 9 $ 87
Costs and expenses:
Operating costs............................... 218 247
Engineering................................... 23 48
Sales and marketing........................... 109 315
General and administrative.................... 32 46
Non-cash stock compensation................... -- 947
----- -------
Total costs and expenses.............. 382 1,603
----- -------
Net loss.............................. $(373) $(1,516)
===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE> 119
HIGH SPEED ACCESS NETWORK, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE PERIODS FROM JULY 21, 1997 (INCEPTION) THROUGH DECEMBER 31, 1997
AND JANUARY 1, 1998 THROUGH APRIL 3, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------- ADDITIONAL ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAID IN CAPITAL DEFICIT DEFICIT
--------- ------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock in
connection with the formation of
the Company..................... 1 $ -- $ -- $ -- $ --
Net loss.......................... -- -- (373) (373)
--------- ------- ---- ------- ------
BALANCES AT DECEMBER 31, 1997..... 1 -- -- (373) (373)
Issuance of 1,999,999, shares
including 1,184,000 fully vested
shares to employees and
consultants in exchange for
services........................ 1,999,999 -- 947 -- 947
Net loss.......................... -- -- -- (1,516) (1,516)
--------- ------- ---- ------- ------
BALANCES AT APRIL 3, 1998......... 2,000,000 -- 947 (1,889) (942)
========= ======= ==== ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE> 120
HIGH SPEED ACCESS NETWORK, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 21, 1997
(INCEPTION) JANUARY 1, 1998
THROUGH THROUGH APRIL 3,
DECEMBER 31, 1997 1998
----------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(373) $(1,516)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization.......................... 33 30
Amortization of intangible asset....................... -- 7
Stock compensation..................................... -- 947
Changes in assets and liabilities:
Accounts receivable.................................. -- (18)
Receivable from vendor............................... (113) --
Prepaid expenses and other current assets............ (7) 107
Accounts payable..................................... 45 385
Accrued compensation and related expenses............ 7 108
Other current liabilities............................ 7 122
----- -------
Net cash provided by (used) in operating
activities...................................... (401) 172
----- -------
INVESTING ACTIVITIES
Purchase of property, equipment and improvements, net of
capital leases............................................ (244) (287)
Acquisition of customer base................................ (87) --
----- -------
Net cash used in investing activities....................... (331) (287)
----- -------
FINANCING ACTIVITIES
Net proceeds from issuance of mandatorily redeemable
convertible preferred stock............................... -- 500
Advances from related parties............................... 741 181
----- -------
Net cash provided by financing activities......... 741 681
----- -------
Net increase in cash and cash equivalents................... 9 566
Cash and cash equivalents, beginning of period.............. -- 9
----- -------
Cash and cash equivalents, end of period.......... $ 9 $ 575
===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE> 121
HIGH SPEED ACCESS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS FROM JULY 21, 1997 (INCEPTION) THROUGH DECEMBER 31, 1997
AND JANUARY 1, 1998 THROUGH APRIL 3, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
High Speed Access Network, Inc. (the "Company" and "HSAN") provides high
speed Internet access via cable modems to residential and commercial customers
in exurban areas. The Company enters into long-term exclusive contracts with
cable system operators to provide them with a comprehensive "turnkey" service.
That service enables a cable system's customers to receive high speed Internet
access. In exchange for providing access to its customers, the Company pays the
cable operator a portion of the monthly fees received from the customer that
subscribes to the services.
The Company provides the necessary equipment to provide Internet access to
a cable operator's customer base. The Company installs its Internet equipment at
the head-end facilities of the cable operator and performs tests on the system.
Once the equipment is ready for use, the Company markets the services and
installs cable modems for residential and commercial customers, generally using
outside vendors to perform the cable modem installation process.
BASIS OF PRESENTATION
HSAN was incorporated on July 1, 1997, with the issuance of 1 share of its
$.01 par value common shares. On April 2, 1998, HSAN's Board of Directors
approved the issuance of an additional 1,999,999 shares to the founder and four
employees and advisors. No proceeds were received from the issuance of the
additional shares. The issuance of the additional shares has been accounted for
as a 2,000,000 to 1 stock split in the accompanying financial statements.
Accordingly all prior period amounts reflect the stock split as if it had
occurred on July 21, 1997. The Company recognized compensation expense of $947
related to the issuance of 1,184,000 shares to employees and consultants for
services other than the founder. Compensation expense was recognized based on
the Company's estimate of the fair value of $.80 per common share per the common
stock issued.
The Company issued 500,000 shares of mandatorily redeemable convertible
preferred stock occurred on April 3, 1998 just prior to the Company being
acquired by High Speed Access Corp. in a stock-for-stock transaction. Because
the Company's operations for April 3, 1998 are included in the financial
statements of the acquiring company, the financial statements of the Company
include the results of operations only through April 2, 1998.
Revenue Recognition
Monthly customer subscription revenue is recognized in the period in which
subscription services are provided. Subscription revenue billed in advance is
deferred until the related services are provided.
Long-Lived Assets
The Company reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
would be recognized when estimated future cash flows expected to result from the
use of the asset and its eventual disposition is less than its carrying amount.
No such impairment losses have been identified by the Company.
F-41
<PAGE> 122
HIGH SPEED ACCESS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property, Equipment and Improvements
Property, equipment, and improvements are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful life of the assets for equipment (3 years) and furniture and fixtures (5
years), or the shorter of useful life or lease term for leasehold improvements.
Retirements, sales and disposals of assets are recorded by removing the cost and
accumulated depreciation from the accounts with any resulting gain or loss
recognized in income.
Intangible Assets
The Company recognized an intangible asset of $87 for the acquisition of a
customer base from an internet service provider in December 1997. The cost of
the customer base is being amortized over a three year period on a straight-line
basis. Amortization expense for the period ended April 2, 1998 was $7.
Income Taxes
The Company has elected to be taxed under Subchapter S of the Internal
Revenue Code. As a result, the Company's losses have been reported by the
shareholders on their individual federal and state income tax returns, and no
income tax expense or benefit has been recognized by the Company.
Fair Value of Financial Instruments
The Company's financial instruments principally consist of cash and cash
equivalents, accounts receivable, and accounts payable, that are carried at
cost, which approximates fair value because of the short-term nature of these
instruments, while the Company believes that the fair value of such instruments
approximates carrying value, advances from related parties may not necessarily
reflect fair value because of their nature.
Cash and Cash Equivalents
Cash and cash equivalents include all short-term, highly liquid investments
that mature within three months of their acquisition date.
Concentration of Credit Risk
The Company's customers consist of residential and commercial customers in
the various markets served by the Company. As such, no single customer accounted
for greater than 10% of total revenues or accounts receivable balances for the
periods ended December 31, 1997 and April 2, 1998.
Engineering
Engineering costs are expensed as incurred.
Recent Accounting Pronouncements
In April 1998 the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-5, Reporting on the Costs of
Start-Up Activities (SOP 98-5). SOP 98-5, which is effective for fiscal years
beginning after December 15, 1998, provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start up
activities and organization costs to be expensed as incurred. As the Company has
expensed these costs, the adoption of this standard is not expected to have a
significant impact on the Company's results of operations, financial position or
cash flows.
F-42
<PAGE> 123
HIGH SPEED ACCESS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In June 1998 the Financial Accounting Standards Board issued 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 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. As the Company does not
currently engage or plan to engage in derivatives, there will be no impact to
the Company's results of operations, financial position or cash flows upon the
adoption of SFAS 133.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported results of operations during the reporting period.
Actual results could differ from those estimates.
2. PROPERTY, EQUIPMENT AND IMPROVEMENTS
The components of property, equipment and improvements are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 2,
1997 1998
------------ --------
<S> <C> <C>
Equipment............................................... $237 $507
Furniture and fixtures.................................. 7 22
Leasehold improvements.................................. -- 2
---- ----
244 531
Less accumulated depreciation and amortization.......... 33 63
---- ----
$211 $468
==== ====
</TABLE>
Total depreciation and amortization expense for the periods ended December
31, 1997 and April 2, 1998 were $33 and $30, respectively.
3. LEASE OBLIGATIONS
The Company leases certain office facilities under operating leases on a
month to month basis which require the Company to pay operating costs, including
property taxes, insurance and maintenance. These facility leases generally
contain renewal options and provisions adjusting the lease payments based upon
changes in the consumer price index and increases in real estate taxes and
operating expenses or in fixed increments. Facility rent expense for the periods
ended December 31, 1997 and April 2, 1998 amounted to $5 and $12 respectively.
4. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
Mandatorily redeemable convertible preferred stock ("Preferred Stock") at
April 3, 1998 consists of the following:
<TABLE>
<CAPTION>
SHARES PROCEEDS NET
ISSUE ISSUED AND OF ISSUANCE LIQUIDATION
PRICE OUTSTANDING COSTS VALUE
- ----- ----------- ------------ -----------
<S> <C> <C> <C>
$1.00 500,000 500 500
</TABLE>
F-43
<PAGE> 124
HIGH SPEED ACCESS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The 500,000 shares of Preferred Stock were issued on April 3, 1998.
Preferred Stock ranks senior to the common stock with respect to the payment of
dividends, distribution of assets, and rights upon liquidation, dissolution or
winding up of the Company.
Dividends
The holders of Preferred Stock are entitled to receive dividends in
preference to holders of common stock. Dividends accrue on the Preferred Stock
at an annual rate of $.07 per share, respectively. Dividends accrue on each
share from its date of issuance, whether or not earned or declared by the
Company. Such dividends are cumulative, and must be paid before any dividend or
distribution is declared on common stock. Any accumulation of dividends on the
Preferred Stock does not bear interest. In lieu of cash, a holder of Preferred
Stock is entitled to receive common stock valued at its current fair market
value.
Liquidation
Upon any liquidation of the Company, before any distribution is made to
common stock holders, the holders of Preferred Stock are entitled to receive
from the assets of the Company the issue price per share for the Series plus a
25% percent compounded annual return on the investment, less any dividends
already paid on the shares. However, if the amount to be distributable for each
share of common stock, assuming conversion of the Preferred Stock plus accrued
and unpaid dividends to common stock, is higher, the holders of the Preferred
Stock may elect to receive that per share amount.
Redemption
If the Company has not completed a qualified IPO of common stock, the
holders of Preferred Stock may require the Company to redeem the shares on or
after April 3, 2003. The required redemption price is to be the greater of the
initial purchase price plus accrued but unpaid dividends or the fair value per
share based on a qualified appraisal acceptable to both the Company and the
shareholders. The shares of preferred stock are not redeemable at the Company's
option.
Conversion
Each Series of Preferred Stock is convertible at the option of the holder
into an equal number of shares of common stock. Upon conversion of any share of
Preferred Stock, all accrued but unpaid dividends are to be paid in shares of
common stock based on the fair value of the common stock at the date of the
conversion. The Company is required to reserve a sufficient number of authorized
but unissued common shares to allow for the Preferred Stock conversion rights to
be satisfied. Each share of Preferred Stock is to be automatically converted to
common stock immediately upon the closing of a qualified IPO.
In the case of the sale or merger of the Company, as defined, the holders
of Preferred Stock are permitted to convert their Preferred Stock in a manner
that will allow the holder to obtain the issue price for the shares plus a 25%
compounded annual return on the investment, less any dividends paid on the
shares. If the Company issues common shares, or warrants, options, convertible
securities or other securities entitling the holders to obtain common stock, for
a consideration per share which is less than the par value of the Preferred
Stock, then the conversion price is to be adjusted to reflect the lower price.
In such an instance, the holders of the Preferred Stock would be able to receive
additional common shares upon conversion. The terms of the conversion are also
adjusted in the case of stock splits and dividends, capital reorganizations and
other specified events to allow the holders of Preferred Stock to receive the
same rights that would have been received had the conversion taken place before
the event occurred.
F-44
<PAGE> 125
HIGH SPEED ACCESS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Voting Rights
All shares of Preferred Stock have voting rights. Each share has the number
of votes equal to the number of shares of common stock into which the Preferred
Stock are convertible.
All shares of preferred stock have voting rights. The number of votes per
preferred shares are adjusted so that at any time the total votes attributable
to Preferred Stock is equal to 2,500,000 common shares. As a result, the holders
of Preferred Stock have a majority voting interest in the Company at April 2,
1998.
Adjustment of Terms
The terms of the Preferred Stock with respect to dividends, liquidation,
redemption, conversion and voting rights are adjusted upon a stock split,
dividend or other recapitalization to maintain the effects of the original
terms. Upon an IPO, all Preferred Stock is automatically converted to common
stock and all preferential rights are terminated.
5. RELATED PARTY TRANSACTIONS
The founder of the Company made advances to the Company totalling $741 as
of December 31, 1997 and $922 as of April 2, 1998. No interest was charged on
their advances, which were due on demand.
6. RISKS AND UNCERTAINTIES
Dependence on Key Technology Suppliers
The Company currently depends on a limited number of suppliers for certain
key technologies used to build and manage the Company's services. Although the
Company believes that there are alternative suppliers for each of these
technologies, the Company has established favorable relationships with each of
its current suppliers, and it could take a significant period of time to
establish relationships with alternative suppliers and substitute their
technologies. The loss of any of the Company's relationships with its current
suppliers could have a material, adverse effect on the Company's financial
condition and results of operations. Should the company not obtain additional
cable systems for distribution, it could have a material, adverse effect on the
Company's financial condition and results of operations.
Dependence on Cable Companies
The Company's business plan is dependent on cable companies to distribute
its service to its subscribers. The Company has an agreement with several of its
shareholders to provide exclusive Internet access on certain cable systems
controlled by them. However, there is no guarantee that the shareholders will
provide additional cable systems for distribution by the Company. In addition,
the Company's agreements with individual cable systems are for terms of no more
than 5 years, and they may be terminated prior to that date under certain
circumstances.
The Company's ability to provide its services is also dependent on the
availability and reliability of the infrastructure of the cable system
operators. Currently, many cable system operators in the Company's markets and
potential markets have not upgraded their systems to allow the Company to
efficiently provide its services. These cable system operators are under no
obligation to undertake an upgrade of their systems, and the Company is
therefore dependent on cable system operators to make the improvements that will
allow the Company to provide its services.
7. SUBSEQUENT EVENTS
The Company was acquired by High Speed Access Corp. in an exchange of stock
on April 3, 1998.
F-45
<PAGE> 126
HIGH SPEED ACCESS CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
The unaudited combined pro forma statement of operations for the year ended
December 31, 1998 reflects the acquisitions of CATV.net, Inc. (CATV) and HSA
Network, Inc. (HSAN), as if the transactions occurred on January 1, 1998. Since
the pro forma financial statement which follows is based upon the financial
condition and operating results of CATV and HSAN during periods when they were
not under the control or management of High Speed Access Corp. (HSA), the
information presented may not be indicative of the results which would have
actually been obtained had the acquisitions been completed as of January 1, 1998
nor are they indicative of future financial or operating results. The unaudited
pro forma financial information does not give effect to any synergies that may
occur due to the integration of the companies. The combined pro forma statement
of operations should be read in conjunction with the historical audited
financial statement of HSA and the notes thereto, as well as the audited
historical financial statements of CATV and HSAN and the notes thereto included
elsewhere in this prospectus. The acquisitions have been accounted for by the
purchase method of accounting. A pro forma balance sheet as of December 31, 1998
has not been presented herein since both acquisitions were completed on April 3,
1998 and have been reflected in HSA's consolidated balance sheet as of December
31, 1998 appearing elsewhere herein.
HSA CORPORATION, CATV AND HSAN
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HSA CORP. CATV HSAN ADJUSTMENTS COMBINED
--------- ----- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net revenue.............................. $ 337 $ 26 $ 87 $ -- $ 450
Cost and Expenses:
Operating Costs........................ 2,067 87 247 2,401
Engineering............................ 2,266 58 48 2,372
Sales and marketing.................... 3,696 67 315 4,078
General and administrative............. 2,323 38 47 209 2,616
Non-cash stock compensation............ -- -- 947 -- 947
--------- ----- ------- ----- ---------
Total expenses................. 10,352 250 1,603 209 12,414
Loss from operations..................... (10,015) (224) (1,516) (209) (11,964)
Interest income, net..................... 40 (1) 41
--------- ----- ------- ----- ---------
Net loss................................. (9,975) (223) (1,516) (209) (11,923)
Mandatorily redeemable convertible
preferred stock dividends.............. (385) (385)
Accretion of redemption value of
mandatorily redeemable convertible
preferred stock........................ (120,282) (120,282)
--------- ----- ------- ----- ---------
Net loss attributable to common
stockholders per common share.......... $(130,642) $(223) $(1,516) $(209) $(132,590)
========= ===== ======= ===== =========
Pro forma net loss per share:
Basic and diluted...................... $ (21.07) $ (21.39)
Weighted average shares outstanding
(basic and diluted)................. 6,200,000 6,200,000
</TABLE>
See accompanying notes to Pro Forma Combined Financial Statements
F-46
<PAGE> 127
HIGH SPEED ACCESS CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. BASIC OF PRESENTATION
The unaudited pro forma combined statement of operations for the year ended
December 31, 1998 give effect to the acquisitions of CATV and HSAN as if they
had occurred on January 1, 1998. The effects of the acquisitions have been
presented using the purchase method of accounting and accordingly, the purchase
price was allocated to the assets acquired and liabilities assumed.
2. PRO FORMA ADJUSTMENT
The pro forma statement of operations for the year ended December 31, 1998
has been adjusted to reflect the amortization of the excess of cost over net
identifiable assets acquired associated with the acquisitions of CATV and HSAN.
The excess of cost over net identifiable assets acquired is being amortized over
a period of 60 months.
F-47
<PAGE> 128
[INSIDE BACK COVER]
[Schematic diagram depicting connection of the Internet
through the cable headend to the end user]
<PAGE> 129
LOGO
13,000,000 SHARES
[HIGH SPEED ACCESS LOGO]
COMMON STOCK
------------------------------------------------------
PROSPECTUS
, 1999
------------------------------------------------------
LEHMAN BROTHERS J.P. MORGAN & CO.
Joint Lead Managers
NATIONSBANC MONTGOMERY SECURITIES LLC
CIBC
WORLD MARKETS
<PAGE> 130
THIS INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
[ALTERNATE PAGE FOR CONCURRENT OFFERING PROSPECTUS]
SUBJECT TO COMPLETION, DATED MAY 5, 1999
PROSPECTUS
SHARES
SM [HIGH SPEED ACCESS LOGO]
COMMON STOCK
- --------------------------------------------------------------------------------
This prospectus relates to the estimated 672,043 shares of our common stock to
be sold in an
offering to Cisco Systems, Inc., the estimated 89,606 shares to be sold in an
offering to Com21, Inc. and 896,057 shares to be sold in a offering to Microsoft
Corporation. We also are offering shares to the public in our concurrent initial
public offering of common stock.
No public market currently exists for our shares.
We propose to list the shares on the Nasdaq National Market under the symbol
"HSAC."
Anticipated Price Range $10.23 to $12.09 per share.
INVESTING IN THE SHARES INVOLVES RISKS. RISK FACTORS BEGIN ON PAGE 7.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Offering Price.............................................. $ $
Proceeds to High Speed Access Corp.......................... $ $
</TABLE>
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
, 1999
<PAGE> 131
[ALTERNATE PAGE FOR CONCURRENT OFFERING PROSPECTUS]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 7
Sale of Shares to Cisco, Com21 and
Microsoft........................... 18
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 21
Selected Financial Data............... 22
Management's Discussion and Analysis
of Financial Condition and Results
of
Operations.......................... 24
Business.............................. 30
Management............................ 45
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certain Transactions.................. 55
Principal Stockholders................ 58
Description of Securities............. 61
United States Federal Income Tax
Consequences to Non-U.S. Holders.... 65
Shares Eligible for Future Sale....... 68
Underwriting.......................... 69
Legal Matters......................... 71
Experts............................... 71
Available Information................. 71
Reports to Stockholders............... 72
Glossary of Technical Terms........... A-1
Index to Financial Statements......... F-1
</TABLE>
ABOUT THIS PROSPECTUS
You should only rely on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.
This preliminary prospectus is subject to completion prior to this
offering. Among other things, this preliminary prospectus describes our company
as we currently expect it to exist at the time of the offering.
See the section of this prospectus entitled "Risk Factors" for a discussion
of certain factors that you should consider before investing in our common stock
offered in this prospectus. All trademarks and trade names appearing in this
prospectus are the property of their respective holders. Many of the technical
terms we use in this prospectus, which are commonly used in our industry, are
explained in the "Glossary of Technical Terms."
Unless otherwise indicated, all information in this prospectus:
- Reflects the conversion of all of our preferred stock into common stock
upon the closing of this offering;
- Reflects a 1.55-for-1 split of our common stock;
- Assumes a price to public of $12.00 per share, and a price to Cisco,
Com21 and Microsoft of $11.16 per share;
- Assumes the filing of our amended and restated certificate of
incorporation which, among other things, will authorize 10 million shares
of undesignated preferred stock, 400 million shares of common stock and
100 million shares of limited voting Class A common stock; and
- Assumes no exercise of the underwriters' over-allotment option.
References in this prospectus to "HSA," "we," "our," and "us" refer to High
Speed Access Corp., a Delaware corporation. High Speed Access Corp. was
incorporated in Delaware on April 2, 1998. Our principal executive offices are
located at 4100 East Mississippi Avenue, Denver, Colorado 80246. Our telephone
number at that address is (303) 256-2000. Our principal operating offices are
located 1000 W. Ormsby Avenue, Louisville, Kentucky 40210. Our telephone number
at that location is (502) 515-3333. INFORMATION CONTAINED ON OUR WEB SITE DOES
NOT CONSTITUTE PART OF THIS PROSPECTUS.
Until , 1999, all dealers selling shares of the common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions. Information contained on our Web site does not
constitute part of this Prospectus.
<PAGE> 132
[ALTERNATE PAGE FOR CONCURRENT OFFERING PROSPECTUS]
PLAN OF DISTRIBUTION
The shares being registered hereunder are being issued and sold to Cisco
Systems pursuant to a stock purchase agreement between Cisco and us. This
offering is not being underwritten. See "Sale of Shares to Cisco Systems".
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Brobeck, Phleger & Harrison LLP, Denver, Colorado.
EXPERTS
The financial statements of High Speed Access Corp. as of December 31, 1998
and for the period from April 3, 1998 through December 31, 1998; CATV net, Inc.
as of December 31, 1997 and April 2, 1998 and for the periods from March 12,
1997 through December 31, 1998 and January 1, 1998 through April 2, 1998; and
High Speed Access Network as of December 31, 1997 and April 3, 1998 and for the
periods from July 21, 1997 through December 31, 1998 and January 1, 1998 through
April 3, 1998, included in this Prospectus, have been so included in reliance on
the report of PricewaterhouseCoopers, LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 (including the exhibits, schedules and amendments thereto)
under the Securities Act with respect to the shares of common stock to be sold
in the offering. This prospectus does not contain all the information set forth
in the registration statement. For further information with respect to us and
the shares of common stock to be sold in the offering, reference is made to the
registration statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract, agreement or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference.
You may read and copy all or any portion of the Registration Statement or
any other information HSA files at the Securities and Exchange Commission's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the Securities and Exchange Commission. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. HSA's Securities and Exchange Commission filings,
including the registration statement, are also available to you on the SEC's Web
site (http://www.sec.gov).
As a result of the offering, HSA will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended, and,
in accordance therewith, will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission. Upon approval of the
common stock for the quotation on the Nasdaq National Market, such reports,
proxy and information statements and other information may also be inspected at
the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
REPORTS TO STOCKHOLDERS
We intend to furnish our stockholders annual reports containing audited
financial statements and will make available copies of quarterly reports for the
first three quarters of each year containing unaudited interim financial
information.
<PAGE> 133
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, other than
the underwriting discounts and commissions, payable by the Registrant in
connection with the sale of the common stock being registered, all of which will
be paid by the Registrant.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC registration fee........................................ $ 60,565
NASD filing fee............................................. 12,500
Nasdaq National Market listing fee.......................... 95,000
Legal fees and expenses..................................... 600,000
Blue sky fees and expenses.................................. 5,000
Accounting fees and expenses................................ 250,000
Directors and officers liability insurance.................. 600,000
Printing and engraving...................................... 350,000
Transfer agent fees......................................... 10,000
Miscellaneous............................................... 16,935
----------
Total............................................. $2,000,000
==========
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Amended and Restated Certificate of Incorporation to be in
effect upon the closing of this offering (the "Certificate") provides that,
except to the extent prohibited by the Delaware General Corporation Law, as
amended (the "DGCL"), the Registrant's directors shall not be personally liable
to the Registrant or its stockholders for monetary damages for any breach of
fiduciary duty as directors of the Registrant. Under the DGCL, the directors
have a fiduciary duty to the Registrant which is not eliminated by this
provision of the Certificate and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available. In addition, each director will continue to be subject to liability
under the DGCL for breach of the director's duty of loyalty to the Registrant,
for acts or omissions which are found by a court of competent jurisdiction to be
not in good faith or involving intentional misconduct, for knowing violations of
law, for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
prohibited by DGCL. This provision also does not affect the directors'
responsibilities under any other laws, such as the Federal securities laws or
state or Federal environmental laws. The Registrant has obtained liability
insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers. The Certificate provides
that the Registrant shall indemnify any person who was or is a party or is
threatened to be made a party to or becomes involved in any action, suit or
proceeding (whether civil, criminal, administrative or investigative) by reason
of the fact that such person is or was a director or officer of the Registrant,
or is or was serving at the request of the Registrant as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement reasonably
incurred by such person in connection with such action, suit or proceeding. The
DGCL provides further that the indemnification permitted thereunder shall not be
deemed exclusive of any other rights to which the directors and officers may be
entitled under the corporation's bylaws, any agreement, a vote of stockholders
or otherwise. The Registrant has entered into indemnification agreements with
each member of the Board of Directors providing for the indemnification of the
directors to the fullest extent authorized, permitted or allowed by Delaware
law.
II-1
<PAGE> 134
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate. The Registrant is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since the Registrant's inception, the Registrant has made the following
sales of securities that were not registered under the Securities Act:
1. On April 3, 1998, the Registrant issued and sold 6,200,000 shares of
common stock (subsequently valued by the Registrant at $.52 per share or
$3,200,000 in the aggregate) of the Registrant in exchange for 200,000 shares of
common stock of CATV.net, Inc. and 2,000,000 shares of common stock of High
Speed Access Network, Inc. in reliance on the exemption from registration
provided by Section 4(2) of the Securities Act.
2. During the period from April 3, 1998 to August 14, 1998, the Registrant
issued and sold 5,000,000 shares of Series A Convertible Preferred Stock to
Broadband Solutions, LLC in a private placement for an aggregate consideration
of $5,000,000 in cash. Sales of Series A Convertible Preferred Stock were made
in reliance on the exemption from registration provided by Section 4(2) of the
Securities Act.
3. During the period from September 1, 1998 to November 22, 1998, the
Registrant issued and sold 2,000,000 shares of Series B Convertible Preferred
Stock to Broadband Solutions II, LLC in a private placement for an aggregate
consideration of $5,000,000 in cash and cancellation of indebtedness. Sales of
Series B Convertible Preferred Stock were made in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act.
4. On November 25, 1998, the Registrant issued and sold 8,000,000 shares of
Series B Convertible Preferred Stock to Vulcan Ventures, Incorporated in a
private placement for an aggregate consideration of $20,000,000 in cash. Sales
of Series B Convertible Preferred Stock were made in reliance on an exemption
from registration provided by Section 4(2) of the Securities Act.
5. On November 25, 1998 the Registrant issued to Vulcan Ventures,
Incorporated warrants to purchase up to an aggregate of 7,750,000 shares of
common stock of the Registrant at a purchase price of $3.23 per share. 3,875,000
of the warrants expire on July 31, 2003 and 3,875,000 of the warrants expire on
July 31, 2004. The warrants were issued in reliance on an exemption from
registration provided by Section 4(2) of the Securities Act.
6. On March 24, 1999, the Registrant issued to Atlanta On-Line Internet
Inc. warrants to purchase 20,150 shares of common stock of the Registrant at a
purchase price of $6.45 per share. The warrants were issued in reliance on an
exemption from registration provided by Section 4(2) of the Securities Act.
7. On April 29, 1999, the Registrant issued and sold 5,000,000 shares of
Series C Convertible Preferred Stock to Vulcan Ventures, Incorporated is a
private placement for an aggregate consideration of $25,000,000 in cash. The
sale of Series C Convertible Preferred Stock was made in reliance on an
exemption from registration provided by Section 4(2) of the Securities Act.
8. On April 30, 1999, the Registrant issued to Microsoft Corporation
warrants to purchase 250,000 shares of common stock of the Registrant for a
purchase price equal to 125% of the public offering price. The warrants were
issued in reliance on an exemption from registration provided by Section 4(2) of
the Securities Act.
II-2
<PAGE> 135
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1* -- Form of Underwriting Agreement.
1.2 -- Stock Purchase Agreement between High Speed Access Corp.
and Cisco Systems, Inc., as amended May 3, 1999.
1.3 -- Stock Purchase Agreement between High Speed Access Corp.
and Com21, Inc.
1.4 -- Stock Purchase Agreement between High Speed Access Corp.
and Microsoft Corporation
3.1* -- Form of Amended and Restated Certificate of Incorporation
to be effective upon the closing of the offering.
3.2 -- Form of Amended and Restated Bylaws to be effective upon
the closing of the offering.
4.1* -- Specimen Common Stock certificate.
4.2 -- See Exhibits 3.1 and 3.2 for provisions defining the
rights of holders of common stock of the Registrant.
5.1* -- Opinion of Brobeck, Phleger & Harrison LLP.
9.1 -- Voting Trust Agreement dated as of March 30, 1999 among
Terrence J. Herron, as Voting Trustee, and Joseph S.,
Gans, III, Joseph W. Aman, Lawrence Shewack, John Howell
and Terrence J. Herron.
10.1 -- Contribution Agreement among High Speed Access Corp.,
Broadband Solutions, LLC, and certain shareholders of
High Speed Access Corp., dated as of April 3, 1998, as
amended November 25, 1998.
10.2 -- Series B Convertible Preferred Stock Purchase Agreement
between High Speed Access Corp. and Broadband Solutions
II, LLC, dated as of September 1, 1998, as amended
November 25, 1998.
10.3** -- Series B Convertible Preferred Stock Purchase Agreement
between High Speed Access Corp. and Vulcan Ventures,
Incorporated, dated as of November 25, 1998.
10.4** -- Series C Convertible Preferred Stock Purchase Agreement
between High Speed Access Corp. and Vulcan Ventures,
Incorporated, dated November 25, 1998.
10.5 -- Class A Securities Purchase Warrant between High Speed
Access Corp. and Vulcan Ventures, Incorporated, dated as
of November 25, 1998, as Assigned April 23, 1999 and as
amended April 29, 1999.
10.6 -- Class B Securities Purchase Warrant between High Speed
Access Corp. Vulcan Ventures, Incorporated, dated as of
November 25, 1998, as Assigned April 23, 1999, and as
amended April 29, 1999.
10.7+** -- Systems Access and Investment Agreement among High Speed
Access Corp., Vulcan Ventures, Incorporated, Charter
Communications, Inc. and Marcus, Inc., dated as of
November 25, 1998.
10.8+** -- Programming Content Agreement between High Speed Access
Corp. and Vulcan Ventures, Incorporated, dated as of
November 25, 1998.
10.9+** -- Network Service Agreement between High Speed Access
Corp., Charter Communications, Inc., and Marcus Cable,
Inc., dated as of November 25, 1998.
10.10** -- Amended and Restated Registration Rights Agreement, dated
as of November 25, 1998.
10.11 -- Voting Agreement by and among High Speed Access Corp. and
certain shareholders dated as of November 25, 1998.
</TABLE>
II-3
<PAGE> 136
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.12** -- Employment, Non-Competition and Non-Disclosure Agreement
with W. Kent Oyler, III, dated April 3, 1998.
10.13** -- Employment, Non-Competition and Non-Disclosure Agreement
with Ronnie W. Pitcock, dated April 3, 1998.
10.14** -- $650,000 Promissory Note by High Speed Access Corp. in
favor of Gans Multimedia Partnership, dated April 3,
1998.
10.15 -- Assignment and Security Agreement dated April 3, 1998
between High Speed Access Corp. and Gans Multimedia
Partnership.
10.16 -- Noncompetition and Nondisclosure Agreement dated April 3,
1998 between High Speed Access Corp. and Joseph S. Gans,
III.
10.17 -- Convertible Preferred Stock Purchase Agreement dated as
of April 3, 1998 among High Speed Access Network, Inc.,
Ronnie W. Pitcock, Joseph S. Gans, III and Broadband
Solutions, LLC.
10.18 -- Convertible Preferred Stock Purchase Agreement dated as
of February 23, 1998 among CATV.net, Inc., Kent Oyler,
David Gibbs, Gibbs Family Limited Partnership, Colorado
Limited Partnership, OPM Services, Inc. and Broadband
Solutions, LLC.
10.19 -- Convertible Preferred Stock Registration Rights Agreement
dated as of February 23, 1998 among CATV.net, Inc., Kent
Oyler, David Gibbs, Gibbs Family Limited Partnership,
Colorado Limited Partnership, OPM Services, Inc. and
Broadband Solutions, LLC.
10.20 -- Services Agreement dated February 20, 1998 between
CATV.net, Inc. and OPM Services, Inc.
10.21 -- Asset Purchase Agreement dated March 17, 1999 among High
Speed Access Corp., Atlanta On-Line InterNet, Inc.,
Marvin Anglin and Ellen Anglin.
10.22 -- Warrant to Purchase Common Stock dated March 24, 1999
between High Speed Access Corp. and Atlanta On-Line
InterNet, Inc.
10.23 -- Warrant to Purchase Common Stock of Darwin Networks, Inc.
dated as of March 15, 1999 between Darwin Networks, Inc.
and High Speed Access Corp.
10.24 -- Revolving Credit Note dated as of March 15, 1999 issued
by Darwin Networks, Inc. in favor of High Speed Access
Corp.
10.25 -- Services Agreement dated as of March 15, 1999 between
High Speed Access Corp. and Darwin Networks, Inc.
10.26 -- Amended and Restated Shareholders Agreement dated as of
November 25, 1998 among High Speed Access Corp. and
shareholders of High Speed Access Corp.
10.27 -- Master Loan and Security Agreement dated as of February
4, 1999 between Finova Capital Corporation and High Speed
Access Corp.
10.28 -- Lease dated April 1, 1998 between High Speed Access Corp.
and Henry Vogt Machine Co., as amended by a First
Amendment to Lease dated May 1, 1998, a Second Amendment
to Lease dated June 1, 1998, a Third Amendment to Lease
dated July 20, 1998, a Fourth Amendment to Lease dated
September 1, 1998, a Fifth Amendment to lease dated
November 1, 1998, a Sixth Amendment to Lease dated
January 1, 1999, and a Seventh Amendment to Lease dated
March 15, 1999.
10.29 -- HSAnet Cable Affiliate Agreement between High Speed
Access Network, Inc. and Gans Multimedia partnership
dated October 15, 1997.
10.30** -- 1998 High Speed Access Corp. Stock Option Plan
10.31 -- 1999 High Speed Access Corp. Stock Option Plan.
</TABLE>
II-4
<PAGE> 137
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.32 -- High Speed Access Corp. Non-Employee Director Stock
Option Plan.
10.33** -- Form of Indemnity Agreement.
10.34 -- Securities Purchase Warrant dated as of April 30, 1999
between High Speed Access Corp. and Microsoft
Corporation.
10.35 -- Letter Agreement dated as of April 30, 1999 between High
Speed Access Corp. and Microsoft Corporation.
21.1 -- Subsidiaries.
23.1 -- Consent of PricewaterhouseCoopers LLP.
23.2 -- Consent of PricewaterhouseCoopers LLP.
23.3 -- Consent of PricewaterhouseCoopers LLP.
23.4* -- Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1 -- Powers of Attorney (See Signature Page).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be supplied by amendment.
** Previously filed.
+ Confidential treatment requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424 (b)(1) or (4), or 497(h)
under the Securities Act of 1933, shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE> 138
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Denver,
State of Colorado, on this 5th day of May, 1999.
HIGH SPEED ACCESS CORP.
By: /s/ GEORGE E. WILLETT
----------------------------------
Name: George E. Willett
Title: Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
* President (Principal Executive May 5, 1999
- ----------------------------------------------------- Officer)
Ron Pitcock, Sr.
* Chief Financial Officer May 5, 1999
- ----------------------------------------------------- (Principal Financial and
George E. Willett Accounting Officer)
/s/ DAVID A. JONES, JR. Director, Chairman May 5, 1999
- -----------------------------------------------------
David A. Jones, Jr.
/s/ ROBERT S. SAUNDERS Director, Vice Chairman May 5, 1999
- -----------------------------------------------------
Robert S. Saunders
* Director May 5, 1999
- -----------------------------------------------------
Irving W. Bailey, II
* Director May 5, 1999
- -----------------------------------------------------
Michael E. Gellert
* Director May 5, 1999
- -----------------------------------------------------
Jerald L. Kent
* Director May 5, 1999
- -----------------------------------------------------
William D. Savoy
* Director May 5, 1999
- -----------------------------------------------------
Stephen E. Silva
*By: /s/ ROBERT S. SAUNDERS
------------------------------------------------
Robert S. Saunders
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 139
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1* -- Form of Underwriting Agreement.
1.2 -- Stock Purchase Agreement between High Speed Access Corp.
and Cisco Systems, Inc., as amended May 3, 1999.
1.3 -- Stock Purchase Agreement between High Speed Access Corp.
and Com21, Inc.
1.4 -- Stock Purchase Agreement between High Speed Access Corp.
and Microsoft Corporation
3.1* -- Form of Amended and Restated Certificate of Incorporation
to be effective upon the closing of the offering.
3.2 -- Form of Amended and Restated Bylaws to be effective upon
the closing of the offering.
4.1* -- Specimen Common Stock certificate.
4.2 -- See Exhibits 3.1 and 3.2 for provisions defining the
rights of holders of common stock of the Registrant.
5.1* -- Opinion of Brobeck, Phleger & Harrison LLP.
9.1 -- Voting Trust Agreement dated as of March 30, 1999 among
Terrence J. Herron, as Voting Trustee, and Joseph S.,
Gans, III, Joseph W. Aman, Lawrence Shewack, John Howell
and Terrence J. Herron.
10.1 -- Contribution Agreement among High Speed Access Corp.,
Broadband Solutions, LLC, and certain shareholders of
High Speed Access Corp., dated as of April 3, 1998, as
amended November 25, 1998.
10.2 -- Series B Convertible Preferred Stock Purchase Agreement
between High Speed Access Corp. and Broadband Solutions
II, LLC, dated as of September 1, 1998, as amended
November 25, 1998.
10.3** -- Series B Convertible Preferred Stock Purchase Agreement
between High Speed Access Corp. and Vulcan Ventures,
Incorporated, dated as of November 25, 1998.
10.4** -- Series C Convertible Preferred Stock Purchase Agreement
between High Speed Access Corp. and Vulcan Ventures,
Incorporated, dated November 25, 1998.
10.5 -- Class A Securities Purchase Warrant between High Speed
Access Corp. and Vulcan Ventures, Incorporated, dated as
of November 25, 1998 as Assigned April 23, 1999 and as
amended April 29, 1999.
10.6 -- Class B Securities Purchase Warrant between High Speed
Access Corp. Vulcan Ventures, Incorporated, dated as of
November 25, 1998 as Assigned April 23, 1999, and as
amended April 29, 1999.
10.7+** -- Systems Access and Investment Agreement among High Speed
Access Corp., Vulcan Ventures, Incorporated, Charter
Communications, Inc. and Marcus, Inc., dated as of
November 25, 1998.
10.8+** -- Programming Content Agreement between High Speed Access
Corp. and Vulcan Ventures, Incorporated, dated as of
November 25, 1998.
10.9+** -- Network Service Agreement between High Speed Access
Corp., Charter Communications, Inc., and Marcus Cable,
Inc., dated as of November 25, 1998.
10.10** -- Amended and Restated Registration Rights Agreement, dated
as of November 25, 1998.
10.11 -- Voting Agreement by and among High Speed Access Corp. and
certain shareholders dated as of November 25, 1998.
10.12** -- Employment, Non-Competition and Non-Disclosure Agreement
with W. Kent Oyler, III, dated April 3, 1998.
</TABLE>
<PAGE> 140
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.13** -- Employment, Non-Competition and Non-Disclosure Agreement
with Ronnie W. Pitcock, dated April 3, 1998.
10.14** -- $650,000 Promissory Note by High Speed Access Corp. in
favor of Gans Multimedia Partnership, dated April 3,
1998.
10.15 -- Assignment and Security Agreement dated April 3, 1998
between High Speed Access Corp. and Gans Multimedia
Partnership.
10.16 -- Noncompetition and Nondisclosure Agreement dated April 3,
1998 between High Speed Access Corp. and Joseph S. Gans,
III.
10.17 -- Convertible Preferred Stock Purchase Agreement dated as
of April 3, 1998 among High Speed Access Network, Inc.,
Ronnie W. Pitcock, Joseph S. Gans, III and Broadband
Solutions, LLC.
10.18 -- Convertible Preferred Stock Purchase Agreement dated as
of February 23, 1998 among CATV.net, Inc., Kent Oyler,
David Gibbs, Gibbs Family Limited Partnership, Colorado
Limited Partnership, OPM Services, Inc. and Broadband
Solutions, LLC.
10.19 -- Convertible Preferred Stock Registration Rights Agreement
dated as of February 23, 1998 among CATV.net, Inc., Kent
Oyler, David Gibbs, Gibbs Family Limited Partnership,
Colorado Limited Partnership, OPM Services, Inc. and
Broadband Solutions, LLC.
10.20 -- Services Agreement dated February 20, 1998 between
CATV.net, Inc. and OPM Services, Inc.
10.21 -- Asset Purchase Agreement dated March 17, 1999 among High
Speed Access Corp., Atlanta On-Line InterNet, Inc.,
Marvin Anglin and Ellen Anglin.
10.22 -- Warrant to Purchase Common Stock dated March 24, 1999
between High Speed Access Corp. and Atlanta On-Line
InterNet, Inc.
10.23 -- Warrant to Purchase Common Stock of Darwin Networks, Inc.
dated as of March 15, 1999 between Darwin Networks, Inc.
and High Speed Access Corp.
10.24 -- Revolving Credit Note dated as of March 15, 1999 issued
by Darwin Networks, Inc. in favor of High Speed Access
Corp.
10.25 -- Services Agreement dated as of March 15, 1999 between
High Speed Access Corp. and Darwin Networks, Inc.
10.26 -- Amended and Restated Shareholders Agreement dated as of
November 25, 1998 among High Speed Access Corp. and
shareholders of High Speed Access Corp.
10.27 -- Master Loan and Security Agreement dated as of February
4, 1999 between Finova Capital Corporation and High Speed
Access Corp.
10.28 -- Lease dated April 1, 1998 between High Speed Access Corp.
and Henry Vogt Machine Co., as amended by a First
Amendment to Lease dated May 1, 1998, a Second Amendment
to Lease dated June 1, 1998, a Third Amendment to Lease
dated July 20, 1998, a Fourth Amendment to Lease dated
September 1, 1998, a Fifth Amendment to lease dated
November 1, 1998, a Sixth Amendment to Lease dated
January 1, 1999, and a Seventh Amendment to Lease dated
March 15, 1999.
10.29 -- HSAnet Cable Affiliate Agreement between High Speed
Access Network, Inc. and Gans Multimedia partnership
dated October 15, 1997.
10.30** -- 1998 High Speed Access Corp. Stock Option Plan
10.31 -- 1999 High Speed Access Corp. Stock Option Plan.
10.32 -- High Speed Access Corp. Non-Employee Director Stock
Option Plan.
10.33** -- Form of Indemnity Agreement.
</TABLE>
<PAGE> 141
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.34 -- Securities Purchase Warrant dated as of April 30, 1999
between High Speed Access Corp. and Microsoft
Corporation.
10.35 -- Letter Agreement dated as of April 30, 1999 between High
Speed Access Corp. and Microsoft Corporation.
21.1 -- Subsidiaries.
23.1 -- Consent of PricewaterhouseCoopers LLP.
23.2 -- Consent of PricewaterhouseCoopers LLP.
23.3 -- Consent of PricewaterhouseCoopers LLP.
23.4* -- Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1 -- Powers of Attorney (See Signature Page).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be supplied by amendment.
** Previously filed.
+ Confidential treatment requested for certain portions of this Exhibit pursuant
to Rule 406 promulgated under the Securities Act.
<PAGE> 1
EXHIBIT 1.2
HIGH SPEED ACCESS CORP.
STOCK PURCHASE AGREEMENT
MARCH 18, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Purchase and Sale of Stock...........................................1
1.1 Sale and Issuance of Stock..................................1
1.2 The Closing.................................................1
2. Representations and Warranties of the Company........................1
2.1 Organization and Good Standing..............................1
2.2 Authorization...............................................1
2.3 Valid Issuance of Stock.....................................2
2.4 Litigation..................................................2
2.5 Properties..................................................2
2.6 Compliance with Other Documents.............................2
3. Representations and Warranties of the Investor.......................2
3.1 Authorization...............................................2
3.2 Investigation...............................................2
3.3 Accredited Investor.........................................3
3.4 Purchase Entirely for Own Account...........................3
4. Conditions to the Investor's Obligation at Closing...................3
4.1 Representations and Warranties..............................3
4.2 Securities Laws.............................................3
4.3 Authorizations..............................................3
4.4 Initial Public Offering of Common Stock.....................3
5. Conditions to the Company's Obligations at Closing...................3
5.1 Representations and Warranties..............................3
5.2 Securities Laws.............................................3
5.3 Authorizations..............................................4
5.4 Initial Public Offering of Common Stock.....................4
5.5 Payment of Purchase Price...................................4
6. Covenants of the Company and the Investor............................4
6.1 Agreement Not to Transfer...................................4
6.2 Market Stand-Off............................................4
6.3 Notice of Intention to Transfer.............................5
6.4 Standstill..................................................5
6.5 Voting Agreements...........................................5
6.6 Hart-Scott-Rodino...........................................6
6.7 Registration of Stock.......................................6
7. Miscellaneous........................................................6
7.1 Governing Law...............................................6
7.2 Survival; Additional Securities.............................6
7.3 Successors and Assigns......................................7
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
7.4 Entire Agreement............................................7
7.5 Notices.....................................................7
7.6 Amendments and Waivers......................................7
7.7 Legal Fees..................................................7
7.8 Expenses....................................................7
7.9 Titles and Subtitles........................................7
7.10 Counterparts................................................8
7.11 Severability................................................8
7.12 Confidentiality.............................................8
</TABLE>
Exhibit A....................................................................A-1
ii
<PAGE> 4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 18th day of
March 1998, by and between High Speed Access Corp., a Delaware corporation (the
"Company") and Cisco Systems, Inc., a Delaware corporation (the "Investor").
WHEREAS, the Investor has indicated a desire to purchase such
number of shares of Common Stock from the Company equal to Five Million Dollars
($5,000,000) divided by the price per share offered to the public, less any
underwriter discounts and commissions, in the Company's initial public offering
("IPO") and to have such shares registered under the Securities Act of 1933, as
amended (the "Securities Act") concurrently with the Company's IPO.
WHEREAS, the Company has indicated a desire to sell such
shares of Common Stock to the Investor and has agreed to register such shares
under the Securities Act on the terms set forth herein.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Stock. Subject to the terms and
conditions of this Agreement, the Company agrees to sell to the Investor and the
Investor agrees to purchase from the Company such number of shares of Common
Stock from the Company equal to Five Million Dollars ($5,000,000) divided by the
price per share offered to the public, less any underwriter discounts and
commissions, in the Company's IPO (the "Stock"), having the rights, preferences,
privileges and restrictions set forth in the form of Amended and Restated
Certificate of Incorporation of the Company (the "Restated Certificate") to be
filed with the Delaware Secretary of State prior to the Closing (as defined
below).
1.2 The Closing. The purchase and sale of the Stock shall
be held at the Company's offices concurrently with the closing of IPO or, if
later, upon satisfaction or waiver of each of the conditions set forth in
Sections 4 and 5 (the "Closing"). At the Closing, the Company will deliver the
Stock to the Investor against payment of the purchase price therefor by check
payable to the order of the Company or by wire transfer. The per share purchase
price for the Stock shall be equal to the per share price paid by the public for
the Company's Common Stock in the IPO, less any underwriter discounts and
commissions.
2. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Investor that:
2.1 Organization and Good Standing. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted.
2.2 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder, and the
<PAGE> 5
authorization, issuance and delivery of the Stock has been taken or will be
taken prior to the Closing, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and by general principles of
equity.
2.3 Valid Issuance of Stock. The Stock, when issued, sold
and delivered in accordance with the terms hereof for the consideration
expressed, will be duly and validly issued, fully paid and nonassessable and,
based in part upon the representations of the Investor in this Agreement, will
be issued in compliance with all applicable federal and state securities laws.
2.4 Litigation. Except as set forth in the Company's
registration statement prepared in connection with the IPO, as filed with the
Securities and Exchange Commission ("SEC") and amended from time to time (the
"Registration Statement"), there are no actions, proceedings or investigations
pending or, to the best of Company's knowledge, any basis therefor or threat
thereof, against or affecting the Company, that, either in any case or in the
aggregate, would result in any material adverse change in the business,
financial condition, or results of operations of the Company.
2.5 Properties. To the best of the Company's knowledge (but
without having conducted any special investigation), the Company has (i) good
and marketable title to its properties and assets and has good title to all its
leasehold interests, and (ii) sufficient title, license and/or ownership of all
patents, trademarks, service marks, trade names, copyrights, trade secrets,
information, proprietary rights and processes necessary for its business as now
conducted on the date hereof.
2.6 Compliance with Other Documents. The execution and
delivery of this Agreement, consummation of the transactions contemplated
hereby, and compliance with the terms and provisions hereof will not conflict
with or result in a breach of the terms and conditions of, or constitute a
default under the Restated Certificate or Bylaws of the Company or of any
contract or agreement to which the Company is now a party, except where such
conflict, breach or default of any such contract or agreement, either
individually or in the aggregate, would not have a material adverse effect on
the Company's business, financial condition or results of operations.
3. Representations and Warranties of the Investor. The
Investor hereby represents and warrants that:
3.1 Authorization. This Agreement constitutes the valid and
legally binding obligation of the Investor, enforceable in accordance with its
terms, subject to laws of general application relating to bankruptcy, insolvency
and the relief of debtors and by general principles of equity.
3.2 Investigation. The Investor acknowledges that it has
had an opportunity to discuss the business, affairs and current prospects of the
Company with the Company's Vice Chairman. The Investor further acknowledges
having had access to information about the Company that it has requested or
considers necessary for purposes of purchasing the Stock.
2
<PAGE> 6
3.3 Accredited Investor. The Investor is an "accredited
investor" as such term is defined in Regulation D adopted by the SEC.
3.4 Purchase Entirely for Own Account. This Agreement is
made with the Investor in reliance upon the Investor's representation to the
Company, which by the Investor's execution of this Agreement the Investor hereby
confirms, that the Stock will be acquired for investment for the Investor's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that the Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same.
4. Conditions to the Investor's Obligation at Closing. The
obligation of the Investor to purchase the Stock at the Closing is subject to
the fulfillment to the Investor's satisfaction on or prior to the Closing of the
following conditions:
4.1 Representations and Warranties. The representations and
warranties made by the Company in Section 2 hereof shall be true and correct
when made, and shall be true and correct as of the Closing with the same force
and effect as if they had been made on and as of such date, subject to changes
contemplated by this Agreement.
4.2 Securities Laws. The offer and sale of the Stock to the
Investor pursuant to this Agreement shall be either (i) registered under the
Securities Act, or (ii) exempt from the registration requirements of the
Securities Act and the registration and/or qualification requirements of all
applicable state securities laws.
4.3 Authorizations. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body that are
required in connection with the lawful issuance and sale of the Stock pursuant
to this Agreement (including, if applicable, the expiration of any waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act")) shall have been duly obtained and shall be effective on
and as of the Closing.
4.4 Initial Public Offering of Common Stock. The initial
public offering of the Company's Common Stock shall have occurred.
5. Conditions to the Company's Obligations at Closing. The
obligation of the Company to sell the Stock at the Closing is subject to the
fulfillment to the Company's satisfaction on or prior to the Closing of the
following conditions:
5.1 Representations and Warranties. The representations and
warranties of the Investor contained in Section 3 hereof shall be true as of the
Closing with the same force and effect as if they had been made on and as of
such date, subject to changes contemplated by this Agreement.
5.2 Securities Laws. The offer and sale of the Stock to the
Investor pursuant to this Agreement shall be either (i) registered under the
Securities Act, or (ii) exempt from the registration requirements of the
Securities Act and the registration and/or qualification requirements of all
applicable state securities laws.
3
<PAGE> 7
5.3 Authorizations. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body that are
required in connection with the lawful issuance and sale of the Stock pursuant
to this Agreement (including, if applicable, the expiration of any waiting
period under the HSR Act) shall have been duly obtained and shall be effective
on and as of the Closing.
5.4 Initial Public Offering of Common Stock. The initial
public offering of the Company's Common Stock shall have occurred.
5.5 Payment of Purchase Price. The Investor shall have
delivered to the Company the purchase price for the Stock as set forth in
Section 1.2 hereof.
6. Covenants of the Company and the Investor.
6.1 Agreement Not to Transfer.
(a) Prior to the date which is 180 days after the
Closing (the "Lockup Date"), the Investor shall not, directly or indirectly,
Transfer or offer to Transfer any shares of the Stock.
(b) Following the Lockup Date and prior to the first
anniversary of the Closing, the Investor shall not, directly or indirectly,
Transfer or offer to Transfer, in the aggregate, more than fifty percent (50%)
of the shares of the Stock during any one calendar quarter.
(c) Notwithstanding the foregoing restrictions on
Transfer (the "Transfer Restrictions"), the Transfer Restrictions shall be
ineffective in the event an unrelated third party has publicly announced and is
actively pursuing the purchase of all or substantially all of the assets or
capital stock of the Company or a merger in which the Company would not be the
surviving corporation; provided, that if such acquisition or merger is not
consummated within sixty days of such public announcement, the Transfer
Restrictions shall be reinstated.
(d) In order to enforce the Transfer Restrictions, the
Company may impose stop-transfer instructions with respect to the Stock until
the end of the restricted period.
(e) As used in this Agreement, the term "Transfer"
shall mean any sale, transfer, assignment, hypothecation, encumbrance or other
disposition, whether voluntary or involuntary, of shares of the Stock. In the
case of a hypothecation, the Transfer shall be deemed to occur both at the time
of the initial pledge and at any pledgee's sale or a sale by any secured
creditor or a retention by the secured creditor of the pledged shares of the
Stock in complete or partial satisfaction of the indebtedness for which the
shares of the Stock are security.
6.2 Market Stand-Off. In addition to the Transfer
Restrictions (which shall in no way be limited by the following), in connection
with any underwritten public offering by the Company of its equity securities
pursuant to an effective registration statement filed under the Securities Act,
the Investor shall not Transfer or offer to Transfer any shares of the Stock
4
<PAGE> 8
without the prior written consent of the Company and its underwriters. Such
restriction (the "Market Stand-Off") shall be in effect for such period of time
from and after the effective date of the final prospectus for the offering as
may be requested by the Company or such underwriters; provided, however, that
(i) such Market Stand-Off shall not exceed one hundred eighty (180) days, and
(ii) the Investor shall be subject to the Market Stand-Off only if the officers
and directors of the Company are also subject to similar restrictions. In order
to enforce the Market Stand-Off, the Company may impose stop-transfer
instructions with respect to the Stock until the end of the applicable stand-off
period.
6.3 Notice of Intention to Transfer. On or prior to the
third anniversary of the Closing, in the event the Investor plans to Transfer in
the aggregate more than twenty percent (20%) of the shares of the Stock in one
or more transactions during any three (3) month period, the Investor shall use
its best efforts to inform the Company of such intention to Transfer such shares
ten (10) days prior to such Transfer.
6.4 Standstill. The Investor agrees that, prior to the
third anniversary of the Closing, unless specifically invited by the Company,
the Investor will not, in any manner, directly or indirectly, effect any
acquisition of Voting Securities (as hereinafter defined), or beneficial
ownership thereof if, immediately after any such acquisition, the Investor would
beneficially own, in the aggregate, Voting Securities representing more than ten
percent (10%) of the outstanding Common Stock of the Company. The Investor also
agrees during such period not to make any public request (or publicize any
request) of the Company (or its directors, officers, employees or agents),
directly or indirectly, to amend or waive any provision of this Section 6.4
(including this sentence). The Investor also agrees not to form, join or in any
way participate in a "group" (as defined under the Securities Exchange Act of
1934, as amended (the "Exchange Act")), or take any other action, in order to
circumvent the provisions of this Section 6.4.
For purposes of this Agreement, (i) the term "Voting
Securities" shall refer to all securities of the Company entitled to vote
generally for the election of directors, and (ii) the term "beneficial
ownership" shall have the meaning set forth in Rule 13d-3 under the Exchange
Act.
The restrictions set forth in this Section 6.4 shall be
ineffective upon the occurrence of either of the following events: (i) an
unrelated third party has publicly announced and is actively pursuing the
purchase of all or substantially all of the assets or capital stock of the
Company or a merger in which the Company would not be the surviving corporation;
or (ii) an officer of the Company, duly authorized by the Company's Board of
Directors, has informed the Investor in writing of the Company's potential
interest in entering into a sale of all or substantially all of its assets or
stock or a merger in which the Company would not be the surviving corporation;
provided, however, that if such acquisition, merger or sale is not consummated
within sixty days of such public announcement (in the case of clause (i)) or of
such notice in writing (in the case of clause (ii)), the restrictions set forth
in this Section 6.4 shall be reinstated.
6.5 Voting Agreements. For a period ending on the seventh
anniversary of the Closing, the Investor agrees to vote all shares of Voting
Securities owned by it (i) in each election of directors for the entire slate of
nominees recommended by the Company's
5
<PAGE> 9
Board of Directors to the Company's shareholders and (ii) on all other matters
to be voted on by holders of Voting Securities, unless the Company otherwise
consents in writing, in the same proportion as the votes cast by all other
shareholders of the Company entitled to vote on such matter (other than the
Investor). The Investor, as a holder of Voting Securities, shall be present, in
person or by proxy, at all meetings of shareholders of the Company so that all
shares of Voting Securities beneficially owned by it may be counted for the
purpose of determining the presence of a quorum at such meetings.
The voting agreements set forth in this Section 6.5 shall
terminate immediately if an unrelated third party has publicly announced and is
actively pursuing the purchase of all or substantially all of the assets or
capital stock of the Company or a merger in which the Company would not be the
surviving corporation; provided, however, that if such acquisition, merger or
sale is not consummated within sixty days of such public announcement, the
voting agreements set forth in this Section 6.5 shall be reinstated.
6.6 Hart-Scott-Rodino. The Company and the Investor will
assist and cooperate with each other regarding any filings required under the
HSR Act and any other applicable laws and regulations. The Company and the
Investor each agree to make any HSR Act and other filings promptly upon the
other's request.
6.7 Registration of Stock. The Company agrees that, to the
extent allowed by the SEC, it will register the Stock in the IPO. If the Company
is not able to register the Stock in the IPO, the Company agrees that, upon
request by the Investor, it will effect registration of the Stock in accordance
with the provisions contained in Exhibit A attached hereto. If the Company is
not able to register the Stock in the IPO, the Investor understands and agrees
that (i) the Stock will be characterized as "restricted securities" under the
federal securities laws inasmuch as it is being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act only in certain limited circumstances, and (ii) each
certificate representing the Stock and any other securities issued in respect of
the Stock upon any stock split, stock dividend, recapitalization, merger or
similar event (unless no longer required in the opinion of counsel for the
Company) shall be stamped or otherwise imprinted with appropriate legends
mandated by federal and state securities laws.
7. Miscellaneous.
7.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California, without regard to the conflict of law provisions thereof.
7.2 Survival; Additional Securities. The representations
and warranties set forth in Sections 2 and 3 shall survive until the Closing.
The covenants and agreements set forth in Section 6 shall survive in accordance
with their terms. Any new, substituted or additional securities which are by
reason of any stock split, stock dividend, recapitalization or reorganization
distributed with respect to the Stock ("Stock Distributions")
6
<PAGE> 10
shall be immediately subject to the covenants and agreements set forth in
Section 6 to the same extent the Stock is at such time covered by such
provisions.
7.3 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the respective successors and assigns of the parties hereto.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement. Notwithstanding
anything to the contrary contained herein, the covenants set forth in Section 6
shall not be binding upon any entity (other than an affiliate of the Investor)
which acquires any shares of the Stock or a Stock Distribution in a transaction
permitted hereunder.
7.4 Entire Agreement. This Agreement constitutes the entire
understanding and agreement between the parties with regard to the subject
matter hereof.
7.5 Notices. Except as otherwise provided, all notices and
other communications required or permitted hereunder shall be in writing, shall
be effective when given, and shall in any event be deemed to be given upon
receipt or, if earlier, (i) five (5) days after deposit with the U.S. postal
service or other applicable postal service, if delivered by first class mail,
postage prepaid, (ii) upon delivery, if delivered by hand, (iii) one (1)
business day after the day of deposit with Federal Express or similar overnight
courier, freight prepaid, if delivered by overnight courier or (iv) one (1)
business day after the day of facsimile transmission, if delivered by facsimile
transmission with copy by first class mail, postage prepaid, and shall be
addressed, (a) if to the Investor, at the Investor's address set forth below its
signature, or at such other address as the Investor shall have furnished to the
Company in writing, or (b) if to the Company, at its address as set forth below
its signature, or at such other address as the Company shall have furnished to
the Investor in writing.
7.6 Amendments and Waivers. Any term of this Agreement may
be amended and the observance of any term of the Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only with the written consent of the Company and the Investor.
7.7 Legal Fees. In the event of any action at law, suit in
equity or arbitration proceeding in relation to this Agreement or the Stock or
any Stock Distribution, the prevailing party shall be paid by the other party a
reasonable sum for the attorneys' fees and expenses incurred by such prevailing
party.
7.8 Expenses. Irrespective of whether the Closing is
effected, the Company and the Investor shall each pay their own costs and
expenses incurred with respect to the negotiation, execution, delivery and
performance of this Agreement.
7.9 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
7
<PAGE> 11
7.10 Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.11 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
7.12 Confidentiality. The parties hereto agree that, except
with the prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish, or make accessible to anyone any
confidential information, knowledge, or data concerning or relating to the
business or financial affairs of such other party to which said party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, or the performance of its obligations hereunder.
[SIGNATURE PAGE TO FOLLOW]
8
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year hereinabove first written.
HIGH SPEED ACCESS CORP.
4100 East Mississippi Avenue
Denver, CO 80246
Attn: Ron Pitcock, Sr., President
/s/ ROBERT SAUNDERS
- -------------------------------------
By: Robert Saunders, Vice Chairman
CISCO SYSTEMS, INC.
170 W. Tasman Drive
San Jose, CA 95134
Attn: Dan Scheinman, General Counsel
/s/ CISCO SYSTEMS, INC.
- -------------------------------------
By:
9
<PAGE> 13
EXHIBIT A
1. Registration Rights. The Company covenants and agrees as
follows:
1.1 Definitions. For purposes of this Exhibit A,
capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Stock Purchase Agreement between the Company and the
Investor to which this Exhibit A is attached. In addition, the following terms
used herein shall have the following meanings:
(a) The term "Form S-1" means such form under the Act
as in effect on the date hereof or any registration form under the Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(b) The term "Form S-3" means such form under the Act
as in effect on the date hereof or any registration form under the Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(c) The term "1934 Act" means the Securities Exchange
Act of 1934, as amended.
(d) The term "register", "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration statement or
document.
1.2 Request for Registration. If the Company shall receive,
at any time after one year following the Closing, a written request from the
Investor that the Company effect a registration on a Form S-3 and any related
qualification or compliance with respect to the Stock, then the Company shall,
as expeditiously as reasonably possible, effect the registration of all, but not
less than all, such Stock on Form S-3 and all such qualifications and
compliances as may be so requested and as would permit or facilitate the sale
and distribution of all of the Stock. The Company shall have no obligation to
effect any registration of less than all of the Stock.
(a) Notwithstanding anything to the contrary in this
Section 1.2, the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this Section 1.2: (i) if the Company
shall furnish to the Investor a certificate signed by the President of the
Company stating that, in the good faith judgment of the Board of Directors of
the Company, such registration should be deferred due to material events
directly relating to the Company, in which event the Company shall have the
right to defer the filing of the Form S-3 for a period of not more than 90 days
after receipt of the request of the Investor under this Section 1.2 (provided,
however, that the Company may defer such registration only once); or (ii) in any
particular jurisdiction in which the Company would be
A-1
<PAGE> 14
required to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance.
(b) If Form S-3 is not available to the Company to
effect the registration of the Stock as contemplated by this Section 1.2, then
(i) the Company shall effect such registration on Form S-1 and (ii) in such
event, all references in this Section 1 to Form S-3 shall be read as references
to Form S-1.
(c) The Company shall not be obligated to effect, or to
take any action to effect, any registration pursuant to this Section 1.2 after
the earlier to occur of the following events: (i) the Company has effected one
registration pursuant to this Section 1.2, and such registration has been
declared or ordered effective and otherwise satisfies and continues to satisfy
the terms and conditions of this Section 1.2; or (ii) the Company has
voluntarily effected the registration of all of the Stock without having first
received a request for such registration pursuant to this Section 1.2 (a
"Voluntary Registration"), and such Voluntary Registration has been declared or
ordered effective and otherwise satisfies and continues to satisfy the terms and
conditions of this Section 1.2.
1.3 Obligations of the Company. Whenever required under
Section 1.2 to effect the registration on Form S-3 of the Stock, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a Form S-3 with
respect to such Stock and use its best efforts to cause such registration
statement to become effective as soon as reasonably practicable after the
mailing of the request for such registration but in no event later than ninety
(90) days after such mailing. The Company shall keep such registration statement
effective until the earlier of (i) two (2) years after the Closing, (ii) the
distribution of all of the Stock as contemplated in the registration statement
has been completed, and (iii) the date which all shares of the Stock held by the
Investor may immediately be sold under Rule 144 during any 90-day period.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Investor such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as the Investor may reasonably
request in order to facilitate the disposition of the Stock.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Investor; provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
A-2
<PAGE> 15
(e) Notify the Investor covered by such registration
statement at any time when a prospectus relating thereto is required to be
delivered under the Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(f) Cause all such Stock registered pursuant hereunder
to be listed on each securities exchange on which similar securities issued by
the Company are then listed.
(g) Provide a transfer agent and registrar for all of
the Stock registered pursuant hereunder and a CUSIP number for all such Stock,
in each case not later than the effective date of such registration.
1.4 Investor Obligation to Furnish Information. It shall be
a condition precedent to the obligations of the Company to take any action
pursuant hereto with respect to the Stock that the Investor shall furnish to the
Company such information regarding itself, the Stock, and the intended method of
disposition of such securities as shall be required to effect the registration
of such Stock.
1.5 Expenses of Registration. All expenses incurred in
connection with registrations, filings or qualifications pursuant hereto,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the Company
(including fees and disbursements of counsel for the Company in its capacity as
counsel to the Investor hereunder but excluding the fees and disbursements of
any other counsel for the Investor) shall be borne by the Company; provided,
however, that the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant hereto if the registration request is
subsequently withdrawn at the request of the Investor, unless the Investor
agrees to forfeit its right to any demand registration pursuant hereto; provided
further, however, that if at the time of such withdrawal, the Investor has
learned of a material adverse change in the condition, business, or prospects of
the Company from that known to the Investor at the time of its request and has
withdrawn the request with reasonable promptness following disclosure by the
Company of such material adverse change, then the Investor shall not be required
to pay any of such expenses and shall retain its right of registration pursuant
to Section 1.2.
1.6 Indemnification. In the event any Stock is included in
a registration statement under Section 1.2:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless the Investor, any underwriter (as defined in the
Act) for the Investor and each person, if any, who controls the Investor or
underwriter within the meaning of the Act or the 1934 Act, against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"):
A-3
<PAGE> 16
(i) any untrue statement or alleged untrue statement of a material fact
contained in such registration statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements thereto,
(ii) the omission or alleged omission to state therein a material fact required
to be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of the
Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the Act, the 1934 Act or any state securities law; and the
Company will pay to the Investor, or such underwriter or controlling person, as
incurred, any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
subsection (a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability, or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Investor, underwriter or controlling person.
(b) To the extent permitted by law, the Investor will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, and any
controlling person of any such underwriter, against any losses, claims, damages,
or liabilities (joint or several) to which any of the foregoing persons may
become subject, under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Investor expressly for
use in connection with such registration; and each such Investor will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection (b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection (b)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Investor, which consent shall not be unreasonably withheld; provided, that, in
no event shall any indemnity under this subsection (b) exceed the gross proceeds
from the offering received by the Investor.
(c) Promptly after receipt by an indemnified party
under this Section 1.6 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.6,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party
A-4
<PAGE> 17
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 1.6, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 1.6.
(d) If the indemnification provided for in this Section
1.6 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in an underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and the Investor
under this Section 1.6 shall survive the completion of any offering of the Stock
in a registration statement pursuant hereto, and otherwise.
1.7 Termination. The Company's obligation to register the
Stock pursuant to this agreement shall terminate on the earlier of (i) the
second anniversary of the Closing and (ii) the date on which all shares of the
Stock held by the Investor may immediately be sold under Rule 144 during any
90-day period.
A-5
<PAGE> 18
AMENDMENT TO STOCK PURCHASE AGREEMENT
This Amendment to Stock Purchase Agreement is made as of the
3rd day of May, 1999 by and between High Speed Access Corp., a Delaware
corporation (the "Company") and Cisco Systems, Inc., a Delaware corporation (the
"Investor").
WHEREAS, Company and Investor have executed a Stock Purchase
Agreement dated March 18, 1999 (the "Original Agreement").
WHEREAS, Investor and Company wish to increase the purchase
amount from Five Million Dollars ($5,000,000) to Seven Million Five Hundred
Thousand Dollars ($7,500,000).
NOW THEREFORE, the parties hereby agree as follows:
1. Amendment. Where the phrase "Five Million Dollars
($5,000,000)" appears on two places on page 1 of the Original Agreement, it
shall be replaced by the phrase "Seven Million Five Hundred Thousand Dollars
($7,500,000)".
2. No Other Change. All other terms and conditions of the
Original Agreement shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment to Stock Purchase Agreement as of the day and year hereinabove first
written.
HIGH SPEED ACCESS CORP.
4100 East Mississippi Avenue
Denver, CO 80246
Attn: Ron Pitcock, Sr., President
/s/ ROBERT SAUNDERS
- ---------------------------------------
By: Robert Saunders, Vice Chairman
CISCO SYSTEMS, INC.
170 W. Tasman Drive
San Jose, CA 95134
Attn: Dan Scheinman, General Counsel
/s/ CISCO SYSTEMS, INC.
- ---------------------------------------
By:
------------------------------------
<PAGE> 1
EXHIBIT 1.3
HIGH SPEED ACCESS CORP.
STOCK PURCHASE AGREEMENT
APRIL 15, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Purchase and Sale of Stock..........................................1
1.1 Sale and Issuance of Stock.................................1
1.2 The Closing................................................1
2. Representations and Warranties of the Company.......................1
2.1 Organization and Good Standing.............................1
2.2 Authorization..............................................1
2.3 Valid Issuance of Stock....................................2
2.4 Litigation.................................................2
2.5 Properties.................................................2
2.6 Compliance with Other Documents............................2
3. Representations and Warranties of the Investor......................2
3.1 Authorization..............................................2
3.2 Investigation..............................................2
3.3 Accredited Investor........................................3
3.4 Purchase Entirely for Own Account..........................3
4. Conditions to the Investor's Obligation at Closing..................3
4.1 Representations and Warranties.............................3
4.2 Securities Laws............................................3
4.3 Authorizations.............................................3
4.4 Initial Public Offering of Common Stock....................3
5. Conditions to the Company's Obligations at Closing..................3
5.1 Representations and Warranties.............................3
5.2 Securities Laws............................................3
5.3 Authorizations.............................................4
5.4 Initial Public Offering of Common Stock....................4
5.5 Payment of Purchase Price..................................4
6. Covenants of the Company and the Investor...........................4
6.1 Agreement Not to Transfer..................................4
6.2 Market Stand-Off...........................................4
6.3 Notice of Intention to Transfer............................5
6.4 Standstill.................................................5
6.5 Voting Agreements..........................................5
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
6.6 Hart-Scott-Rodino..........................................6
6.7 Registration of Stock......................................6
7. Miscellaneous.......................................................6
7.1 Governing Law..............................................6
7.2 Survival; Additional Securities............................6
7.3 Successors and Assigns.....................................7
7.4 Entire Agreement...........................................7
7.5 Notices....................................................7
7.6 Amendments and Waivers.....................................7
7.7 Legal Fees.................................................7
7.8 Expenses...................................................7
7.9 Titles and Subtitles.......................................7
7.10 Counterparts...............................................8
7.11 Severability...............................................8
7.12 Confidentiality............................................8
</TABLE>
Exhibit A...................................................................A-1
ii
<PAGE> 4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 15th day of
April 1999 by and between High Speed Access Corp., a Delaware corporation (the
"Company") and COM21, Inc., a Delaware corporation (the "Investor").
WHEREAS, the Investor has indicated a desire to purchase such
number of shares of Common Stock from the Company equal to One Million Dollars
($1,000,000) divided by the price per share offered to the public, less any
underwriter discounts and commissions, in the Company's initial public offering
("IPO") and to have such shares registered under the Securities Act of 1933, as
amended (the "Securities Act") concurrently with the Company's IPO.
WHEREAS, the Company has indicated a desire to sell such
shares of Common Stock to the Investor and has agreed to register such shares
under the Securities Act on the terms set forth herein.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Stock. Subject to the terms and
conditions of this Agreement, the Company agrees to sell to the Investor and the
Investor agrees to purchase from the Company such number of shares of Common
Stock from the Company equal to One Million Dollars ($1,000,000) divided by the
price per share offered to the public, less any underwriter discounts and
commissions, in the Company's IPO (the "Stock"), having the rights, preferences,
privileges and restrictions set forth in the form of Amended and Restated
Certificate of Incorporation of the Company (the "Restated Certificate") to be
filed with the Delaware Secretary of State prior to the Closing (as defined
below).
1.2 The Closing. The purchase and sale of the Stock shall
be held at the Company's offices concurrently with the closing of IPO or, if
later, upon satisfaction or waiver of each of the conditions set forth in
Sections 4 and 5 (the "Closing"). At the Closing, the Company will deliver the
Stock to the Investor against payment of the purchase price therefor by check
payable to the order of the Company or by wire transfer. The per share purchase
price for the Stock shall be equal to the per share price paid by the public for
the Company's Common Stock in the IPO, less any underwriter discounts and
commissions.
2. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Investor that:
2.1 Organization and Good Standing. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted.
2.2 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder, and the
<PAGE> 5
authorization, issuance and delivery of the Stock has been taken or will be
taken prior to the Closing, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and by general principles of
equity.
2.3 Valid Issuance of Stock. The Stock, when issued, sold
and delivered in accordance with the terms hereof for the consideration
expressed, will be duly and validly issued, fully paid and nonassessable and,
based in part upon the representations of the Investor in this Agreement, will
be issued in compliance with all applicable federal and state securities laws.
2.4 Litigation. Except as set forth in the Company's
registration statement prepared in connection with the IPO, as filed with the
Securities and Exchange Commission ("SEC") and amended from time to time (the
"Registration Statement"), there are no actions, proceedings or investigations
pending or, to the best of Company's knowledge, any basis therefor or threat
thereof, against or affecting the Company, that, either in any case or in the
aggregate, would result in any material adverse change in the business,
financial condition, or results of operations of the Company.
2.5 Properties. To the best of the Company's knowledge (but
without having conducted any special investigation), the Company has (i) good
and marketable title to its properties and assets and has good title to all its
leasehold interests, and (ii) sufficient title, license and/or ownership of all
patents, trademarks, service marks, trade names, copyrights, trade secrets,
information, proprietary rights and processes necessary for its business as now
conducted on the date hereof.
2.6 Compliance with Other Documents. The execution and
delivery of this Agreement, consummation of the transactions contemplated
hereby, and compliance with the terms and provisions hereof will not conflict
with or result in a breach of the terms and conditions of, or constitute a
default under the Restated Certificate or Bylaws of the Company or of any
contract or agreement to which the Company is now a party, except where such
conflict, breach or default of any such contract or agreement, either
individually or in the aggregate, would not have a material adverse effect on
the Company's business, financial condition or results of operations.
3. Representations and Warranties of the Investor. The
Investor hereby represents and warrants that:
3.1 Authorization. This Agreement constitutes the valid and
legally binding obligation of the Investor, enforceable in accordance with its
terms, subject to laws of general application relating to bankruptcy, insolvency
and the relief of debtors and by general principles of equity.
3.2 Investigation. The Investor acknowledges that it has
had an opportunity to discuss the business, affairs and current prospects of the
Company with the Company's Vice Chairman. The Investor further acknowledges
having had access to information about the Company that it has requested or
considers necessary for purposes of purchasing the Stock.
2
<PAGE> 6
3.3 Accredited Investor. The Investor is an "accredited
investor" as such term is defined in Regulation D adopted by the SEC.
3.4 Purchase Entirely for Own Account. This Agreement is
made with the Investor in reliance upon the Investor's representation to the
Company, which by the Investor's execution of this Agreement the Investor hereby
confirms, that the Stock will be acquired for investment for the Investor's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that the Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same.
4. Conditions to the Investor's Obligation at Closing. The
obligation of the Investor to purchase the Stock at the Closing is subject to
the fulfillment to the Investor's satisfaction on or prior to the Closing of the
following conditions:
4.1 Representations and Warranties. The representations and
warranties made by the Company in Section 2 hereof shall be true and correct
when made, and shall be true and correct as of the Closing with the same force
and effect as if they had been made on and as of such date, subject to changes
contemplated by this Agreement.
4.2 Securities Laws. The offer and sale of the Stock to the
Investor pursuant to this Agreement shall be either (i) registered under the
Securities Act, or (ii) exempt from the registration requirements of the
Securities Act and the registration and/or qualification requirements of all
applicable state securities laws.
4.3 Authorizations. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body that are
required in connection with the lawful issuance and sale of the Stock pursuant
to this Agreement (including, if applicable, the expiration of any waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act")) shall have been duly obtained and shall be effective on
and as of the Closing.
4.4 Initial Public Offering of Common Stock. The initial
public offering of the Company's Common Stock shall have occurred.
5. Conditions to the Company's Obligations at Closing. The
obligation of the Company to sell the Stock at the Closing is subject to the
fulfillment to the Company's satisfaction on or prior to the Closing of the
following conditions:
5.1 Representations and Warranties. The representations and
warranties of the Investor contained in Section 3 hereof shall be true as of the
Closing with the same force and effect as if they had been made on and as of
such date, subject to changes contemplated by this Agreement.
5.2 Securities Laws. The offer and sale of the Stock to the
Investor pursuant to this Agreement shall be either (i) registered under the
Securities Act, or (ii) exempt from the registration requirements of the
Securities Act and the registration and/or qualification requirements of all
applicable state securities laws.
3
<PAGE> 7
5.3 Authorizations. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body that are
required in connection with the lawful issuance and sale of the Stock pursuant
to this Agreement (including, if applicable, the expiration of any waiting
period under the HSR Act) shall have been duly obtained and shall be effective
on and as of the Closing.
5.4 Initial Public Offering of Common Stock. The initial
public offering of the Company's Common Stock shall have occurred.
5.5 Payment of Purchase Price. The Investor shall have
delivered to the Company the purchase price for the Stock as set forth in
Section 1.2 hereof.
6. Covenants of the Company and the Investor.
6.1 Agreement Not to Transfer.
(a) Prior to the date which is 180 days after the
Closing (the "Lockup Date"), the Investor shall not, directly or indirectly,
Transfer or offer to Transfer any shares of the Stock.
(b) Following the Lockup Date and prior to the first
anniversary of the Closing, the Investor shall not, directly or indirectly,
Transfer or offer to Transfer, in the aggregate, more than fifty percent (50%)
of the shares of the Stock during any one calendar quarter.
(c) Notwithstanding the foregoing restrictions on
Transfer (the "Transfer Restrictions"), the Transfer Restrictions shall be
ineffective in the event an unrelated third party has publicly announced and is
actively pursuing the purchase of all or substantially all of the assets or
capital stock of the Company or a merger in which the Company would not be the
surviving corporation; provided, that if such acquisition or merger is not
consummated within sixty days of such public announcement, the Transfer
Restrictions shall be reinstated.
(d) In order to enforce the Transfer Restrictions, the
Company may impose stop-transfer instructions with respect to the Stock until
the end of the restricted period.
(e) As used in this Agreement, the term "Transfer"
shall mean any sale, transfer, assignment, hypothecation, encumbrance or other
disposition, whether voluntary or involuntary, of shares of the Stock. In the
case of a hypothecation, the Transfer shall be deemed to occur both at the time
of the initial pledge and at any pledgee's sale or a sale by any secured
creditor or a retention by the secured creditor of the pledged shares of the
Stock in complete or partial satisfaction of the indebtedness for which the
shares of the Stock are security.
6.2 Market Stand-Off. In addition to the Transfer
Restrictions (which shall in no way be limited by the following), in connection
with any underwritten public offering by the Company of its equity securities
pursuant to an effective registration statement filed under the Securities Act,
the Investor shall not Transfer or offer to Transfer any shares of the Stock
4
<PAGE> 8
without the prior written consent of the Company and its underwriters. Such
restriction (the "Market Stand-Off") shall be in effect for such period of time
from and after the effective date of the final prospectus for the offering as
may be requested by the Company or such underwriters; provided, however, that
(i) such Market Stand-Off shall not exceed one hundred eighty (180) days, and
(ii) the Investor shall be subject to the Market Stand-Off only if the officers
and directors of the Company are also subject to similar restrictions. In order
to enforce the Market Stand-Off, the Company may impose stop-transfer
instructions with respect to the Stock until the end of the applicable stand-off
period.
6.3 Notice of Intention to Transfer. On or prior to the
third anniversary of the Closing, in the event the Investor plans to Transfer in
the aggregate more than twenty percent (20%) of the shares of the Stock in one
or more transactions during any three (3) month period, the Investor shall use
its best efforts to inform the Company of such intention to Transfer such shares
ten (10) days prior to such Transfer.
6.4 Standstill. The Investor agrees that, prior to the
third anniversary of the Closing, unless specifically invited by the Company,
the Investor will not, in any manner, directly or indirectly, effect any
acquisition of Voting Securities (as hereinafter defined), or beneficial
ownership thereof if, immediately after any such acquisition, the Investor would
beneficially own, in the aggregate, Voting Securities representing more than ten
percent (10%) of the outstanding Common Stock of the Company. The Investor also
agrees during such period not to make any public request (or publicize any
request) of the Company (or its directors, officers, employees or agents),
directly or indirectly, to amend or waive any provision of this Section 6.4
(including this sentence). The Investor also agrees not to form, join or in any
way participate in a "group" (as defined under the Securities Exchange Act of
1934, as amended (the "Exchange Act")), or take any other action, in order to
circumvent the provisions of this Section 6.4.
For purposes of this Agreement, (i) the term "Voting
Securities" shall refer to all securities of the Company entitled to vote
generally for the election of directors, and (ii) the term "beneficial
ownership" shall have the meaning set forth in Rule 13d-3 under the Exchange
Act.
The restrictions set forth in this Section 6.4 shall be
ineffective upon the occurrence of either of the following events: (i) an
unrelated third party has publicly announced and is actively pursuing the
purchase of all or substantially all of the assets or capital stock of the
Company or a merger in which the Company would not be the surviving corporation;
or (ii) an officer of the Company, duly authorized by the Company's Board of
Directors, has informed the Investor in writing of the Company's potential
interest in entering into a sale of all or substantially all of its assets or
stock or a merger in which the Company would not be the surviving corporation;
provided, however, that if such acquisition, merger or sale is not consummated
within sixty days of such public announcement (in the case of clause (i)) or of
such notice in writing (in the case of clause (ii)), the restrictions set forth
in this Section 6.4 shall be reinstated.
6.5 Voting Agreements. For a period ending on the seventh
anniversary of the Closing, the Investor agrees to vote all shares of Voting
Securities owned by it (i) in each election of directors for the entire slate of
nominees recommended by the Company's
5
<PAGE> 9
Board of Directors to the Company's shareholders and (ii) on all other matters
to be voted on by holders of Voting Securities, unless the Company otherwise
consents in writing, in the same proportion as the votes cast by all other
shareholders of the Company entitled to vote on such matter (other than the
Investor). The Investor, as a holder of Voting Securities, shall be present, in
person or by proxy, at all meetings of shareholders of the Company so that all
shares of Voting Securities beneficially owned by it may be counted for the
purpose of determining the presence of a quorum at such meetings.
The voting agreements set forth in this Section 6.5 shall
terminate immediately if an unrelated third party has publicly announced and is
actively pursuing the purchase of all or substantially all of the assets or
capital stock of the Company or a merger in which the Company would not be the
surviving corporation; provided, however, that if such acquisition, merger or
sale is not consummated within sixty days of such public announcement, the
voting agreements set forth in this Section 6.5 shall be reinstated.
6.6 Hart-Scott-Rodino. The Company and the Investor will
assist and cooperate with each other regarding any filings required under the
HSR Act and any other applicable laws and regulations. The Company and the
Investor each agree to make any HSR Act and other filings promptly upon the
other's request.
6.7 Registration of Stock. The Company agrees that, to the
extent allowed by the SEC, it will register the Stock in the IPO. If the Company
is not able to register the Stock in the IPO, the Company agrees that, upon
request by the Investor, it will effect registration of the Stock in accordance
with the provisions contained in Exhibit A attached hereto. If the Company is
not able to register the Stock in the IPO, the Investor understands and agrees
that (i) the Stock will be characterized as "restricted securities" under the
federal securities laws inasmuch as it is being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act only in certain limited circumstances, and (ii) each
certificate representing the Stock and any other securities issued in respect of
the Stock upon any stock split, stock dividend, recapitalization, merger or
similar event (unless no longer required in the opinion of counsel for the
Company) shall be stamped or otherwise imprinted with appropriate legends
mandated by federal and state securities laws.
7. Miscellaneous.
7.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California, without regard to the conflict of law provisions thereof.
7.2 Survival; Additional Securities. The representations
and warranties set forth in Sections 2 and 3 shall survive until the Closing.
The covenants and agreements set forth in Section 6 shall survive in accordance
with their terms. Any new, substituted or additional securities which are by
reason of any stock split, stock dividend, recapitalization or reorganization
distributed with respect to the Stock ("Stock Distributions")
6
<PAGE> 10
shall be immediately subject to the covenants and agreements set forth in
Section 6 to the same extent the Stock is at such time covered by such
provisions.
7.3 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the respective successors and assigns of the parties hereto.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement. Notwithstanding
anything to the contrary contained herein, the covenants set forth in Section 6
shall not be binding upon any entity (other than an affiliate of the Investor)
which acquires any shares of the Stock or a Stock Distribution in a transaction
permitted hereunder.
7.4 Entire Agreement. This Agreement constitutes the entire
understanding and agreement between the parties with regard to the subject
matter hereof.
7.5 Notices. Except as otherwise provided, all notices and
other communications required or permitted hereunder shall be in writing, shall
be effective when given, and shall in any event be deemed to be given upon
receipt or, if earlier, (i) five (5) days after deposit with the U.S. postal
service or other applicable postal service, if delivered by first class mail,
postage prepaid, (ii) upon delivery, if delivered by hand, (iii) one (1)
business day after the day of deposit with Federal Express or similar overnight
courier, freight prepaid, if delivered by overnight courier or (iv) one (1)
business day after the day of facsimile transmission, if delivered by facsimile
transmission with copy by first class mail, postage prepaid, and shall be
addressed, (a) if to the Investor, at the Investor's address set forth below its
signature, or at such other address as the Investor shall have furnished to the
Company in writing, or (b) if to the Company, at its address as set forth below
its signature, or at such other address as the Company shall have furnished to
the Investor in writing.
7.6 Amendments and Waivers. Any term of this Agreement may
be amended and the observance of any term of the Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only with the written consent of the Company and the Investor.
7.7 Legal Fees. In the event of any action at law, suit in
equity or arbitration proceeding in relation to this Agreement or the Stock or
any Stock Distribution, the prevailing party shall be paid by the other party a
reasonable sum for the attorneys' fees and expenses incurred by such prevailing
party.
7.8 Expenses. Irrespective of whether the Closing is
effected, the Company and the Investor shall each pay their own costs and
expenses incurred with respect to the negotiation, execution, delivery and
performance of this Agreement.
7.9 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
7
<PAGE> 11
7.10 Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.11 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
7.12 Confidentiality. The parties hereto agree that, except
with the prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish, or make accessible to anyone any
confidential information, knowledge, or data concerning or relating to the
business or financial affairs of such other party to which said party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, or the performance of its obligations hereunder.
[SIGNATURE PAGE TO FOLLOW]
8
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year hereinabove first written.
HIGH SPEED ACCESS CORP.
4100 East Mississippi Avenue
Denver, CO 80246
Attn: Ron Pitcock, Sr., President
/s/ Robert Saunders
- --------------------------------------
By: Robert Saunders, Vice Chairman
COM21, INC.
750 Tasman Drive
Milpitas, CA 95035
/s/ David Robertson
- --------------------------------------
By: David Robertson, CFO
9
<PAGE> 13
EXHIBIT A
1. Registration Rights. The Company covenants and agrees as
follows:
1.1 Definitions. For purposes of this Exhibit A,
capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Stock Purchase Agreement between the Company and the
Investor to which this Exhibit A is attached. In addition, the following terms
used herein shall have the following meanings:
(a) The term "Form S-1" means such form under the Act
as in effect on the date hereof or any registration form under the Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(b) The term "Form S-3" means such form under the Act
as in effect on the date hereof or any registration form under the Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(c) The term "1934 Act" means the Securities Exchange
Act of 1934, as amended.
(d) The term "register", "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration statement or
document.
1.2 Request for Registration. If the Company shall receive,
at any time after one year following the Closing, a written request from the
Investor that the Company effect a registration on a Form S-3 and any related
qualification or compliance with respect to the Stock, then the Company shall,
as expeditiously as reasonably possible, effect the registration of all, but not
less than all, such Stock on Form S-3 and all such qualifications and
compliances as may be so requested and as would permit or facilitate the sale
and distribution of all of the Stock. The Company shall have no obligation to
effect any registration of less than all of the Stock.
(a) Notwithstanding anything to the contrary in this
Section 1.2, the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this Section 1.2: (i) if the Company
shall furnish to the Investor a certificate signed by the President of the
Company stating that, in the good faith judgment of the Board of Directors of
the Company, such registration should be deferred due to material events
directly relating to the Company, in which event the Company shall have the
right to defer the filing of the Form S-3 for a period of not more than 90 days
after receipt of the request of the Investor under this Section 1.2 (provided,
however, that the Company may defer such registration only once); or (ii) in any
particular jurisdiction in which the Company would be required to qualify to do
business or to execute a general consent to service of process in effecting such
registration, qualification or compliance.
A-1
<PAGE> 14
(b) If Form S-3 is not available to the Company to
effect the registration of the Stock as contemplated by this Section 1.2, then
(i) the Company shall effect such registration on Form S-1 and (ii) in such
event, all references in this Section 1 to Form S-3 shall be read as references
to Form S-1.
(c) The Company shall not be obligated to effect, or to
take any action to effect, any registration pursuant to this Section 1.2 after
the earlier to occur of the following events: (i) the Company has effected one
registration pursuant to this Section 1.2, and such registration has been
declared or ordered effective and otherwise satisfies and continues to satisfy
the terms and conditions of this Section 1.2; or (ii) the Company has
voluntarily effected the registration of all of the Stock without having first
received a request for such registration pursuant to this Section 1.2 (a
"Voluntary Registration"), and such Voluntary Registration has been declared or
ordered effective and otherwise satisfies and continues to satisfy the terms and
conditions of this Section 1.2.
1.3 Obligations of the Company. Whenever required under
Section 1.2 to effect the registration on Form S-3 of the Stock, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a Form S-3 with
respect to such Stock and use its best efforts to cause such registration
statement to become effective as soon as reasonably practicable after the
mailing of the request for such registration but in no event later than ninety
(90) days after such mailing. The Company shall keep such registration statement
effective until the earlier of (i) two (2) years after the Closing, (ii) the
distribution of all of the Stock as contemplated in the registration statement
has been completed, and (iii) the date which all shares of the Stock held by the
Investor may immediately be sold under Rule 144 during any 90-day period.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Investor such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as the Investor may reasonably
request in order to facilitate the disposition of the Stock.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Investor; provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) Notify the Investor covered by such registration
statement at any time when a prospectus relating thereto is required to be
delivered under the Act of the happening of any event as a result of which the
prospectus included in such registration
A-2
<PAGE> 15
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
(f) Cause all such Stock registered pursuant hereunder
to be listed on each securities exchange on which similar securities issued by
the Company are then listed.
(g) Provide a transfer agent and registrar for all of
the Stock registered pursuant hereunder and a CUSIP number for all such Stock,
in each case not later than the effective date of such registration.
1.4 Investor Obligation to Furnish Information. It shall be
a condition precedent to the obligations of the Company to take any action
pursuant hereto with respect to the Stock that the Investor shall furnish to the
Company such information regarding itself, the Stock, and the intended method of
disposition of such securities as shall be required to effect the registration
of such Stock.
1.5 Expenses of Registration. All expenses incurred in
connection with registrations, filings or qualifications pursuant hereto,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the Company
(including fees and disbursements of counsel for the Company in its capacity as
counsel to the Investor hereunder but excluding the fees and disbursements of
any other counsel for the Investor) shall be borne by the Company; provided,
however, that the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant hereto if the registration request is
subsequently withdrawn at the request of the Investor, unless the Investor
agrees to forfeit its right to any demand registration pursuant hereto; provided
further, however, that if at the time of such withdrawal, the Investor has
learned of a material adverse change in the condition, business, or prospects of
the Company from that known to the Investor at the time of its request and has
withdrawn the request with reasonable promptness following disclosure by the
Company of such material adverse change, then the Investor shall not be required
to pay any of such expenses and shall retain its right of registration pursuant
to Section 1.2.
1.6 Indemnification. In the event any Stock is included in
a registration statement under Section 1.2:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless the Investor, any underwriter (as defined in the
Act) for the Investor and each person, if any, who controls the Investor or
underwriter within the meaning of the Act or the 1934 Act, against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein
A-3
<PAGE> 16
a material fact required to be stated therein, or necessary to make the
statements therein not misleading, or (iii) any violation or alleged violation
by the Company of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, the 1934 Act or any state securities law;
and the Company will pay to the Investor, or such underwriter or controlling
person, as incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection (a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Investor, underwriter or controlling person.
(b) To the extent permitted by law, the Investor will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, and any
controlling person of any such underwriter, against any losses, claims, damages,
or liabilities (joint or several) to which any of the foregoing persons may
become subject, under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Investor expressly for
use in connection with such registration; and each such Investor will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection (b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection (b)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Investor, which consent shall not be unreasonably withheld; provided, that, in
no event shall any indemnity under this subsection (b) exceed the gross proceeds
from the offering received by the Investor.
(c) Promptly after receipt by an indemnified party
under this Section 1.6 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.6,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any
A-4
<PAGE> 17
liability to the indemnified party under this Section 1.6, but the omission so
to deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 1.6.
(d) If the indemnification provided for in this Section
1.6 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in an underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and the Investor
under this Section 1.6 shall survive the completion of any offering of the Stock
in a registration statement pursuant hereto, and otherwise.
1.7 Termination. The Company's obligation to register the
Stock pursuant to this agreement shall terminate on the earlier of (i) the
second anniversary of the Closing and (ii) the date on which all shares of the
Stock held by the Investor may immediately be sold under Rule 144 during any
90-day period.
A-5
<PAGE> 1
EXHIBIT 1.4
HIGH SPEED ACCESS CORP.
STOCK PURCHASE AGREEMENT
APRIL 30, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Purchase and Sale of Stock...............................................................................1
1.1 Sale and Issuance of Stock......................................................................1
1.2 The Closing.....................................................................................1
2. Representations and Warranties of the Company............................................................1
2.1 Organization and Good Standing..................................................................1
2.2 Authorization...................................................................................2
2.3 Valid Issuance of Stock.........................................................................2
2.4 Litigation......................................................................................2
2.5 Properties......................................................................................2
2.6 Compliance with Other Documents.................................................................2
3. Representations and Warranties of the Investor...........................................................3
3.1 Authorization...................................................................................3
3.2 Investigation...................................................................................3
3.3 Accredited Investor.............................................................................3
3.4 Purchase Entirely for Own Account...............................................................3
4. Conditions to the Investor's Obligation at Closing.......................................................3
4.1 Representations and Warranties..................................................................3
4.2 Securities Laws.................................................................................3
4.3 Authorizations..................................................................................4
4.4 Initial Public Offering of Common Stock.........................................................4
5. Conditions to the Company's Obligations at Closing.......................................................4
5.1 Representations and Warranties..................................................................4
5.2 Securities Laws.................................................................................4
5.3 Authorizations..................................................................................4
5.4 Initial Public Offering of Common Stock.........................................................4
5.5 Payment of Purchase Price.......................................................................4
6. Covenants of the Company and the Investor................................................................5
6.1 Agreement Not to Transfer.......................................................................5
6.2 Market Stand-Off................................................................................5
6.3 Notice of Intention to Transfer.................................................................6
6.4 Standstill......................................................................................6
6.5 Voting Agreements...............................................................................6
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
6.6 Hart-Scott-Rodino...............................................................................7
6.7 Registration of Stock...........................................................................7
7. Miscellaneous............................................................................................7
7.1 Governing Law...................................................................................7
7.2 Survival; Additional Securities.................................................................7
7.3 Successors and Assigns..........................................................................8
7.4 Entire Agreement................................................................................8
7.5 Notices.........................................................................................8
7.6 Amendments and Waivers..........................................................................8
7.7 Legal Fees......................................................................................8
7.8 Expenses........................................................................................9
7.9 Titles and Subtitles............................................................................9
7.10 Counterparts....................................................................................9
7.11 Severability....................................................................................9
7.12 Confidentiality.................................................................................9
Exhibit A........................................................................................................A-1
</TABLE>
ii
<PAGE> 4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 30th day of
April 1999 by and between High Speed Access Corp., a Delaware corporation (the
"Company") and Microsoft Corporation, a Washington corporation (the "Investor").
WHEREAS, the Investor has indicated a desire to purchase such
number of shares of Common Stock from the Company equal to Ten Million Dollars
($10,000,000) divided by the price per share offered to the public, less any
underwriter discounts and commissions, in the Company's initial public offering
("IPO") and to have such shares registered under the Securities Act of 1933, as
amended (the "Securities Act") concurrently with the Company's IPO.
WHEREAS, the Company has indicated a desire to sell such
shares of Common Stock to the Investor and has agreed to register such shares
under the Securities Act on the terms set forth herein.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Stock. Subject to the terms and
conditions of this Agreement, the Company agrees to sell to the Investor and the
Investor agrees to purchase from the Company such number of shares of Common
Stock from the Company equal to Ten Million Dollars ($10,000,000) divided by the
price per share offered to the public, less any underwriter discounts and
commissions, in the Company's IPO (the "Stock"), having the rights, preferences,
privileges and restrictions set forth in the form of Amended and Restated
Certificate of Incorporation of the Company (the "Restated Certificate") to be
filed with the Delaware Secretary of State prior to the Closing (as defined
below).
1.2 The Closing. The purchase and sale of the Stock shall
be held at the Company's offices concurrently with the closing of IPO or, if
later, upon satisfaction or waiver of each of the conditions set forth in
Sections 4 and 5 (the "Closing"). At the Closing, the Company will deliver the
Stock to the Investor against payment of the purchase price therefor by check
payable to the order of the Company or by wire transfer. The per share purchase
price for the Stock shall be equal to the per share price paid by the public for
the Company's Common Stock in the IPO, less any underwriter discounts and
commissions.
2. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Investor that:
2.1 Organization and Good Standing. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted.
2.2 Authorization. All corporate action on the part of the
Company, itsofficers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder, and the
<PAGE> 5
authorization, issuance and delivery of the Stock has been taken or will be
taken prior to the Closing, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and by general principles of
equity.
2.3 Valid Issuance of Stock. The Stock, when issued, sold
and delivered in accordance with the terms hereof for the consideration
expressed, will be duly and validly issued, fully paid and nonassessable and,
based in part upon the representations of the Investor in this Agreement, will
be issued in compliance with all applicable federal and state securities laws.
2.4 Litigation. Except as set forth in the Company's
registration statement prepared in connection with the IPO, as filed with the
Securities and Exchange Commission ("SEC") and amended from time to time (the
"Registration Statement"), there are no actions, proceedings or investigations
pending or, to the best of Company's knowledge, any basis therefor or threat
thereof, against or affecting the Company, that, either in any case or in the
aggregate, would result in any material adverse change in the business,
financial condition, or results of operations of the Company.
2.5 Properties. To the best of the Company's knowledge (but
without having conducted any special investigation), the Company has (i) good
and marketable title to its properties and assets and has good title to all its
leasehold interests, and (ii) sufficient title, license and/or ownership of all
patents, trademarks, service marks, trade names, copyrights, trade secrets,
information, proprietary rights and processes necessary for its business as now
conducted on the date hereof.
2.6 Compliance with Other Documents. The execution and
delivery of this Agreement, consummation of the transactions contemplated
hereby, and compliance with the terms and provisions hereof will not conflict
with or result in a breach of the terms and conditions of, or constitute a
default under the Restated Certificate or Bylaws of the Company or of any
contract or agreement to which the Company is now a party, except where such
conflict, breach or default of any such contract or agreement, either
individually or in the aggregate, would not have a material adverse effect on
the Company's business, financial condition or results of operations.
3. Representations and Warranties of the Investor. The
Investor hereby represents and warrants that:
3.1 Authorization. This Agreement constitutes the valid and
legally binding obligation of the Investor, enforceable in accordance with its
terms, subject to laws of general application relating to bankruptcy, insolvency
and the relief of debtors and by general principles of equity.
3.2 Investigation. The Investor acknowledges that it has
had an opportunity to discuss the business, affairs and current prospects of the
Company with the Company's Vice Chairman. The Investor further acknowledges
having had access to information about the Company that it has requested or
considers necessary for purposes of purchasing the Stock.
2
<PAGE> 6
3.3 Accredited Investor. The Investor is an "accredited
investor" as such term is defined in Regulation D adopted by the SEC.
3.4 Purchase Entirely for Own Account. This Agreement is
made with the Investor in reliance upon the Investor's representation to the
Company, which by the Investor's execution of this Agreement the Investor hereby
confirms, that the Stock will be acquired for investment for the Investor's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that the Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same.
4. Conditions to the Investor's Obligation at Closing. The
obligation of the Investor to purchase the Stock at the Closing is subject to
the fulfillment to the Investor's satisfaction on or prior to the Closing of the
following conditions:
4.1 Representations and Warranties. The representations and
warranties made by the Company in Section 2 hereof shall be true and correct
when made, and shall be true and correct as of the Closing with the same force
and effect as if they had been made on and as of such date, subject to changes
contemplated by this Agreement.
4.2 Securities Laws. The offer and sale of the Stock to the
Investor pursuant to this Agreement shall be either (i) registered under the
Securities Act, or (ii) exempt from the registration requirements of the
Securities Act and the registration and/or qualification requirements of all
applicable state securities laws.
4.3 Authorizations. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body that are
required in connection with the lawful issuance and sale of the Stock pursuant
to this Agreement (including, if applicable, the expiration of any waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act")) shall have been duly obtained and shall be effective on
and as of the Closing.
4.4 Initial Public Offering of Common Stock. The initial
public offering of the Company's Common Stock shall have occurred.
5. Conditions to the Company's Obligations at Closing. The
obligation of the Company to sell the Stock at the Closing is subject to the
fulfillment to the Company's satisfaction on or prior to the Closing of the
following conditions:
5.1 Representations and Warranties. The representations and
warranties of the Investor contained in Section 3 hereof shall be true as of the
Closing with the same force and effect as if they had been made on and as of
such date, subject to changes contemplated by this Agreement.
5.2 Securities Laws. The offer and sale of the Stock to the
Investor pursuant to this Agreement shall be either (i) registered under the
Securities Act, or (ii) exempt from the registration requirements of the
Securities Act and the registration and/or qualification requirements of all
applicable state securities laws.
3
<PAGE> 7
5.3 Authorizations. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body that are
required in connection with the lawful issuance and sale of the Stock pursuant
to this Agreement (including, if applicable, the expiration of any waiting
period under the HSR Act) shall have been duly obtained and shall be effective
on and as of the Closing.
5.4 Initial Public Offering of Common Stock. The initial
public offering of the Company's Common Stock shall have occurred.
5.5 Payment of Purchase Price. The Investor shall have
delivered to the Company the purchase price for the Stock as set forth in
Section 1.2 hereof.
6. Covenants of the Company and the Investor.
6.1 Agreement Not to Transfer.
(a) Prior to the date which is 180 days after the
Closing (the "Lockup Date"), the Investor shall not, directly or indirectly,
Transfer or offer to Transfer any shares of the Stock.
(b) Following the Lockup Date and prior to the first
anniversary of the Closing, the Investor shall not, directly or indirectly,
Transfer or offer to Transfer, in the aggregate, more than fifty percent (50%)
of the shares of the Stock during any one calendar quarter.
(c) Notwithstanding the foregoing restrictions on
Transfer (the "Transfer Restrictions"), the Transfer Restrictions shall be
ineffective in the event an unrelated third party has publicly announced and is
actively pursuing the purchase of all or substantially all of the assets or
capital stock of the Company or a merger in which the Company would not be the
surviving corporation; provided, that if such acquisition or merger is not
consummated within sixty days of such public announcement, the Transfer
Restrictions shall be reinstated.
(d) In order to enforce the Transfer Restrictions, the
Company may impose stop-transfer instructions with respect to the Stock until
the end of the restricted period.
(e) As used in this Agreement, the term "Transfer"
shall mean any sale, transfer, assignment, hypothecation, encumbrance or other
disposition, whether voluntary or involuntary, of shares of the Stock. In the
case of a hypothecation, the Transfer shall be deemed to occur both at the time
of the initial pledge and at any pledgee's sale or a sale by any secured
creditor or a retention by the secured creditor of the pledged shares of the
Stock in complete or partial satisfaction of the indebtedness for which the
shares of the Stock are security.
6.2 Market Stand-Off. In addition to the Transfer
Restrictions (which shall in no way be limited by the following), in connection
with any underwritten public offering by the Company of its equity securities
pursuant to an effective registration statement filed under the Securities Act,
the Investor shall not Transfer or offer to Transfer any shares of the Stock
4
<PAGE> 8
without the prior written consent of the Company and its underwriters. Such
restriction (the "Market Stand-Off") shall be in effect for such period of time
from and after the effective date of the final prospectus for the offering as
may be requested by the Company or such underwriters; provided, however, that
(i) such Market Stand-Off shall not exceed one hundred eighty (180) days, and
(ii) the Investor shall be subject to the Market Stand-Off only if the officers
and directors of the Company are also subject to similar restrictions. In order
to enforce the Market Stand-Off, the Company may impose stop-transfer
instructions with respect to the Stock until the end of the applicable stand-off
period.
6.3 Notice of Intention to Transfer. On or prior to the
third anniversary of the Closing, in the event the Investor plans to Transfer in
the aggregate more than twenty percent (20%) of the shares of the Stock in one
or more transactions during any three (3) month period, the Investor shall use
its best efforts to inform the Company of such intention to Transfer such shares
ten (10) days prior to such Transfer.
6.4 Standstill. The Investor agrees that, prior to the
third anniversary of the Closing, unless specifically invited by the Company,
the Investor will not, in any manner, directly or indirectly, effect any
acquisition of Voting Securities (as hereinafter defined), or beneficial
ownership thereof if, immediately after any such acquisition, the Investor would
beneficially own, in the aggregate, Voting Securities representing more than ten
percent (10%) of the outstanding Common Stock of the Company. The Investor also
agrees during such period not to make any public request (or publicize any
request) of the Company (or its directors, officers, employees or agents),
directly or indirectly, to amend or waive any provision of this Section 6.4
(including this sentence). The Investor also agrees not to form, join or in any
way participate in a "group" (as defined under the Securities Exchange Act of
1934, as amended (the "Exchange Act")), or take any other action, in order to
circumvent the provisions of this Section 6.4.
For purposes of this Agreement, (i) the term "Voting
Securities" shall refer to all securities of the Company entitled to vote
generally for the election of directors, and (ii) the term "beneficial
ownership" shall have the meaning set forth in Rule 13d-3 under the Exchange
Act.
The restrictions set forth in this Section 6.4 shall be
ineffective upon the occurrence of either of the following events: (i) an
unrelated third party has publicly announced and is actively pursuing the
purchase of all or substantially all of the assets or capital stock of the
Company or a merger in which the Company would not be the surviving corporation;
or (ii) an officer of the Company, duly authorized by the Company's Board of
Directors, has informed the Investor in writing of the Company's potential
interest in entering into a sale of all or substantially all of its assets or
stock or a merger in which the Company would not be the surviving corporation;
provided, however, that if such acquisition, merger or sale is not consummated
within sixty days of such public announcement (in the case of clause (i)) or of
such notice in writing (in the case of clause (ii)), the restrictions set forth
in this Section 6.4 shall be reinstated.
6.5 Voting Agreements. For a period ending on the first
anniversary of the Closing, the Investor agrees to vote all shares of Voting
Securities owned by it (i) in each election of directors for the entire slate of
nominees recommended by the Company's Board of
5
<PAGE> 9
Directors to the Company's shareholders and (ii) on all other matters to be
voted on by holders of Voting Securities, unless the Company otherwise consents
in writing, in the same proportion as the votes cast by all other shareholders
of the Company entitled to vote on such matter (other than the Investor). The
Investor, as a holder of Voting Securities, shall be present, in person or by
proxy, at all meetings of shareholders of the Company so that all shares of
Voting Securities beneficially owned by it may be counted for the purpose of
determining the presence of a quorum at such meetings.
The voting agreements set forth in this Section 6.5 shall
terminate immediately if an unrelated third party has publicly announced and is
actively pursuing the purchase of all or substantially all of the assets or
capital stock of the Company or a merger in which the Company would not be the
surviving corporation; provided, however, that if such acquisition, merger or
sale is not consummated within sixty days of such public announcement, the
voting agreements set forth in this Section 6.5 shall be reinstated.
6.6 Hart-Scott-Rodino. The Company and the Investor will
assist and cooperate with each other regarding any filings required under the
HSR Act and any other applicable laws and regulations. The Company and the
Investor each agree to make any HSR Act and other filings promptly upon the
other's request.
6.7 Registration of Stock. The Company agrees that, to the
extent allowed by the SEC, it will register the Stock in the IPO. If the Company
is not able to register the Stock in the IPO, the Company agrees that, upon
request by the Investor, it will effect registration of the Stock in accordance
with the provisions contained in Exhibit A attached hereto. If the Company is
not able to register the Stock in the IPO, the Investor understands and agrees
that (i) the Stock will be characterized as "restricted securities" under the
federal securities laws inasmuch as it is being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act only in certain limited circumstances, and (ii) each
certificate representing the Stock and any other securities issued in respect of
the Stock upon any stock split, stock dividend, recapitalization, merger or
similar event (unless no longer required in the opinion of counsel for the
Company) shall be stamped or otherwise imprinted with appropriate legends
mandated by federal and state securities laws.
7. Miscellaneous.
7.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California, without regard to the conflict of law provisions thereof.
7.2 Survival; Additional Securities. The representations
and warranties set forth in Sections 2 and 3 shall survive until the Closing.
The covenants and agreements set forth in Section 6 shall survive in accordance
with their terms. Any new, substituted or additional securities which are by
reason of any stock split, stock dividend, recapitalization or reorganization
distributed with respect to the Stock ("Stock Distributions")
6
<PAGE> 10
shall be immediately subject to the covenants and agreements set forth in
Section 6 to the same extent the Stock is at such time covered by such
provisions.
7.3 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the respective successors and assigns of the parties hereto.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement. Notwithstanding
anything to the contrary contained herein, the covenants set forth in Section 6
shall not be binding upon any entity (other than an affiliate of the Investor)
which acquires any shares of the Stock or a Stock Distribution in a transaction
permitted hereunder.
7.4 Entire Agreement. This Agreement constitutes the entire
understanding and agreement between the parties with regard to the subject
matter hereof.
7.5 Notices. Except as otherwise provided, all notices and
other communications required or permitted hereunder shall be in writing, shall
be effective when given, and shall in any event be deemed to be given upon
receipt or, if earlier, (i) five (5) days after deposit with the U.S. postal
service or other applicable postal service, if delivered by first class mail,
postage prepaid, (ii) upon delivery, if delivered by hand, (iii) one (1)
business day after the day of deposit with Federal Express or similar overnight
courier, freight prepaid, if delivered by overnight courier or (iv) one (1)
business day after the day of facsimile transmission, if delivered by facsimile
transmission with copy by first class mail, postage prepaid, and shall be
addressed, (a) if to the Investor, at the Investor's address set forth below its
signature, or at such other address as the Investor shall have furnished to the
Company in writing, or (b) if to the Company, at its address as set forth below
its signature, or at such other address as the Company shall have furnished to
the Investor in writing.
7.6 Amendments and Waivers. Any term of this Agreement may
be amended and the observance of any term of the Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only with the written consent of the Company and the Investor.
7.7 Legal Fees. In the event of any action at law, suit in
equity or arbitration proceeding in relation to this Agreement or the Stock or
any Stock Distribution, the prevailing party shall be paid by the other party a
reasonable sum for the attorneys' fees and expenses incurred by such prevailing
party.
7.8 Expenses. Irrespective of whether the Closing is
effected, the Company and the Investor shall each pay their own costs and
expenses incurred with respect to the negotiation, execution, delivery and
performance of this Agreement.
7.9 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
7
<PAGE> 11
7.10 Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.11 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
7.12 Confidentiality. The parties hereto agree that, except
with the prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish, or make accessible to anyone any
confidential information, knowledge, or data concerning or relating to the
business or financial affairs of such other party to which said party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, or the performance of its obligations hereunder.
[SIGNATURE PAGE TO FOLLOW]
8
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year hereinabove first written.
HIGH SPEED ACCESS CORP.
4100 East Mississippi Avenue
Denver, CO 80246
Attn: Ron Pitcock, Sr., President
/s/ Robert Saunders
- ----------------------------------------
By: Robert Saunders, Vice Chairman
MICROSOFT CORPORATION
One Microsoft Way
Redmond, WA 98052-6389
Attn: Robert A. Eshelman, Esq.
General Counsel, Finance and Administration
/s/ Greg Maffei
- ----------------------------------------
By: Greg Maffei, SVP Finance and
Administration, CFO
9
<PAGE> 13
EXHIBIT A
1. Registration Rights. The Company covenants and agrees as
follows:
1.1 Definitions. For purposes of this Exhibit A,
capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Stock Purchase Agreement between the Company and the
Investor to which this Exhibit A is attached. In addition, the following terms
used herein shall have the following meanings:
(a) The term "Form S-1" means such form under the Act
as in effect on the date hereof or any registration form under the Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(b) The term "Form S-3" means such form under the Act
as in effect on the date hereof or any registration form under the Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(c) The term "1934 Act" means the Securities Exchange
Act of 1934, as amended.
(d) The term "register", "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration statement or
document.
1.2 Request for Registration. If the Company shall receive,
at any time after one year following the Closing, a written request from the
Investor that the Company effect a registration on a Form S-3 and any related
qualification or compliance with respect to the Stock, then the Company shall,
as expeditiously as reasonably possible, effect the registration of all, but not
less than all, such Stock on Form S-3 and all such qualifications and
compliances as may be so requested and as would permit or facilitate the sale
and distribution of all of the Stock. The Company shall have no obligation to
effect any registration of less than all of the Stock.
(a) Notwithstanding anything to the contrary in this
Section 1.2, the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this Section 1.2: (i) if the Company
shall furnish to the Investor a certificate signed by the President of the
Company stating that, in the good faith judgment of the Board of Directors of
the Company, such registration should be deferred due to material events
directly relating to the Company, in which event the Company shall have the
right to defer the filing of the Form S-3 for a period of not more than 90 days
after receipt of the request of the Investor under this Section 1.2 (provided,
however, that the Company may defer such registration only once); or (ii) in any
particular jurisdiction in which the Company would be required to qualify to do
business or to execute a general consent to service of process in effecting such
registration, qualification or compliance.
A-1
<PAGE> 14
(b) If Form S-3 is not available to the Company to
effect the registration of the Stock as contemplated by this Section 1.2, then
(i) the Company shall effect such registration on Form S-1 and (ii) in such
event, all references in this Section 1 to Form S-3 shall be read as references
to Form S-1.
(c) The Company shall not be obligated to effect, or to
take any action to effect, any registration pursuant to this Section 1.2 after
the earlier to occur of the following events: (i) the Company has effected one
registration pursuant to this Section 1.2, and such registration has been
declared or ordered effective and otherwise satisfies and continues to satisfy
the terms and conditions of this Section 1.2; or (ii) the Company has
voluntarily effected the registration of all of the Stock without having first
received a request for such registration pursuant to this Section 1.2 (a
"Voluntary Registration"), and such Voluntary Registration has been declared or
ordered effective and otherwise satisfies and continues to satisfy the terms and
conditions of this Section 1.2.
1.3 Obligations of the Company. Whenever required under
Section 1.2 to effect the registration on Form S-3 of the Stock, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a Form S-3 with
respect to such Stock and use its best efforts to cause such registration
statement to become effective as soon as reasonably practicable after the
mailing of the request for such registration but in no event later than ninety
(90) days after such mailing. The Company shall keep such registration statement
effective until the earlier of (i) two (2) years after the Closing, (ii) the
distribution of all of the Stock as contemplated in the registration statement
has been completed, and (iii) the date which all shares of the Stock held by the
Investor may immediately be sold under Rule 144 during any 90-day period.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Investor such numbers of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as the Investor may reasonably
request in order to facilitate the disposition of the Stock.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Investor; provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) Notify the Investor covered by such registration
statement at any time when a prospectus relating thereto is required to be
delivered under the Act of the happening of any event as a result of which the
prospectus included in such registration
A-2
<PAGE> 15
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
(f) Cause all such Stock registered pursuant hereunder
to be listed on each securities exchange on which similar securities issued by
the Company are then listed.
(g) Provide a transfer agent and registrar for all of
the Stock registered pursuant hereunder and a CUSIP number for all such Stock,
in each case not later than the effective date of such registration.
1.4 Investor Obligation to Furnish Information. It shall be
a condition precedent to the obligations of the Company to take any action
pursuant hereto with respect to the Stock that the Investor shall furnish to the
Company such information regarding itself, the Stock, and the intended method of
disposition of such securities as shall be required to effect the registration
of such Stock.
1.5 Expenses of Registration. All expenses incurred in
connection with registrations, filings or qualifications pursuant hereto,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the Company
(including fees and disbursements of counsel for the Company in its capacity as
counsel to the Investor hereunder but excluding the fees and disbursements of
any other counsel for the Investor) shall be borne by the Company; provided,
however, that the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant hereto if the registration request is
subsequently withdrawn at the request of the Investor, unless the Investor
agrees to forfeit its right to any demand registration pursuant hereto; provided
further, however, that if at the time of such withdrawal, the Investor has
learned of a material adverse change in the condition, business, or prospects of
the Company from that known to the Investor at the time of its request and has
withdrawn the request with reasonable promptness following disclosure by the
Company of such material adverse change, then the Investor shall not be required
to pay any of such expenses and shall retain its right of registration pursuant
to Section 1.2.
1.6 Indemnification. In the event any Stock is included in
a registration statement under Section 1.2:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless the Investor, any underwriter (as defined in the
Act) for the Investor and each person, if any, who controls the Investor or
underwriter within the meaning of the Act or the 1934 Act, against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein
A-3
<PAGE> 16
a material fact required to be stated therein, or necessary to make the
statements therein not misleading, or (iii) any violation or alleged violation
by the Company of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, the 1934 Act or any state securities law;
and the Company will pay to the Investor, or such underwriter or controlling
person, as incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection (a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Investor, underwriter or controlling person.
(b) To the extent permitted by law, the Investor will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, and any
controlling person of any such underwriter, against any losses, claims, damages,
or liabilities (joint or several) to which any of the foregoing persons may
become subject, under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Investor expressly for
use in connection with such registration; and each such Investor will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection (b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection (b)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Investor, which consent shall not be unreasonably withheld; provided, that, in
no event shall any indemnity under this subsection (b) exceed the gross proceeds
from the offering received by the Investor.
(c) Promptly after receipt by an indemnified party
under this Section 1.6 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.6,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any
A-4
<PAGE> 17
liability to the indemnified party under this Section 1.6, but the omission so
to deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 1.6.
(d) If the indemnification provided for in this Section
1.6 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in an underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and the Investor
under this Section 1.6 shall survive the completion of any offering of the Stock
in a registration statement pursuant hereto, and otherwise.
1.7 Termination. The Company's obligation to register the
Stock pursuant to this agreement shall terminate on the earlier of (i) the
second anniversary of the Closing and (ii) the date on which all shares of the
Stock held by the Investor may immediately be sold under Rule 144 during any
90-day period.
A-5
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS OF
HIGH SPEED ACCESS CORP.
(a Delaware corporation)
ARTICLE I
Offices
The registered office of the corporation shall be in the City
of Wilmington, County of New Castle, State of Delaware. The corporation may have
such other offices as the business of the corporation may require from time to
time.
ARTICLE II
Stockholders
Section 1. Annual Meetings. The annual meeting of the
stockholders shall be held for the election of directors and for the transaction
of such other business as may properly come before the meeting at such date,
time and place, either within or without the State of Delaware, as the Board of
Directors shall each year fix.
Section 2. Special Meetings. Special meetings of the
stockholders, for any purpose or purposes prescribed in the notice of the
meeting, may be called only by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of authorized directors or the
Chairman of the Board and shall be held at such place, on such date, and at such
time as they or the Chairman may fix.
Section 3. Notice of Meetings. Whenever stockholders are
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given which shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Unless otherwise provided by law, the certificate
of incorporation or these bylaws, the written notice of any meeting shall be
given, either personally or by first class mail or by telegraphic or other
written communication, not less than ten nor more than sixty days before the
date of the meeting to each stockholder entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given when deposited in the mail,
postage prepaid, directed to the stockholder at such stockholder's address as it
appears on the records of the corporation. An affidavit of the mailing or other
means of giving any notice of any stockholder's meeting, executed by the
secretary, assistant secretary or any transfer agent of the corporation giving
the notice, shall be prima facie evidence of the giving of such notice.
Section 4. Adjournments. Any meeting of the stockholders,
annual or special, may adjourn from time to time to reconvene at the same or
some other place, and notice need not be given of any such adjourned meeting if
the time and place thereof are announced at the meeting
<PAGE> 2
at which the adjournment is taken. At the adjourned meeting the corporation may
transact any business which might have been transacted at the original meeting.
If the adjournment is for more than thirty days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
Section 5. Quorum. Except as otherwise provided by law, the
certificate of incorporation or these bylaws, at each meeting of stockholders
the presence in person or by proxy of the holders of shares of stock having a
majority of the votes which could be cast by the holders of all outstanding
shares of stock entitled to vote at the meeting shall be necessary and
sufficient to constitute a quorum. In the absence of a quorum, the stockholders
so present may, by majority vote, adjourn the meeting from time to time in the
manner provided in Article II, Section 4 of these bylaws until a quorum shall
attend.
Section 6. Organization. Meetings of stockholders shall be
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
his absence by a Vice President, or in the absence of the foregoing persons by a
chairman designated by the Board of Directors, or in the absence of such
designation by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 7. Voting; Proxies. Except as otherwise provided by
the certificate of incorporation, each stockholder entitled to vote at any
meeting of stockholders shall be entitled to one vote for each share of stock
held by such stockholder which has voting power upon the matter in question.
Each stockholder entitled to vote at a meeting of stockholders may authorize
another person or persons to act for such stockholder by proxy, but no such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. The revocability of a proxy that states on
its face that it is irrevocable shall be governed by the provisions of the
General Corporation Law of Delaware. A stockholder may revoke any proxy which is
not irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary of the corporation. At all meetings of
stockholders for the election of directors a plurality of the votes cast shall
be sufficient to elect. All other elections and questions shall, unless
otherwise provided by law, the certificate of incorporation or these bylaws, be
decided by the vote of the holders of shares of stock having a majority of the
votes which could be cast by the holders of all shares of stock entitled to vote
thereon which are present in person or represented by proxy at the meeting.
Section 8. List of Stockholders Entitled to Vote. The officer
who has charge of the stock ledger of the corporation shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period
<PAGE> 3
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof and may be inspected by any stockholder
who is present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list of stockholders or
the books of the corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 9. Action By Consent of Stockholders. Unless otherwise
restricted by the certificate of incorporation, any action required or permitted
to be taken at any annual or special meeting of the stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Section 10. Fixing Date for Determination of Stockholders of
Record. In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors and which shall not be more than sixty nor less than
ten days before the date of such meeting, nor more than sixty days prior to any
other action. If no record date is fixed by the Board of Directors, then the
record date shall be as provided by applicable law.
Section 11. Voting Procedures and Inspections of Elections.
(a) The corporation shall, in advance of any meeting
of stockholders, appoint one or more inspectors to act at the meeting and make a
written report thereof. The corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate is able to act at a meeting of stockholders, the person presiding
at the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of
shares outstanding and the voting power of each, (ii) determine the shares
represented at a meeting and the validity of proxies and ballots, (iii) count
all votes and ballots, (iv) determine and retain for a reasonable period a
record of the disposition of any challenges made to any determination by the
inspectors, and (v) certify their determination of the number of shares
represented at the meeting and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors.
<PAGE> 4
(c) The date and time of the opening and the closing
of the polls for each matter upon which the stockholders will vote at a meeting
shall be announced at the meeting. No ballot, proxies or votes, nor any
revocations thereof or changes thereto, shall be accepted by the inspectors
after the closing of the polls unless the Court of Chancery upon application by
a stockholder shall determine otherwise.
(d) In determining the validity and counting of
proxies and ballots, the inspectors shall be limited to an examination of the
proxies, any envelopes submitted with those proxies, any information provided in
accordance with Section 212(c)(2) of the Delaware General Corporation Law, the
ballots and the regular books and records of the corporation, except that the
inspectors may consider other reliable information for the limited purpose of
reconciling proxies and ballots submitted by or on behalf of banks, brokers,
their nominees or similar persons which represent more votes than the holder of
a proxy is authorized by the record owner to cast or more votes than the
stockholder holds of record. If the inspectors consider other reliable
information for the limited purpose permitted herein, the inspectors at the time
they make their certification pursuant to sub-section (b)(v) above shall specify
the precise information considered by them, including the person or persons from
whom they obtained the information, when the information was obtained, the means
by which the information was obtained and the basis for the inspectors' belief
that such information is accurate and reliable.
Section 12. Stockholder Proposals at Annual Meetings.
(a) At an annual meeting of the stockholders, only
such business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, otherwise properly brought before the
meeting by or at the direction of the Board of Directors or otherwise properly
brought before the meeting by a stockholder. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation, not less than 45 days nor more than 75 days prior to the date on
which the corporation first mailed its proxy materials for the previous year's
annual meeting of stockholders (or the date on which the corporation mails its
proxy materials for the current year if during the prior year the corporation
did not hold an annual meeting or if the date of the annual meeting was changed
more than 30 days from the prior year). A stockholder's notice to the Secretary
shall set forth as to each matter the stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of the stockholder proposing
such business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, and (iv) any material interest of the
stockholder in such business.
<PAGE> 5
(b) Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at the annual meeting except in
accordance with the procedures set forth in this Section 12 of Article II;
provided, that nothing in this Section 12 of Article II shall be deemed to
preclude discussion by any stockholder of any business properly brought before
the annual meeting in accordance with said procedure.
(c) The presiding officer of an annual meeting shall,
if the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 12 of Article II, and any such business not properly brought before the
meeting shall not be transacted.
Section 13. Nominations of Persons for Election to the Board
of Directors.
(a) In addition to any other applicable requirements,
only persons who are nominated in accordance with the following procedures shall
be eligible for election as directors. Nominations of persons for election to
the Board of Directors may be made at a meeting of stockholders by or at the
direction of the Board of Directors, by any nominating committee or person
appointed by the Board of Directors or by any stockholder of the corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 13 of Article II.
(b) Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation, not less than 45 days nor more than 75 days prior to the date on
which the corporation first mailed its proxy materials for the previous year's
annual meeting of stockholders (or the date on which the corporation mails its
proxy materials for the current year if during the prior year the corporation
did not hold an annual meeting or if the date of the annual meeting was changed
more than 30 days from the prior year). Such stockholder's notice shall set
forth (i) as to each person whom the stockholder proposes to nominate for
election or re-election as a director, (A) the name, age, business address and
residence address of the person, (B) the principal occupation or employment of
the person, (C) the class and number of shares of the corporation which are
beneficially owned by the person, and (D) any other information relating to the
person that is required to be disclosed in solicitations for proxies for
election of directors pursuant to Rule 14a under the Securities Exchange Act of
1934; and (ii) as to the stockholder giving the notice, (A) the name and record
address of the stockholder, and (B) the class and number of shares of the
corporation which are beneficially owned by the stockholder. The corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the corporation to determine the eligibility of such proposed
nominee to serve as a director of the corporation. No person shall be eligible
for election as a director of the corporation unless nominated in accordance
with the procedures set forth herein. These provisions shall not apply to
nomination of persons, if any, entitled to be separately elected by holders of
preferred stock.
(c) The presiding officer of the meeting shall, if
the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the foregoing procedure, and the defective
nomination shall be disregarded.
<PAGE> 6
ARTICLE III
Board of Directors
Section 1. Number; Qualifications. The Board of Directors may
from time to time designate the number of directors which shall constitute the
whole board. The number of directors shall initially be one (1).
Section 2. Election; Resignation; Removal; Vacancies. The
directors shall be divided into three classes, with the term of office of the
first class, which class initially consists of two directors, to expire at the
annual meeting of stockholders held in 2000; the term of office of the second
class, which class initially consists of two directors, to expire at the annual
meeting of stockholders held in 2001; the term of office of the third class,
which class initially consists of three directors, to expire at the annual
meeting of stockholders held in 2001; and thereafter for each such term to
expire at each third succeeding annual meeting of stockholders after such
election. Each director shall hold office until his successor is elected and
qualified or until his or her earlier resignation and removal. Any director may
resign at any time upon written notice to the corporation. Any newly created
directorship or any vacancy occurring in the Board of Directors for any cause
may be filled by a majority of the remaining members of the Board of Directors,
although such majority is less than a quorum, or by a plurality of the votes
cast at a meeting of stockholders, and each director so elected shall hold
office until the expiration of the term of office of the director whom he or she
has replaced or until his or her successor is elected and qualified.
Section 3. Regular Meetings. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the Board of Directors may from time to time determine, and if
so determined notices thereof need not be given.
Section 4. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President or a
majority of the members of the Board of Directors then in office and may be held
at any time or place within or without the State of Delaware as the person or
persons calling the meeting shall fix. Notice of a special meeting of the Board
of Directors shall be given by the person or persons calling the meeting at
least forty-eight hours before the special meeting.
Section 5. Telephonic Meetings Permitted. Members of the Board
of Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
bylaw shall constitute presence in person at such meeting.
<PAGE> 7
Section 6. Quorum; Vote Required for Action. At all meetings
of the Board of Directors a majority of the whole Board of Directors shall
constitute a quorum for the transaction of business. Except in cases in which
the certificate of incorporation or these bylaws otherwise provide, the vote of
a majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section 7. Organization. Meetings of the Board of Directors
shall be presided over by the Chairman of the Board, if any, or in his or her
absence by the Vice Chairman of the Board, if any, or in his or her absence by
the President, or in their absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 8. Informal Action by Directors. Unless otherwise
restricted by the certificate of incorporation or these bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board of Directors or such committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or such committee.
Section 9. Compensation. Directors, as such, may receive,
pursuant to a resolution of the Board of Directors, fees and other compensation
for their services as directors, including, without limitation, their services
as members of committees of the Board of Directors. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving payment therefor.
ARTICLE IV
Committees
Section 1. Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, designate one
or more committees, each committee to consist of one or more of the directors of
the corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent permitted by law and to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
corporation.
Section 2. Executive Committee. The Board of Directors may, by
resolution regularly adopted, designate one or more directors to constitute an
Executive Committee. The
<PAGE> 8
Executive Committee, in the intervals between the meetings of the Board, shall
have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the corporation, except that the
Executive Committee shall not have any power or authority in reference to
amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, amending the bylaws of the corporation, declaring dividends,
authorizing the issuance of stock, or adopting a certificate of ownership and
merger. A majority of such committee shall constitute a quorum.
Section 3. Committee Rules. Unless the Board of Directors
otherwise provides, each committee designated by the Board of Directors may
make, alter and repeal rules for the conduct of its business. In the absence of
such rules each committee shall conduct its business in the same manner as the
Board of Directors conducts its business pursuant to Article III of these
bylaws.
ARTICLE V
Officers
Section 1. Executive Officers; Election; Qualifications; Terms
of Office; Resignation; Removal; Vacancies. The Board of Directors shall elect a
President, a Chief Operating Officer and a Secretary, and it may, if it so
determines, choose a Chairman of the Board and a Vice Chairman of the Board from
among its members. The Board of Directors may also choose a Chief Executive
Officer, one or more Vice Presidents, one or more Assistant Secretaries, a
Treasurer and one or more Assistant Treasurers. Each such officer shall hold
office for such term as the Board of Directors may from time to time determine.
Any officer may resign at any time upon written notice to the corporation. The
Board of Directors may remove any officer with or without cause at any time, but
such removal shall be without prejudice to the contractual rights of such
officer, if any, with the corporation. Any number of offices may be held by the
same person. Any vacancy occurring in any office of the corporation by death,
resignation, removal or otherwise may be filled for the unexpired portion of the
term by the Board of Directors at any regular or special meeting. The Board of
Directors may appoint, or may empower the President to appoint, such other
corporate officers as the business of the corporation may require, each of whom
shall hold office for such period, have such power and authority, and perform
such duties as are provided in these bylaws or as the Board of Directors may
from time to time determine.
Section 2. Powers and Duties of Executive Officers. Except as
further described in this Article V, the officers of the corporation shall have
such powers and duties in the management of the corporation as may be prescribed
by the Board of Directors and, to the extent not so provided, as generally
pertain to their respective offices or as directed by the President, subject to
the control of the Board of Directors. The Board of Directors may require any
officer, agent or employee to give security for the faithful performance of his
duties.
<PAGE> 9
Section 3. Chairman of the Board. The Chairman of the Board,
if any, shall preside as chairman at meetings of the stockholders and the Board
of Directors. He shall, in addition, have such other duties as the Board may
prescribe that he perform. At the request of the President, the Chairman of the
Board may, in the case of the President's absence or inability to act,
temporarily act in his place. In the case of death of the President or in the
case of his absence or inability to act without having designated the Chairman
of the Board to act temporarily in his place, the Chairman of the Board shall
perform the duties of the President, unless the Board of Directors, by
resolution, provides otherwise. If the Chairman of the Board shall be unable to
act in place of the President, the Vice Chairman, or if none, the Vice
Presidents, may exercise such powers and perform such duties as provided below.
Section 4. Vice Chairman of the Board. The Vice Chairman of
the Board, if any, shall perform duties commonly incident to this office and
shall perform such other duties and have such other powers as the President or
Board of Directors may from time to time prescribe. In the event the position of
Chairman of the Board shall not be occupied or the Chairman shall be absent or
otherwise unable to act, the Vice Chairman shall preside at meetings of the
stockholders and directors and shall discharge the duties of the presiding
officer.
Section 5. President. The President shall perform all duties
commonly incident to the office of President and shall perform such other duties
and have such other powers as may, from time to time, be assigned to him by the
Board of Directors. In the event the position of chairman of the board or vice
chairman of the board shall not be occupied or the chairman or vice chairman
shall be absent or otherwise unable to act, the President shall preside at
meetings of the stockholders and directors and shall discharge the duties of the
presiding officer. The President shall have the authority to execute bonds,
mortgages and other contracts requiring a seal under the seal of the
corporation, except where required by law to be otherwise signed and executed
and except where the signing and execution thereof shall be expressly delegated
by the Board of Directors to some other officer or agent of the corporation.
Section 6. Chief Operating Officer. The Chief Operating
Officer shall perform all duties commonly incident to this office and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe. The Chief Operating Officer shall have the
authority to execute bonds, mortgages and other contracts requiring a seal under
the seal of the corporation, except where required by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the corporation.
Section 7. Secretary. The Secretary shall keep or cause to be
kept in books provided for that purpose, the minutes of the meetings of the
stockholders, executive committee, if any, and any other committees, and of the
Board of Directors; shall see that all notices are duly given in accordance with
the provisions of these Bylaws and as required by law; shall be custodian of the
records and of the seal of the corporation and see that the seal is affixed to
all documents, the execution of which on behalf of the corporation under its
seal is duly authorized and in accordance with the provisions of these Bylaws;
and, in general, shall perform all duties incident
<PAGE> 10
to the office of Secretary and such other duties as may, from time to time, be
assigned to him by the Board of Directors or by the President. In the absence of
the Secretary or his inability to act, the assistant secretaries, if any, shall
act with the same powers and shall be subject to the same restrictions as are
applicable to the Secretary.
Section 8. Delegation of Duties. Whenever an officer is
absent, or whenever, for any reason, the Board of Directors may deem it
desirable, the Board may delegate the powers and duties of an officer to any
other officer or officers or to any director or directors.
ARTICLE VI
Stock
Section 1. Certificates. Every holder of stock shall be
entitled to have a certificate signed by or in the name of the corporation by
the Chairman or Vice Chairman of the Board of Directors, if any, or the
President or Vice President, and by the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary, of the corporation, certifying the
number of shares owned by such stockholder in the corporation. Any of or all the
signatures on the certificate may be a facsimile. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if such person were such officer, transfer agent, or
registrar at the date of issue.
Section 2. Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificates. The corporation may issue a new certificate of
stock in the place of any certificate theretofore issued by it, alleged to have
been lost, stolen or destroyed, and the corporation may require the owner of the
lost, stolen or destroyed certificate, or such owner's legal representative, to
indemnify the corporation and/or to give the corporation a bond sufficient to
indemnify it against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
Section 3. Transfer of Shares. Subject to applicable law,
shares of stock of the corporation may be transferred on its books upon the
surrender to the corporation or its transfer agent of the certificates
representing such shares, if any, duly endorsed or accompanied by a written
assignment or power of attorney duly executed and with such proof of authority
or authenticity of signature as the corporation or its transfer agent may
reasonably require. In that event, the surrendered certificates shall be
canceled, new certificates issued to the persons entitled to them, if any, and
the transaction recorded on the books of the corporation.
Section 4. Registered Stockholders. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable
<PAGE> 11
or other claim to or interest in such share or shares on the part of the other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Delaware.
ARTICLE VII
Miscellaneous
Section 1. Fiscal Year. The fiscal year of the corporation
shall be determined by resolution of the Board of Directors.
Section 2. Waiver of Notice of Meetings of Stockholders,
Directors and Committees. Any written waiver of notice, signed by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
Section 3. Form of Records. Any records maintained by the
corporation in the regular course of its business, including its stock ledger,
books of account, and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, micro-photographs, or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
Section 4. Certificate of Incorporation Governs. In the event
of any conflict between the provisions of the corporation's Certificate of
Incorporation and bylaws, the provisions of the Certificate of Incorporation
shall govern.
Section 5. Severability. If any provision of these bylaws
shall be held to be invalid, illegal, unenforceable or in conflict with the
provisions of the corporation's certificate of incorporation, then such
provision shall nonetheless be enforced to the maximum extent possible
consistent with such holding and the remaining provisions of these bylaws
(including without limitation all portions of any section of these bylaws
containing any such provision held to be invalid, illegal, unenforceable or in
conflict with the Certificate of Incorporation, that are not themselves invalid,
illegal, unenforceable or in conflict with the Certificate of Incorporation)
shall remain in full force and effect.
Section 6. Amendment of Bylaws. These Bylaws may be altered or
repealed, and new Bylaws made, by the Board of Directors, but the stockholders
may make additional Bylaws and may alter and repeal any Bylaws whether adopted
by them or otherwise.
<PAGE> 12
CERTIFICATE
I, W. Kent Oyler, III, certify that I am the Secretary of High
Speed Access Corp., a Delaware corporation (the "Company"), that I am duly
authorized to make and deliver this certificate, that the attached Bylaws are a
true and correct copy of the Bylaws of the Company in effect as of the date of
this certificate.
Dated: , 1999
--------------
------------------------------------
W. Kent Oyler, III, Secretary
<PAGE> 1
EXHIBIT 9.1
VOTING TRUST AGREEMENT
THIS VOTING TRUST AGREEMENT ("Agreement") made this 30th day of March,
1999, by and among the individuals set forth on Schedule I attached hereto
(collectively, the "Shareholders"); and Terrence J. Herron, and his successors
in trust (the "Trustee").
WITNESSETH:
WHEREAS, the Shareholders deem it necessary and advisable, and in their
best interests, to deposit all of their voting stock in High Speed Access Corp.,
and any stock issued in lieu or in substitution thereof (the "Stock") with the
Trustee; and
WHEREAS, the Shareholders have agreed upon the person of the Trustee,
and upon the terms and conditions of this Agreement; and
WHEREAS, the Trustee has consented to act under this Agreement for the
purposes herein provided;
NOW, THEREFORE, in consideration of the premises and the agreements
contained herein, the parties hereto agree as follows:
1. Transfer of Stock to Trustee. Shareholders shall deposit with the
Trustee certificates for the number of shares of Stock as set forth on Schedule
I. All such stock certificates shall be so endorsed or accompanied by such
instruments of transfer as to enable the Trustee to cause such certificates to
be transferred into the name of the Trustee, as hereinafter provided. On receipt
by the Trustee of the certificates for the Stock and the transfer of the same
into the name of the Trustee, the Trustee shall hold the same subject to the
terms of this Agreement and shall thereupon issue and deliver to each
Shareholder a voting trust certificate or certificates for the Stock deposited
by such Shareholder, in substantially the form attached hereto as Exhibit A. All
certificates for Stock transferred and delivered to the Trustee pursuant to this
Agreement shall be surrendered by the Trustee to the Company and cancelled, and
new certificates therefor shall be issued to and held by the Trustee in the name
of "Terrence J. Herron, as Voting Trustee pursuant to a certain Voting Trust
Agreement dated March 30, 1999."
2. Transfer of Certificates. The sale, transfer, or other disposition of
the voting trust certificates shall be subject to the same restrictions,
including a right of first refusal, as are imposed on the Stock by that certain
Shareholders' Agreement among the shareholders of the Company dated as of
November 25, 1998. The voting trust certificates shall be transferable at the
principal office of the Trustee in Wilkes-Barre, Pennsylvania (and at such other
office as the Trustee may designate by an instrument in writing signed by him
and sent by mail to the registered holders of voting trust certificates), on the
books of the Trustee, by the registered owner thereof, either in person or by
attorney thereto duly authorized, on surrender thereof, and (a) only on
compliance with the conditions and restrictions contained in the Shareholders'
Agreement and (b)
<PAGE> 2
according to the rules established for that purpose by the Trustee. The Trustee
may treat the registered holder as owner thereof for all purposes whatsoever,
but he shall not be required to deliver stock certificates hereunder without the
surrender of such voting trust certificates. If a voting trust certificate is
lost, stolen, mutilated, or destroyed, the Trustee, in his discretion, may issue
a duplicate of such certificate on receipt of: (i) evidence of such fact
satisfactory to him; (ii) indemnity satisfactory to him; (iii) the existing
certificate, if mutilated; and (iv) his reasonable fees and expenses in
connection with the issuance of a new trust certificate. The Trustee shall not
be required to recognize any transfer of a voting trust certificate not made in
accordance with the provisions hereof, unless the person claiming such ownership
has produced indicia of compliance with the terms of the Shareholders' Agreement
and of title satisfactory to the Trustee and has deposited with the Trustee
indemnity satisfactory to him.
3. Termination Procedure. On the termination of this Agreement at any
time, the Trustee, within 20 days after such termination, shall mail written
notice of such termination to the registered owners of the voting trust
certificates at the addresses appearing on the transfer books of the Trustee.
From the date specified in any such notice (which date shall be fixed by the
Trustee), the voting trust certificates shall cease to have any effect, and the
holders of such voting trust certificates shall have no further rights under
this Agreement other than to receive certificates for shares of Stock or other
property distributable under the terms hereof on the surrender of such voting
trust certificates. Within 30 days after the termination of this Agreement, and
except as otherwise provided under the terms hereof, the Trustee shall deliver
certificates for the number of shares of Stock held by the registered holders of
all voting trust certificates, provided that such voting trust certificates are
properly endorsed and surrendered at the office of the Trustee.
4. Dividends. The holder of each voting trust certificate shall be
entitled to receive payments equal to the cash dividends, if any, received by
the Trustee on a like number of shares of Stock as designated by each such
voting trust certificate less his pro rata share of expenses as provided in
paragraph 12 hereof. If any dividend for the Stock deposited with the Trustee is
paid in whole or in part in stock, the Trustee shall likewise hold, subject to
the terms of this Agreement, the certificates for Stock which are received by
him on account of such dividend, and the holder of each voting trust certificate
representing the Stock on which such dividend has been paid shall be entitled to
receive a voting trust certificate issued under this Agreement for the number of
shares of Stock received as a dividend. If any dividend for the Stock deposited
with the Trustee is paid other than in cash or in the Stock of the Company, then
the Trustee shall distribute the same among the holders of voting trust
certificates. Such distribution shall be made to the holders of voting trust
certificates ratably in accordance with the number of shares represented by
their respective voting trust certificates. Holders entitled to receive the
dividends discussed above shall be those registered as such on the transfer
books of the Trustee at the close of business on the record date fixed by the
Company to determine those holders of its Stock entitled to receive such
dividends.
5. Dissolution of Company. In the event of the dissolution or total or
partial liquidation of the Company, whether voluntary or involuntary, the
Trustee shall receive the moneys, securities, rights, or other property to which
the holders of the Stock of the Company
2
<PAGE> 3
deposited hereunder are entitled, and shall distribute the same among the
registered holders of voting trust certificates in proportion to their
interests, as shown on the books of the Trustee.
6. Reorganization of Company. If the Company is merged into or
consolidated with another company, or all or substantially all of the assets of
the Company are transferred to another company, or all of the shares of the
Company are exchanged for the shares of another company, then in connection with
such transfer the term "Company" for all purposes of this Agreement shall be
taken to include such successor Company, and the Trustee shall receive and hold
under this Agreement any stock of such successor Company received on account of
the ownership, as Trustee hereunder, of the Stock held hereunder prior to such
merger, consolidation, transfer, or share exchange. Voting trust certificates
issued and outstanding under this Agreement at the time of such merger,
consolidation, transfer, or share exchange may remain outstanding, or the
Trustee may, in his discretion, substitute for such voting trust certificates
new voting trust certificates in appropriate form, and the term "Stock" as used
herein shall be taken to include any Stock which may be received by the Trustee
in lieu of all or any part of the Stock of the Company.
7. Rights of Trustee. Until the actual delivery to the holders of voting
trust certificates issued hereunder of stock certificates or such other property
which under the terms hereof may be delivered in lieu of said stock certificates
and until the surrender of the voting trust certificates for cancellation, the
Trustee shall have the right to exercise, in person or by his nominees or
proxies, all Shareholder rights and powers with respect to all Stock deposited
hereunder, including the right to vote thereon and to take part in or consent to
any corporate or stockholder's action of any kind whatsoever. The right to vote
shall include the right to vote for the election of directors and in favor of or
against any resolution or proposed action of any character whatsoever that may
be presented at any meeting or that may require the consent of Shareholders of
the Company. In voting the Stock held by him either in person or by his nominees
or proxies, the Trustee shall exercise his sole discretion in voting for
directors of the Company, and shall otherwise, insofar as he may as a
stockholder of the Company, take such part or action in respect to the
management of its affairs as he may in the his discretion deem advisable, and he
shall not be personally responsible with respect to any action taken pursuant to
his vote in any matter or act committed or omitted to be done; provided such
commission or omission does not amount to wanton misconduct or gross negligence.
8. Resignation of Trustee. The Trustee (and any successor Trustee) may at
any time resign by mailing to the registered holders of voting trust
certificates a written resignation effective 10 days thereafter or on the prior
acceptance thereof.
9. Appointment of Successor Trustees. On the death of Terrence J. Herron,
or upon his resignation as Trustee, Joseph S. Gans, III, if he is willing and
not then disabled, shall be the successor Trustee. If Joseph S. Gans, III is not
willing to serve as successor Trustee, or is then disabled, or if he has
predeceased the Trustee, then Shareholders representing a majority of the number
of shares of Stock standing in the name of the Trustee hereunder shall have the
right to designate another successor Trustee as hereinafter provided. Any
designation of a successor Trustee shall be made by filing in the principal
office of the Company in Louisville, Kentucky, a
3
<PAGE> 4
written notice of appointment of such successor Trustee, duly executed and
acknowledged by Shareholders. The rights, powers, and privileges of the Trustee
named hereunder shall be possessed by any successor Trustee, with the same
effect as though such successor or successors had originally been parties to
this Agreement.
10. Term. This Agreement shall terminate at any time on the execution and
acknowledgment of a deed of termination by the registered holders of all the
voting trust certificates outstanding under this Agreement, duly filed in the
principal office of the Company in Louisville, Kentucky.
11. Compensation and Reimbursement of Trustee. The Trustee shall serve
without compensation, and shall have the right to incur and pay reasonable
expenses and charges as he may deem necessary and proper for carrying this
Agreement into effect. Nothing contained herein shall disqualify the Trustee or
successor Trustees, or incapacitate him or them from serving the Company or any
of its subsidiaries as officer or director, or in any other capacity, or in any
such capacity receiving compensation.
12. Notice. Unless otherwise specifically provided in this Agreement, any
notice to or communication with the holders of the voting trust certificates
hereunder shall be deemed to be sufficiently given or made if delivered by
regular or registered mail addressed to such holders at their respective
addresses appearing on the transfer books of the Trustee, and deposited in any
post office or post office box. The addresses of the holders of voting trust
certificates, as shown on the transfer books of the Trustee, shall in all cases
be deemed to be the addresses of voting trust certificate holders for all
purposes under this Agreement, without regard to what other or different
addresses the Trustee may have for any such holder on any other books or records
of the Trustee. Every notice so given shall be effective, whether or not
received, and two days after the date of mailing shall be the date such notice
is deemed give for all purposes. Any notice to the Trustee hereunder shall be
sent by registered mail to the Trustee, addressed to him at such addresses as
may from time to time be furnished in writing to the Company by the Trustee, and
if no such address has been so furnished by the Trustee, then to the Trustee in
care of the Company at the principal office of the Company in Louisville,
Kentucky.
13. Transferees. Any transferee of the Stock shall become a party hereto
by executing this Agreement or an amendment thereto and by depositing the Stock
to be made subject to this Agreement with the Trustee.
IN WITNESS WHEREOF, the Trustee and the Shareholders have executed
this Agreement as of the date first written above and have stated the number of
shares of common stock of the Company deposited respectively by them.
TRUSTEE
/s/ TERRENCE J. HERRON
- --------------------------------
TERRENCE J. HERRON
4
<PAGE> 5
SHAREHOLDERS
/s/ JOSEPH S. GANS, III
- --------------------------------
JOSEPH S. GANS, III
/s/ JOSEPH W. AMAN
- --------------------------------
JOSEPH W. AMAN
/s/ LAWRENCE SHEWACK
- --------------------------------
LAWRENCE SHEWACK
/s/ JOHN HOWELL
- --------------------------------
JOHN HOWELL
/s/ TERRENCE J. HERRON
- --------------------------------
TERRENCE J. HERRON
5
<PAGE> 6
SCHEDULE I
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
Joseph C. Gans III 816,000
c/o Terrence J. Herron
Hourigan , Kluger & Quinn, P.C.
Suite 700
Mellon Bank Center
8 West Market Street
Wilkes-Barre, PA 18701-1867
Joseph W. Aman 51,000
c/o Terrence J. Herron
Hourigan , Kluger & Quinn, P.C.
Suite 700
Mellon Bank Center
8 West Market Street
Wilkes-Barre, PA 18701-1867
John Howell 51,000
c/o Terrence J. Herron
Hourigan , Kluger & Quinn, P.C.
Suite 700
Mellon Bank Center
8 West Market Street
Wilkes-Barre, PA 18701-1867
Laurence Shewack 51,000
c/o Terrence J. Herron
Hourigan , Kluger & Quinn, P.C.
Suite 700
Mellon Bank Center
8 West Market Street
Wilkes-Barre, PA 18701-1867
Terrence J. Herron 51,000
Hourigan , Kluger & Quinn, P.C.
Suite 700
Mellon Bank Center
8 West Market Street
Wilkes-Barre, PA 18701-1867
</TABLE>
6
<PAGE> 7
AMENDED EXHIBIT A TO VOTING TRUST AGREEMENT BY AND AMONG
JOSEPH S. GANS, III, JOSEPH W. AMAN, LAWRENCE SHEWACK,
TERRENCE J. HERON AND TERRENCE J. HERRON, TRUSTEE
<TABLE>
<CAPTION>
SHAREHOLDER NUMBER OF SHARES CERTIFICATE NUMBER
----------- ---------------- ------------------
<S> <C> <C>
Joseph S. Gans, III 571,200 10
- --------------------------------------------------------------------------------
Terrence J. Heron, Trustee 244,800 11
for Joseph S. Gans, IV
- --------------------------------------------------------------------------------
Joseph W. Aman 42,000 12
- --------------------------------------------------------------------------------
Kerrie N. Carfagno and 2,000 13
John Carfagno
- --------------------------------------------------------------------------------
Sandra Aman Keller and 2,000 14
Daniel Keller
- --------------------------------------------------------------------------------
Sandra Aman Keller, Trustee 2,000 15
for Lara Sue Aman
- --------------------------------------------------------------------------------
Kerrie N. Carfagno, Trustee 2,000 16
for Molly Kay Aman
- --------------------------------------------------------------------------------
Thomas Aman 500 17
- --------------------------------------------------------------------------------
Samuel Aman 500 18
- --------------------------------------------------------------------------------
John T. Howell 36,000 19
- --------------------------------------------------------------------------------
Timothy W. Howell 5,000 20
- --------------------------------------------------------------------------------
Jeffrey C. Howell 5,000 21
- --------------------------------------------------------------------------------
Sean M. Howell 5,000 22
- --------------------------------------------------------------------------------
Lawrence Shewack 41,000 23
- --------------------------------------------------------------------------------
Eric Shewack 5,000 24
- --------------------------------------------------------------------------------
Christopher Shewack 5,000 25
- --------------------------------------------------------------------------------
Terrence J. Herron 41,000 26
- --------------------------------------------------------------------------------
Terrence J. Herron, II 10,000 27
</TABLE>
<PAGE> 1
EXHIBIT 10.1
CONTRIBUTION AGREEMENT
by and among
HIGH SPEED ACCESS CORP.,
OPM SERVICES, INC.,
GIBBS FAMILY LIMITED PARTNERSHIP,
COLORADO LIMITED PARTNERSHIP,
PITCOCK FAMILY LIMITED PARTNERSHIP
JOSEPH S. GANS, III,
JOSEPH W. AMAN,
LAWRENCE SHEWACK,
JOHN HOWELL,
TERRENCE J. HERRON
and
BROADBAND SOLUTIONS, LLC
April 3, 1998
<PAGE> 2
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT ("Agreement") is made and entered
into as of the 3rd day of April, 1998, by and among (i) HIGH SPEED ACCESS CORP.,
a Delaware corporation ("Holding Company"), (ii) BROADBAND SOLUTIONS, LLC, a
Kentucky limited liability company ("Investor"), (iii) OPM SERVICES, INC., a
Kentucky corporation ("OPM"), COLORADO LIMITED PARTNERSHIP, a Georgia limited
partnership ("CLP"), and GIBBS FAMILY LIMITED PARTNERSHIP, a Georgia limited
partnership ("GFLP") (collectively, the "CATV Shareholders"); and (iv) PITCOCK
FAMILY LIMITED PARTNERSHIP, a Georgia limited partnership ("Pitcock"), JOSEPH S.
GANS, III, an individual ("Gans"), JOSEPH W. AMAN, an individual, LAWRENCE
SHEWACK, an individual, JOHN HOWELL, an individual, and TERRENCE J. HERRON, an
individual (collectively, the "HSA Shareholders").
WITNESSETH:
Investor and the CATV Shareholders own 100% of the issued and
outstanding shares of capital stock of CATV.net, Inc. ("CATV") as set forth on
Schedule 1 hereto.
Investor and the HSA Shareholders own 100% of the issued and
outstanding shares of capital stock of High Speed Access Network, Inc. ("HSA")
as set forth on Schedule 2 hereto.
Holding Company desires to issue, and Investor and each of the
CATV Shareholders and the HSA Shareholders desire to acquire, the number of
shares of Holding Company's authorized but unissued Preferred Stock and Common
Stock set forth opposite its or his name on Schedule 3 hereto.
Holding Company desires to sell and issue, and Investor
desires to purchase and acquire the Additional Holding Company Shares (as
defined below), if any, upon the terms and subject to the conditions contained
herein.
It is intended that, for federal income tax purposes, the
transactions contemplated by Section 1.A of this Agreement shall qualify as an
exchange governed by Section 351 of the Internal Revenue code of 1986, as
amended (the "Code").
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties herein contained, and intending to be legally
bound, Holding Company, Investor, the CATV Shareholders and the HSA Shareholders
agree as follows:
1. Contribution; Post Closing Capital Calls .
A. Subject to the terms and conditions of this
Agreement, at the Closing, as hereinafter defined:
<PAGE> 3
[1] [a] Investor agrees that it shall contribute, convey,
transfer, assign and deliver to Holding Company the number of shares of
CATV Preferred Stock set forth opposite its name on Schedule 1 attached
hereto and the number of shares of HSA Preferred Stock set forth
opposite its name on Schedule 2 attached hereto, [b] each of the CATV
Shareholders agrees that it shall contribute, convey, transfer, assign
and deliver to Holding Company the number of shares of CATV Common
Stock set forth opposite its name on Schedule 1 attached hereto, and
[c] each of the HSA Shareholders agrees that he shall contribute,
convey, transfer, assign and deliver to Holding Company the number of
shares of HSA Common Stock set forth opposite his name on Schedule 2
attached hereto; and
[2] [a] Holding Company agrees to sell, issue and deliver to
Investor the number of shares of Preferred Stock of Holding Company set
forth opposite Investor's name on Schedule 3 attached hereto in
consideration of Investor contributing to Holding Company the number of
shares of CATV Preferred Stock and HSA Preferred Stock set forth
opposite its name on Schedule 1 and Schedule 2;
[b] Holding Company agrees to sell, issue and deliver to
each CATV Shareholder the number of shares of Common Stock of Holding
Company set forth opposite each such CATV Shareholder's name on
Schedule 3 attached hereto in consideration of each such CATV
Shareholder's contributing to Holding Company the number of shares of
CATV stock set forth opposite its name on Schedule 1; and [c] Holding
Company agrees to sell, issue and deliver to each HSA Shareholder the
number of shares of Common Stock of Holding Company set forth opposite
each such HSA Shareholder's name on Schedule 3 attached hereto in
consideration of each such HSA Shareholder's contributing to Holding
Company the number of shares of HSA stock set forth opposite his name
on Schedule 2.
B. Subject to the terms and conditions of this Agreement, at
any time and from time to time after the Closing, at the option of Holding
Company, evidenced by a resolution of its Board of Directors and upon ten (10)
days prior written notice given by Holding Company to Investor, Investor agrees
to purchase from Holding Company, and Holding Company agrees to sell, issue and
deliver to Investor, up to 4,000,000 shares of Holding Company Preferred Stock
("Additional Holding Company Shares") at a price of One Dollar ($1.00) per
share, resulting in an additional total purchase price to Investor not to exceed
Four Million Dollars ($4,000,000) in the aggregate for such additional shares of
Holding Company Preferred Stock (the "Post Closing Capital Calls"). There may be
one or more Post Closing Capital Calls, provided that pursuant thereto [i]
Investor shall be, under no circumstances, obligated to purchase more than
4,000,000 shares of Preferred Stock in the aggregate, and [ii] Investor shall
be, under no circumstances, obligated to purchase any shares of Preferred Stock
pursuant to a Post Closing Capital Call if, as of the date of such Post Closing
Capital Call, Holding Company has not met the monthly performance projections
set out in Holding Company's Confidential Business Plan dated March 31, 1998
2
<PAGE> 4
("Confidential Business Plan"), a copy of which is attached hereto as Schedule
4, as determined by Investor in its sole discretion.
2. Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at 10:00 a.m. on April 3, 1998, at
the offices of Wyatt, Tarrant & Combs, 2800 Citizens Plaza, Louisville,
Kentucky, or at such other time, date, or place as shall be mutually agreed upon
by the parties hereto in writing (the "Closing Date"). Each of the Post Closing
Capital Calls, if any, shall be consummated at Holding Company's option as
contemplated by Section 1.B above by delivery of a certificate representing the
shares of Preferred Stock Investor is purchasing against payment of the purchase
price therefor in immediately available funds.
3. Closing Items.
A. At the Closing, Holding Company shall deliver, or
cause to be delivered, the following items:
[1] certificates representing the shares of Preferred
Stock that Investor is purchasing against delivery of shares of CATV
Preferred Stock and HSA Preferred Stock as set forth on Schedule 1 and
Schedule 2;
[2] certificates representing the shares of Common
Stock that each of the CATV Shareholders is purchasing against delivery
of shares of CATV Common Stock as set forth on Schedule 1;
[3] certificates representing the shares of Common
Stock that each of the HSA Shareholders is purchasing against delivery
of shares of HSA Common Stock as set forth on Schedule 2;
[4] the Certificate of Incorporation of Holding
Company ("Certificate") in the form attached hereto as Exhibit A
certified by the Delaware Secretary of State;
[5] the Bylaws of Holding Company ("Bylaws"),
certified as to their due adoption and continued validity by the
Secretary of Company;
[6] the Registration Rights Agreement in the form
attached hereto as Exhibit B ("Registration Rights Agreement") duly
executed by Holding Company;
[7] the Shareholders Agreement in the form attached
hereto as Exhibit C ("Shareholders Agreement") duly executed by Holding
Company;
3
<PAGE> 5
[8] the 1998 Stock Option Plan in the form attached
hereto as Exhibit D (the "Stock Option Plan") duly executed by Holding
Company; and
[9] resolutions of the Board of Directors of Holding
Company authorizing the execution, delivery and consummation of this
Agreement, the issuance of the shares of Preferred Stock and Common
Stock, and the other matters contemplated hereby, certified as to their
due adoption and continued validity by the Secretary of Company.
B. At the Closing, Investor shall deliver, or cause to be
delivered the following items:
[1] certificates representing shares of CATV
Preferred Stock or HSA Preferred Stock set forth opposite its name on
Schedules 1 and 2, duly endorsed for transfer, free and clear of any
liens, claims and encumbrances;
[2] the Registration Rights Agreement executed by
Investor; and
[3] the Shareholders Agreement executed by Investor.
C. At the Closing, each of the CATV Shareholders shall
deliver, or cause to be delivered the following items:
[1] certificates representing shares of CATV Common
Stock set forth opposite its name on Schedule 1, duly endorsed for
transfer, free and clear of any liens, claims and encumbrances; and
[2] the Shareholders Agreement executed by each CATV
Shareholder.
D. At the Closing, each of the HSA Shareholders shall deliver,
or cause to be delivered the following items:
[1] certificates representing shares of HSA Common
Stock set forth opposite its name on Schedule 2, duly endorsed for
transfer, free and clear of any liens, claims and encumbrances; and
[2] the Shareholders Agreement executed by each HSA
Shareholder.
4. Further Assurances. Each party shall execute such additional
documents and take such other actions as the other party or parties may
reasonably request to consummate the transactions contemplated hereby and
otherwise as may be necessary to effectively carry out the terms and provisions
of this Agreement.
4
<PAGE> 6
5. Representations and Warranties of Holding Company. Holding Company
hereby represents and warrants to Investor, as of the date hereof and as of the
date of each additional issuance of Preferred Shares to Investor pursuant to
Post Closing Capital Calls, and to the CATV Shareholders and the HSA
Shareholders as of the date hereof, as follows:
A. Corporate Standing. Holding Company is a corporation duly
organized, validly existing, and in good standing under the laws of the
Delaware. Holding Company has all requisite power and authority to own, lease
and operate its properties and to carry on its business as now being conducted
and as presently proposed to be conducted, to execute, deliver and perform this
Agreement, the Shareholders Agreement, the Registration Rights Agreement and any
other agreement to which Holding Company is a party, the execution and delivery
of which is contemplated hereby (the "Ancillary Agreements"). True and accurate
copies of the articles of incorporation, and all amendments thereto, bylaws (and
all amendments thereto) and minute book (containing the records of all meetings
and written consents of the stockholders, the board of directors and any
committees of the board of directors) of Holding Company have previously been
delivered to counsel to Investor.
B. Authorization. The execution and delivery of this
Agreement, the Shareholders Agreement, the Registration Rights Agreement, and
any Ancillary Agreement and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary corporate action
on the part of Holding Company. Each of this Agreement, the Shareholders
Agreement, the Registration Rights Agreement, and any Ancillary Agreement have
been duly executed and delivered by Holding Company, and constitutes the legal,
valid and binding obligation of Holding Company, enforceable against it in
accordance with its terms.
C. Capitalization. The authorized capital stock of Holding
Company consists of [i] 9,900,000 Common Shares with $.01 par value per share
("Common Shares"), none of which is outstanding as of the date hereof and [ii]
5,000,000 Preferred Shares, no par value per share ("Preferred Shares"), none of
which is outstanding at the date hereof. 5,000,000 Common Shares have been duly
and validly reserved for issuance upon conversion of the Preferred Shares, and
900,000 Common Shares have been duly and validly reserved for issuance under
Holding Company's Stock Option Plan. Except for (i) the conversion and other
privileges of the Preferred Shares, and (ii) the rights provided in Section 11.A
hereof and in the Registration Rights Agreement and the Shareholders Agreement,
there are outstanding no subscriptions, options, warrants, calls, commitments or
rights (including conversion or preemptive rights and rights of first refusal),
proxy or stockholder agreements or agreements of any character relating to
shares of Holding Company's capital stock or the Common Stock or Preferred Stock
to be issued hereunder or any instruments that can be converted into shares of
Holding Company's capital stock or the Common Stock or Preferred Stock to be
issued hereunder. None of the shares of Holding Company's capital stock have
been issued in violation of any preemptive right. All issuances, transfers or
purchases of the capital stock of Holding Company have been in compliance
5
<PAGE> 7
with all applicable agreements and all applicable laws, including federal and
state securities laws, and all taxes thereon, if any, have been paid. No former
or present holder of any of the shares of capital stock of Holding Company has
any legally cognizable claim against Holding Company based on any issuance,
sale, purchase, redemption or involvement in any transfer of any shares of
capital stock by Holding Company. Except for obligations of Holding Company to
redeem Preferred Shares as contemplated by Section 11.A hereof, there are no
contractual obligations of Holding Company to repurchase, redeem or otherwise
acquire any shares of capital stock of Holding Company. No bonds, debentures,
notes or other indebtedness having the right to vote (or convertible into or
exercisable for securities having the right to vote) on any matters on which
shareholders of Holding Company may vote are issued or outstanding. Holding
Company is not a party or subject to any agreement or understanding, and, to
Holding Company's best knowledge, there is no agreement or understanding between
any persons that affects or relates to the voting or giving of written consents
with respect to any security or the voting by any director of Holding Company.
D. Validly Issued Shares. The shares of Common Stock and
Preferred Stock to be issued, sold and delivered in accordance with the terms of
this Agreement for the consideration set out herein, will, upon issuance in
accordance with the terms hereof, be duly and validly issued, fully paid and
nonassessable, free of restrictions on transfer other than restrictions on
transfer under this Agreement, the Shareholders Agreement and under applicable
federal and state securities laws. The issuance of the Common Stock and
Preferred Stock to Investor pursuant to this Agreement will comply with all
applicable laws, including federal and state securities laws, and will not
violate the preemptive rights of any person. The Common Shares issuable upon
conversion of the Preferred Stock being purchased under this Agreement will be,
upon issuance and delivery in accordance with the terms of the Certificate, duly
and validly issued, fully paid and nonassessable and free of restrictions on
transfer other than restrictions on transfer under this Agreement and the
Shareholders Agreement and under applicable federal and state securities laws.
The issuance of the Common Shares upon conversion of the Preferred Stock will
comply with all applicable laws, including federal and state securities laws
(assuming the accuracy of the representations set forth in Sections 6.B through
6.E of this Agreement as of the date of issuance of such Common Shares), and
will not violate the preemptive rights of any person.
E. No Conflict. The execution and delivery of this Agreement,
the Shareholders Agreement and the Registration Rights Agreement, and any
Ancillary Agreement do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or the loss of a material benefit under, or the creation of a
lien, pledge, security interest, charge or other encumbrance on assets (any such
conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation") pursuant to, any provision of the
Certificate or Bylaws, or result in any Violation of any material lease,
agreement, obligation, instrument, permit, concession, franchise,
6
<PAGE> 8
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Holding Company or Holding Company's properties or assets.
F. Contracts and Other Commitments; Compliance. No event or
condition has occurred or exists, or, to the knowledge of Holding Company, is
alleged by any of the other parties thereto to have occurred or existed, which
constitutes, or with lapse of time or giving of notice or both might constitute,
a default or breach under any contract, agreement, lease, loan, commitment or
proposed transaction, judgment, order, writ or decree, written or oral, absolute
or contingent to which Holding Company is a party, which default is reasonably
likely to result in a material adverse change in the financial condition,
results of operation or business of Holding Company. Holding Company is not in
violation or default of any provision of its Certificate or Bylaws or in any
respect of any provision of any contract.
G. Subsidiaries. Holding Company does not own or control,
directly or indirectly, any interest in any other corporation, partnership,
limited liability company, association or other business entity. Holding Company
is not a participant in any joint venture, partnership or similar arrangement.
H. Consents. No consent, approval, qualification, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, or other third party is required by or
with respect to Holding Company in connection with the execution and delivery of
this Agreement, or the consummation by Holding Company of the transactions
contemplated hereby, which has not already been obtained, except for notices of
sale required to be filed with the Securities and Exchange Commission under
Regulation D of the Securities Act of 1933, as amended (the "Securities Act"),
or such post closing filings as may be required under applicable state
securities laws which will be timely filed within the applicable periods
therefor.
I. Financial Statements. On and after the Closing, Holding
Company shall deliver to Investor the financial statements required by Section
11.B of this Agreement (the "Financial Statements"). The Financial Statements,
including any footnotes thereto, will be true, correct and complete and present
fairly the financial condition of Holding Company as of and for the respective
dates set forth therein.
J. Indebtedness for Borrowed Money; No Undisclosed
Liabilities. Holding Company has no direct or indirect indebtedness for borrowed
money, indebtedness by way of lease-purchase arrangements, guarantees,
undertakings, chattel mortgages or other security arrangements with any bank,
financial institution or other third party. Except as and to the extent
reflected and adequately reserved against in the Financial Statements or
incurred in the ordinary course of business since the date of the Financial
Statements,
7
<PAGE> 9
Holding Company will not have any liability or obligation whatsoever, whether
accrued, absolute, contingent or otherwise.
K. Absence of Changes. As of the date of each Post Closing
Capital Call, there shall not have been:
[1] any change in the assets, liabilities, financial condition
or operating results of Holding Company from that reflected in the
Financial Statements, except changes in the ordinary course of business
that have not been, in the aggregate, materially adverse;
[2] any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of Holding Company (as such business
is presently conducted and as it is presently proposed to be
conducted);
[3] any waiver or compromise by Holding Company of a valuable
right or of a material debt owed to it;
[4] any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by Holding Company, except in
the ordinary course of business and that is not material to the
business, properties, or financial condition of Holding Company (as
such business is presently conducted and as it is presently proposed to
be conducted);
[5] any material change to a material contract or arrangement
by which Holding Company or any of its assets is bound or subject;
[6] any material change in any compensation arrangement or
agreement with any employee or officer;
[7] any sale, assignment, or transfer of any intangible
assets;
[8] any resignation or termination of employment of any key
officer of Holding Company;
[9] any mortgage, pledge, transfer of a security interest in,
or lien, created by Holding Company, with respect to any of its
material properties or assets, except liens for taxes not yet due or
payable;
[10] any declaration, setting aside or payment of any dividend
or other distribution of Holding Company's assets in respect of any of
Holding Company's
8
<PAGE> 10
capital stock, or any direct or indirect redemption, purchase, or
other acquisition of any of such stock by Holding Company;
[11] to the best of Holding Company's knowledge, any other
event or condition of any character that might materially and adversely
affect the business, properties, prospects or financial condition of
Holding Company (as such business is presently conducted and as it is
presently proposed to be conducted); or
[12] any agreement or commitment by Holding Company to do any
of the things described in this Section 5.K.
L. Title to Property and Assets; Leases.
[1] Holding Company is not bound or committed to make any
capital improvement or expenditure with respect to its owned or leased
real or personal property.
[2] Holding Company owns no real property in fee simple.
Holding Company has good, valid and marketable title to all the
personal and mixed, tangible and intangible properties and assets which
it purports to own, free and clear of all liens, restrictions, claims,
charges, security interests, easements or other encumbrances of any
nature whatsoever, except for liens for current taxes not yet due and
payable. With respect to the property and assets that it leases,
Holding Company is in compliance with such leases and, to Holding
Company's best knowledge, holds a valid leasehold interest, free and
clear of any liens, claims and encumbrances. All properties and assets
of Holding Company are in the possession or control of Holding Company,
and no other person is entitled to possession of any such properties
and assets.
M. Legal Proceedings. There are no claims of any kind or any
actions, suits, proceedings, arbitrations or investigations pending or, to
Holding Company's best knowledge, threatened against or affecting Holding
Company or against any asset, interest or right of either of them or which
questions the validity of the transactions contemplated by this Agreement and
Holding Company does not know of any facts which may constitute a basis
therefor.
N. Environmental Matters. Holding Company is not in violation
of any applicable statute, law or regulation relating to the environment or
occupational health and safety (the "Environmental Laws"), and, to Holding
Company's best knowledge, as of the date hereof no material expenditures are
required to be made by Holding Company in order to comply with any of the
Environmental Laws.
9
<PAGE> 11
O. Licenses and Permits; Compliance with Laws. Holding Company
holds all franchises, permits, licenses, variances, exemptions, orders and
approvals of all governmental entities which are material to the operation of
Holding Company's business and is in compliance with the terms thereof. Holding
Company has complied with and is not in any default under (and has not been
charged with or received notice with respect to, nor is threatened with or under
investigation with respect to, any charge concerning any violation of any
provision of) any federal, state or local law, regulation, ordinance, rule or
order (whether executive, judicial, legislative or administrative) or any order,
writ, injunction or decree of any court, agency or instrumentality and no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
failures to comply.
P. Employee Benefit Plans. Each employee benefit plan of
Holding Company, including any profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical or
other plan, arrangement or understanding (whether or not legally binding)
providing benefits to any current or former employee, officer or director of
Holding Company (collectively "Benefit Plans"), or any employment, consulting,
severance, termination or indemnification agreement, arrangement or
understanding between Holding Company and any officer, director or employee of
Holding Company, has been administered in all material respects in accordance
with its terms and all applicable laws.
Q. Labor Relations.
[1] Holding Company is in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours and
occupational safety and health;
[2] There is no unfair labor practice charge or
complaint or any other matter against or involving Holding Company
pending or, to Holding Company's best knowledge, threatened before the
National Labor Relations Board or any court of law;
[3] There is no labor strike, dispute, slowdown or
stoppage actually pending or, to Holding Company's best knowledge,
threatened against Holding Company;
[4] Holding Company is not a party to or bound by any
collective bargaining agreement or any similar labor union arrangement;
[5] There are no charges, investigations,
administrative proceedings or formal complaints of discrimination
(including discrimination based upon sex,
10
<PAGE> 12
age, marital status, race, color, religion, national origin, sexual
preference, disability, handicap or veteran status) pending or, to
Holding Company's best knowledge, threatened, before the Equal
Employment Opportunity Commission or any federal, state or local agency
or court against Holding Company. There have been no governmental
audits of the equal employment opportunity practices of Holding Company
and, to Holding Company's best knowledge, no basis for any such claim
exists; and
[6] Holding Company is in compliance in all material
respects with the requirements of the Americans With Disabilities Act.
R. Insurance. Holding Company is not liable for any material
retroactive premium adjustments with respect to any of its insurance policies or
bonds. All such policies and bonds are legal, valid and enforceable and in full
force and effect and Holding Company is not in breach or default (including with
respect to the payment of premiums or the giving of notices) and no event has
occurred which, with notice or the lapse of time, would constitute such a breach
or default, or permit termination, modification or acceleration under the policy
received any notice of premium increases or cancellations with respect to any of
such policies and bonds. Holding Company believes the amount and type of Holding
Company's insurance coverage is adequate for Holding Company's business and is
consistent with good business practice.
S. Tax Matters. Holding Company has timely filed or caused to
be filed all federal, state, foreign and local income, franchise, gross
receipts, payroll, sales, use, withholding, occupancy, excise, real and personal
property, employment and other tax returns, tax information returns and reports
("Tax Returns") required to be filed and all such Tax Returns were correct and
complete in all respects. Holding Company has paid, or made adequate provisions
for the payment of, all taxes, duties or assessments of any nature whatsoever,
interest payments, penalties and additions (whether or not reflected in the
returns as filed) due and payable (and/or properly accruable for all periods
ending on or before the date of this Agreement) to any city, county, state,
foreign country, the United States or any other taxing authority. There are no
security interests on any of the assets of Holding Company that arise in
connection with any failure (or alleged failure) to pay any tax. Holding Company
has withheld and paid all taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other third party. No material deficiencies for any
taxes have been proposed, asserted or assessed against Holding Company that are
not adequately reserved for.
T. Related Party Transactions. No employee, officer or holder
of Holding Company's Common Shares or member of his or her immediate family is
indebted to Holding Company, nor is Holding Company indebted (or committed to
make loans or extend or guarantee credit) to any of them, other than (i) for
payment of salary for services
11
<PAGE> 13
rendered, (ii) reimbursement for reasonable expenses incurred on behalf of
Holding Company, and (iii) for other standard employee benefits made generally
available to all employees (including stock option agreements outstanding under
any stock option plan approved by the Board of Directors of Holding Company). To
the best of Holding Company's knowledge, none of such persons has any direct or
indirect ownership interest in any firm or corporation with which Holding
Company has a business relationship, or any firm or corporation that competes
with Holding Company, except that employees, stockholders, and officers of
Holding Company and members of their immediate families may own stock in
publicly traded companies that may compete with Holding Company.
U. Brokers' and Finders' Fees. Holding Company has not
employed any broker, finder or financial advisor or incurred any liability for
fees or commissions payable to any broker, finder or financial advisor in
connection with the negotiations relating to or the transactions contemplated by
this Agreement.
V. Registration Rights. Holding Company is presently not under
any obligation and has not granted any rights to register under the Securities
Act any of is outstanding securities or any of its securities that may be
subsequently issued.
W. Small Business Concern. Holding Company, together with any
"affiliates" (as that term is defined in Section 121.103 of Title 13 of the Code
of Federal Regulations), is a "small business concern" within the meaning of the
Small Business Investment Act of 1958, as amended (the "SBIA"), and the
regulations thereunder, including Section 121.301 of Title 13 of the Code of
Federal Regulations. Holding Company does not presently engage in, and it shall
not hereafter engage in, any activities, nor shall it use, directly or
indirectly, the proceeds from the sale of the Preferred Shares hereunder for any
purpose for which a small business investment company is prohibited from
providing funds by the SBIA and the Regulations thereunder.
X. Material Facts. Holding Company has provided Investor with
all the information reasonably available to it that Investor has requested for
deciding whether to purchase the Preferred Stock. This Agreement, the
Confidential Business Plan and the documents or written statements furnished by
Holding Company to Investor in connection with the transactions contemplated
hereby, do not contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements contained herein or therein,
in light of the circumstances in which they are made, not misleading.
6. Representations and Warranties of Investor. Investor hereby
represents and warrants to Holding Company, as of the date hereof and as of the
date of each additional issuance of Preferred Shares to such Investor pursuant
to Post Closing Capital Calls, as follows:
12
<PAGE> 14
A. Authorization; Binding Agreement. This Agreement, the
Registration Rights Agreement and the Shareholders Agreement have been duly
authorized, executed and delivered by Investor and each constitutes the legal,
valid and binding obligation of Investor enforceable against it in accordance
with its terms.
B. Investment Representations. Investor is acquiring the
Preferred Stock and the Common Stock issuable upon conversion thereof
(collectively the "Securities") solely for its own account as principal, for
investment purposes only and not with a view to resale or distribution thereof
in whole or in part, and Investor has no present intention of selling, granting
any participation in, or otherwise distributing the Securities. No other person
has a direct or indirect beneficial interest in the Securities to be acquired by
Investor hereunder and Investor does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to any third person, with respect to any of the Securities.
C. Accredited Investor; Residence. Investor is a Kentucky
limited liability company and is an "accredited investor" as such term is
defined under Regulation D of the Securities Act.
D. Receipt of Information; Restricted Securities. Investor
acknowledges receipt of the Confidential Business Plan. Investor acknowledges
that the Securities are not being and will not be registered under the
Securities Act or the securities laws of any other jurisdiction in reliance on
exemptions thereunder. The Securities have not been and will not be approved or
disapproved by the Securities and Exchange Commission or any other governmental
authority or agency of any jurisdiction. Investor represents that Investor has
had an opportunity to ask questions and receive answers from Holding Company
regarding the terms and conditions of the offering of the Preferred Stock and
the business, properties, prospects, and financial condition of Holding Company
and to obtain additional information (to the extent Holding Company possessed
such information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to Investor or to
which Investor had access. Investor's representations under this Section 6,
however, shall not limit or modify the representations and warranties of Holding
Company in Section 5 of this Agreement or the right of Investor to rely thereon.
E. Investment Experience. Investor is experienced in
evaluating and investing in private placement transactions of securities of
companies in a similar stage or development and acknowledges that such Investor
is able to fend for itself, can bear the economic risk of its investment, and
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the investment in the Preferred
Stock.
13
<PAGE> 15
7. Representations and Warranties of CATV Shareholders. The CATV
Shareholders hereby, jointly and severally, represent and warrant to Holding
Company and Investor as follows:
A. Authorization. Each of this Agreement and the Shareholders
Agreement have been duly executed and delivered by the CATV Shareholders, and
constitutes the legal, valid and binding obligation of the CATV Shareholders,
enforceable against them in accordance with its terms.
B. Capitalization. The authorized capital stock of CATV
consists of [i] 495,000 Common Shares with no par value per share ("CATV Common
Shares"), of which at the date hereof 200,000 shares are validly issued and
outstanding, fully paid and nonassessable and owned, beneficially and of record,
as set forth on Schedule 1 attached hereto, and [ii] 250,000 Preferred Shares,
no par value per share ("CATV Preferred Shares"), of which at the date hereof
50,000 shares are validly issued and outstanding, fully paid and nonassessable.
250,000 CATV Common Shares have been duly and validly reserved for issuance upon
conversion of the CATV Preferred Shares, and 45,000 CATV Common Shares have been
duly and validly reserved for issuance under CATV's Stock Option Plan. Except
for (i) the conversion and other privileges of the CATV Preferred Shares, and
(ii) the rights provided in Section 9.A of the CATV Purchase Agreement and in
the CATV Registration Rights Agreement and the CATV Shareholders Agreement (each
as defined in the CATV Purchase Agreement), there are outstanding no
subscriptions, options, warrants, calls, commitments or rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements or agreements of any character relating to shares of
CATV's capital stock or any instruments that can be converted into shares of
CATV's capital stock. None of the shares of CATV's capital stock have been
issued in violation of any preemptive right. All issuances, transfers or
purchases of the capital stock of CATV (and any predecessor in interest to CATV)
have been in compliance with all applicable agreements and all applicable laws,
including federal and state securities laws, and all taxes thereon, if any, have
been paid. No former or present holder of any of the shares of capital stock of
CATV (or any predecessor in interest to CATV) has any legally cognizable claim
against CATV based on any issuance, sale, purchase, redemption or involvement in
any transfer of any shares of capital stock by CATV (or any predecessor in
interest to CATV). Except for obligations of CATV to redeem CATV Preferred
Shares as contemplated by Section 9.A of the CATV Purchase Agreement, there are
no contractual obligations of CATV to repurchase, redeem or otherwise acquire
any shares of capital stock of CATV. No bonds, debentures, notes or other
indebtedness having the right to vote (or convertible into or exercisable for
securities having the right to vote) on any matters on which shareholders of
CATV may vote are issued or outstanding. CATV is not a party or subject to any
agreement or understanding, and, to the CATV Shareholders' best knowledge, there
is no agreement or understanding between any persons that affects or relates to
the voting or giving of written consents with respect to any security or the
voting by any director of CATV.
14
<PAGE> 16
C. No Conflict. The execution and delivery of this Agreement
and the Shareholders Agreement do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or the loss of a material benefit under, or the creation of a
lien, pledge, security interest, charge or other encumbrance on assets (any such
conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation") pursuant to, any provision of the
Articles of IncorporatiOn or Bylaws of CATV or result in any Violation of any
material lease, agreement, obligation, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to CATV or the CATV Shareholders, or their respective
properties or assets.
D. Consents. No consent, approval, qualification, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, or other third party is required by or
with respect to the CATV Shareholders in connection with the execution and
delivery of this Agreement, or the consummation by the CATV Shareholders of the
transactions contemplated hereby, which has not already been obtained.
E. Reaffirmation of Representations. The representations and
warranties made by the CATV Shareholders to Investor in the Convertible
Preferred Stock Purchase Agreement dated as of February 23, 1998 (the "CATV
Purchase Agreement") by and among Investor and the CATV Shareholders are true
and correct as of the date hereof as if made on and as of the date hereof.
F. Investment Representations. Each CATV Shareholder is
acquiring the the shares of Holding Company Common Stock pursuant to this
Agreement solely for its own account as principal, for investment purposes only
and not with a view to resale or distribution thereof in whole or in part, and
such CATV Shareholder has no present intention of selling, granting any
participation in, or otherwise distributing such shares. No other person has a
direct or indirect beneficial interest in the shares of Holding Company Common
Stock to be acquired by the CATV Shareholders hereunder and such CATV
Shareholders do not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participation to any third person,
with respect to any of the shares of Holding Company Common Stock. Each CATV
Shareholder acknowledges that the shares of Holding Company Common Stock are not
being and will not be registered under the Securities Act or the securities laws
of any other jurisdiction in reliance on exemptions thereunder. Shares of
Holding Company Common Stock have not been and will not be approved or
disapproved by the Securities and Exchange Commission or any other governmental
authority or agency of any jurisdiction. Each CATV Shareholder represents that
it has had an opportunity to ask questions and receive answers from Holding
Company regarding the terms and conditions of the offering of the Common Stock
and the business,
15
<PAGE> 17
properties, prospects, and financial condition of Holding Company and to obtain
additional information (to the extent Holding Company possessed such information
or could acquire it without unreasonable effort or expense) necessary to verify
the accuracy of any information furnished to such CATV Shareholder or to which
such CATV Shareholder had access.
8. Representations and Warranties of HSA Shareholders. The HSA
Shareholders hereby, jointly and severally, represent and warrant to Investor
and Holding Company, as follows:
A. Authorization. Each of this Agreement and the Shareholders
Agreement have been duly executed and delivered by the HSA Shareholders, and
constitutes the legal, valid and binding obligation of the HSA Shareholders,
enforceable against them in accordance with its terms.
B. Capitalization. The authorized capital stock of HSA
consists of [i] 4,950,000 Common Shares with no par value per share ("HSA Common
Shares"), of which at the date hereof 2,000,000 shares are validly issued and
outstanding, fully paid and nonassessable and owned, beneficially and of record,
as set forth on Schedule 2 attached hereto, and [ii] 2,500,000 Preferred Shares,
no par value per share ("HSA Preferred Shares"), of which at the date hereof
500,000 shares are validly issued and outstanding, fully paid and nonassessable.
2,500,000 HSA Common Shares have been duly and validly reserved for issuance
upon conversion of the HSA Preferred Shares, and 450,000 HSA Common Shares have
been duly and validly reserved for issuance under HSA's Stock Option Plan.
Except for (i) the conversion and other privileges of the HSA Preferred Shares,
and (ii) the rights provided in Section 10.A of the HSA Purchase Agreement and
in the HSA Registration Rights Agreement and the HSA Shareholders Agreement
(each as defined in the HSA Purchase Agreement), there are outstanding no
subscriptions, options, warrants, calls, commitments or rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements or agreements of any character relating to shares of
HSA's capital stock or any instruments that can be converted into shares of
HSA's capital stock. None of the shares of HSA's capital stock have been issued
in violation of any preemptive right. All issuances, transfers or purchases of
the capital stock of HSA (and any predecessor in interest to HSA) have been in
compliance with all applicable agreements and all applicable laws, including
federal and state securities laws, and all taxes thereon, if any, have been
paid. No former or present holder of any of the shares of capital stock of HSA
(or any predecessor in interest to HSA) has any legally cognizable claim against
HSA based on any issuance, sale, purchase, redemption or involvement in any
transfer of any shares of capital stock by HSA (or any predecessor in interest
to HSA). Except for obligations of HSA to redeem HSA Preferred Shares as
contemplated by Section 10.A of the HSA Purchase Agreement, there are no
contractual obligations of HSA to repurchase, redeem or otherwise acquire any
shares of capital stock of HSA. No bonds, debentures, notes or other
indebtedness having the right to vote (or convertible into or exercisable for
securities having the right
16
<PAGE> 18
to vote) on any matters on which shareholders of HSA may vote are issued or
outstanding. HSA is not a party or subject to any agreement or understanding,
and, to the HSA Shareholders' best knowledge, there is no agreement or
understanding between any persons that affects or relates to the voting or
giving of written consents with respect to any security or the voting by any
director of HSA.
C. No Conflict. The execution and delivery of this Agreement
and the Shareholders Agreement do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or the loss of a material benefit under, or the creation of a
lien, pledge, security interest, charge or other encumbrance on assets (any such
conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation") pursuant to, any provision of the
Articles of IncorporatiOn or Bylaws of HSA or result in any Violation of any
material lease, agreement, obligation, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to HSA or the HSA Shareholders, or their respective
properties or assets.
D. Consents. No consent, approval, qualification, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, or other third party is required by or
with respect to the HSA Shareholders in connection with the execution and
delivery of this Agreement, or the consummation by the HSA Shareholders of the
transactions contemplated hereby, which has not already been obtained.
E. Reaffirmation of Representations. The representations and
warranties made by Pitcock and Gans to Investor in the Convertible Preferred
Stock Purchase Agreement dated as of April 3, 1998 (the "HSA Purchase
Agreement") by and among Investor and the HSA Shareholders are true and correct
as of the date hereof as if made on and as of the date hereof.
F. Investment Representations. Each HSA Shareholder is
acquiring the the shares of Holding Company Common Stock pursuant to this
Agreement solely for its own account as principal, for investment purposes only
and not with a view to resale or distribution thereof in whole or in part, and
such HSA Shareholder has no present intention of selling, granting any
participation in, or otherwise distributing such shares. No other person has a
direct or indirect beneficial interest in the shares of Holding Company Common
Stock to be acquired by the HSA Shareholders hereunder and such HSA Shareholders
do not have any contract, undertaking, agreement or arrangement with any person
to sell, transfer or grant participation to any third person, with respect to
any of the shares of Holding Company Common Stock. Each HSA Shareholder
acknowledges that the shares of Holding Company Common Stock are not being and
will not be registered under the Securities Act
17
<PAGE> 19
or the securities laws of any other jurisdiction in reliance on exemptions
thereunder. Shares of Holding Company Common Stock have not been and will not be
approved or disapproved by the Securities and Exchange Commission or any other
governmental authority or agency of any jurisdiction. Each HSA Shareholder
represents that it has had an opportunity to ask questions and receive answers
from Holding Company regarding the terms and conditions of the offering of the
Common Stock and the business, properties, prospects, and financial condition of
Holding Company and to obtain additional information (to the extent Holding
Company possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify the accuracy of any information furnished
to such HSA Shareholder or to which such HSA Shareholder had access.
9. Survival of Representations and Warranties. All representations and
warranties contained in this Agreement by any party to this Agreement and any
certificate or other instrument delivered by or on behalf of any party pursuant
to this Agreement shall be continuous and shall survive the Closing and the
issuance of all shares of Holding Company's capital stock as contemplated
hereunder for a period of two (2) years. Each party shall have the right to rely
on each other party's representations and warranties made herein,
notwithstanding any investigation conducted by such party.
10. Indemnification.
A. Indemnification by Holding Company. Holding Company shall
indemnify and reimburse Investor for any and all claims, losses, liabilities,
damages (including, without limitation, fines, penalties, and criminal or civil
judgments and settlements), costs (including, without limitation, court costs)
and expenses (including, without limitation, attorneys' and accountants' fees)
(hereinafter "Loss" or "Losses") suffered or incurred by Investor, any
successors or assigns thereto as a result of, or with respect to:
[1] Any breach or inaccuracy of any representation
or warranty of Holding Company set forth in Section 5;
[2] Any breach of or noncompliance by Holding Company
with any covenant or agreement of Holding Company contained in this
Agreement, unless such breach or noncompliance results from any action
or failure to act by the Board of Directors of the Holding Company, a
majority of which has been elected by Investor;
[3] Any act or omission of Holding Company or its
employees, agents or representatives, or of Holding Company's
predecessors in interest, occurring prior to the Closing Date which
results in any Loss arising under the Environmental Laws, or the
ownership, use, control or operation by Holding Company or its
predecessors in interest of any of the current or former properties of
18
<PAGE> 20
Holding Company which results in any Loss arising under the
Environmental Laws or the release of any substance into the environment
prior to the Closing Date; and
[4] any and all actions, suits, proceedings, claims,
demands, assessments and judgments incident to any of the foregoing.
B. Indemnification by Investor. Investor shall indemnify and
reimburse Holding Company for any and all claims, losses, liabilities, damages
(including, without limitation, fines, penalties, and criminal or civil
judgments and settlements), costs (including, without limitation, court costs)
and expenses (including, without limitation, attorneys' and accountants' fees)
suffered or incurred by Holding Company or any successors or assigns thereto as
a result of, or with respect to:
[1] Any breach or inaccuracy of any representation
or warranty of Investor set forth in Section 6;
[2] Any breach of or noncompliance by Investor with
any covenant or agreement of Investor contained in this Agreement; and
[3] any and all actions, suits, proceedings, claims,
demands, assessments and judgments incident to any of the foregoing.
C. Indemnification by CATV Shareholders. The CATV Shareholders
shall indemnify and reimburse Investor and Holding Company for any and all
claims, losses, liabilities, damages (including, without limitation, fines,
penalties, and criminal or civil judgments and settlements), costs (including,
without limitation, court costs) and expenses (including, without limitation,
attorneys' and accountants' fees) suffered or incurred by Investor or Holding
Company or any successors or assigns thereto as a result of, or with respect to:
[1] Any breach or inaccuracy of any representation
or warranty of the CATV Shareholders set forth in Section 7;
[2] Any breach of or noncompliance by the CATV
Shareholders with any covenant or agreement of the CATV Shareholders
contained in this Agreement; and
[3] any and all actions, suits, proceedings, claims,
demands, assessments and judgments incident to any of the foregoing.
D. Indemnification by HSA Shareholders. HSA Shareholders shall
indemnify and reimburse Holding Company and Investor for any and all claims,
losses, liabilities, damages (including, without limitation, fines, penalties,
and criminal or civil
19
<PAGE> 21
judgments and settlements), costs (including, without limitation, court costs)
and expenses (including, without limitation, attorneys' and accountants' fees)
suffered or incurred by Investor or Holding Company or any successors or assigns
thereto as a result of, or with respect to:
[1] Any breach or inaccuracy of any representation
or warranty of the HSA Shareholders set forth in Section 8;
[2] Any breach of or noncompliance by the HSA
Shareholders with any covenant or agreement of the HSA Shareholders
contained in this Agreement; and
[3] any and all actions, suits, proceedings, claims,
demands, assessments and judgments incident to any of the foregoing.
11. Covenants.
A. Redemption Rights. At any time and from time to time from
and after April 3, 2003 but prior to the Holding Company's completed
underwritten initial public offering, Investor shall have the right and option
to sell to Holding Company, and Holding Company shall buy, Investor's shares of
capital stock of Holding Company (the "Put") at a price per share (the "Put
Purchase Price") equal to the greater of (a) the initial purchase price per
share of Investor's shares, plus accrued but unpaid dividends through the date
of the Put Closing (as defined below), or (b) the fair market value per share
(without application of any discount for lack of marketability or minority
position) as determined by a qualified, independent appraiser experienced in
valuation of shares of companies similar to Holding Company (the "Qualified
Appraiser") acceptable to both Holding Company and Investor. If the Investor and
Holding Company are unable to agree upon a Qualified Appraiser, each of them
shall separately designate a Qualified Appraiser. Such Qualified Appraisers
shall jointly designate a definitive Qualified Appraiser, and such definitive
Qualified Appraiser's determination shall be the fair market value of Investor's
shares of Holding Company stock and shall be conclusive and binding upon the
parties. The fees and expenses of the definitive Qualified Appraiser shall be
borne equally by Holding Company and the Investor. The closing (the "Put
Closing") shall take place at a time and place mutually agreed upon by Investor
and Holding Company on or before the 180th day after written notice of exercise
of the Put is given to Holding Company by Investor, or if Investor and Holding
Company shall not agree on the time and place, the Put Closing shall take place
at the principal office of Holding Company in Louisville, Kentucky at 10:00 a.m.
on the 180th day after written notice of exercise is given, unless such day is a
Saturday, Sunday or holiday, in which case it shall occur on the next business
day. The Put Purchase Price shall be paid in cash at Closing.
20
<PAGE> 22
B. Financial Reporting. For periods commencing on or after the
Closing Date, Holding Company shall deliver or cause to be delivered to Investor
monthly and year-to-date balance sheets and income and cash flow statements
(each as compared to budget and the comparable prior year period), a monthly
written summary of operations and such other information and data with respect
to Holding Company as Investor may reasonably request. Such monthly reports
shall be provided on or before fifteen (15) days following the end of each
month. Not later than thirty (30) days prior to the end of each fiscal year,
Holding Company shall provide a business plan and projections for the next
fiscal year. Annual audits of the Holding Company's financial statements for
periods commencing on or after January 1, 1998 shall be performed by an
independent accounting firm acceptable to a majority of the holders of the
Preferred Stock and copies thereof shall be delivered to Investor on or before
the 120th day following the end of Holding Company's fiscal year.
C. Indebtedness for Borrowed Money. Holding Company shall not,
without the prior consent of a majority of Holding Company's directors, incur in
any fiscal year any obligations for borrowed money or leases in excess of One
Hundred Thousand Dollars ($100,000) in the aggregate.
D. Board of Directors. Effective as of the Closing, the
directors of Holding Company shall be David A. Jones, Jr., Robert Saunders,
Irving Bailey, Michael Gellert, Ronnie W. Pitcock, W. Kent Oyler, III and Joseph
S. Gans, III. The directors of the Holding Company shall appoint a Compensation
Committee composed of non-management directors of Holding Company, which
Committee shall determine management compensation and awards of stock options.
In addition, Investor shall have "observer" rights pursuant to which it (or its
representatives) shall be entitled to attend and observe all meetings of the
Board of Directors of the Holding Company. Such observers, if any, shall have no
right to vote on any matter brought before the Board of Directors. Holding
Company shall pay the reasonable expenses of any Preferred Director (as defined
in the Certificate) and of Investor and its representatives incurred in
attending meetings of the Board of Directors or other business of Holding
Company.
E. Reservation of Shares. On and after the Closing Date,
Holding Company will reserve and keep reserved at all times sufficient shares of
Common Stock for issuance upon conversion of the Preferred Stock pursuant to
Paragraph B.4(a) of Article IV of the Certificate. Immediately prior to the
occurrence of any event that would cause the number of shares of Common Stock
into which the Preferred Stock would be convertible to be determined in
accordance with Paragraph B.4(b) of Article IV of the Certificate, the Holding
Company shall take any and all actions necessary to permit such conversion. Upon
conversion of any shares of Preferred Stock, Holding Company will promptly issue
and deliver the shares of Common Stock required to be delivered.
F. Use of Proceeds. The proceeds from the sale of the
Preferred Stock pursuant to this Agreement shall be used by Holding Company for
working capital or for any other purpose approved by the Board of Directors of
the Holding Company.
21
<PAGE> 23
G. Prohibited Matters. From and after the date hereof, Holding
Company shall not, without the consent of the holders of the majority of the
then outstanding Preferred Shares:
[1] Effect any transaction that results in a change of
control of the Holding Company;
[2] Materially change the nature of the Holding Company's
business;
[3] Effect a liquidation, dissolution, merger or sale of the
Holding Company or sell substantially all of its assets;
[4] Amend its articles of incorporation or bylaws;
[5] Redeem or pay any dividend or distribution on its common
stock;
[6] Issue any class or series of equity securities or
equivalents thereof except pursuant to a management stock option plan
approved by the Board of Directors of Holding Company or upon
conversion of the Preferred Shares;
[7] Except for transactions with Investor, engage in any
transactions with "affiliates", which for the purposes of this
Agreement, shall mean (i) any director or officer of Holding Company or
holder of Holding Company's capital stock, (ii) any person or entity,
directly or indirectly, controlling, controlled by or under common
control with any such person or entity, and (iii) in the case of a
natural person, members of his or her immediate family or a trust for
their benefit; or
[8] Take any other actions that would materially affect the
holders of the Preferred Shares.
H. Consulting Fee. Holding Company shall accrue $20,000
quarterly as a consulting fee to Chrysalis Ventures, LLC. Such consulting fees
shall be accrued but not paid until the earlier of (i) a determination by
Holding Company's board of directors that Holding Company has sufficient cash
flow to pay such fees, or (ii) Holding Company produces after-tax quarterly
profits in excess of $100,000 for two consecutive quarters. Each of the parties
hereto acknowledges and agrees that such consulting fees shall be paid by
Holding Company in lieu of consulting fees payable to Chrysalis Ventures, LLC
pursuant to the CATV Purchase Agreement or the HSA Purchase Agreement.
12. Post-Closing Capital Calls. In consideration of the mutual
covenants and agreements contained herein, [i] Investor, CATV and the CATV
Shareholders agree that the rights and obligations of CATV and Investor pursuant
to the Post Closing Capital Calls provided for in Section 1 of the CATV Purchase
Agreement shall, at the Closing, terminate
22
<PAGE> 24
and be of no further force or effect; and [ii] Investor, HSA and the HSA
Shareholders agree that the rights and obligations of HSA and Investor pursuant
to the Post Closing Capital Calls provided for in Section 1 of the HSA Purchase
Agreement shall, at the Closing, terminate and be of no further force or effect.
13. Public Statements. None of the parties hereto shall, without the
prior written approval of the other parties hereto, make any press release or
other public announcement concerning the transactions contemplated by this
Agreement.
14. Notices. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be mailed by first class,
registered, or certified mail, postage prepaid, or sent via overnight courier
service, or delivered personally:
If to Holding Company, to: High Speed Access Corp.
1850 National City Tower
101 South Fifth Street
Louisville, Kentucky 40202
If to Investor, to: Broadband Solutions, LLC
1850 National City Tower
101 South Fifth Street
Louisville, Kentucky 40202
With a copy to: Patrick W. Mattingly, Esq.
Wyatt, Tarrant & Combs
2800 Citizens Plaza
Louisville, KY 40202
If to the HSA Shareholders, to: Ron Pitcock
3800 Lark Bunting Lane
Littleton, Colorado 80127
If to the CATV Shareholders, to: W. Kent Oyler, III
Suite 210
1000 West Ormsby Avenue
Louisville, Kentucky 40210
or to such other address of which the addressee shall have notified the sender
in writing. Notices mailed in accordance with this section shall be deemed given
when mailed, and notices sent by overnight courier service shall be deemed given
when placed in the hands of a representative of such service.
23
<PAGE> 25
15. Parties in Interest; Assignment. Except as otherwise provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties to this Agreement shall bind and inure to the benefit of
their respective heirs, executors, successors, and assigns, whether so expressed
or not. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto and their respective successors and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement. This Agreement is not assignable and any other purported
assignment shall be null and void, provided that Investor may assign its rights
and obligations under this Agreement to any of its affiliates that may purchase
any of the Preferred Stock held by Investor. Notwithstanding such permitted
assignment, Investor shall not be released from its obligations hereunder. The
term "affiliate" as used in this Section 15 shall include, without limitation,
[i] any director or executive officer of such person or of an affiliate of such
person, [ii] a parent, spouse or child (a "relative") of such director or
executive officer, [iii] any group, acting in concert, of such director,
executive officer or relative (a "group"), [iv] any person controlled by any
such director, executive officer, relative or group, and [v] any person or group
which beneficially owns or holds 5% or more of any class of voting securities or
a 5% or greater equity or profits interest in such person.
16. Construction; Governing Law. The section headings contained in this
Agreement are inserted as a matter of convenience and shall not affect in any
way the construction of the terms of this Agreement. This Agreement shall be
governed by and interpreted in accordance with the laws of the Commonwealth of
Kentucky as applied to agreements among Kentucky residents entered into and
performed entirely within Kentucky.
17. Entire Agreement; Amendment and Waiver. This Agreement, including
the Schedules and Exhibits hereto, constitutes and contains the entire agreement
between the parties hereto with respect to the transactions contemplated hereby
and supersedes any prior writing by the parties. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of Holding Company and Investor
(or its permitted assigns). Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each holder of any securities purchased
under this Agreement at the time outstanding (including securities into which
such securities have been converted), each future holder of all such securities,
and Holding Company.
18. Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of the
remaining provisions.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
24
<PAGE> 26
20. Expenses. Holding Company agrees, upon consummation of the
transactions contemplated by this Agreement, to pay all reasonable legal and
out-of-pocket expenses incurred by Investor in connection with this Agreement
and the transactions contemplated hereunder, including, without limitation: (i)
all fees and expenses of Wyatt, Tarrant & Combs, in connection with this
Agreement and the transactions contemplated hereunder, and (ii) all expenses,
including reasonable attorneys' fees and expenses, incurred by Investor with
respect to the enforcement of any rights or provisions of this Agreement, or in
responding to any subpoena or other legal process issued in connection with this
Agreement or the transactions contemplated hereunder.
21. Time of Essence. Time is of the essence to the performance of the
obligations set forth in this Agreement.
22. Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the Shareholders Agreement,
the Registration Rights
25
<PAGE> 27
Agreement, any Ancillary Agreement or the Certificate, the prevailing party
shall be entitled to reasonable attorneys' fees, costs, and disbursements in
addition to any other relief to which such party may be entitled.
23. Rights of Investor. Each holder of Preferred Stock (and Common
Stock issued upon conversion thereof) shall have the absolute right to exercise
or refrain from exercising any right or rights that such holder may have by
reason of this Agreement or any Preferred Stock, including without limitation
the right to consent to the waiver of any obligation of Holding Company under
this Agreement and to enter into an agreement with Holding Company for the
purpose of modifying this Agreement or any agreement effecting any such
modification, and such holder shall not incur any liability to any other holder
or holders of Preferred Stock (or Common Stock issued upon conversion thereof)
with respect to exercising or refraining from exercising any such right or
rights.
IN WITNESS WHEREOF, Holding Company and Investor have caused
this Agreement to be executed as of the day and year first written above.
"HOLDING COMPANY"
HIGH SPEED ACCESS CORP.
By: /s/ W. Kent Tyler, III
________________________________
Title: CEO
_____________________________
26
<PAGE> 28
"CATV SHAREHOLDERS"
COLORADO LIMITED PARTNERSHIP
By /s/ W. Kent Tyler, III
________________________________
Title G.P.
_____________________________
Address: __________________________
__________________________
OPM SERVICES, INC.
By /s/ W. Kent Tyler, III
________________________________
Title President
_____________________________
Address: __________________________
__________________________
GIBBS FAMILY LIMITED PARTNERSHIP
By /s/ David F. Gibbs
________________________________
Title G.P.
_____________________________
Address: __________________________
__________________________
27
<PAGE> 29
"HSA SHAREHOLDERS"
/s/ Ronnie W. Pitcock
-----------------------------------
RON PITCOCK, on behalf of Pitcock
Family Limited Partnership
/s/ Joseph S. Gans, III
-----------------------------------
JOSEPH S. GANS, III
/s/ Joseph W. Aman
-----------------------------------
JOSEPH W. AMAN
/s/ Lawrence Shewack
-----------------------------------
LAWRENCE SHEWACK
/s/ John Howell
-----------------------------------
JOHN HOWELL
/s/ Terrence J. Herron
-----------------------------------
TERRENCE J. HERRON
"INVESTOR"
BROADBAND SOLUTIONS, LLC
By: /s/ David A. Jones, Jr.
________________________________
Title: Member
_____________________________
A-i
<PAGE> 30
AMENDMENT TO CONTRIBUTION AGREEMENT
THIS AMENDMENT TO CONTRIBUTION AGREEMENT ("Amendment") is
dated as of the 25th day of November, 1998 by and between HIGH SPEED ACCESS
CORP., a Delaware corporation (the "Company") and BROADBAND SOLUTIONS, LLC, a
Kentucky limited liability company ("Broadband").
WITNESSETH:
WHEREAS, the Company, Broadband and certain others are parties to a
Contribution Agreement (the "Agreement") dated as of April 3, 1998; and
WHEREAS, the Agreement provides that it may be amended with the consent
of the Company and Broadband; and
WHEREAS, the Company and Broadband desire to amend the Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is acknowledged,
the Company and Broadband do hereby agree as follows:
1. Amendment. Section 11.G of the Agreement is hereby amended to read
in its entirety as follows:
11.G Prohibited Matters.
[1] From and after the date hereof, Company shall
not, without the consent of the holders of a majority of each
class or series of the then outstanding Preferred Stock voting
as a separate class or series (with each share having one
vote):
(a) Effect a liquidation or dissolution or
winding up of business or a substantial change in the nature
of Company's business;
(b) Amend the Amended Certificate or the
Bylaws, except for an amendment to the Amended Certificate to
increase the number of authorized Common Shares in connection
with a (x) Qualified Public Offering, or (y) stock option
plans approved by the Board of Directors of Company (such
increase not to exceed in the aggregate 3,000,000 shares) or
(z) an issuance upon conversion of the Preferred Stock;
(c) Redeem or pay any dividend or
distribution on the Common Shares or any capital stock of
Company ranking junior to the Series A Preferred
<PAGE> 31
Stock and, if ranking pari passu, without redeeming and or
paying an equal dividend on the Series A Preferred Stock;
(d) Issue any class or series of equity
securities or additional shares of existing classes or series,
or equivalents thereof or rights convertible thereinto or
exchangeable therefor except (i) pursuant to employee or
director stock option plans approved by the Board of Directors
of Company, any such issuances in this subsection (i) not to
exceed in the aggregate 3,000,000 shares, (ii) upon conversion
of the Preferred Stock, (iii) in a Qualified Public Offering,
or (iv) pursuant to the exercise of Warrants;
(e) Repay or make any shareholder loans
except as set forth in Section 9.5 of the Disclosure Letter;
(f) Except for (x) transactions in the
ordinary course of business between Company and its officers,
directors and employees relating to compensation (such amount
to be commercially reasonable and generally consistent with
the Business Plan), (y) transactions pursuant to the Systems
Agreements and any amendments, extensions, revisions or other
agreements made pursuant thereto, or (z) as set forth in
Section 5.20 of the Disclosure Letter, engage in any
transactions with "affiliates", which for the purposes of this
Section 11.G[1](f) only shall mean (A) any director or officer
of Company or holder of Company's capital stock, (B) any
person or entity, directly or indirectly, controlling,
controlled by or under common control with any such person or
entity, and (C) in the case of a natural person, members of
his or her immediate family or a trust for their benefit;
(g) Effect any transaction, including,
without limitation, the issuance of any shares of stock or
rights to acquire shares of stock, which would result in a
change in ownership of more than fifty percent (50%) of
Company's outstanding Common Shares on an as-if fully
converted basis, except for a Qualified Public Offering, or
effect any merger or sale of Company or substantially all its
assets;
(h) Acquire any assets not in the ordinary
course or capital stock, partnership, membership or any other
equity interest, or any interest convertible thereinto or
exchangeable therefor, in any entity for a purchase price in
excess of $2.5 million, or engage in more than one of any of
such transactions for an aggregate purchase price in excess of
$7.5 million; or
(i) Take any other action that, individually
or together with any other action, would materially and
adversely affect the holders of the Preferred Stock, it being
acknowledged that a Qualified Public Offering shall not
materially and adversely affect the holders of the Preferred
Stock.
<PAGE> 32
[2] Notwithstanding the provisions of Section 11.G[1]
above:
(a) In the event there has been one or more
transfers by Broadband (defined as Broadband Solutions, LLC
("Broadband I") and Broadband Solutions II, LLC ("Broadband
II") considered together) of more than, in the aggregate, 30%
of the Preferred Stock owned by Broadband immediately after
giving effect to the Closing (and, if and when purchased, any
shares of Series C Preferred Stock purchased by Broadband
subsequent to the Closing, in the aggregate, less any shares
of Preferred Stock transferred to non-Affiliates of Broadband
prior to the purchase of such shares of Series C Preferred
Stock), to one or more non-Affiliates of Broadband I or
Broadband II, then Company shall no longer require the consent
of the holders of the majority of the Series A Preferred Stock
to effect any of the "prohibited matters" referred to in
Section 11.G[1]. For purposes of this paragraph, any transfer
by Broadband I or Broadband II to River Cities Capital Fund
("River Cities") shall not constitute a transfer to a
non-Affiliate of Broadband I or Broadband II if River Cities
grants an irrevocable proxy to Broadband to vote on all
matters, but any subsequent transfer by River Cities (other
than to its partners and so long as they grant a proxy to
Broadband) shall constitute a transfer, unless such subsequent
transferee is an Affiliate of Broadband.
(b) In the event that there has been one or
more transfers by Investor of more than, in the aggregate, 30%
of the Preferred Stock owned by Investor immediately after
giving effect to the Closing (and, if and when purchased, any
shares of Series C Preferred Stock purchased by Investor
subsequent to the Closing, in the aggregate, less any shares
of Preferred Stock transferred to non-Affiliates of Investor
prior to the purchase of such shares of Series C Preferred
Stock), to one or more non-Affiliates of Investor, then
Company shall not require the consent of holders of the
majority of shares of any class or series of Preferred Stock
controlled by Investor to effect any of the "prohibited
matters" referred to in Section 11.G[1].
[3] For the purposes of this Section 11.G, unless
otherwise provided in this Section 11.G, an Affiliate shall
mean [i] with respect to Broadband, any entities or persons
controlling, controlled by or under common control with
Broadband I or Broadband II or any or all of its members, each
existing as of the date hereof, directly or indirectly, either
individually or as a group, or any member of Broadband I or
Broadband II, each existing as of the date hereof, or such
person's lineal descendants, ancestors or spouses of any of
them, or a trust or family limited partnership or any estate
or tax planning vehicle established for it or their benefit,
and [ii] with respect to Investor, any entities or persons
controlled, directly, by Paul G. Allen, or any entities or
persons in which Paul G. Allen holds or owns an equity
investment of not less than One Hundred Million Dollars
($100,000,000) in value.
2. Capitalized terms used in Section 1of this Amendment shall have the
meanings
<PAGE> 33
ascribed to them in the Series B Convertible Preferred Stock Purchase Agreement
between the Company and Vulcan Ventures, Incorporated dated as of November 25,
1998.
3. Except as amended hereby, the provisions of the Agreement shall
remain in full force and effect, unmodified and unrevoked.
IN WITNESS WHEREOF, the Company and Broadband have executed
this Agreement as of the date and year first above written.
HIGH SPEED ACCESS CORP.
By: /s/ John G. Hundley
---------------------------------------
Title: Assistant Secretary/General Counsel
------------------------------------
BROADBAND SOLUTIONS, LLC
By: /s/ Robert Saunders
---------------------------------------
Title: Member
------------------------------------
<PAGE> 1
EXHIBIT 10.2
SERIES B CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
by and between
HIGH SPEED ACCESS CORP.
and
BROADBAND SOLUTIONS II, LLC
September 1, 1998
<PAGE> 2
SERIES B CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
THIS SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
("Agreement") is made and entered into as of the 1st day of September, 1998, by
and between HIGH SPEED ACCESS CORP., a Delaware corporation ("Company"), and
BROADBAND SOLUTIONS II, LLC, a Kentucky limited liability company ("Investor").
WITNESSETH:
Company desires to sell and issue, and Investor desires to
purchase and acquire, up to 2,000,000 shares of Company's authorized but
unissued Series B Convertible Preferred Stock ("Series B Preferred Stock"), upon
the terms and subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties herein contained, and intending to be legally
bound, Company and Investor agree as follows:
1. Sale and Issuance of Series B Convertible Preferred Stock.
1.1 Company shall adopt and file with the Secretary of State
of the State of Delaware on or before the Closing (as defined below) a
Certificate of Amendment to the Certificate of Incorporation of the Company in
the form attached hereto as Exhibit A (the "Certificate of Amendment"). The
Series B Preferred Stock will have the rights, preferences and privileges and
restrictions set forth in the Certificate of Amendment.
1.2 Subject to the terms and conditions of this Agreement,
Investor agrees to purchase from Company, and Company agrees to sell, issue and
deliver to Investor up to 2,000,000 shares of Series B Preferred Stock for an
aggregate purchase price of Five Million Dollars ($5,000,000). At the Closing
(as defined in Section 2), Investor shall purchase, and Company shall sell,
issue and deliver to Investor, 600,000 shares of Series B Preferred Stock at a
price of Two Dollars and Fifty Cents ($2.50) per share, resulting in a total
purchase price at the Closing of One Million Five Hundred Thousand Dollars
($1,500,000). At any time and from time to time after the Closing, at the option
of Company, evidenced by a resolution of its Board of Directors and upon ten
(10) days prior written notice given by Company to Investor (unless waived in
writing by Investor), Investor agrees to purchase from Company and Company
agrees to sell, issue and deliver to Investor, up to 1,400,000 shares of Series
B Preferred Stock at a price of Two Dollars and Fifty Cents ($2.50) per share,
resulting in a total purchase price of Three Million Five Hundred Thousand
Dollars ($3,500,000) in the aggregate for such shares of Series B Preferred
Stock (the "Post Closing Capital Calls"). There may be one or more Post Closing
Capital Calls, provided that pursuant thereto Investor shall be, under no
circumstances, obligated to purchase more than 1,400,000 shares of Series B
Preferred Stock in the aggregate.
<PAGE> 3
2. Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at 10:00 a.m. on September 1, 1998,
at the offices of Wyatt, Tarrant & Combs, 2800 Citizens Plaza, Louisville,
Kentucky, or at such other time, date, or place as shall be mutually agreed upon
by the parties hereto in writing (the "Closing Date"). Each of the Post Closing
Capital Calls, if any, shall be consummated at Company's option as contemplated
by Section 1.2 above by delivery of certificates representing the shares of
Series B Preferred Stock Investor is purchasing against payment of the purchase
price therefor in immediately available funds.
3. Closing Items.
3.1 At the Closing, Company shall deliver, or cause to be
delivered, the following items:
[a] The Certificate of Amendment, certified by the
Delaware Secretary of State;
[b] the Bylaws of Company ("Bylaws"), certified as to
their due adoption and continued validity by the Secretary of Company;
[c] resolutions of the Board of Directors of Company
authorizing the execution, delivery and consummation of this Agreement,
the issuance of the shares of Series B Preferred Stock, and the other
matters contemplated hereby, certified as to their due adoption and
continued validity by the Secretary of Company;
[d] resolutions of the shareholders of Company
authorizing the Certificate of Amendment, certified as to their due
adoption and continued validity by the Secretary of Company;
[e] a waiver by Company=s common shareholders of the
subscription rights provided in the Shareholders Agreement dated as of
April 3, 1998 among Company and its shareholders, in form and substance
satisfactory to Investor;
[f] the Amended and Restated Registration Rights
Agreement in the form attached hereto as Exhibit B (the "Registration
Rights Agreement");
[g] the Amended and Restated Shareholders Agreement
in the form attached hereto as Exhibit C (the "Shareholders
Agreement"); and
[h] certificates representing the shares of Series B
Preferred Stock that Investor is purchasing against payment of the
purchase price therefor in immediately available funds.
2
<PAGE> 4
3.2 At the Closing, Investor shall deliver, or cause to be
delivered, to Company, One Million Five Hundred Thousand Dollars ($1,500,000) in
immediately available funds, and shall execute and deliver the Registration
Rights Agreement and the Shareholders Agreement.
4. Further Assurances. Each party shall execute such additional
documents and take such other actions as the other party or parties may
reasonably request to consummate the transactions contemplated hereby and
otherwise as may be necessary to effectively carry out the terms and provisions
of this Agreement.
5. Representations and Warranties of Company. Except as set forth in
the disclosure letter dated the date hereof delivered to Investor (the
"Disclosure Letter"), Company represents and warrants to Investor, as of the
date hereof and as of the date of each issuance of Series B Preferred Stock to
Investor pursuant to Post Closing Capital Calls, as follows:
5.1 Corporate Standing. Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware. Company has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted and
as presently proposed to be conducted, to execute, deliver and perform this
Agreement, and any other agreement to which Company is a party, the execution
and delivery of which is contemplated hereby (the "Ancillary Agreements").
Company is duly qualified and is authorized to transact business and is in good
standing as to foreign corporation in each jurisdiction in which the failure to
so qualify would have a material adverse effect on its business, properties,
prospects or financial condition. Every jurisdiction where the Company is
qualified as a foreign corporation to transact business is listed in Section 5.1
of the Disclosure Letter. True and accurate copies of the certificate of
incorporation, and all amendments thereto, bylaws (and all amendments thereto)
and minute book (containing the records of all meetings and written consents of
the stockholders, the board of directors and any committees of the board of
directors) of Company have previously been delivered or made available to
Investors.
5.2 Authorization. The execution and delivery of this
Agreement and any Ancillary Agreement and the consummation of the transactions
contemplated hereby and thereby (including, without limitation, the Certificates
of Amendment attached hereto as Exhibits A and B, respectively), have been duly
authorized by all necessary corporate action on the part of Company. Each of
this Agreement and any Ancillary Agreement has been duly executed and delivered
by Company and constitutes the legal, valid and binding obligation of Company
enforceable against it in accordance with its terms except as such
enforceability may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors rights generally or (ii) general principals of equity (regardless of
whether an enforceability is considered in a proceeding at law or in equity).
5.3 Capitalization. As of the Closing Date, the authorized
capital stock of Company consists of [i] 11,900,000 Common Shares with $.01 par
value per share ("Common Shares"), of which at the date hereof 4,000,000 shares
are validly issued and outstanding, fully paid
3
<PAGE> 5
and nonassessable and owned, beneficially and of record, as set forth in Section
5.3 of the Disclosure Letter, [ii] 5,000,000 shares of Series A Convertible
Preferred Shares, $.01 par value per share ("Series A Preferred Stock"), of
which at the date hereof 5,000,000 shares are validly issued and outstanding and
fully paid and nonassessable and owned, beneficially and of record, by Investor,
and [iii] 2,000,000 shares of Series B Preferred Shares, none of which is
outstanding at the date hereof and all of which are to be sold pursuant to this
Agreement. 5,000,000 Common Shares have been duly and validly reserved for
issuance upon conversion of the Series A Preferred Stock, 2,000,000 Common
Shares have been duly and validly reserved for issuance upon conversion of the
Series B Preferred Stock and 900,000 Common Shares have been duly and validly
reserved for issuance under Company's 1998 Stock Option Plan. Except as set
forth in Section 5.3 of the Disclosure Letter, there are outstanding no
subscriptions, options, warrants, calls, commitments or rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements or agreements of any character relating to shares of
Company's capital stock or the Series B Preferred Stock to be issued hereunder
or any instruments that can be converted into shares of Company's capital stock
or the Series B Preferred Stock to be issued hereunder. None of the shares of
Company's capital stock have been issued in violation of any preemptive right.
All issuances, transfers or purchases of the capital stock of Company have been
in compliance with all applicable agreements and all applicable laws, including
federal and state securities laws, and all taxes thereon, if any, have been
paid. No former or present holder of any of the shares of capital stock of
Company has any legally cognizable claim against Company based on any issuance,
sale, purchase, redemption or involvement in any transfer of any shares of
capital stock by Company. Except as set forth in Section 5.3 of the Disclosure
Letter and for obligations of Company to redeem Series B Preferred Shares, as
contemplated by Section 9.1 of this Agreement, there are no contractual
obligations of Company to repurchase, redeem or otherwise acquire any shares of
capital stock of Company. No bonds, debentures, notes or other indebtedness
having the right to vote (or convertible into or exercisable for securities
having the right to vote) on any matters on which shareholders of Company may
vote are issued or outstanding. Company is not a party or subject to any
agreement or understanding, and, to Company's best knowledge, there is no
agreement or understanding between any persons that affects or relates to the
voting or giving of written consents with respect to any security or the voting
by any director of Company.
5.4 Validly Issued Shares; Securities Exemption. The shares of
Series B Preferred Stock to be issued, sold and delivered in accordance with the
terms of this Agreement for the consideration set out herein will, upon issuance
in accordance with the terms hereof, be duly and validly issued, fully paid and
nonassessable, free of restrictions on transfer other than restrictions on
transfer under this Agreement, the Shareholders Agreement dated as of April 3,
1998 among Company, Investor and the other shareholders of Company (the
"Shareholders Agreement"), and under applicable federal and state securities
laws. The issuance of the Series B Preferred Stock to Investors pursuant to this
Agreement will comply with all applicable laws, including federal and state
securities laws, and will not violate the preemptive rights of any person.
Without limiting the immediately preceding sentence, the Company has not made a
general solicitation of the public in connection with the offering and sale of
the shares of Series B Preferred Stock to be issued hereunder. Moreover, the
Company believes that the offering and sale of the Series B Preferred
4
<PAGE> 6
Stock to be issued hereunder will not be integrated with any previous securities
offerings made by the Company. The Common Shares issuable upon conversion of the
Series B Preferred Stock being purchased under this Agreement will be, upon
issuance and delivery in accordance with the terms of the Articles of Amendment,
duly and validly issued, fully paid and nonassessable and free of restrictions
on transfer other than restrictions on transfer under this Agreement and the
Shareholders Agreement and under applicable federal and state securities laws.
The issuance of the Common Shares upon conversion of the Series B Preferred
Stock will comply with all applicable laws, including federal and state
securities laws (assuming the accuracy of the representations set forth in
Sections 6.2 through 6.5 of this Agreement as of the date of issuance of such
Common Shares), and will not violate the preemptive rights of any person.
5.5 No Conflict. The execution and delivery of this Agreement
and any Ancillary Agreement do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or the loss of a material benefit under, or the creation of a
lien, pledge, security interest, charge or other encumbrance on assets (any such
conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation") pursuant to, any provision of the
Certificate of Incorporation of Company, as amended, or Bylaws, or result in any
Violation of any material lease, agreement, obligation, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Company or Company's properties or
assets.
5.6 Contracts and Other Commitments; Compliance. Except as set
forth in Section 5.6 of the Disclosure Letter, Company does not have and is not
bound by any material contract, agreement, lease, loan, commitment or proposed
transaction, or any judgment, order, writ or decree. No event or condition has
occurred or exists, or, to the knowledge of Company, is alleged by any of the
other parties thereto to have occurred or existed, which constitutes, or with
lapse of time or giving of notice or both might constitute, a default or breach
under any of the contracts or other items listed in Section 5.6 of the
Disclosure Letter (the "Contracts"), which default is reasonably likely to
result in a material adverse change in the financial condition, results of
operation or business of Company. Company is not in violation or default of any
provision of its Certificate of Incorporation or Bylaws or in any respect of any
provision of any Contract.
5.7 Subsidiaries. Except as set forth in Section 5.7 of the
Disclosure Letter, Company does not own or control, directly or indirectly, any
interest in any other corporation, partnership, limited liability company,
association or other business entity. Company is not a participant in any joint
venture, partnership or similar arrangement.
5.8 Consents. No consent, approval, qualification, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, or other third party is required by or
with respect to Company in connection with the execution and delivery of this
Agreement, or the consummation by Company of the transactions contemplated
hereby, which has not already been
5
<PAGE> 7
obtained, except for notices of sale required to be filed with the Securities
and Exchange Commission under Regulation D of the Securities Act of 1933, as
amended (the "Securities Act"), or such post closing filings as may be required
under applicable state securities laws which will be timely filed within the
applicable periods therefor.
5.9 Financial Statements. The Company=s unaudited balance
sheet as of June 30, 1998, and the related statement of income for the period
April 3, 1998 through June 30, 1998 (the "Financial Statements"), are set forth
in Section 5.9 of the Disclosure Letter. The Financial Statements present fairly
the financial condition of the Company as of June 30, 1998 and the related
results of operations for the period then ended. Absent the funding contemplated
by this Agreement, the Company expects to be unable to meet its obligations in
ordinary course of business beyond August 31, 1998. The Company has incurred and
continues to incur substantial net operating losses, and expects to continue to
incur substantial net operating losses for the foreseeable future as it
increases its capital and operating expenditures to expand its operations and
base of customers in its existing and future market areas.
5.10 Indebtedness for Borrowed Money; No Undisclosed
Liabilities. Except as set forth in Section 5.10 of the Disclosure Letter and
the Financial Statements, Company has no direct or indirect indebtedness for
borrowed money, indebtedness by way of lease-purchase arrangements, guarantees,
undertakings, chattel mortgages or other security arrangements with any bank,
financial institution or other third party. Except as and to the extent
reflected and adequately reserved against in the Financial Statements or
incurred in the ordinary course of business since the date of the Financial
Statements, as of the Closing Date, Company will not have any liability or
obligation whatsoever, whether accrued, absolute, contingent or otherwise.
5.11 Absence of Changes. Except as set forth in Section 5.11
of the Disclosure Letter, since June 30, 1998, there has not been:
[a] any change in the assets, liabilities, financial condition
or operating results of Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have
not been, in the aggregate, materially adverse;
[b] any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of Company (as such business is
presently conducted and as it is presently proposed to be conducted);
[c] any waiver or compromise by Company of a valuable right
or of a material debt owed to it;
[d] any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by Company, except in the
ordinary course of business and that is not
6
<PAGE> 8
material to the business, properties, or financial condition of
Company (as such business is presently conducted and as it is
presently proposed to be conducted);
[e] any material change to a material contract or arrangement
by which Company or any of its assets is bound or subject;
[f] any material change in any compensation arrangement or
agreement with any employee or officer;
[g] any sale, assignment, or transfer of any intangible
assets;
[h] any resignation or termination of employment of any key
officer of Company (and Company does not know of any impending
resignation or termination of employment of any such officer);
[i] any mortgage, pledge, transfer of a security interest in,
or lien, created by Company, with respect to any of its material
properties or assets, except liens for taxes not yet due or payable;
[j] any declaration, setting aside or payment of any dividend
or other distribution of Company's assets in respect of any of
Company's capital stock, or any direct or indirect redemption,
purchase, or other acquisition of any of such stock by Company;
[k] to the best of Company's knowledge, any other event or
condition of any character that might materially and adversely affect
the business, properties, prospects or financial condition of Company
(as such business is presently conducted and as it is presently
proposed to be conducted); or
[l] any agreement or commitment by Company to do any of the
things described in this Section 5.11.
5.12 Title to Property and Assets; Leases.
[a] Company owns no real property in fee simple. Section 5.12
of the Disclosure Letter sets forth a complete and accurate list and
description of all the real property that Company leases. Company is
not bound or committed to make any capital improvement or expenditure
with respect to its owned or leased real property.
[b] Except as set forth in Section 5.12 of the Disclosure
Letter, the Company has good, valid and marketable title to all the
personal and mixed, tangible and intangible properties and assets which
it purports to own, free and clear of all liens, restrictions, claims,
charges, security interests, easements or other encumbrances of any
nature whatsoever, except for liens for current taxes not yet due and
payable. With respect to the property and
7
<PAGE> 9
assets that it leases, Company is in compliance with such leases and,
to Company's best knowledge, holds a valid leasehold interest, free
and clear of any liens, claims and encumbrances. All properties and
assets of Company are in the possession or control of Company, and no
other person is entitled to possession of any such properties and
assets.
5.13 Legal Proceedings. Except as set forth in Section 5.13 of
the Disclosure Letter, there are no claims of any kind or any actions, suits,
proceedings, arbitrations or investigations pending or, to Company's best
knowledge, threatened against or affecting Company against any asset, interest
or right of Company or which questions the validity of the transactions
contemplated by this Agreement and Company does not know of any facts which may
constitute a basis therefor.
5.14 Environmental Matters. Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety (the "Environmental Laws"), and, to Company's
best knowledge, no material expenditures are required to be made by Company in
order to comply with any of the Environmental Laws.
5.15 Licenses and Permits; Compliance with Laws. Company holds
all franchises, permits, licenses, variances, exemptions, orders and approvals
of all governmental entities which are material to the operation of Company's
business and is in compliance with the terms thereof. Company has complied with
and is not in any default under (and has not been charged with or received
notice with respect to, nor is threatened with or under investigation with
respect to, any charge concerning any violation of any provision of) any
federal, state or local law, regulation, ordinance, rule or order (whether
executive, judicial, legislative or administrative) or any order, writ,
injunction or decree of any court, agency or instrumentality and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against any of them alleging any failures to
comply.
5.16 Employee Benefit Plans. Except as set forth in Section
5.16 of the Disclosure Letter, Company has no employee benefit plans including
any profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, phantom stock, retirement, vacation, severance,
disability, death benefit, hospitalization, medical or other plan, arrangement
or understanding (whether or not legally binding) providing benefits to any
current or former employee, officer or director of Company (collectively
"Benefit Plans"), or any employment, consulting, severance, termination or
indemnification agreement, arrangement or understanding between Company and any
officer, director or employee of Company. Company has delivered or made
available to each Investor true, complete and correct copies of each Benefit
Plan, or, in the case of any unwritten Benefit Plans, descriptions thereof. Each
Benefit Plan has been administered in all material respects in accordance with
its terms and all applicable laws.
5.17 Labor Relations.
8
<PAGE> 10
[a] Company is in compliance in all material respects
with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours and
occupational safety and health;
[b] There is no unfair labor practice charge or
complaint or any other matter against or involving Company pending or,
to Company's best knowledge, threatened before the National Labor
Relations Board, any other agency or any court of law;
[c] There is no labor strike, dispute, slowdown or
stoppage actually pending or, to Company's best knowledge, threatened
against Company;
[d] Company is not a party to or bound by any
collective bargaining agreement or any similar labor union arrangement;
and
[e] There are no charges, investigations,
administrative proceedings or formal complaints of discrimination
(including discrimination based upon sex, age, marital status, race,
color, religion, national origin, sexual preference, disability,
handicap or veteran status) pending or, to Company's best knowledge,
threatened, before the Equal Employment Opportunity Commission or any
federal, state or local agency or court against Company. There have
been no governmental audits of the equal employment opportunity
practices of Company and, to Company's best knowledge, no basis for any
such claim exists.
5.18 Insurance. Section 5.18 of the Disclosure Letter sets
forth a list of all insurance policies, including property, casualty, liability
and other insurance maintained with respect to the assets and business of
Company. Company is not liable for any material retroactive premium adjustments
with respect to any of its insurance policies or bonds. All such policies and
bonds are legal, valid and enforceable and in full force and effect and Company
is not in breach or default (including with respect to the payment of premiums
or the giving of notices) and no event has occurred which, with notice or the
lapse of time, would constitute such a breach or default, or permit termination,
modification or acceleration under the policy or received any notice of premium
increases or cancellations with respect to any of such policies and bonds.
Company believes the amount and type of Company's insurance coverage is adequate
for Company's business and is consistent with good business practice.
5.19 Tax Matters. Company has timely filed or caused to be
filed all federal, state, foreign and local income, franchise, gross receipts,
payroll, sales, use, withholding, occupancy, excise, real and personal property,
employment and other tax returns, tax information returns and reports ("Tax
Returns") required to be filed and all such Tax Returns were correct and
complete in all respects. Company has paid, or made adequate provisions for the
payment of, all taxes, duties or assessments of any nature whatsoever, interest
payments, penalties and additions (whether or not reflected in the returns as
filed) due and payable (and/or properly accruable for all periods ending on or
before the date of this Agreement) to any city, county, state, foreign country,
the United States or any other taxing authority. There are no security interests
on any of the assets of Company that
9
<PAGE> 11
arise in connection with any failure (or alleged failure) to pay any tax.
Company has withheld and paid all taxes required to have been withheld and paid
in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party. No material deficiencies
for any taxes have been proposed, asserted or assessed against Company that are
not adequately reserved for.
5.20 Related Party Transactions. Except as set forth in
Section 5.20 of the Disclosure Letter, no employee, officer or holder of
Company's capital stock or member of his or her immediate family is indebted to
Company, nor is Company indebted (or committed to make loans or extend or
guarantee credit) to any of them, other than (i) for payment of salary for
services rendered, (ii) reimbursement for reasonable expenses incurred on behalf
of Company, and (iii) for other standard employee benefits made generally
available to all employees (including stock option agreements outstanding under
any stock option plan approved by the Board of Directors of Company). To the
best of Company's knowledge, none of such persons has any direct or indirect
ownership interest in any firm or corporation with which Company has a business
relationship, or any firm or corporation that competes with Company, except that
employees, stockholders, and officers of Company and members of their immediate
families may own stock in publicly traded companies that may compete with
Company.
5.21 Brokers' and Finders' Fees. Company has not employed any
broker, finder or financial advisor or incurred any liability for fees or
commissions payable to any broker, finder or financial advisor in connection
with the negotiations relating to or the transactions contemplated by this
Agreement.
5.22 Registration Rights. Except for the Registration Rights
Agreement dated as of April 3, 1998 between Company and Investor, as amended by
that certain Letter Agreement dated July 17, 1998 among Company, Investor and
the Company=s common shareholders (the "Registration Rights Agreement"), Company
is presently not under any obligation and has not granted any rights to register
under the Securities Act any of its outstanding securities or any of its
securities that may be subsequently issued.
5.23 Small Business Concern. Company, together with any
"affiliates" (as that term is defined in Section 121.103 of Title 13 of the Code
of Federal Regulations), is a "small business concern" within the meaning of the
Small Business Investment Act of 1958, as amended (the "SBIA"), and the
regulations thereunder, including Section 121.301 of Title 13 of the Code of
Federal Regulations. Company does not presently engage in, and it shall not
hereafter engage in, any activities, nor shall it use, directly or indirectly,
the proceeds from the sale of the Series B Preferred Stock hereunder for any
purpose for which a small business investment company is prohibited from
providing funds by the SBIA and the Regulations thereunder.
5.24 Intellectual Property. Schedule 5.24 sets forth a
complete and correct list of all intellectual property, including, without
limitation, trademarks, service marks, patents, copyrights and applications used
in the conduct of the business of the Company other than commercially
10
<PAGE> 12
available software programs. There is no complaint, action or proceeding before
any court pending or, to the Company=s knowledge, threatened against the Company
asserting that the Company=s use of any intellectual property infringes the
rights of any third party or otherwise contesting the Company=s rights with
respect to any intellectual property, and there is no basis for such assertion
or contest. To the Company=s knowledge, no third party is infringing on the
Company=s rights with respect to its intellectual property.
5.25 Material Facts. Company has provided Investor with all
the information reasonably available to it that Investor have requested for
deciding whether to purchase the Series B Preferred Stock. This Agreement and
the documents or written statements furnished by Company to Investor in
connection with the transactions contemplated hereby, do not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements contained herein or therein, in light of the circumstances
in which they are made, not misleading.
6. Representations and Warranties of Investor. Investor hereby
represents and warrants to Company as of the date hereof and as of the date of
each issuance of Series B Preferred Stock, as follows:
6.1 Authorization; Binding Agreement. This Agreement has been
duly authorized, executed and delivered by Investor and constitutes the legal,
valid and binding obligation of Investor enforceable against it in accordance
with its terms.
6.2 Investment Representations. Investor is acquiring the
Series B Preferred Stock and the Common Shares issuable upon conversion thereof
(collectively the "Securities") solely for its own account as principal, for
investment purposes only and not with a view to resale or distribution thereof
in whole or in part, and Investor has no present intention of selling, granting
any participation in, or otherwise distributing the Securities. Except for the
members of Investor, no other person has a direct or indirect beneficial
interest in the Securities to be acquired by Investor hereunder and Investor
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to any third person, with
respect to any of the Securities.
6.3 Accredited Investor; Residence. Investor is a resident of
Kentucky and is an "accredited investor" as such term is defined under
Regulation D of the Securities Act.
6.4 Receipt of Information; Restricted Securities. Investor
acknowledges that the Securities are not being and will not be registered under
the Securities Act or the securities laws of any other jurisdiction in reliance
on exemptions thereunder. The Securities have not been and will not be approved
or disapproved by the Securities and Exchange Commission or any other
governmental authority or agency of any jurisdiction. Investor represents that
it has had an opportunity to ask questions and receive answers from Company
regarding the terms and conditions of the offering of the Series B Preferred
Stock and the business, properties, prospects, and financial condition of
Company and to obtain additional information (to the extent Company possessed
such information or could acquire it without unreasonable effort or expense)
necessary to verify the
11
<PAGE> 13
accuracy of any information furnished to such Investor or to which such Investor
had access. Investor's representations under this Section 6, however, shall not
limit or modify the representations and warranties of Company in Section 5 of
this Agreement or the right of Investor to rely thereon.
6.5 Investment Experience. Investor is experienced in
evaluating and investing in private placement transactions of securities of
companies in a similar stage or development and acknowledges that Investor is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the investment in the Series B
Preferred Stock.
7. Survival of Representations and Warranties. All representations and
warranties contained in this Agreement by any party to this Agreement and any
certificate or other instrument delivered by or on behalf of any party pursuant
to this Agreement shall be continuous and shall survive the Closing and the
issuance of all shares of Company's capital stock as contemplated hereunder.
Each party shall have the right to rely on each other party's representations
and warranties made herein, notwithstanding any investigation conducted by such
party.
8. Indemnification.
8.1 Indemnification by Company. Company shall indemnify and
reimburse Investor for any and all claims, losses, liabilities, damages
(including, without limitation, fines, penalties, and criminal or civil
judgments and settlements), costs (including, without limitation, court costs)
and expenses (including, without limitation, attorneys' and accountants' fees)
suffered or incurred by Investor and any successors or assigns thereto, as a
result of, or with respect to:
[a] Any breach or inaccuracy of any representation
or warranty of Company set forth in Section 5;
[b] Any breach of or noncompliance by Company with
any covenant or agreement of Company contained in this Agreement; and
[c] any and all actions, suits, proceedings, claims,
demands, assessments and judgments incident to any of the foregoing.
8.2 Indemnification by Investor. Investor shall indemnify and
reimburse Company for any and all claims, losses, liabilities, damages
(including, without limitation, fines, penalties, and criminal or civil
judgments and settlements), costs (including, without limitation, court costs)
and expenses (including, without limitation, attorneys' and accountants' fees)
suffered or incurred by Company or any successors or assigns thereto as a result
of, or with respect to:
[a] Any breach or inaccuracy of any representation
or warranty of Investor set forth in Section 6;
12
<PAGE> 14
[b] Any breach of or noncompliance by Investor with
any covenant or agreement of Investor contained in this Agreement; and
[c] any and all actions, suits, proceedings, claims,
demands, assessments and judgments incident to any of the foregoing.
9. Covenants of Company. Company hereby covenants and agrees
as follows:
9.1 Redemption Rights. At any time and from time to time from
and after September 1, 2003 but prior to the Company's completed firmly
underwritten initial public offering, Investor shall have the right and option
to sell to Company, and Company shall buy, Investor's shares of capital stock of
Company (the "Put") at a price per share (the "Put Purchase Price") equal to the
greater of (a) the initial purchase price per share of Investor's shares, plus
accrued but unpaid dividends through the date of the Put Closing (as defined
below), or (b) the fair market value per share (without application of any
discount for lack of marketability or minority position) as determined by a
qualified, independent appraiser experienced in valuation of shares of companies
similar to Company (the "Qualified Appraiser") acceptable to both Company and
Investor. If Investor and Company are unable to agree upon a Qualified
Appraiser, each of them shall separately designate a Qualified Appraiser. Such
Qualified Appraisers shall jointly designate a definitive Qualified Appraiser,
and such definitive Qualified Appraiser's determination shall be the fair market
value of Investor's shares of Company stock and shall be conclusive and binding
upon the parties. The fees and expenses of the definitive Qualified Appraiser
shall be borne equally by Company and Investor. The closing (the "Put Closing")
shall take place at a time and place mutually agreed upon by Investor and
Company on or before the 180th day after written notice of exercise of the Put
is given to Company by Investor, or if Investor and Company shall not agree on
the time and place, the Put Closing shall take place at the principal office of
Company in Louisville, Kentucky at 10:00 a.m. on the 180th day after written
notice of exercise is given, unless such day is a Saturday, Sunday or holiday,
in which case it shall occur on the next business day. The Put Purchase Price
shall be paid in cash at the Put Closing.
9.2 Reservation of Shares. On and after the Closing Date,
Company will reserve and keep reserved at all times sufficient Common Shares for
issuance upon conversion of the Series B Preferred Stock pursuant to Paragraph
B.4(a) of Article IV of the Company's Certificate of Incorporation. Immediately
prior to the occurrence of any event that would cause the number of Common
Shares into which the Series B Preferred Stock would be convertible to be
determined in accordance with Paragraph B.4(b) of Article IV of the Company's
Certificate of Incorporation, the Company shall take any and all actions
necessary to permit such conversion. Upon conversion of any shares of Series B
Preferred Stock, Company will promptly issue and deliver the Common Shares
required to be delivered.
9.3 Use of Proceeds. The proceeds from the sale of the Series
B Preferred Stock pursuant to this Agreement shall be used by Company for
working capital or for any other purpose approved by the Board of Directors of
the Company.
13
<PAGE> 15
9.4 Prohibited Matters. From and after the date hereof,
Company shall not, without the consent of the holders of the majority of the
then outstanding Series A Preferred Stock and Series B Preferred Stock voting
together as a single class:
[a] Effect any transaction that results in a change of control
of the Company;
[b] Materially change the nature of the Company's business;
[c] Effect a liquidation, dissolution, merger or sale of the
Company or sell substantially all of its assets;
[d] Amend its certificate of incorporation or bylaws;
[e] Redeem or pay any dividend or distribution on its common
stock;
[f] Issue any class or series of equity securities or
equivalents thereof except pursuant to a management stock option plan
approved by the Board of Directors of Company or upon conversion of the
Series A Preferred Stock or the Series B Preferred Stock;
[g] Repay any shareholder loans;
[h] Except as set forth in Section 9.4 of the Disclosure
Letter, engage in any transactions with "affiliates", which for the
purposes of this Agreement, shall mean (i) any director or officer of
Company or holder of Company's capital stock, (ii) any person or
entity, directly or indirectly, controlling, controlled by or under
common control with any such person or entity, and (iii) in the case of
a natural person, members of his or her immediate family or a trust for
their benefit; or
[i] Take any other actions that would materially affect the
holders of the Series A Preferred Stock or the Series B Preferred
Stock.
10. Public Statements. Neither Company nor Investor shall, without the
prior written approval of the other parties hereto, make any press release or
other public announcement concerning the transactions contemplated by this
Agreement. Investor and Company may disclose information with respect to the
transaction contemplated hereby to their respective employees, agents,
consultants and third parties only to the extent such persons have a need to
know such information.
11. Notices. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be mailed by first class,
registered, or certified mail, postage prepaid, or sent via overnight courier
service, or delivered personally:
14
<PAGE> 16
If to Investor, to: Broadband Solutions II, LLC
Attention: David A. Jones, Jr.
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202
With a copy to: Patrick W. Mattingly, Esq.
Wyatt, Tarrant & Combs
2800 Citizens Plaza
Louisville, KY 40202
If to Company, to: High Speed Access Corp.
Attention: W. Kent Oyler, III
Suite 210
1000 West Ormsby Avenue
Louisville, KY 40210
With a copy to: John Hundley, Esq.
High Speed Access Corp.
Suite 210
1000 West Ormsby Avenue
Louisville, KY 40210
or to such other address of which the addressee shall have notified the sender
in writing. Notices mailed in accordance with this section shall be deemed given
when mailed, and notices sent by overnight courier service shall be deemed given
when placed in the hands of a representative of such service.
12. Parties in Interest; Assignment. Except as otherwise provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties to this Agreement shall bind and inure to the benefit of
their respective heirs, executors, successors, and assigns, whether so expressed
or not. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto and their respective successors and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement. This Agreement is not assignable and any purported assignment
shall be null and void.
13. Construction; Governing Law. The section headings contained in this
Agreement are inserted as a matter of convenience and shall not affect in any
way the construction of the terms of this Agreement. This Agreement shall be
governed by and interpreted in accordance with the laws of the Commonwealth of
Kentucky as applied to agreements among Kentucky residents entered into and
performed entirely within Kentucky.
15
<PAGE> 17
14. Entire Agreement; Amendment and Waiver. This Agreement, including
the Disclosure Letter and Exhibits hereto, constitutes and contains the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes any prior writing by the parties. Any term of
this Agreement may be amended and the observance of any term of this Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of Company and
Investor (or its permitted assigns). Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities have been converted), each future holder
of all such securities, and Company.
15. Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of the
remaining provisions.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
17. Expenses. Company agrees, upon consummation of the transactions
contemplated by this Agreement, to pay all reasonable legal and out-of-pocket
expenses incurred by Investor in connection with this Agreement and the
transactions contemplated hereunder, including, without limitation all fees and
expenses of Wyatt, Tarrant & Combs, in connection with this Agreement and the
transactions contemplated hereunder.
18. Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement the prevailing party shall be
entitled to reasonable attorneys' fees, costs, and disbursements in addition to
any other relief to which such party may be entitled.
19. Rights of Investor. Each holder of Series B Preferred Stock (and
Common Shares issued upon conversion thereof) shall have the absolute right to
exercise or refrain from exercising any right or rights that such holder may
have by reason of this Agreement or any Series B Preferred Stock, including
without limitation the right to consent to the waiver of any obligation of
Company under this Agreement and to enter into an agreement with Company for the
purpose of modifying this Agreement or any agreement effecting any such
modification, and such holder shall not incur any liability to any other holder
or holders of Series B Preferred Stock (or Common Shares issued upon conversion
thereof) with respect to exercising or refraining from exercising any such right
or rights.
(remainder of this page left intentionally blank)
16
<PAGE> 18
IN WITNESS WHEREOF, Company and Investor have caused this
Agreement to be executed as of the day and year first written above.
"COMPANY"
HIGH SPEED ACCESS CORP.
By: /s/ W. Kent Oyler, III
________________________________
Title: CEO
_______________________________
"INVESTOR"
BROADBAND SOLUTIONS II, LLC
By: /s/ David A. Jones, Jr.
________________________________
Title: Member
______________________________
17
<PAGE> 19
AMENDMENT TO
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
THIS AMENDMENT TO SERIES B CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT ("Amendment") is dated as of the 25th day of November, 1998
by and between HIGH SPEED ACCESS CORP., a Delaware corporation (the "Company")
and BROADBAND SOLUTIONS II, LLC, a Kentucky limited liability company
("Broadband").
WITNESSETH:
WHEREAS, the Company and Broadband are parties to a Series B
Convertible Preferred Stock Purchase Agreement (the "Agreement") dated as of
September 1, 1998; and
WHEREAS, the Agreement provides that it may be amended with the consent
of the Company and Broadband; and
WHEREAS, the Company and Broadband desire to amend the Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is acknowledged,
the Company and Broadband do hereby agree as follows:
1. Amendment. Section 9.4 of the Agreement is hereby amended to read in
its entirety as follows:
9.4 Prohibited Matters.
[1] From and after the date hereof, Company shall
not, without the consent of the holders of a majority of each
class or series of the then outstanding Preferred Stock voting
as a separate class or series (with each share having one
vote):
(a) Effect a liquidation or dissolution or
winding up of business or a substantial change in the nature
of Company's business;
(b) Amend the Amended Certificate or the
Bylaws, except for an amendment to the Amended Certificate to
increase the number of authorized Common Shares in connection
with a (x) Qualified Public Offering, or (y) stock option
plans approved by the Board of Directors of Company (such
increase not to exceed in the aggregate 3,000,000 shares) or
(z) an issuance upon conversion of the Preferred Stock;
(c) Redeem or pay any dividend or
distribution on the Common Shares or any capital stock of
Company ranking junior to the Series A Preferred
<PAGE> 20
Stock and, if ranking pari passu, without redeeming and or
paying an equal dividend on the Series B Preferred Stock;
(d) Issue any class or series of equity
securities or additional shares of existing classes or series,
or equivalents thereof or rights convertible thereinto or
exchangeable therefor except (i) pursuant to employee or
director stock option plans approved by the Board of Directors
of Company, any such issuances in this subsection (i) not to
exceed in the aggregate 3,000,000 shares, (ii) upon conversion
of the Preferred Stock, (iii) in a Qualified Public Offering,
or (iv) pursuant to the exercise of Warrants;
(e) Repay or make any shareholder loans
except as set forth in Section 9.5 of the Disclosure Letter;
(f) Except for (x) transactions in the
ordinary course of business between Company and its officers,
directors and employees relating to compensation (such amount
to be commercially reasonable and generally consistent with
the Business Plan), (y) transactions pursuant to the Systems
Agreements and any amendments, extensions, revisions or other
agreements made pursuant thereto, or (z) as set forth in
Section 5.20 of the Disclosure Letter, engage in any
transactions with "affiliates", which for the purposes of this
Section 9.4[1](f) only shall mean (A) any director or officer
of Company or holder of Company's capital stock, (B) any
person or entity, directly or indirectly, controlling,
controlled by or under common control with any such person or
entity, and (C) in the case of a natural person, members of
his or her immediate family or a trust for their benefit;
(g) Effect any transaction, including,
without limitation, the issuance of any shares of stock or
rights to acquire shares of stock, which would result in a
change in ownership of more than fifty percent (50%) of
Company's outstanding Common Shares on an as-if fully
converted basis, except for a Qualified Public Offering, or
effect any merger or sale of Company or substantially all its
assets;
(h) Acquire any assets not in the ordinary
course or capital stock, partnership, membership or any other
equity interest, or any interest convertible thereinto or
exchangeable therefor, in any entity for a purchase price in
excess of $2.5 million, or engage in more than one of any of
such transactions for an aggregate purchase price in excess of
$7.5 million; or
(i) Take any other action that, individually
or together with any other action, would materially and
adversely affect the holders of the Preferred Stock, it being
acknowledged that a Qualified Public Offering shall not
materially and adversely affect the holders of the Preferred
Stock.
<PAGE> 21
[2] Notwithstanding the provisions of Section 9.4[1]
above:
(a) In the event there has been one or more
transfers by Broadband (defined as Broadband Solutions, LLC
("Broadband I") and Broadband Solutions II, LLC ("Broadband
II") considered together) of more than, in the aggregate, 30%
of the Preferred Stock owned by Broadband immediately after
giving effect to the Closing (and, if and when purchased, any
shares of Series C Preferred Stock purchased by Broadband
subsequent to the Closing, in the aggregate, less any shares
of Preferred Stock transferred to non-Affiliates of Broadband
prior to the purchase of such shares of Series C Preferred
Stock), to one or more non-Affiliates of Broadband I or
Broadband II, then Company shall no longer require the consent
of the holders of the majority of the Series A Preferred Stock
to effect any of the "prohibited matters" referred to in
Section 9.4[1]. For purposes of this paragraph, any transfer
by Broadband I or Broadband II to River Cities Capital Fund
("River Cities") shall not constitute a transfer to a
non-Affiliate of Broadband I or Broadband II if River Cities
grants an irrevocable proxy to Broadband to vote on all
matters, but any subsequent transfer by River Cities (other
than to its partners and so long as they grant a proxy to
Broadband) shall constitute a transfer, unless such subsequent
transferee is an Affiliate of Broadband.
(b) In the event that there has been one or
more transfers by Investor of more than, in the aggregate, 30%
of the Preferred Stock owned by Investor immediately after
giving effect to the Closing (and, if and when purchased, any
shares of Series C Preferred Stock purchased by Investor
subsequent to the Closing, in the aggregate, less any shares
of Preferred Stock transferred to non-Affiliates of Investor
prior to the purchase of such shares of Series C Preferred
Stock), to one or more non-Affiliates of Investor, then
Company shall not require the consent of holders of the
majority of shares of any class or series of Preferred Stock
controlled by Investor to effect any of the "prohibited
matters" referred to in Section 9.4[1].
[3] For the purposes of this Section 9.4, unless
otherwise provided in this Section 9.4, an Affiliate shall
mean [i] with respect to Broadband, any entities or persons
controlling, controlled by or under common control with
Broadband I or Broadband II or any or all of its members, each
existing as of the date hereof, directly or indirectly, either
individually or as a group, or any member of Broadband I or
Broadband II, each existing as of the date hereof, or such
person's lineal descendants, ancestors or spouses of any of
them, or a trust or family limited partnership or any estate
or tax planning vehicle established for it or their benefit,
and [ii] with respect to Investor, any entities or persons
controlled, directly, by Paul G. Allen, or any entities or
persons in which Paul G. Allen holds or owns an equity
investment of not less than One Hundred Million Dollars
($100,000,000) in value.
2. Capitalized terms used in Section 1 of this Amendment shall have the
meanings
<PAGE> 22
ascribed to them in the Series B Convertible Preferred Stock Purchase Agreement
between the Company and Vulcan Ventures, Incorporated dated as of November 25,
1998.
3. Except as amended hereby, the provisions of the Agreement shall
remain in full force and effect, unmodified and unrevoked.
IN WITNESS WHEREOF, the Company and Broadband have executed this
Agreement as of the date and year first above written.
HIGH SPEED ACCESS CORP.
By: /s/ John G. Hundley
-----------------------------------------
Title: Assistant Secretary/General Counsel
--------------------------------------
BROADBAND SOLUTIONS II, LLC
By: /s/ Robert Saunders
-----------------------------------------
Title: Member
--------------------------------------
<PAGE> 1
Ex. - 10.5
[HSA LOGO]
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.
NOVEMBER 25, 1998
CLASS A
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-001
1. Grant of Warrant; Conditional Exercise. THIS CERTIFIES that, for
value received, VULCAN VENTURES, INCORPORATED, a Washington corporation, or its
permitted assigns (the "Holder"), is entitled, subject to the terms and
conditions hereinafter set forth, to earn on or prior to the Effective Date, and
purchase from High Speed Access Corp., a Delaware corporation(hereinafter called
the "Company"), during the Exercise Period, up to Two Million Five Hundred
Thousand (2,500,000), fully paid, nonassessable shares of Common Stock, $0.01
par value, of the Company (the "Maximum Number of Warrant Shares") at the price
of $5.00 per share. THE AGGREGATE EXERCISE PRICE OF THIS WARRANT SHALL BE AN
AGGREGATE AMOUNT NOT TO EXCEED TWELVE MILLION FIVE HUNDRED THOUSAND DOLLARS
($12,500,000). This Class A Securities Purchase Warrant ("Warrant") is issued
pursuant to the terms and conditions of, and is qualified by and subject to,
Section 6 of the Systems Access Agreement (defined below), which is incorporated
herein by reference. The number of shares of Common Stock to be received upon
exercise of this Warrant and the price to be paid for each such share of Common
Stock may be adjusted from time to time as hereinafter set forth. The exercise
price of a share of Common Stock in effect at any time and as adjusted from time
to time, is hereinafter referred to as the "Warrant
1
<PAGE> 2
Price." 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 Paul G. Allen, or in which Paul G. Allen
either individually or through an entity which he controls or holds an equity
investment of at least $100,000,000 in value. 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, and (ii) with respect to any person, such person's lineal
descendants or ancestors or spouses of any of them, or a trust or family limited
partnership established for their benefit.
(b) "Cable System" shall have the meaning given it in Section 1.2 of
the Systems Access Agreement.
(c) "Class B Warrant" means, as the context requires, a certain Class B
Securities Purchase Warrant dated November 25, 1998, between the Company and the
Holder (the form of which is attached as Exhibit D) to the Systems Access
Agreement, or the number of Subscribed/Warrant Shares issued or issuable under
such warrant agreement.
(d) "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 (as defined in the Series B Convertible Preferred Stock Purchase
Agreement dated November 25, 1998, by and between the Company and Holder (the
"Series B Purchase Agreement") and all securities into which such Common Stock
is exchanged or converted.
(e) "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.
(f) "Committed System" shall have the meaning given it in Section 1.8
of the Systems Access Agreement.
(g) "Effective Date" means the date any Warrant Share becomes
automatically issuable in accordance with the provisions hereof and the Systems
Access Agreement and which shall in no event be later than July 31, 2001, unless
extended pursuant to Section 6.4 of the Systems Access Agreement.
(h) "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
2
<PAGE> 3
of this Warrant and ending on the earlier of (i) the first anniversary of the
date upon which a Qualified Public Offering becomes effective, or (ii) December
31, 2011.
(i) "Exercise Price" means $5.00 per Warrant Share (adjusted if
appropriate pursuant to Sections 6 or 7).
(j) "Holder" means Vulcan Ventures, Incorporated, a Washington
corporation, or any other Person to whom this Warrant is transferred in
accordance with Section 5 hereof.
(k) "Homes Passed" shall have the meaning given it in Section 1.16 of
the Systems Access Agreement.
(l) "Network Services Agreement" means the Network Services Agreement
dated November 25, 1998, among the Company, Charter Communications, Inc., and
Marcus Cable, Inc.
(m) "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.
(n) "Operators" shall have the meaning given it in Section 1.24 of the
Systems Access Agreement.
(o) "Person" means any person, firm, Company, or other entity.
(p) "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.
(q) "Qualified Public Offering" means an underwritten public offering,
initiated by resolution of the Company's Board of Directors, of the Company's
Common Shares at a minimum per share offering price of at least $7.50 (as
proportionately and appropriately adjusted to reflect any subdivision, reverse
stock split or recapitalization of the Company's Common Shares after the date
hereof) and aggregate gross proceeds of not less than $50 million to the Company
which has been made pursuant to a registration statement filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
(r) "Secretary" means W. Kent Oyler III or his duly elected and
qualified successor as the Company's Secretary, or any duly elected and
qualified Assistant Secretary of the Company.
(s) "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.
3
<PAGE> 4
(t) "Stock Certificate" means an appropriate certificate issued in the
Holder's name representing the Subscribed Shares.
(u) "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 2,500,000 shares of Common Stock (adjusted, if
appropriate, pursuant to Sections 6).
(v) "Subscription Form" means the subscription form attached as Exhibit
A to this Warrant.
(w) "Systems Access Agreement" means a certain Systems Access and
Investment Agreement dated November 25, 1998, among the Company, the Holder,
Charter Communications, Inc., and Marcus Cable, Inc.
(x) "Warrant" means this Securities Purchase Warrant.
(y) "Warrant Period" means the period beginning on the date hereof and
ending on the last date of the Exercise Period.
(z) "Warrant Shares" means, collectively, the 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.
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, for Subscribed
Shares in any amount equal to the number of Homes Passed (in excess of 750,000)
in Cable Systems which the Operator has designated as additional Committed
Systems (on a one (1) Warrant Share per each Home Passed basis), in accordance
with Section 2.2 of the Network Services Agreement; provided that:
(1) the number of Subscribed Shares issuable under
this Warrant, to the extent of the number of Homes Passed in an
additional Committed System designated under Section 2.2 of the Network
Agreement (on a one (1) Warrant Share per Home Passed basis), will be
cancelled and deemed forfeited by Holder (or its permitted transferee)
in the event any Operator withdraws Committed Systems under the Network
Agreement for any reason other than pursuant to Sections 18.1, 18.2,
18.3 and/or 18.6 of such Network Agreement, except to the extent Holder
or such Operator replaces the Homes Passed in such withdrawn Committed
System
4
<PAGE> 5
with Homes Passed in another Committed System(s)or additional Committed
Systems, provided, that Subscribed Shares issuable under this Warrant
will not be cancelled or deemed forfeited if Operator terminates any of
HSAC's exclusive rights to provision HSAC Services in any Committed
Systems as provided for or permitted under the Systems Access Agreement
or the Network Services Agreement; and provided further, that as of
July 31, 2003, the parties shall effect a reconciliation of the total
number of Homes Passed in all Committed Systems (in excess of 750,000)
under the Network Agreement, the number of outstanding Class A Warrants
and Class B Warrants, and the number of shares theretofore issued upon
exercise of this Warrant and the Class B Warrant. If such
reconciliation reveals that the total number of Homes Passed in all
Committed Systems (in excess of 750,000) under the Network Agreement
(after adding back in Homes Passed in Committed Systems and additional
Committed Systems withdrawn from the Network Agreement pursuant to
Sections 18.1, 18.2, 18.3 and/or 18.6 thereof) is different than the
total number of all outstanding Class A Warrants and Class B Warrants
and Warrant Shares, then the number of Class A Warrants and/or Class B
Warrants will be adjusted upward or downward, as the case may be. If
the number of unexercised Class A Warrants and/or Class B Warrants then
held by Vulcan is insufficient to cover any shortfall, then Vulcan (or
its permitted transferee) shall return to HSAC a number of Warrant
Shares necessary to meet such shortfall, and HSAC shall refund to
Vulcan the exercise price paid by Vulcan 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.
(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, 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
5
<PAGE> 6
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 = 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 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
6
<PAGE> 7
(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 to any Person or
Persons at any time 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
8 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 eighteen (18) months from the Effective Date hereof
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. Anti-Dilution. The maximum number of Warrant Shares and the Exercise
Price for any Subscribed Shares shall be adjusted if during the Exercise Period,
but before the Holder's exercise of this Warrant:
(a) Issues of Shares. The Company shall issue any of its Common Shares
for a consideration per share which is less than the Exercise Price in effect
immediately prior to such issuance (other than shares issued to employees,
officers, directors or consultants of the Company pursuant to
7
<PAGE> 8
option plans approved by the Board of Directors of the Company), the Exercise
Price shall be reduced to such lower price. For purposes of this subparagraph
[a], the following clauses shall also be applicable:
[1] Convertible Securities, Options and Rights. If,
at any time the Company shall issue or sell any rights, options,
warrants or other securities entitling the holders thereof to purchase
Common Shares or convert such securities into Common Shares at a price
per share (determined by dividing (i) the total amount, if any,
received or receivable by the Company in consideration of the issuance
or sale of such rights, options, warrants or other securities plus the
total amount if any, payable to the Company upon exercise or conversion
thereof (the "Total Consideration") by (ii) the number of additional
Common Shares issuable upon exercise or conversion of such securities)
which is less than the Exercise Price in effect on the date of such
issuance or sale, the Exercise Price price shall be adjusted as of the
date of such issuance or sale so that the same shall equal the price
determined by dividing (i) the sum of (A) the number of Common Shares
outstanding on the date of such issuance or sale multiplied by the
Exercise Price in effect immediately prior thereto plus (B) the Total
Consideration by (ii) the number of Common Shares outstanding on the
date of such issuance or sale plus the maximum number of additional
Common Shares issuable upon exercise or conversion of such securities.
Simultaneously with all adjustments to the number and/or kind of
securities, property and cash to be issued in connection with any such
issuance, sale or conversion, the Exercise Price will also be
appropriately adjusted so that at all times the holder hereof will not
pay more than the aggregate purchase price to exercise this Warrant in
full immediately after such adjustment as such holder had to pay
immediately prior to such adjustment.
[2] Distributions, Share Dividends and Splits.
(i) In case the Company declares a dividend
or other distribution payable in Common Shares or subdivides
its Common Shares into a greater number of Common Shares, the
Exercise Price in effect immediately prior to such declaration
or subdivision shall be proportionately decreased and the
number and kind of shares purchasable upon exercise of this
Warrant shall be adjusted so that the holders thereof shall be
entitled to receive the kind and number of shares or the other
securities of the Company (such other securities thereafter
enjoying the rights of shares) that the Holder would have
owned or have been entitled to receive after the happening of
any of the events described in this paragraph [2] had the
Warrant Shares been issued immediately prior to the happening
of such event or any record date with respect thereto.
(ii) In case the Company shall distribute to
the holders of Common Shares (i) securities, (ii) property,
other than cash, or (iii) cash, without fair payment therefor,
then, and in each such case, the Holder upon exercise hereof
shall be entitled to receive such securities, property and
cash which such Holder would have received had such Holder
been the holder of record of the Common Shares, subject,
however, to such Holder agreeing to any conditions to such
distribution as were required of all other holders of Common
Shares in connection with such distribution.
8
<PAGE> 9
(iii) If the securities to be distributed by
the Company to persons other than holders of this Warrant
involve rights, warrants, options, or any other form of
convertible securities and the right to exercise or convert
such securities would expire in accordance with its terms
prior to the exercise of this Warrant, and without the
exchange of any such rights, warrants or options, then the
terms of such securities shall provide that such exercise or
convertibility shall remain in effect until thirty (30) days
after the date the holder of this Warrant becomes a holder of
Common Shares pursuant to the conversion thereof.
An adjustment made pursuant to this paragraph [2]
shall become effective immediately after the record date in
the case of a dividend or distribution and shall become
immediately effective after the effective date in the case of
a subdivision, combination or issuance. If, as a result of an
adjustment made pursuant to this paragraph B, the Holder after
exercise shall become entitled to receive shares of two or
more classes of capital or Common Shares and any other class
of capital stock of the Company, the Board of Directors of the
Company (whose determination shall be conclusive and shall be
described in a written notice to the Holder promptly after
such adjustment) shall determine the allocation of the
adjusted Exercise Price between or among shares of such
classes of capital stock or Common Shares and such other
classes of capital stock.
[3] Consideration. In case the Company shall issue
its Common Shares for a consideration wholly or partly other
than cash, the amount of the consideration other than cash
received by the Company shall be deemed to be the lesser of
(i) the fair market value on the issue date of the Common
Shares so issued by the Company, as determined in good faith
by the Board of Directors of the Company, less any cash
consideration, or (ii) the fair market value of such
consideration as determined in good faith by the Board of
Directors of the Company.
[4] Record Dates. In case the Company shall take a
record of the holders of its Common Shares for the purpose of
determining Holders entitled (i) to receive a dividend or
other distribution payable in Common Shares, or (ii) to
subscribe for or purchase Common Shares, then such record date
shall be deemed to be the date of the issue or sale of the
Common Shares issued upon the declaration of such dividend or
the making of such distribution or deemed to have been issued
upon the granting of such right of subscription or purchase,
as the case may be.
[5] Treasury Shares. The number of Common Shares
outstanding at any given time shall not include shares owned
or held by or for the account of the Company in its treasury,
and the disposition of any such shares so owned or held shall
be considered an issue of Common Shares.
9
<PAGE> 10
[6] Minimum Exercise Price. In no case shall the
Exercise Price be less than $.01 per share.
(b) Stock Combinations. In case the Company shall combine all
of the outstanding Common Shares into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased.
(c) Reorganizations. If any capital reorganization or
reclassification of the capital stock of the Company other than a combination or
merger or sale of assets transaction provided for herein (but including any
consolidation or merger of the Company with or sale of all or substantially all
of its assets to a Continuing Entity) shall be effected, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby each Holder shall thereafter have the
right to receive upon exercise of this Warrant such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange for a
number of outstanding Common Shares equal to the number of Common Shares
immediately theretofore issuable upon exercise of this Warrant had such
reclassification, consolidation, merger or sale not taken place; and in any such
case appropriate provisions shall be made with respect to the rights and
interests of each Holder to the end that the provisions hereof (including
without limitation provisions for adjustment of the Exercise Price and of the
number of shares issuable upon exercise of this Warrant) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise hereof. The Company shall not
effect any such consolidation, merger or sale, unless prior to or simultaneously
with the consummation thereof the successor Company (if other than the Company)
resulting from such consolidation or merger or the Company purchasing such
assets shall assume by a written instrument executed and mailed by registered
mail, postage prepaid, or delivered to each registered Holder at the last
address of such Holder appearing on the Certificate Register (defined in Section
16 hereof), the obligation of the Company to deliver to such Holder such shares
of stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to upon exercise of this Warrant. The provisions of
this paragraph (c) shall similarly apply to successive consolidations, mergers
or sale of assets.
(d) Notice of Adjustment. Upon each adjustment of the Exercise
Price, the Company shall give prompt written notice thereof addressed to each
registered Holder at the address of such Holder as shown on the Certificate
Register, which notice shall state the Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of Warrant Shares
issuable upon exercise hereof, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(e) 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.
10
<PAGE> 11
(f) 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.
(g) 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.
(h) No Impairment. The Company will not, by amendment of this
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company under this
Section 6, 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 conversion rights of the
Holders against impairment.
(i) Notice of Capital Changes. If at any time:
[1] The Company shall declare any dividend or
distribution (other than a cash dividend) payable to
the holders of its Common Shares;
[2] The Company shall offer for subscription pro rata to
the holders of Common Shares any additional shares of
stock of any class or other rights;
[3] There shall be any capital reorganization or
reclassification of the capital stock of the Company,
or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to,
another Company or business organization;
[4] There shall be any issuance of securities convertible
into, or rights or warrants to purchase, securities
of the Company; or
11
<PAGE> 12
[5] There shall be a voluntary or involuntary
dissolution, liquidation or winding up of the
Company.
Then, in any one or more of such cases, the Company shall give
the Holders written notice by registered mail, postage
prepaid, of the date on which a record shall be taken for such
dividend, distribution or subscription rights or for
determining shareholders entitled to vote upon such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up and of the date when
any such transaction shall take place, as the case may be.
Such notice shall also specify the date as of which the
Holders may exercise this Warrant such that the Warrant Shares
of record shall participate in such dividend, distribution or
subscription rights, or shall be entitled to exchange the
Warrant Shares for securities or other property deliverable
upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or winding up, as the
case may be. Such written notice shall be given at least 30
days prior to the transaction in question and not less than 20
days prior to the record date in respect thereto.
The adjustment to the number of Common Shares issuable upon
the exercise hereof and the adjustments to the Exercise Price
described in this Section 6 shall be made each time any event
listed in this Section 6 occurs.
If the Company takes any action affecting its Common Shares
after the date hereof, that would be covered by this Section 6
but for the manner in which such action is taken or
structured, other than an action described in this Section 6,
which would in any way diminish the value of this Warrant or
the Warrant Shares, then there shall be an adjustment as to
the Common Shares purchasable therefor and the Exercise Price
payable thereunder in such manner as the Board of Directors of
the Company shall in good faith determine to be equitable
under the circumstances.
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
12
<PAGE> 13
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.
The shares represented by this certificate are subject to and may be
transferred only in compliance with the terms of a certain Amended and
Restated Shareholders Agreement dated November 25, 1998, as amended,
made by and among certain holders of securities of the Company. Copies
of that Agreement are available for inspection at the principal or
registered office of the Company.
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 or in the
Shareholders Agreement (referenced in Section 16 hereof) or the Voting Agreement
(referenced in Section 16 hereof) or the Amended Certificate, 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. Expenses. The Company will pay all expenses and charges payable in
connection with the preparation, issuance and delivery of this Warrant and all
substitute Warrants. The Holder shall pay all taxes (other than issuance taxes,
including documentary stamp taxes, transfer taxes and other governmental
charges, which shall be paid by the Company) in connection with such issuance
and delivery of the Warrants and the Subscribed Shares.
11. Reservation of Shares. The Company will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Stock or its authorized and issued Common Stock
held in its treasury, solely for the purpose of enabling it to satisfy any
obligation to issue shares of Common Stock upon exercise of this Warrant, for
the maximum number of shares of Common Stock which may then be deliverable upon
the exercise of this Warrant. The Company covenants that all shares of Common
Stock which may be issued upon exercise of this Warrant will, upon issue, be
fully paid, nonassessable, free of preemptive rights and free from all taxes,
liens, charges and security interests with respect to the issue thereof.
12. 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.
13. Fractional Shares of the Holder. No fractional shares of Common
Stock will be issued in connection with any purchase hereunder but in lieu of
such fractional shares, the Company shall make a cash refund therefore equal in
amount to the product of the applicable fraction multiplied by the Exercise
Price then in effect.
13
<PAGE> 14
14. Computations. The certificate of any firm of independent public
accountants of nationally recognized standing selected by the Company shall be
conclusive evidence of the correctness of any computation under this Warrant.
15. Investor Exit; Other Shareholder Rights. The Holder's rights with
respect to voting rights, the transfer of this Warrant and the registration and
sale of the Common Stock issuable hereunder are also governed by a certain (i)
Amended and Restated Registration Rights Agreement dated November 25, 1998,
between the Company and the holders of the Company's common and preferred
securities identified as "Investors" in such agreement, and (ii) Amended and
Restated Shareholders Agreement dated November 25, 1998, among the Company, and
the holders of the Company's common and preferred securities identified as
"Investors" in such agreement among the "Shareholders" and "Investors" as
identified therein, and (iii) Voting Agreement dated November 25, 1998, among
the Company, Broadband Solutions, LLC, Broadband Solutions II, LLC, and Vulcan
Ventures, Incorporated, the terms and conditions of which are incorporated
herein by reference. The Holder agrees that all Warrant Shares shall be subject
to these agreements.
16. Owner of Warrant. The Company shall keep a register (the
"Certificate Register") of the Warrant Certificates and of their transfer and
exchange in accordance with the provisions of Sections 5 and 7 hereof. The
Certificate Register shall show the names and addresses of the respective
Holder(s) and the date and number of Warrants represented on the face of each
Warrant Certificate. The Company shall be entitled to treat the Person in whose
name a Warrant Certificate is registered as the absolute owner of such Warrant
Certificate for all purposes. The Company shall have no duty to inquire into
adverse claims to, or the authenticity of any signature of any purported holder
of, this Warrant.
17. 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.
14
<PAGE> 15
IN WITNESS WHEREOF, this Warrant has been executed as of the 25th day
of November, 1998.
HIGH SPEED ACCESS CORP.
By /s/ Robert S. Saunders
______________________________
Name: Robert S. Saunders
____________________________
Date: November 25, 1998
____________________________
VULCAN VENTURES, INCORPORATED
By /s/ William D. Savoy
______________________________
Name: William D. Savoy
____________________________
Title: Vice President
____________________________
Date:____________________________
15
<PAGE> 16
ASSIGNMENT
WHEREAS, Vulcan Ventures, Incorporated ("Vulcan") holds, for the
benefit of and as nominee of Charter Communications, Inc. ("Charter"), that
certain Class A Securities Purchase Warrant dated November 25, 1998, entitling
the Holder to subscribe for two million five hundred thousand (2,500,000) shares
of the common stock with $.01 par value of High Speed Access Corp. to Charter
(the "Warrant"); and
WHEREAS, Vulcan and Charter desire Vulcan to assign this Warrant to
Charter;
Now, therefore, Vulcan hereby assigns and transfers all right, title
and interest in and to the Warrant to Charter.
Vulcan Ventures, Incorporated
By: /s/ William D. Savoy
-----------------------------
Name: William D. Savoy
Title: Vice President
Dated: April 23, 1999
<PAGE> 17
AMENDMENT TO
CLASS A SECURITIES PURCHASE
WARRANT
TO SUBSCRIBE FOR AND PURCHASE COMMON STOCK
OF
HIGH SPEED ACCESS CORP.
This AMENDMENT TO CLASS A SECURITIES PURCHASE WARRANT ("Amendment") is
dated as of this 29th day of April, 1999, by and between:
HIGH SPEED ACCESS CORP.
1000 West Ormsby Ave., Suite 210
Louisville, Kentucky 40210 ("HSAC")
and
CHARTER COMMUNICATIONS, INC.
12444 Powerscourt Drive, Suite 400
St. Louis, MO 63131 ("Charter")
RECITALS
A. HSAC, pursuant to WARRANT NO. R-001 dated November 25, 1998 (the
"Warrant"), granted Vulcan Ventures, Incorporated ("Vulcan") the right to
purchase up to Two Million Five Hundred Thousand (2,500,000) fully paid,
nonassessable shares of Common Stock of HSAC, under terms and conditions as more
fully explained therein. Vulcan transferred its right, title and interest in and
to the Warrant to Charter by Assignment dated April 23, 1999.
B. The parties desire to amend certain provisions of the Warrant as set out
herein.
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. Subject to Section 2 hereof, Section 2.(h) of the Warrant is hereby
amended to read in its entirety as follows:
"Exercise Period" means, with respect to any Warrant Share, subject to any
extension or extensions of the period pursuant to Section 6 of the Systems
Access Agreement, the period beginning on the Effective Date of this
Warrant and ending on July 31, 2002.
<PAGE> 18
2. This Amendment shall be effective upon the completion by HSAC of an
underwritten public offering of common stock of HSAC of not less than $50
million in aggregate gross proceeds to HSAC at a minimum initial price per share
of $7.50 (as proportionately and appropriately adjusted to reflect any
subdivision, reverse split or recapitalization of HSAC's common stock after the
date hereof) which has been made pursuant to a registration statement filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended.
IN WITNESS WHEREOF, this Amendment to Class A Securities Purchase Warrant
has been executed as of the day and year first set forth above
HIGH SPEED ACCESS CORP.
By: /s/ John G. Hundley
--------------------------------
Name: John G. Hundley, VP, Asst.
------------------------------
Secretary/General Counsel
------------------------------
Date: April 30, 1999
------------------------------
CHARTER COMMUNICATIONS, INC.
By: /s/ Curtis Shaw
--------------------------------
Name: Curtis S. Shaw
------------------------------
Title: Senior Vice President
-----------------------------
Date: April 30, 1999
------------------------------
2
<PAGE> 1
Ex. - 10.6
[HSA LOGO]
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.
NOVEMBER 25, 1998
CLASS B
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-001
1. Grant of Warrant; Conditional Exercise. THIS CERTIFIES that, for
value received, VULCAN VENTURES, INCORPORATED, a Washington corporation, or its
permitted assigns (the "Holder"), is entitled, subject to the terms and
conditions hereinafter set forth, to earn on or prior to the Effective Date, and
purchase from High Speed Access Corp., a Delaware corporation(hereinafter called
the "Company"), during the Exercise Period, up to Two Million Five Hundred
Thousand (2,500,000), fully paid, nonassessable shares of Common Stock, $0.01
par value, of the Company (the "Maximum Number of Warrant Shares") at the price
of $5.00 per share. THE AGGREGATE EXERCISE PRICE OF THIS WARRANT SHALL BE AN
AGGREGATE AMOUNT NOT TO EXCEED TWELVE MILLION FIVE HUNDRED THOUSAND DOLLARS
($12,500,000). This Class B Securities Purchase Warrant ("Warrant") is issued
pursuant to the terms and conditions of, and is qualified by and subject to,
Section 6 of the Systems Access Agreement (defined below), which is incorporated
herein by reference. The number of shares of Common Stock to be received upon
exercise of this Warrant and the price to be paid for each such share of Common
Stock may be adjusted from time to time as hereinafter set forth. The exercise
price of a share of Common Stock in effect at any time and as adjusted from time
to time, is hereinafter referred to as the "Warrant
1
<PAGE> 2
Price." 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 Paul G. Allen, or in which Paul G. Allen
either individually or through an entity which he controls or holds an equity
investment of at least $100,000,000 in value. 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, and (ii) with respect to any person, such person's lineal
descendants or ancestors or spouses of any of them, or a trust or family limited
partnership established for their benefit.
(b) "Cable System" shall have the meaning given it in Section 1.2 of
the Systems Access Agreement.
(c) "Class A Warrant" means, as the context requires, a certain Class A
Securities Purchase Warrant dated November 25, 1998, between the Company and the
Holder (the form of which is attached as Annex C to the Systems Access
Agreement), or the number of Subscribed/Warrant Shares issued or issuable under
such warrant agreement.
(d) "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 (as defined in the Series B Convertible Preferred Stock Purchase
Agreement dated November 25, 1998, by and between the Company and Holder (the
"Series B Purchase Agreement") and all securities into which such Common Stock
is exchanged or converted.
(e) "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.
(f) "Committed System" shall have the meaning given it in Section 1.8
of the Systems Access Agreement.
(g) "Effective Date" means the date any Warrant Share becomes
automatically issuable in accordance with the provisions hereof and the Systems
Access Agreement and which shall in no event be later than July 31, 2003, unless
extended pursuant to Section 6.4 of the Systems Access Agreement.
(h) "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
2
<PAGE> 3
of this Warrant and ending on the earlier of (i) the first anniversary of the
date upon which a Qualified Public Offering becomes effective, or (ii) December
31, 2013.
(i) "Exercise Price" means $5.00 per Warrant Share (adjusted if
appropriate pursuant to Sections 6 or 7).
(j) "Holder" means Vulcan Ventures, Incorporated, a Washington
corporation, or any other Person to whom this Warrant is transferred in
accordance with Section 5 hereof.
(k) "Homes Passed" shall have the meaning given it in Section 1.16 of
the Systems Access Agreement.
(l) "Network Services Agreement" means the Network Services Agreement
dated November 25, 1998, among the Company, Charter Communications, Inc., and
Marcus Cable, Inc.
(m) "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.
(n) "Operators" shall have the meaning given it in Section 1.24 of the
Systems Access Agreement.
(o) "Person" means any person, firm, Company, or other entity.
(p) "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.
(q) "Qualified Public Offering" means an underwritten public offering,
initiated by resolution of the Company's Board of Directors, of the Company's
Common Shares at a minimum per share offering price of at least $7.50 (as
proportionately and appropriately adjusted to reflect any subdivision, reverse
stock split or recapitalization of the Company's Common Shares after the date
hereof) and aggregate gross proceeds of not less than $50 million to the Company
which has been made pursuant to a registration statement filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
(r) "Secretary" means W. Kent Oyler III or his duly elected and
qualified successor as the Company's Secretary, or any duly elected and
qualified Assistant Secretary of the Company.
(s) "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.
3
<PAGE> 4
(t) "Stock Certificate" means an appropriate certificate issued in the
Holder's name representing the Subscribed Shares.
(u) "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 2,500,000 shares of Common Stock (adjusted, if
appropriate, pursuant to Sections 6).
(v) "Subscription Form" means the subscription form attached as Exhibit
A to this Warrant.
(w) "Systems Access Agreement" means a certain Systems Access and
Investment Agreement dated November 25, 1998, among the Company, the Holder,
Charter Communications, Inc., and Marcus Cable, Inc.
(x) "Warrant" means this Securities Purchase Warrant.
(y) "Warrant Period" means the period beginning on the date hereof and
ending on the last date of the Exercise Period.
(z) "Warrant Shares" means, collectively, the 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.
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, for Subscribed
Shares in any amount equal to the number of Homes Passed (in excess of 750,000
plus those Homes Passed counted for purposes of earning Class A Warrants
pursuant to Section 6.1.1 of the Systems Access Agreement) in Cable Systems
which the Operator has designated as additional Committed Systems (on a one (1)
Warrant Share per each Home Passed basis), in accordance with Section 2.2 of the
Network Services Agreement; provided that:
(1) the number of Subscribed Shares issuable under
this Warrant, to the extent of the number of Homes Passed in an
additional Committed System designated under Section 2.2 of the Network
Agreement (on a one (1) Warrant Share per Home Passed basis), will be
cancelled and deemed forfeited by Holder (or its permitted transferee)
in the event any Operator withdraws Committed Systems under the Network
Agreement for any reason other than pursuant to Sections 18.1, 18.2,
18.3 and/or 18.6 of such Network Agreement, except to the
4
<PAGE> 5
extent Holder or such Operator replaces the Homes Passed in such
withdrawn Committed System with Homes Passed in another Committed
System(s)or additional Committed Systems, provided, that Subscribed
Shares issuable under this Warrant will not be cancelled or deemed
forfeited if Operator terminates any of HSAC's exclusive rights to
provision HSAC Services in any Committed Systems as provided for or
permitted under the Systems Access Agreement or the Network Services
Agreement; and provided further, that as of July 31, 2003, the parties
shall effect a reconciliation of the total number of Homes Passed in
all Committed Systems (in excess of 750,000) under the Network
Agreement, the number of outstanding Class A Warrants and Class B
Warrants, and the number of shares theretofore issued upon exercise of
this Warrant and the Class A Warrant. If such reconciliation reveals
that the total number of Homes Passed in all Committed Systems (in
excess of 750,000) under the Network Agreement (after adding back in
Homes Passed in Committed Systems and additional Committed Systems
withdrawn from the Network Agreement pursuant to Sections 18.1, 18.2,
18.3 and/or 18.6 thereof) is different than the total number of all
outstanding Class A Warrants and Class B Warrants and Warrant Shares,
then the number of Class A Warrants and/or Class B Warrants will be
adjusted upward or downward, as the case may be. If the number of
unexercised Class A Warrants and/or Class B Warrants then held by
Vulcan is insufficient to cover any shortfall, then Vulcan (or its
permitted transferee) shall return to HSAC a number of Warrant Shares
necessary to meet such shortfall, and HSAC shall refund to Vulcan the
exercise price paid by Vulcan 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.
(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.
5
<PAGE> 6
In the event the Company has completed a Qualified Public Offering, 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 = 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 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.
6
<PAGE> 7
(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 to any Person or
Persons at any time 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
8 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 eighteen (18) months from the Effective Date hereof
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. Anti-Dilution. The maximum number of Warrant Shares and the Exercise
Price for any Subscribed Shares shall be adjusted if during the Exercise Period,
but before the Holder's exercise of this Warrant:
7
<PAGE> 8
(a) Issues of Shares. The Company shall issue any of its Common Shares
for a consideration per share which is less than the Exercise Price in effect
immediately prior to such issuance (other than shares issued to employees,
officers, directors or consultants of the Company pursuant to option plans
approved by the Board of Directors of the Company), the Exercise Price shall be
reduced to such lower price. For purposes of this subparagraph [a], the
following clauses shall also be applicable:
[1] Convertible Securities, Options and Rights. If,
at any time the Company shall issue or sell any rights, options,
warrants or other securities entitling the holders thereof to purchase
Common Shares or convert such securities into Common Shares at a price
per share (determined by dividing (i) the total amount, if any,
received or receivable by the Company in consideration of the issuance
or sale of such rights, options, warrants or other securities plus the
total amount if any, payable to the Company upon exercise or conversion
thereof (the "Total Consideration") by (ii) the number of additional
Common Shares issuable upon exercise or conversion of such securities)
which is less than the Exercise Price in effect on the date of such
issuance or sale, the Exercise Price price shall be adjusted as of the
date of such issuance or sale so that the same shall equal the price
determined by dividing (i) the sum of (A) the number of Common Shares
outstanding on the date of such issuance or sale multiplied by the
Exercise Price in effect immediately prior thereto plus (B) the Total
Consideration by (ii) the number of Common Shares outstanding on the
date of such issuance or sale plus the maximum number of additional
Common Shares issuable upon exercise or conversion of such securities.
Simultaneously with all adjustments to the number and/or kind of
securities, property and cash to be issued in connection with any such
issuance, sale or conversion, the Exercise Price will also be
appropriately adjusted so that at all times the holder hereof will not
pay more than the aggregate purchase price to exercise this Warrant in
full immediately after such adjustment as such holder had to pay
immediately prior to such adjustment.
[2] Distributions, Share Dividends and Splits.
(i) In case the Company declares a dividend
or other distribution payable in Common Shares or subdivides
its Common Shares into a greater number of Common Shares, the
Exercise Price in effect immediately prior to such declaration
or subdivision shall be proportionately decreased and the
number and kind of shares purchasable upon exercise of this
Warrant shall be adjusted so that the holders thereof shall be
entitled to receive the kind and number of shares or the other
securities of the Company (such other securities thereafter
enjoying the rights of shares) that the Holder would have
owned or have been entitled to receive after the happening of
any of the events described in this paragraph [2] had the
Warrant Shares been issued immediately prior to the happening
of such event or any record date with respect thereto.
(ii) In case the Company shall distribute to
the holders of Common Shares (i) securities, (ii) property,
other than cash, or (iii) cash, without fair payment therefor,
then, and in each such case, the Holder upon exercise hereof
shall be entitled to receive such securities, property and
cash which such Holder would have received had
8
<PAGE> 9
such Holder been the holder of record of the Common Shares,
subject, however, to such Holder agreeing to any conditions to
such distribution as were required of all other holders of
Common Shares in connection with such distribution.
(iii) If the securities to be distributed by
the Company to persons other than holders of this Warrant
involve rights, warrants, options, or any other form of
convertible securities and the right to exercise or convert
such securities would expire in accordance with its terms
prior to the exercise of this Warrant, and without the
exchange of any such rights, warrants or options, then the
terms of such securities shall provide that such exercise or
convertibility shall remain in effect until thirty (30) days
after the date the holder of this Warrant becomes a holder of
Common Shares pursuant to the conversion thereof.
An adjustment made pursuant to this paragraph [2]
shall become effective immediately after the record date in
the case of a dividend or distribution and shall become
immediately effective after the effective date in the case of
a subdivision, combination or issuance. If, as a result of an
adjustment made pursuant to this paragraph B, the Holder after
exercise shall become entitled to receive shares of two or
more classes of capital or Common Shares and any other class
of capital stock of the Company, the Board of Directors of the
Company (whose determination shall be conclusive and shall be
described in a written notice to the Holder promptly after
such adjustment) shall determine the allocation of the
adjusted Exercise Price between or among shares of such
classes of capital stock or Common Shares and such other
classes of capital stock.
[3] Consideration. In case the Company shall issue
its Common Shares for a consideration wholly or partly other
than cash, the amount of the consideration other than cash
received by the Company shall be deemed to be the lesser of
(i) the fair market value on the issue date of the Common
Shares so issued by the Company, as determined in good faith
by the Board of Directors of the Company, less any cash
consideration, or (ii) the fair market value of such
consideration as determined in good faith by the Board of
Directors of the Company.
[4] Record Dates. In case the Company shall take a
record of the holders of its Common Shares for the purpose of
determining Holders entitled (i) to receive a dividend or
other distribution payable in Common Shares, or (ii) to
subscribe for or purchase Common Shares, then such record date
shall be deemed to be the date of the issue or sale of the
Common Shares issued upon the declaration of such dividend or
the making of such distribution or deemed to have been issued
upon the granting of such right of subscription or purchase,
as the case may be.
[5] Treasury Shares. The number of Common Shares
outstanding at any given time shall not include shares owned
or held by or for the account of the Company
9
<PAGE> 10
in its treasury, and the disposition of any such shares so
owned or held shall be considered an issue of Common Shares.
[6] Minimum Exercise Price. In no case shall the
Exercise Price be less than $.01 per share.
(b) Stock Combinations. In case the Company shall combine all
of the outstanding Common Shares into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased.
(c) Reorganizations. If any capital reorganization or
reclassification of the capital stock of the Company other than a combination or
merger or sale of assets transaction provided for herein (but including any
consolidation or merger of the Company with or sale of all or substantially all
of its assets to a Continuing Entity) shall be effected, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby each Holder shall thereafter have the
right to receive upon exercise of this Warrant such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange for a
number of outstanding Common Shares equal to the number of Common Shares
immediately theretofore issuable upon exercise of this Warrant had such
reclassification, consolidation, merger or sale not taken place; and in any such
case appropriate provisions shall be made with respect to the rights and
interests of each Holder to the end that the provisions hereof (including
without limitation provisions for adjustment of the Exercise Price and of the
number of shares issuable upon exercise of this Warrant) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise hereof. The Company shall not
effect any such consolidation, merger or sale, unless prior to or simultaneously
with the consummation thereof the successor Company (if other than the Company)
resulting from such consolidation or merger or the Company purchasing such
assets shall assume by a written instrument executed and mailed by registered
mail, postage prepaid, or delivered to each registered Holder at the last
address of such Holder appearing on the Certificate Register (defined in Section
16 hereof), the obligation of the Company to deliver to such Holder such shares
of stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to upon exercise of this Warrant. The provisions of
this paragraph (c) shall similarly apply to successive consolidations, mergers
or sale of assets.
(d) Notice of Adjustment. Upon each adjustment of the Exercise
Price, the Company shall give prompt written notice thereof addressed to each
registered Holder at the address of such Holder as shown on the Certificate
Register, which notice shall state the Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of Warrant Shares
issuable upon exercise hereof, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(e) 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
10
<PAGE> 11
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.
(f) 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.
(g) 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.
(h) No Impairment. The Company will not, by amendment of this
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company under this
Section 6, 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 conversion rights of the
Holders against impairment.
(i) Notice of Capital Changes. If at any time:
[1] The Company shall declare any dividend or
distribution (other than a cash dividend) payable to
the holders of its Common Shares;
[2] The Company shall offer for subscription pro rata to
the holders of Common Shares any additional shares of
stock of any class or other rights;
[3] There shall be any capital reorganization or
reclassification of the capital stock of the Company,
or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to,
another Company or business organization;
11
<PAGE> 12
[4] There shall be any issuance of securities convertible
into, or rights or warrants to purchase, securities
of the Company; or
[5] There shall be a voluntary or involuntary
dissolution, liquidation or winding up of the
Company.
Then, in any one or more of such cases, the Company shall give
the Holders written notice by registered mail, postage
prepaid, of the date on which a record shall be taken for such
dividend, distribution or subscription rights or for
determining shareholders entitled to vote upon such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up and of the date when
any such transaction shall take place, as the case may be.
Such notice shall also specify the date as of which the
Holders may exercise this Warrant such that the Warrant Shares
of record shall participate in such dividend, distribution or
subscription rights, or shall be entitled to exchange the
Warrant Shares for securities or other property deliverable
upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or winding up, as the
case may be. Such written notice shall be given at least 30
days prior to the transaction in question and not less than 20
days prior to the record date in respect thereto.
The adjustment to the number of Common Shares issuable upon
the exercise hereof and the adjustments to the Exercise Price
described in this Section 6 shall be made each time any event
listed in this Section 6 occurs.
If the Company takes any action affecting its Common Shares
after the date hereof, that would be covered by this Section 6
but for the manner in which such action is taken or
structured, other than an action described in this Section 6,
which would in any way diminish the value of this Warrant or
the Warrant Shares, then there shall be an adjustment as to
the Common Shares purchasable therefor and the Exercise Price
payable thereunder in such manner as the Board of Directors of
the Company shall in good faith determine to be equitable
under the circumstances.
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:
12
<PAGE> 13
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.
The shares represented by this certificate are subject to and may be
transferred only in compliance with the terms of a certain Amended and
Restated Shareholders Agreement dated November 25, 1998, as amended,
made by and among certain holders of securities of the Company. Copies
of that Agreement are available for inspection at the principal or
registered office of the Company.
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 or in the
Shareholders Agreement (referenced in Section 16 hereof) or the Voting Agreement
(referenced in Section 16 hereof) or the Amended Certificate, 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. Expenses. The Company will pay all expenses and charges payable in
connection with the preparation, issuance and delivery of this Warrant and all
substitute Warrants. The Holder shall pay all taxes (other than issuance taxes,
including documentary stamp taxes, transfer taxes and other governmental
charges, which shall be paid by the Company) in connection with such issuance
and delivery of the Warrants and the Subscribed Shares.
11. Reservation of Shares. The Company will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Stock or its authorized and issued Common Stock
held in its treasury, solely for the purpose of enabling it to satisfy any
obligation to issue shares of Common Stock upon exercise of this Warrant, for
the maximum number of shares of Common Stock which may then be deliverable upon
the exercise of this Warrant. The Company covenants that all shares of Common
Stock which may be issued upon exercise of this Warrant will, upon issue, be
fully paid, nonassessable, free of preemptive rights and free from all taxes,
liens, charges and security interests with respect to the issue thereof.
12. 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.
13
<PAGE> 14
13. Fractional Shares of the Holder. No fractional shares of Common
Stock will be issued in connection with any purchase hereunder but in lieu of
such fractional shares, the Company shall make a cash refund therefore equal in
amount to the product of the applicable fraction multiplied by the Exercise
Price then in effect.
14. Computations. The certificate of any firm of independent public
accountants of nationally recognized standing selected by the Company shall be
conclusive evidence of the correctness of any computation under this Warrant.
15. Investor Exit; Other Shareholder Rights. The Holder's rights with
respect to voting rights, the transfer of this Warrant and the registration and
sale of the Common Stock issuable hereunder are also governed by a certain (i)
Amended and Restated Registration Rights Agreement dated November 25, 1998,
between the Company and the holders of the Company's common and preferred
securities identified as "Investors" in such agreement, and (ii) Amended and
Restated Shareholders Agreement dated November 25, 1998, among the Company, and
the holders of the Company's common and preferred securities identified as
"Investors" in such agreement among the "Shareholders" and "Investors" as
identified therein, and (iii) Voting Agreement dated November 25, 1998, among
the Company, Broadband Solutions, LLC, Broadband Solutions II, LLC, and Vulcan
Ventures, Incorporated, the terms and conditions of which are incorporated
herein by reference. The Holder agrees that all Warrant Shares shall be subject
to these agreements.
16. Owner of Warrant. The Company shall keep a register (the
"Certificate Register") of the Warrant Certificates and of their transfer and
exchange in accordance with the provisions of Sections 5 and 7 hereof. The
Certificate Register shall show the names and addresses of the respective
Holder(s) and the date and number of Warrants represented on the face of each
Warrant Certificate. The Company shall be entitled to treat the Person in whose
name a Warrant Certificate is registered as the absolute owner of such Warrant
Certificate for all purposes. The Company shall have no duty to inquire into
adverse claims to, or the authenticity of any signature of any purported holder
of, this Warrant.
17. 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.
14
<PAGE> 15
(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 25th day
of November, 1998.
HIGH SPEED ACCESS CORP.
By /s/ Robert S. Saunders
______________________________
Name: Robert S. Saunders
______________________________
Date: November 25, 1998
____________________________
VULCAN VENTURES, INCORPORATED
By /s/ William D. Savoy
______________________________
Name: William D. Savoy
______________________________
Title: Vice President
___________________________
Date:____________________________
15
<PAGE> 16
ASSIGNMENT
WHEREAS, Vulcan Ventures, Incorporated ("Vulcan") holds, for the
benefit of and as nominee of Charter Communications, Inc. ("Charter"), that
certain Class B Securities Purchase Warrant dated November 25, 1998, entitling
the Holder to subscribe for two million five hundred thousand (2,500,000) shares
of the common stock with $.01 par value of High Speed Access Corp. to Charter
(the "Warrant"); and
WHEREAS, Vulcan and Charter desire Vulcan to assign this Warrant to
Charter;
Now, therefore, Vulcan hereby assigns and transfers all right, title
and interest in and to the Warrant to Charter.
Vulcan Ventures, Incorporated
By: /s/ William D. Savoy
-----------------------------
Name: William D. Savoy
Title: Vice President
Dated: April 23, 1999
<PAGE> 17
AMENDMENT TO
CLASS B SECURITIES PURCHASE
WARRANT
TO SUBSCRIBE FOR AND PURCHASE COMMON STOCK
OF
HIGH SPEED ACCESS CORP.
This AMENDMENT TO CLASS B SECURITIES PURCHASE WARRANT ("Amendment") is
dated as of this 29th day of April, 1999, by and between:
HIGH SPEED ACCESS CORP.
1000 West Ormsby Ave., Suite 210
Louisville, Kentucky 40210 ("HSAC")
and
CHARTER COMMUNICATIONS, INC.
12444 Powerscourt Drive, Suite 400
St. Louis, MO 63131 ("Charter")
RECITALS
A. HSAC, pursuant to WARRANT NO. R-001 dated November 25, 1998 (the
"Warrant"), granted Vulcan Ventures, Incorporated ("Vulcan") the right to
purchase up to Two Million Five Hundred Thousand (2,500,000) fully paid,
nonassessable shares of Common Stock of HSAC, under terms and conditions as more
fully explained therein. Vulcan transferred its right, title and interest in and
to the Warrant to Charter by Assignment dated April 23, 1999.
B. The parties desire to amend certain provisions of the Warrant as set
out herein.
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. Subject to Section 2 hereof, Section 2.(h) of the Warrant is hereby
amended to read in its entirety as follows:
"Exercise Period" means, with respect to any Warrant Share, subject to
any extension or extensions of the period pursuant to Section 6 of the
Systems Access Agreement, the period beginning on the Effective Date
<PAGE> 18
of this Warrant and ending on July 31, 2004.
2. This Amendment shall be effective upon the completion by HSAC of an
underwritten public offering of common stock of HSAC of not less than $50
million in aggregate gross proceeds to HSAC at a minimum initial price per share
of $7.50 (as proportionately and appropriately adjusted to reflect any
subdivision, reverse split or recapitalization of HSAC's common stock after the
date hereof) which has been made pursuant to a registration statement filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended.
IN WITNESS WHEREOF, this Amendment to Class B Securities Purchase
Warrant has been executed as of the day and year first set forth above
HIGH SPEED ACCESS CORP.
By: /s/ John G. Hundley
--------------------------------
Name: John G. Hundley, VP, Asst.
------------------------------
Secretary/General Counsel
------------------------------
Date: April 30, 1999
------------------------------
CHARTER COMMUNICATIONS, INC.
By: /s/ Curtis Shaw
--------------------------------
Name: Curtis S. Shaw
------------------------------
Title: Senior Vice President
-----------------------------
Date: April 30, 1999
------------------------------
2
<PAGE> 1
EXHIBIT 10.11
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") is made and entered into as of
November 25, 1998 by and among (i) High Speed Access Corp., a Delaware
corporation (the "Company"), (ii) Broadband Solutions, LLC, a Kentucky limited
liability company ("Broadband I"), and Broadband Solutions II, LLC, a Kentucky
limited liability company ("Broadband II" and, together with Broadband I,
"Broadband") and (iii) Vulcan Ventures, Incorporated, a Washington corporation
("Vulcan"). Broadband and Vulcan are sometimes individually referred to as a
"Preferred Stockholder" and collectively referred to as the "Preferred
Stockholders".
WITNESSETH
WHEREAS, the Preferred Stockholders together own at least a majority of
the issued and outstanding Series A Convertible Preferred Stock, par value $.01
per share of the Company ("Series A Preferred Stock"), and Series B Convertible
Preferred Stock, par value $.01 per share of the Company ("Series B Preferred
Stock"), and Vulcan may purchase up to all of the authorized and unissued shares
of Series C Convertible Preferred Stock, par value $0.01 per share of the
Company, pursuant to the Series C Convertible Preferred Stock Purchase dated as
of the date hereof by and between the Company and Vulcan (the "Series C
Preferred Stock", together with Series A Preferred Stock and Series B Preferred
Stock, collectively, the "Preferred Stock"); and
WHEREAS, the Preferred Stockholders desire to enter into this Agreement
to set forth their respective agreements to vote their shares of capital stock
of the Company on certain matters as provided herein.
NOW, THEREFORE, in consideration of the premises, the respective
covenants contained herein and certain other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. ELECTION OF DIRECTORS. During the term of this Agreement, each Preferred
Stockholder agrees:
A. Except as hereinafter set forth in subsections D., E. and F. below,
to vote all shares of capital stock of the Company, whether preferred or common,
owned or controlled by it, including all shares which it is entitled to vote
under any voting trust, voting agreement, or proxy, for the election of four (4)
directors named by Broadband, who initially shall be David A. Jones, Jr., Robert
S. Saunders, and any two of the persons listed on Exhibit 1 hereto; and three
(3) directors named by Vulcan, who initially shall be Jerald L. Kent, William D.
Savoy, and Steven Silva.
B. Prior to any election of directors, each of Broadband and Vulcan
shall provide adequate notice to each of the Preferred Stockholders of the name
of the individual(s) it is
<PAGE> 2
designating for election pursuant to this Agreement.
C. In the event a director so named by Broadband or Vulcan ceases to be
a director for any reason before his or her term expires, to vote in favor of
another person named by Broadband or Vulcan as provided above, as the case may
be, as a director and otherwise to use its best efforts to elect or cause to be
elected all persons so named (including, without limitation, using its best
efforts to cause its designated directors to vote in favor of such persons).
D. If Broadband has transferred to an entity or person other than an
Affiliate (as defined below) of Broadband, after having taken into consideration
the provisions of subsection F. below, more than 30% of the total number of
shares of Preferred Stock as set forth opposite its name on Schedule I hereto
(as such Schedule is amended from time to time to reflect shares of Series C
Preferred Stock purchased by Broadband subsequent to the date hereof and any
shares of Preferred Stock transferred to an entity or person other than an
Affiliate of Broadband prior to the purchase of such shares of Series C
Preferred Stock (such transfer to be taken into account for the purposes of
amending Schedule 1 only after any such purchase of shares of Series C Preferred
Stock), "Schedule I") on the date of the shareholders= meeting at which
directors are to be elected or, if such election is to be otherwise than at the
shareholders= meeting, of the time of such election, then each Preferred
Stockholder agrees to vote all shares of capital stock of the Company, whether
preferred or common, then owned or controlled by it, including all shares which
it is entitled to vote under any voting trust, voting agreement, or proxy, for
the election of three (3) directors named by Broadband and four (4) directors
named by Vulcan; provided, however, Vulcan has not, as of the time specified
above, transferred to an entity or person, other than an Affiliate of Vulcan,
more than 30% of the total number of shares of Preferred Stock as set forth
opposite its name on Schedule II hereto (as such Schedule is amended from time
to time to reflect shares of Series C Preferred Stock purchased by Vulcan
subsequent to the date hereof and any shares of Preferred Stock transferred to
an entity or person other than an Affiliate of Vulcan prior to the purchase of
such shares of Series C Preferred Stock (such transfer to be taken into account
for the purposes of amending Schedule II only after any such purchase of shares
of Series C Preferred Stock), "Schedule II"). Notwithstanding the foregoing, if
Vulcan shall transfer to an entity or person, other than an Affiliate of Vulcan,
more than 30% of the total number of shares of Preferred Stock, as set forth
opposite its name on Schedule II, within six (6) months following any
determination made under this paragraph D, then the provisions of paragraph A
above shall again be applicable as of the date of such transfer.
E. Each of Broadband or Vulcan shall cease to have the right to name
directors if (i) it and its Affiliates, in the aggregate, do not own at least
50%, after having taken into consideration the provisions of subsection F. below
with respect to Broadband, of the total number of shares of Preferred Stock as
set forth opposite its name on Schedules I or II hereto, respectively, on the
record date of the shareholders= meeting at which directors are to be elected
or, if such election is to be otherwise than at the shareholders= meeting, at
the time of such election, or (ii) there is a Change of Control (as defined in
Section 14 below) of such entity.
F. With respect to the determination or calculation of the number and
percentage of shares of Preferred Stock transferred by Broadband in Sections 1.D
and 1.E above
<PAGE> 3
(including any amendment to Schedule 1), a transfer of any number of shares of
Preferred Stock to River Cities Capital Fund ("River Cities") shall not be
included in such determination or calculation so long as River Cities and, to
the extent River Cities transfers such shares to its partners, such partners
agree to hold such shares and grant an irrevocable proxy to Broadband to vote
such shares on all matters.
2. OBSERVER RIGHTS. If, and for so long as, Vulcan holds at least 25% of
the number of shares of Preferred Stock set forth on Schedule II, the Company
shall invite a representative from Vulcan to attend in a nonvoting,
nonparticipatory, observer capacity, all meetings of any board or special
committees formed by the Company (to the extent no designee of Vulcan is a
member of any such committee) and give such representative copies of all
notices, minutes, consents and other materials that it provides to its directors
or special committee members at the same time the foregoing are provided to the
directors or special committee members.
3. COVENANTS OF THE COMPANY. The Company agrees to take all actions
required to ensure that the rights given to the Preferred Stockholders hereunder
are effective and that the Preferred Stockholders enjoy the benefits thereof.
Such actions include, without limitation, the use of the Company=s best efforts
to cause the nomination of the designees of the Preferred Stockholders, as
provided herein, for election as directors of the Company. The Company will not,
by any voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be performed hereunder by the Company, but will at all times
in good faith assist in the carrying out of all of the provisions of this
Agreement and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of the Preferred Stockholders
hereunder against impairment.
4. TERMINATION. The term of this Agreement shall commence on the date
hereof and shall continue in full force and effect until the earlier of the
following events of termination:
[1] Completion by the Company of an underwritten public offering,
initiated by resolution of the Company=s Board of Directors, of common
stock of the Company of not less than $50 million in aggregate gross
proceeds to the Company at a minimum initial price per share of $7.50
(as proportionately and appropriately adjusted to reflect any
subdivision, reverse split or recapitalization of Common Shares after
the date hereof) which has been made pursuant to a registration
statement filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended; or
[2] Written consent to termination executed by each party who has
rights to designate directors hereunder; or
[3] The lapse of ten (10) years from the date of this Agreement.
5. MODIFICATION. This Agreement may not be modified or amended except in
a writing signed by all of the parties hereto.
6. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be
<PAGE> 4
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
7. GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Delaware, without regard to the conflicts of laws
provisions thereof.
8. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, all
covenants and agreements contained in this Agreement by or on behalf of any of
the parties to this Agreement, shall bind and inure to the benefit of their
respective successors and assigns; provided, however, that the rights granted
hereunder are personal to the parties hereto and may not be assigned or
transferred except to an Affiliate.
10. AFFILIATE TRANSFEREES. To the extent the Preferred Stockholders
transfer any shares of their Preferred Stock pursuant to Section 4.E. of the
Amended and Restated Shareholder Agreement dated as of the date hereof (the
"Shareholders Agreement") by and among High Speed Access Corp., the holders of
the Common Shares of the Company listed on Schedule I attached thereto, and the
holders of the Preferred Shares of the Company listed on Schedule II attached
thereto, such resulting transferees receiving, holding or owning such Preferred
Stock shall receive, hold, own and vote such Preferred Stock subject to the
terms and conditions of this Agreement and such transferee shall become a
signatory hereto by executing a conformed counterpart of this Agreement. Except
as provided in Section 1.E hereof, if such transferee attempts to further
transfer such shares of Preferred Stock, the subsequent transferee, if not also
an Affiliate of the original transferring Preferred Stockholder, shall not be
considered an Affiliate for the purposes of Sections 1.D and 1.E specifically,
and this Agreement in general.
11. SPECIFIC PERFORMANCE. It is mutually agreed that there is no
adequate remedy at law in favor of the other parties hereto in the event of a
breach of the provisions hereof by any party hereto, and that any party, in
addition to all other rights and remedies which may be available, shall have the
right of specific performance in the event of any breach of this Agreement or
injunction in the event of any threatened breach of this Agreement, in any such
case without the posting of a bond or other security.
12. NOTICES.
A. All notices, requests, consents, and other communications under
this Agreement shall be in writing and shall be mailed by first class,
registered, or certified mail, postage prepaid, or sent via overnight courier
service, delivered personally or by facsimile:
<PAGE> 5
If to the Company: High Speed Access Corp.
Suite 210
1000 West Ormsby Avenue
Louisville, KY 40202
Attn: W. Kent Oyler, III
Telecopy No.: (502) 515-3101
If to Broadband: Broadband Solutions, LLC
c/o Chrysalis Ventures, Inc.
1850 National City Tower
Louisville, KY 40202
Attn: David A. Jones, Jr.
Telecopy No.: (502) 583-7648
If to Vulcan: Vulcan Ventures, Incorporated
110 110th Avenue N.E.
Bellevue, WA 98004
Attn: William D. Savoy
Telecopy No.: (425) 453-1985
or to such other address of which the addressee shall have notified the sender
in writing. Notices mailed in accordance with this section shall be deemed given
when mailed, and notices sent by overnight courier service shall be deemed given
when placed in the hands of a representative of such service.
13. AFFILIATES; AGGREGATION OF STOCK. For purposes of this Agreement, an
Affiliate shall mean (i) with respect to Vulcan, any entities or persons
controlled, directly, by Paul G. Allen, or any entities or persons in which Paul
G. Allen, either individually or through an entity which he controls, holds an
equity investment of not less than One Hundred Million Dollars ($100,000,000) in
value, as determined at the time of any transfer referred to in Sections 1.D and
1.E above and on the record date of the shareholders= meeting at which directors
are to be elected, or if such election is to be otherwise than at the
shareholders= meeting, at the time of such election, and (ii) with respect to
Broadband, any entities or persons controlling, controlled by or under common
control with Broadband I or Broadband II or any or all of its members, each
existing as of the date hereof, directly or indirectly, either individually or
as a group, or any member of Broadband I or Broadband II, each existing as of
the date hereof, or such person=s lineal descendants, ancestors or spouses of
any of them, or a trust or family limited partnership or any estate or tax
planning vehicles established for its or their benefit. For all purposes of this
Section 13, control shall mean (i) with respect to any entities, the ability,
directly or indirectly, to exercise the right to vote or cause the voting of at
least 50% of the outstanding voting securities of any such entity, or otherwise
control the actions of any such entity, and (ii) with respect to any person,
such person=s lineal descendants or ancestors or spouses of any of them. All
shares of capital stock of the Company, whether preferred or common, held or
acquired by Affiliates shall be aggregated together for the purpose of
determining the availability of any right under this Agreement or any obligation
to vote hereunder.
<PAGE> 6
14. CHANGE OF CONTROL. With respect to Vulcan, a Change of Control
occurs if Paul G. Allen does not have the right to vote, directly or indirectly,
more than sixty percent (60%) of the outstanding voting stock of Vulcan. With
respect to Broadband, a Change of Control occurs if (i) the members of Broadband
as of the date hereof, either individually or as a group, do not have the right
to vote, directly or indirectly, more than sixty percent (60%) of the
outstanding voting interests of Broadband (provided, however, that River Cities
shall be included as a member of Broadband so long as River Cities and, to the
extent River Cities transfers shares to its partners, or its partners agree to
hold such shares and grant to Broadband an irrevocable proxy to vote such shares
on all matters), or (ii) at least two of the persons listed on Exhibit 2 hereto
are no longer serving as directors.
[END OF TEXT]
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
HIGH SPEED ACCESS CORP.
By: /s/ Robert Saunders
-----------------------------------
Its: Vice Chairman
----------------------------------
BROADBAND SOLUTIONS, LLC
By: /s/ Robert Saunders
-----------------------------------
Its: Member
----------------------------------
BROADBAND SOLUTIONS II, LLC
By: /s/ Robert Saunders
-----------------------------------
Its: Member
----------------------------------
VULCAN VENTURES, INCORPORATED
By: /s/ William D. Savoy
-----------------------------------
Its: Vice President
----------------------------------
<PAGE> 8
SCHEDULE I
Broadband Solutions, LLC 5,000,000 shares
c/o Chrysalis Ventures, Inc.
1850 National City Tower
Louisville, KY 40202
Phone: 502/583-7644
Fax: 502/583-7648
Broadband Solutions II, LLC 2,000,000 shares
c/o Chrysalis Ventures, Inc.
1850 National City Tower
Louisville, KY 40202
Phone: 502/583-7644
Fax: 502/583-7648
<PAGE> 9
SCHEDULE II
Vulcan Ventures Incorporated 8,000,000 shares
110 110th Avenue, N.E.
Bellevue, Washington 98004
Phone: (425)
Fax: (425) 453-1985
<PAGE> 10
EXHIBIT 1
BROADBAND DIRECTOR DESIGNEES
Michael Gellert
Irving W. Bailey, II
J. David Grissom
Murray Wilson (or other representative of River Cities Capital Fund)
<PAGE> 11
EXHIBIT 2
BROADBAND CONTINUING DIRECTOR DESIGNEES
Michael Gellert
Irving W. Bailey, II
J. David Grissom
Murray Wilson (or other representative of River Cities Capital Fund)
David A. Jones, Jr.
Robert S. Saunders
<PAGE> 1
EXHIBIT 10.15
ASSIGNMENT AND
SECURITY AGREEMENT
THIS ASSIGNMENT AND SECURITY AGREEMENT is made as of April 3, 1998, by
HIGH SPEED ACCESS NETWORK, INC., a Delaware corporation having its principal
place of business at 38 Lark Bunting Lane, Littleton, Colorado ("DEBTOR") and
having a place of business in St. Mary's County Maryland at 441500 Airport View
Drive, Hollywood, MD 20630, in favor of GANS MULTIMEDIA PARTNERSHIP, a
Pennsylvania general partnership having an office at 217 East Ninth Street,
Hazelton, PA 18201, Attn: Joseph W. Aman ("SECURED PARTY").
PRELIMINARY STATEMENTS
A. The Debtor is justly indebted to the Secured Party in the principal
amount of $650,000.00 as evidenced by that certain Promissory Note in the same
principal amount dated of even date (as the same may be renewed, modified or
extended from time to time, the "NOTE"). The principal amount together with all
interest, charges, fees, and other sums due under the Note or under this
Agreement is collectively called the "INDEBTEDNESS."
B. The Debtor has agreed to secure its obligations to the Secured Party
with the Collateral, which is more particular described in this Agreement.
NOW, THEREFORE, in consideration of the foregoing statements and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Debtor hereby agrees as follows:
1. SECURITY. As security for the payment of the Indebtedness and any other
obligations of the Debtor to the Secured Party, including such other or
additional financing that the Secured Party may extend to the Debtor at any time
in the Secured Party's discretion, the Debtor hereby grants to the Secured Party
a continuing security interest in all of the Debtor's now owned or hereafter
acquired tangible and intangible personal property located in or relating to its
business operations in St. Mary's County, Maryland (the "St. Mary's System"),
including, but not limited to:
a. all of the Debtor's now owned and hereafter acquired equipment
and fixtures used in the St. Mary's System, including without limitation the
equipment listed on Exhibit A attached hereto, and all replacements and
substitutions therefor and thereof, and all accessions thereto (the
"Equipment");
b. all of the Debtor's now owned and hereafter acquired inventory
of the St. Mary's System, and all products, replacements, and substitutions
therefor and thereof, and all accessions thereto (the "Inventory");
c. all of Debtor's now owned and hereafter acquired general
intangibles relating to the St. Mary's System, including without limitation, all
licenses, permits,
<PAGE> 2
things in action, contractual rights, goodwill, the trademarks (including the
"Eaglenet" and "Bay Network" trade names (but no other trade name of the
Debtor), together with the right to sue for past, present and future violations
thereof, and all goodwill associated therewith (the "General Intangibles");
d. all of the Debtor's now owned and hereafter acquired rights to
payment for goods sold or leased or for services rendered to subscribers of the
St. Mary's System (the "Accounts");
e. all of the Debtor's now owned and hereafter acquired chattel
paper relating to the St. Mary's System (the "Chattel Paper");
f. without limiting the generality of the foregoing, all of the
Debtor's right, title and interest in (i) the Management Agreement dated
December 1, 1997 between the Debtor and Stockero Enterprises, LLC, a Maryland
limited liability company ("Stockero"), including the right of the Debtor to
acquire certain assets of Stockero pursuant to the Management Agreement; (ii)
the Promissory Note in the principal amount of $87,132.00 dated December 1, 1997
made by Stockero to the order of the Debtor, which Promissory Note is being
endorsed to and delivered to the Secured Party at the time of execution and
delivery of this Agreement; (iii) the Pledge and Security Agreement dated
December 1, 1997 from Stockero, as debtor, to the Debtor, as secured party; (iv)
the Pledge of Stock Agreement dated December 1, 1997 from Stockero, as debtor,
to the Debtor, as secured party; and (v) the Assignment dated December 1, 1997
from Stockero, as debtor, to the Debtor, as secured party (collectively, the
"Stockero Collateral");
g. all of the Debtor's now owned and hereafter acquired
instruments, notes, items of payment, negotiable documents, and documents of
title relating to the St. Mary's System (the "Instruments"); together with all
cash and noncash proceeds (including insurance proceeds) of the Equipment,
Inventory, Accounts, General Intangibles, Chattel Paper, Stockero Collateral,
and Instruments (the Proceeds"); and
h. all books and records relating to any of the foregoing.
The Equipment, Inventory, Accounts, General Intangibles, Chattel Paper, Stockero
Collateral, Instruments, Proceeds and books and records are collectively
referred to as the "Collateral." The Secured Party shall have all of the rights
and remedies of a secured party under the Maryland Uniform Commercial Code with
respect to the Collateral. Notwithstanding anything to the contrary contained in
this Agreement, the Collateral shall not include any property leased by Debtor
for use in the St. Mary's System, excluding additional head end equipment.
2. DEBTOR'S REPRESENTATIONS AND WARRANTIES. The Debtor represents and
warrants to the Secured Party as follows:
a. The Debtor is a corporation duly incorporated, validly existing
and in good standing under the laws of Delaware, and has the corporate power to
execute, deliver and
<PAGE> 3
perform this Agreement.
b. The execution, delivery and performance of this Agreement has
been duly authorized by all requisite corporate action on the part of the Debtor
and will not (i) contravene any provision of law, or any order of any court or
agency of government, (ii) contravene the Debtor's Articles of Incorporation or
By-laws or any indenture, agreement or other instrument binding upon the Debtor
or the Debtor's property, or (iii) be in conflict with, result in the breach of,
or constitute (with due notice or lapse of time or both, if applicable) a
default under any indenture, agreement, or other instrument binding upon the
Debtor or the Debtor's property.
c. The Debtor is not a party to any action, suit or proceeding at
law or in equity, or by or before any governmental instrumentality or agency,
and is not aware of any facts, allegations, claims, or circumstances that may
result in the Debtor becoming a party to any action, suit or proceeding at law
or in equity, or by or before any governmental instrumentality or agency. The
Debtor is not engaged in any settlement negotiations relating to any claim or
allegation.
d. The Debtor owns all of the Collateral absolutely free and clear
of any liens, security interests, or encumbrances (other than the security
interest of the Secured Party under this Agreement). No Uniform Commercial Code
Financing Statement that names the Debtor as a debtor (other than those that
name the Secured Party as the secured party) or that lists any of the Collateral
as collateral has been filed in any place, and the Debtor has not signed any
financing statement or any security agreement authorizing any other secured
party thereunder to file any such financing statement. The security interests
granted to the Secured Party under this Agreement are first priority security
interests.
e. The Debtor is not a judgment debtor.
f. The Debtor is "solvent." For purposes of this subsection (f),
"solvent" shall mean the ability to pay obligations as they become due.
g. The address for the Debtor on the first page of this Agreement
is the Debtor's correct mailing address and the address of the Debtor's chief
executive office. The Debtor has never had a chief executive office at any other
address.
h. The Debtor has not changed its name or used any other name or
any trade name within the twelve (12) years immediately preceding the date of
this Agreement.
i. The Debtor's Equipment and Inventory are located at the Debtor's
Hollywood, Maryland place of business. None of the Inventory is stored with or
in the possession of any bailee, warehouseman, subcontractor or other similar
person.
3. COVENANTS OF DEBTOR. The Debtor covenants and agrees as follows:
<PAGE> 4
a. The Debtor shall keep all Collateral at the Debtor's Hollywood,
Maryland place of business and shall notify the Secured Party if it changes its
principal place of business as set out on the first page of this Agreement. The
Debtor shall make available to the Secured Party upon reasonable request all
books and records relating to the Collateral.
b. The Debtor shall use the Equipment solely in the conduct of its
business and in a careful and proper manner, and shall not change the principal
base of operations of any item of the Equipment without the prior written
consent of the Secured Party. The Debtor shall keep the Equipment in the State
of Maryland.
c. The Debtor shall store the Inventory in a careful, secure and
proper manner at 44150 Airport View Drive, Hollywood, St. Mary's County,
Maryland; and shall not change the location of any item of the Inventory without
the prior written consent of the Secured Party, which shall not be unreasonably
withheld.
d. The Debtor shall maintain the Collateral free from all claims,
liens, encumbrances and legal processes and shall notify the Secured Party
within two (2) business days after receipt of notice of any lien, attachment or
judicial proceeding affecting the Collateral in whole or in part, provided if
Debtor moves expeditiously and in good faith to remove such claim, lien,
encumbrance or legal process and the Collateral is not in imminent danger of
being realized upon, then Debtor's failure to observe this provision shall not
constitute a Default hereunder.
e. The Debtor shall pay all taxes and fees relating to the
ownership of the Equipment and the Inventory (provided, however, that Debtor's
failure to pay all such taxes and fees shall not constitute a Default so long as
Secured Party's first priority security interest in the Collateral is not
affected or impaired or in imminent threat of being affected or impaired) and
shall keep and maintain the Equipment and the Inventory, or cause the Equipment
and the Inventory to be kept and maintained, in good condition, and shall
provide all maintenance and service and make all repairs necessary for such
purpose.
f. At its own expense, the Debtor shall obtain, within 45 days
after the date of this Agreement, and maintain industry standard "all-risk"
insurance covering the Equipment and Inventory. The Debtor shall pay the
premiums for all insurance and deliver to the Secured Party the policies of
insurance or duplicates thereof, or other evidence satisfactory to the Secured
Party of such insurance coverage.
g. The Debtor shall promptly execute and deliver any Uniform
Commercial Code Financing Statement or other document reasonably required, or
procure any document reasonably required (including Uniform Commercial Code
Financing Statement termination statements, as necessary), and pay all costs to
record such documents and otherwise, and pay any recordation tax or recording
fee, to perfect and maintain perfected the security interest, and the first
priority of the security interest, granted under this Agreement. If the
Collateral is of a type as to which it is necessary or desirable for the Secured
Party to take possession of the Collateral in order to perfect, or maintain the
priority of, the Secured Party's security interest then upon the Secured Party's
request, the Debtor shall deliver such Collateral to the Secured Party. A
carbon,
<PAGE> 5
photographic, photocopy or other reproduction of a security agreement or
financing statement shall be sufficient as a financing statement.
h. The Debtor, upon request of the Secured Party, shall provide the
Secured Party from time to time with: (i) written statements or schedules
identifying and describing the Collateral, and all additions, substitutions, and
replacements thereof, in such detail as the Secured Party may require; (ii)
copies of customers' invoices or billing statements; (iii) evidence of shipment
or delivery of goods or merchandise to or performance of services for customers;
and (iv) such other schedules and information as the Secured Party reasonably
may require. The items to be provided under this Section shall be in form
satisfactory to the Secured Party and are to be executed and delivered to the
Secured Party from time to time solely for the Secured Party's convenience in
maintaining Records of the Debtor's Collateral. The Debtor's failure to give any
of such items to the Secured Party shall not affect, terminate, modify or
otherwise limit the Secured Party's security interest in the Collateral.
i. The Secured Party shall have the right to call at the Debtor's
places of business at intervals to be reasonably determined by the Secured
Party, before or after a Default and without hindrance or delay to audit,
inspect, verify, check and make extracts or photocopies from the Records of the
Debtor and other data relating to the Collateral.
4. OBLIGATIONS OF DEBTOR.
a. The Debtor shall provide to the Secured Party within 45 days
after the end of each calendar quarter a listing and aging report for the
Accounts and such other information and financial reports as the Secured party
may request in the Secured Party's reasonable discretion from time to time.
b. Upon the request of the Secured Party at any time after a
Default hereunder, the Debtor shall deposit, or cause to be deposited, all
checks, drafts, cash and other remittances in payment of, or on account of
payment of, any and all Accounts (all of the foregoing herein collectively
referred to as "items of payment") to an account (the "Collateral Account")
designated by the Secured Party at a bank or other financial institution
designated by the Secured Party. The Secured Party shall not be responsible for
the solvency of any such bank or other financial institution or the management
and administration of the Collateral Account. The Secured Party alone shall have
the power to access and make withdrawals from the Collateral Account. The Debtor
shall deposit such items of payment for credit to the collateral Account within
one (1) banking day of the receipt thereof and in precisely the form received,
except for the endorsement of the Debtor where necessary to permit the
collection of such items of payment, which endorsement the Debtor hereby agrees
to make. Pending such deposit, the Debtor will not commingle any such items of
payment with any of its other funds or property, but will hold them separate and
apart. The Secured Party shall be entitled to apply the funds in the Collateral
Account against the Debtor's obligations secured hereby from time to time in the
Secured Party's discretion.
5. ADDITIONAL RIGHTS OF SECURED PARTY AND DUTIES OF DEBTOR. Without
limiting
<PAGE> 6
other rights that the Secured Party may have under this Agreement or under the
Note, at law, or otherwise, upon and after a Default hereunder:
a. The Debtor hereby irrevocably appoints the Secured Party as the
Debtor's attorney in fact, with power of substitution, to do each of the
following in the name of the Debtor or in the name of the Secured Party or
otherwise, for the use and benefit of the Secured Party, but at the cost and
expense of the Debtor, and without notice to the Debtor:
(i) notify the account debtors obligated on any Accounts to
make payments thereon directly to the Secured Party, and to take control of the
cash and non-cash proceeds of any Collateral;
(ii) compromise, extend, or renew any of the Collateral or
deal with the same as it may deem advisable;
(iii) release, make exchanges, substitutions, or surrender of
all or any part of the Collateral;
(iv) remove from the Debtor's Hollywood, Maryland place of
business all books, records, ledger sheets, correspondence, invoices and
documents, relating to or evidencing any of the Collateral or without cost or
expense to the Secured Party, make such use of the Debtor's Hollywood, Maryland
place of business as may be reasonably necessary to administer, control and
collect the Collateral;
(v) repair, alter or supply goods, if any, necessary to
fulfill in whole or in part the purchase order of any account debtor;
(vi) demand, collect, receipt for and give renewals,
extensions, discharges and releases of any of the Collateral;
(vii) institute and prosecute legal and equitable proceedings
to enforce collection of, or realize upon, any of the Collateral;
(viii) settle, renew, extend compromise, compound, exchange
or adjust claims with respect to any of the Collateral or any legal proceedings
brought with respect thereto;
(ix) endorse the name of the Debtor upon any items or payment
relating to the Collateral or upon any proof of claim in bankruptcy against an
account debtor; and
(x) institute and prosecute legal and equitable proceedings
to reclaim any of the goods sold to any account debtor obligated on an Account
at a time when such account debtor was insolvent.
b. The Debtor shall: (i) make no material change to the terms of
any Account, General Intangible, Chattel Paper, Stockero Collateral, or
Instrument without the prior written
<PAGE> 7
permission of the Secured Party; (ii) on demand, make available in form
acceptable to the Secured Party proof of the sale or lease of goods or
satisfactory performance of services which gave rise to the Accounts; and (iii)
when requested, regularly advise the Secured Party of any delay in delivery or
performance, or claims made, in regard to any Collateral.
6. INDEMNIFICATION. The Secured Party shall not in any way be responsible
for the performance or discharge of, and the Secured Party does not hereby
undertake to perform or discharge of, any obligation, duty, responsibility, or
liability or the Debtor under the Stockero Collateral or any other Collateral.
The Debtor hereby agrees to indemnify the Secured Party and hold the Secured
Party harmless from and against all losses, liabilities, damages, claims, or
demands suffered or incurred by reason of this Agreement or by reason or any
alleged responsibilities or undertakings on the part of the Secured Party to
perform or discharge any obligations, duties, responsibilities, or liabilities
of the Debtor under the Stockero Collateral or any other Collateral. The Secured
Party shall have no duty to collect any amounts due or to become due under the
Stockero Collateral or any other Collateral or enforce or preserve the Debtor's
rights thereunder.
7. PRESERVATION OF COLLATERAL. The Secured Party shall be deemed to have
exercised reasonable care in the custody and preservation of any Collateral that
is in the Secured Party's possession and in preserving rights thereunder if the
Secured Party takes action for those purposes as the Debtor may reasonably
request in writing; provided that failure to comply with any such request shall
not, in and of itself, be deemed a failure to exercise reasonable care, and no
failure by the Secured Party to preserve or protect any rights with respect to
any Collateral that is in the Secured Party's possession or to do any act with
respect to the preservation of the Collateral that is in the Secured Party's
possession not so requested by the Debtor shall be deemed a failure to exercise
reasonable care in the custody or preservation of any Collateral that is in the
Secured Party's possession.
8. DEFAULT. The Debtor shall be deemed to be in default hereunder
("Default") [i] if a default shall occur under the Note which is not cured
within any period of time expressly allowed by the Note before the Secured Party
may exercise its remedies on account of such default; [ii] if the Debtor shall
be in breach of any warranty or shall fail to fulfill any obligation under this
Agreement (excluding for purposes of this Section 8, Debtor's obligations under
Section 4(a)); provided, however, that Debtor's removal of any Equipment from
Debtor's Hollywood, Maryland place of business for the purpose of repair or
removal shall not constitute a Default so long as Debtor provides replacement
equipment as necessary and the St. Mary's System continues to be operational.
9. REMEDIES. In the event of Default on the part of the Debtor under this
Agreement, the Secured Party may exercise anyone or more of its remedies under
common or statutory law and at any time thereafter may do any one or more of the
following, all of which are hereby authorized by the Debtor:
a. Exercise its rights of enforcement under common or statutory law
and in addition to those rights, at its sole discretion, may require the Debtor
(at the Debtor's sole
<PAGE> 8
expense) to forward promptly any or all of the Equipment and Inventory to the
Secured Party at such location as shall be reasonably required by the Secured
Party, or, without breach of the peace, enter upon the premises where any such
Equipment or Inventory is located and take immediate possession of and remove
the Equipment or Inventory by summary proceedings or otherwise, all without
liability from the Secured Party to the Debtor for or by reason of such entry or
taking of possession, whether for the restoration of damage to property caused
by such taking or otherwise;
b. Sell or otherwise dispose of the Collateral at a commercially
reasonable public or private sale or otherwise at such price as it may deem
best, for cash, credit, or otherwise, and apply the proceeds, FIRST, to the
settlement of all liens or claims on the Collateral prior to the security
interest of the Secured Party; SECOND, to the payment of all expenses connected
with the taking and selling of the collateral; and THIRD, to the payment of all
Indebtedness of the Debtor to the Secured Party secured by this Agreement; and,
in case of any deficiency, the Secured Party may collect such deficiency from
the Debtor.
c. The Secured Party may exercise any other right or remedy that
may be available to it under this Agreement, the Note or applicable law, or
proceed by appropriate court action to enforce the terms hereof or to recover
damages for the breach hereof or to rescind this Agreement in whole or in part.
d. The Debtor shall be liable for any and all unpaid additional
sums due hereunder or under the Note, before, after or during the exercise of
any of the foregoing remedies; for all reasonable legal fees and other
reasonable costs and expenses incurred by reason of any default or of the
exercise of the Secured Party's remedies with respect thereto.
e. No remedy referred to in this Section is intended to be
exclusive, but each shall be cumulative, and shall be in addition to any other
remedy referred to above or otherwise available at law or in equity.
f. To the extent permitted by applicable law, the Debtor hereby
waives any notice or other mandatory requirements of law, now or hereafter in
effect which might require the Secured Party to sell, lease or otherwise use the
Equipment or Inventory in mitigation of the Secured Party's damages; provided,
however, that the Debtor does not waive any requirement of law that the Secured
Party act in a commercially reasonable manner. The Debtor hereby waives any and
all existing or future claims to any offset against the sums due hereunder or
under the Note and agrees to make the payments regardless of any offset or claim
which may be asserted by the Debtor or on its behalf in connection with this
Agreement.
g. The failure of the Secured Party to exercise, or delay in the
exercise of, the rights granted hereunder upon any default by the Debtor shall
not constitute a waiver of any such right upon the continuation or recurrence of
any such default.
h. The Secured Party may take or release other security, may
release any party primarily or secondarily liable for any Indebtedness to the
Secured Party, may grant
<PAGE> 9
extensions, renewals or indulgences with respect to such Indebtedness and may
apply any other security therefor held by it to the satisfaction of such
Indebtedness, all without prejudice to any of its rights hereunder.
10. NOTICES. Any notice required or permitted by or in connection with
this Agreement shall be in writing and shall be made by hand delivery, by
overnight delivery service, or by certified mail, unrestricted delivery, return
receipt requested, postage prepaid, addressed to the Secured Party or the Debtor
at the appropriate address set forth above or to such other address as may be
hereafter specified by written notice by the Secured Party or the Debtor. Notice
shall be considered given as of the date of the hand delivery, one (1) business
day after delivery to the overnight delivery service, or three (3) calendar days
after the date of mailing, independent of the date of actual delivery or whether
delivery is ever in fact made, as the case may be, provided the giver of notice
can establish that notice was given as provided herein. The Debtor agrees that
five (5) days' prior notice of the time and place of any public sale of the
Collateral, or of the time after which a private sale of the Collateral will be
made, is commercially reasonable notice.
11. FURTHER ASSURANCES. The Debtor will execute and deliver to the Secured
Party the financing statement in the form attached hereto as Exhibit A. The
Debtor will promptly and duly execute and deliver to the Secured Party such
further documents and assurances and take such further action as the Secured
Party may from time to time reasonably request in order to carry out the intent
and purpose of this Agreement and to establish and protect the rights and
remedies created or intended to be created in favor of the Secured Party
hereunder.
12. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
the Secured Party, its successors and assigns, and shall be binding upon the
successors of the Debtor. This Agreement may not be assigned by the Debtor
without prior written consent of the Secured Party.
13. MARYLAND LAW; CONSENT TO JURISDICTION AND VENUE; SERVICE OF PROCESS.
a. The Debtor agrees that this Agreement and the rights and
obligations of the Secured Party and the Debtor hereunder shall in all respects
be governed by, and construed in accordance with, the laws of the State of
Maryland (excluding Maryland conflicts of laws).
b. The Debtor agrees that any action or proceeding arising out of
or relating to this Agreement may be commenced in, and consents to the
non-exclusive jurisdiction of, any court in the State of Maryland or District
Court of the United States for the District of Maryland, and agrees that a
summons and complaint commencing an action or proceeding in any such court shall
be properly served and shall confer personal jurisdiction if served personally
or by certified mail to it at its address set forth below its signature hereto,
or as otherwise provided under the laws of the State of Maryland. Any action
brought by the Debtor against the Secured Party which is based, directly or
indirectly, on this Agreement or any matter in or related to this Agreement,
shall be brought only in the courts of the State of Maryland. The Debtor agrees
that venue shall be proper in any court of the State of Maryland selected by the
Secured Party or in any
<PAGE> 10
United States District Court for the District of Maryland and waives any right
to object thereto on the basis of improper venue or of inconvenience of forum.
c. The Debtor hereby consents to the process being served in any
suit, action or proceeding instituted in connection with this Agreement by the
mailing of a copy thereof by certified mail, postage prepaid, return receipt
requested, to the Agreement at the Debtor's address designated above. The Debtor
irrevocably agrees that such service shall be deemed in every respect to be
effective service of process upon it in any such suit, action, or proceeding.
Nothing in this Section shall affect the right of the Secured Party to service
process in any manner otherwise permitted by law and nothing in this Section
will limit the right of the Secured Party otherwise to bring proceedings against
the Debtor, in the courts of any other appropriate jurisdiction or
jurisdictions.
14. MISCELLANEOUS. This Agreement shall not be amended or altered in any
manner except by a document in writing executed by both parties. Any provision
of this Agreement or of any related instrument or document executed pursuant
hereto which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
thereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
To the extent permitted by applicable law, the Debtor hereby waives any
provision of law which renders any provision hereof or thereof
<PAGE> 11
[REMAINDER OF PAGE INTENTIONALLY BLANK]
<PAGE> 12
prohibited or unenforceable in any respect. The captions in this Agreement are
for convenience of reference only and shall not define or limit any of the terms
or provisions hereof.
15. WAIVER OF JURY TRIAL. THE DEBTOR AND THE SECURED PARTY MUTUALLY WAIVE
ALL RIGHT TO TRIAL BY JURY OF ALL CLAIMS, DEFENSES, COUNTERCLAIMS AND SUITS OF
ANY KIND ARISING FROM OR RELATING TO THIS AGREEMENT OR THE NOTE. EACH OF THE
DEBTOR AND THE SECURED PARTY ACKNOWLEDGES THAT THIS WAIVER OF A LEGAL RIGHT AND
THAT IT MAKES THIS WAIVER VOLUNTARILY AND KNOWINGLY AFTER CONSULTATION WITH, OR
THE OPPORTUNITY TO CONSULT WITH, COUNSEL OF ITS CHOICE. THE DEBTOR AND THE
SECURED PARTY EACH AGREES THAT ALL SUCH CLAIMS, DEFENSES, COUNTER CLAIMS AND
SUITS SHALL BE TRIED BEFORE A JUDGE OF A COURT OF COMPETENT JURISDICTION,
WITHOUT A JURY.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the Debtor
executes this Agreement under seal as of the day and year first above written.
WITNESS: Debtor:
HIGH SPEED ACCESS NETWORK, INC.
- ----------------------------- By: /s/ HIGH SPEED ACCESS NETWORK, INC.
-------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.16
NON-COMPETITION AND NON-DISCLOSURE AGREEMENT
THIS NON-COMPETITION AND NON-DISCLOSURE AGREEMENT
("Agreement") is made and entered into as of the 3rd day of April, 1998, by and
between HIGH SPEED ACCESS NETWORK, INC., a Delaware corporation (the "Company"),
and JOSEPH S. GANS, III ("Founder").
RECITAL:
The Company, Founder and Broadband Solutions, LLC
("Investor:") are parties to a Convertible Preferred Stock Purchase Agreement
dated April 3, 1998, under which certain of the Company's and Investor's
obligations are conditioned upon the execution and delivery by Founder and the
Company of this Agreement.
NOW, THEREFORE, it is agreed by and between the parties hereto
as follows:
1. COVENANTS NOT TO SOLICIT OR COMPETE.
A. NON-COMPETITION. Founder agrees that for the period he
serves as a director of the Company and for a two-year period immediately
following the termination of Founder's services as a director of the Company for
any reason whatsoever, he shall not, within the United States of America (the
"Territory"), engage in any of the following activities:
[1] Directly or indirectly enter into the employ of
or render any service to or act in concert with any person,
partnership, corporation or other entity that competes directly or
indirectly with the Company;
[2] Directly or indirectly engage in any such
competitive business or render any such service on his own account; or
[3] Become interested in any such competitive
business or service directly or indirectly as an individual, partner,
shareholder, director, officer, principal, agent, employee, consultant,
creditor or in any other relationship or capacity; provided, that [i]
the purchase of a publicly traded security of a corporation engaged in
such business or service shall not in itself be deemed violative of
this Agreement so long as Founder does not own, directly or indirectly,
more than 3% of the securities of such corporation, [ii] Founder's
direct or indirect ownership of up to 6% of the equity securities of
Penteledata, a Pennsylvania entity, and his services as a director of
such entity shall not in itself be deemed violative of this Agreement
so long as Founder does not actively assist such entity in marketing or
other activities outside of the State of Pennsylvania; and [iii]
Founder's services as a director of either of National
<PAGE> 2
Cable Television Association or CableLabs shall not in itself be deemed
violative of this Agreement so long as Founder does not actively assist
either such entity in any activity detrimental to the Company.
B. NON-SOLICITATION. Founder agrees that for the period he
serves as a director of the Company and for a two-year period immediately
following the termination of his services as a director of the Company for any
reason whatsoever, he shall not (other than in the regular course of the
Company's business) solicit, directly or indirectly, business of the type then
being performed by the Company from any person, partnership, corporation or
other entity which is a customer of the Company at the time Founder's services
with the Company terminates, or was such a customer within the one-year period
immediately prior thereto, or to the knowledge of Founder at the date of
termination of such services, is a person, partnership, corporation or other
entity with which the Company plans to do a substantial amount of business
within the one-year period after such termination of services.
C. AFFILIATES. For purposes of this Section 1, "Company" as
used herein shall mean and include the Company and any affiliate of the Company.
2. NON-INDUCEMENT AND NON-DISCLOSURE.
A. NON-INDUCEMENT. Founder agrees that for the period he
serves as a director of the Company and for a two-year period immediately
following the termination of his services as a director of the Company for any
reason whatsoever, he shall not directly or indirectly, individually or on
behalf of persons not parties to this Agreement, aid or endeavor to solicit or
induce any of the Company's employees to leave their employment with the Company
or in order to accept employment with Founder or another person, partnership,
corporation or other entity.
B. NON-DISCLOSURE. At no time shall Founder divulge, furnish
or make accessible to anyone (other than in the regular course of the Company's
business) any knowledge or information with respect to confidential information
or data of the Company, or with respect to any confidential information or data
of any of the customers of the Company, or with respect to any other
confidential aspect of the business or products or services of the Company or
its customers.
C. AFFILIATES. For purposes of this Section 2, "Company" as
used herein shall mean and include the Company and any affiliate of the Company.
3. INJUNCTIVE RELIEF FOR BREACH: ENFORCEABILITY. Founder agrees that
Company may not be adequately compensated by damages for a breach by Founder of
any of the covenants contained in Sections 1 and 2, and that, in addition to all
other remedies, the Company shall be entitled to injunctive relief and specific
performance. In such event, the periods of time referred to in Sections 1 and 2
shall be deemed extended for a period equal to the respective period during
which Founder is in breach
<PAGE> 3
thereof, in order to provide for injunctive relief and specific performance for
a period equal to the full term thereof. The covenants contained in Sections 1
and 2 shall be construed as separate covenants, and if any court shall finally
determine that the restraints provided for in any such covenants are too broad
as to the geographic area, activity or time covered, said area, activity or time
covered may be reduced to whatever extent the court deems reasonable and such
covenants shall be enforced as to such reduced area, activity or time.
Founder shall indemnify and hold Company harmless from any
liability, loss, damage, judgment, cost or expense (including reasonable
attorneys' fees and expenses) arising out of or resulting from Founder's breach
of any covenants contained in this Agreement or his failure to perform a duty
hereunder.
4. NO OTHER NON-COMPETE AGREEMENTS. Notwithstanding anything to the
contrary contained herein, Founder hereby represents, warrants and covenants to
Company that Founder (i) is not a party to nor bound by any non-competition,
non-solicitation, confidentiality or other agreement of any kind, which would
conflict with or prevent his employment by the Company, and (ii) has not, and
will not, wrongfully use any confidential information or know-how taken from
another employer. Founder hereby agrees to indemnify and hold the Company
harmless from any claim, loss, damage and expense hereafter incurred by the
Company as a result of any breach of the foregoing representations, warranties
or covenants made by Founder in this Section.
5. REPRESENTATIONS OF FOUNDER. The Founder hereby represents, warrants
and agrees with the Company that [A} the execution, delivery and performance of
this Agreement by the Founder (i) will not constitute a default under or
conflict with any agreement or instrument to which the Founder is a party or by
which he or his assets are bound, (ii) will not conflict with or violate any
order, judgment, decree, statute, ordinance or regulation applicable to the
Founder, and (iii) do not require the consent of any person or entity, [B] this
Agreement has been duly executed and delivered by the Founder and constitutes
the valid and binding agreement of the Founder enforceable against him in
accordance with its terms.
6. NOTICES. All notices and other communications hereunder shall be in
writing and shall be given or made by hand delivery, or by certified or
registered mail, return receipt requested, postage prepaid, or by telegram, as
follows, or to such other person or address as shall be hereafter designated by
notice given in accordance with this Section:
A. If to the Company: HSAnet, Inc.
Attention: Ron Pitcock
3800 Lark Bunting Lane
Littleton, Colorado 80127
<PAGE> 4
B. If to Founder: Joseph S. Gans, III
Gans Multimedia Partnership
217 East 9th Street
Hazelton, Colorado 18201
Any notice or other communication hereunder shall be deemed to have been duly
given or made if made by hand, when delivered against receipt therefor or when
attempted delivery shall be rejected, as the case may be, if made by letter,
upon deposit thereof in the mail, postage prepaid, registered or certified, with
return receipt requested, and if made by telegram, facsimile or reputable
overnight courier when sent. Notwithstanding the foregoing, any notice or other
communication hereunder which is actually received by a party hereto shall be
deemed to have been duly given or made to such party.
7. MISCELLANEOUS.
A. ASSIGNMENT. This is a contract for personal services by
Founder and may not be assigned by Founder. This Agreement shall inure to the
benefit of and be binding upon the Company and its successors and assigns.
B. WAIVER OF BREACH. The waiver by either party of a breach of
any provision of this Agreement by the other shall not operate or be construed
as a waiver of any subsequent breach.
C. ENTIRE AGREEMENT: CANCELLATION OF PRIOR AGREEMENTS. This
Agreement contains the entire agreement of the parties with respect to the
subject matter hereof. It may not be changed orally, but only by an amendment in
writing signed by the parties hereto. All prior agreements or understandings
concerning Founder's employment by the Company are hereby cancelled and
superseded by this Agreement.
D. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the remainder of this Agreement.
E. HEADINGS. The headings contained in this Agreement are for
convenience only and shall not be deemed a part of this Agreement in construing
or interpreting the provisions hereof.
F. GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Kentucky as
applied to agreements among Kentucky residents entered into and performed in
Kentucky.
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day, month and year first above written.
HIGH SPEED ACCESS NETWORK, INC.
By: /s/ HIGH SPEED ACCESS NETWORK, INC.
-------------------------------------
Title:
----------------------------------
("Company")
/s/ JOSEPH S. GANS, III
-----------------------------------------
JOSEPH S. GANS, III
("Founder")
<PAGE> 1
EXHIBIT 10.17
CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
by and among
HIGH SPEED ACCESS NETWORK, INC.,
RONNIE W. PITCOCK,
JOSEPH S. GANS, III
and
BROADBAND SOLUTIONS, LLC
April 3, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Sale and Issuance of Convertible Preferred Stock............................................1
2. Closing.....................................................................................2
3. Closing Items...............................................................................2
4. Further Assurances..........................................................................3
5. Representations and Warranties of Company and Founders......................................3
A. Corporate Standing.................................................................3
B. Authorization......................................................................4
C. Capitalization.....................................................................4
D. Validly Issued Shares..............................................................5
E. No Conflict........................................................................5
F. Contracts and Other Commitments; Compliance........................................5
G. Subsidiaries.......................................................................6
H. Consents...........................................................................6
I. Financial Statements...............................................................6
J. Indebtedness for Borrowed Money; No Undisclosed Liabilities........................6
K. Absence of Changes.................................................................6
L. Title to Property and Assets; Leases...............................................8
M. Legal Proceedings..................................................................8
N. Environmental Matters..............................................................8
O. Licenses and Permits; Compliance with Laws.........................................8
P. Employee Benefit Plans.............................................................9
Q. Labor Relations....................................................................9
R. Insurance........................................................................ 10
S. Tax Matters...................................................................... 10
T. Bank Accounts.................................................................... 10
U. Related Party Transactions....................................................... 10
V. Brokers' and Finders' Fees....................................................... 11
W. Registration Rights.............................................................. 11
X. Small Business Concern........................................................... 11
Y. Business Plan; Material Facts.................................................... 11
6. Representations and Warranties of Investor................................................ 11
A. Authorization; Binding Agreement................................................. 12
B. Investment Representations....................................................... 12
C. Accredited Investor; Residence................................................... 12
D. Receipt of Information; Restricted Securities.................................... 12
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
E. Investment Experience............................................................ 12
7. Survival of Representations and Warranties................................................ 12
8. Indemnification........................................................................... 13
A. Indemnification by Company and Founders.......................................... 13
B. Indemnification by Investor...................................................... 13
9. Covenants of Company and Founders......................................................... 14
A. Redemption Rights................................................................ 14
B. Financial Reporting.............................................................. 14
C. Indebtedness for Borrowed Money.................................................. 15
D. Board of Directors............................................................... 15
E. Reservation of Shares............................................................ 15
F. Use of Proceeds.................................................................. 15
G. Prohibited Matters............................................................... 15
H. Life Insurance................................................................... 16
I. Consulting Fee................................................................... 16
10. Public Statements......................................................................... 16
11. Notices................................................................................... 16
12. Parties in Interest; Assignment........................................................... 17
13. Construction; Governing Law............................................................... 18
14. Entire Agreement; Amendment and Waiver.................................................... 18
15. Severability.............................................................................. 18
16. Counterparts.............................................................................. 18
17. Expenses.................................................................................. 18
18. Time of Essence........................................................................... 18
19. Attorneys' Fees........................................................................... 18
20. Rights of Investor........................................................................ 19
</TABLE>
<PAGE> 4
CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
THIS CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") is
made and entered into as of the 3rd day of April, 1998, by and among HIGH SPEED
ACCESS NETWORK, INC., a Delaware corporation ("Company"), RONNIE W. PITCOCK, an
individual ("Pitcock"), JOSEPH S. GANS, III, an individual ("Gans") (Pitcock and
Gans are collectively referred to herein as the "Founders"), and BROADBAND
SOLUTIONS, LLC, a Kentucky limited liability company ("Investor").
WITNESSETH:
Company desires to sell and issue, and Investor desires to purchase and
acquire, up to 2,500,000 shares of Company's authorized but unissued Convertible
Preferred Stock, upon the terms and subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties herein contained, and intending to be legally
bound, Company, Founders and Investor agree as follows:
1 Sale and Issuance of Convertible Preferred Stock.
1.1 Company shall adopt and file with the Secretary of State of the
State of Delaware on or before the Closing (as defined below) Amended and
Restated Articles of Incorporation in the form attached hereto as Exhibit A (the
"Articles"). The Convertible Preferred Stock ("Preferred Stock") will have the
rights, preferences and privileges and restrictions set forth in the Articles.
1.2 Subject to the terms and conditions of this Agreement, at the
Closing (as defined below) Investor agrees to purchase from Company, and Company
agrees to sell, issue and deliver to Investor 500,000 shares of Preferred Stock
at a price of One Dollar ($1.00) per share, resulting in a total purchase price
at the Closing of Five Hundred Thousand Dollars ($500,000). At any time and from
time to time after the Closing, at the option of Company, evidenced by a
resolution of its Board of Directors and upon ten (10) days prior written notice
given by Company to Investor, Investor agrees to purchase from Company, and
Company agrees to sell, issue and deliver to Investor, up to 2,000,000 shares of
Preferred Stock at a price of One Dollar ($1.00) per share, resulting in an
additional total purchase price not to exceed Two Million Dollars ($2,000,000)
in the aggregate for such additional shares of Preferred Stock (the "Post
Closing Capital Calls"). There may be one or more Post Closing Capital Calls,
provided that pursuant thereto [i] Investor shall be, under no circumstances,
obligated to purchase more than 2,000,000 shares of Preferred Stock in the
aggregate, and [ii] Investor shall be, under no circumstances, obligated to
purchase any shares of Preferred Stock pursuant to a Post Closing Capital Call
if, as of the date of such Post Closing Capital Call, Company has not met the
monthly
<PAGE> 5
performance projections attached hereto as Schedule 1 (the "Projections"), as
determined by Investor in its sole discretion.
2 Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at 10:00 a.m. on April 3, 1998, at the offices
of Wyatt, Tarrant & Combs, 2800 Citizens Plaza, Louisville, Kentucky, or at such
other time, date, or place as shall be mutually agreed upon by the parties
hereto in writing (the "Closing Date"). Each of the Post Closing Capital Calls,
if any, shall be consummated at Company's option as contemplated by Section 1.B
above by delivery of a certificate representing the shares of Preferred Stock
Investor is purchasing against payment of the purchase price therefor in
immediately available funds.
3 Closing Items.
3.1 At the Closing, Company and Founders shall deliver, or cause to be
delivered, the following items:
[a] a certificate representing the shares of Preferred Stock that
Investor is purchasing against payment of the purchase price therefor in
immediately available funds;
[b] the Articles certified by the Delaware Secretary of State;
[c] the Bylaws of Company ("Bylaws"), certified as to their due
adoption and continued validity by the Secretary of Company;
[d] the Employment, Noncompetition and Nondisclosure Agreement between
Company and Pitcock in the form attached hereto as Exhibit B duly executed
by Company and Pitcock;
[e] the Noncompetition and Nondisclosure Agreement between Company and
each of Gans, Joseph W. Aman, Lawrence Shewack, John Howell and Terrance J.
Herron in the form attached hereto as Exhibit C duly executed by Company
and Gans;
[f] the Registration Rights Agreement in the form attached hereto as
Exhibit D ("Registration Rights Agreement") duly executed by Company;
[g] the Shareholders Agreement in the form attached hereto as Exhibit
E ("Shareholders Agreement") duly executed by Company, Founder, and each of
Gans, Joseph W. Aman, Lawrence Shewack, John Howell and Terrance J. Herron;
[h] the 1998 Stock Option Plan in the form attached hereto as Exhibit
F (the "Stock Option Plan") duly executed by Company;
[i] the opinion of Hourigan, Kluger & Quinn, counsel to Company, in
<PAGE> 6
the form attached hereto as Exhibit G;
[j] the $650,000 Promissory Note executed by Company in favor of Gans
Multimedia Partnership in the form attached hereto as Exhibit H (the
"Note");
[k] resolutions of the Board of Directors and shareholders of Company
authorizing the execution, delivery and consummation of this Agreement, the
issuance of the shares of Preferred Stock, and the other matters
contemplated hereby, certified as to their due adoption and continued
validity by the Secretary of Company; and
[l] information necessary for the preparation of a Portfolio Financing
Report on SBA Form 1031 with respect to Company.
3.2 At the Closing, Investor shall deliver, or cause to be delivered
the following items:
[a] immediately available funds in the amount of Five Hundred Thousand
Dollars ($500,000);
[b] the Registration Rights Agreement executed by Investor;
[c] the Shareholders Agreement executed by Investor; and
[d] resolutions of the Board of Managers of Investor authorizing the
execution, delivery and consummation of this Agreement, the purchase of the
shares of Preferred Stock, and the other matters contemplated hereby.
4 Further Assurances. Each party shall execute such additional documents
and take such other actions as the other party or parties may reasonably request
to consummate the transactions contemplated hereby and otherwise as may be
necessary to effectively carry out the terms and provisions of this Agreement.
5 Representations and Warranties of Company and Founders. Company and
Pitcock, jointly and severally, represent and warrant to Investor, as of the
date hereof and as of the date of each additional issuance of Preferred Shares
to Investor pursuant to Post Closing Capital Calls, as follows:
5.1 Corporate Standing. Company is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
Company has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted and as presently
proposed to be conducted, to execute, deliver and perform this Agreement, the
Shareholders Agreement, the Registration Rights Agreement and any other
agreement to which Company is a party, the execution and delivery of which is
contemplated hereby (the "Ancillary Agreements"). Except as set out on Schedule
5.A attached hereto, Company is not qualified to do business as a foreign
corporation in any jurisdiction and such qualification is not now required. True
and accurate copies of the articles of incorporation, and
<PAGE> 7
all amendments thereto, bylaws (and all amendments thereto) and minute book
(containing the records of all meetings and written consents of the
stockholders, the board of directors and any committees of the board of
directors) of Company have previously been delivered to counsel to Investor.
5.2 Authorization. The execution and delivery of this Agreement, the
Shareholders Agreement, the Registration Rights Agreement, and any Ancillary
Agreement and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary corporate action on the part
of Company. Each of this Agreement, the Shareholders Agreement, the Registration
Rights Agreement, and any Ancillary Agreement have been duly executed and
delivered by Company and Founders, as applicable, and constitutes the legal,
valid and binding obligation of Company and Founders, as applicable, enforceable
against them in accordance with its terms.
5.3 Capitalization. The authorized capital stock of Company consists
of [i] 7,450,000 Common Shares with $.01 par value per share ("Common Shares"),
of which at the date hereof 2,000,000 shares are validly issued and outstanding,
fully paid and nonassessable and owned, beneficially and of record, as set forth
on Schedule 5.C attached hereto, and [ii] 2,500,000 Preferred Shares, no par
value per share ("Preferred Shares"), none of which is outstanding at the date
hereof and all of which are to be sold pursuant to this Agreement. 2,500,000
Common Shares have been duly and validly reserved for issuance upon conversion
of the Preferred Shares, and 450,000 Common Shares have been duly and validly
reserved for issuance under Company's Stock Option Plan. Except for (i) the
conversion and other privileges of the Preferred Shares, and (ii) the rights
provided in Section 10.A hereof and in the Registration Rights Agreement and the
Shareholders Agreement, there are outstanding no subscriptions, options,
warrants, calls, commitments or rights (including conversion or preemptive
rights and rights of first refusal), proxy or stockholder agree ments or
agreements of any character relating to shares of Company's capital stock or the
Preferred Stock to be issued hereunder or any instruments that can be converted
into shares of Company's capital stock or the Preferred Stock to be issued
hereunder. None of the shares of Company's capital stock have been issued in
violation of any preemptive right. All issuances, transfers or purchases of the
capital stock of Company have been in compliance with all applicable agreements
and all applicable laws, including federal and state securities laws, and all
taxes thereon, if any, have been paid. No former or present holder of any of the
shares of capital stock of Company has any legally cognizable claim against
Company or Founders based on any issuance, sale, purchase, redemption or
involvement in any transfer of any shares of capital stock by Company. Except
for obligations of Company to redeem Preferred Shares as contemplated by Section
10.A hereof, there are no contractual obligations of Company to repurchase,
redeem or otherwise acquire any shares of capital stock of Company. No bonds,
debentures, notes or other indebtedness having the right to vote (or convertible
into or exercisable for securities having the right to vote) on any matters on
which shareholders of Company may vote are issued or outstanding. Company is not
a party or subject to any agreement or understanding, and, to Company's and
Pitcock's best knowledge, there is no agreement or understanding between any
persons that affects or relates to the voting or giving of written consents with
respect to any security or the voting by any director of Company.
<PAGE> 8
5.4 Validly Issued Shares. The shares of Preferred Stock to be issued,
sold and delivered in accordance with the terms of this Agreement for the
consideration set out herein, will, upon issuance in accordance with the terms
hereof, be duly and validly issued, fully paid and nonassessable, free of
restrictions on transfer other than restrictions on transfer under this
Agreement, the Shareholders Agreement and under applicable federal and state
securities laws. The issuance of the Preferred Stock to Investor pursuant to
this Agreement will comply with all applica ble laws, including federal and
state securities laws, and will not violate the preemptive rights of any person.
The Common Shares issuable upon conversion of the Preferred Stock being
purchased under this Agreement will be, upon issuance and delivery in accordance
with the terms of the Articles, duly and validly issued, fully paid and
nonassessable and free of restrictions on transfer other than restrictions on
transfer under this Agreement and the Shareholders Agreement and under
applicable federal and state securities laws. The issuance of the Common Shares
upon conversion of the Preferred Stock will comply with all applicable laws,
including federal and state securities laws (assuming the accuracy of the
representations set forth in Sections 7.B through 7.E of this Agreement as of
the date of issuance of such Common Shares), and will not violate the preemptive
rights of any person.
5.5 No Conflict. The execution and delivery of this Agreement, the
Shareholders Agreement and the Registration Rights Agreement, and any Ancillary
Agreement do not, and the consummation of the transactions contemplated hereby
and thereby will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or the loss
of a material benefit under, or the creation of a lien, pledge, security
interest, charge or other encumbrance on assets (any such conflict, violation,
default, right of termination, cancellation or acceleration, loss or creation, a
"Violation") pursuant to, any provision of the Articles or Bylaws, or result in
any Violation of any material lease, agreement, obligation, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Company or Company's properties or
assets.
5.6 Contracts and Other Commitments; Compliance. Except as set forth
on Schedule 5.F attached hereto (the "Contracts"), Company does not have and is
not bound by any contract, agreement, lease, loan, commitment or proposed
transaction, judgment, order, writ or decree, written or oral, absolute or
contingent. No event or condition has occurred or exists, or, to the knowledge
of Company or Pitcock, is alleged by any of the other parties thereto to have
occurred or existed, which constitutes, or with lapse of time or giving of
notice or both might constitute, a default or breach under any of the Contracts,
which default is reasonably likely to result in a material adverse change in the
financial condition, results of operation or business of Company. Company is not
in violation or default of any provision of its Articles or Bylaws or in any
respect of any provision of any Contract or other item listed on Schedule 5.F.
5.7 Subsidiaries. Company does not own or control, directly or
indirectly, any interest in any other corporation, partnership, limited
liability company, association or other business entity. Company is not a
participant in any joint venture, partnership or similar arrangement.
<PAGE> 9
5.8 Consents. No consent, approval, qualification, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, or other third party is required by or
with respect to Company or Founders in connection with the execution and
delivery of this Agreement, or the consummation by Company or Founders of the
transactions contemplated hereby, which has not already been obtained, except
for notices of sale required to be filed with the Securities and Exchange
Commission under Regulation D of the Securities Act of 1933, as amended (the
"Securities Act"), or such post closing filings as may be required under
applicable state securities laws which will be timely filed within the
applicable periods therefor.
5.9 Financial Statements. Company has delivered to Investor prior to
the date hereof its unaudited balance sheet as of February 28, 1998, and the
related statements of income and cash flows for the year then ended, and the
related notes thereto (the "Financial Statements"). The Financial Statements,
including any footnotes thereto, are true, correct and complete and present
fairly the financial condition of Company as of February 28, 1998 and the
related results of operations for the year then ended.
5.10 Indebtedness for Borrowed Money; No Undisclosed Liabilities.
Except as set forth on Schedule 5.J attached hereto, Company has no direct or
indirect indebtedness for borrowed money, indebtedness by way of lease-purchase
arrangements, guarantees, undertakings, chattel mortgages or other security
arrangements with any bank, financial institution or other third party. Except
as and to the extent reflected and adequately reserved against in the Financial
Statements or incurred in the ordinary course of business since the date of the
Financial Statements, as of the Closing Date, Company will not have any
liability or obligation whatsoever, whether accrued, absolute, contingent or
otherwise.
5.11 Absence of Changes. Since February 28, 1998, there has not been:
[a] any change in the assets, liabilities, financial condition or
operating results of Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
[b] any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of Company (as such business is presently
conducted and as it is presently proposed to be conducted);
[c] any waiver or compromise by Company of a valuable right or of a
material debt owed to it;
[d] any satisfaction or discharge of any lien, claim, or encumbrance
or payment of any obligation by Company, except in the ordinary course of
business and that is not material to the business, properties, or financial
condition of Company (as such business is presently conducted and as it is
presently proposed to be conducted);
[e] any material change to a material contract or arrangement by which
<PAGE> 10
Company or any of its assets is bound or subject;
[f] any material change in any compensation arrangement or agreement
with any employee or officer;
[g] any sale, assignment, or transfer of any intangible assets;
[h] any resignation or termination of employment of any key officer of
Company; and neither Company nor Pitcock knows of the impending resignation
or termination of employment of any such officer;
[i] any mortgage, pledge, transfer of a security interest in, or lien,
created by Company, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
[j] any declaration, setting aside or payment of any dividend or other
distribution of Company's assets in respect of any of Company's capital
stock, or any direct or indirect redemption, purchase, or other acquisition
of any of such stock by Company;
[k] to the best of Company's and Pitcock's knowledge, any other event
or condition of any character that might materially and adversely affect
the business, properties, prospects or financial condition of Company (as
such business is presently conducted and as it is presently proposed to be
conducted); or
[l] any agreement or commitment by Company to do any of the things
described in this Section 5.K.
5.12 Title to Property and Assets; Leases.
[a] Schedule 5.L sets forth a complete and accurate list and
description of all the real and personal property that Company owns or
leases. Company is not bound or commit ted to make any capital improvement
or expenditure with respect to its owned or leased real or personal
property.
[b] Company owns no real property in fee simple. Except as
contemplated by the Note, Company has good, valid and marketable title to
all the personal and mixed, tangible and intangible properties and assets
which it purports to own, free and clear of all liens, restrictions,
claims, charges, security interests, easements or other encumbrances of any
nature whatsoever, except for liens for current taxes not yet due and
payable. With respect to the property and assets that it leases, Company is
in compliance with such leases and, to Company's and Pitcock's best
knowledge, holds a valid leasehold interest, free and clear of any liens,
claims and encumbrances. All properties and assets of Company are in the
possession or control of Company, and no other person is entitled to
possession of any such properties and assets.
<PAGE> 11
5.13 Legal Proceedings. There are no claims of any kind or any
actions, suits, proceedings, arbitrations or investigations pending or, to
Company's and Pitcock's best knowledge, threatened against or affecting Company
or against any asset, interest or right of Company or which questions the
validity of the transactions contemplated by this Agreement and neither Company
nor Pitcock knows of any facts which may constitute a basis therefor.
5.14 Environmental Matters. Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety (the "Environmental Laws"), and, to Company's and
Pitcock's best knowledge, as of the date hereof no material expendi tures are
required to be made by Company in order to comply with any of the Environmental
Laws.
5.15 Licenses and Permits; Compliance with Laws. Except as set forth
in Schedule 5.O, Company holds all franchises, permits, licenses, variances,
exemptions, orders and approvals of all governmental entities which are material
to the operation of Company's business and is in compliance with the terms
thereof. Company has complied with and is not in any default under (and has not
been charged with or received notice with respect to, nor is threatened with or
under investigation with respect to, any charge concerning any violation of any
provision of) any federal, state or local law, regulation, ordinance, rule or
order (whether executive, judicial, legislative or administrative) or any order,
writ, injunction or decree of any court, agency or instrumentality and no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
failures to comply.
5.16 Employee Benefit Plans. Except as set forth on Schedule 5.P,
Company has no employee benefit plans including any profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, phantom
stock, retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other plan, arrangement or understanding (whether or
not legally binding) providing benefits to any current or former employee,
officer or director of Company (collectively "Benefit Plans"), or any
employment, consulting, severance, termination or indemnification agreement,
arrangement or understanding between Company and any officer, director or
employee of Company. Company has delivered to Investor true, complete and
correct copies of each Benefit Plan, or, in the case of any unwritten Benefit
Plans, descriptions there of. Each Benefit Plan has been administered in all
material respects in accordance with its terms and all applicable laws.
5.17 Labor Relations.
[a] Company is in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours and occupational safety and
health;
[b] There is no unfair labor practice charge or complaint or any other
matter against or involving Company pending or, to Company's and Pitcock's
best
<PAGE> 12
knowledge, threatened before the National Labor Relations Board or any
court of law;
[c] There is no labor strike, dispute, slowdown or stoppage actually
pending or, to Company's and Pitcock's best knowledge, threatened against
Company;
[d] Company is not a party to or bound by any collective bargaining
agreement or any similar labor union arrangement;
[e] There are no charges, investigations, administrative proceedings
or formal complaints of discrimination (including discrimination based upon
sex, age, marital status, race, color, religion, national origin, sexual
preference, disability, handicap or veteran status) pending or, to
Company's and Pitcock's best knowledge, threatened, before the Equal
Employment Opportunity Commission or any federal, state or local agency or
court against Company. There have been no governmental audits of the equal
employment opportunity practices of Company and, to Company's and Pitcock's
best knowledge, no basis for any such claim exists; and
[f] Company is in compliance in all material respects with the require
ments of the Americans With Disabilities Act.
5.18 Insurance. Schedule 5.R sets forth a list of all insurance
policies, including property, casualty, liability and other insurance maintained
with respect to the assets and business of Company. Company is not liable for
any material retroactive premium adjustments with respect to any of its
insurance policies or bonds. All such policies and bonds are legal, valid and
enforceable and in full force and effect and Company is not in breach or default
(including with respect to the payment of premiums or the giving of notices) and
no event has occurred which, with notice or the lapse of time, would constitute
such a breach or default, or permit termination, modification or acceleration
under the policy received any notice of premium increases or cancellations with
respect to any of such policies and bonds. Company and Pitcock believe the
amount and type of Company's insurance coverage is adequate for Company's
business and is consistent with good business practice.
5.19 Tax Matters. Except as set forth on Schedule 5.S, Company has
timely filed or caused to be filed all federal, state, foreign and local income,
franchise, gross receipts, payroll, sales, use, withholding, occupancy, excise,
real and personal property, employment and other tax re turns, tax information
returns and reports ("Tax Returns") required to be filed and all such Tax
Returns were correct and complete in all respects. Company has paid, or made
adequate provisions for the payment of, all taxes, duties or assessments of any
nature whatsoever, interest payments, penalties and additions (whether or not
reflected in the returns as filed) due and payable (and/or properly accruable
for all periods ending on or before the date of this Agreement) to any city,
county, state, foreign country, the United States or any other taxing authority.
There are no security interests on any of the assets of Company that arise in
connection with any failure (or alleged failure) to pay any tax. Company has
withheld and paid all taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other third party. No material deficiencies for any
taxes have
<PAGE> 13
been proposed, asserted or assessed against Company that are not adequately
reserved for.
5.20 Bank Accounts. Schedule 5.T sets forth a complete and accurate
list of each bank or financial institution in which Company has an account or
safe deposit box (giving the address and account numbers) and the names of the
persons authorized to draw thereon or to have access thereto.
5.21 Related Party Transactions. Except as set forth on Schedule 5.U,
no employee, officer or holder of Company's Common Shares or member of his or
her immediate family is indebted to Company, nor is Company indebted (or
committed to make loans or extend or guarantee credit) to any of them, other
than (i) for payment of salary for services rendered, (ii) reimbursement for
reasonable expenses incurred on behalf of Company, and (iii) for other standard
employee benefits made generally available to all employees (including stock
option agreements outstanding under any stock option plan approved by the Board
of Directors of Company). To the best of Company's and Pitcock's knowledge, none
of such persons has any direct or indirect ownership interest in any firm or
corporation with which Company has a business relationship, or any firm or
corporation that competes with Company, except that employees, stockholders, and
officers of Company and members of their immediate families may own stock in
publicly traded companies that may compete with Company.
5.22 Brokers' and Finders' Fees. Neither Company nor Pitcock has
employed any broker, finder or financial advisor or incurred any liability for
fees or commissions payable to any broker, finder or financial advisor in
connection with the negotiations relating to or the transactions contemplated by
this Agreement.
5.23 Registration Rights. Company is presently not under any
obligation and has not granted any rights to register under the Securities Act
any of is outstanding securities or any of its securities that may be
subsequently issued.
5.24 Small Business Concern. Company, together with any "affiliates"
(as that term is defined in Section 121.103 of Title 13 of the Code of Federal
Regulations), is a "small business concern" within the meaning of the Small
Business Investment Act of 1958, as amended (the "SBIA"), and the regulations
thereunder, including Section 121.301 of Title 13 of the Code of Federal
Regulations. The information set forth in the documents provided to Investor
pursuant to Section 3.A[12] above is accurate and complete. Company does not
presently engage in, and it shall not hereafter engage in, any activities, nor
shall it use, directly or indirectly, the proceeds from the sale of the
Preferred Shares hereunder for any purpose for which a small business investment
company is prohibited from providing funds by the SBIA and the Regulations
thereunder.
5.25 Material Facts. Company has provided Investor with all the
information reasonably available to it that Investor has requested for deciding
whether to purchase the Preferred Stock. This Agreement, the Financial
Statements, and the Projections containing, among other things, projections
regarding expected revenues, expenses, net operating income and other financial
information of Company and the documents or written statements furnished by
<PAGE> 14
Company to Investor in connection with the transactions contemplated hereby, do
not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading, except with
respect to assumptions, projections and expressions of opinions or predictions
contained in the Projections, Company and Pitcock represent only that such
assumptions, projections and expressions of opinions and predictions were made
in good faith and Company and Pitcock believe that there is a reasonable basis
therefor.
6 Representations and Warranties of Gans. Gans represents and warrants to
Investor, as of the date hereof and as of the date of each additional issuance
of Preferred Shares to Investor pursuant to Post Closing Capital Calls, as
follows:
6.1 Binding Agreement. Each of this Agreement and the Shareholders
Agreement have been duly executed and delivered by Gans, and constitutes the
legal, valid and binding obligation of Gans, enforceable against him in
accordance with its terms.
6.2 No Conflict. The execution and delivery of this Agreement and the
Shareholders Agreement do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or the loss of a material benefit under, or the creation of a
lien, pledge, security interest, charge or other encumbrance on assets (any such
conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation") pursuant to, any or result in any
Violation of any material lease, agreement, obligation, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Gans.
6.3 Share Ownership. Gans owns beneficially and of record the number
of shares of Company Common Stock set out opposite his name on Schedule 5.C,
free and clear of all claims, liens and encumbrances. Gans is not a party or
subject to any agreement or understanding that affects or relates to the voting
or giving of written consents with respect to any of such shares of Company
Common Stock.
6.4 Promissory Note. The Note represents funds actually advanced by
Gans Multimedia Partnership to the Company for use in the ordinary course of
Company's business. Schedule 6.D attached hereto contains a true, accurate and
complete list of each of the items for which funds were advanced to the Company
under the Note.
7 Representations and Warranties of Investor. Investor hereby represents
and warrants to Company, as of the date hereof and as of the date of each
additional issuance of Preferred Shares to Investor pursuant to Post Closing
Capital Calls, as follows:
7.1 Authorization; Binding Agreement. Investor is a limited liability
company existing under the laws of the Commonwealth of Kentucky. This Agreement,
the Registration Rights Agreement, the Shareholders Agreement, and any Ancillary
Agreements, and the purchase
<PAGE> 15
and receipt by Investor of the Preferred Stock hereunder have been duly
authorized by all requisite action on the part of Investor, and will not [i]
violate any provision of law or any order of any court or other agency of
government applicable to Investor, the governing instruments of Investor, or any
provision of any indenture, agreement or other instrument by which Investor or
any of Investor's properties or assets are bound, or [ii] conflict with, result
in a breach of or constitute (with due notice or lapse of time or both) a
default under any such indenture, agreement or any other instrument, or [iii]
result in the creation or imposition of any lien, charge, or encumbrance of any
nature whatsoever upon the properties or assets of Investor. This Agreement, the
Registration Rights Agreement, the Shareholders Agreement, and the Ancillary
Agreements (if any) have been duly executed and delivered by Investor and
constitute the legal, valid and binding obligations of Investor, enforceable
against Investor in accordance with their respective terms.
7.2 Investment Representations. Investor is acquiring the Preferred
Stock and the Common Stock issuable upon conversion thereof (collectively the
"Securities") solely for its own account as principal, for investment purposes
only and not with a view to resale or distribution thereof in whole or in part,
and Investor has no present intention of selling, granting any participation in,
or otherwise distributing the Securities. No other person has a direct or
indirect beneficial interest in the Securities to be acquired by Investor
hereunder and Investor does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to any
third person, with respect to any of the Securities.
7.3 Accredited Investor; Residence. Investor is a Kentucky limited
liability company and is an "accredited investor" as such term is defined under
Regulation D of the Securities Act.
7.4 Receipt of Information; Restricted Securities. Investor
acknowledges receipt of the Confidential Business Plan. Investor acknowledges
that the Securities are not being and will not be registered under the
Securities Act or the securities laws of any other jurisdiction in reliance on
exemptions thereunder. The Securities have not been and will not be approved or
disapproved by the Securities and Exchange Commission or any other governmental
authority or agency of any jurisdiction. Investor represents that Investor has
had an opportunity to ask questions and receive answers from Company regarding
the terms and conditions of the offering of the Preferred Stock and the
business, properties, prospects, and financial condition of Company and to
obtain additional information (to the extent Company possessed such information
or could acquire it without unreasonable effort or expense) necessary to verify
the accuracy of any information furnished to Investor or to which Investor had
access. Investor's representations under this Section 6, however, shall not
limit or modify the representations and warranties of Company in Section 5 of
this Agreement or the right of Investor to rely thereon.
7.5 Investment Experience. Investor is experienced in evaluating and
investing in private placement transactions of securities of companies in a
similar stage or development and acknowledges that such Investor is able to fend
for itself, can bear the economic risk of its investment, and has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of the investment in the Preferred Stock.
<PAGE> 16
7.6 Financial Commitments. Investor has in excess of $2.5 million of
committed capital.
8 Survival of Representations and Warranties. All representations and
warranties contained in this Agreement by any party to this Agreement and any
certificate or other instrument delivered by or on behalf of any party pursuant
to this Agreement shall be continuous and shall survive the Closing and the
issuance of all shares of Company's capital stock as contemplated hereunder for
a period of two (2) years. Each party shall have the right to rely on each other
party's representations and warranties made herein, notwithstanding any
investigation conducted by such party.
9 Indemnification.
9.1 Indemnification by Company and Pitcock. Company and Pitcock shall
jointly and severally indemnify and reimburse Investor for any and all claims,
losses, liabilities, damages (including, without limitation, fines, penalties,
and criminal or civil judgments and settlements), costs (including, without
limitation, court costs) and expenses (including, without limitation, attorneys'
and accountants' fees) (hereinafter "Loss" or "Losses") suffered or incurred by
Investor, any successors or assigns thereto as a result of, or with respect to:
[a] any breach or inaccuracy of any representation or warranty of
Company or Pitcock set forth in Section 5;
[b] any breach of or noncompliance by Company or Pitcock with any
covenant or agreement of Company or Pitcock contained in this Agreement,
unless such breach or noncompliance results from any action or failure to
act by the Board of Directors of the Company, a majority of which has been
elected by Investor;
[c] any act or omission of Company or its employees, agents or
representatives, or of Company's predecessors in interest, occurring prior
to the Closing Date which results in any Loss arising under the
Environmental Laws, or the ownership, use, control or operation by Company
or its predecessors in interest of any of the current or former properties
of Company which results in any Loss arising under the Environmental Laws
or the release of any substance into the environment prior to the Closing
Date; and
[d] any and all actions, suits, proceedings, claims, demands,
assessments and judgments incident to any of the foregoing.
9.2 Indemnification by Gans. Gans shall indemnify and reimburse
Investor for any and all claims, losses, liabilities, damages (including,
without limitation, fines, penalties, and criminal or civil judgments and
settlements), costs (including, without limitation, court costs) and expenses
(including, without limitation, attorneys' and accountants' fees) suffered or
incurred by Investor or any successors or assigns thereto as a result of, or
with respect to:
<PAGE> 17
[a] any breach or inaccuracy of any representation or warranty of Gans
set forth in Section 6;
[b] any breach of or noncompliance by Gans with any covenant or
agreement of Gans contained in this Agreement; and
[c] any and all actions, suits, proceedings, claims, demands,
assessments and judgments incident to any of the foregoing.
9.3 Indemnification by Investor. Investor shall indemnify and
reimburse Company for any and all claims, losses, liabilities, damages
(including, without limitation, fines, penalties, and criminal or civil
judgments and settlements), costs (including, without limitation, court costs)
and expenses (including, without limitation, attorneys' and accountants' fees)
suffered or incurred by Company or any successors or assigns thereto as a result
of, or with respect to:
[a] any breach or inaccuracy of any representation or warranty of
Investor set forth in Section 7;
[b] any breach of or noncompliance by Investor with any covenant or
agreement of Investor contained in this Agreement; and
[c] any and all actions, suits, proceedings, claims, demands,
assessments and judgments incident to any of the foregoing.
10 Covenants of Company and Founder.
10.1 Redemption Rights. At any time and from time to time from and
after April 3, 2003 but prior to the Company's completed underwritten initial
public offering, Investor shall have the right and option to sell to Company,
and Company shall buy, Investor's shares of capital stock of Company (the "Put")
at a price per share (the "Put Purchase Price") equal to the greater of (a) the
initial purchase price per share of Investor's shares, plus accrued but unpaid
dividends through the date of the Put Closing (as defined below), or (b) the
fair market value per share (without application of any discount for lack of
marketability or minority position) as determined by a qualified, independent
appraiser experienced in valuation of shares of companies similar to Company
(the "Qualified Appraiser") acceptable to both Company and Investor. If the
Investor and Company are unable to agree upon a Qualified Appraiser, each of
them shall separately designate a Qualified Appraiser. Such Qualified Appraisers
shall jointly designate a definitive Qualified Appraiser, and such definitive
Qualified Appraiser's determination shall be the fair market value of Investor's
shares of Company stock and shall be conclusive and binding upon the parties.
The fees and expenses of the definitive Qualified Appraiser shall be borne
equally by Company and the Investor. The closing (the "Put Closing") shall take
place at a time and place mutually agreed upon by Investor and Company on or
before the 180th day after written notice of exercise of the Put is given to
Company by Investor, or if Investor and Company shall not agree on the time and
place, the Put Closing shall take place at the principal office of
<PAGE> 18
Company in Louisville, Kentucky at 10:00 a.m. on the 180th day after written
notice of exercise is given, unless such day is a Saturday, Sunday or holiday,
in which case it shall occur on the next business day. The Put Purchase Price
shall be paid in cash at Closing.
10.2 Financial Reporting. For periods commencing on or after the
Closing Date, Company shall deliver or cause to be delivered to Investor monthly
and year-to-date balance sheets and income and cash flow statements (each as
compared to budget and the comparable prior year period), a monthly written
summary of operations and such other information and data with respect to
Company as Investor may reasonably request. Such monthly reports shall be
provided on or before fifteen (15) days following the end of each month. Not
later than thirty (30) days prior to the end of each fiscal year, Company shall
provide a business plan and projections for the next fiscal year. Annual audits
of the Company's financial statements for periods commencing on or after January
1, 1998 shall be performed by an independent accounting firm acceptable to a
majority of the holders of the Preferred Stock and copies thereof shall be
delivered to Investor on or before the 120th day following the end of Company's
fiscal year. Company's financial statements for the year ended December 31, 1997
shall be reviewed, at Company's expense, by an independent accounting firm
acceptable to Investor and shall be available for audit.
10.3 Indebtedness for Borrowed Money. Company shall not, without the
prior consent of a majority of Company's directors, incur in any fiscal year any
obligations for borrowed money or leases in excess of One Hundred Thousand
Dollars ($100,000) in the aggregate.
10.4 Board of Directors. Effective as of the Closing, the directors of
Company shall be Ron Pitcock, David A. Jones, Jr. and Robert Saunders. The
directors of the Company shall appoint a Compensation Committee composed of
non-management directors of Company, which Committee shall determine management
compensation and awards of stock options. In addition, Investor shall have
"observer" rights pursuant to which it (or its representatives) shall be
entitled to attend and observe all meetings of the Board of Directors of the
Company but who shall have no right to vote on any matter brought before the
Board of Directors. Company shall pay the reasonable expenses of any Preferred
Director (as defined in the Articles) and of Investor and its representatives
incurred in attending meetings of the Board of Directors or other business of
Company.
10.5 Reservation of Shares. On and after the Closing Date, Company
will reserve and keep reserved at all times sufficient shares of Common Stock
for issuance upon conversion of the Preferred Stock pursuant to Paragraph B.4(a)
of Article IV of the Articles. Immediately prior to the occurrence of any event
that would cause the number of shares of Common Stock into which the Preferred
Stock would be convertible to be determined in accordance with Paragraph B.4(b)
of Article IV of the Articles, the Company shall take any and all actions
necessary to permit such conversion. Upon conversion of any shares of Preferred
Stock, Company will promptly issue and deliver the shares of Common Stock
required to be delivered.
10.6 Use of Proceeds. The proceeds from the sale of the Preferred
Stock
<PAGE> 19
pursuant to this Agreement shall be used by Company for working capital, the
payment of the Note in accordance with its terms or for any other purpose
approved by the Board of Directors of the Company.
10.7 Prohibited Matters. From and after the date hereof, Company shall
not, without the consent of the holders of the majority of the then outstanding
Preferred Shares:
[a] Effect any transaction that results in a change of control of the
Company;
[b] Materially change the nature of the Company's business;
[c] Effect a liquidation, dissolution, merger or sale of the Company
or sell substantially all of its assets;
[d] Amend its articles of incorporation or bylaws;
[e] Redeem or pay any dividend or distribution on its common stock;
[f] Issue any class or series of equity securities or equivalents
thereof except pursuant to a management stock option plan approved by the
Board of Directors of Company or upon conversion of the Preferred Shares;
[g] Repay any shareholder loans, except for the payment of the Note in
accordance with its terms;
[h] Except as set forth on Schedule 10, and for transactions with
Investor, engage in any transactions with "affiliates", which for the
purposes of this Agreement, shall mean (i) any director or officer of
Company or holder of Company's capital stock, (ii) any person or entity,
directly or indirectly, controlling, controlled by or under common control
with any such person or entity, and (iii) in the case of a natural person,
members of his or her immediate family or a trust for their benefit; or
[i] Take any other actions that would materially affect the holders of
the Preferred Shares.
10.8 Life Insurance. Within thirty (30) days after the Closing,
Company will have in full force and effect term life insurance payable to
Company on the life of Pitcock in the amount of $1 million. Company shall
maintain such life insurance in good standing and in full force and effect.
10.9 Consulting Fee. Company shall accrue $10,000 quarterly as a
consulting fee to Chrysalis Ventures, LLC. Such consulting fees shall be accrued
but not paid until the earlier of (i) a determination by Company's board of
directors that Company has sufficient cash flow to pay such fees, or (ii)
Company produces after-tax quarterly profits in excess of $100,000 for two
consecutive quarters.
<PAGE> 20
11 Public Statements. Neither Company, Founders nor Investor shall, without
the prior written approval of the other parties hereto, make any press release
or other public announcement concerning the transactions contemplated by this
Agreement. Investor, Company and Founders may disclose information with respect
to the transaction contemplated hereby to their respective employees, agents,
consultants and third parties only to the extent such persons have a need to
know such information.
12 Notices. All notices, requests, consents, and other communications under
this Agreement shall be in writing and shall be mailed by first class,
registered, or certified mail, postage prepaid, or sent via overnight courier
service, or delivered personally:
If to Investor, to: Broadband Solutions, LLC
1850 National City Tower
101 South Fifth Street
Louisville, Kentucky 40202
With a copy to: Patrick W. Mattingly, Esq.
Wyatt, Tarrant & Combs
2800 Citizens Plaza
Louisville, KY 40202
If to Company or
Founders, to: HSAnet, Inc.
Attn: Ron Pitcock
38 Lark Bunting Lane
Littleton, Colorado 80127
With a copy to:
Terrence J. Herron, Esq.
Hourigan, Kluger & Quinn, P.C.
700 Mellon Bank Center
8 West Market Street
Wilkes-Barre, PA 18701-1867
or to such other address of which the addressee shall have notified the sender
in writing. Notices mailed in accordance with this section shall be deemed given
when mailed, and notices sent by overnight courier service shall be deemed given
when placed in the hands of a representative of such service.
13 Parties in Interest; Assignment. Except as otherwise provided herein,
all covenants and agreements contained in this Agreement by or on behalf of any
of the parties to this Agreement shall bind and inure to the benefit of their
respective heirs, executors, successors, and assigns, whether so expressed or
not. Nothing in this Agreement, express or implied, is intended to confer upon
any party other than the parties hereto and their respective successors and
assigns
<PAGE> 21
any rights, remedies, obligations or liabilities under or by reason of this
Agreement. This Agreement is not assignable and any other purported assignment
shall be null and void, provided that Investor may assign its rights and
obligations under this Agreement to any of its affiliates that may purchase any
of the Preferred Stock held by Investor. Notwithstanding such permitted
assignment, Investor shall not be released from its obligations hereunder. The
term "affiliate" as used in this Section 13 shall include, without limitation,
[i] any director or executive officer of such person or of an affiliate of such
person, [ii] a parent, spouse or child (a "relative") of such director or
executive officer, [iii] any group, acting in concert, of such director,
executive officer or relative (a "group"), [iv] any person controlled by any
such director, executive officer, relative or group, and [v] any person or group
which beneficially owns or holds 5% or more of any class of voting securities or
a 5% or greater equity or profits interest in such person.
14 Construction; Governing Law. The section headings contained in this
Agreement are inserted as a matter of convenience and shall not affect in any
way the construction of the terms of this Agreement. This Agreement shall be
governed by and interpreted in accordance with the laws of the Commonwealth of
Kentucky as applied to agreements among Kentucky residents entered into and
performed entirely within Kentucky.
15 Entire Agreement; Amendment and Waiver. This Agreement, including the
Schedules and Exhibits hereto, constitutes and contains the entire agreement
between the parties hereto with respect to the transactions contemplated hereby
and supersedes any prior writing by the parties. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of Company and Investor (or its
permitted assigns). Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any securities purchased under
this Agreement at the time outstanding (including securities into which such
securities have been converted), each future holder of all such securities, and
Company.
16 Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of the remaining
provisions.
17 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
18 Expenses. Company agrees, upon consummation of the transactions
contemplated by this Agreement, to pay all reasonable legal and out-of-pocket
expenses incurred by Investor in connection with this Agreement and the
transactions contemplated hereunder, including, without limitation: (i) all fees
and expenses of Wyatt, Tarrant & Combs, in connection with this Agreement and
the transactions contemplated hereunder, and (ii) all expenses, including
reasonable attorneys' fees and expenses, incurred by Investor with respect to
the enforcement of any rights or provisions of this Agreement, or in responding
to any subpoena or other legal process issued in connection with this Agreement
or the transactions contemplated hereunder.
<PAGE> 22
19 Time of Essence. Time is of the essence to the performance of the
obligations set forth in this Agreement.
20 Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the Shareholders Agreement,
the Registration Rights Agreement, any Ancillary Agreement or the Articles, the
prevailing party shall be entitled to reasonable attorneys' fees, costs, and
disbursements in addition to any other relief to which such party may be
entitled.
21 Rights of Investor. Each holder of Preferred Stock (and Common Stock
issued upon conversion thereof) shall have the absolute right to exercise or
refrain from exercising any right or rights that such holder may have by reason
of this Agreement or any Preferred Stock, including without limitation the right
to consent to the waiver of any obligation of Company under this Agreement and
to enter into an agreement with Company for the purpose of modifying this
Agreement or any agreement effecting any such modification, and such holder
shall not incur any liability to any other holder or holders of Preferred Stock
(or Common Stock issued upon conversion thereof) with respect to exercising or
refraining from exercising any such right or rights.
IN WITNESS WHEREOF, Company, Founders and Investor have caused this
Agreement to be executed as of the day and year first written above.
"COMPANY"
HIGH SPEED ACCESS NETWORK, INC.
By: /s/ RON PITCOCK
-----------------------------------------
Title: President
--------------------------------------
"FOUNDERS"
/s/ RON PITCOCK
--------------------------------------------
RONNIE W. PITCOCK
/s/ JOSEPH S. GANS, III
--------------------------------------------
JOSEPH S. GANS, III
<PAGE> 23
"INVESTOR"
BROADBAND SOLUTIONS, LLC
By: /s/ DAVID JONES, JR.
-----------------------------------------
Title: Member
--------------------------------------
<PAGE> 1
EXHIBIT 10.18
CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
by and among
CATV.NET, INC.,
KENT OYLER,
DAVID GIBBS,
GIBBS FAMILY LIMITED PARTNERSHIP,
COLORADO LIMITED PARTNERSHIP,
OPM SERVICES, INC.
and
BROADBAND SOLUTIONS, LLC
February 23, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
PAGE
----
<S> <C> <C>
1. Sale and Issuance of Convertible Preferred Stock.............................................1
2. Closing......................................................................................2
3. Closing Items................................................................................2
4. Future Assurances............................................................................3
5. Representations and Warranties of Company, Founders and Shareholders.........................3
A. Corporate Standing..................................................................3
B. Authorization.......................................................................4
C. Capitalization......................................................................4
D. Validly Issued Shares...............................................................5
E. No Conflict.........................................................................5
F. Contracts and Other Commitments; Compliance.........................................6
G. Subsidiaries........................................................................6
H. Consents............................................................................6
I. Financial Statements................................................................6
J. Indebtedness for Borrowed Money; No Undisclosed Liabilities.........................6
K. Absence of Changes..................................................................7
L. Title to Property and Assets; Leases................................................8
M. Legal Proceedings...................................................................8
N. Environmental Matters...............................................................8
O. Licenses and Permits; Compliance with Laws..........................................9
P. Employee Benefit Plans..............................................................9
Q. Labor Relations.....................................................................9
R. Insurance......................................................................... 10
S. Tax Matters....................................................................... 10
T. Bank Accounts..................................................................... 11
U. Related Party Transactions........................................................ 11
V. Brokers' and Finders' Fees........................................................ 11
W. Registration Rights............................................................... 11
X. Small Business Concern............................................................ 11
Y. Confidential Business Plan; Material Facts........................................ 12
6. Representations and Warranties of Investor................................................. 12
A. Authorization; Binding Agreement.................................................. 12
B. Investment Representations........................................................ 12
C. Accredited Investor; Residence.................................................... 13
D. Receipt of Information; Restricted Securities..................................... 13
E. Investment Experience............................................................. 13
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
7. Survival of Representations and Warranties................................................. 13
8. Indemnification............................................................................ 14
A. Indemnification by Company, Founders and Shareholders............................. 14
B. Indemnification by Investor....................................................... 14
9. Covenants of Company, Founders and Shareholders............................................ 15
A. Redemption Rights................................................................. 15
B. Financial Reporting............................................................... 15
C. Indebtedness for Borrowed Money................................................... 16
D. Board of Directors................................................................ 16
E. Reservation of Shares............................................................. 16
F. Use of Proceeds................................................................... 16
G. Prohibited Matters................................................................ 16
H. Life Insurance.................................................................... 17
I. Consulting Fee.................................................................... 17
10. Public Statements.......................................................................... 17
11. Notices.................................................................................... 18
12. Parties in Interest; Assignment............................................................ 18
13. Construction; Governing Law................................................................ 19
14. Entire Agreement; Amendment and Waiver..................................................... 19
15. Severability............................................................................... 19
16. Counterparts............................................................................... 19
17. Expenses................................................................................... 19
18. Time of Essence............................................................................ 20
19. Attorneys' Fees............................................................................ 20
20. Rights of Investor......................................................................... 20
</TABLE>
<PAGE> 4
CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
THIS CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") is
made and entered into as of the 23rd day of February, 1998, by and among
CATV.NET, INC., a Kentucky corporation ("Company"), W. KENT OYLER, III, an
individual ("Oyler"), DAVID GIBBS, an individual ("Gibbs") (Oyler and Gibbs are
sometimes collectively referred to as the "Founders"), COLORADO LIMITED
PARTNERSHIP, a Georgia limited partnership ("CLP"), OPM SERVICES, INC., a
Kentucky corporation ("OPM"), and GIBBS FAMILY LIMITED PARTNERSHIP, a Georgia
limited partnership ("GFLP") (CLP, OPM and GFLP are sometimes collectively
referred to as the "Shareholders"), and BROADBAND SOLUTIONS, LLC, a Kentucky
limited liability company ("Investor").
WITNESSETH:
Company desires to sell and issue, and Investor desires to purchase and
acquire, the number of shares of Company's authorized but unissued Convertible
Preferred Stock set forth opposite its name on Schedule 1 and Schedule 2 hereto,
upon the terms and subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties herein contained, and intending to be legally
bound, Company, Founders, Shareholders and Investor agree as follows:
1. Sale and Issuance of Convertible Preferred Stock.
A. The Convertible Preferred Stock ("Preferred Stock") will have the
rights, preferences and privileges and restrictions set forth in the Articles of
Incorporation attached hereto as Exhibit A (the "Articles").
B. Subject to the terms and conditions of this Agreement, at the
Closing (as defined below) Investor agrees to purchase from Company, and Company
agrees to sell, issue and deliver to Investor, the number of shares of Preferred
Stock set forth opposite Investor's name on Schedule 1 attached hereto at a
price of Ten Dollars ($10.00) per share, resulting in a total purchase price at
the Closing of Five Hundred Thousand Dollars ($500,000). At any time and from
time to time after the Closing, at the option of Company, evidenced by a
resolution of its Board of Directors and upon ten (10) days prior written notice
given by Company to Investor, Investor agrees to purchase from Company, and
Company agrees to sell, issue and deliver to Investor, up to the number of
shares of Preferred Stock set forth opposite Investor's name set forth on
Schedule 2 attached hereto at a price of Ten Dollars ($10.00) per share,
resulting in an additional total purchase price not to exceed Two Million
Dollars ($2,000,000) in the aggregate for such additional shares of Preferred
Stock (the "Post
<PAGE> 5
Closing Capital Calls"). There may be one or more Post Closing Capital Calls,
provided that [i] pursuant thereto Investor shall be, under no circumstances,
obligated to purchase more than the number of shares of Preferred Stock set
forth opposite its name on Schedule 2, in the aggregate, and [ii] Investor shall
be, under no circumstances, obligated to purchase any shares of Preferred Stock
pursuant to a Post Closing Capital Call if, as of the date of such Post Closing
Capital Call, Company has not met the monthly performance projections set out in
Company's Confidential Business Plan dated January 12, 1998 ("Confidential
Business Plan"), a copy of which is attached hereto as Schedule 3, as determined
by Investor in its sole discretion.
2. Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at 10:00 a.m. on February 23, 1998,
at the offices of Wyatt, Tarrant & Combs, 2800 Citizens Plaza, Louisville,
Kentucky, or at such other time, date, or place as shall be mutually agreed upon
by the parties hereto in writing (the "Closing Date"). Each of the Post Closing
Capital Calls, if any, shall be consummated at Company's option as contemplated
by the second sentence of Section 1.B above by delivery of a certificate
representing the shares of Preferred Stock Investor is purchasing against
payment of the purchase price therefor in immediately available funds.
3. Closing Items.
A. At the Closing, Company, Founders and Shareholders shall deliver,
or cause to be delivered, the following items:
[1] certificates representing the shares of Preferred Stock that
Investor is purchasing as set forth on Schedule 1 hereto against payment
of the purchase price therefor in immediately available funds;
[2] the Articles certified by the Kentucky Secretary of State;
[3] the Bylaws of Company ("Bylaws"), certified as to their due
adoption and continued validity by the Secretary of Company;
[4] the Employment, Noncompetition and Nondisclosure Agreement
between Company and Oyler in the form attached hereto as Exhibit B duly
executed by Company and Oyler;
[5] the Noncompetition and Nondisclosure Agreement between
Company and Gibbs in the form attached hereto as Exhibit C duly executed
by Company and Gibbs;
[6] the Registration Rights Agreement in the form attached hereto
as Exhibit D ("Registration Rights Agreement") duly executed by Company;
<PAGE> 6
[7] the Shareholders Agreement in the form attached hereto as
Exhibit E ("Shareholders Agreement") duly executed by Company and
Shareholders;
[8] the 1998 Stock Option Plan in the form attached hereto as
Exhibit F (the "Stock Option Plan") duly executed by Company;
[9] the opinion of Reed, Weitkamp, Schell, Cox & Vice, counsel to
Company, Founders and Shareholders, in the form attached hereto as
Exhibit G;
[10] amendments to the Noncompetition, Confidentiality and
Nonsolicitation Agreements between the Company and each of Ron Daggett,
Tim Emig, David Wigglesworth and Steve White providing that such
individuals shall not compete as set forth in such agreements anywhere
in the United States;
[11] resolutions of the Board of Directors and shareholders of
Company authorizing the execution, delivery and consummation of this
Agreement, the issuance of the shares of Preferred Stock, and the other
matters contemplated hereby, certified as to their due adoption and
continued validity by the Secretary of Company; and
[12] Company shall have provided to Investor, if so requested,
information necessary for the preparation of a Portfolio Financing Report
on SBA Form 1031.
B. At the Closing, Investor shall deliver, or cause to be delivered
the following items:
[1] immediately available funds equal to the purchase
price of the shares of Preferred Stock set forth opposite Investor's name
on Schedule 1 attached hereto;
[2] the Registration Rights Agreement executed by Investor;
[3] the Shareholders Agreement executed by Investor;
[4] resolutions of the Board of Managers of Investor authorizing
the execution, delivery and consummation of this Agreement, and the other
matters contemplated hereby; and
[5] the opinion of Wyatt, Tarrant & Combs, counsel to Investor,
in the form attached hereto as Exhibit H;
<PAGE> 7
4. Further Assurances. Each party shall execute such additional documents
and take such other actions as the other party or parties may reasonably request
to consummate the transactions contemplated hereby and otherwise as may be
necessary to effectively carry out the terms and provisions of this Agreement.
5. Representations and Warranties of Company, Founders and Shareholders.
Company, Founder and Shareholders hereby, jointly and severally, as of the date
hereof and as of the date of each additional issuance of Preferred Shares to
Investor pursuant to Post Closing Capital Calls, represent and warrant to
Investor, as follows:
A. Corporate Standing. Company is a corporation duly organized,
validly existing, and in good standing under the laws of the Commonwealth of
Kentucky. Company has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted and
as presently proposed to be conducted, to execute, deliver and perform this
Agreement, the Shareholders Agreement, the Registration Rights Agreement and any
other agreement to which Company is a party, the execution and delivery of which
is contemplated hereby (the "Ancillary Agreements"). Except as set out on
Schedule 5.A attached hereto, Company is not qualified to do business as a
foreign corporation in any jurisdiction and such qualification is not now
required. True and accurate copies of the Articles, bylaws and minute book
(containing the records of all meetings and written consents of the
stockholders, the board of directors and any committees of the board of
directors) of Company have previously been delivered to counsel to Investor.
B. Authorization. The execution and delivery of this Agreement, the
Shareholders Agreement, the Registration Rights Agreement, and any Ancillary
Agreement and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary corporate action on the part
of Company. Each of this Agreement, the Shareholders Agreement, the Registration
Rights Agreement, and any Ancillary Agreement have been duly executed and
delivered by Company, Founders and Share holders, as applicable, and constitutes
the legal, valid and binding obligation of Company, Founders and Shareholders,
as applicable, enforceable against them in accordance with its terms.
C. Capitalization. The authorized capital stock of Company consists of
[i] 495,000 Common Shares with no par value per share ("Common Shares"), of
which at the date hereof 200,000 shares are validly issued and outstanding,
fully paid and nonassessable and owned, beneficially and of record, as set forth
on Schedule 5.C attached hereto, and [ii] 250,000 Preferred Shares, no par value
per share ("Preferred Shares"), none of which is outstanding at the date hereof
and all of which are to be sold pursuant to this Agreement. 250,000 Common
Shares have been duly and validly reserved for issuance upon conversion of the
Preferred Shares, and 45,000 Common Shares have been duly and validly reserved
for issuance under Company's Stock
<PAGE> 8
Option Plan. Except as set forth on Schedule 5.C, and except for (i) the
conversion and other privileges of the Preferred Shares, and (ii) the rights
provided in Section 9.A hereof and in the Registration Rights Agreement and the
Share holders Agreement, there are outstanding no subscriptions, options,
warrants, calls, commitments or rights (including conversion or preemptive
rights and rights of first refusal), proxy or stockholder agreements or
agreements of any character relating to shares of Company's capital stock or the
Preferred Stock to be issued hereunder or any instruments that can be converted
into shares of Company's capital stock or the Preferred Stock to be issued
hereunder. None of the shares of Company's capital stock have been issued in
violation of any preemptive right. All issuances, transfers or purchases of the
capital stock of Company (and any predecessor in interest to Company) have been
in compliance with all applicable agreements and all applicable laws, including
federal and state securities laws, and all taxes thereon, if any, have been
paid. No former or present holder of any of the shares of capital stock of
Company (or any predecessor in interest to Company) has any legally cognizable
claim against Company, Founders or Shareholders based on any issuance, sale,
purchase, redemption or involvement in any transfer of any shares of capital
stock by Company (or any predecessor in interest to Company). Except for
obligations of Company to redeem Preferred Shares as contemplated by Section 9.A
hereof, there are no contractual obligations of Company to repurchase, redeem or
otherwise acquire any shares of capital stock of Company. No bonds, debentures,
notes or other indebtedness having the right to vote (or convertible into or
exercisable for securities having the right to vote) on any matters on which
shareholders of Company may vote are issued or outstanding. Company is not a
party or subject to any agreement or under standing, and, to Company's,
Founders' and Shareholders' best knowledge, there is no agreement or
understanding between any persons that affects or relates to the voting or
giving of written consents with respect to any security or the voting by any
director of Company.
D. Validly Issued Shares. The shares of Preferred Stock to be issued,
sold and delivered in accordance with the terms of this Agreement for the
consideration set out herein, will, upon issuance in accordance with the terms
hereof, be duly and validly issued, fully paid and nonassessable, free of
restrictions on transfer other than restrictions on transfer under this
Agreement, the Shareholders Agreement and under applicable federal and state
securities laws. The issuance of the Preferred Stock to Investor pursuant to
this Agreement will comply with all applicable laws, including federal and state
securities laws (assuming the accuracy of the representations set forth in
Sections 6.B through 6.E of this Agreement), and will not violate the preemptive
rights of any person. The Common Shares issuable upon conversion of the
Preferred Stock being purchased under this Agreement will be, upon issuance and
delivery in accordance with the terms of the Articles, duly and validly issued,
fully paid and nonassessable and free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Shareholders Agreement and
under applicable federal and state securities laws. The issuance of the Common
Shares upon conversion of the Preferred Stock will comply with all applicable
laws, including federal and state
<PAGE> 9
securities laws (assuming the accuracy of the representations set forth in
Sections 6.B through 6.E of this Agreement as of the date of issuance of such
Common Shares), and will not violate the preemptive rights of any person.
E. No Conflict. The execution and delivery of this Agreement, the
Shareholders Agreement, the Registration Rights Agreement and any Ancillary
Agreement do not, and the consummation of the transactions contemplated hereby
and thereby will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or the
loss of a material benefit under, or the creation of a lien, pledge, security
interest, charge or other encumbrance on assets (any such conflict, violation,
default, right of termination, cancellation or acceleration, loss or creation,
a "Violation") pursuant to, any provision of the Articles or Bylaws, or result
in any Violation of any material lease, agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Company, Founders or Shareholders or
Company's properties or assets.
F. Contracts and Other Commitments; Compliance. Except as set forth on
Schedule 5.F attached hereto (the "Contracts"), Company does not have and is not
bound by any contract, agreement, lease, loan, commitment or proposed
transaction, judgment, order, writ or decree, written or oral, absolute or
contingent. No event or condition has occurred or exists, or, to the knowledge
of Company, Founders or Shareholders, is alleged by any of the other parties
thereto to have occurred or existed, which constitutes, or with lapse of time or
giving of notice or both might constitute, a default or breach under any of the
Contracts, which default is reasonably likely to result in a material adverse
change in the financial condition, results of operation or business of Company.
Company is not in violation or default of any provision of its Articles or
Bylaws or in any respect of any provision of any Contract or other item listed
on Schedule 5.F.
G. Subsidiaries. Company does not own or control, directly or
indirectly, any interest in any other corporation, partnership, limited
liability company, association or other business entity. Company is not a
participant in any joint venture, partnership or similar arrangement.
H. Consents. No consent, approval, qualification, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, or other third party is required by or
with respect to Company, Founders or Shareholders in connection with the
execution and delivery of this Agreement, or the consummation by Company,
Founders or Shareholders of the transactions contemplated hereby, which has not
already been obtained, except for notices of sale required to be filed with the
Securities and Exchange Commission under Regulation D of the Securities Act of
1933, as amended (the "Securities Act"), or such post closing
<PAGE> 10
filings as may be required under applicable state securities laws which will be
timely filed within the applicable periods therefor.
I. Financial Statements. Company has delivered to Investor prior to
the date hereof its unaudited balance sheet as of December 31, 1997, and the
related statements of income for the year then ended (the "Financial
Statements"). The Financial Statements are true, correct and complete in all
material respects and present fairly the financial condition of Company as of
December 31, 1997 and the related results of operations for the year then ended.
J. Indebtedness for Borrowed Money; No Undisclosed Liabilities. Except
as set forth on Schedule 5.F attached hereto, Company has no direct or indirect
indebtedness for borrowed money, indebtedness by way of lease-purchase
arrangements, guarantees, undertakings, chattel mortgages or other security
arrangements with any bank, financial institution or other third party. Except
as and to the extent reflected and adequately reserved against in the Financial
Statements or incurred in the ordinary course of business since the date of the
Financial Statements, as of the Closing Date, Company will not have any
liability or obligation whatsoever, whether accrued, absolute, contingent or
otherwise.
K. Absence of Changes. Except as set forth on Schedule 5.K, since
December 31, 1997, there has not been:
[1] any change in the assets, liabilities, financial condition or
operating results of Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have
not been, in the aggregate, materially adverse;
[2] any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of Company (as such business is
presently conducted and as it is presently proposed to be conducted);
[3] any waiver or compromise by Company of a valuable right or of
a material debt owed to it;
[4] any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by Company, except in the
ordinary course of business and that is not material to the business,
properties, or financial condition of Company (as such business is
presently conducted and as it is presently proposed to be conducted);
[5] any material change to a material contract or arrangement by
which Company or any of its assets is bound or subject;
<PAGE> 11
[6] any material change in any compensation arrangement or
agreement with any employee or officer;
[7] any sale, assignment, or transfer of any intangible assets;
[8] any resignation or termination of employment of any key officer
of Company (and neither Company, Founders nor Shareholders knows of the
impending resignation or termination of employment of any such officer);
[9] any mortgage, pledge, transfer of a security interest in, or
lien, created by Company, with respect to any of its material properties
or assets, except liens for taxes not yet due or payable;
[10] any declaration, setting aside or payment of any dividend or
other distribution of Company's assets in respect of any of Company's
capital stock, or any direct or indirect redemption, purchase, or other
acquisition of any of such stock by Company;
[11] to the best of Company's, Founders' and Shareholders'
knowledge, any other event or condition of any character that might
materially and adversely affect the business, properties, prospects or
financial condition of Company (as such business is presently conducted
and as it is presently proposed to be conducted); or
[12] any agreement or commitment by Company to do any of the things
described in this Section 5.K.
L. Title to Property and Assets; Leases.
[1] Schedule 5.L sets forth a complete and accurate list and
description of all the real and personal property that Company owns or
leases. Company is not bound or committed to make any capital improvement
or expenditure with respect to its owned or leased real or personal
property except as set forth on Schedule 5.L.
[2] Company owns no real property in fee simple. Company has good,
valid and marketable title to all the personal and mixed, tangible and
intangible properties and assets which it purports to own, free and clear
of all liens, restrictions, claims, charges, security interests, easements
or other encumbrances of any nature whatsoever, except for liens for
current taxes not yet due and payable. With respect to the property and
assets that it leases, Company is in compliance with such leases and, to
Company's, Founders' and Shareholders' best knowledge, holds a valid
leasehold interest, free and clear of any liens, claims and encumbrances.
All properties and assets of Company are in the possession or control of
Company, and no other person is entitled to
<PAGE> 12
possession of any such properties and assets.
M. Legal Proceedings. There are no claims of any kind or any actions,
suits, proceedings, arbitrations or investigations pending or, to Company's,
Founders' and Shareholders' best knowledge, threatened against or affecting
Company, Founders or Shareholders or against any asset, interest or right of any
of them or which questions the validity of the transactions contemplated by this
Agreement and neither Company, Founders nor Shareholders knows of any facts
which may constitute a basis therefor.
N. Environmental Matters. Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety (the "Environmental Laws"), and, to Company's,
Founders' and Shareholders' best knowledge, as of the date hereof no material
expenditures are required to be made by Company in order to comply with any of
the Environmental Laws.
O. Licenses and Permits; Compliance with Laws. Except as set forth in
Schedule 5.O, Company holds all franchises, permits, licenses, variances,
exemptions, orders and approvals of all governmental entities which are material
to the operation of Company's business and is in compliance with the terms
thereof. Company has complied with and is not in any default under (and has not
been charged with or received notice with respect to, nor is threatened with or
under investigation with respect to, any charge concerning any violation of any
provision of) any federal, state or local law, regulation, ordinance, rule or
order (whether executive, judicial, legislative or administrative) or any order,
writ, injunction or decree of any court, agency or instrumentality and no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
failures to comply.
P. Employee Benefit Plans. Except as set forth on Schedule 5.P,
Company has no employee benefit plans including any profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, phantom
stock, retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other plan, arrangement or understanding (whether or
not legally binding) providing benefits to any current or former employee,
officer or director of Company (collectively "Benefit Plans"), or any
employment, consulting, severance, termination or indemnification agreement,
arrangement or understanding between Company and any officer, director or
employee of Company. Company has delivered to Investor true, complete and
correct copies of each Benefit Plan, or, in the case of any unwritten Benefit
Plans, descriptions thereof. Each Benefit Plan has been administered in all
material respects in accordance with its terms and all applicable laws.
Q. Labor Relations.
<PAGE> 13
[1] Company is in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours and occupational safety and
health;
[2] There is no unfair labor practice charge or complaint or any\
other matter against or involving Company pending or, to Company's,
Founders' and Shareholders' knowledge, threatened before the National
Labor Relations Board or any court of law;
[3] There is no labor strike, dispute, slowdown or stoppage
actually pending or, to Company's, Founders' and Shareholders' knowledge,
threatened against Company;
[4] Company is not a party to or bound by any collective
bargaining agreement or any similar labor union arrangement;
[5] There are no charges, investigations, administrative
proceedings or formal complaints of discrimination (including
discrimination based upon sex, age, marital status, race, color, religion,
national origin, sexual preference, disability, handicap or veteran
status) pending or, to Company's, Founders' and Shareholders' knowledge,
threatened, before the Equal Employment Opportunity Commission or any
federal, state or local agency or court against Company. There have been
no governmental audits of the equal employment opportunity practices of
Company and, to Company's, Founders' and Shareholders' knowledge, no basis
for any such claim exists; and
[6] To Company's, Founders' and Shareholders' knowledge, Company
is in compliance in all material respects with the requirements of the
Americans With Disabilities Act.
R. Insurance. Schedule 5.R sets forth a list of all insurance
policies, including property, casualty, liability and other insurance maintained
with respect to the assets and business of Company ("Company Insurance").
Company is not liable for any material retroactive premium adjustments with
respect to any of its insurance policies or bonds. All such policies and bonds
are legal, valid and enforceable and in full force and effect and Company is not
in breach or default (including with respect to the payment of premiums or the
giving of notices) and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default, or permit termination,
modification or acceleration under the policy received any notice of premium
increases or cancellations with respect to any of such policies and bonds.
Company, Shareholders and Founders believe the amount and type of Company's
insurance coverage is adequate for Company's business and is consistent with
good business practice.
<PAGE> 14
S. Tax Matters. Company has timely filed or caused to be filed all
material federal, state, foreign and local income, franchise, gross receipts,
payroll, sales, use, withholding, occupancy, excise, real and personal property,
employment and other tax returns, tax information returns and reports ("Tax
Returns") required to be filed and all such Tax Returns were correct and
complete in all material respects. Company has paid, or made adequate provisions
for the payment of, all material taxes, duties or assessments of any nature
whatsoever, interest payments, penalties and additions (whether or not reflected
in the returns as filed) due and payable (and/or properly accruable for all
periods ending on or before the date of this Agreement) to any city, county,
state, foreign country, the United States or any other taxing authority. There
are no security interests on any of the assets of Company that arise in
connection with any failure (or alleged failure) to pay any tax. Company has
withheld and paid all taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other third party. No material deficiencies for any
taxes have been proposed, asserted or assessed against Company that are not
adequately reserved for.
T. Bank Accounts. Schedule 5.T sets forth a complete and accurate list
of each bank or financial institution in which Company has an account or safe
deposit box (giving the address and account numbers) and the names of the
persons authorized to draw thereon or to have access thereto.
U. Related Party Transactions. Except as set forth on Schedule 5.U, no
employee, officer or holder of Company's Common Shares or member of his or her
immediate family is indebted to Company, nor is Company indebted (or committed
to make loans or extend or guarantee credit) to any of them, other than (i) for
payment of salary for services rendered, (ii) reimbursement for reasonable
expenses incurred on behalf of Company, and (iii) for other standard employee
benefits made generally available to all employees (including stock option
agreements outstanding under any stock option plan approved by the Board of
Directors of Company). To the best of Company's, Founders' and Shareholders'
knowledge, none of such persons has any direct or indirect ownership interest in
any firm or corporation with which Company has a business relationship, or any
firm or corporation that competes with Company, except that employees,
stockholders, and officers of Company and members of their immediate families
may own stock in publicly traded companies that may compete with Company.
V. Brokers' and Finders' Fees. Neither Company, Founders nor
Shareholders has employed any broker, finder or financial advisor or incurred
any liability for fees or commissions payable to any broker, finder or financial
advisor in connection with the negotiations relating to or the transactions
contemplated by this Agreement.
W. Registration Rights. Company is presently not under any obligation
and has not granted any rights to register under the Securities Act any of its
outstanding securities or any of its securities that may be subsequently issued.
<PAGE> 15
X. Business Plan; Material Facts. Company has provided Investor with
all the information reasonably available to it that Investor has requested for
deciding whether to purchase the Preferred Stock. This Agreement, the Financial
Statements, the Confidential Business Plan containing, among other things,
projections regarding expected revenues, expenses, net operating income and
other financial information of Company and the documents or written statements
furnished by Company to Investor in connection with the transactions
contemplated hereby, do not contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements contained
herein or therein, in light of the circumstances in which they are made, not
misleading, except with respect to assumptions, projections and expressions of
opinions or predictions, business strategies and technological assessments
contained in the Confidential Business Plan, Company, Founders and Shareholders
represent only that such assumptions, projections and expressions of opinions
and predictions, strategies and assessments were made in good faith and
Company, Founders and Shareholders believe that there is a reasonable basis
therefor. Company's, Founders' and Shareholders' representations under this
Section 5, however, shall not limit or modify the representations and warranties
of Investor in Section 6 of this Agreement or the right of Company, Founders
and Shareholders to rely thereon.
6. Representations and Warranties of Investor. Investor hereby represents
and warrants to Company, Founders and Shareholders as of the date hereof and as
of the date of each additional issuance of Preferred Shares to such Investor
pursuant to Post Closing Capital Calls, as follows:
A. Authorization; Binding Agreement. This Agreement, the Registration
Rights Agreement, the Shareholders Agreement, and any Ancillary Agreements, and
the purchase and receipt by Investor of the Preferred Stock hereunder have been
duly authorized by all requisite action on the part of Investor, and will not
[i] violate any provision of law or any order of any court or other agency of
government applicable to Investor, the governing instruments of Investor, or any
provision of any indenture, agreement or other instrument by which Investor or
any of Investor's properties or assets are bound, or [ii] conflict with, result
in a breach of or constitute (with due notice or lapse of time or both) a
default under any such indenture, agreement or any other instrument, or [iii]
result in the creation or imposition of any lien, charge, or encumbrance of any
nature whatsoever upon the properties or assets of Investor. This Agreement, the
Registration Rights Agreement, the Shareholders Agreement, and the Ancillary
Agreements (if any) have been duly executed and delivered by Investor and
constitute the legal, valid and binding obligations of Investor, enforceable
against Investor in accordance with their respective terms.
B. Investment Representations. Investor is acquiring the Preferred
Stock and the Common Stock issuable upon conversion thereof (collectively the
"Securities") solely for its own account as principal, for investment purposes
only and
<PAGE> 16
not with a view to resale or distribution thereof in whole or in part, and
Investor has no present intention of selling, granting any participation in, or
otherwise distributing the Securities. No other person has a direct or indirect
beneficial interest in the Securities to be acquired by Investor hereunder and
Investor does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participation to any third person, with
respect to any of the Securities.
C. Accredited Investor; Residence. Investor is a Kentucky limited
liability company and Investor and each of its members is an "accredited
investor" as such term is defined under Regulation D of the Securities Act.
D. Receipt of Information; Restricted Securities.
[1] Investor acknowledges (i) that it has received and reviewed the
Confidential Business Plan; (ii) that such Confidential Business Plan does not
compile and was not intended to compile in a comprehensive fashion all
information relative to the Company's business or its technological applications
and financial prospects, (iii) that the Company is a speculative start up
business enterprise, and (iv) there are substantial risk factors associated with
Investor's purchase of the Securities. Investor acknowledges that the proposed
business strategy and the hypothetical financial projections and cash flows
contained in the Confidential Business Plan are prepared on the basis of
assumptions and hypotheses that the Company believes to be reasonable. Investor
acknowledges that the Company has not given and can give no assurance that any
of the potential strategies described in the Confidential Business Plan can be
implemented or that the potential benefits and results described in the Business
Plan will prove to be attainable.
[2] Investor acknowledges that the Securities are not being and will
not be registered under the Securities Act or the securities laws of any other
jurisdiction in reliance on exemptions thereunder. Investor understands that it
must bear the economic risk of its investment in the Securities for an
indefinite period of time, and that such Securities may not be resold unless an
exemption from registration under the securities laws is available. Investor
understands that, except as provided in the Registration Rights Agreement, it is
not contemplated that any registration will be made under the Securities Act or
that the Company will take steps that will make the provisions of Rule 144 under
the Securities Act available to permit resale of the Securities. Investor will
not pledge, transfer, convey or otherwise dispose of any of the Securities,
except in a transaction that is subject to either (a) an effective registration
statement under the Securities Act and any applicable state securities laws, or
(b) an opinion of counsel to the effect that such registration is not required
(which opinion and counsel shall be reasonably satisfactory to the Company).
[3] Investor represents that Investor has had an opportunity to ask
questions and receive answers from officers of Company with respect to the
Confidential Business Plan and the business and financial condition of the
Company
<PAGE> 17
and the terms and conditions of the offering of the Securities and to obtain
additional information necessary to verify this information (to the extent
Company possessed such information or could acquire it without unreasonable
effort or expense).
[4] Investor's representations under this Section 6, however, shall
not limit or modify the representations and warranties of Company, Founders and
Shareholders in Section 5 of this Agreement or the right of Investor to rely
thereon.
E. Investment Experience. Each member of Investor is experienced in
evaluating and investing in private placement transactions of securities of
companies in a similar stage or development. Investor acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and that
each of its members has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the investment
in the Preferred Stock.
7. Survival of Representations and Warranties. All representations and
warranties contained in this Agreement by any party to this Agreement and any
certificate or other instrument delivered by or on behalf of any party pursuant
to this Agreement shall be continuous and shall survive the Closing and the
issuance of all shares of Company's capital stock as contemplated hereunder for
a period of eighteen (18) months. Each party shall have the right to rely on
each other party's representations and warranties made herein, notwithstanding
any investigation conducted by such party.
8. Indemnification.
A. Indemnification by Company, Founders and Shareholders. Company,
Founders and Shareholders shall, severally but not jointly, indemnify and
reimburse Investor for any and all claims, losses, liabilities, damages
(including, without limitation, fines, penalties, and criminal or civil
judgments and settlements), costs (including, without limitation, court costs)
and expenses (including, without limitation, attorneys' and accountants' fees)
(hereinafter "Loss" or "Losses") suffered or incurred by Investor, or any
successors or assigns thereto (the "Protected Parties") as a result of, or with
respect to:
[1] Any breach or inaccuracy of any representation or warranty of
Company, Founders or Shareholders set forth in Section 5;
[2] Any breach of or noncompliance by Company, Founders or
Shareholders with any covenant or agreement of Company, Founders, or
Shareholders contained in this Agreement, unless such breach or
noncompliance results from any action or failure to act by the Board of
Directors of the Company, a majority of which has been elected by
Investor;
[3] Any act or omission of Company or its employees, agents or
<PAGE> 18
representatives, or of Company's predecessors in interest, occurring prior
to the Closing Date which results in any Loss arising under the
Environmental Laws, or the ownership, use, control or operation by
Company or its predecessors in interest of any of the current or former
properties of Company which results in any Loss arising under the
Environmental Laws or the release of any substance into the environment
prior to the Closing Date; and
[4] any and all actions, suits, proceedings, claims, demands,
assessments and judgments incident to any of the foregoing.
Notwithstanding the foregoing provisions of this Section 8.A, except
with respect to any breach of any of the Company's, the Founders' or the
Shareholders' representations and warranties of which the Company, the Founders
or the Shareholders had knowledge or any intentional breach by the Company,
Founders or Shareholders of any covenant or obligation or any fraudulent act
committed in connection with the terms of this Agreement, (i) the obligation of
Oyler, CLP and OPM to indemnify Investor pursuant to this Section 8.A shall be
limited to fifty percent (50%) of any Loss and shall be joint and several among
Oyler, CLP and OPM with respect thereto, (ii) the obligation of Gibbs and GFLP
to indemnify Investor pursuant to this Section 8.A shall be limited to fifty
percent (50%) of any Loss and shall be joint and several among Gibbs and GFLP
with respect thereto, and (iii) the obligation of the Company, the Founders and
the Shareholders to indemnify Investor under this Section 8.A shall not exceed
an aggregate amount equal to the Purchase Price paid to date by Investor for all
shares of Preferred Stock purchased hereunder plus the amount of all accrued and
unpaid dividends on the Preferred Stock.
B. Indemnification by Investor. Investor shall indemnify and reimburse
Company, Founders and Shareholders for any and all claims, losses, liabilities,
damages (including, without limitation, fines, penalties, and criminal or civil
judgments and settlements), costs (including, without limitation, court costs)
and expenses (including, without limitation, attorneys' and accountants' fees)
(hereinafter "Loss" or "Losses") suffered or incurred by Company or any
successors or assigns thereto as a result of, or with respect to:
[1] Any breach or inaccuracy of any representation or warranty of
Investor set forth in Section 6;
[2] Any breach of or noncompliance by Investor with any covenant
or agreement of Investor contained in this Agreement; and
[3] any and all actions, suits, proceedings, claims, demands,
assessments and judgments incident to any of the foregoing.
9. Post-Closing Covenants.
<PAGE> 19
A. Redemption Rights. Subject to the requirements of KRS 271B.6-400,
at any time and from time to time from and after February 20, 2003 but prior to
the Company's completed underwritten initial public offering, Investor shall
have the right and option to sell to Company, and Company shall buy, Investor's
shares of capital stock of Company (the "Put") at a price per share (the "Put
Purchase Price") equal to the greater of (a) the initial purchase price per
share of Investor's shares, plus accrued but unpaid dividends through the date
of the Put Closing (as defined below), or (b) the fair market value per share,
based on [i] the fair market value of the Company, as determined by a qualified,
independent appraiser experienced in valuation of shares of companies similar
to Company (the "Qualified Appraiser") acceptable to both Company and Investor,
[ii] divided by the number of shares of capital stock of the Company
outstanding, as determined by Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 128 or any successor provision thereto. If
the Investor and Company are unable to agree upon a Qualified Appraiser, each of
them shall separately designate a Qualified Appraiser. Such Qualified Appraisers
shall jointly designate a definitive Qualified Appraiser, and such definitive
Qualified Appraiser's determination shall be the fair market value of Investor's
shares of Company stock and shall be conclusive and binding upon the parties.
The fees and expenses of the definitive Qualified Appraiser shall be borne
equally by Company and the Investor. The closing (the "Put Closing") shall take
place at a time and place mutually agreed upon by Investor and Company on or
before the 180th day after written notice of exercise of the Put is given to
Company by Investor, or if Investor and Company shall not agree on the time and
place, the Put Closing shall take place at the principal office of Company in
Louisville, Kentucky at 10:00 a.m. on the 180th day after written notice of
exercise is given, unless such day is a Saturday, Sunday or holiday, in which
case it shall occur on the next business day. The Put Purchase Price shall be
paid in cash at the Put Closing.
B. Option to Repurchase. If the Preferred Directors (as defined in the
Articles) or Investor, as provided in Section 1.B[ii], refuse a written request
by the Common Directors (as defined in the Articles) (the "Common Directors'
Request") to approve some or all of the Company's first Post Closing Capital
Call (which is expected to occur in June 1998 in the amount of $500,000), then
the Company, Founders and the Shareholders shall have a one-time right to
purchase from Investor the shares of Preferred Stock then owned by Investor for
an amount equal to Investor's original purchase price for such shares, plus all
accrued but unpaid dividends thereon. The Preferred Directors refusal shall be
communicated to the Common Directors by written notice within thirty (30) days
following the Common Directors' Request. The Preferred Directors shall be deemed
to have refused such written request if they shall not have provided such notice
to the Common Directors within thirty (30) days after the Common Directors'
Request. Such right must be exercised by Company, Founders and Shareholders
within ten (10) days after the Preferred Directors' or Investor's refusal, by
Company's, Founders' and Shareholders' written notice to Investor and the
closing shall occur within thirty (30) days after such written notice of
exercise is given. The purchase price shall be paid in cash to Investor at such
closing. Upon the closing of
<PAGE> 20
such purchase all obligations of the Company, Founders and Shareholders under
this Agreement shall terminate, except for the indemnification obligations under
Sections 8.A and B of this Agreement and except for their obligations provided
in Sections 10 and 17 of this Agreement.
C. Financial Reporting. For periods commencing on or after the Closing
Date, Company shall deliver or cause to be delivered to Investor monthly and
year-to-date balance sheets and income and cash flow statements (each as
compared to budget and the comparable prior year period), a monthly written
summary of operations and such other information and data with respect to
Company as Investor may reasonably request. Such monthly reports shall be
provided on or before twenty (20) days following the end of each month. Not
later than thirty (30) days prior to the end of each fiscal year, Company shall
provide a business plan and projections for the next fiscal year. Annual audits
of the Company's financial statements for periods commencing on or after January
1, 1998 shall be performed by an independent accounting firm acceptable to a
majority of the holders of the Preferred Stock and copies thereof shall be
delivered to Investor on or before the 120th day following the end of Company's
fiscal year. Company's financial statements for the year ended December 31, 1997
shall be reviewed by an independent accounting firm acceptable to a majority of
the holders of the Preferred Stock and shall be available for audit.
D. Indebtedness for Borrowed Money. Company shall not, without the
prior consent of a majority of Company's directors, incur in any fiscal year any
obligations for borrowed money or leases in excess of One Hundred Thousand
Dollars ($100,000) in the aggregate.
E. Board of Directors. Effective as of the Closing, the directors of
Company shall be Kent Oyler, David A. Jones, Jr. and Robert Saunders. After the
Closing, Investor shall elect one additional Preferred Director (as defined in
the Articles) and Shareholders shall elect one additional Common Director (as
defined in the Articles). The directors of the Company shall appoint a
Compensation Committee composed of non-management directors of Company, which
Committee shall determine management compensation and awards of stock options.
In addition, Investor shall have "observer" rights pursuant to which it (or its
representatives) shall be entitled to attend and observe all meetings of the
Board of Directors of the Company but who shall have no right to vote on any
matter brought before the Board of Directors. Company shall pay the reasonable
expenses of any Preferred Director (as defined in the Articles) and of Investor
and its representatives incurred in attending meetings of the Board of Directors
or other business of Company.
F. Reservation of Shares. On and after the Closing Date, Company will
reserve and keep reserved at all times sufficient shares of Common Stock for
issuance upon conversion of the Preferred Stock pursuant to Paragraph B.4(a) of
Article IV of the Articles. Immediately prior to the occurrence of any event
that would cause the number of shares of Common Stock into which the Preferred
Stock would be
<PAGE> 21
convertible to be determined in accordance with Paragraph B.4(b) of Article IV
of the Articles, the Company shall take any and all actions necessary to permit
such conversion. Upon conversion of any shares of Preferred Stock, Company will
promptly issue and deliver the shares of Common Stock required to be delivered.
G. Use of Proceeds. The proceeds from the sale of the Preferred Stock
pursuant to this Agreement shall be used by Company for working capital or for
any other purpose approved by the Board of Directors of the Company.
H. Prohibited Matters. From and after the date hereof, Company shall
not, without the consent of the holders of the majority of the then outstanding
Preferred Shares:
[1] Effect any transaction that results in a change of control of
the Company;
[2] Materially change the nature of the Company's business;
[3] Effect a liquidation, dissolution, merger or sale of the
Company or sell substantially all of its assets;
[4] Amend its articles of incorporation or bylaws;
[5] Redeem or pay any dividend or distribution on its common stock;
[6] Issue any class or series of equity securities or equivalents
thereof except pursuant to a management stock option plan approved by
the Board of Directors of Company or upon conversion of the Preferred
Shares;
[7] Except as set out on Schedule 9.H, repay any shareholder loans;
[8] Except for transactions with Investor or as set out in Schedule
9.H, engage in any transactions with "affiliates", which for the
purposes of this Agreement, shall mean (i) any director or officer of
Company or holder of Company's capital stock, (ii) any person or
entity, directly or indirectly, controlling, controlled by or under
common control with any such person or entity, and (iii) in the case
of a natural person, members of his or her immediate family or a
trust for their benefit; or
[9] Take any other actions that would materially affect the holders
of the Preferred Shares.
If the Company shall propose to engage in any transaction described
in subsection [3] above, Founders and Shareholders, collectively, shall have the
right to demand that the Company obtain an opinion as to the fairness of the
transaction from a
<PAGE> 22
financial viewpoint, from a list of nationally recognized investment banking
firms with knowledge and experience in the industry of high speed internet
access such as Alex Brown or Deutsche Morgan Grenfell. Such appraiser shall be
selected by the Board of Directors of the Company, at the Company's expense.
I. Life Insurance. Within forty-five (45) days after the Closing,
Company will have in full force and effect term life insurance payable to
Company on the life of each of Founders in the amount of $1 million. Company
shall maintain such life insurance policies in good standing and in full force
and effect.
J. Consulting Fee. Commencing as of the Closing Date, Company shall
accrue $10,000 quarterly as a consulting fee to Chrysalis Ventures, LLC. Such
consulting fees shall be accrued but not paid until the earlier of (i) a
determination by Company's board of directors that Company has sufficient cash
flow to pay such fees, or (ii) Company produces after-tax quarterly profits in
excess of $100,000 for two consecutive quarters.
K. Restrictions on Transfers of Equity by Founders and Shareholders.
Founders and Shareholders understand and acknowledge that, in entering into this
Agreement, Investor is relying to a significant degree on the continuing
abilities and efforts of Founders and their involvement in the Company.
Accordingly, Founders and Shareholders agree as follows:
[1] Oyler and/or members of his immediate family shall control
directly not less than 85% of OPM and 100% of CLP;
[2] Gibbs and/or members of his immediate family shall control
directly not less than 100% of GFLP;
[3] Except as otherwise expressly contemplated by this Agreement,
the Shareholders Agreement or any Ancillary Agreement, Oyler shall
maintain voting control with respect to the shares of common stock of
the Company owned by OPM and CLP;
<PAGE> 23
[4] Except as otherwise expressly contemplated by this
Agreement, the Shareholders Agreement or any Ancillary Agreement,
Gibbs shall maintain voting control with respect to the shares of
common stock of the Company owned by GFLP;
[5] None of Shareholders shall issue any equity securities or
take any action, directly or indirectly, that would have the effect of
granting any person other than Oyler, in the case of CLP, or Gibbs, in
the case of GFLP, voting control over the shares of common stock of the
Company owned by CLP or GFLP, as applicable; and
[6] OPM shall not issue any equity securities or take any
other action that would cause Oyler to own less than eighty five
percent (85%) of the outstanding capital stock of OPM.
L. OPM Lease. OPM agrees that the Promissory Note dated as of February
23, 1998 by the Company in favor of OPM and all payments due under the Lease
dated as of January 1, 1998 between OPM and the Company, shall be subordinate in
all respects to the rights of the Preferred Stock in the event of any
liquidation or dissolution of the Company.
10. Public Statements. Company, Founders, Shareholders and Investor
shall consult and cooperate with each other in the preparation of a press
release or other public announcement concerning the transactions contemplated by
this Agreement, and other appropriate press releases from time to time. An
written press release identifying Investor or its members shall require
Investor's prior written approval. Oyler shall be the Company's public
spokesperson. Company, Founders and Shareholders may disclose information with
respect to the transaction contemplated hereby to their respective employees,
agents, consultants and third parties only to the extent such persons have a
need to know such information.
11. Notices. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be mailed by first class,
registered, or certified mail, postage prepaid, or sent via overnight courier
service, or delivered personally:
If to Investor, to: Broadband Solutions, LLC
1850 National City Tower
101 South Fifth Street
Louisville, Kentucky 40202
With a copy to: Patrick W. Mattingly, Esq.
Wyatt, Tarrant & Combs
2800 Citizens Plaza
<PAGE> 24
Louisville, KY 40202
If to Company,
Founders or
Shareholders, to: CATV.net, Inc.
Attn: W. Kent Oyler, III
Suite 210
1000 West Ormsby Avenue
Louisville, Kentucky 40210
With a copy to: Robert Vice, Esq.
Reed, Weitkamp, Schell, Cox & Vice
2400 Citizens Plaza
Louisville, KY 40202
or to such other address of which the addressee shall have notified the sender
in writing. Notices mailed in accordance with this section shall be deemed given
when mailed, and notices sent by overnight courier service shall be deemed given
when placed in the hands of a representative of such service.
12. Parties in Interest; Assignment. Except as otherwise provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties to this Agreement shall bind and inure to the benefit of
their respective heirs, executors, successors, and assigns, whether so expressed
or not. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto and their respective successors and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement. This Agreement is not assignable and any other purported
assignment shall be null and void, provided that Investor may assign its rights
and obligations under this Agreement to any of its affiliates that may purchase
any of the Preferred Stock held by Investor. Notwithstanding such permitted
assignment, Investor shall not be released from its obligations hereunder or its
representations and warranties set forth in Section 6. The term "affiliate" as
used in this Section 12 shall include, without limitation, [i] any director or
executive officer of such person or of an affiliate of such person, [ii] a
parent, spouse or child (a "relative") of such director or executive officer,
[iii] any group, acting in concert, of such director, executive officer or
relative (a "group"), [iv] any person controlled by any such director, executive
officer, relative or group, and [v] any person or group which beneficially owns
or holds 5% or more of any class of voting securities or a 5% or greater equity
or profits interest in such person.
13. Construction; Governing Law. The section headings contained in
this Agreement are inserted as a matter of convenience and shall not affect in
any way the construction of the terms of this Agreement. This Agreement shall be
governed by and interpreted in accordance with the laws of the Commonwealth of
Kentucky as applied to
<PAGE> 25
agreements among Kentucky residents entered into and performed entirely within
Kentucky.
14. Entire Agreement; Amendment and Waiver. This Agreement, including
the Schedules and Exhibits hereto, constitutes and contains the entire agreement
between the parties hereto with respect to the transactions contemplated hereby
and supersedes any prior writing by the parties. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of Company, Founders, Shareholders
and Investor (or its permitted assigns). Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities have been converted), each future holder
of all such securities, and Company.
15. Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of the
remaining provisions.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
17. Expenses. Company agrees, upon consummation of the transactions
contemplated by this Agreement, to pay all reasonable legal and out-of-pocket
expenses incurred by Investor in connection with this Agreement and the
transactions contemplated hereunder, including, without limitation all fees and
expenses of Wyatt, Tarrant & Combs, in connection with this Agreement and the
transactions contemplated hereunder.
18. Time of Essence. Time is of the essence to the performance of the
obligations set forth in this Agreement.
19. Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the Shareholders Agreement,
the Registration Rights Agreement, any Ancillary Agreement or the Articles, each
party shall pay its own fees, costs, and disbursements in connection therewith.
20. Rights of Investor. Each holder of Preferred Stock (and Common
Stock issued upon conversion thereof) shall have the absolute right to exercise
or refrain from exercising any right or rights that such holder may have by
reason of this Agreement or any Preferred Stock, including without limitation
the right to consent to the waiver of any obligation of Company under this
Agreement and to enter into an agreement with Company for the purpose of
modifying this Agreement or any agreement effecting any such modification, and
such holder shall not incur any liability to any other holder or holders of
Preferred Stock (or Common Stock issued upon conversion thereof) with
<PAGE> 26
respect to exercising or refraining from exercising any such right or rights.
IN WITNESS WHEREOF, Company, Founder and Investor have caused this
Agreement to be executed as of the day and year first written above.
"COMPANY"
CATV.NET, INC.
By: /s/ CATV.NET, INC.
----------------------------------------
Title:
-------------------------------------
"FOUNDERS"
/s/ W. KENT OYLER, III
-------------------------------------------
W. KENT OYLER, III
Address: 401 Duff Lane
Louisville, Kentucky 40207
/s/ DAVID GIBBS
-------------------------------------------
DAVID GIBBS
Address: 609 Wataga
Louisville, Kentucky 40206
<PAGE> 27
"SHAREHOLDERS"
COLORADO LIMITED PARTNERSHIP
By: /s/ KENT OYLER
----------------------------------------
Title: G.P.
-------------------------------------
Address:
-----------------------------------
OPM SERVICES, INC.
By: /s/ KENT OYLER
----------------------------------------
Title: President
-------------------------------------
Address:
-----------------------------------
GIBBS FAMILY LIMITED PARTNERSHIP
By: /s/ DAVID GIBBS
----------------------------------------
Title: G.P.
-------------------------------------
Address:
-----------------------------------
"INVESTOR"
BROADBAND SOLUTIONS, LLC
By: /s/ BROADBAND SOLUTIONS, LLC
----------------------------------------
Title:
-------------------------------------
Address: 1850 National City Tower
101 South Fifth Street
Louisville, Kentucky 40202
<PAGE> 1
EXHIBIT 10.19
CATV.NET, INC.
Convertible Preferred Stock
Registration Rights Agreement
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into this 23rd day of February, 1998 by and between CATV.NET, INC., a
Kentucky corporation (the "Company"), and BROADBAND SOLUTIONS, LLC, a Kentucky
limited liability company ("Investor"), and COLORADO LIMITED PARTNERSHIP, a
Georgia limited partnership, OPM SERVICES, INC., a Kentucky corporation, and
GIBBS FAMILY LIMITED PARTNERSHIP, a Georgia limited partnership (collectively,
the "Common Shareholders").
Recitals
WHEREAS, the Company and the Investor are parties to a Convertible
Preferred Stock Purchase Agreement dated February 23, 1998 (the "Purchase
Agreement"), under which certain of the Company's and the Investor's obligations
are conditioned upon the execution and delivery by the Investor and the Company
of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below.
1.1 "Preferred Stock" shall mean the Company's Convertible
Preferred Stock, no par value per share.
1.2 "Common Stock" shall mean the Company's Common Stock or
any capital stock exchanged therefor.
1.3 "Commission" shall mean the federal Securities and
Exchange Commission or any other federal agency at the time
administering the Securities Act.
1.4 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar successor federal statute and the
rules and regulations thereunder, all as the same shall be in effect
from time to time.
1.5 "Holder" shall mean Investor and any holder of Registrable
Securities to whom the registration rights conferred by this Agreement
have
<PAGE> 2
been transferred in compliance with Section 8 hereof.
1.6 "Initiating Holders" shall mean any Holder or Holders of
not less than 50% of the Registrable Securities.
1.7 "Registrable Securities" shall mean [i] any shares of
Common Stock issued or issuable pursuant to the conversion of the
Preferred Stock, [ii] any shares of Common Stock or any other capital
stock exchanged for Common Stock issued as a dividend or other
distribution with respect to or in exchange for or in replacement of
the shares referenced in [i] above, and [iii] all other Common Stock
which Investor shall have acquired at any time; provided, however, that
Registrable Securities shall not include any shares of Common Stock
which have previously been registered or which have been sold to the
public or which have been sold in a private transaction in which the
transferor's rights under this Agreement are not assigned.
1.8 "Registrable Common Securities" shall mean twenty percent
(20%) of all Common Stock which the Common Shareholders hold in the
aggregate; provided, however, that Registrable Common Securities shall
not include any shares of Common Stock which have previously been
registered or which have been sold to the public or which have been
sold in a private transaction in which the transferor's rights under
this Agreement are not assigned.
1.9 The terms "register," "registered" and "registration"
shall refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act and
applicable rules and regulations thereunder, and the declaration or
ordering of the effectiveness of such registration statement.
1.10 "Registration Expenses" shall mean all expenses incurred
in effecting any registration pursuant to this Agreement, including,
without limitation, all registration, qualification, and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for
the Company, blue sky fees and expenses, and expenses of any regular or
special audits incident to or required by any such registration, but
shall not include Selling Expenses and fees and disbursements of
counsel for the Holders (but excluding the compensation of regular
employees of the Company, which shall be paid in any event by the
Company).
1.11 "Rule 144" shall mean Rule 144 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from
time to time, or any similar successor rule that may be promulgated by
the Commission.
1.12 "Rule 145" shall mean Rule 145 as promulgated by the
<PAGE> 3
Commission under the Securities Act, as such Rule may be amended from
time to time, or any similar successor rule that may be promulgated by
the Commission.
1.13 "Securities Act" shall mean the Securities Act of 1933,
as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to
time.
1.14 "Selling Expenses" shall mean all underwriting discounts,
selling commissions, and stock transfer taxes applicable to the sale of
Registrable Securities and fees and disbursements of counsel for any
Holder (other than the fees and disbursements of counsel included in
Registration Expenses).
2. Company Registration.
2.1 If the Company shall determine to register any of its
Common Stock or Preferred Stock for its own account or for the account
of any other party, other than a registration relating solely to
employee benefit plans, or a registration relating solely to a Rule 145
transaction, or a registration on any registration form that does not
permit secondary sales, the Company will:
[a] promptly give to each Holder written notice thereof and
of the anticipated effective date of such registration; and
[b] use its best efforts to include in such registration
(and any related qualification under blue sky laws or other
compliance), except as set forth in Section 2.2 below, and in any
underwriting involved therein, all the Registrable Securities
specified in a written request or requests, made by any Holder
and received by the Company within thirty (30) days after the
written notice from the Company described in clause [a] above is
mailed or delivered by the Company. Such written request may
specify all or any part of a Holder's Registrable Securities.
2.2 Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the
written notice given pursuant to Section 2.1[a]. In such event, the
right of any Holder to registration pursuant to this Section 2 shall be
conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such under writing shall (together
with the Company and the other holders of securities of the Company
with registration rights to participate therein distributing their
securities through such underwriting) enter into an underwriting
agreement in customary form with the representatives of the
<PAGE> 4
underwriter or underwriters selected by the Company.
Notwithstanding any other provision of this Section 2, if the
representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the representative may (subject to the limitations set
forth below) exclude all Registrable Securities from, or limit the
number of Registrable Securities to be included in, the registration
and underwriting. The Company shall so advise all holders of securities
requesting registration, and the number of shares of securities that
are entitled to be included in the registration and underwriting shall
be allocated first to the Company for securities being sold for its own
account and thereafter as set forth in Section 11. If any person does
not agree to the terms of any such underwriting, he shall be excluded
therefrom by written notice from the Company or the underwriter. Any
Registrable Securities or other securities excluded or withdrawn from
such underwriting shall be with drawn from such registration.
If shares are so withdrawn from the registration or if the
number of shares of Registrable Securities to be included in such
registration was previously reduced as a result of marketing factors,
the Company shall then offer to all persons who have retained the right
to include securities in the registration the right to include
additional securities in the registration in an aggregate amount equal
to the number of shares so withdrawn, with such shares to be allocated
among the persons requesting additional inclusion in accordance with
Section 11 hereof.
3. Demand Registration.
3.1 Demand for Registration. If the Company shall receive from
Initiating Holders at any time or times following the Company's initial
registered public offering of its Common Stock with the Commission a written
request that the Company effect any registration with respect to all or a part
of the Registrable Securities, the Company will:
[a] promptly give written notice of the proposed registration
to all other Holders; and
[b] as soon as practicable, use its best efforts to effect
such registration (including, without limitation, filing post-effective
amendments, appropriate qualifications under applicable blue sky or
other state securities laws, and appropriate compliance with the
Securities Act and any other governmental requirements or regulations)
and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such
request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are
specified in a
<PAGE> 5
written request received by the Company within thirty (30) business
days after such written notice from the Company is mailed or delivered.
The Company shall not be obligated to effect, or to take any
action to effect, any such registration pursuant to this Section 3.1:
[i] In any particular jurisdiction in which the Company would
be required to execute a general consent to service of process in
effecting such registration, qualification, or compliance, unless the
Company is already subject to service in such jurisdiction and except
as may be required by the Securities Act;
[ii] After the Company has initiated two such registrations
pursuant to this Section 3.1 (counting for these purposes only
registrations which have been declared or ordered effective and
pursuant to which securities have been sold);
[iii] During the period starting with the date sixty (60) days
prior to the Company's good faith estimate of the date of filing of,
and ending on a date one hundred eighty (180) days after the effective
date of, a Company-initiated registration; provided that the Company is
actively employing in good faith all reason able efforts to cause such
registration statement to become effective;
[iv] If the Initiating Holders do not request that such
offering be firmly underwritten by underwriters selected by the
Initiating Holders (subject to the consent of the Company, which
consent will not be unreasonably withheld); or
[v] If the Company and the Initiating Holders are unable to
obtain the commitment of the underwriter described in clause [iv] above
to firmly underwrite the offer.
3.2 Postponed Registration. Subject to the foregoing clauses [i]
through [v], the Company shall file a registration statement covering the
Registrable Securities so requested to be registered as soon as practicable, but
in any event within ninety (90) days, after receipt of the request or requests
of the Initiating Holders; provided, however, that if (i) in the good faith
judgment of the Board of Directors of the Company, such registration would be
seriously detrimental to the Company and the Board of Directors of the Company
concludes, as a result, that it is essential to defer the filing of such
registration statement at such time, and (ii) the Company shall furnish to such
Holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company for such registration statement to be filed
in the near future and that it is, therefore, essential to defer the filing of
such registration statement, then
<PAGE> 6
the Company shall have the right to defer such filing (except as provided in
Clause [iii] above) for a period of not more than ninety (90) days after receipt
of the request of the Initiating Holders, and, provided further, that the
Company shall not defer its obligation in this matter more than once in any
twenty-four month period.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of this Section 3.2 and 11
hereof, include other securities of the Company, with respect to which
registration rights have been granted, and may include securities of the Company
being sold for the account of the Company.
3.3 Underwriting. The right of any Holder to registration pursuant to
Section 3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder with respect to such participation and
inclusion) to the extent provided herein. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities he holds.
3.4 Procedures. If the Company shall request inclusion in any
registration pursuant to Section 3 of securities being sold for its own account,
or if other persons shall request inclusion in any registration pursuant to
Section 3, the Initiating Holders shall, on behalf of all Holders, offer to
include such securities in the underwriting and may condition such offer on
their acceptance of the further applicable provisions of this Agreement. The
Company shall (together with all Holders and other persons proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders, which underwriters are reasonably acceptable
to the Company. Notwithstanding any other provision of this Section 3, if the
representative of the underwriters advises the Initiating Holders in writing
that marketing factors require a limitation on the number of shares to be
underwritten, the number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 11 hereof. If a person
who has requested inclusion in such registration as provided above does not
agree to the terms of any such underwriting, such person shall be excluded
therefrom by written notice from the Company, the underwriter or the Initiating
Holders. The securities so excluded shall also be withdrawn from registration.
Any Registrable Securities or other securities excluded or withdrawn from such
underwriting shall also be withdrawn from such registration. If shares are so
withdrawn from the registration and if the number of shares to be included in
such registration was previously reduced as a result of marketing factors
pursuant to this Section 3.4, then the Company shall offer to all holders who
have retained rights to include securities in the registration the right to
include additional securities in the registration in an aggregate amount equal
to the number of shares so withdrawn, with such shares to be allocated among
such Holders requesting additional inclusion in accordance with Section 1.
<PAGE> 7
3.5 Common Shareholders. If the Company registers any of its Common
Stock or Preferred Stock pursuant to this Section 3, the Company will promptly
give to each Common Shareholder written notice thereof and of the anticipated
effective date of such registration and use its best efforts to include in such
registration (and any related qualification under blue sky laws or other
compliance), and in any underwriting involved therein, all the shares of Company
common stock of such Common Shareholder specified in a written request or
requests, made by any Common Shareholder and received by the Company within
thirty (30) days after the written notice from the Company is mailed or
delivered by the Company. Such written request may specify all or any part of a
Common Shareholders' shares of Company common stock; provided, however, that [i]
the right of any Common Shareholder to registration pursuant to this Section 3.5
shall be subject to all of the terms and conditions of this Agreement as if such
Common Shareholder were a Holder of Registrable Securities, including without
limitation the provisions of Section 6, [ii] no Common Shareholder may assign
its rights under this Section 3.5, [iii] the Company shall not limit the number
of Registrable Securities to be included in a registration pursuant to this
Agreement in order to include shares held by the Common Shareholders, and [iv]
no registration of the shares of a Common Shareholder shall be effected if it
shall interfere in any manner with the rights afforded the Holders of
Registrable Securities under this Agreement.
4. Demand Registration By Common Shareholders.
4.1 Demand for Registration. If the Company shall receive from the
Common Shareholders, acting together, at any time or times following the
Company's initial registered public offering of its Common Stock with the
Commission a written request that the Company effect any registration with
respect to all or a part of the Registrable Common Securities, the Company will
as soon as practicable, use its best efforts to effect such registration
(including, without limitation, filing post-effective amendments, appropriate
qualifications under applicable blue sky or other state securities laws, and
appropriate compliance with the Securities Act and any other governmental
requirements or regulations) and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Common Securities as are
specified in such request.
The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 4.1:
[i] In any particular jurisdiction in which the Company would
be required to execute a general consent to service of process in
effecting such registration, qualification, or compliance, unless the
Company is already subject to service in such jurisdiction and except
as may be required by the Securities Act;
[ii] After the Company has initiated one such registration
<PAGE> 8
pursuant to this Section 4.1, whether or not each Common Shareholder
elected to participate in such registration (counting for these
purposes only registrations which have been declared or ordered
effective and pursuant to which securities have been sold);
[iii] During the period starting with the date sixty (60) days
prior to the Company's good faith estimate of the date of filing of,
and ending on a date one hundred eighty (180) days after the effective
date of, a Company-initiated registration or a registration initiated
by Initiating Holders; provided that the Company or the Initiating
Holders, as applicable, are actively employing in good faith all
reasonable efforts to cause such registration statement to become
effective;
[iv] If the Common Shareholders do not request that such
offering be firmly underwritten by underwriters selected by the
Company;
[v] If the Company and the Common Shareholders are unable to
obtain the commitment of the underwriters described in clause [iv]
above to firmly underwrite the offer; or
[vi] If the Common Shareholders shall not have obtained the
prior written consent of a majority of the Holders, which consent shall
not be unreasonably with held; for purposes of this Section 4.1 [vi],
the failure of a majority of the Holders to grant such consent shall
not be considered unreasonable if the Holders reasonably believe that
the registration of the Registrable Common Securities will materially
affect the market price of the Company's Common Stock.
4.2 Postponed Registration. Subject to the foregoing clauses [i]
through [vi], the Company shall file a registration statement covering the
Registrable Common Securities so requested to be registered as soon as
practicable, but in any event within ninety (90) days, after receipt of the
request or requests of the Common Shareholders; provided, however, that if (i)
in the good faith judgment of the Board of Directors of the Company, such
registration would be seriously detrimental to the Company and the Board of
Directors of the Company concludes, as a result, that it is essential to defer
the filing of such registration statement at such time, and (ii) the Company
shall furnish to such Common Shareholders a certificate signed by the President
of the Company stating that in the good faith judgment of the Board of Directors
of the Company, it would be seriously detrimental to the Company for such
registration statement to be filed in the near future and that it is, therefore,
essential to defer the filing of such registration statement, then the Company
shall have the right to defer such filing (except as provided in Clause [iii]
above) for a period of not more than ninety (90) days after receipt of the
request of the Common Shareholders, and, provided further, that the Company
shall not defer its obligation in this matter more than once in any twenty-four
month period.
<PAGE> 9
The registration statement filed pursuant to the request of the Common
Shareholders may, subject to the provisions of this Section 4.2 and 11 hereof,
include other securities of the Company, with respect to which registration
rights have been granted, and may include securities of the Company being sold
for the account of the Company.
4.3 Underwriting. The right of the Common Shareholders to registration
pursuant to Section 4 shall be conditioned upon such Common Shareholders'
participation in such underwriting and the inclusion of such Common
Shareholders' Registrable Common Securities in the underwriting to the extent
provided herein. A Common Shareholder may elect to include in such underwriting
all or a part of the Registrable Common Securities it holds, provided that no
more than twenty percent (20%) of all the Common Stock held by the Common
Shareholders in the aggregate shall be included.
4.4 Procedures. If the Company shall request inclusion in any
registration pursuant to Section 4 of securities being sold for its own account,
or if other persons shall request inclusion in any registration pursuant to
Section 4, the Common Shareholders shall offer to include such securities in the
underwriting and may condition such offer on their acceptance of the further
applicable provisions of this Agreement. The Company shall (together with all
Common Shareholders and other persons proposing to distribute their securities
through such underwriting) enter into an underwriting agreement in customary
form with the representative of the underwriter or underwriters selected for
such underwriting by the Common Shareholders, which underwriters are reasonably
acceptable to the Company. Notwithstanding any other provision of this Section
4, if the representative of the underwriters advises the Common Shareholders in
writing that marketing factors require a limitation on the number of shares to
be underwritten, the number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 11 hereof. If a person
who has requested inclusion in such registration as provided above does not
agree to the terms of any such underwriting, such person shall be excluded
therefrom by written notice from the Company, the underwriter or the Common
Shareholders. The securities so excluded shall also be withdrawn from
registration. Any Registrable Common Securities or other securities excluded or
withdrawn from such underwriting shall also be withdrawn from such registration.
If shares are so withdrawn from the registration and if the number of shares to
be included in such registration was previously reduced as a result of marketing
factors pursuant to this Section 4.4, then the Company shall offer to all
holders who have retained rights to include securities in the registration the
right to include additional securities in the registration in an aggregate
amount equal to the number of shares so withdrawn, with such shares to be
allocated among such Holders requesting additional inclusion in accordance with
Section 11.
5. Registration Expenses. All Registration Expenses incurred in connection
with any registration, qualification or compliance pursuant to Sections 2, 3.1
and 4.1
<PAGE> 10
hereof shall be borne by the Company. All Selling Expenses relating to
securities so registered shall also be borne by the Company.
6. Registration Procedures. In the case of each registration effected by
the Company pursuant to this Agreement, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
material progress and completion thereof. At its expense, the Company will use
its best efforts to:
6.1 Keep such registration effective for a period of one hundred
eighty (180) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto,
whichever first occurs; provided, however, that such 180-day period shall
be extended for a period of time equal to the period the Holder refrains
from selling any securities included in such registration at the request of
an underwriter of Common Stock (or other securities) of the Company;
6.2 Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement;
6.3 Furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as a
Holder from time to time may reasonably request;
6.4 Cause all such Registrable Securities registered pursuant hereunto
to be listed on each securities exchange, if any, on which similar
securities issued by the Company are then listed and comply with all
applicable blue sky laws to enable the Registrable Securities to be
publicly offered and sold in the states in which such Registrable
Securities will be offered;
6.5 Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such registration statement and a CUSIP
number for all such Registrable Securities, in each case not later than the
effective date of such registration; and
6.6 In connection with any underwritten offering pursuant to a
registration statement filed pursuant to section 2 hereof, the Company will
enter into an underwriting agreement in form reasonably necessary to effect
the offer and sale of the Common Stock provided such underwriting agreement
contains customary underwriting provisions and provided further that, if
the underwriter so requests, the underwriting agreement will contain
customary contribution provisions.
7. Indemnification.
<PAGE> 11
7.1 The Company will indemnify each Holder, each Common Shareholder
and each of their officers, directors and partners, legal counsel, and
accountants and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, with respect to which registration,
qualification, or compliance has been effected pursuant to this Agreement,
and each underwriter, if any, and each person who controls within the
meaning of Section 15 of the Securities Act any underwriter, against all
expenses, claims, losses, damages, and liabilities (or actions,
proceedings, or settlements in respect thereof), arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other document
(including any related registration statement, notification, or the like)
incident to any such registration, qualification, or compliance, or based
on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, or any violation by the Company of the Securities Act or
any rule or regulation thereunder applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification, or compliance, and will reimburse each such
Holder and Common Shareholder, each of their officers, directors, partners,
legal counsel, and accountants and each person controlling such Holder or
Common Shareholder, each such underwriter, and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred
in connection with investigating and defending or settling any such claim,
loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability, or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by such
Holder or Common Shareholder or underwriter and stated to be specifically
for use therein. It is agreed that the indemnity agreement contained in
this Section 7.1 shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent has not been unreasonably
withheld).
7.2 Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration,
qualification, or compliance is being effected, indemnify the Company, each
of its directors, officers, partners, legal counsel, and accountants and
each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, each
other such Holder, and each of their officers, directors, and partners, and
each person controlling such Holder, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering
<PAGE> 12
circular, or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and
such Holders, directors, officers, partners, legal counsel, and
accountants, persons, underwriters, or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability, or action, in each case
to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular, or other document in
reliance upon and in conformity with written information furnished to the
Company by such Holder and stated to be specifically for use therein
provided, however, that the obligations of such Holder hereunder shall not
apply to amounts paid in settlement of any such claims, losses, damages, or
liabilities (or actions in respect thereof) if such settlement is effected
without the consent of such Holder (which consent shall not be unreasonably
withheld); and provided that in no event shall any indemnity under this
Section 7.2 exceed the gross proceeds from the offering received by such
Holder.
7.3 Each Common Shareholder will, if Registrable Common Securities
held by such Common Shareholder are included in the securities as to which
such registration, qualification, or compliance is being effected,
indemnify the Company, each of its directors, officers, partners, legal
counsel, and accountants and each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who
controls the Company or such underwriter within the meaning of Section 15
of the Securities Act, each other such Common Shareholder, and each of
their officers, directors, and partners, and each person controlling such
Common Shareholder, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular, or other document,
or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and will reimburse the Company and such Common
Shareholders, directors, officers, partners, legal counsel, and
accountants, persons, underwriters, or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability, or action, in each case
to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular, or other document in
reliance upon and in conformity with written information furnished to the
Company by such Common Shareholder and stated to be specifically for use
therein provided, however, that the obligations of such Common Shareholder
hereunder shall not apply to amounts paid in settlement of any such claims,
losses, damages, or liabilities (or actions in respect thereof) if such
settlement is effected without the consent of
<PAGE> 13
such Common Shareholder (which consent shall not be unreasonably withheld);
and provided that in no event shall any indemnity under this Section 7.3
exceed the gross proceeds from the offering received by such Common
Shareholder.
7.4 Each party entitled to indemnification under this Section 7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of
such claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party who shall conduct the defense of such claim or any
litigation resulting therefrom shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified
Party may participate in such defense at such party's expense, and provided
further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 7, to the extent such failure is not prejudicial. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim
or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
7.5 If the indemnification provided for in this Section 7 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any loss, liability, claim, damage, or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable
by such Indemnified Party as a result of such loss, liability, claim,
damage, or expense in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party on the one hand and of the
Indemnified Party on the other in connection with the statements or
omissions of the Indemnifying Party and of the Indemnified Party. Such
relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative
intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission; provided that in no event shall
contribution by a Holder or Common Shareholder under this Section 7.5
exceed the gross proceeds from the offering received by the Holder or
Common Shareholder.
7.6 Notwithstanding the foregoing, to the extent that the
<PAGE> 14
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten
public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
8. Information by Holder. Each Holder of Registrable Securities and each
Common Shareholder shall furnish to the Company such information regarding such
Holder or Common Shareholder and the distribution proposed by such Holder or
Common Shareholder as the Company may reasonably request in writing and as shall
be reasonably required in connection with any registration, qualification, or
compliance referred to in this Agreement.
9. Transfer or Assignment of Registration Rights. The rights to cause the
Company to register securities granted to a Holder by the Company under Section
2 or the right to demand that the Company register securities granted under
Section 3 may be transferred or assigned by a Holder only to a transferee or
assignee of not less than 1,000 shares of Registrable Securities (as presently
constituted and subject to subsequent adjustments for stock splits, stock
dividends, reverse stock splits, and the like), provided that the Company is
given written notice at the time of or within a reasonable time after said
transfer or assignment, stating the name and address of the transferee or
assignee and identifying the securities with respect to which such registration
rights are being transferred or assigned, and, provided further, that the
transferee or assignee of such rights assumes in writing the obligations of such
Holder under this Agreement. The rights to cause the Company to register
securities granted to a Common Shareholder by the Company under Section 3 or the
right to demand that the Company register securities granted under Section 4 may
not be transferred or assigned by a Common Shareholder.
10. "Market Stand-Off" Agreement. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, a Holder or
Common Shareholder shall not sell or otherwise transfer or dispose of any Common
Stock (or other securities) of the Company held by such Holder or Common
Shareholder (other than those included in the registration) during the one
hundred eighty (180) day period following the effective date of a registration
statement of the Company filed under the Securities Act, provided that:
[i] such agreement shall only apply to the first such registration
statement of the Company that includes securities to be sold on its behalf
to the public in an underwritten offering; and
[ii] all Holders, Common Shareholders and other share holders of the
Company owning at least as much of the Company's capital stock as the
Holders, and officers and directors of the Company are bound by and have
entered into similar agreements.
<PAGE> 15
The obligations described in this Section 10 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Rule 145 transaction on Form S-4 or similar forms that may
be promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of said one hundred eighty (180) day period.
11. Allocation of Registration Opportunities. In any circumstance in which
all of the Registrable Securities and other shares of Common Stock of the
Company with registration rights (the "Other Shares") requested to be included
in a registration on behalf of the Holders or other selling stockholders cannot
be so included as a result of limitations of the aggregate number of shares of
Registrable Securities and Other Shares that may be so included, the number of
shares of Registrable Securities and Other Shares that may be so included shall
be allocated among the Holders and other selling stockholders requesting
inclusion of shares pro rata on the basis of the number of shares of Registrable
Securities and Other Shares that would be held by such Holders and other selling
stockholders; provided, however, that such allocation shall not operate to
reduce the aggregate number of Registrable Securities and Other Shares to be
included in such registration, if any Holder or other selling stockholder does
not request inclusion of the maximum number of shares of Registrable Securities
and Other Shares allocated to him pursuant to the above-described procedure, the
remaining portion of this allocation shall be reallocated among those requesting
Holders and other selling stockholders whose allocations did not satisfy their
requests pro rata on the basis of the number of shares of Registrable Securities
and Other Shares that would be held by such Holders and other selling
stockholders, assuming such conversion, and this procedure shall be repeated
until all of the shares of Registrable Securities and Other Shares which may be
included in the registration on behalf of the Holders and other selling
stockholders have been so allocated. The Company shall not limit the number of
Registrable Securities to be included in a registration pursuant to this
Agreement in order to include shares held by stockholders with no registration
rights.
12. Limitations on Registration of Other Securities; Representation. From
and after the date of this Agreement, the Company shall not, without the prior
written consent of a majority in interest of the Holders, enter into any
agreement with any holder or prospective holder of any securities of the Company
giving such holder or prospective holder any registration rights the terms of
which are as or more favorable than registration rights granted to the Holders
hereunder unless the Company shall also give such rights to the Holders
hereunder. The Company represents and warrants as of the date hereof that there
is no other agreement existing giving any other person or entity any
registration rights with respect to any securities of the Company.
13. Reporting. The Company agrees when required by law to:
<PAGE> 16
13.1 Make and keep public information available, as those terms are
understood and defined in Rule 144, at all times after ninety (90) days
after the effective date of the first registration filed by the Company for
an offering of its securities to the general public.
13.2 Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act.
14. Miscellaneous.
14.1 Governing Law. This Agreement shall be governed in all respects
by the laws of the Commonwealth of Kentucky, as applied to agreements among
Kentucky residents entered into and to be performed entirely within
Kentucky.
14.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
14.3 Entire Agreement; Amendment; Waiver. This Agreement constitutes
the full and entire understanding and agreement between the parties with
regard to the subjects hereof. Neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated, except by a written
instrument signed by the Company, the Common Shareholders and the holders
of at least fifty percent (50%) of the Registrable Securities and any such
amendment, waiver, discharge or termination shall be binding on all the
Holders, but in no event shall the obligation of any Holder hereunder be
materially increased, except upon the written consent of such Holder.
14.4 Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be mailed
by first class, registered, or certified mail, postage prepaid, or sent via
overnight reputable courier service, or delivered personally or via
facsimile with copy sent by mail as provided above:
If to Investor, to: Broadband Solutions, LLC
Attn: David A. Jones, Jr.
1850 National City Tower
101 South Fifth Street
Louisville, Kentucky 40202
With a copy to: Patrick W. Mattingly, Esq.
Wyatt, Tarrant & Combs
2800 Citizens Plaza
Louisville, KY 40202
<PAGE> 17
If to Company, to: CATV.net, Inc.
Attn: W. Kent Oyler, III
Suite 210, 1000 West Ormsby Avenue
Louisville, Kentucky 40210
With a copy to: Robert Vice
Reed, Weitkamp, Schell, Cox & Vice
2400 Citizens Plaza
Louisville, KY 40202
If to Common
Shareholders, to: W. Kent Oyler, III
Suite 210, 1000 West Ormsby Avenue
Louisville, Kentucky 40210
or to such other address of which the addressee shall have notified the
sender in writing. Notices mailed in accordance with this section shall be
deemed given three days after being mailed, notices sent by overnight
courier service shall be deemed given one day after placed in the hands of
a representative of such service and notice given by facsimile shall be
deemed given on the date of transmission subject to sender's receipt of a
confirmation copy.
14.5 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any Holder, upon any breach or default of the
Company under this Agreement shall impair any such right, power or remedy
of such Holder nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default thereto fore or
thereafter occurring. Any waiver, permit, consent or approval of any kind
or character on the part of any Holder of any breach or default under this
Agreement or any waiver on the part of any Holder of any provisions or
conditions of this Agreement must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies,
either under this Agreement or by law or otherwise afforded to any Holder,
shall be cumulative and not alternative.
14.6 Rights; Separability. Unless otherwise expressly provided herein,
a Holder's rights hereunder are several rights, not rights jointly held
with any of the other Holders. In case any provision of the Agreement shall
be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
14.7 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and
are not to be considered in construing or interpreting this Agreement.
<PAGE> 18
14.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
14.9 Prevailing Party. In the event any legal action or other
proceeding is brought by a party hereto to enforce the terms of this
Agreement, the prevailing party in such action or proceeding will be
entitled to reasonable attorneys', paralegals' and accountants' fees and
costs incurred before and at trial and at all appellate levels, in addition
to all awards, judgments and recoveries of damages obtained.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first written above.
CATV.NET, INC.
By: /s/ KENT OYLER
--------------------------------------
Title: CEO
-----------------------------------
Address: Suite 210
1000 West Ormsby Avenue
Louisville, Kentucky 40210
"INVESTOR"
BROADBAND SOLUTIONS, LLC
By: /s/ BROADBAND SOLUTIONS, LLC
--------------------------------------
Title:
-----------------------------------
Address: 1850 National City Tower
101 South Fifth Street
Louisville, Kentucky 40202
<PAGE> 19
"COMMON SHAREHOLDERS"
COLORADO LIMITED PARTNERSHIP
By: /s/ KENT OYLER
--------------------------------------
Title: G.P.
-----------------------------------
Address: Suite 210
1000 West Ormsby Avenue
Louisville, Kentucky 40210
OPM SERVICES, INC.
By: /s/ KENT OYLER
--------------------------------------
Title: PRESIDENT
-----------------------------------
Address: Suite 210
1000 West Ormsby Avenue
Louisville, Kentucky 40210
GIBBS FAMILY LIMITED PARTNERSHIP
By: /s/ DAVID GIBBS
--------------------------------------
Title: G.P.
-----------------------------------
Address: Suite 210
1000 West Ormsby Avenue
Louisville, Kentucky 40210
<PAGE> 1
EXHIBIT 10.20
SERVICES AGREEMENT
THIS IS A SERVICES AGREEMENT ("Agreement") dated as of the
20th day of February, 1998, by and between (i) CATV.NET, INC., a Kentucky
corporation ("CATV"); and (ii) OPM SERVICES, INC., a Kentucky corporation
("OPM").
R E C I T A L S:
1. CATV is a Kentucky corporation which is engaged in the business of
providing broadband Internet access and other services to cable TV subscribers
and other customers (the "Operations").
2. CATV wishes to enter into an agreement whereby OPM will provide to
CATV and on CATV's behalf, certain financial, accounting, professional staffing
and legal services (the "Services," as further described in Section 2 below).
3. OPM wishes to perform such Services on behalf of CATV, and the
parties hereto wish to reduce to writing their understanding with respect to the
matters contained herein.
NOW, THEREFORE, the parties hereto, in consideration of the
mutual covenants contained herein and for other good and valuable consideration,
the sufficiency of which is hereby acknowledged, agree as follows:
1. INDEPENDENT CONTRACTORS. It is understood and agreed that the
relationship between the parties hereto is that of independent contractors, and
nothing herein contained shall be deemed to create or authorize the creation of
the relationship of partnership or joint venture between OPM and CATV.
2. OPM'S SERVICES. OPM shall perform the following services for and on
behalf of CATV (collectively, the "Services"):
(1) Financial functions:
(i) billing and collections;
(ii) general accounting and financial reporting,
including cash flow and annual budgeting;
(iii) data processing, including central office
LAN design and management;
(iv) bookkeeping and general record-keeping;
(v) audit support services;
(vi) treasury and payroll, including banking and
cash management, i.e., the handling and
issuance of checks and other negotiable
instruments pertaining to CATV's accounts
payable and payroll;
<PAGE> 2
(vii) as it relates to the Operations,
governmental compliance functions necessary
to enable CATV to meet the reporting,
record-keeping, and budgetary requirements
of all applicable statutes, rules or
regulations of all governmental agencies.
(2) Legal services: Provide in-house legal and business
development support as requested by CATV. Billed legal services will not exceed
ten (10) hours per month without prior permission of the CATV Board.
In performing Services on behalf of CATV, OPM shall use the same degree of care
and diligence as is used in performance of comparable duties for its own
account, provided, that the OPM shall not be obligated to commence legal
proceedings on behalf CATV without express permission.
3. CATV'S OBLIGATIONS. The obligations of CATV shall consist of the
following:
(1) To provide assistance and cooperation in all billing of
services for the period in which this Agreement is effective and to pay over to
OPM, immediately upon receipt thereof, any payments or reimbursements for such
services.
(2) To establish policies affecting the Operations which are
not inconsistent with the responsibilities assigned to OPM under the terms of
this Agreement.
(3) To play an active role in promoting the good will and
public image of the Operations and OPM.
(4) To cooperate with OPM in executing all forms and returns
required pursuant to applicable taxing statutes, federal, state and local rules
and regulations and governmental reimbursement programs.
4. Revenues, Costs of Operations and Management Fee.
(1) All revenues from the Operations of, or any interest
earned on any deposits or accounts maintained under this Agreement for, CATV and
the Operations shall be deposited into and paid out of one or more bank accounts
established by CATV (at a financial institution selected by CATV) for the
payment of the following items on a monthly basis in the following order of
priority: i) the Costs of Operation; ii) the Management Fee (as defined in
Section 4(2) below. OPM shall not commingle any funds of CATV received or
controlled by it pursuant to this Agreement with any funds of OPM.
(2) The Management Fee payable to OPM shall be the fees
described on ANNEX A attached hereto. The retained portion of the fee shall
cover all financial functions listed under Section 2(1) above. The initial
retainer for financial services under section 2(1) shall be $1,000.00 per month
and such amount may not be changed without written authorization of the CATV
Board of Directors. Legal services 2(2) may be billed as such services are
incurred at the request of CATV provided that such legal services will not
exceed ten (10) hours per month
<PAGE> 3
without prior permission of the CATV Board. OPM is authorized to pay each
invoice for Management Fee to itself unless within ten (1) days of presentation
of such invoice CATV shall notify OPM of its objections.
5. TERM. Unless earlier terminated in accordance with Section 6 hereof
or further extended as provided herein, this Agreement shall commence effective
at 12:01 a.m. local time on February 1, 1998 (the "Commencement Date"). Either
party may terminate this agreement for any reason upon providing thirty (30)
days written notice.
6. DEFAULT, RIGHT TO CURE AND TERMINATION.
(1) The following shall be deemed to be an "Event of Default"
hereunder:
a) If any licenses or permits applicable to the
Operations are canceled or revoked because either
party has failed to perform its obligations hereunder
and such party is not, in good faith, diligently
pursuing the reinstatement of such licenses or
permits.
b) If either party becomes insolvent or makes an
assignment for the benefit of creditors or commits an
act of bankruptcy or files a voluntary petition under
the provisions of the United States Bankruptcy Code,
including without limitation, a petition for
reorganization or arrangement or consents to an
involuntary petition or is adjudicated a bankrupt.
c) If either party violates, or is in breach of, any
material term or condition of this Agreement.
(2) The party with respect to which an Event of Default is not
applicable (the "Non-Defaulting Party") may declare this Agreement terminated in
the event the other party (the "Defaulting Party") fails to cure the Event of
Default within sixty (60) days after written notice from the Non-Defaulting
Party, which notice shall specify in sufficient detail the specific
circumstances of the Event of Default so as to give the Defaulting Party
adequate notice and the opportunity to cure same; provided the Defaulting Party
shall not be deemed in default if the Defaulting Party takes reasonable steps to
cure the Event of Default within the sixty (60) day period and proceeds with due
diligence thereafter to cure the Event of Default.
7. COOPERATION AT TERMINATION. Upon the expiration or earlier
termination of this Agreement, the parties hereto shall cooperate fully with the
other in effecting an orderly transition to avoid any interruption in the
rendering of the above-described services and, in that connection, OPM shall
surrender to CATV all contracts, books, records and reports maintained by OPM
with respect to the Operations.
8. INDEMNIFICATION. Any Defaulting Party shall indemnify and hold the
Non-Defaulting Party and the Non-Defaulting Party's shareholders, directors,
officers, employees and agents harmless from any and all liabilities, losses,
damages, claims, and costs arising from an
<PAGE> 4
Event of Default, except for liabilities, losses, damages, claims, and costs
arising from the Non-Defaulting Party's gross negligence, bad faith or willful
misconduct.
9. PARTIES BOUND. The provisions of this Agreement shall be binding
upon the parties hereto and their respective successors and assigns. Except as
specifically provided herein, no assignment of rights or delegation of duties
shall relieve either party, as the case may be, of its obligations hereunder.
Except as specifically provided herein, neither party may assign its rights or
delegate its duties under this Agreement without the prior written consent of
the other party; provided that a party may assign its rights and delegate its
duties to any successor entity in the event of a merger or a sale of
substantially all of the party's assets if the successor entity assumes all of
the party's obligations hereunder.
10. ATTORNEYS' FEES. In the event of a dispute over this Agreement each
party shall bear its own attorneys' fees, respective court costs and other
expenses incurred in the enforcement of the obligations of this Agreement.
11. SEVERABILITY. In the event any provision hereof shall be modified
or held ineffective by any court in any respect, such adjudication shall not
invalidate or render ineffective the balance of the provisions of this
Agreement.
12. ENTIRE AGREEMENT; MODIFICATION; WAIVER. This Agreement constitutes
the entire agreement between the parties with respect to the subject matter
hereof and completely supersedes all prior oral agreements between the parties.
All other agreements with respect to the subject matter hereof between the
parties, whether written or oral, are merged herein. No supplement,
modification, or amendment of this Agreement shall be binding unless executed in
writing by the parties hereto. No waiver of any of the provisions of this
Agreement will be deemed, or will constitute, a waiver of any other provision,
whether or not similar, nor will any waiver constitute a continuing waiver. No
waiver will be binding unless executed in writing by the party making the
waiver.
13. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same document.
14. FURTHER ASSURANCES. The parties each hereby agree to execute and
deliver all of the agreements, documents, and instruments required to be
executed and delivered by them in this Agreement and to execute and deliver such
additional instruments and documents and to take such additional actions as may
reasonably be required from time to time in order to effectuate the transactions
contemplated by this Agreement.
15. TENSE; CAPTIONS. In construing this Agreement, whenever
appropriate, the singular tense shall also be deemed to mean the plural, and
vice-versa, and the captions contained in this Agreement shall be ignored.
16. GOVERNING LAW. This Agreement shall be construed, interpreted, and
enforced in
<PAGE> 5
accordance with the substantive laws of the Commonwealth of Kentucky.
17. PARTIES IN INTEREST. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than OPM and CATV and their respective successors
and assigns, nor is anything in this Agreement intended to relieve or discharge
the obligation or liability of any third persons to any party to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year set forth below.
CATV.NET, INC., a Kentucky corporation
By: /s/ Kent Oyler
-------------------------------------
Its:
-------------------------------------
("CATV")
OPM SERVICES, INC., a Kentucky corporation
By: /s/ Kent Oyler
-------------------------------------
Its:
-------------------------------------
("OPM")
<PAGE> 6
ANNEX A
FEES FOR SERVICES
Fees for OPM's management services rendered will be billed monthly. Hourly rates
will be rounded to the nearest quarter hour. The following fee schedule will
apply:
LEGAL SERVICES $90.00 PER HOUR
A transaction is defined as a cash disbursement (check or wire transfer), cash
receipt item, A/P invoice, A/R invoice or journal entry.
The initial retainer for base and variable financial services only under section
2(1) shall be $1,000.00 per month and such amount may not be changed without
written authorization of the CATV Board of Directors.
For costs related to the jointly shared administrative assistant in place as of
February 20, 1998, or other future employee(s) with the Boards of both OPM and
CATV determine to be in their mutual best interest of sharing, then each of OPM
and CATV.net shall bear their respective share of the cost of such employee(s).
<PAGE> 1
EXHIBIT 10.21
ASSETS PURCHASE AGREEMENT
between
HIGH SPEED ACCESS CORP.
and
ATLANTA ON-LINE INTERNET, INC.
joined in by
MARVIN ANGLIN
and
ELLEN ANGLIN
<PAGE> 2
ASSETS PURCHASE AGREEMENT
This is an Assets Purchase Agreement dated March 17, 1999 (this
"Agreement"), among High Speed Access Corp. ("Purchaser"), a Delaware
corporation, and Atlanta On-Line InterNet, Inc., a Georgia corporation
("Seller"), joined in by Marvin Anglin ("Anglin") and Ellen Anglin (together,
the "Shareholders"), the sole shareholders of Seller.
RECITALS
A. Seller is engaged in the business of providing internet access and
related services to residential and commercial customers in Atlanta, Georgia and
surrounding areas (the "Business").
B. Seller wishes to sell, and Purchaser wishes to purchase, upon the
terms and conditions set forth in this Agreement, substantially all of Seller's
assets used in the Business. Purchaser shall also assume specific liabilities of
the Seller as described herein.
C. This Agreement is the definitive acquisition agreement contemplated
by and among the parties.
NOW, THEREFORE, in consideration of the mutual benefits and covenants
contained herein, and subject to the terms and conditions set forth herein, the
parties agree as follows:
SECTION 1
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Anglin Employment Agreement" shall mean the Employment
Agreement dated as of the Closing Date, in substantially the form attached
hereto as Annex 1.1(a), to be entered into between Purchaser and Anglin at the
Closing.
(b) "Assets" shall mean all of Seller's assets (other than
Seller's Cash or Cash Equivalents and Pre-Execution Accounts Receivable)
including, without limitation, the Customers, Contracts, Equipment, Good Will,
Leases, Intellectual Property, Prepaid Assets, and Post-Execution Accounts
Receivable. "Assets" shall not include the corporate charter, taxpayer and other
identification numbers, corporate seals, minute book, stock transfer book, or
other documents relating to the organization, maintenance and existence of
Seller as a corporation.
(c) "Assignment and Assumption Agreement" shall mean the
Assignment and Assumption Agreement dated the Closing Date, in substantially the
form attached hereto
<PAGE> 3
as Annex 1.1(c), pursuant to which Seller shall assign, and Purchaser shall
assume, the Contracts.
(d) "Assignment of Lease" shall mean the Assignment of Lease,
in substantially the form attached hereto as Annex 1.1(d), pursuant to which
Seller shall assign the Lease to Purchaser.
(e) "Bill of Sale" shall mean the Bill of Sale, in
substantially the form attached hereto as Annex 1.1(e), pursuant to which Seller
shall transfer to Purchaser all of the Assets other than the Contracts and the
Trademarks.
(f) "Cash or Cash Equivalents" shall mean all of Seller's cash
or cash equivalents other than cash or cash equivalents received in satisfaction
of Post-Execution Accounts Receivable generated after the date of this
Agreement.
(g) "Closing" shall mean the consummation of the transactions
contemplated in this Agreement in accordance with the provisions of Section 7.
(h) "Closing Date" shall mean the date first set forth above
in this Agreement.
(i) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(j) "Contracts" shall mean all purchase orders, contracts
(including contracts with Customers), leases (other than the Lease) and other
commitments, whether written or oral, to which Seller is a party or otherwise
obligated, true and correct copies or written descriptions of which have been
delivered previously to Purchaser and all of which are listed on Annex 1.1(j)
hereto.
(k) "Customers" shall mean all persons or entities utilizing
the Seller's internet and related services including, without limitation,
customer email addresses and registered customer domain names, all of which are
listed on Annex 1.1(k) hereto.
(l) "Equipment" shall mean all of Seller's technical, computer
and ISP equipment, and any and all tangible personal property necessary for
operation of the Business, including, without limitation, the items described on
Annex 1.1(l)(1) hereto, but excluding the equipment, furniture and fixtures
listed on Annex 1.1(l)(2) hereto.
(m) "Financial Statements" shall mean (i) Seller's unaudited
balance sheet, and related unaudited statements of income and cash flows for its
fiscal years ended December 31, 1998 and December 31, 1997 (the "Financial
Statements"), and (ii) Seller's unaudited balance sheet (the "Current Balance
Sheet") and related statement of income for the period ended February 28, 1999
(the "Current Financial Statements"), copies of which have previously been
delivered to Purchaser.
<PAGE> 4
(n) "Good Will" shall mean Seller's good will (if any),
customer list, and telephone numbers, and the name "Atlanta On-Line" and any
variations thereof including "Atlanta On-Line InterNet, Inc.", and the going
concern value of the Business.
(o) "Intellectual Property" shall mean all Seller's internet
domain names, trade names, trademarks or service marks (the "Trademarks"),
together with the Good Will associated therewith; copyrights; pending or issued
registrations for any of the foregoing; patents and patent applications;
Software; unpatented inventions; trade secrets and other confidential or
proprietary information, processes, formulas and methods; and all other
intangible property rights of any kind, including, without limitation, the items
described on Annex 1.1(o) hereto.
(p) "Lease" shall mean Seller=s lease of its administrative
offices located at 2260 Northwest Parkway, Suite S, Marietta, Georgia, 30067
(the "Real Property"), a true and correct copy of which has been previously
delivered to Purchaser.
(q) "Liabilities" shall mean all accounts payable, notes
payable, liabilities, commitments, indebtedness or obligations of any kind
whatsoever, whether absolute, accrued, contingent, matured or unmatured, direct
or indirect, of Seller, or to which any of the Assets are subject.
(r) "Noncompetition Agreement" shall mean the Noncompetition
Agreement dated as of the Closing Date, in substantially the form attached
hereto as Annex 1.1(r), to be entered into among Purchaser, Seller and the
Shareholders at the Closing.
(s) "Other Agreements" shall mean the Assignment of Lease,
Assignment and Assumption Agreement, Bill of Sale, Employment Agreements,
Noncompetition Agreement and Warrant and all other agreements, certificates,
guaranties, instruments or other documents contemplated by, required by,
referred to in, or executed in connection with, this Agreement or the
consummation of the transactions contemplated hereby.
(t) "Permits" shall mean all permits, licenses, franchises,
approvals, certificates or authorizations of any federal, state or local
governmental or regulatory body required in order to permit Seller to carry on
its business, a list of which is set forth on Annex 1.1(t) hereto.
(u) "Person" shall mean any person, firm, trust, partnership,
corporation or other business entity.
(v) "Post-Execution Accounts Receivable" shall mean all of
Seller's accounts receivable generated after the date of this Agreement.
(w) "Pre-Execution Accounts Receivable" shall mean all of
Seller's accounts
- 3 -
<PAGE> 5
receivable existing as of the date of this Agreement.
(x) "Prepaid Assets" shall mean all of Seller's prepaid
assets, including, without limitation, any prepaid insurance or rent.
(y) "Software" shall mean all computer software developed or
owned by Seller, or used by Seller under a valid licensing agreement, and all
source and object codes and rights under any license or other agreements related
to such software, all of which is listed on Annex 1.1(y) hereto.
(z) "Tax" shall mean any federal, state, local or foreign
income or other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether or not disputed.
(aa) "Tax Return" shall mean any return, declaration, report,
claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
(bb) "Warrant" shall mean the Warrant dated as of the Closing
Date, in substantially the form attached hereto as Annex 1.1(bb).
1.2 ADDITIONAL TERMS. Other capitalized terms used in this Agreement
but not defined in Section 1.1 above shall have the meanings ascribed to them
wherever such terms first appear in this Agreement.
SECTION 2
PURCHASE AND SALE
2.1 PURCHASE OF THE ASSETS. Subject to the terms and conditions of this
Agreement, Seller hereby agrees to sell, transfer and deliver to Purchaser, and
Purchaser hereby agrees to purchase, the Assets.
2.2 PURCHASE PRICE. The purchase price (the "Purchase Price") for the
Assets shall be: (a) $240,000, in cash or immediately available funds to be
delivered by the Purchaser to the Seller at the Closing; and (b) the Warrant.
2.3 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among the Assets for tax purposes as set forth on Annex 2.3 hereto. Purchaser
and Seller shall report the transactions contemplated herein for all tax
purposes in accordance with such allocation and, in any proceeding related to
the determination of any tax, neither Purchaser nor Seller or Shareholders shall
contend or represent that such allocation is not a correct allocation.
2.4 SELLER'S LIABILITIES AND WARRANTY OBLIGATIONS. Except for the
obligations
- 4 -
<PAGE> 6
assumed by Purchaser pursuant to the Assignment and Assumption Agreement and the
Assignment of Lease, Purchaser is not assuming, and the parties do not intend
for Purchaser to assume, pursuant to this Agreement or otherwise, any
Liabilities. Seller and Shareholders agree and confirm that Seller and
Shareholders are, and will remain, responsible for and will pay any and all
Liabilities other than those specifically assumed by Purchaser hereunder. Seller
and Shareholders agree to pay Purchaser the full amount of any costs incurred by
Purchaser to settle any Liabilities related to Customer complaints regarding
services rendered by Seller prior to Closing which Seller fails to resolve
within five (5) days after receipt of notice from Purchaser. Purchaser may
offset against the balance of the Purchase Price remaining hereunder, any
amounts due under the Anglin Employment Agreement, or the value of, or shares
issuable pursuant to, the Warrant, any amounts owed to Purchaser pursuant to
this Section 2.4 and not paid promptly by Seller upon demand by Purchaser.
2.5 EMPLOYEES OF SELLER.
(a) At the Closing, Purchaser shall enter into the Anglin
Employment Agreement and make offers of at-will employment to Mark Stevens at an
annual salary of $30,000, and Jan Elrod at an annual salary of $25,000. At or
before the Closing, Purchaser shall enter into a six month employment agreement
with Doug Thompson on terms reasonably satisfactory to Purchaser. Purchaser will
also assume any accrued vacation earned by Mr. Stevens, Ms. Elrod and Doug
Thompson.
(b) Other than the employment arrangements set forth in
Section 2.5(a), Purchaser will not purchase, recognize, assume or otherwise
acquire any rights, obligations, assets or liabilities under, arising from or
resulting from any employment agreement or relationship in existence between
Seller and any employee, or any person employed to consult with or perform
services for Seller, or otherwise. Seller understands that Purchaser shall not
be obligated to hire any of Seller's employees, except to the extent provided in
Section 2.5(a), but that Purchaser, in its sole discretion, may hire some or all
of such employees on such terms as Purchaser and the employees so hired may
agree. Seller and the Shareholders agree to cooperate with Purchaser in
Purchaser's selection of Seller's employees to be hired by Purchaser.
(c) Seller agrees to either layoff or terminate all of its
employees as of the Closing Date, in compliance with any and all laws applicable
to such termination.
(d) Purchaser shall not be responsible to Seller or to any
current or former employee of Seller for any employee benefits (whether earned,
accrued or vested) due to Seller's employees with respect to their employment on
or prior to the Closing Date.
(e) Seller shall provide all notices to its employees and
their dependents upon the termination of an employee or dependent's group health
care coverage required by the Consolidated Omnibus Reconciliation Act of 1985
(COBRA) due to termination of an employee's employment with Seller, without
regard to whether Purchaser re-hires any or all of
- 5 -
<PAGE> 7
Seller's employees; Seller specifically undertakes to provide any continuation
coverage under COBRA elected by Seller employees and their dependents, whether
or not Purchaser re-hires any or all of such employees.
SECTION 3
REPRESENTATIONS AND WARRANTIES
OF SELLER AND THE SHAREHOLDERS
Seller and the Shareholders, jointly and severally, represent and
warrant to Purchaser that, except as set forth in a letter of even date herewith
and signed by Seller's authorized officer and the Shareholders (the "Seller
Disclosure Letter"):
3.1 ORGANIZATION. Seller is a corporation duly organized and validly
existing under the laws of the State of Georgia, and has full corporate power
and authority to own, lease and operate its Assets as such Assets are now owned,
leased and operated, and to conduct the Business as and where the Business is
now conducted. Seller is qualified to do business and is in good standing in all
jurisdictions in which the character of the properties owned or leased by it, or
the nature of the activities conducted by it, makes such qualification
necessary.
3.2 STOCK. Seller's outstanding capital stock is duly authorized,
validly issued and outstanding, fully paid and nonassessable, and held of record
by the Shareholders. There are no stock options, stock rights or stock warrants
outstanding pursuant to which any Person could acquire an interest in Seller.
3.3 AUTHORITY.
(a) Seller and Shareholders have full right, power, authority
and capacity to execute and deliver this Agreement and the Other Agreements, and
to perform their respective obligations under this Agreement and the Other
Agreements. This Agreement and the Other Agreements constitute valid and legally
binding obligations of Seller and Shareholders, enforceable in accordance with
their terms.
(b) The execution and delivery of this Agreement and the Other
Agreements, the consummation of the transactions contemplated hereby and
thereby, and the performance and fulfillment of their respective obligations and
undertakings hereunder and thereunder by Shareholders and Seller will not, (i)
violate any provision of, or result in the breach of or accelerate or permit the
acceleration of any performance required by the terms of, the Articles of
Incorporation or Bylaws of Seller; any contract, agreement, arrangement or
undertaking to which either Seller or Shareholders is a party or by which any of
them may be bound; any judgment, decree, writ, injunction, order or award of any
arbitration panel, court or governmental authority; or any applicable law,
ordinance, rule or regulation of any governmental body; (ii) result in the
creation of any claim, lien, charge or encumbrance upon any of the Assets; or
(iii) terminate or cancel, or result in the termination or cancellation of,
- 6 -
<PAGE> 8
any agreement or undertaking to which Seller is a party.
(c) The execution and delivery of, and the performance and
consummation of the transactions contemplated by, this Agreement and the Other
Agreements have been duly authorized by all requisite corporate action of
Seller. All other consents, approvals, authorizations, releases and orders
required of or for Seller and Shareholders for the authorization, execution, and
delivery of, and for the performance and consummation of the transactions
contemplated by, this Agreement and the Other Agreements have been obtained.
3.4 FINANCIAL STATEMENTS. Seller has previously delivered to Purchaser
true and complete copies of the Financial Statements. The Financial Statements
(a) present fairly, accurately and correctly the results of operation of Seller
for the periods covered thereby and the financial condition of Seller as at the
dates thereof; and (b) were prepared in conformity with generally accepted
accounting principles; provided, however, that the Current Financial Statements
are subject to normal year-end adjustments (which will not be material
individually or in the aggregate) and lack footnotes and other presentation
items. Since December 31, 1997, the Business and affairs of Seller have been
conducted only in the ordinary course and there has been no material change in
the condition (financial or otherwise), Assets, liabilities, earnings, Business,
operations, affairs or prospects of Seller, other than minor changes in the
ordinary course, none of which either singly or in the aggregate has been
materially adverse.
3.5 TITLE TO ASSETS. Seller shall deliver to Purchaser at the Closing,
good and marketable title to all of the Assets, free and clear of any claims,
liens, charges, mortgages, security interests or other encumbrances whatsoever
notwithstanding encumbrances disclosed on the Seller Disclosure Letter which
shall be terminated and released to Purchaser's satisfaction at or before the
Closing.
3.6 REAL PROPERTY. No instrument of record, easement, license, grant,
applicable zoning or building law, ordinance, administrative regulation, urban
redevelopment law or other impediment of any kind prohibits or interferes with,
limits or impairs, or would, if not permitted by any prior non-conforming use,
prohibit or interfere with, or limit or impair, the use of, operation,
maintenance of or access to, the Real Property leased by Seller as now used,
operated or maintained by Seller. No notice of any violation of any applicable
zoning or building law or ordinance or administrative regulation has been
received by Seller, and neither Seller nor the Shareholders know of the threat
of any such notice. No condemnation proceeding has been instituted or is, to
Seller's and Shareholders' knowledge threatened with respect to any of the Real
Property.
3.7 CONDITION OF ASSETS. The Assets of Seller, including, without
limitation, all of the Equipment and the Software (including source and object
codes and rights under any license or other agreements related to such
software), are in good condition and repair, ordinary wear and tear excepted and
in the state of maintenance, repair and operating condition required for the
proper operation and the use thereof in the ordinary course.
3.8 TAX MATTERS. Seller has properly and accurately prepared in all
material
- 7 -
<PAGE> 9
respects and filed all Tax Returns and reports required to be filed by Seller
under all applicable statutes, laws and regulations on or before the due dates
thereof. Seller has paid all Taxes, including all interest, penalties, and
assessments, which are due and payable, and all such Taxes due and payable by
Seller have been fully discharged. Seller has set up an amount as a reserve for
Taxes that is sufficient for the payment of all unpaid federal withholding,
state, local, and other Taxes, including interest, penalties and assessments
accrued, applicable or attributable to the period ending up through the Closing
Date, and to all prior years and periods. The federal income Tax Returns of
Seller have never been examined by the Internal Revenue Service, no deficiencies
have ever been proposed, no examinations are pending, and in Seller's reasonable
belief, no basis for any such deficiencies exists. Proper and accurate amounts
have been withheld by Seller from employees for all periods in full and complete
compliance with the tax withholding provisions of applicable federal, state and
local laws. Seller is not a party to any action for collection of Taxes, and
neither Seller nor Shareholders know, or has any reasonable grounds to know, of
any contemplated actions for collection of any Taxes whatsoever from Seller.
3.9 UNDISCLOSED LIABILITIES. The Assets are not subject to any,
liability, commitment, indebtedness or obligation of any kind whatsoever,
whether absolute, accrued, contingent, known or unknown, matured or unmatured
which is not reflected and adequately reserved against in the Current Financial
Statements or incurred since February 28, 1999, in the ordinary course of
business and not in breach of any provision of this Agreement. Seller and
Shareholders have disclosed to Purchaser all material information known to
Seller and Shareholders regarding Seller's product warranty, claims handling,
and product repair procedures and practices, and Seller's product warranty and
liability history, including, without limitation, the existence of recurring
defects.
3.10 CONTRACTS.
(a) Except for the Contracts and the Lease, Seller is not a
party to or bound by, and neither the Assets nor the Business are bound or
affected by, any written or oral contract, agreement or commitment of any kind
whatsoever.
(b) Seller has performed all obligations required to be
performed by it to date under all Contracts and the Lease, and neither Seller
nor Shareholders know, or has any reasonable grounds to know, that any other
party is in default (or would be in default on the giving of notice or the lapse
of time or both) under any Contract or Lease.
(c) True and complete copies of all Contracts and the Lease to
which Seller is a party have been delivered to Purchaser and there are no
amendments to or modifications of, or significant agreements of the parties
relating to, any such Contract or Lease, which have not been disclosed in
writing to Purchaser, and each such Contract and Lease is valid and binding on
the parties thereto in accordance with its respective terms. There are no
unwritten contracts or commitments to which Seller is a party or by which the
Seller is bound.
- 8 -
<PAGE> 10
3.11 LITIGATION AND PENDING PROCEEDINGS. There are no claims of any
kind or any actions, suits, proceedings, arbitrations or investigations pending,
or, to the knowledge of Seller and Shareholders, threatened in any court or
before any governmental agency or instrumentality or arbitration panel or
otherwise against, by or affecting Seller, the Assets, or the Business, the
prospects or condition (financial or otherwise) of the Business, or which would
prevent the performance of this Agreement or the Other Agreements or any of the
transactions contemplated hereby or thereby, or which declare the same unlawful
or cause the rescission thereof. Seller has complied with and is not in default
in any respect under (and has not been charged or, to the knowledge of Seller
and Shareholders, threatened with, and is not under an investigation with
respect to, any charge concerning any violation of any provision of) any
federal, state or local law, regulation, ordinance, rule or order (whether
executive, judicial, legislative or administrative), or any order, writ,
injunction or decree of any court, agency or instrumentality.
3.12 NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable
of Seller shown on the Current Balance Sheet or thereafter acquired by Seller
have been collected or are current and collectible in the ordinary course (in
the case of any such note in accordance with its terms, and in the case of any
such account within sixty (60) days after billing) at the aggregate recorded
amounts thereof on Seller's books, less the bad debt reserves provided therefor
on the Current Balance Sheet as such reserves may have been adjusted on Seller's
books in the ordinary course of business to date. No note or account receivable
of Seller is subject to counterclaim or setoff.
3.13 PERMITS, ETC. All the Permits are currently in full force and
effect, and no misrepresentations or willful or negligent omissions were made of
any material fact in obtaining any such Permits. Such Permits are sufficient to
permit Seller to conduct the Business in the manner in which it is now being
conducted. No proceedings have been instituted or are, to the knowledge of
Seller and the Shareholders, threatened, seeking the suspension, termination,
modification, revocation, alteration or amendment of any such Permits, or to
declare any of them invalid in any respect, and neither Seller nor any of the
Shareholders know of any reason for any such revocation or limitation.
3.14 INTELLECTUAL PROPERTY. Annex 1.1(o) sets forth a true and complete
identification and summary description of all Intellectual Property either owned
by Seller or utilized by Seller in the Business, including a description of the
nature of Seller's interest therein. All of the Intellectual Property is owned
by Seller and is free and clear of all liens, security interests, charges,
encumbrances, equities and other adverse claims; Seller is not a party to any
licenses, consents, settlements or other agreements involving the Intellectual
Property; there are, and have been, no claims, actions or judicial or
adversarial proceedings involving the Intellectual Property, and no such actions
or proceedings are threatened or to the knowledge of Seller and Shareholders,
anticipated; Seller has the right and authority to use the Intellectual Property
in connection with the conduct of the Business and to the knowledge of the
Seller and the Shareholders, such use has not and will not infringe upon,
constitute a misappropriation of, or otherwise violate the rights of any other
person in, any Intellectual
- 9 -
<PAGE> 11
Property; and neither Seller nor Shareholders know of any past or present
occurrences of any probable infringement or misappropriation of, or violation of
Seller's rights in, any of the Intellectual Property.
3.15 PROPRIETARY INFORMATION. Prior to or in conjunction with the
Closing, Seller and Shareholders shall have fully disclosed to Purchaser all
customer lists, trade secrets, processes, inventions, formulas, methods,
know-how and other proprietary information used or developed by Seller in
connection with the Business. Neither Seller nor Shareholders have disclosed or
permitted the disclosure of any such proprietary information to any other Person
except for disclosures to employees in the ordinary course of business, and the
use by Seller of such proprietary information does not violate any other
Person's proprietary rights.
3.16 CUSTOMERS, ETC.
(a) Seller has delivered to Purchaser a true and accurate list
of the names and addresses of all of Seller's suppliers, distributors, sales
representatives, and business partners with whom or which Seller has done
business since Seller's inception. Neither Seller nor the Shareholders know that
any supplier, distributor, sales representative, or business partner has
terminated or expects to terminate a portion of its normal business with Seller.
(b) A list of the names and addresses of all of Seller's
Customers is attached hereto as Annex 1.1(k). Such list comprises, in the
aggregate, at least 308 residential and 206 commercial Customers of Seller, and
neither Seller nor Shareholders know that any Customer has terminated or expects
to terminate all or a portion of its normal business with Seller.
3.17 INSURANCE. Seller's tangible Assets, whether owned or leased, of
Seller are insured against the hazards and in the amounts stated in the policies
of insurance listed on the Seller Disclosure Letter. Seller carries insurance
against personal injury and property damage to third persons and in respect of
its services and operations and such other insurance as is stated in the
policies of insurance listed on the Seller Disclosure Letter. All such insurance
is in full force and effect. The Seller Disclosure Letter sets forth a true and
complete list of all claims in excess of $5,000 made by Seller during the past
three (3) years under any such policy.
3.18 EMPLOYEE BENEFIT PLANS. As used in this Agreement, the term
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended; and the terms "employee welfare benefit plan" and "employee pension
benefit plan" shall have the meanings ascribed to them in Sections 3(1) and 3(2)
of ERISA, respectively. With respect to each employee welfare benefit plan and
employee pension benefit plan, if any, which is maintained by Seller or in which
at least one of Seller's employees participates: (a) each such plan is listed on
Seller Disclosure Letter; and (b) a true and correct copy of each such plan, and
any trust instrument, investment manager contract or insurance policy used in
conjunction with such plan or to provide benefits thereunder, and any summary
plan description, have been made available to Purchaser. Purchaser shall have no
liability under any of Seller's employee
- 10 -
<PAGE> 12
welfare benefit plans or employee pension benefit plans.
3.19 LABOR RELATIONS. Seller is not a party to, or negotiating, and has
no obligations under any agreement, collective bargaining or otherwise, with any
party relating to the compensation or working conditions of any of Seller's
employees. Seller is not obligated under any agreement to recognize or negotiate
with any labor organization or union on behalf of its employees. Neither Seller
nor Shareholders know of any union organizational or representational activities
underway among any of its employees. Seller has not been charged or threatened
with a charge of any unfair labor practice.
3.20 BULK SALES. The purchase and sale of the Assets and the other
transactions contemplated in this Agreement will be free and clear of any and
all claims by creditors of Seller under any bulk sales or similar laws or
statutes. Seller and the Shareholders shall, in accordance with Section 6 of
this Agreement, jointly and severally, indemnify and hold Purchaser harmless
from and against, and shall pay to Purchaser the full amount of, any loss,
claim, damage, liability or expense (including reasonable attorneys' fees)
resulting to Purchaser from or in connection with any applicable bulk sales or
similar laws or statutes to the extent that the same may apply to the
transactions contemplated herein and provided such claim, loss, damage,
liability or expense does not arise from any Liabilities assumed by Purchaser
hereunder.
3.21 YEAR 2000. All information technology, including but not limited
to, file servers, operating systems, workstations and other computer software
and hardware used by Seller in the Business as presently conducted ("Information
Technology") that contains or relies upon a calendar function, provides specific
dates or calculates spans of dates, either (a) is able to record, store, process
and provide true and accurate dates and calculations for dates and spans of
dates into, and between the twentieth and twenty-first centuries, and through
the years 1999 and 2000 including leap years, without degradation in
performance, and without requiring intervention or modification ("Y2K
Compliant"), or (b) is capable of being made Y2K Compliant through standard
upgrades provided by the manufacturer. Seller will cooperate with Buyer in
performing Year 2000 testing and completing Year 2000 upgrades to make all
Seller's Information Technology Y2K Compliant.
3.22 ACCESS TO INFORMATION. Seller has received and reviewed a draft
copy of Purchaser's registration statement on Form S-1. Seller has had a
reasonable opportunity to ask questions of and receive information and answers
from Purchaser concerning the business, financial condition and prospects of
Purchaser and all such questions have been answered and all such information has
been provided to the full satisfaction of Seller; all documents, records and
books which Seller has requested pertaining to Purchaser have been made
available for inspection by Seller. Seller is not relying on Purchaser with
respect to the tax and other economic considerations of Seller relating to the
issuance of the Warrant. In regard to such considerations, Seller has relied on
the advice of, or has consulted with, only his own advisors.
- 11 -
<PAGE> 13
3.23 PREPAID ACCOUNTS RECEIVABLE. The aggregate dollar amount of
prepayments received by Seller as of the Closing Date for customer services not
provided prior to the Closing Date, net of Prepaid Assets, shall not exceed
$7,000.00.
3.24 COMPLETENESS OF STATEMENTS. No statement, Annex, certificate,
information, representation or warranty of Seller or the Shareholders contained
in this Agreement or the Other Agreements, or furnished by or on behalf of
Seller or the Shareholders to Purchaser or any of its agents pursuant hereto or
thereto, or in connection with the transactions contemplated hereby or thereby,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary in order to make a statement
contained herein or therein not materially misleading.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
4.1 ORGANIZATION. Purchaser is a corporation duly organized and validly
existing under the laws of the State of Delaware, and has full corporate power
and authority to own and lease its properties as such properties are now owned
and leased, and to conduct its business as and where its business is now
conducted.
4.2 AUTHORITY.
(a) Purchaser has full right, power, and authority to execute
and deliver, and to perform its obligations under, this Agreement and the Other
Agreements to which it is a party. This Agreement and the Other Agreements to
which Purchaser is a party constitute valid and legally binding obligations of
Purchaser enforceable in accordance with their terms.
(b) The execution and delivery of this Agreement and the Other
Agreements, the consummation of the transactions contemplated hereby and
thereby, and the performance and fulfillment of their respective obligations and
undertakings hereunder and thereunder by Purchaser will not, (i) violate any
provision of, or result in the breach of or accelerate or permit the
acceleration of any performance required by the terms of, Purchaser's Articles
of Incorporation or Bylaws; any contract, agreement, arrangement or undertaking
to which Purchaser is a party or by which Purchaser may be bound; any judgment,
decree, writ, injunction, order or award of any arbitration panel, court or
governmental authority; or any applicable law, ordinance, rule or regulation of
any governmental body; (ii) result in the creation of any claim, lien, charge or
encumbrance upon any of the properties or assets (whether real or personal,
tangible or intangible) of Purchaser; or (iii) terminate or cancel, or result in
the termination or cancellation of, any agreement or undertaking to which
Purchaser is a party.
(c) The execution and delivery of, and the performance and
consummation
- 12 -
<PAGE> 14
of the transactions contemplated by, this Agreement and the Other Agreements
have been duly authorized by all requisite corporate action of Purchaser. All
other consents, approvals, authorizations, releases and orders required of or
for Purchaser for the authorization, execution, and delivery of, and for the
performance and consummation of the transactions contemplated by, this Agreement
and the Other Agreements have been obtained.
4.3 COMPLETENESS OF STATEMENTS. No statement, Annex, certificate,
information, representation or warranty of Purchaser contained in this Agreement
or the Other Agreements, or furnished by or on behalf of Purchaser to Seller or
any of its agents pursuant hereto or thereto, or in connection with the
transactions contemplated hereby or thereby, contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
necessary in order to make a statement contained herein or therein not
misleading.
SECTION 5
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser to consummate the transactions
contemplated herein shall be subject to the satisfaction of the following
conditions at or before the Closing:
5.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of Seller and Shareholders contained herein shall be true on the
Closing Date in all material respects, with the same effect as though made at
such time, except to the extent of changes permitted by the terms of this
Agreement. Seller and Shareholders shall have performed all obligations and
complied with all covenants required by this Agreement to be performed or
complied with by them prior to the Closing. In addition, the President of Seller
and Shareholders shall have delivered to Purchaser a certificate (the "Seller's
Closing Certificate") dated the Closing Date and signed by each of them to the
effect that, except as disclosed in the certificate, they do not know of any
failure or breach of any representation, warranty or covenant made by Seller or
Shareholders.
5.2 NO MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change since the date of this Agreement in the financial
condition, business, assets or results of operations of Seller.
5.3 STATUTORY REQUIREMENTS. All statutory requirements for the valid
consummation by Purchaser of the transactions contemplated in this Agreement
shall have been fulfilled, and all authorizations, consents and approvals of all
federal, state, local and foreign governmental agencies and authorities required
to be obtained in order to permit the consummation by Seller of the transactions
contemplated by this Agreement, and to permit the business presently carried on
by Purchaser to continue unimpaired in all material respects immediately
following the Closing, shall have been obtained.
5.4 DELIVERIES. Seller and Shareholders shall have made all of their
deliveries contemplated in this Agreement, including, without limitation, all of
the deliveries set forth in
- 13 -
<PAGE> 15
Section 7.2.
5.5 ANNEXES AND SELLER DISCLOSURE LETTER. Seller shall have delivered
to Purchaser certain Annexes hereto and the Seller Disclosure Letter five (5)
days prior to the Closing. Purchaser's obligation to perform hereunder shall be
subject to Purchaser's review and approval of such Annexes and the Seller
Disclosure Letter.
5.6 INVESTMENT INTENT LETTER. Seller shall have delivered to Purchaser
an investment intent letter dated the date hereof in connection with the
issuance of the Warrant in a form reasonably satisfactory to Purchaser.
5.7 CLOSING. The Closing shall occur on or before March 31, 1999.
SECTION 6
CONDITIONS TO OBLIGATIONS OF SELLER AND SHAREHOLDERS
The obligations of Seller and Shareholders to consummate the
transactions contemplated herein shall be subject to the satisfaction of the
following conditions at or before the Closing:
6.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of Purchaser contained herein shall be true on the Closing Date in
all material respects, with the same effect as though made at such time, except
to the extent of changes permitted by the terms of this Agreement. Purchaser
shall have performed all obligations and complied with all covenants required by
this Agreement to be performed or complied with by it prior to the Closing. In
addition, Purchaser shall have delivered to Seller a certificate (the "Purchaser
Closing Certificate") dated the Closing Date and signed by its President to the
effect that, except as disclosed in the certificate, they do not know of any
failure or breach of any representation, warranty or covenant made by Purchaser.
6.2 STATUTORY REQUIREMENTS. All statutory requirements for the valid
consummation by Seller of the transactions contemplated in this Agreement shall
have been fulfilled, and all authorizations, consents and approvals of all
federal, state, local and foreign governmental agencies and authorities required
to be obtained in order to permit the consummation by the Seller of the
transactions contemplated in this Agreement, shall have been obtained.
6.3 DELIVERIES. At or before the Closing, Purchaser shall make all of
its deliveries contemplated in this Agreement, including, without limitation,
all of the deliveries set forth in Section 7.3.
6.4 CLOSING. The Closing shall occur on or before March 31, 1999.
- 14 -
<PAGE> 16
SECTION 7
THE CLOSING
7.1 DATE AND PLACE. The Closing shall be held on the Closing Date at
10:00 a.m. in the offices of Brown, Todd & Heyburn, PLLC, 400 West Market
Street, 32nd Floor, Louisville, Kentucky 40202-3363, or at such other place or
time on the Closing Date as the parties may mutually agree.
7.2 CLOSING DELIVERIES OF SELLER AND SHAREHOLDERS. Seller and
Shareholders shall make the following deliveries to Purchaser, and execute the
following documents, as appropriate, at or before the Closing:
(a) Bill of Sale;
(b) Assignment and Assumption Agreement;
(c) Assignment of Lease and related landlord consent;
(d) Noncompetition Agreement;
(e) Anglin Employment Agreement;
(f) Articles of Amendment changing Seller's corporate
name;
(g) All necessary consents to the assignment of the
Contracts; and
(h) Seller Closing Certificate.
7.3 CLOSING DELIVERIES OF PURCHASER. Purchaser shall make the following
deliveries to Seller and Shareholders, and execute the following documents, as
appropriate, at or before the Closing:
(a) Purchase Price payable at Closing;
(b) Warrant;
(c) Assignment and Assumption Agreement;
(d) Assignment of Lease;
(e) Anglin Employment Agreement;
(f) Noncompetition Agreement; and
(g) Purchaser Closing Certificate.
SECTION 8
SURVIVAL OF REPRESENTATIONS AND WARRANTIES--INDEMNIFICATION
8.1 SURVIVAL. Each of the parties' representations, warranties,
covenants and agreements set forth in this Agreement shall survive the Closing.
8.2 INDEMNITY BY SELLER AND SHAREHOLDERS. Seller and the Shareholders
shall, jointly and severally, indemnify and hold harmless Purchaser from and
against, and shall pay to the Purchaser the full amount of, any loss, claim,
damage, liability or expense (including
- 15 -
<PAGE> 17
reasonable attorneys' fees) resulting to the Purchaser ("Indemnifiable Loss"),
from any inaccuracy in any representation or warranty, or any breach of any
covenant or agreement, by Seller or Shareholders contained in this Agreement or
in any of the Other Agreements.
8.3 INDEMNITY BY PURCHASER. The Purchaser shall indemnify and hold
harmless Seller from and against, and shall pay to Seller the full amount of,
any loss, claim, damage, liability or expense (including reasonable attorneys'
fees) resulting to Seller, from any inaccuracy in any representation or
warranty, or any breach of any covenant or agreement, by the Purchaser contained
in this Agreement or in any of the Other Agreements.
8.4 REMEDIES. Upon the occurrence of any event for which a party is
entitled to indemnification under this Agreement, the aggrieved party shall have
all the rights and remedies at law and in equity available to it. Without
limiting the foregoing, Seller, Shareholders and Purchaser hereby agree to pay
promptly upon receipt of notice from the other party any amounts which such
parties may owe to the other party from time to time by reason of the
indemnification provisions of this Agreement or otherwise. In any event, to the
extent Purchaser incurs an Indemnifiable Loss, Purchaser may set off against
such Indemnifiable Loss any amounts owed to Seller or Shareholders pursuant to
the Anglin Employment Agreement or any amounts due under this Agreement.
8.5 CLAIMS FOR INDEMNIFICATION. Whenever any claim shall arise for
indemnification under this Section 8, the party seeking indemnification (the
"Indemnitee") shall promptly notify the other party or parties (the
"Indemnitor(s)") of the claim and, when known, the facts constituting the basis
for such claim. Such notice shall specify, if known, the amount or a good faith
estimate of the amount of the liability arising therefrom.
SECTION 9
MISCELLANEOUS
9.1 NOTICES. Any notices or other communications required or permitted
hereunder shall be deemed to have been duly given (a) if delivered in person and
a receipt is given; or (b) if sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed as follows:
(a) If to Seller or Shareholders:
Atlanta On-Line InterNet, Inc.
2260 Northwest Parkway, Suite S
Marietta, Georgia 30067
Attn: Marvin Anglin
- 16 -
<PAGE> 18
(b) If to Purchaser:
High Speed Access Corporation
1000 W. Ormsby Street
Louisville, KY 40210
Attn: John Hundley
with a copy to:
Brown, Todd & Heyburn PLLC
400 West Market Street
Louisville, Kentucky 40202-3363
Attn: David L. Beckman, Jr.
or if sent to such substituted address as any of the parties has given to the
others in writing in accordance with this Section 9.1.
9.2 WAIVERS. No waiver or failure to insist upon strict compliance with
any obligation, covenant, agreement or condition of this Agreement shall operate
as a waiver of, or an estoppel with respect to, any subsequent or other failure.
9.3 EXPENSES. Each party shall assume its respective expenses incurred
in connection with the transactions contemplated by this Agreement.
9.4 HEADINGS; INTERPRETATION. The headings in this Agreement have been
included solely for ease of reference and shall not be considered in the
interpretation or construction of this Agreement. All references herein to the
masculine, neuter or singular shall be construed to include the masculine,
feminine, neuter or plural, as applicable.
9.5 ANNEXES AND SELLER DISCLOSURE LETTER. The Annexes to this Agreement
and the Seller Disclosure Letter are incorporated herein by reference and
expressly made a part hereof.
9.6 ENTIRE AGREEMENT. All prior negotiations and agreements by and
among the parties hereto with respect to the subject matter hereof are
superseded by this Agreement, and there are no representations, warranties,
understandings or agreements with respect to the subject matter hereof other
than those expressly set forth herein or in an Annex or Seller Disclosure Letter
delivered in connection herewith.
9.7 REPRESENTATIONS AND WARRANTIES, ETC. The representations and
warranties of each party contained herein shall not be deemed to be waived or
otherwise affected by any investigation made by any other party hereto.
9.8 GOVERNING LAW. This Agreement shall be governed by, and construed
and interpreted in accordance with, the laws of the Commonwealth of Kentucky,
without regard to its conflicts of law principles.
- 17 -
<PAGE> 19
9.9 BROKERS. The parties covenant and agree with one another that they
have not dealt with any broker or finder in connection with any of the
transactions contemplated in this Agreement and, insofar as they know, no broker
or other Person is entitled to a commission or finders' fee in connection with
these transactions. Each party shall indemnify and hold the other parties
harmless from and against any claim by any agent or broker claiming by or
through it for any fee or other compensation due or allegedly due that broker or
agent.
9.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
9.11 BENEFIT AND BINDING EFFECT. This Agreement shall be binding upon,
and shall inure to the benefit of, Seller and Shareholders and their heirs,
personal representatives, successors and assigns, and Purchaser and each of its
successors and assigns; provided, however, that no party to this Agreement shall
assign his or its rights or obligations hereunder without the express written
consent of the other parties, which consent shall not be unreasonably withheld.
9.12 SEVERABILITY. If any provision of this Agreement or its application
will be invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of all other applications of that provision, and of all other
provisions and applications hereof, will not in any way be affected or impaired.
If any court shall determine that any provision of this Agreement is in any way
unenforceable, such provision shall be reduced to whatever extent is necessary
to make such provision enforceable.
9.13 RISK OF LOSS. The risk of any loss or damage to any of the Assets
by fire or any other casualty or cause shall be borne by Seller at all times
through the Closing, and by Purchaser thereafter.
9.14 FURTHER ASSURANCES. From time to time at another party's request
and without further consideration, a party shall execute and deliver such
further instruments of conveyance, assignment and transfer, and take such other
actions as the requesting party may reasonably request, in order to more
effectively convey and transfer any of the Assets. In addition, any monies
collected by a party which are due and payable to another party will be promptly
remitted to such party upon receipt thereof.
9.15 ARBITRATION. All controversies, disputes or claims arising
- 18 -
<PAGE> 20
among the parties in connection with, or with respect to, any provision of this
Agreement or any of the Other Agreements, which has not been resolved within
fifteen (15) calendar days after either Purchaser or Seller and Shareholders
shall notify the other in writing of such controversy, dispute or claim, may be
submitted to arbitration in accordance with the rules of the American
Arbitration Association or any successor thereof. Unless otherwise mutually
agreed, arbitration shall take place at an appointed time and office location in
Louisville, Kentucky. In the event of arbitration, each of the Purchaser and
Seller and Shareholders shall select one arbitrator (who shall not be counsel
for any such party); and the two so designated shall select a third arbitrator.
If either party shall fail to designate an arbitrator within seven (7) calendar
days after arbitration is requested, or if the two arbitrators shall fail to
select a third arbitrator within fourteen (14) calendar days after arbitration
is requested, then such arbitrator shall be selected by the American Arbitration
Association or any successor thereto upon application of either party. Judgment
upon any award of the majority of arbitrators shall be binding and shall be
entered in a court of competent jurisdiction. The award of the arbitrators may
grant any relief which might be granted by a court of general jurisdiction,
including, without limitation, award of damages and/or injunctive relief, and
may, in the discretion of the arbitrators, assess, in addition, the cost of the
arbitration, including the reasonable fees of the arbitrators and reasonable
attorneys' fees, against either or both parties, in such proportions as the
arbitrators shall determine. Nothing herein contained shall bar the right of any
of the parties to seek and obtain temporary injunctive relief from a court of
competent jurisdiction in accordance with applicable law against threatened
conduct that will cause loss or damage, pending completion of the arbitration.
9.16 SALES AND TRANSFER TAXES AND FEES. All sales and transfer taxes,
and all recording, filing and other fees (including any penalties or interest),
incurred in connection with this Agreement and the transactions contemplated
hereby shall be borne by Seller.
9.17 NAME CHANGE. Seller shall file an amendment to Seller's Articles of
Incorporation immediately following the Closing which changes Seller's name to a
name which is distinguishable from Seller's current name, and which is otherwise
reasonably satisfactory to Purchaser; provided however, Seller shall be entitled
to continue to use the name "Atlanta On-Line InterNet, Inc." for a period of up
to 90 days following the Closing Date for the limited purpose of collecting the
Accounts Receivable, payment of Seller's remaining debts and liabilities and
winding down of Seller's corporate existence.
9.18 PRORATIONS. All operating expenses, other than Prepaid Assets,
pertaining to the conduct and operation of the Business shall be prorated as of
the Closing Date, so that, as between Seller and Purchaser, Seller shall be
responsible for all expenses, costs and liabilities (including, without
limitation, salaries, ad valorem property taxes, lease payments, etc.) allocable
to the period prior to the Closing Date, and Purchaser shall be responsible for
all expenses, costs and liabilities allocable to Purchaser's ownership of the
Assets and operation of the Business on the Closing Date and thereafter. Seller
and Purchaser agree to cooperate and use their best efforts to make such
adjustments no later than thirty (30) days after Closing. Bills received after
Closing which relate to expenses incurred, services performed, or other amounts
allocable to the period prior to the Closing Date shall be paid by Seller.
- 19 -
<PAGE> 21
9.19 PUBLICITY. Except as required by applicable law, or by this
Agreement, without the prior written consent of the other party, no party shall
disclose or publish or permit the disclosure or publication of any information
concerning the material terms of this Agreement and the transactions
contemplated hereby.
9.20 TERMINATION. This Agreement may be terminated:
(i) by mutual agreement of the parties;
(ii) by Purchaser, by giving written notice of termination to
Seller within five days of the receipt of certain Annexes and the Seller
Disclosure Letter required to be delivered by the Seller and the Shareholders
after the execution of this Agreement, if the items set forth on the Annexes and
the disclosures made in the Seller Disclosure Letter are (a) inconsistent in any
material respect with Purchaser's due diligence investigations of Seller, or (b)
in the reasonable judgment of the Board of Directors of Purchaser, determined to
be either (x) of such significance as to material and adversely affect the
financial condition or results of operations of Seller, or (y) to deviate
materially and adversely from Seller's Financial Statements;
(iii) by either party, upon prior written notice to the other,
if the other party materially breaches any representation or warranty or
covenant contained in this Agreement; and
(iv) by either party, if the Closing shall not have occurred
on or before March 31, 1999.
9.21 PRE-CLOSING OPERATIONS OF SELLER. Between the date of this
Agreement and the Closing, Seller shall, and the Shareholders shall cause the
Seller to, operate the Business only in the usual, regular and ordinary course
and to preserve the Business intact and to keep available to the Purchaser the
services of Seller's present employees to the extent contemplated herein. Seller
shall not take, and the Shareholders shall cause the Seller not to take, any
action inconsistent with the foregoing without the express written consent of
the Purchaser.
9.22 REASONABLE BEST EFFORTS. Between the date of this Agreement and the
Closing, Seller, Shareholders and Purchaser each shall use their reasonable best
efforts to satisfy the conditions to Closing set forth in Sections 5 and 6
hereof.
- 20 -
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date set forth in the preamble hereto.
HIGH SPEED ACCESS CORP.
By /s/ Ron Pitcock
----------------------------------------
Title: President
------------------------------------
ATLANTA ON-LINE INTERNET, INC.
By /s/ Marvin Anglin
----------------------------------------
Marvin Anglin, President
/s/ Marvin Anglin
-------------------------------------------
Marvin Anglin
/s/ Ellen Anglin
-------------------------------------------
Ellen Anglin
- 21 -
<PAGE> 1
EXHIBIT 10.22
WARRANT TO PURCHASE COMMON STOCK
OF
HIGH SPEED ACCESS CORP.
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED OR QUALIFIED UNDER APPLICABLE STATE LAW AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH
REGISTRATION AND QUALIFICATION, WITHOUT AN OPINION OF LEGAL COUNSEL REASONABLY
ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT
REQUIRED.
This certifies that, for value received, Atlanta On-Line InterNet, Inc. or
its registered assigns ("Holder") is entitled, subject to the terms and
conditions set forth below, to purchase from High Speed Access Corp. (the
"Company"), in whole or in part 13,000 fully paid and nonassessable shares (the
"Warrant Shares") of Common Stock of the Company (the "Common Stock") at a
purchase price of $10.00 per share (the "Exercise Price") payable by delivery of
shares of Common Stock in accordance with Section 2. The term "Warrant" as used
herein shall mean this Warrant, and any warrants delivered in substitution or
exchange therefor as provided herein.
1. Term of Warrant.
Subject to the terms and conditions set forth herein, this
Warrant shall be exercisable, in whole or in part, during the term commencing on
the earlier of (a) the closing of a firmly underwritten public offering of the
Company's Common Stock pursuant to a registration statement filed under the
Securities Act of 1933, as amended (the "Act"), or (b) September 1, 1999, and
ending one year from the date hereof, and shall be void thereafter (the
"Exercise Period").
2. Exercise of Warrant.
(a) Cash Exercise. This Warrant may be exercised by the Holder
by (i) the surrender of this Warrant to the Company, with the Notice of Exercise
annexed hereto duly completed and executed on behalf of the Holder, at the
office of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company) during the Exercise Period and (ii) the
delivery of payment to the Company, for the account of the Company, by cash,
wire transfer of immediately available funds to a bank account specified by the
Company, or by certified or bank cashier's check, of the Exercise Price for the
number of Warrant Shares specified in the Exercise Form in lawful money of the
United States of America. A stock certificate or certificates
1
<PAGE> 2
for the Warrant Shares specified in the Exercise Form shall be delivered to the
Holder as promptly as practicable, and in any event within ten (10) days,
thereafter. If this Warrant shall have been exercised only in part, the Company
shall, at the time of delivery of the stock certificate or certificates, deliver
to the Holder a new Warrant evidencing the rights to purchase the remaining
Warrant Shares, which new Warrant shall in all other respects be identical with
this Warrant. No adjustments shall be made on Warrant Shares issuable on the
exercise of this Warrant for any cash dividends paid or payable to holders of
record of Common Stock prior to the date as of which the Holder shall be deemed
to be the record holder of such Warrant Shares.
(b) Net Issue Exercise. This Warrant may be exercised by the
Holder by the surrender of this Warrant to the Company, with a duly executed
Exercise Form marked to reflect Net Issue Exercise and specifying the number of
shares of Common Stock to be purchased, during normal business hours on any
Business Day during the Exercise Period. The Company agrees that such shares of
Common Stock shall be deemed to be issued to the Holder as the record holder of
such shares of Common Stock as of the close of business on the date on which
this Warrant shall have been surrendered as aforesaid. Upon such exercise, the
Holder shall be entitled to receive shares equal to the value of this Warrant
(or the portion thereof being canceled) 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 Common Stock computed as of the date of
surrender of this Warrant to the Company using the following formula:
X = Y(A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to
Holder under this Section 2(b); Y = the number of shares of Common Stock
otherwise purchasable under this Warrant (as adjusted to the date of such
calculation); A = the fair market value of one share of the Common Stock at the
date of such calculation; B = the Exercise Price (as adjusted to the date of
such calculation).
(c) Fair Market Value. For purposes of Section 2(b), the fair
market value of one share of the Company's Common Stock shall mean, as of any
date: (i) the fair market value of the shares of Common Stock, as determined
from the last closing price per share of the Company's Common Stock on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading, or (ii) the fair market value of the shares of Common
Stock, as determined from the last reported sales price per share of the
Company's Common Stock on the Nasdaq National Market or the Nasdaq Small-Cap
Market (collectively, "Nasdaq") if the Company's Common Stock is not listed or
traded on any such exchange, or (iii) the fair market value of the shares of
Common Stock, as determined from the average of the bid and asked price per
share as reported in the "pink sheets" published by the National Quotation
Bureau, Inc. (the "pink sheets") if the Company's Common Stock is not listed or
traded on any exchange or Nasdaq, or (iv) if such quotations are not available,
the fair market value per share of the
2
<PAGE> 3
Company's Common Stock on the date such notice was received by the Company as
reasonably determined in good faith by the Board of Directors of the Company.
(d) This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares of
Common Stock issuable upon such exercise shall be treated for all purposes as
the holder of record of such shares as of the close of business on such date. As
promptly as practicable on or after such date and in any event within ten (10)
days thereafter, the Company at its expense shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates for
the number of shares issuable upon such exercise. In the event that this Warrant
is exercised in part, the Company at its expense will execute and deliver a new
Warrant of like tenor exercisable for the number of shares for which this
Warrant may then be exercised.
3. Lock-Up Agreement.
The Holder hereby agrees that for a period of six (6) months
after the effective date of the closing of a 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, sell, contract to sell, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, any of the Warrant Shares, or the Warrant.
4. No Fractional Shares or Scrip.
No fractional shares or scrip representing fractional shares
shall be issued upon the exercise of this Warrant. In lieu of any fractional
share to which the Holder would otherwise be entitled, the Company shall make a
cash payment equal to the Exercise Price multiplied by such fraction.
5. Replacement of Warrant.
On receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant and, in the case
of loss, theft or destruction, on delivery of an indemnity agreement reasonably
satisfactory in form and substance to the Company or, in the case of mutilation,
on surrender and cancellation of this Warrant, the Company at its expense shall
execute and deliver, in lieu of this Warrant, a new warrant of like tenor and
amount.
6. Rights of Stockholders.
3
<PAGE> 4
Subject to the provisions of Sections 10 and 11 of this
Warrant, the Holder shall not be entitled to vote or receive dividends or be
deemed the holder of Common Stock or any other securities of the Company that
may at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the Holder, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value, or change of stock to no par value, consolidation, merger,
conveyance, or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Warrant shall have been
exercised as provided herein.
7. Transfer of Warrant.
(a) Warrant Register. The Company will maintain a register
(the "Warrant Register") containing the names and addresses of the Holder or
Holders. Any Holder of this Warrant or any portion thereof may change his
address as shown on the Warrant Register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be delivered or given by mail to such
Holder as shown on the Warrant Register and at the address shown on the Warrant
Register. Until this Warrant is transferred on the Warrant Register of the
Company, the Company may treat the Holder as shown on the Warrant Register as
the absolute owner of this Warrant for all purposes, notwithstanding any notice
to the contrary.
(b) Warrant Agent. The Company may, by written notice to the
Holder, appoint an agent for the purpose of maintaining the Warrant Register
referred to in Section 7(a) above, issuing the Warrant Shares or other
securities then issuable upon the exercise of this Warrant, exchanging this
Warrant, replacing this Warrant, or any or all of the foregoing. Thereafter, any
such registration, issuance, exchange, or replacement, as the case may be, shall
be made at the office of such agent.
(c) Transferability and Nonnegotiability of Warrant. This
Warrant may not be transferred or assigned in whole or in part without the
consent of the Company and without compliance with all applicable federal and
state securities laws by the transferor and the transferee (including the
delivery of investment representation letters and legal opinions reasonably
satisfactory to the Company, if such are requested by the Company).
Notwithstanding the foregoing, no investment representation letter or opinion of
counsel shall be required for any transfer of this Warrant (or any portion
thereof) or any shares of Common Stock issued upon exercise hereof or conversion
thereof, by gift, will or intestate succession by the Holder to his or her
spouse or lineal descendants or ancestors or any trust for any of the foregoing;
provided that in each of the foregoing cases the transferee agrees in writing to
be subject to the terms of this Section 7(c). The Company hereby agrees to
consent to the transfer of this Warrant to Marvin and Ellen Anglin, the sole
Shareholders of Holder, upon the dissolution of Holder. Subject to the
4
<PAGE> 5
provisions of this Warrant with respect to compliance with the Act and the
consent of the Company, title to this Warrant may be transferred by endorsement
(by the Holder executing the Assignment Form annexed hereto) and delivery in the
same manner as a negotiable instrument transferable by endorsement and delivery.
(d) Exchange of Warrant Upon a Transfer. On surrender of
this Warrant for exchange, properly endorsed on the Assignment Form and subject
to the provisions of this Warrant with respect to compliance with the Act and
with the limitations on assignments and transfers and contained in this Section
7, the Company at its expense shall issue to or on the order of the Holder a new
warrant or warrants of like tenor, in the name of the Holder or as the Holder
(on payment by the Holder of any applicable transfer taxes) may direct, for the
number of shares issuable upon exercise hereof.
(e) Legend.
(i) All shares of Common Stock issued upon exercise
hereof or conversion thereof shall be stamped or imprinted with a legend in
substantially the following form (in addition to any legend required by state
securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR QUALIFIED
UNDER APPLICABLE STATE LAW AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH
REGISTRATION AND QUALIFICATION, WITHOUT AN OPINION OF LEGAL
COUNSEL REASONABLY ACCEPTABLE TO THE CORPORATION THAT SUCH
REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
(ii) The Company agrees, upon the request of the
holder of this Warrant and Securities issuable upon exercise of the Warrant, to
promptly remove the legend set forth in Section 7(e)(i) above from the Warrant
or any stock certificates representing shares issuable upon its exercise upon
full compliance with all applicable registration requirements of the Act or the
terms of Rule 144(k) of the Act.
8. Reservation of Stock.
The Company covenants that during the term this Warrant is
exercisable, the Company will reserve from its authorized and unissued Common
Stock or other shares issuable upon exercise of the Warrant a sufficient number
of shares to provide for the issuance of Common Stock upon the exercise of this
Warrant and, from time to time, will take all steps necessary to amend its
Restated Certificate of Incorporation (the "Restated Certificate") to provide
sufficient reserves of shares of Common Stock issuable upon exercise of the
Warrant. The Company
5
<PAGE> 6
further covenants that all shares that may be issued upon the exercise of rights
represented by this Warrant, upon exercise of the rights represented by this
Warrant and payment of the Exercise Price, all as set forth herein, will be free
from all taxes, liens and charges in respect of the issue thereof (other than
taxes in respect of any transfer occurring contemporaneously or otherwise
specified herein).
9. Amendments.
This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
10. Notices.
(a) Whenever the Exercise Price or number of shares
purchasable hereunder shall be adjusted pursuant to Section 11 hereof, the
Company shall issue a certificate signed by its Chief Financial Officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
Exercise Price and number of shares purchasable hereunder after giving effect to
such adjustment, and shall cause a copy of such certificate to be mailed (by
first-class mail, postage prepaid) to the Holder of this Warrant.
(b) In case:
(i) the Company shall take a record of the
holders of its Common Stock (or other stock
or securities at the time receivable upon
the exercise of this Warrant) for the
purpose of entitling them to receive any
dividend or other distribution, or any right
to subscribe for or purchase any shares of
stock of any class or any other securities,
or to receive any other right;
(ii) of any capital reorganization of the
Company, any reclassification of the capital
stock of the Company, any consolidation or
merger of the Company with or into another
corporation, or any conveyance of all or
substantially all of the assets of the
Company to another corporation;
(iii) of any voluntary dissolution, liquidation or
winding-up of the Company;
6
<PAGE> 7
(iv) of any redemption or conversion of all
outstanding Common Stock; or
(v) of the filing of the Company's first
registration statement with the U.S.
Securities and Exchange Commission (the
"SEC");
then, and in each such case, the Company will mail or cause to be mailed to the
Holder or Holders a notice specifying, as the case may be, (A) the date on which
a record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right,
(B) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation, winding-up, redemption or
conversion is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such stock or securities at the time
receivable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up, or
(C) the anticipated date on which the Company expects its first registration
statement with the SEC to become effective. Such notice shall be mailed at least
fifteen (15) days prior to the date therein specified.
(c) All such notices, advices and communications shall be
deemed to have been received (i) in the case of personal delivery, on the date
of such delivery and (ii) in the case of mailing, on the third business day
following the date of such mailing if sent to a U.S. address and on the tenth
(10th) business day following the date of such mailing if sent to an address
outside the U.S.
11. Adjustments.
The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment from time to time 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 11.
7
<PAGE> 8
(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 11.
(d) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 11, 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 11
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.
8
<PAGE> 9
12. Miscellaneous.
(a) This Warrant shall be governed by the laws of the
Commonwealth of Kentucky, without regard to its conflict of laws principles.
(b) In the event of a dispute with regard to the
interpretation of this Warrant, the prevailing party may collect the cost of
attorney's fees, litigation expenses or such other expenses as may be incurred
in the enforcement of the prevailing party's rights hereunder.
(c) This Warrant shall be exercisable as provided for herein,
except that in the event that the expiration date of this Warrant shall fall on
a Saturday, Sunday and or United States federally recognized Holiday, this
expiration date for this Warrant shall be extended to 5:00 p.m. Eastern standard
time on the business day following such Saturday, Sunday or recognized Holiday.
9
<PAGE> 10
IN WITNESS WHEREOF, High Speed Access Corp. has caused this Warrant to be
executed by its officers thereunto duly authorized.
Dated: March 24, 1999
----- --
HIGH SPEED ACCESS CORP.
By /s/ Ron Pitcock
--------------------------------------
Title President
-----------------------------------
ATLANTA ON-LINE INTERNET, INC.
By /s/ Marvin Anglin
--------------------------------------
Title President
-----------------------------------
10
<PAGE> 11
NOTICE OF EXERCISE
To: HIGH SPEED ACCESS CORP.
(1) The undersigned hereby elects to purchase __________ shares of
Common Stock of High Speed Access Corp., pursuant to the terms
of the attached Warrant, and tenders herewith this Warrant for
Net Issue Exercise pursuant to Section 2 of this Warrant.
(2) In exercising this Warrant, the undesigned hereby confirms and
acknowledges that the shares of Common Stock are being
acquired solely for the account of the undersigned and not as
a nominee for any other party, or for investment, and that the
undersigned will not offer, sell or otherwise dispose of any
such shares of Common Stock except under circumstances that
will not result in a violation of the Securities Act of 1933,
as amended, or any applicable state securities laws.
(3) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in
such other name as is specified below:
--------------------------------------
(Name)
--------------------------------------
(Name)
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or in such
other name as is specified below:
--------------------------------------
(Name)
- -------------------- --------------------------------------
(Date) (Signature)
11
<PAGE> 12
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the number
of shares of Stock set forth below:
No. of
Name of Assignee Address Shares
and does hereby irrevocably constitute and appoint Attorney ____________________
to make such transfer on the books of HIGH SPEED ACCESS CORP., maintained for
the purpose, with full power of substitution in the premises.
The undersigned also represents that, by assignment hereof, the
Assignee acknowledges that this Warrant and the shares of stock to be issued
upon exercise hereof or conversion thereof are being acquired for investment and
that the Assignee will not offer, sell or otherwise dispose of this Warrant or
any shares of stock to be issued upon exercise hereof or conversion thereof
except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended, or any applicable state securities laws.
Further, the Assignee has acknowledged that upon exercise of this Warrant, the
Assignee shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of stock so purchased are being
acquired for investment and not with a view toward distribution or resale.
Dated: , 19 .
---------- --
----------------------------------------
Signature of Holder
12
<PAGE> 1
EXHIBIT 10.23
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE WARRANT UNDER SUCH ACT AND APPLICABLE LAWS OR SOME
OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE
LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
No.CS-1 Warrant to Purchase 1,000,000 Shares of Common Stock
(subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
OF
DARWIN NETWORKS, INC.
This certifies that, for value received, HIGH SPEED ACCESS CORP., a
Delaware corporation , or registered assigns ("Holder"), is entitled, subject to
the terms set forth below, to purchase from DARWIN NETWORKS, INC. (the
"Company"), a Delaware corporation, up to 1,000,000 shares of the Common Stock
of the Company ("Common Stock"), as constituted on the date hereof, upon
surrender of this Warrant, at the principal office of the Company, with the
Notice of Exercise attached hereto duly executed, and simultaneous payment
therefor in lawful money of the United States or otherwise as hereinafter
provided, at the Exercise Price as set forth in Section 2 below. The number,
character and Exercise Price of such shares of Common Stock are subject to
adjustment as provided below. The term "Warrant" as used herein shall include
this Warrant, and any warrants delivered in substitution or exchange therefor as
provided herein. This Warrant is issued in consideration of and in connection
with that certain $500,000 Revolving Credit Note made by the Company in favor of
High Speed Access Corp. dated as of the date hereof (the "Note").
1. Term of Warrant. Subject to the terms and conditions set forth herein,
this Warrant shall be exercisable as set forth in Section 2 hereof, in whole or
in part, during the term commencing on the Warrant Issue Date, as hereinafter
defined, and ending at 5:00 p.m., Eastern standard time, on the earlier of (a)
March 15, 2004 , or (b) the closing of the sale and issuance of shares of Common
Stock of the Company, at a per share price of at least $7.50 and aggregate gross
proceeds of not less than $25 million to the Company in a firmly underwritten
initial public offering, pursuant to an effective registration statement under
the Securities Act of 1933, as amended ("Qualified Public Offering"), and shall
be void thereafter.
2. Warrant Issue Date; Exercise Price. 1,000,000 shares of Common Stock
may be subscribed for under this Warrant on and after the date hereof (the
"Warrant Issue Date") at an exercise price of $5.00 per share (the "Exercise
Price"). The Exercise Price may be adjusted from time to time pursuant to
Section 11 hereof.
<PAGE> 2
3. Exercise of Warrant.
a. The purchase rights represented by this Warrant are exercisable by
the Holder in whole or in part, but not for less than 10,000 shares at a time
(or such lesser number of shares which may then constitute the maximum number
purchasable; such number being subject to adjustment as provided in Section 11
below), at any time, or from time to time, during the term hereof as described
in Section 1 above, by the surrender of this Warrant and the Notice of Exercise
in the form annexed hereto as Annex A duly completed and executed on behalf of
the Holder, at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company), upon payment (i) in cash or
by check acceptable to the Company, (ii) by cancellation by the Holder of
indebtedness or other obligations of the Company to the Holder, or (iii) by a
combination of (i) and (ii), of the purchase price of the shares to be
purchased.
b. This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of shares issuable upon such exercise. In the event that this Warrant is
exercised in part, the Company at its expense will execute and deliver a new
Warrant of like tenor exercisable for the number of shares for which this
Warrant may then be exercised.
c. Notwithstanding any provisions herein to the contrary, in the event
the Warrant is exercised in connection with a Qualified Public Offering, in lieu
of exercising this Warrant for cash, the Holder may elect to receive shares
equal to the value (as determined below) of this Warrant (or the portion thereof
being exercised) by surrender of this Warrant at the principal office of the
Company together with the properly endorsed Notice of Exercise and notice of
such election in which event the Company shall issue to the Holder a number of
shares of Common Stock computed using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued
to the Holder
Y = the number of shares of Common Stock purchasable under
the Warrant or, if only a portion of the Warrant is
being exercised, the portion of the Warrant being
exercised (at the date of such calculation)
<PAGE> 3
A = the fair market value of one share of Common Stock (at
the date of such calculation)
B = Exercise Price (as adjusted to the date of such
calculation)
For purposes of the above calculation, the fair market value of one share of
Common Stock shall be the per share offering price to the public in the
Qualified Public Offering.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
5. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor and amount.
6. Rights of Stockholders. Subject to Sections 9 and 11 of this Warrant,
the Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, or change of stock to no par value, consolidation, merger, conveyance, or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Warrant shall have been exercised as
provided herein.
7. Transfer of Warrant.
a. Warrant Register. The Company will maintain a register (the "Warrant
Register") containing the names and addresses of the Holder or Holders. Any
Holder of this Warrant or any portion thereof may change his or her address as
shown on the Warrant Register by written notice to the Company requesting such
change. Any notice or written communication required or permitted to be given to
the Holder may be delivered or given by mail to such Holder as shown on the
Warrant Register and at the address shown on the Warrant Register. Until this
Warrant is transferred on the Warrant Register of the Company, the Company may
treat the Holder as shown on the Warrant Register as the absolute owner of this
Warrant for all purposes, notwithstanding any notice to the contrary.
b. Transferability and Nonnegotiability of Warrant. This Warrant may
not be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment
<PAGE> 4
representation letters and legal opinions reasonably satisfactory to the
Company, if such are requested by the Company). Subject to the provisions of
this Warrant with respect to compliance with the Securities Act of 1933, as
amended (the "Act"), title to this Warrant may be transferred by endorsement (by
the Holder executing the Assignment Form annexed hereto as Annex B) and delivery
in the same manner as a negotiable instrument transferable by endorsement and
delivery.
c. Exchange of Warrant Upon a Transfer. On surrender of this Warrant for
exchange, properly endorsed on the Assignment Form and subject to the provisions
of this Warrant with respect to compliance with the Act and with the limitations
on assignments and transfers contained in this Section 7, the Company at its
expense shall issue to or on the order of the Holder a new warrant or warrants
of like tenor, in the name of the Holder or as the Holder (on payment by the
Holder of any applicable transfer taxes) may direct, for the number of shares
issuable upon exercise hereof.
d. Compliance with Securities Laws.
i. The Holder of this Warrant, by acceptance hereof, acknowledges that
this Warrant and the shares of Common Stock to be issued upon exercise hereof
are being acquired solely for the Holder's own account and not as a nominee
for any other party, and for investment, and that the Holder will not offer,
sell or otherwise dispose of this Warrant or any shares of Common Stock to be
issued upon exercise hereof except under circumstances that will not result
in a violation of the Act or any state securities laws. Upon exercise of this
Warrant, the Holder shall, if requested by the Company, confirm in writing,
in a form satisfactory to the Company, that the shares of Common Stock so
purchased are being acquired solely for the Holder's own account and not as a
nominee for any other party, for investment, and not with a view toward
distribution or resale and that the Holder is an "accredited investor" as
defined in Section 501 of the regulations adopted under the Act or that the
shares of Common Stock so purchased may be issued without registration under
the Act and under applicable state securities laws.
ii. All shares of Common Stock issued upon exercise hereof shall be
stamped or imprinted with a legend in substantially the following form (in
addition to any legend required by state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND APPLICABLE LAWS.
8. Reservation of Stock. The Company covenants that, during the term this
Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant and, from time to time, will
take all steps necessary to amend its Certificate of Incorporation to provide
sufficient reserves of shares of Common Stock issuable upon exercise of
<PAGE> 5
the Warrant. The Company further covenants that all shares that may be issued
upon the exercise of rights represented by this Warrant and payment of the
Exercise Price, all as set forth herein, will be fully paid, nonassessable, free
of preemptive rights (other than preemptive rights which have been waived) and
free from all taxes, liens and charges in respect of the issue thereof (other
than taxes in respect of any transfer occurring contemporaneously or otherwise
specified herein). The Company agrees that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the exercise of this Warrant.
9. Notices.
a. In case:
i. the Company shall take a record of the holders of its Preferred
Stock or Common Stock (or other securities at the time receivable upon the
exercise of this Warrant) for the purpose of entitling them to receive any
dividend or other distribution, or any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right, or
ii. of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of
all or substantially all of the assets of the Company to another corporation,
or
iii. of any voluntary dissolution, liquidation or winding-up for the
Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Holder or Holders a notice specifying, as the case may be, (A) the date on which
a record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right, or
(B) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up is to take place, and
the time, if any is to be fixed, as of which the holders of record of Common
Stock or Preferred Stock (or such stock or securities at the time receivable
upon the exercise of this Warrant) shall be entitled to exchange their shares of
Common Stock or Preferred Stock (or such other stock or securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 15 days prior to the date
therein specified.
b. All such notices, advices and communications shall be deemed to
have been received (i) in the case of personal delivery, on the date of such
delivery and (ii) in the case of mailing, on the third business day following
the date of such mailing.
10. Amendments.
<PAGE> 6
a. This Warrant and any term hereof, may be changed, waived,
discharged or terminated only by an instrument signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.
b. No waivers of, or exceptions to, any term, condition or provisions
of this Warrant, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
11. Adjustments. The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment from time to time as follows:
a. Merger, Sale of Assets, etc. If at any time while this Warrant, or
any portion thereof, is outstanding and unexpired there shall be (i) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash, or otherwise, or (iii) a sale
or transfer of the Company's properties and assets as, or substantially as, an
entirety to any other person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provisions shall be made so that the
holder of this Warrant shall thereafter be entitled to receive upon exercise of
this Warrant, during the period specified herein and upon payment of the
Exercise Price then in effect, the number of shares of stock or other securities
or property of the successor corporation resulting from such reorganization,
merger, consolidation, sale or transfer that a holder of the shares deliverable
upon exercise of this Warrant would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if this Warrant had been
exercised immediately before such reorganization, merger, consolidation, sale or
transfer, all subject to further adjustment as provided in this Section 11. The
foregoing provisions of this Section 11.a shall similarly apply to successive
reorganizations, consolidations, mergers, sales and transfers and to the stock
or securities of any other corporation that are at the time receivable upon the
exercise of this Warrant. If the per share consideration payable to the holder
hereof for shares in connection with any such transaction is in a form other
than cash or marketable securities, then the value of such consideration shall
be determined in good faith by the Company's Board of Directors. In all events,
appropriate adjustment (as determined in good faith by the Company's Board of
Directors) shall be made in the application of the provisions of this Warrant
with respect to the rights and interests of the Holder after the transaction, to
the end that the provisions of this Warrant shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon exercise of this Warrant.
b. Reclassification, etc. If the Company, at any time while this
Warrant, or any portion hereof, 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
<PAGE> 7
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 11.
c. Split, Subdivision or Combination of Shares. If the Company at any
time while this Warrant, or any portion hereof, 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, the Exercise Price for such securities shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination.
d. 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 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 to it as aforesaid during such period, giving effect
to all adjustments called for during such period by the provisions of this
Section 11.
e. Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 11, 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 adjustment
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.
f. 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 11 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder of this Warrant against impairment.
12. Registration Rights. Upon exercise of this Warrant, the Holder shall
have and be entitled to exercise the rights of registration granted to
Registrable Securities under a registration rights agreement substantially in
the form attached hereto as Annex C.
<PAGE> 8
13. 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,
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 principal executive
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, Darwin Networks, Inc. has caused this Warrant to
be executed by its officers thereunto duly authorized as of March 15, 1999.
DARWIN NETWORKS, INC.
By: /s/ DAVID GIBBS
-----------------------------------
David Gibbs, President
<PAGE> 9
ANNEX A
NOTICE OF EXERCISE
To: Darwin Networks, Inc.
(1) The undersigned hereby (A) elects to purchase _____ shares of
Common Stock of Darwin Networks, Inc., pursuant to the provisions of Section 3.a
of the attached Warrant, and tenders herewith payment of the purchase price for
such shares in full, or (B) elects to exercise this Warrant for the purchase of
_____ shares of Common Stock, pursuant to the provisions of Section 3.c of the
attached Warrant.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock to be issued upon exercise hereof
are being acquired solely for the account of the undersigned and not as a
nominee for any other party, and for investment, and that the undersigned will
not offer, sell or otherwise dispose of any such shares of Common Stock except
under circumstances that will not result in a violation of the Securities Act of
1933, as amended, or any applicable state securities laws.
(3) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
------------------------------------------
(Name)
------------------------------------------
(Name)
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or in such other name as is
specified below:
------------------------------------------
(Name)
- ------------------- ------------------------------------------
(Date) (Signature)
<PAGE> 10
ANNEX B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the number
of shares of Common Stock set forth below:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
The undersigned also represents that, by assignment hereof, the
Assignee acknowledges that this Warrant and the shares of stock to be issued
upon exercise hereof are being acquired for investment and that the Assignee
will not offer, sell or otherwise dispose of this Warrant or any shares of stock
to be issued upon exercise hereof except under circumstances which will not
result in a violation of the Securities Act of 1933, as amended, or any state
securities laws.
Date:
-----------
------------------------------------------
Signature of Holder
<PAGE> 1
EXHIBIT 10.24
REVOLVING CREDIT NOTE
$500,000 Louisville, Kentucky
March 15, 1999
FOR VALUE RECEIVED, the undersigned, DARWIN NETWORKS, INC., a Delaware
corporation ("Borrower"), having an address of Suite 135, 1000 West Ormsby
Avenue, Louisville, Kentucky 40210, hereby promises and agrees to pay to the
order of HIGH SPEED ACCESS CORP. ("Lender"), a Delaware corporation, having an
address of Suite 210, 1000 West Ormsby Avenue, Louisville, Kentucky 40210, the
aggregate principal sum of FIVE HUNDRED THOUSAND DOLLARS ($500,000), or so much
thereof as may be advanced hereunder, together with interest thereon as
hereinafter provided, in lawful money of the United States of America, in the
manner set forth herein, on or before the 15th day of September, 1999 (the
"Final Maturity Date").
The principal of this note (the "Note") shall bear interest on the
unpaid balance thereof at a constant rate per annum equal to the "Prime Rate".
The Prime Rate, as used in this Note, shall mean that rate of interest announced
from time to time by Bank One Kentucky, N.A., at its principal office in
Louisville, Kentucky, to be its Prime Rate.
All interest on this Note shall be computed daily on the basis of the
actual number of days elapsed over a year assumed to consist of three hundred
sixty (360) days (having 12 months of 30 days each).
Principal of this Note may be repaid in whole or in part without
penalty or premium at any time prior to maturity and Borrower shall be entitled
to reborrow, repay and reborrow hereunder in incremental advances of not less
than $10,000 each. The actual amount of principal due hereunder shall be the sum
of all advances less the aggregate repayments thereof. Lender's records with
respect to advances and repayments shall be presumed correct unless manifest
error is shown.
All payments of principal and interest and any other sums due under
this Note shall be made to Lender at the address first set forth above for the
Lender in this Note or to such other person or at such other address as may be
designated in writing by the holder of this Note. All payments on this Note
shall be applied first to the payment of any expenses or charges payable
hereunder, and next to accrued interest, and then to the principal balance
hereof, or in such other order as Lender may elect in its sole discretion.
The occurrence of any default by Borrower under that certain Services
Agreement dated as of the date hereof between Borrower and Lender (after the
giving of any applicable required notice and/or period of cure) shall be a
default hereunder, and Lender may, at its option, declare the entire unpaid
principal balance of, and all accrued interest on, this Note to be immediately
due and payable and proceed to enforce and realize upon any or all security for
this Note.
<PAGE> 2
Failure of the holder of this Note to exercise any of its rights and
remedies shall not constitute a waiver of the right to exercise the same at that
or any other time. All rights and remedies of the holder for default under this
Note shall be cumulative to the greatest extent permitted by law. Time shall be
of the essence in the payment of all installments of interest and principal on
this Note and the performance of Borrower's other obligations under this Note.
If there is any default under this Note, and this Note is placed in the
hands of an attorney for collection or is collected through any court, including
any bankruptcy court, Borrower promises to pay to the holder hereof its
reasonable attorneys' fees and court costs incurred in collecting or attempting
to collect or securing or attempting to secure this Note or enforcing the
holder's rights in any collateral securing this Note, provided the same is
legally allowed by the laws of the Commonwealth of Kentucky or any state where
the collateral or part thereof is situated.
If any provision, or portion thereof, of this Note, or the application
thereof to any persons or circumstances shall to any extent be invalid or
unenforceable, the remainder of this Note, or the application of such provision,
or portion thereof, to any other person or circumstances shall not be affected
thereby, and each provision of this Note shall be valid and enforceable to the
fullest extent permitted by law.
This Note has been delivered in, and shall be governed by and construed
in accordance with the laws of the Commonwealth of Kentucky.
Borrower and any other party who may become primarily or secondarily
liable for any of the obligations of Borrower hereunder hereby jointly and
severally waive presentment, demand, notice of dishonor, protest, notice of
protest, and diligence in collection, and further waive all exemptions to which
they may now or hereafter be entitled under the laws of this or any other state
or of the United States, and further agree that the holder of this Note shall
have the right without notice, to deal in any way, at any time, with Borrower,
or any guarantor of this Note or with any other party who may become primarily
or secondarily liable for, or pledge any collateral as security for, any of the
obligations of Borrower under this Note and to grant any extension of time for
payment of this Note or any other indulgence or forbearance whatsoever, and may
release any security for the payment of this Note without in any way affecting
the liability of Borrower, or such other party who may pledge any collateral as
security for, or become primarily or secondarily liable for, the obligations of
Borrower hereunder and without waiving any rights the holder may have hereunder
or by virtue of the laws of this state or any other state of the Unites States.
"Borrower"
DARWIN NETWORKS, INC.
By: /s/ DAVID GIBBS
--------------------------------------
David Gibbs, President
<PAGE> 1
EXHIBIT 10.25
SERVICES AGREEMENT
THIS IS A SERVICES AGREEMENT ("Agreement") dated as of the 15th day of
March, 1999, by and between (i) HIGH SPEED ACCESS CORP., a Delaware corporation,
and its successors and assigns ("HSA"); and (ii) DARWIN NETWORKS, INC., a
Delaware corporation, and its successors and assigns ("Darwin").
R E C I T A L S:
A. Darwin engages in the business of providing high-speed
Internet access via digital subscriber lines (the "Operations").
B. Darwin wishes to enter into an agreement whereby HSA will
provide to Darwin and on Darwin's behalf, certain financial, accounting,
engineering, customer service, network monitoring, and other professional staff
services (the "Services", as further described in Section 2 below).
C. HSA wishes to perform such Services on behalf of Darwin,
and the parties hereto wish to reduce to writing their understanding with
respect to the matters contained herein.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, agree as follows:
1. Independent Contractors. It is understood and agreed that the
relationship between the parties hereto is that of independent contractors, and
nothing herein contained shall be deemed to create or authorize the creation of
the relationship of partnership or joint venture between HSA and Darwin.
2. HSA's Obligations. HSA shall perform the following services for and
on behalf of Darwin (collectively, the "Services") as more particularly
described on Exhibit A attached hereto and made a part hereof:
A. Financial functions, including:
[1] billing and collections, general accounting,
financial reporting and cash flow, data processing, bookkeeping and
general record-keeping;
[2] treasury and payroll, including banking and cash
management, (i.e., the handling and issuance of checks and other
negotiable instruments pertaining to Darwin's accounts payable and
payroll); human resources and employee benefits;
[3] in-house legal and business development support;
and
<PAGE> 2
[4] as it relates to the Operations, governmental
compliance functions necessary to enable Darwin to meet the reporting,
record-keeping, and budgetary requirements of all applicable statutes,
rules or regulations of all governmental agencies.
B. Management information system functions, including central
office local area network (LAN) design and management.
C. Network monitoring, including 24 hour monitoring of Darwin
installations through HSA's network operations centers.
D. Help desk, including 24 hour maintenance of 1-800 number
hotline.
E. Engineering and installation support as requested.
F. ISP services, including e-mail, news and web hosting.
G. Human resources support, including payroll, benefits
administration, recruiting and hiring support.
H. Backbone services including data access and transport and
Internet porting.
I. Lease/purchase management: purchase for and/or lease to
Darwin on an "arms-length" basis any necessary office equipment, furniture and
fixtures, and supplies for Darwin's account, and, at HSA's option, if Darwin has
no funds available therefor, any field equipment necessary for the Operations.
J. Such other services as the parties shall agree from time to
time.
In performing Services on behalf of Darwin, HSA shall use the
same degree of care and diligence as it uses in the performance of comparable
duties for its own account, provided, that HSA shall not be obligated to
commence legal proceedings for the purposes of collecting Darwin's accounts
receivable.
3. Darwin's Obligations. The obligations of Darwin shall consist of the
following:
A. To provide assistance and cooperation in all billing of
services for the period in which this Agreement is effective and to pay over to
HSA, immediately upon receipt thereof, any payments or reimbursements for such
services.
B. To establish policies affecting the Operations which are
not inconsistent with the responsibilities assigned to HSA under the terms of
this Agreement.
C. To cooperate with HSA in executing all forms and returns
required pursuant to applicable taxing statutes, federal, state and local rules
and regulations and governmental reimbursement programs.
<PAGE> 3
4. Revenues, Costs of Operation and Service Fee.
A. All revenues from the operations of, or any interest earned
on any deposits or accounts maintained under this Agreement for, Darwin and the
Operations shall be deposited into and paid out of one or more bank accounts
established by HSA and Darwin (at a financial institution selected by HSA and
Darwin) for the payment of the following items on a monthly basis in the
following order of priority: (i) the Costs of Operation (as defined in Section
4.B below); (ii) the service fees described on Exhibit B attached hereto
("Service Fees"); and (iii) any outstanding cash advances made by HSA as
contemplated herein or hereunder. HSA shall not commingle any funds of Darwin
received or controlled by it pursuant to this Agreement with any funds of HSA.
B. The "Costs of Operation" shall include, but are not limited
to: (i) all costs and expenses incurred in the operation and management of the
Operations, including, without limitation, utilities prorations, rents under any
leases, and salary, compensation or payments to the employees of Darwin; (ii)
all premiums or charges for insurance coverage with respect to the Operations,
(iii) all expenses and costs incurred in connection with the purchase of
necessary supplies and supplies supplied by independent contractors, and (iv)
any ad valorem taxes payable with respect to any personal property owned by
Darwin for the period this Agreement is effective.
C. HSA is authorized to pay each invoice for Service Fees
unless within ten (10) days of presentation of such invoice Darwin shall notify
HSA of its objections.
5. Working Capital. HSA is hereby authorized to incur expenses and
liabilities in the ordinary course of rendering the services described herein.
To the extent funds are available therefor, HSA shall pay timely all Costs of
Operation but shall have no liability for and shall not be obligated to provide
funds for any Costs of Operation to the extent Darwin shall not have any funds
available therefor. HSA may provide at its option, but shall not be obligated to
provide, any working capital for the Operations.
6. Term. Unless earlier terminated in accordance with Section 7 hereof
or further extended as provided herein, this Agreement shall commence effective
at 12:01 a.m. local time on March 15, 1999 ("Commencement Date"), and shall
extend for a period of six (6) months (the "Term"); provided, that either Darwin
or HSA may terminate all or any particular Service on thirty (30) days notice.
The Term will be subject to automatic renewals of six (6) months each unless
either party provides written notice of its election to terminate this Agreement
at least thirty (30) days prior to the expiration of the then existing Term.
7. Default and Termination.
A. The following shall be deemed to be an "Event of Default"
hereunder:
[1] If any licenses or permits applicable to the
Operations are canceled or revoked because either party has failed to
perform its obligations hereunder and such
<PAGE> 4
party is not, in good faith, diligently pursuing the reinstatement of
such licenses or permits.
[2] If either party becomes insolvent or makes an
assignment for the benefit of creditors or commits an act of bankruptcy
or files a voluntary petition under the provisions of the United States
Bankruptcy Code, including without limitation, a petition for
reorganization or arrangement or consents to an involuntary petition or
is adjudicated a bankrupt.
[3] If either party violates, or is in breach of, any
material term or condition of this Agreement.
B. The party with respect to which an Event of Default is not
applicable may declare this Agreement terminated immediately.
C. Upon termination of this Agreement for any reason, any
outstanding accrued Service Fee and any advances by HSA pursuant to Section 5
hereof (collectively, "HSA Obligations") shall become immediately due and
payable and HSA is authorized to pay such amounts to itself from the accounts
maintained by it pursuant to Section 4.A hereof within five (5) days after
submission to Darwin of a calculation of such amounts.
8. Cooperation at Termination. Upon the expiration or earlier
termination of this Agreement, the parties hereto shall cooperate fully with the
other in effecting an orderly transition to avoid any interruption in the
rendering of the Services and, in that connection, HSA shall surrender to Darwin
all contracts, books, records and reports maintained by HSA with respect to the
Operations.
9. Indemnification. The party with respect to which an Event of Default
is applicable (the "Defaulting Party") shall indemnify and hold the other party
and its shareholders, directors, officers, employees and agents harmless from
any and all liabilities, losses, damages, claims, and costs arising from an
Event of Default, except for liabilities, losses, damages, claims, and costs
arising from the non-Defaulting Party's gross negligence, bad faith or willful
misconduct.
10. Parties Bound. The provisions of this Agreement shall be binding
upon the parties hereto and their respective successors and assigns. Except as
specifically provided herein, no assignment of rights or delegation of duties
shall relieve either party, as the case may be, of its obligations hereunder.
Except as specifically provided herein, neither party may assign its rights or
delegate its duties under this Agreement without the prior written consent of
the other party; provided that a party may assign its rights and delegate its
duties to any successor entity in the event of a merger or a sale of
substantially all of the party's assets if the successor entity assumes all of
the party's obligations hereunder.
11. Severability. In the event any provision hereof shall be modified
or held ineffective by any court in any respect, such adjudication shall not
invalidate or render ineffective the balance of the provisions of this
Agreement.
<PAGE> 5
12. Entire Agreement; Modification; Waiver. This Agreement constitutes
the entire agreement between the parties with respect to the subject matter
hereof and completely supersedes all prior oral agreements between the parties.
All other agreements with respect to the subject matter hereof between the
parties, whether written or oral, are merged herein. No supplement,
modification, or amendment of this Agreement shall be binding unless executed in
writing by the parties hereto. No waiver of any of the provisions of this
Agreement will be deemed, or will constitute, a waiver of any other provision,
whether or not similar, nor will any waiver constitute a continuing waiver. No
waiver will be binding unless executed in writing by the party making the
waiver.
13. Execution in Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same document.
14. Further Assurances. The parties each hereby agree to execute and
deliver all of the agreements, documents, and instruments required to be
executed and delivered by them in this Agreement and to execute and deliver such
additional instruments and documents and to take such additional actions as may
reasonably be required from time to time in order to effectuate the transactions
contemplated by this Agreement.
15. Tense; Captions. In construing this Agreement, whenever
appropriate, the singular tense shall also be deemed to mean the plural, and
vice-versa, and the captions contained in this Agreement shall be ignored.
16. Governing Law. This Agreement shall be construed, interpreted, and
enforced in accordance with the substantive laws of the Commonwealth of
Kentucky.
17. Parties in Interest. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than HSA and Darwin and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third persons to any party to this
Agreement.
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first set forth above.
DARWIN NETWORKS, INC.
By: /s/ DAVID GIBBS
-----------------------------------------------
David Gibbs, President
HIGH SPEED ACCESS CORP.
By: /s/ W. KENT OYLER, III
-----------------------------------------------
W. Kent Oyler, III, Chief Operating Officer
<PAGE> 1
EXHIBIT 10.26
AMENDED AND RESTATED SHAREHOLDERS AGREEMENT
THIS AMENDED AND RESTATED SHAREHOLDERS AGREEMENT ("Agreement") is made and
entered into as of the 25th day of November, 1998, by and among (i) HIGH SPEED
ACCESS CORP., a Delaware corporation (the "Company"), (ii) the holders of the
Common Shares of the Company listed on Schedule I attached hereto (such holders
of Common Shares being collectively referred to herein as the "Common
Shareholders"), and (iii) the holders of the Preferred Shares of the Company
listed on Schedule II attached hereto (such holders of Preferred Shares being
collectively referred to herein as the "Investors").
W I T N E S S E T H:
BACKGROUND
A. The Company has 19,000,000 issued and outstanding shares of capital
stock, consisting of (i) 4,000,000 shares of common stock ("Common Shares"), and
(ii) 5,000,000 shares of Series A Convertible Preferred Stock ("Series A
Convertible Preferred Stock"), and 10,000,000 shares of Series B Convertible
Preferred Stock ("Series B Convertible Preferred Stock"), and has 5,000,000
shares of authorized and unissued Series C Convertible Preferred Stock ("Series
C Convertible Preferred Stock") of which 2,500,000 shares have been subscribed
for and 2,500,000 may be purchased, subject to satisfaction by the Company of
certain conditions, in accordance with certain terms in the Series C Convertible
Stock Purchase Agreement as listed on Schedule III attached hereto (the Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock are collectively referred to as the "Preferred
Shares").
B. To provide for continuity and to promote the mutual interests of the
Company, the Common Shareholders and the Investors, the Company, the Common
Shareholders and the Investors desire to impose certain restrictions on the
"Transfer" (as hereinafter defined) of the shares of capital stock of the
Company now held or hereafter acquired by the Common Shareholders and the
Investors and any warrants, options or other rights to acquire shares of capital
stock of the Company now held or hereafter acquired by the Common Shareholders
and the Investors (collectively, the "Shares"), and to provide for certain other
rights, options and obligations as set forth in this Agreement.
C. The Company, the Common Shareholders, Broadband Solutions, LLC and
Broadband Solutions II, LLC are parties to an Amended and Restated Shareholders
Agreement dated as of September 1, 1998 (the "Shareholders Agreement"). The
parties hereto desire to amend and restate in its entirety the Shareholders
Agreement.
NOW, THEREFORE, in consideration of the premises herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
<PAGE> 2
1. Definitions. For the purposes of this Agreement, the following terms
shall have the following meanings:
A. The term "Securities" shall mean the Common Shares, the Preferred
Shares and any other securities of the Company now or hereafter permitted to be
issued by the Company, and any securities of any other entity into which such
securities of the Company may hereafter be converted or exchanged.
B. The term "Transfer" shall mean and include any sale, exchange,
assignment, gift, devise, pledge, encumbrance, attachment, lien, execution,
transfer by bankruptcy, transfer by judicial order, transfer by operation of law
and all other kinds of transfers or dispositions, with or without consideration,
whether direct or indirect, voluntary or involuntary.
2. Restrictions on Transfer by Common Shareholders. From and after the
date hereof, the Common Shareholders shall not Transfer and the Company shall
not effect the Transfer of any of the Common Shares held by such Common
Shareholders without first complying with the terms and conditions of this
Agreement. A Common Shareholder who desires to Transfer his or its Common Shares
is hereinafter referred to as a "Transferring Common Shareholder". Any attempted
Transfer by a Common Shareholder without compliance with this Agreement shall
be, and is hereby declared, null and void ab initio. A Transferring Common
Shareholder must obtain the written approval of the majority of the Board of
Directors (the "Required Consent") before the Transferring Common Shareholder
may Transfer any Common Shares. The Required Consent is in addition to and not
in lieu of any other rights that the parties may have under this Agreement.
Notwithstanding the foregoing, a Common Shareholder may Transfer his
Common Shares to members of his immediate family or a trust or family limited
partnership for their benefit for estate planning purposes without complying
with the provisions of this Section 2 or Section 3, provided that any such
transferee receiving, holding or owning Common Shares shall receive, hold and
own such Common Shares subject to the terms of this Agreement and such
transferee or transferees shall become a signatory hereto by executing a
conformed counterpart of this Agreement.
3. Rights of First Refusal and Co-Sale Rights with respect to Common
Shareholders.
A. Notice. In addition to obtaining the Required Consent, before a
Transferring Common Shareholder may Transfer any of his or its Common Shares to
a transferee ("Transferee"), the Transferring Common Shareholder shall have
received a bona fide offer from a proposed Transferee to acquire the Common
Shares of the Transferring Common Shareholder, shall notify (the "Notice") the
other Common Shareholders (the "Nonselling Common Shareholders") and the
Investors (collectively, the "Nonselling Shareholders") of his or its desire to
make such a Transfer, and shall comply with the terms and provisions of this
Agreement. The Notice shall provide a copy of the offer from the intended
Transferee (the "Offer") and shall disclose the name(s) and address(es) of the
Transferee(s), the number of Common Shares to be Transferred (the "Option
Shares"), the proposed date of the Transfer, and the consideration to be paid,
if any.
<PAGE> 3
B. Right of First Refusal for Priority Holders and Common Shareholders.
Each holder of shares of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock and Series C Convertible Preferred Stock (the
"Priority Holders") shall have the right to purchase (the "Priority Holders
Common Share Option") its proportionate share (in relation to all of the
Priority Holders) of the Option Shares for a period of ten (10) days following
receipt of the Notice from the Transferring Common Shareholder (the "Priority
Holders Common Share Option Period"). A Priority Holder shall evidence his or
its exercise of the Priority Holders Common Share Option by delivering to the
Transferring Common Shareholder and the Company notice of his or its election to
do so within the Priority Holders Common Share Option Period. If a Priority
Holder elects not to purchase all of the Priority Holder's proportionate share
of the Option Shares within the Priority Holders Common Share Option Period,
then each other Priority Holder shall have an additional five (5) day period to
elect to purchase his or its proportionate share of the remaining Option Shares.
If the Priority Holders do not purchase all Option Shares, then each
Nonselling Common Shareholder shall have the right to purchase (the "Common
Shareholder Option") its proportionate share of the Option Shares not previously
agreed to be purchased by the Priority Holders for a period of twenty (20) days
following the end of the Priority Holders Common Share Option Period, including
any additional five (5) day period as provided in the immediately preceding
sentence (the "Common Shareholder Option Period"). A Nonselling Common
Shareholder shall evidence his or its exercise of the Common Shareholder Option
by delivering to the Transferring Common Shareholder and the Company notice of
his or its election to do so within the Common Shareholder Option Period. If a
Nonselling Common Shareholder elects not to purchase all of the Nonselling
Common Shareholder's proportionate share within the Common Shareholder Option
Period, then each other Nonselling Common Shareholder shall have an additional
five (5) day period to elect to purchase his or its proportionate share of the
remaining Option Shares not previously agreed to be purchased and such five (5)
day process shall be repeated until all Option Shares remaining are elected to
be purchased or each other Nonselling Common Shareholder has declined to
purchase the same. The purchase price, manner of payment and other terms for the
Option Shares shall be the same as specified in the Offer. For purposes of this
Section 3.B, the "proportionate share" of a Nonselling Shareholder shall be the
number of Option Shares multiplied by a fraction, the numerator of which shall
be the number of Common Shares issued and owned by such Nonselling Shareholder
and the denominator of which shall be the aggregate number of Common Shares
issued and owned by all Nonselling Shareholders, each calculated on an as-if
fully converted basis. For the purposes of this Section 3.B, on an "as-if fully
converted basis" shall mean full conversion of all the Preferred Shares acquired
or owned by the holders of Preferred Stock and, with respect to Vulcan (as
defined below), the Preferred Shares which may be issued to Vulcan pursuant to
the Series C Convertible Preferred Stock Purchase Agreement ("Series C Purchase
Agreement") between the Company and Vulcan Ventures, Incorporated ("Vulcan")
dated as of the date hereof, unless, as of the time of the calculation of the
"proportionate share" under this Section 3.B., Vulcan shall have previously
declined its right to purchase the additional Two Million Five Hundred Thousand
(2,500,000) shares of Series C Convertible Preferred Stock in accordance with
the provisions of Sections 1.2 or 1.3 of the Series C Purchase Agreement, in
which case the shares of Series C Convertible Preferred Stock
<PAGE> 4
not so purchased by Vulcan shall not be included in such calculation.
C. Limited Right to Transfer Shares. If the Nonselling Shareholders
fail to purchase all of the Option Shares, then, subject to Section 3.E herein,
the Transferring Common Shareholder may Transfer the Option Shares on the terms
of the Offer, within sixty (60) days following the expiration of the Option, to
the third party making the Offer, provided that (i) the Transferring Common
Shareholder has received the Required Consent, (ii) the third party consents, in
form and substance satisfactory to the Company's counsel, to be bound by the
terms of and to execute this Agreement as a Common Shareholder and (iii) such
Transfer is effected in compliance with an exemption from the registration
requirements of applicable securities laws. If the Transfer ring Common
Shareholder does not Transfer the Option Shares within such sixty (60) day
period, then the Option Shares shall not be Transferred by the Transferring
Common Shareholder without again complying with all of the provisions of this
Agreement.
D. Adjustments to Offer. If the consideration, terms or other
conditions offered in the Offer are such that the Nonselling Shareholders may
not reasonably furnish the same consideration, terms or conditions, then the
Nonselling Shareholders may purchase the Option Shares for a reasonable
equivalent in cash and upon such other reasonably equivalent terms and
conditions. If the parties cannot agree within thirty (30) days on a reasonable
equivalent in cash and other terms and conditions (the "Thirty Day Period"), an
independent appraiser reasonably acceptable to the Transferring Common
Shareholder shall be designated by the Company within ten (10) business days
after notice is given by either the Transferring Common Shareholder or the
Nonselling Shareholders to the other that the Thirty Day Period has expired.
Such independent appraiser shall promptly determine the value in cash of such
consideration and other terms and conditions and such appraiser's determination
shall be final and binding. The fees and expenses of such appraiser shall be
borne equally by the Nonselling Shareholder purchasing the Option Shares and the
Transferring Common Shareholder.
E. Co-Sale Rights. In addition to the rights set forth above, whenever
a Transferring Common Shareholder intends to sell his or its Common Shares, each
of the Investors shall have the option to participate in such sale in the manner
hereinafter set forth (the "Co-Sale Option"). To exercise the Co-Sale Option, an
Investor shall give written notice of election to participate in the Transfer to
the Transferring Common Shareholder within twenty (20) business days after the
Investor has declined to purchase the Common Shares.
If an Investor fails to notify the Transferring Common Shareholder
within such twenty (20) business day period, it shall be deemed to have waived
its rights under this provision. If an Investor so notifies the Transferring
Common Shareholder, such Investor shall have the right to sell, at the same
price and on the same terms and conditions as the Transferring Common
Shareholder, an amount of shares of capital stock equal to the shares of capital
stock the third party actually proposes to purchase multiplied by a fraction,
the numerator of which shall be the number of Shares issued and owned by such
Investor and the denominator of which shall be the aggregate number of Common
Shares issued and owned by the Transferring Common Shareholder and the Investors
exercising the Co-Sale Option, each calculated on an as-if fully converted
basis. If an Investor exercises the Co-Sale Option, it shall bear pro-rata with
the
<PAGE> 5
Transferring Common Shareholder its portion of the expenses incident to such
sale in proportion to the number of shares being sold by each and the Common
Shares to be sold by the Transferring Common Shareholder shall be
proportionately scaled back.
F. Optional Purchase Upon Death. Upon the death of W. Kent Oyler, III
("Oyler"), each of the Investors shall have the right and option to purchase his
or its proportionate share (as defined below) of the Common Shares then owned by
OPM Services, Inc. ("OPM") and Colorado Limited Partnership ("CLP"), upon the
terms and subject to the conditions set out in this Section 3.F. Upon the death
of David Gibbs ("Gibbs"), each of the Investors shall have the right and option
to purchase his or its proportionate share of the Common Shares then owned by
Gibbs Family Limited Partnership ("GFLP"), upon the terms and subject to the
conditions set out in this Section 3.F. Upon the death of Ronnie W. Pitcock,
each of the Investors shall have the right and option to purchase his or its
proportionate share of the Common Shares then owned by Pitcock Family Limited
Partnership ("PFLP"), upon the terms and subject to the conditions set out in
this Section 3.F. The right and option of each of the Investors to purchase his
or its proportionate share of the Common Shares of OPM, CLP, GFLP and PFLP
provided for in this Section 3.F is referred to herein as the "Section 3.F
Option". The Section 3.F Option shall be for a period of ninety (90) days after
the date of death of Gibbs or Oyler or Pitcock, as applicable, and each Investor
shall evidence its exercise of the Section 3.F Option by delivering to CLP, OPM,
GFLP or PFLP, as applicable, notice of his or its election to do so within such
ninety (90) day period. If an Investor elects not to purchase his or its
proportionate share under this Section 3.F, then each other Investor shall have
an additional fifteen (15) day period to elect to purchase his or its
proportionate share of the remaining Common Shares subject to the Section 3.F
Option and such fifteen (15) day process shall be repeated until all of such
Common Shares remaining, if any, are elected to be purchased or each other
Investor has declined to purchase the same. The purchase price for any Common
Shares purchased in accordance with the terms of this Section 3.F shall be the
fair market value per Common Share (the "Fair Market Value") multiplied by the
number of Common Shares to be purchased (the "Investor Purchase Price"). The
Fair Market Value shall be equal to the fair market value of the Company, as
deter mined by an independent appraiser experienced in valuation of shares of
companies similar to the Company (the "Qualified Appraiser") acceptable to both
CLP, OPM, GFLP or PFLP, as applicable, on the one hand, and the Investors
electing to purchase the Common Shares under this Section 3.F, on the other
hand, divided by the number of shares of capital stock of the Company
outstanding on an as-if fully converted basis. If Investors, on the one hand,
and CLP, OPM, GFLP or PFLP, as applicable, on the other hand, are unable to
agree upon a Qualified Appraiser, each of them shall separately designate a
Qualified Appraiser. Such Qualified Appraisers shall jointly designate a
definitive Qualified Appraiser, and such definitive Qualified Appraiser's
determination shall be the Fair Market Value and shall be conclusive and binding
upon the parties. The fees and expenses of the definitive Qualified Appraiser
shall be borne equally by the selling Common Shareholder and the Investors
electing to purchase Common Shares. The Investor Purchase Price for any Common
Shares purchased under this Section 3.F shall be paid in cash within ninety (90)
days after written notice of exercise is given by Investors. For purposes of
this Section 3.F, an Investor's "proportionate share" shall mean that portion
of the Common Shares subject to the Section 3.F Option which equals the ratio of
(i) the number of Common Shares owned by such Investor over (ii) the number of
Common Shares owned by all of the Investors electing to purchase such
<PAGE> 6
Common Shares, unless the Investors exercising the Section 3.F Option
unanimously agree otherwise.
G. Agreement by OPM. OPM agrees that if, at any time, Oyler shall own,
of record or beneficially, less than eighty-five percent (85%) of the
outstanding capital stock of OPM, then all Securities of the Company then owned
by OPM shall be transferred and assigned to Oyler by OPM.
4. Rights of First Refusal With Respect To Investors.
A. Notice. Before an Investor may Transfer (a "Transferring Investor")
any of his or its Securities to a Transferee, the Transferring Investor shall
have received a bona fide offer from a proposed Transferee to acquire the
Transferring Investor's Securities, shall notify (the "Notice") the other
Investors (the "Nonselling Investors") of his or its desire to make such a
Transfer, and shall comply with the terms and provisions of this Agreement. The
Notice shall provide a copy of the offer from the intended Transferee (the
"Offer") and shall disclose the name(s) and address(es) of the Transferee(s),
the number of Securities to be Transferred (the "Investor Option Shares"), the
proposed date of the Transfer, and the consideration to be paid, if any.
B. Right of First Refusal for Nonselling Investors. Each Nonselling
Investor shall have the right to purchase (the "Investor Option") its
"proportionate share" of the Investor Option Shares for a period of ten (10)
days following receipt of the Notice from the Transferring Investor (the
"Investor Option Period"). A Nonselling Investor shall evidence its exercise of
the Investor Option by delivering to the Transferring Investor and the Company
notice of its election to do so within the Investor Option Period. If a
Nonselling Investor elects not to purchase all of the Nonselling Investor's
proportionate share within the Investor Option Period, then each other
Nonselling Investor shall have an additional five (5) day period to elect to
purchase its proportionate share of the remaining Investor Option Shares not
previously agreed to be purchased by such Nonselling Investor and such five (5)
day process shall be repeated until all Investor Option Shares remaining, if
any, are elected to be purchased or each other Nonselling Investor has declined
to purchase the same. The purchase price, manner of payment and other terms for
the Investor Option Shares shall be the same as specified in the Offer. For
purposes of this Section 4, the "proportionate share" of a Nonselling Investor
shall be the number of Investor Option Shares multiplied by a fraction, the
numerator of which shall be the number of Common Shares issued and owned by such
Nonselling Investor and the denominator of which shall be the aggregate number
of Common Shares issued and owned by all Nonselling Investors, each calculated
on an as-if fully converted basis. For the purposes of this Section 4.B, on an
"as-if fully converted basis" shall mean full conversion of all the Preferred
Shares acquired or owned by the holders of Preferred Stock and, with respect to
Vulcan, the Preferred Shares which may be issued to Vulcan pursuant to the
Series C Purchase Agreement unless, as of the time of the calculation the
"proportionate share" under this Section 4.B., Vulcan shall have previously
declined its right to purchase the additional Two Million Five Hundred Thousand
(2,500,000) shares of Series C Convertible Preferred Stock in accordance with
the provisions of Sections 1.2 or 1.3 of the Series C Purchase Agreement, in
which case the shares of Series C Convertible Preferred Stock
<PAGE> 7
not so purchased by Vulcan shall not be included in such calculation.
C. Limited Right to Transfer Shares. If the Nonselling Investors fail
to purchase all of the Investor Option Shares, then, subject to Section 4.F
herein, the Transferring Investor may Transfer the Investor Option Shares on the
terms of the Offer, within sixty (60) days following the expiration of the
Investor Option, to the third party making the Offer, provided that (i) the
third party consents, in form and substance satisfactory to the Company's
counsel, to be bound by the terms of and to execute this Agreement as an
Investor and (ii) such Transfer is effected in compliance with an exemption from
the registration requirements of applicable securities laws. If the Transferring
Investor does not Transfer the Investor Option Shares within such sixty (60) day
period, then the Investor Option Shares shall not be Transferred by the
Transferring Investor without again complying with all of the provisions of this
Agreement.
D. Adjustments to Offer. If the consideration, terms or other
conditions offered in the Offer are such that the Nonselling Investors may not
reasonably furnish the same consideration, terms or conditions, then the
Nonselling Investors may purchase the Investor Option Shares for a reasonable
equivalent in cash and upon such other reasonably equivalent terms and
conditions. If the parties cannot agree within thirty (30) days on a reasonable
equivalent in cash and other terms and conditions (the "Thirty Day Period"), an
independent appraiser reasonably acceptable to the Transferring Investor shall
be designated by the Company within ten (10) business days after notice is given
by either the Transferring Investor or the Nonselling Investors to the other
that the Thirty Day Period has expired. Such independent appraiser shall
promptly determine the value in cash of such consideration and other terms and
conditions and such appraiser's determination shall be final and binding. The
fees and expenses of such appraiser shall be borne equally by the Nonselling
Investor(s) purchasing such Investor Option Shares and the Transferring
Investor.
E. Limited Right to Transfer to Affiliates. Notwithstanding the
foregoing provisions of this Section 4, an Investor may transfer its Securities
to any affiliate of such Investor without complying with the provisions of this
Section 4, provided that any such transferee receiving, holding or owning such
Securities shall receive, hold and own such Securities subject to the terms of
this Agreement and such transferee shall become a signatory hereto by executing
a conformed counterpart of this Agreement. For purposes of this Section 4.E,
"affiliate" shall mean [i] with respect to Broadband Solutions, LLC or Broadband
Solutions II, LLC (collectively "Broadband"), any entities or persons
controlling, controlled by or under common control with Broadband or any or all
of its members, each existing as of the date hereof, directly or indirectly,
either individually or as a group, or any member of Broadband, each existing as
of the date hereof, or such person's lineal descendants, ancestors or spouses of
any or them, or a trust or family limited partnership or any estate or tax
planning vehicle established for its or their benefit, and [ii] with respect to
Vulcan, any entities or persons controlled, directly, by Paul G. Allen, or any
entities or persons in which Paul G. Allen, either individually or through an
entity which he controls, holds an equity investment of not less than
$100,000,000 in value, as determined at the time of any transfer, "Control"
shall mean (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, and (ii) with respect to any person, such person's lineal descendants or
ancestors or spouses of any of
<PAGE> 8
them, or a trust or family limited partnership established for their benefit.
F. Investor Co-Sale Rights. In addition to the rights set forth above,
whenever a Transferring Investor intends to sell his or its Securities,
Investors shall have the option to participate in such sale in the manner
hereinafter set forth (the "Investor Co-Sale Option"). To exercise the Investor
Co-Sale Option, a Nonselling Investor shall give written notice of election to
participate in the Transfer to the Transferring Investor within twenty (20) days
after the Nonselling Investor has declined to purchase the Securities.
If a Nonselling Investor fails to notify the Transferring Investor
within such twenty (20) day period, it shall be deemed to have waived its rights
under this provision. If a Nonselling Investor so notifies the Transferring
Investor, such Nonselling Investor shall have the right to sell, at the same
price and on the same terms and conditions as the Transferring Investor, an
amount of shares of capital stock equal to the shares of capital stock the third
party actually proposes to purchase multiplied by a fraction, the numerator of
which shall be the number of Common Shares owned by such Investor and the
denominator of which shall be the aggregate number of Common Shares owned by the
Transferring Investor and the Nonselling Investors exercising the Investor
Co-Sale Option, each calculated on an as-if fully converted basis, and the
Securities to be sold by the Transferring Investor shall be proportionately
scaled back. If a Nonselling Investor exercises the Investor Co-Sale Option, it
shall bear pro-rata with the Transferring Investor its portion of the expenses
incident to such sale in proportion to the number of shares being sold by each.
5. Subscription Rights.
A. Subscription Rights. Except as otherwise set forth in Section 5.B,
if at any time and from time to time after the date of this Agreement, the
Company proposes to issue equity securities of any kind (the term "equity
securities" shall include for these purposes any warrants, options or other
rights to acquire equity securities and debt securities convertible into equity
securities) of the Company (other than the issuance of securities (i) upon
conversion of any Preferred Shares pursuant to the Company's Certificate of
Incorporation, as amended, (ii) to the public in a Qualified Public Offering, as
defined in Section 7.C of this Agreement, (iii) pursuant to the acquisition of
another corporation or other business entity by the Company by merger, purchase
of substantially all of the assets or other form of reorganization, (iv)
pursuant to director or employee stock option plans, stock bonus plans, stock
purchase plans, employment agreements or other management equity programs
approved by the Board of Directors of the Company, not to exceed 3,000,000
Common Shares, (v) to Vulcan pursuant to the Series C Purchase Agreement, or
(vi) pursuant to the Stock Purchase Warrants issuable to Vulcan providing for
the purchase of up to 5,000,000 Common Shares), then, as to Investors and Common
Shareholders, the Company shall: (i) give written notice setting forth in
reasonable detail (1) the designation and all of the terms and provisions of the
securities proposed to be issued (the "Proposed Securities"), (2) the price and
other terms of the proposed sale of such securities, (3) the amount of such
securities proposed to be issued and (4) such other information as Investors
and/or Common Shareholders may reasonably request in order to evaluate the
proposed issuance; and (ii) offer to issue to each of Investors and Common
Shareholders a portion of the Proposed Securities equal to a percentage
determined by dividing (x) the number of Common Shares owned by such
<PAGE> 9
Investors or Common Shareholders by (y) the total number of Common Shares then
owned by Investors and Common Shareholders, each calculated on an as-if fully
converted basis.
Each Investor and Common Shareholder must exercise his or its purchase
rights hereunder within thirty (30) days after receipt of such notice from the
Company. If all of the Proposed Securities offered to Investors and Common
Shareholders are not fully subscribed by Investors and Common Shareholders, the
remaining Proposed Securities will be reoffered to the Investors and Common
Shareholders purchasing their full allotment in proportion to their interest and
in such manner that if any or all such persons desire to purchase all such
equity securities, they are offered to such persons in a fair and appropriate
way, as determined by the Board of Directors of the Company, so all securities
are sold to such persons. To the extent that the Company offers two or more
securities in units (either of which is an equity security), Investors and
Common Shareholders must purchase such units as a whole and will not be given
the opportunity to purchase only the equity securities making up such unit.
Upon the expiration of the offering periods described in this Section
5, if any equity securities remain unsubscribed for, the Company may sell such
Proposed Securities that the Investors and Common Shareholders have not elected
to purchase during the one hundred eighty (180) days following such expiration
on terms and conditions not more favorable to the purchasers thereof than those
offered to such holders. Any Proposed Securities offered or sold by the Company
after such one hundred eighty (180) day period must be reoffered to the
Investors and Common Shareholders pursuant to the terms of this Section 5.
B. Vulcan Subscription Right. At any time after the Post Closing
Capital Call (as defined in the Series C Purchase Agreement) shall have been
made under the Series C Purchase Agreement, but on or before the second
anniversary of the date hereof, the Company shall offer Vulcan, not more than
six (6) months and not less than five (5) months prior to the Company being in
need of further cash capital, the right to purchase 2,500,000 additional shares
of Series C Preferred Stock ("Additional Series C Shares") at a purchase price
of $5.00 per share or such lesser price as the Board of Directors of the Company
shall determine to be the fair value of such Additional Series C Shares, which
price will also be the price the Company will otherwise sell such securities to
other purchasers (the "Stated Value"). Vulcan shall have sixty (60) days after
having received notice of such right from the Company to exercise its right to
purchase all of the Additional C Shares by delivering written notice of its
intention to purchase such Shares to the Company. If all of the Additional
Series C Shares are not fully subscribed by Vulcan within such sixty (60) day
period, the Additional Series C Shares may be offered for sale by the Company to
the Investors and Common Shareholders in accordance with the subscription rights
set forth in Section 5.A. The purchase of any Additional Series C Preferred
Shares by Vulcan shall be consummated in accordance with the terms and
conditions of the Series C Purchase Agreement.
C. Additional Subscription Right. Notwithstanding the foregoing
provisions of this Section 5, if Vulcan declines to purchase the Additional
Series C Shares and the Company thereafter offers to sell the Additional Series
C Shares in accordance with Section 5.A within the next succeeding six (6) month
period at a purchase price less than the Stated Value, Vulcan shall have ten
(10) days from the date of receiving delivery of the written notice required
under Section
<PAGE> 10
5.A. to purchase all such Additional Series C Shares at such lower purchase
price. Vulcan shall exercise its purchase of such Additional Series C Shares
pursuant to the immediately preceding sentence by delivering a written notice to
the Company. If all of the Additional Series C Shares are not fully subscribed
by Vulcan within such ten (10) day period, the Additional Series C Shares may be
offered for sale by the Company in accordance with the subscription rights set
forth in Section 5.A. At any time after the date hereof, Vulcan shall have the
right, at its election, to purchase any number of Additional Series C Shares
which have not, as of such date, been issued at a purchase price of $5.00 per
share. Vulcan may elect to exercise its right to purchase such Additional Series
C Shares by delivering a written notice to Company, and the purchase of the
Additional Series C Shares shall be consummated within ten (10) days after
delivery thereof.
6. Calculation of Shares Owned by Investors. In the case of Investors, the
number of Common Shares owned by an Investor for all purposes of this Agreement,
except as provided in Sections 3.B and 4.B of this Agreement, shall be
determined on an "as-if fully converted" basis which means full conversion into
Common Shares of all Preferred Shares purchased and held by Investors.
7. Termination Provisions. This Agreement shall terminate upon the
occurrence of any of the following events:
A. The written agreement by the holders of a majority of each of the
Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock
and the Series C Convertible Preferred Stock (with each share entitled to one
vote) to terminate this Agreement. Thereafter, any Common Shareholder or
Investor may tender the certificate representing its or his shares to the
Secretary of the Company who shall issue to such C Shares not yet purchased
Common Shareholder or Investor a new certificate without the endorsement set
forth in Section 8.B. of this Agreement; or
B. Completion of an underwritten public offering of common stock of the
Company, initiated by resolution of the Company's Board of Directors, of not
less than $50 million in aggregate gross proceeds to the Company and a minimum
initial price per share of $7.50 (as proportionately and appropriately adjusted
to reflect any subdivision, reverse split or recapitalization of Common Shares
after the date hereof) which has been made pursuant to a registration statement
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (a "Qualified Public Offering").
8. Restrictive Legend on Certificate.
A. All certificates for the shares of the capital stock of the Company,
including all certificates issued after the date hereof, shall be endorsed with
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
<PAGE> 11
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.
B. In addition to the legend stated above, all certificates for the
Shares held by the Common Shareholders shall also be endorsed with the following
legend:
The shares represented by this certificate are subject to and may be
transferred only in compliance with the terms of a certain Amended and
Restated Shareholders Agreement, dated as of November 25, 1998 as such
Agreement may be from time to time amended, made by and among certain
holders of securities of the Company. Copies of that Agreement are
available for inspection at the principal or registered office of the
Company.
9. Notices. All notices, requests, consents and other communications
under this Agreement shall be in writing and shall be mailed by first class
registered or certified mail, postage prepaid, or sent via overnight courier
service, or sent by facsimile transmission addressed to the Company at its
principal office and to the Investors or Common Shareholders at their respective
addresses as set forth on Schedule I, Schedule II and Schedule III to this
Agreement, respectively, or to such other address of which the addressee shall
have notified the sender in writing. Notices mailed in accordance with this
Section 9. shall be deemed given when mailed, and notices sent by overnight
courier service shall be deemed given when placed in the hands of a
representative of such service.
10. Entire Agreement; Modification; Governing Law. This Agreement sets
forth the entire agreement among the parties regarding its subject matter and
supersedes and shall govern in the event of any conflicts with, all prior
written or contemporaneous oral agreements and under standings related to its
subject matter, including without limitation, the Shareholders Agreement. This
Agreement may be modified or amended only by a written instrument duly executed
by all the parties hereto. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
conflicts of laws principles thereof. In the case of any conflict between the
provisions of this Agreement and the Certificate of Incorporation or the Bylaws
of the Company, each party hereto agrees to take all such action, as may be
required under the Delaware General Corporation Law or otherwise, to amend the
Certificate of Incorporation or the Bylaws, as the case may be, to resolve such
conflict so that the provisions of this Agreement shall, to the maximum extent
permitted by law, at all times prevail.
11. Specific Performance. The parties agree that it is impossible to
measure in money the damages which will accrue to a person having rights under
this Agreement by reason of a failure of another to perform any obligation under
this Agreement. Accordingly, if any party
<PAGE> 12
attempts to enforce the provisions of this Agreement by specific performance,
the party against whom such action or proceeding is brought waives the claim or
defense that the other party has an adequate remedy at law.
12. Headings. The Section headings contained in this Agreement are
inserted solely as a matter of convenience and will not affect in any way the
construction or interpretation of the terms of this Agreement.
13. Binding Effect. This Agreement and all of the terms and provisions
hereof shall be binding upon and shall inure to the benefit of each party a
signatory hereto and its or his successors, assigns, executors and heirs. The
provisions of this Agreement shall be deemed to apply equally to all the
Securities or other securities distributed in respect of such Securities.
14. Severability. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remaining provisions of this Agreement, and the application of such
provisions to persons or circumstances other than those to which it is held
invalid, shall not be affected.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same instrument.
16. Construction. Whenever the singular number is used in this
Agreement and when required by the context, the same shall include the plural
and vice versa, and the masculine gender shall include the feminine and neuter
genders and vice versa.
17. Waivers. The failure of any party to seek redress for violation of
or to insist upon the strict performance of any covenant or condition of this
Agreement shall not prevent a subsequent act, that would have originally
constituted a violation, from having the effect of an original violation.
18. Rights and Remedies Cumulative. The rights and remedies provided by
this Agreement are cumulative and the use of any one right or remedy by any
party shall not preclude or waive the right to use any or all other remedies.
Such rights and remedies are given in addition to any other rights the parties
may have by law, statute, ordinance, or otherwise.
19. Further Assurances. Each party hereto agrees to execute such
additional documents and take such other actions as the other party or parties
may reasonably request to consummate the transactions contemplated by this
Agreement and otherwise as may be necessary to effectively carry out the terms
and provisions of this Agreement.
[END OF TEXT]
<PAGE> 13
IN WITNESS WHEREOF, the parties have executed the foregoing Agreement
as of the date first above written.
HIGH SPEED ACCESS CORP.
By: /s/ Kent Oyler
------------------------------------
Title: CEO
---------------------------------
"COMMON SHAREHOLDERS"
OPM SERVICES, INC.
By: /s/ Kent Oyler
------------------------------------
Title: President
---------------------------------
GIBBS FAMILY LIMITED PARTNERSHIP
By: /s/ David Gibbs
------------------------------------
Title: G.P.
---------------------------------
COLORADO LIMITED PARTNERSHIP
By: /s/ Kent Oyler
------------------------------------
Title: G.P.
---------------------------------
PITCOCK FAMILY LIMITED PARTNERSHIP
By: /s/ RON PITCOCK
------------------------------------
Title: G.P.
---------------------------------
<PAGE> 14
/s/ JOSEPH S. GANS, III
------------------------------------------
JOSEPH S. GANS, III
/s/ JOSEPH W. AMAN
------------------------------------------
JOSEPH W. AMAN
/s/ LAWRENCE SHEWACK
------------------------------------------
LAWRENCE SHEWACK
/s/ JOHN HOWELL
------------------------------------------
JOHN HOWELL
/s/ TERRENCE J. HERRON
------------------------------------------
TERRENCE J. HERRON
<PAGE> 15
"INVESTORS"
BROADBAND SOLUTIONS, LLC
By: /s/ ROBERT SAUNDERS
--------------------------------------
Title: Member
-----------------------------------
BROADBAND SOLUTIONS II, LLC
By: /s/ ROBERT SAUNDERS
--------------------------------------
Title: Member
-----------------------------------
VULCAN VENTURES, INCORPORATED
By: /s/ WILLIAM SAVOY
--------------------------------------
Title: Vice President
-----------------------------------
<PAGE> 16
SCHEDULE I
OPM Services, Inc. John Howell
c/o W. Kent Oyler, III c/o Terrence J. Herron
Suite 210 Hourigan, Kluger & Quinn, P.C.
1000 West Ormsby Avenue Suite 700
Louisville, KY 40210-1810 Mellon Bank Center
8 West Market Street
Colorado Limited Partnership Wilkes-Barre, PA 18701-1867
c/o W. Kent Oyler, III
Suite 210 Terrence J. Herron
1000 West Ormsby Avenue Hourigan, Kluger & Quinn, P.C.
Louisville, KY 40210-1810 Suite 700
Mellon Bank Center
Gibbs Family Limited Partnership 8 West Market Street
c/o David A. Gibbs Wilkes-Barre, PA 18701-1867
Suite 210
1000 West Ormsby Avenue
Louisville, KY 40210-1810
Joseph S. Gans, III
c/o Terrence J. Herron
Hourigan, Kluger & Quinn, P.C.
Suite 700
Mellon Bank Center
8 West Market Street
Wilkes-Barre, PA 18701-1867
Joseph W. Aman
c/o Terrence J. Herron
Hourigan, Kluger & Quinn, P.C.
Suite 700
Mellon Bank Center
8 West Market Street
Wilkes-Barre, PA 18701-1867
Laurence Shewack
c/o Terrence J. Herron
Hourigan, Kluger & Quinn, P.C.
Suite 700
Mellon Bank Center
8 West Market Street
Wilkes-Barre, PA 18701-1867
<PAGE> 17
SCHEDULE II
Broadband Solutions, LLC
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202
Broadband Solutions II, LLC
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202
Vulcan Ventures, Incorporated
110 110th Avenue, NE
Bellevue, WA 98004
<PAGE> 18
SCHEDULE III
Vulcan Ventures, Incorporated
110 110th Avenue, NE
Bellevue, WA 98004
<PAGE> 1
EXHIBIT 10.27
[FINOVA LOGO]
FINANCIAL INNOVATORS
[FINOVA LOGO]
FINOVA Capital Corporation
Technology Finance
10 Waterside Drive
Farmington, CT 06032-3065
(860)676-1818
MASTER LOAN AND SECURITY AGREEMENT
Master Loan and Security Agreement No. S6840 Dated February 4, 1999.
FINOVA Capital Corporation, with its principal place of business at 1850 N.
Central Avenue, Phoenix, AZ 85004. ("we," "us" or "FINOVA") is willing to make a
loan (the "Loan") to HIGH SPEED ACCESS CORP. ("you" or "Borrower") under the
terms and conditions contained in this Master Loan and Security Agreement (this
"Master Agreement"). The Loan will be secured by the Collateral described in any
schedule to this Agreement (a "Schedule"). The Collateral also includes any
replacement parts, additions and accessories that you may add to the Collateral,
as well as any proceeds of sale, lease or rental of the Collateral. We may treat
any Schedule as a separate loan and security agreement containing all of the
provisions of this Loan and Security Agreement.
1. THE CREDIT
We may make the Loan in more than one advance (an "Advance", each of which shall
be evidenced by a "Schedule"). All of the Schedules, taken together, will make
up the Loan. We will only make the Loan to you if all the conditions in this
Master Agreement have been met to our satisfaction. We will rely on your
representations and warranties, contained in this Master Agreement, in making
the Loan. The terms of this Agreement will each apply to the Loan.
o USE OF PROCEEDS. You will use the proceeds of the Loan to pay for the
Collateral. We may pay the Supplier (whom you have chosen) of the
Collateral directly from the Loan proceeds. The Supplier will deliver the
Collateral to you at your expense. You will properly install the Collateral
at your expense at the location(s) indicated in the Schedule. If you have
already paid for the Collateral, we will pay the Loan proceeds to you or to
another person that you may designate in writing.
o NOTES. Your obligation to repay the Loan and to pay interest on the Loan
will be evidenced by Notes. Each Note will be dated the date of the
Schedule to which the Advance evidenced by the Note is related.
<PAGE> 2
o TERM. The Term of each Schedule (and the related Advance) begins upon the
date that we make payment for the Collateral covered under each Schedule
(the "Closing Date"). The Term continues until you fully perform all of
your obligations under this Agreement and each Schedule and the related
Note(s); provided, however, that we will release the Collateral covered
under each Schedule, respectively, promptly following your request, and at
your expense, made after the indebtedness evidenced by the Note to which
that Schedule is attached has been paid in full and provided no event of
default is existing under the Master Agreement at the time of release If
the Collateral is not delivered, installed and accepted by you by the date
indicated in the Schedule, we may terminate this Agreement and the Schedule
as to the Collateral that was not delivered, installed and accepted by
giving you 10 days written notice of termination. Any advance Loan payment
you may have paid us is nonrefundable, even if the Term never starts or if
we rightfully terminate this Agreement or the Schedule.
o LOAN ACCOUNT. We will keep a loan account on our books and records (which
are computerized) for the Loan. We will record all payments of principal
and interest in the loan account. Unless the entries in the loan account
are clearly in error, the loan account will definitively indicate the
outstanding principal balance and accrued interest on the Loan. We will
send you loan account statements from time to time or upon your request.
o PAYMENTS. The scheduled loan payments (the "Payments") are indicated on the
Schedule. The Payments are payable periodically as specified on the
Schedule from time to time (for example, monthly). The Schedule also
indicates whether the Payments are payable "in advance" or "in arrears."
You agree that you owe us the total of all of these Payments over the Term
of the Schedule.
o FIRST PAYMENT. The first Payment is due at the beginning of the Term or at
a later date that we agree to in writing pursuant to the applicable
Schedule. Subsequent Payments are due on the thirtieth day of each
successive period (except the next following period if Payments are payable
in arrears) until you pay us in full all of the Payments and any other
charges or expenses you owe us.
o INTEREST. Prior to maturity of a Schedule, you will pay us interest on each
Schedule at the Interest Rate indicated in the Schedule. "Maturity" means
the scheduled maturity or any earlier date on which we accelerate the Loan.
The Payment amount indicated in the Schedule includes interest at this
Interest Rate. Interest is calculated in advance using a year of 360 days
with twelve months of 30 days.
o DEFAULT INTEREST RATE. After Maturity of the Loan you will pay us interest
at a rate of four (4%) percent per year above the Interest Rate. This is
referred to as the "Default Rate."
o INTERIM PAYMENT. If an Advance is made on a day other than the thirtieth or
thirty-first day of a period, you will also pay us an interim Payment on
the first Payment date. The interim Payment will be for the period from the
beginning of the Term until the twenty-ninth day of the period in which the
Advance is made, unless the Advance is made on the thirty-first day of a
period. If the Advance is made on the thirty-first day of a period, the
interim Payment will be for the period from the beginning of the Term
through and including the twenty-ninth day of the next following period.
The Interim Payment will be calculated the same way as the regular Payments
but pro rata on a daily basis for the number of days for which the interim
Payment is due.
o USURY. You and we intend to obey the law. If the Interest Rate charged
would exceed the maximum legal rate, you will only have to pay the maximum
legal rate. You do not have to pay any excess interest over and above the
maximum legal rate of interest. However, if it
-2-
<PAGE> 3
later becomes legal for you to pay all or part of any excess interest, you
will then pay it to us upon our request.
o PAYMENT DETAILS. You will make all payments due under this Master Agreement
by 3:00 P.M., Connecticut time, on the day they are due. You will make all
payments in US Dollars (US$) in immediately available funds. We do not have
to make or give "presentment, demand, protest or notice" to get paid. You
waive "presentment, demand, protest and notice."
o APPLICATION OF PAYMENTS. Each payment under this Master Agreement is to be
applied in the following order: first, to any fees, costs, expenses and
charges you may owe us; second, to any interest due; and third to the
principal balance.
o PREPAYMENT. You may not prepay the Loan, in whole or in part, unless this
is specifically permitted by Exhibit A to this Agreement or the Schedule.
If prepayment is permitted by Exhibit A to this Master Agreement or the
Schedule, you will give us at least 30 days advance written notice of
prepayment. You will pay us the prepayment premium indicated in the
Schedule(s). You will also pay us all accrued and unpaid interest through
the date of prepayment, as well as all outstanding fees, costs, expenses
and charges then due. Of course, you will also pay the entire outstanding
principal balance of the Loan. Once you give us a notice of prepayment,
that notice is final and irrevocable. If we accelerate the Loan following
an Event of Default, you will also owe us a prepayment premium calculated
as if the Loan were prepaid on the date of acceleration. If no prepayment
is permitted, the premium due upon acceleration will be five (5%) percent
of the outstanding principal balance.
o YOUR OBLIGATION TO PAY US ALL PAYMENTS IS ABSOLUTE AND UNCONDITIONAL. YOU
ARE NOT EXCUSED FROM MAKING THE PAYMENTS, IN FULL, FOR ANY REASON. YOU
AGREE THAT YOU HAVE NO DEFENSE FOR FAILURE TO MAKE THE PAYMENTS AND YOU
WILL NOT MAKE ANY COUNTERCLAIMS OR SETOFFS TO AVOID MAKING THE PAYMENTS.
2. SECURITY INTEREST
o You grant us a security interest in the Collateral. The Collateral secures
the full and timely payment and performance of all of your obligations to
us under this Master Agreement and any other agreement, loan or lease that
you may have with us (the "Obligations"). You also grant us a security
interest in any additional collateral identified in any Schedule. Any
additional collateral is considered to be "Collateral" and it secures all
of the Obligations.
o If we request, you will put labels supplied by us stating "PROPERTY SUBJECT
TO A SECURITY INTEREST HELD BY FINOVA" on the Collateral where they are
clearly visible.
o You give us permission to add to this Master Agreement or any Schedule the
serial numbers and other information about the Collateral.
o You give us permission to file this Master Agreement or a Uniform
Commercial Code financing statement, at your expense, in order to perfect
our security interest in the Collateral. You also give us permission to
sign your name on the Uniform Commercial Code financing statements where
this is permitted by law.
o You will pay our cost to do searches for other filings or judgments against
you or your affiliates. You will also pay any filing, recording or stamp
fees or taxes resulting from filing this Agreement or a Uniform Commercial
Code financing statement. You will also pay our fees (subject to a $5,000
aggregate limitation) in effect from time to time for documentation,
administration and
-3-
<PAGE> 4
Termination of this Master Agreement.
o At your expense, you will defend our first priority security interest in
the Collateral against, and keep the Collateral free of, any legal process,
liens, other security interests, attachments, levies and executions. You
will give us immediate written notice of any legal process, liens,
attachments, levies or executions, and you will indemnify us against any
loss that results to us from these causes.
o You will notify us at least 15 days before you change the address of your
principal executive office.
o You will promptly sign and return additional documents that we may
reasonably request in order to protect our first priority security interest
in the Collateral.
o The Collateral is personal property and will remain personal property. You
will not incorporate it into real estate and will not do anything that will
cause the Collateral to become part of real estate or a fixture.
3. CONDITIONS OF LENDING
o See our Commitment Letter to you dated January 13, 1999, which you and we
consider to be a part of this Master Agreement. The terms and conditions of
the Commitment Letter continue following the making of the first Advance.
However, if there is a conflict between the terms and conditions of this
Master Agreement, any Schedule or any Note and the terms and conditions of
the Commitment Letter, then you and we agree that the terms and conditions
of this Agreement, the Schedules and the Notes control over the Commitment
Letter terms and conditions.
o Before we disburse any proceeds of any Advance, we also require the
following:
- That no payment is past due to us under any other agreement, loan or
lease that you or any guarantor have with us.
- That you are complying with all terms of this Agreement.
- That we have received all the documents we requested, including the
signed Schedule, Note and Delivery and Acceptance Certificate.
- That there has been no material adverse change in your financial
condition, business, operations or prospects, or that of any guarantor,
from the financial condition that you disclosed to us in your
application for credit.
4. REPRESENTATIONS AND WARRANTIES
You represent and warrant to us as follows:
o All financial information and other information that you or any guarantor
have given us is true and complete. You or any guarantor have not failed to
tell us anything that would make the financial information misleading.
There has been no material adverse change in your financial condition,
business, operations or prospects, or the financial condition of any
guarantor, from the financial condition that you disclosed to us in your
application for credit.
o You have supplied us with information about the Collateral. You promise to
us that the amount of our Advance as to each item of Collateral is no more
than the fair and usual price for this kind of Collateral, taking into
account any discounts, rebates and allowances that you or any affiliate of
yours may have been given for the Collateral.
o You have complied with all "environmental laws" and will continue to comply
with all "environmental laws." No "hazardous substances" are used,
generated, treated, stored or disposed of by you or at your
-4-
<PAGE> 5
properties except in compliance with all environmental laws. "Environmental
laws" mean all federal, state or local environmental laws and regulations,
including the following laws: CERCLA, RCRA, Hazardous Materials Transport
Act and The Federal Water Pollution Control Act. "Hazardous substances"
means all hazardous or toxic wastes, materials or substances, as defined in
the environmental laws, as well as oil, flammable substances, asbestos that
is or could become friable, urea formaldehyde insulation, polychlorinated
biphenyls and radon gas.
o You have taken all action necessary including but not limited to due
inquiry and due diligence to assure that there will be no material adverse
change to your business by reason of the advent of the year 2000, including
without limitation that all computer-based systems, embedded microchips and
other processing capabilities effectively recognize and process dates after
April 1, 1999.
5. COVENANTS
You agree to do the following things (or not to do the following things if so
stated) until full payment of all amounts due to us under this Agreement, the
Schedules and the Notes:
CARE, USE, LOCATION AND ALTERATION OF THE COLLATERAL
o You will make sure that the Collateral is maintained in good operating
condition, and that it is serviced, repaired and overhauled when this is
necessary to keep the Collateral in good operating condition. All
maintenance must be done according to the Supplier's or Manufacturer's
requirements or recommendations. All maintenance must also comply with any
legal or regulatory requirements.
o We will give you prior notice if we, or our agent, want to inspect the
Collateral or the service logs or service reports. We may inspect it during
regular business hours. You will pay our travel, meals and lodging costs to
inspect the Collateral, but only for one inspection per year, however not
to exceed $3,000 per inspection. If we find during an inspection that you
are not complying with this Master Agreement, you will pay our travel,
meals and lodging costs, our salary costs, and the costs and fees of our
agents for reinspection. You will promptly cure any problems with the
Collateral that are discovered during our inspection.
o You will use the Collateral only for business purposes. You will obey all
legal and regulatory requirements in your material use of the Collateral.
o You will make all additions, modifications and improvements to the
Collateral that are required by law or government regulation. Otherwise,
you will not alter the Collateral without our written permission. You will
replace all worn, lost, stolen or destroyed parts of the Collateral with
replacement parts that are as good or better than the original parts. The
new parts will become subject to our security interest upon replacement.
o You will not remove the Collateral from the location indicated in the
Schedule without our written permission.
YEAR 2000 COMPLIANT
o You shall take all action necessary including but not limited to due
inquiry and due diligence with critical business partners to assure that
there will be no material adverse change to your business by reason of the
advent of the year 2000, including without limitation that all
computer-based systems,
-5-
<PAGE> 6
embedded microchips and other processing capabilities effectively recognize
and process dates after April 1, 1999. At our request, you shall provide to
us assurance reasonably acceptable to us that your computer-based systems,
embedded microchips and other processing capabilities are year 2000
compatible.
RISK OF LOSS
o You have the complete risk of loss or damage to the Collateral. Loss or
damage to the Collateral will not relieve you of your obligation to make
the Payments.
o If any Collateral is lost or damaged, you have two choices (although if you
are in default under this Master Agreement, we and not you will have the
two choices). The choices are:
(1) Repair or replace the damaged or lost Collateral so that, once again,
the Collateral is in good operating condition and we have a perfected
first priority security interest in it.
(2) Pay us the present value (as of the date of payment) of the remaining
Payments. We will calculate the present value using a discount rate of
five (5%) percent per year. Once you have paid us this amount and any
other amount that you may owe us, we will release our security interest
in the damaged or lost Collateral and you (or your insurer) may keep
the Collateral for salvage purposes, on an "AS IS, WHERE IS" basis.
INSURANCE
o Until you have made all Payments to us under this Master Agreement, the
Schedules and the Notes, you will keep the Collateral insured. The amount
of insurance, the coverage, and the insurance company must be acceptable to
us.
o If you do not provide us with written evidence of insurance that is
acceptable to us, we may buy the insurance ourselves, at your expense. You
will promptly pay us the cost of this insurance. We have no obligation to
purchase any insurance. Any insurance that we purchase will be our
insurance, and not yours.
o Insurance proceeds may be used to repair or replace damaged or lost
Collateral or to pay us the present value of the Payments, as provided
above.
o You appoint us as your "attorney-in-fact" to make claims under the
insurance policies, to receive payments under the insurance policies, and
to endorse your name on all documents, checks or drafts relating to
insurance claims for Collateral.
TAXES
o You will pay all sales, use, excise, stamp, documentary and ad valorum
taxes, license, recording and registration fees, assessments, fines,
penalties and similar charges imposed on the ownership, possession, use,
lease or rental of the equipment or on the Loan.
o You will pay all taxes (other than our federal or state net income taxes)
imposed on you or on us regarding the Payments.
o You will reimburse us for any of these taxes that we pay or advance.
o You will file and pay for any personal property taxes on the Collateral.
FINANCIAL STATEMENTS
o During the Term you will promptly give copies of any filings you make with
the Securities and Exchange Commission (SEC). You and any guarantor will
also provide us with the following financial statements:
-6-
<PAGE> 7
o Quarterly balance sheet and statements of earnings and cash flow -
within 45 days after the end of your first three fiscal quarters in
each fiscal year. These will be certified by the chief financial
officer.
o Annual balance sheet and statements of earnings and cash flow - within
90 days after the end of each fiscal year. These will be audited by
independent auditors acceptable to FINOVA. Their audit report must be
unqualified, except an audit report may contain a going-concern
qualification.
These financial statements will be prepared according to generally accepted
accounting principles, consistently applied.
All financial statements and SEC filings that you or any guarantor provide us
will be true and complete. They will not fail to tell us anything that would
make them misleading.
You will also deliver to us, together with your quarterly financial statements,
a certificate executed by your chief financial officer, to the effect that since
the date of the last certificate delivered to FINOVA there has been no default
under this Agreement or, if the same cannot be so certified, the reasons
surrounding the same.
6. DEFAULTS
You are in default if any of the following happens:
o You do not pay us, when it is due, any Payment or other payment that you
owe us under this Master Agreement, any Schedule, Note or that you owe
under any other agreement, loan or lease that you have with us.
o Any of the financial information that you give us is not true and complete,
or you fail to tell us anything that would make the financial information
misleading.
o You do something you are not permitted to do, or you fail to do anything
that is required of you, under this Master Agreement, any Schedule or any
other lease, loan or other financial arrangement that you have with us
unless such item is corrected to our satisfaction within fifteen (15) days
after you receive notice from us.
o An event of default occurs for any other lease, loan or obligation of yours
(or any guarantor) that exceeds $100,000.
o You or any guarantor file bankruptcy, or involuntary bankruptcy is filed
against you or any guarantor.
o You or any guarantor are subject to any other insolvency proceeding other
than bankruptcy (for example, a receivership action or an assignment for
the benefit of creditors).
o Without our permission, you sell all or a substantial part of its assets,
merge or consolidate, or a majority of your voting stock or interests (or
any guarantor's voting stock or interests) is transferred.
o There is a material adverse change in your financial condition, business,
operations or prospects, or that of any guarantor, from the condition that
you disclosed to us in your application for credit.
THIRD PARTY CURE RIGHTS. The person(s) or entities, as applicable, named on
Schedule B, which is attached hereto and made a part hereof (the "Cable
Companies") will have the following "cure rights", as third party beneficiaries
under this Master Agreement. If you are in default under Section 6 of this
Master Agreement we will give you written notice. If you do not cure the default
within three (3) business days of the date of written notice, we will give each
of the Cable Companies ninety (90) days advance written notice before we
exercise our remedies to remove and repossess
-7-
<PAGE> 8
the Collateral in their possession. Within ninety (90) days of the date of our
notice to them, respectively, each Cable Company may cure your default with
respect to the Collateral in its possession, in which event we will not remove
or repossess this Collateral so long as no new default has occurred and is
continuing.
REMEDIES, DEFAULT INTEREST, LATE FEES
If you are in default we may exercise one or more of our "remedies." Each of our
remedies is independent. We may exercise any of our remedies, all of our
remedies or none of our remedies. We may exercise them in any order we choose.
Our exercise of any remedy will not prevent us from exercising any other remedy
or be an "election of remedies." If we do not exercise a remedy, or if we delay
in exercising a remedy, this does not mean that we are forgiving your default or
that we are giving up our right to exercise the remedy. Our remedies allow us to
do one or more of the following:
o "Accelerate" the Loan balance under any or all Notes. This means that we
may require you to immediately pay us all Payments for the entire Term for
any or all Schedules.
o Require you to immediately pay us all amounts that you are required to pay
us for the entire Term of any other agreements, loans or leases that you
have with us.
o Sue you for all Payments and other amounts you owe us plus the Prepayment
Premium (see Section 1 above).
o Require you at your expense to assemble the Collateral at a location we
request in the United States of America.
o Remove and repossess the Collateral from where it is located, without
demand or notice, or make the Collateral inoperable. We have your
permission to remove any physical obstructions to removal of the
Collateral. We may also disconnect and separate all Collateral from other
property. No court order, court hearing or "legal process" will be required
for us to repossess the Collateral. You will not be entitled to any damages
resulting from removal or repossession of the Collateral. We may use, ship,
store, repair or lease any Collateral that we repossess. We may sell any
repossessed Collateral at private or public sale. You give us permission to
show the Collateral to buyers at your location free of charge during normal
business hours. If we do this, we do not have to remove the Collateral from
your location. If we repossess the Collateral and sell it, we will give you
credit for the net sale price, after subtracting our costs of repossessing
and selling the Collateral. If we rent the Collateral to somebody else, we
will give you credit for the net rent received, after subtracting our costs
of repossessing and renting the Collateral, but the credit will be
discounted to present value using a discount rate equal to the Default
Rate. The credit will be applied against what you owe us under this Master
Agreement, the Schedules, the Notes and any other agreements, loans or
leases that you have with us. If the credit exceeds the amount you owe
under this Master Agreement, the Schedule, the Notes and any other
agreements, loans or leases that you have with us, we will refund the
amount of the excess to you.
o Return conditions: Following an Event of Default, at our request you will
return the Collateral, freight and insurance prepaid by you, to us at a
location we request in the United States of America. It will be returned in
good operating condition, as required by Section 5 above. The Collateral
will not be subject to any liens when it is returned. All advertising
insignia will be removed and the finish will be painted or blended so that
nobody can see that advertising insignia used to be there.
o You will pack or crate the Collateral for shipping in the original
containers, or
-8-
<PAGE> 9
comparable ones. You will do this carefully and follow all recommendations
of the Supplier and the Manufacturer as to packing or crating.
o You will also return to us the plans, specifications, operating manuals,
software documentation, discs, warranties and other documents furnished by
the Manufacturer or Supplier. You will also return to us all service logs
and service reports, as well as all written materials that you may have
concerning the maintenance and operation of the Collateral.
o At our request, you will provide us with up to 60 days free storage of the
Collateral at your location, and will let us (or our agent) have access to
the Collateral in order to inspect it and sell it.
o You will pay us what it costs us to repair the Collateral if you do not
return it in the required condition.
You will also pay us for the following:
o All our expenses of enforcing our remedies. This includes all our expenses
to repossess, store, ship, repair and sell the Collateral.
o Our reasonable attorney's fees and expenses.
o Default interest on everything you owe us from the date of your default to
the date on which we are paid in full at the Default Rate.
You realize that the damages we could suffer as a result of your default are
very uncertain. This is why we have agreed with you in advance on the Default
Rate to be used in calculating the payments you will owe us if you default. You
agree that, for these reasons, the payments you will owe us if you default are
"agreed" or "liquidated" damages. You understand that these payments are not
"penalties" or "forfeitures."
LATE FEES. You will pay us a late fee whenever you pay any amount that you owe
us more than seven (7) days after it is due. You will pay the late fee within
one month after the late Payment was originally due. The late fee will be ten
(10%) percent of the late Payment. If this exceeds the highest legal amount we
can charge you, you will only be required to pay the highest legal amount. The
late fee is intended to reimburse us for our collection costs that are caused by
late Payment. It is charged in addition to all other amounts you are required to
pay us, including Default Interest.
7. EXPENSES AND INDEMNITIES
PERFORMING YOUR OBLIGATIONS IF YOU DO NOT
If you do not perform one or more of your obligations under this Master
Agreement or a Schedule or Note, we may perform it for you if we notify you in
writing at least ten (10) days before we do this and you do not provide us with
satisfactory evidence of performance within this ten (10) day period. We do not
have to perform any of your obligations for you. If we do choose to perform
them, you will pay us all of our expenses to perform the obligations. You will
also reimburse us for any money that we advance to perform your obligations,
together with interest at the Default Rate on that amount. These will be
additional "Payments" that you will owe us and you will pay them at the same
time that your next Payment is due.
o You will indemnify us, defend us and hold us harmless for any and all
claims, expenses and attorney's fees concerning or arising from the
Collateral, this Agreement, or any Schedule or Note, or your breach of any
representation or warranty. It includes any claims concerning the
manufacture, selection, delivery, possession, use, operation or return of
the Collateral.
o This obligation of yours to indemnify us continues even after the Term is
over.
-9-
<PAGE> 10
8. MISCELLANEOUS
WE MAY ASSIGN OR GRANT A SECURITY INTEREST IN THIS AGREEMENT, ANY SCHEDULE, ANY
NOTE OR ANY PAYMENTS WITHOUT YOUR PERMISSION. THE PERSON TO WHOM WE ASSIGN IS
CALLED THE "ASSIGNEE." THE ASSIGNEE WILL NOT HAVE ANY OF OUR OBLIGATIONS UNDER
THIS MASTER AGREEMENT. YOU WILL NOT BE ABLE TO RAISE ANY DEFENSE, COUNTERCLAIM
OR OFFSET AGAINST THE ASSIGNEE.
AFTER ASSIGNMENT YOU MAY "QUIETLY ENJOY" THE USE OF THE COLLATERAL SO LONG AS
YOU ARE NOT IN DEFAULT.
UNLESS YOU RECEIVE OUR WRITTEN PERMISSION, YOU MAY NOT ASSIGN OR TRANSFER YOUR
RIGHTS UNDER THIS MASTER AGREEMENT OR ANY SCHEDULE. YOU ALSO ARE NOT ALLOWED TO
LEASE OR RENT THE COLLATERAL OR LET ANYBODY ELSE USE IT UNLESS WE GIVE YOU OUR
WRITTEN PERMISSION.
WE DID NOT MANUFACTURE OR SUPPLY THE COLLATERAL. WE ARE NOT A DEALER IN THE
COLLATERAL. INSTEAD, YOU CHOSE THE COLLATERAL.
WE DO NOT MAKE ANY WARRANTY AS TO THE COLLATERAL. WE DO NOT MAKE ANY WARRANTY AS
TO "MERCHANTABILITY" OR "SUITABILITY" OR "FITNESS FOR A PARTICULAR PURPOSE" OR
"NONINFRINGEMENT" OF ANY PATENT, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHT.
WE WILL NOT BE RESPONSIBLE FOR ANY LOSS, DAMAGE, OR INJURY TO YOU OR ANYBODY
ELSE AS A RESULT OF ANY DEFECTS, HIDDEN OR OTHERWISE, IN THE COLLATERAL UNDER
"STRICT LIABILITY" LAWS OR ANY OTHER LAWS.
WE WILL NOT BE RESPONSIBLE FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES,
LOSS OF PROFITS OR GOODWILL.
If the Collateral is unsatisfactory, you will continue to pay us all Payments
and other amounts you are required to pay us. You must seek repair or
replacement of the equipment solely from the Manufacturer or Supplier and not
from us. Neither the Manufacturer nor the Supplier is our "agent," so they
cannot speak for us and they are not allowed to make any changes in this Master
Agreement or any Schedule or Note, or give up any of our rights.
ACCEPTANCE BY FINOVA, GOVERNING LAW, JURISDICTION, VENUE, SERVICE OF PROCESS,
WAIVER OF JURY TRIAL.
THIS MASTER AGREEMENT WILL ONLY BE BINDING WHEN WE HAVE ACCEPTED IT IN WRITING.
THIS MASTER AGREEMENT IS GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF
ARIZONA (NOT INCLUDING THE "CHOICE OF LAW" DOCTRINE), THE STATE IN WHICH OUR
OFFICE IS LOCATED IN WHICH FINAL APPROVAL OF THE TERMS OR CONDITIONS OF THIS
MASTER AGREEMENT OCCURRED AND FROM WHICH DISBURSEMENT OF THE LOAN PROCEEDS WILL
BE ORDERED. HOWEVER, IF THIS MASTER AGREEMENT IS UNENFORCEABLE UNDER ARIZONA
LAW, IT WILL INSTEAD BE GOVERNED BY THE LAWS OF THE STATE IN WHICH THE
COLLATERAL IS LOCATED.
YOU MAY ONLY SUE US IN A FEDERAL OR STATE COURT THAT IS LOCATED IN MARICOPA
COUNTY, ARIZONA. THIS APPLIES TO ALL LAWSUITS UNDER ALL LEGAL THEORIES,
INCLUDING
-10-
<PAGE> 11
CONTRACT, TORT AND STRICT LIABILITY. YOU CONSENT TO THE PERSONAL JURISDICTION OF
THESE ARIZONA COURTS. YOU WILL NOT CLAIM THAT MARICOPA COUNTY, ARIZONA, IS AN
"INCONVENIENT FORUM" OR THAT IT IS NOT A PROPER "VENUE."
WE MAY SUE YOU IN ANY COURT THAT HAS JURISDICTION. WE MAY SERVE YOU WITH PROCESS
IN A LAWSUIT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO YOUR ADDRESS
INDICATED AFTER YOUR SIGNATURE BELOW.
YOU AND WE EACH WAIVE ANY RIGHT YOU OR WE MAY HAVE TO A JURY TRIAL IN ANY
LAWSUIT BETWEEN YOU AND US.
NOTICES. We may give you written notice in person, by mail, by overnight
delivery service, or by fax. Notice will be sent to your address below your
signature. Mail notice will be effective three (3) days after we mail it with
prepaid postage to the address stated. Overnight delivery notice requires a
receipt and tracking number. Fax notice requires a receipt from the sending
machine showing that it has been sent to your fax number and received.
You may give us notice the same way that we may give you notice.
This Master Agreement benefits our successors and assigns. This Master Agreement
benefits only those successors and assigns of yours that we have approved in
writing.
This Master Agreement binds your successors and assigns. This Master Agreement
binds only those successors and assigns of ours that clearly assume our
obligations in writing.
TIME IS OF THE ESSENCE OF THIS MASTER AGREEMENT
This Master Agreement, all of the Schedules and the Notes and the Commitment
Letter are together the entire agreement between you and us concerning the
Collateral.
Only an employee of FINOVA who is authorized by corporate resolution or policy
may modify or amend this Loan or any Schedule or Note on our behalf, and this
must be in writing. Only he or she may give up any of our rights, and this must
be in writing. If more than one person is the Borrower under this Agreement,
then each of you is jointly and severally liable for your obligations under this
Master Agreement.
This Master Agreement is only for your benefit and for our benefit, as well as
our successors and assigns. It is not intended to benefit any other person.
If any provision in this Master Agreement is unenforceable, then that provision
must be deleted. Only unenforceable provisions are to be deleted. The rest of
this Master Loan Agreement will remain as written.
PUBLICITY. We may make press releases and publish a tombstone announcing this
transaction and its total amount. You may not publicize this transaction in any
way without our prior written consent.
-11-
<PAGE> 12
LENDER: BORROWER:
FINOVA CAPITAL CORPORATION HIGH SPEED ACCESS CORP.
10 WATERSIDE DRIVE 1000 WEST ORMSBY AVENUE
FARMINGTON, CT 06032-3065 LOUISVILLE, KY 40210
BY: /s/ FINOVA CAPITAL CORPORATION BY: /s/ HIGH SPEED ACCESS CORP.
--------------------------------- -------------------------------
PRINTED NAME: PRINTED NAME:
----------------------- ---------------------
TITLE: TITLE:
----------------------------- ----------------------------
FAX NUMBER: (860) 676-1814 Taxpayer ID#
----------------------
DATE ACCEPTED: FAX NUMBER:
--------------------- -----------------------
DATED:
----------------------------
STATE OF
-----------------------
COUNTY OF
-----------------------
I acknowledge that ___________________, who stated that he/she is
_______________ of the Borrower named above, signed this Master Loan and
Security Agreement in my presence today: _______________. He/She acknowledged to
me that his/her signature on this Master Loan and Security Agreement was
authorized by a valid resolution or other valid authorization from Borrower's
board of directors or other governing body.
---------------------------------
Notary Public
[SEAL]
-12-
<PAGE> 13
SCHEDULE B
The following is a list of Cable Companies who have third party cure rights:
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 Drive, Suite 400
St. Louis, MO 63131
Attn: Curt Shaw
CHARTER COMMUNICATIONS, INC.
12444 Powerscourt Drive, Suite 400
St. Louis, MO 63131
Attn: Curt Shaw
Initial
-13-
<PAGE> 1
EXHIBIT 10.28
LEASE
THIS LEASE is made and entered into as of April 1, 1998, by and between
High Speed Access Corp., 1000 West Ormsby Avenue, Louisville, Kentucky
(hereinafter referred to as "Tenant"), and Henry Vogt Machine Co., 1000 West
Ormsby Avenue, Louisville, Kentucky 40210 (hereinafter referred to as
"Landlord").
WITNESSETH:
WHEREAS, Landlord is the owner of certain real property and improvements
("VOGT INDUSTRIAL COMMONS") located at 1000 West Ormsby Avenue, Louisville,
Kentucky 40210; and
WHEREAS, Tenant desires to use and occupy a portion of the Vogt Industrial
Commons as is specifically marked on Exhibit "A" annexed hereto (the "PREMISES")
as a place of business;
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, the receipt and sufficiency of which is hereby acknowledged, the parties
do hereby agree as follows:
A. Term
For the consideration set forth in paragraph B of this lease (the
"LEASE"), Landlord does hereby lease the Premises to Tenant and Tenant hereby
leases from Landlord the Premises for a period of one (1) year commencing on
April 1, 1998, (the "COMMENCEMENT DATE"), and terminating at midnight on March
31, 1999.
B. Rent; Security Deposit
Tenant, in consideration of the Lease, agrees to pay to Landlord in
check or certified funds the sum of $3,601 per month as rent beginning on the
Commencement Date, and continuing every month thereafter during the term of the
Lease. Rent shall be paid in advance on the first day of each month without
notice or demand and without any set off or deduction. Rent shall be paid to
Landlord at 1000 West Ormsby, Louisville, Kentucky 40210, Attention: Frank
Horlander, Facilities Manager, or such other place as shall be agreed upon by
the parties hereto.
Should Tenant fail to pay when due any installment of rent, or any other
sum payable to Landlord under the terms of this Lease, then interest at the
lesser of (i) the highest lawful rate of interest per annum permitted in the
State of Kentucky or (ii) sixteen percent (16%) per annum, shall accrue from and
after the date of which any sum shall be due and payable, and such interest,
together with a late charge of $50.00 to cover the extra expense involved in
handling such delinquency, shall be paid by Tenant to Landlord at the time of
payment of the delinquent sum. In addition to rent, all of the payments to be
made by Tenant to Landlord, shall be deemed to be and shall become additional
rent hereunder whether or not the same be designated as such, and shall be due
and payable upon demand together with any interest thereon; and Landlord shall
have the same remedies for failure to pay same as for nonpayment of rent.
1
<PAGE> 2
C. The Premises; Quiet Enjoyment
The Premises shall consist of the space marked on Exhibit "A" which is
incorporated herein by reference. The Premises contain approximately 5584 square
feet of office area.
Tenant shall also have the Right of First Refusal with regard to the
remaining space on the second floor: Suites 201, 220, 230 and 225. If, during
the term of the lease, Landlord receives a bona fide offer for those suites, or
any parts thereof, Tenant shall have the opportunity to match the offer and take
the space. Landlord shall notify Tenant of the offer within 3 days of receiving
the written offer and Tenant shall respond within 3 days of receiving Landlord's
notification. Tenant's failure to respond within the time frame shall be deemed
a waiver of its right.
In addition to the Premises, Tenant shall have the following rights,
privileges and entitlements, without further cost or expense:
1. Reasonable use of visitors parking in the "Visitors Parking Area";
2. Assigned parking for up to 18 cars in the 10th Street Parking Lot;
plus one spot in the parking garage;
3. Existing security, as available;
Upon paying the rent herein reserved and performing and observing all
other terms, covenants and conditions of this Lease on Tenant's part to be
performed and observed, Tenant shall peaceably and quietly have, hold and enjoy
the Premises during term without interference by Landlord, subject,
nevertheless, to the terms of this lease and to any mortgages, ground or
underlying leases, agreements and encumbrances to which this Lease is or may be
subordinated.
D. Use of Premises
Landlord and Tenant agree that they will not compete with one another
with respect to the operation of their respective businesses during the lease
term. Subject to and in accordance with all rules, regulations, laws,
ordinances, statutes and requirements of all governmental authorities, the Fire
Insurance Rating Organization, the Board of Fire Insurance Underwriters and
Landlord's insurance carrier, Tenant shall use the Premises solely for the
purpose listed above and for no other purposes.
E. Common Areas
The use and occupancy by the Tenant of the Premises shall include a
license to use in common with the others entitled thereto, the Common Areas, as
may be designated from time to time by Landlord. Tenant shall pay the sum of
$111 per month (which is included in the rent) for the use of common areas and
maintenance. The term "Common Areas" as used in this Lease
2
<PAGE> 3
shall mean all facilities furnished to Vogt Industrial Commons and designated by
Landlord for the general use, in common, with other occupants of Vogt Industrial
Commons, including Tenant, its officers, agents, employees and customers, which
facilities may include, but are not limited to, the parking areas, streets,
passenger vehicle roadways, sidewalks, walkways, service areas, roadways,
loading platforms, drainage and plumbing systems, roof, canopies, ramps,
landscape areas and other similar facilities available for common use which may
from time to time exist. Common Areas shall be subject at all times during the
term to reasonable rules and regulations adopted by the Landlord not in conflict
with any of the express provisions hereof governing the use of the parking
areas, walks, driveways, passageways, signs, exteriors of building, lighting and
other matters affecting other Tenants in, and the general management and
appearance of the Vogt Industrial Commons. Tenant agrees to comply with all such
rules and regulation upon notice to the Tenant from the Landlord. Tenant
expressly agrees as follows:
1. All garbage and refuse shall be placed outside of the Premises
prepared for collection in the manner and at the times and places
specified by Landlord. Tenant shall pay the cost of removal of any
Tenant's refuse and garbage and maintain all loading areas in a clean
manner satisfactory to the Landlord. Landlord reserves the right to
specify Tenant's waste removal company.
2. Tenant shall keep and maintain the Premises in a neat and clean
condition.
3. Tenant shall not install, operate or maintain in the Premises or in
any other area of the Vogt Industrial Commons, any electrical
equipment which does not bear underwriter's approval, or which would
overload the electrical system or any part thereof beyond its
capacity for proper and safe operation as determined by Landlord.
4. Tenant shall not suffer, allow or permit any vibration, noise,
light, emission, odor or other effect to emanate from the Premises,
or from any machine or other installation therein, or otherwise
suffer, allow or permit the same to constitute a nuisance or
otherwise interfere with the safety, comfort and convenience of the
Landlord or any of the other occupants of the Vogt Industrial
Commons, or their customers, agents, or guests or any others lawfully
in or upon the Vogt Industrial Commons. Upon notice by Landlord to
Tenant that any of the aforesaid is occurring, Tenant agrees to
forthwith remove or control the same.
5. Tenant will confine access and movement of Tenant's employees,
suppliers, contractors, customers and guests to areas defined in
section (C).
6. Vending Machines - Landlord reserves the right to provide any
vending machines to be located on the Premises and to locate vending
machines in all Common Areas. Placement of vending machines within
the Premises shall be subject to the consent of Tenant, which shall
not unreasonably be withheld.
3
<PAGE> 4
F. Signs, Awnings, Canopies
Landlord reserves the right to erect and maintain such suitable
signs as it may deem appropriate in Landlord's sole discretion, to advertise the
Vogt Industrial Commons. Tenant, at its own expense, may erect and maintain only
such signs as Landlord may approve in writing. Tenant shall submit detailed
drawings of its sign for review and approval by Landlord prior to the
installation thereof. Tenant shall also provide Landlord with a copy of any
necessary permits for installation of its sign prior to installation thereof.
G. Assignment
Tenant shall not take any of the following actions without the prior
written consent of the Landlord which consent may be withheld in Landlord's sole
and absolute discretion:
1. Assign, transfer, or pledge this Lease, or any part of, or interest
in the Premises;
2. Sublet the Premises or any part thereof; or
3. Permit the Premises or any part thereof to be used by anyone other
than Tenant or persons designated by Landlord.
H. Waste
Tenant shall not commit nor allow any other person to commit any waste
on the Premises. In the event that any improvement on the Premises is damaged or
destroyed by Tenant, Tenant's invitee, licensee or guest, it is agreed that
Landlord shall have no obligation to restore the same or to refund any portion
of the rent paid by Tenant. Tenant shall be responsible for restoring, at
Tenant's sole cost and expense, any such damage or destruction occurring on or
to the Premises. "Improvement" shall include, without limitation, all buildings,
fences, and all other structures currently existing or hereafter placed upon the
Premises.
I. Hazardous Materials
Tenant agrees that Tenant, its agents, servants, employees, licensees,
guests and contractors, shall not use, manufacture, store or dispose of any
flammable explosives, radioactive materials, hazardous waste or materials, toxic
wastes or materials or other similar substances (collectively "Hazardous
Materials") on, under or about the Premises or the Vogt Industrial Commons. If
Tenant has knowledge of or receives any notice of (1) the happening of any event
involving the use, spill, discharge, or cleaning up of any hazardous material (a
"hazardous discharge") or (2) any complaint, order, citation, or notice with
regard to air emissions, water discharges, noise emissions, or any other
environmental, health, or safety matter affecting Tenant, the Premises or Vogt
Industrial Commons (an "environmental complaint") from any person or entity,
including, without limitation, the United States Environmental Protection
4
<PAGE> 5
Agency ("EPA"), Tenant shall give immediate written notice thereof to Landlord
disclosing full details of same. If Tenant breaches the obligations stated in
this paragraph, or if the presence of Hazardous Materials on the Premises caused
or permitted by Tenant results in contamination of the Premises and/or Vogt
Industrial Commons, or if contamination of the Premises by hazardous material
otherwise occurs for which Tenant is legally liable to Landlord for damage
resulting therefrom, the Tenant shall indemnify, defend and hold Landlord
harmless from any and all claims, judgments, damages, penalties, fines, costs,
liabilities or losses (including, without limitation, diminution in value of the
Premises, damages for the loss or restriction on use of rentable or useable
space or of any amenity of the Premises, damages arising from any adverse impact
on marketing of space, and sums paid in settlement of claims, attorneys' fees,
consultant fees and expert fees) which arise during or after the lease term as
the result of such contamination. This indemnification of Landlord by Tenant
includes, without limitation, costs incurred in connection with any
investigation of site conditions or any cleanup, remedial, removal or
restoration work required by any federal, state or local governmental agency or
political subdivision because of Hazardous Material present in, on or under the
Premises. The indemnity obligations of Tenant under this Section I shall survive
any termination of this Lease. Landlord understands that Tenant may use
Hazardous Material in the normal and ordinary course of its business and
Landlord gives permission for Tenant to do so without relieving Tenant any of
the responsibilities and requirements of this Lease or any federal, state or
local laws which govern Hazardous Material. Tenant agrees to provide Landlord a
list of all such Hazardous Materials fifteen (15) days prior to the Commencement
Date and further agrees to update said list as Landlord may require. Tenant
agrees to register with the Air Pollution Control District of Jefferson County
prior to the Commencement Date and provide Landlord with proof of such
registration.
J. Nuisance
Tenant shall use the property in a careful and proper manner complying
with all laws, ordinances, and regulations relating to the possession and
maintenance of the Premises, and shall not maintain or cause to be maintained
any nuisance on the Premises.
Tenant agrees that it will comply with (i) Landlord's policies and
regulations relating to the alcohol, drugs and firearms on the Premises, and
(ii) Landlord's policies and regulations relating to security on the Premises,
including but not limited to policies regarding sign-in and the use and display
of identification badges in connection with enforcement of such policies. A copy
of these policies and regulations (which are subject to periodic change) are
attached hereto, made a part hereof, and marked "Exhibit "B".
K. Indemnification of Landlord
Tenant shall indemnify and hold Landlord harmless from and against all
claims, actions, proceedings, costs, damages, and liabilities (including
attorney fees, and including any damage caused by the release of pollutants or
contaminants into the environment of the Premises or surrounding the Premises)
and arising out of, connected with, or resulting from the occupancy, use, or
condition of the Premises. The indemnity obligations of Tenant under this
section (K) shall survive any termination of this lease.
5
<PAGE> 6
Except with respect to the gross negligence or the intentional acts of
Landlord, its agents and employees, Landlord shall not be liable for any loss
of, or damage to, property of Tenant or of others located in the Premises or the
Vogt Industrial Commons, by theft or otherwise, nor for any loss or damage
whatsoever to any property which Tenant could remove at the end of the terms as
provided in section (U) hereof; Landlord shall not be liable for any injury or
damage to persons or property or to the interior of the Premises resulting from
fire, explosion, falling plaster, gas, steam, electricity, water, rain or snow
or leaks from any part of the premises or from pipes, appliances or plumbing
works or from the roof, street or subsurface or from any other place or by
dampness or by any other cause whatsoever; Landlord shall not be liable for any
such injury or damage caused by other person(s) either in the Premises or
elsewhere in the Vogt Industrial Commons, or by occupants of property adjacent
to the Vogt Industrial Commons, or by the public, or by operations in the
construction of any private, public or quasi-public work.
L. Force Majeure
In the event that either party hereto shall be delayed or hindered in or
prevented from the performance of any act required hereunder by reason of
strikes, lockouts, labor troubles, inability to procure materials, failure or
power, riots, insurrection, war or other reason of a like nature not the fault
of the party delayed in performing work or doing acts required under the terms
of this Lease, the performance of such acts shall be excused for the period of
the delay and the period for the performance of any such acts shall be extended
for a period equivalent to the period of such delay. The provisions of this
Section L shall not operate to excuse Tenant from prompt payment of rent,
additional rent or any other payments required by the terms of this Lease.
M. Damage or Destruction
If all or any part of the Premises shall be damaged or destroyed by fire
or other casualty, this Lease shall continue in full force and effect, unless
terminated as hereinafter provided. Notwithstanding anything to the contrary
contained in this section or elsewhere in this Lease, Landlord may terminate
this Lease by sending written notice to Tenant within 30 days following such
damage or destruction if:
1. The Premises or the building in which the Premises is located shall
be destroyed or damaged as a result of an occurrence which is not
covered by Landlord's insurance; or
2. The Premises shall be damaged or destroyed during the last twelve
(12) months of the term or any renewals thereof; or
3. Any or all of the buildings or common areas of the Vogt Industrial
Commons are damaged (whether or not the Premises are damaged) to
such an extent that, in the sole judgment of Landlord, Vogt
Industrial Commons cannot be operated as an economically viable unit.
6
<PAGE> 7
N. Insurance
Tenant covenants that it will carry and maintain automobile liability
insurance with bodily injury limits of $1,000,000 each person and $1,000,000
each accident, property damage limit of $1,000,000, naming Landlord as an
additional insured.
Tenant shall carry and maintain during the term of this Lease, at
Tenant's sole expense, comprehensive general liability insurance in a combined
single limit amount of not less than $1,000,000 per occurrence for bodily injury
or death of any person or persons on the Premises or property damage to the
Premises and property damage and a $5,000,000 umbrella policy, insuring both
Landlord and Tenant against liability arising out of the use, occupancy and
maintenance of the Premises.
Tenant covenants that it will carry Workers' Compensation Insurance and
Employer's Liability Insurance in an amount in accordance with the laws of the
state in which the Tenant may be required to pay compensation.
Insurance certificates must be obtained and delivered to Landlord within
10 days of possession of Premises, and must provide evidence that Landlord has
been added as an insured and that required policy limits are in force. Current
Certificates shall be provided to Landlord during the term of Lease. Tenant
shall make available to Landlord, upon request, documents indicating that
insurance premiums on the above-described policy have been paid.
O. Maintenance, Repair, and Alteration
Tenant, at its own expense, shall keep and maintain the Premises in as
good order, condition and state of repair as when received normal wear and tear
excepted.
Tenant shall make no alterations, additions, or improvements to the
Premises; without first obtaining the prior written consent of Landlord. All
alterations, additions, and improvements made by Tenant shall become the
property of the Landlord upon the making thereof and shall be surrendered to
Landlord upon the termination of this Lease without compensation to Tenant.
Within a reasonable period after receipt of written notice from the
Tenant of the need therefor, Landlord shall make necessary structural repairs to
the roof, exterior walls (excluding the exterior of and the frames surrounding
all windows, door, plate glass and signs) of the Premises; necessary repairs to
plumbing, pipes and conduits located outside the Premises or in the Common
Areas; and necessary repairs to sidewalks, parking areas and curbs. Landlord
shall not be required to make any repairs where such repairs are made necessary
by any act or omission or negligence of Tenant, or concessionaire of Tenant, or
their respective employees, agents, invites, licensees, visitors or contractors,
or by fire or other casualty or condemnation (except as provided in section (M).
7
<PAGE> 8
If (i) Tenant does not repair the Premises properly as required
hereunder and to the reasonable satisfaction of Landlord, or (ii) Landlord, in
the exercise of its sole discretion, determines that emergency repairs are
necessary to the Premises, or (iii) repairs or replacements to the Vogt
Industrial Commons, the building or the Premises are made necessary by any act
or omission or negligence of Tenant, its agents, employees, concessionaires,
contractors, invites, licensees or visitors, then in any such event Landlord may
make such repairs without liability to Tenant for loss or damage that occurs to
Tenant's equipment, fixtures, or other property or to Tenant's business by
reason thereof, and Tenant shall pay Landlord upon demand the total cost of such
repairs plus interest in the amount of the lesser of (i) sixteen percent (16%)
per annum or (ii) the maximum interest rate permitted by law, from the date such
costs are incurred by Landlord until repaid by Tenant.
If any or all of the Premises require repair(s) valued at more than the
sum of 12 months Rent, Landlord, at its option, may perform the repairs or may
terminate this Lease by sending 30 days written notice to Tenant. Such
termination is to be effective 30 days after such notice.
P. Liens
1. Mechanics' and materialmen's liens
Tenant shall keep the Premises and the Vogt Industrial Commons free
and clear from any and all liens, encumbrances, claims, or demands for
work performed, material furnished, or operations conducted at the
request of Tenant.
2. Equipment and trade fixture liens
Tenant agrees that all equipment and trade fixtures installed in and
on the Premises during the term of this Lease or any extension of this
Lease shall not be made the subject of any lien or encumbrance, except
those given to secure purchase money, security interests in such
equipment or trade fixtures. All equipment and trade fixtures so
installed by or for Tenant shall be deemed to be personal property and
shall not become a part of the Premises. However, at the end of the term
of this Lease, or any extension to this Lease, Tenant shall be
responsible for any damage to the Premises that may be occasioned by the
installation or removal of such trade fixtures and equipment.
Landlord agrees that it shall execute and deliver a Landlord's
subordination to the holder of any such security interest the effect of
which shall subordinate Landlord's lien with respect to such equipment
and trade fixtures.
8
<PAGE> 9
Q. Inspection/Access
Landlord or its representative shall have the right, but not the
duty, to enter the Premises at any reasonable time to inspect the Premises for
the purpose of determining whether Tenant is complying with the terms of this
Lease or any other purpose to protect Landlord's interest in the Premises.
Landlord and/or Landlord's contractors shall have security and maintenance
access at all times.
R. Taxes and Utilities
Landlord shall pay all real estate taxes imposed upon the Premises by
reason of ownership. Tenant shall pay prior to delinquency all taxes levied
against or assessed upon its trade fixtures, furnishings, equipment and all
other personal property of Tenants contained in the Premises or which arise out
of Tenant's possession or use of the Premises, together with any penalties or
interest which may be assessed therewith.
All utilities are included in the monthly rental.
Voice telephone service (other than call center or other constant
use) will be provided at a base charge of $500 plus $10 for each extension for
the first 50 estensions. Any extensions over 50 will be billed at $20 per
extension. Long distance will be billed at cost to Landlord (inclusive of
applicable charges, fees and taxes) plus $.02 per minute. Service for fax, modem
or other non-voice use by one extension for more than 90 minutes per day is
available upon payment of installation charges and monthly fees. Tenant may use
existing instruments in place, however, any additional instruments or
replacements will be at Tenant's cost. All costs of programming, wiring or
moving for Tenant's phones will be billed to Tenant.
Landlord makes no representation or warranty that any services or
utilities will be free from shortages, failures or interruptions caused by
repairs, maintenance, replacements, changes of service, labor controversies,
accidents or other causes beyond the Landlord's control and Landlord shall not
be liable to Tenant for any such shortages, failures or interruptions. Overtime
charges may be assessed for service at times not listed and on holidays. Prior
arrangements are necessary for weekend or holiday availability. Landlord
reserves the right, with reasonable notification to Tenant, to modify services
provided to Tenant by Landlord.
S. Termination and Default
Upon the expiration of the term of this Lease, the Lease shall
automatically terminate unless Tenant has elected to extend the lease pursuant
to the terms and provisions of paragraph (S). Landlord may terminate the Lease
prior to the expiration of the Lease term if Tenant fails to perform any of the
covenants set forth herein, by delivering notice of its intention to terminate
to Tenant 10 days prior to the date in which such termination is to become
effective. Upon the termination of this Lease, all of Tenant's rights in the
Premises shall cease and Landlord, or its successors or assigns may re-enter and
take possession of the Premises, evict Tenant, and shall hold the Premises free
of all claim of Tenant. Notwithstanding such termination upon default
9
<PAGE> 10
by Tenant, Landlord shall have the right to exercise such other rights and
remedies as are provided by law or in equity.
T. Renewal Option For First Renewal Term
Provided Tenant is not in default, Tenant shall have the right, to be
exercised as provided below, to extend the term of this Lease for one successive
period of twelve (12) months.
Tenant shall exercise its right to renewal in the following manner:
1. At least three (3) months prior to the expiration of the initial
term, Tenant shall notify Landlord in writing of its election to
exercise the right to renew the term of this Lease; and
2. On the giving of such notice, this Lease shall, subject to the
terms of this provision, be deemed to be renewed and the term
thereof renewed for a period of twelve (12) months from the date
of expiration of the initial term, without the execution of any
further lease or instrument, subject to Landlord's option to
increase the rent a maximum of five percent (5%).
U. Renewal Option For Second, Third and Fourth Renewal Term
Provided Tenant is not in default, Tenant shall have the right, to be
exercised as provided below, to extend the term of this Lease for three (3)
successive periods of twelve (12) months each on the following terms and
conditions:
1. No default is existing or continuing in the performance of any
of the terms of this Lease;
2. Each renewal term shall be on the same terms covenants and
conditions as provided in this Lease except that there shall be no
privilege to extend the term of this Lease for any period of time
beyond the expiration of the third renewal term and subject in
each renewal term to the Landlord's option to increase the rent
equal to the rental rate which Landlord is then leasing comparable
space in the Vogt Industrial Commons to new Tenant's above the rent
charged in the previous term; and
3. With respect to the second and each subsequent renewal term,
this lease shall have previously been renewed for the first and
each immediately preceding renewal term respectively.
Tenant shall exercise its right to renewal in the following manner:
1. At least three (3) months prior to the expiration of the
initial term, and at least three (3) months prior to the expiration
of any extended term, Tenant
10
<PAGE> 11
shall notify Landlord in writing of its election to exercise the
right to renew the term of this Lease for the second, third and
fourth renewal term, as the case may be; and
2. On the giving of such notice, this Lease shall subject to the
terms of this provision, be deemed to be renewed and the term
thereof renewed for a period of twelve (12) months from the date of
expiration of the initial renewal term or from the date of
expiration of the renewal term during which such notice is given,
as the case may be, without the execution of any further lease or
instrument, provided however, that notwithstanding anything to the
contrary set forth herein the Lease term for the second or third
renewal term, as the case may be, shall terminate 6 months after
either Landlord or Tenant advises the other, in writing, of its
intent to terminate under the provisions of this paragraph.
V. No Waiver of Default
Failure of Landlord to exercise any of the remedies afforded it by
virtue of this Lease or which are otherwise available to it shall not constitute
a waiver of any default hereunder and the acceptance of rent by the Landlord
shall not constitute a waiver of any default which has taken place at any time
prior to such acceptance.
W. Surrender of Premises
At the expiration of this Lease, Tenant shall surrender the Premises
in good condition and repair, normal wear and tear excepted, and Tenant shall
surrender all keys for the Premises to Landlord at the place then fixed for
payment of rent and shall inform Landlord of all combinations on locks, safes
and vaults, if any, in the Premises. Tenant's obligation to observe or perform
this covenant shall survive the expiration or other termination of this Lease.
Prior to the expiration or sooner termination of this Lease, Tenant
shall remove any and all trade fixtures, equipment and other unattached items
which Tenant may have left in the Premises and which are susceptible to being
moved without damage to the building. Tenant shall repair any damage to the
Premises caused by its removal of such fixtures and movables. In the event
Tenant does not make such repairs, Tenant shall be liable for and agrees to pay
Landlord's costs and expense in making such repairs, together with a sum equal
to twenty percent (20%) of such cost and expenses to cover Landlord's overhead
in making such repairs for Tenant. Tenant shall not remove any plumbing or
electrical fixtures or equipment, heating or air conditioning equipment, floor
coverings (included, but not limited to wall to wall carpeting, walls or
ceilings, all of which shall be deemed to constitute a part of the interest and
estate of the Landlord), nor shall Tenant remove any fixture or machinery that
were furnished or paid for by Landlord whether initially installed or replaced.
The Premises shall be left in a broomclean condition. If Tenant shall fail to
remove its trade fixtures and other property not as provided in this section (W)
such fixtures and other property not removed by Tenant shall be deemed abandoned
by Tenant and, at the option of the Landlord, shall become the property of the
11
<PAGE> 12
Landlord, or may be removed by Landlord at the Tenant's expense, or sold or
otherwise disposed of, in which event the proceeds of such sale or other
disposition shall belong to Landlord.
X. Holdover by Tenant
In the event that Tenant shall hold over in the Premises after any
termination of this Lease pursuant to the provisions hereof, or any expiration
of the term (or extension thereof), such holding over shall be deemed to have
created a tenancy from month-to-month terminable on thirty (30) days written
notice by either party, subject to all the terms and provisions of this Lease.
However, the monthly rental during such hold over term shall be computed on the
basis of (1/8) of the sum of all rents payable by Tenant to Landlord during the
last twelve (12) months of the term (including, but not limited to, rent) and
all other additional charges provided by this Lease. If Tenant fails to
surrender the Premises upon termination of this Lease, in addition to any other
liabilities to Landlord accruing therefrom, Tenant shall indemnify Landlord and
hold Landlord harmless from loss or liability resulting from such failure,
including, without limitation, any claims made by any succeeding Tenant founded
on such failure.
Y. Lien of Landlord for Rent, Taxes and Other Sums
Landlord shall have and Tenant hereby grants, a security interest in
any furnishings, equipment, fixtures, inventory, accounts receivable, and other
personal property of any kind belonging to Tenant, or the equity if Tenant
herein, located on or derived from activities conducted in or upon the Premises.
The security interest is granted for the purpose of securing the payment of
rent, other charges, assessments, penalties and damages herein covenanted to be
paid by Tenant, and for the purpose of securing the performance of all other
obligations of the Tenant hereunder. Upon Tenant's default or breach of any
covenants of this Lease, Landlord shall have all remedies available under the
laws of the State of Kentucky, including, but not limited to, the right to take
possession of the above mentioned property and dispose of it by sale in a
commercially reasonable manner. Tenant hereby agrees to sign a Financing
Statement, at Landlord's request, for the purpose of serving notice to third
parties of the security interest herein granted.
Z. Provisions Severable
If any terms or provisions of this Lease or the application thereof
to any person or circumstance shall, to any extent, be invalid or unenforceable,
the remainder of this Lease, or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be effected thereby and each term and provision of this
Lease shall be valid and be enforced to the fullest extent permitted by law.
12
<PAGE> 13
AA. Governing Law
This Lease shall be governed and construed in accordance with the
laws of the Commonwealth of Kentucky.
BB. Binding Agreement
This lease will be binding upon and insure to the benefit of Landlord
and Tenant and their respective successors and assigns. Section headings used
herein are for convenience only and will not affect the construction of this
Lease. Any provision herein that may prove to be limited or unenforceable under
applicable law shall not affect the validity or enforcement of the remainder of
such provision or of any other provision.
CC. Notices
Any communications between Landlord and Tenant, payments, and notices
to be given or made shall be mailed to Landlord at 1000 West Ormsby, Louisville,
Kentucky 40210, Attention: Frank Horlander, Facilities Manager, and Tenant at
1000 West Ormsby, Louisville, Kentucky 40210, Attention: Kent Oyler or to such
other addresses as either party may indicate in writing.
DD. Lease as Entire Agreement
This Lease contains all of the agreements between the parties hereto,
and it may not be modified other than by agreement in writing signed by all
parties hereto, as their successors in interest. All prior conversations or
writings between the parties hereto or their representatives with respect to the
Premises are merged herein and extinguished. Tenant acknowledges that it has not
relied on any representations or statements of opinion or fact by Landlord or
its agents or employees in entering into this lease other than as may be
expressly provided herein. The terms, covenants and conditions contained herein
shall insure to the benefit of, and be binding upon, the Landlord and Tenant and
their respective successors and assigns, except as may be otherwise expressly
provided in this Lease.
EE. Broker's Commission
Tenant warrants that it has had no dealings with any broker or agent
in connection with this Lease and covenants to pay, hold harmless and indemnify
Landlord from and against any and all costs, expense or liability for any
compensation, commissions and charges claimed by any broker or agent with
respect to this Lease or the negotiation thereof.
FF. Time is of the Essence.
Time is of the essence of this Lease.
13
<PAGE> 14
GG. Condemnation
If the whole of the Premises shall be taken by or pursuant to
governmental authority or through exercise of the right of eminent domain or
sold under threat thereof, this Lease shall terminate effective upon the date of
the taking or sale, respectively, and all obligations of Landlord and Tenant
otherwise accruing after the date of such termination, shall be discharged. If a
part of the Premises is so taken or sold and the balance of the Premises is not
suitable for the continued operation of such business as is permitted by this
Lease, Landlord or Tenant may elect to terminate this Lease provided written
notice of such election is given by landlord or Tenant, respectively, to the
other, within thirty (30) days after the date of such taking or sale. In the
event no such notice of termination is given, this Lease shall continue but the
rent hereunder shall be reduced in proportion to the reduction of the area of
the Premises caused by such taking. If a part of the building is which the
Premises is located is so taken or sold with the result that, in the reasonable
opinion of Landlord, it is not practical or not commercially reasonable to
operate the balance of the Building for lease space, then Landlord may elect to
terminate this Lease by written notice of such election given to Tenant within
thirty (30) days of such taking or sale. All proceeds of any condemnation award
or sale made under threat of condemnation shall be the property of Landlord;
provided, however, that Tenant shall be entitled to any award for loss of or
damage to Tenant's trade fixtures and removal of personal property.
HH. Subordination and Attornment
This Lease, at Landlord's option, shall be subordinate to any
mortgage, or any other hypothecation or security now or hereafter placed upon
the real property of which the Premises are a part and to any and all advances
made on the security thereof and to any and all renewals, modifications,
consolidations, replacements and extensions thereof. Notwithstanding such
subordination, Tenant's right to quiet possession of the Premises shall not be
disturbed if Tenant is not in default and so long as Tenant shall pay the rent
and observe and perform all of the provisions of this Lease, unless this Lease
is otherwise terminated pursuant to its terms. If any mortgagee shall elect to
have this Lease prior to the lien of its mortgage, and shall give written notice
thereof to Tenant, this Lease shall be deemed prior to such mortgage, whether
this Lease is dated prior to or subsequent to the date of such mortgage or the
date of recording thereof. Tenant agrees to execute and Landlord covenants to
obtain the execution of any mortgagee to instruments reasonably required to
effectuate such attornment, subordination and non-disturbance agreement or
priority agreement, as the case may be.
II. Attorneys Fees.
If either party brings an action to enforce the terms hereof or
declare rights hereunder, the prevailing party in any such action, trial or
appeal shall be entitled to its reasonable attorney's fees to be paid by the
losing party.
14
<PAGE> 15
JJ. Waiver of Subrogation
Landlord and Tenant waive any all claim and right of recovery against
the other and all persons claiming by, through or under them to the extent that
such claim or right of recovery is covered by insurance, and all insurance
policies carried by either party covering the Demised Premises, including,
without limitation, contents, fire and casualty insurance, shall expressly
waiver any right of the insurer to proceed against the other party.
IN WITNESS WHEREOF, each party has caused this Lease to be executed
this 27th day of April 1998.
ATTEST: HENRY VOGT MACHINE CO.
/s/ Cheryl Gaus /s/ Henry V. Heuser, Jr.
- -------------------------------- -----------------------------------
By:
Chairman
-----------------------------------
Its:
ATTEST: HIGH SPEED ACCESS CORP.
/s/ Charyl Gaus /s/ Kent Oyler
- -------------------------------- -----------------------------------
By:
CEO
-----------------------------------
Its:
15
<PAGE> 16
SCHEDULE "I"
Landlord's Improvements
Landlord shall make the following improvements: None.
Existing partitions in place are available for Tenant's use at no additional
charge during the term of the Lease. Any expense for reconfiguring, maintenance,
repair or removal will be borne by Tenant.
16
<PAGE> 17
FIRST AMENDMENT TO LEASE
Amendment made as of May 1, 1998, between Henry Vogt Machine Co., of 1000 W.
Ormsby Avenue, Louisville, Jefferson County, Kentucky, (herein referred to as
Lessor), and High Speed Access Corp, 1000 W. Ormsby Avenue, Louisville, Kentucky
40210, (herein referred to as Lessee.)
RECITALS
1. Lessor and Lessee entered into a lease on April 1, 1998 (the "Lease").
2. It is the desire of the parties to amend the Lease to add space located on
the third floor for an Operations Center, as follows:
Section B: The first sentence of Section B is amended in its entirety
to read: Tenant in consideration of the Lease, agrees to pay to Landlord in
check or certified funds the sum of $3,601 per month as rent beginning on the
Commencement Date, and the sum of $5,261 per month as rent beginning on May 1,
1998 and continuing every month thereafter during the term of the Lease.
Section C: The first sentence of Section C is hereby amended in its
entirety to read: The Premises shall consist of the space marked on Exhibits A
and A-1 which are incorporated here by reference. The second sentence of Section
C is hereby amended in its entirety to read: The Premises contain approximately
8,240 square feet of office area. The third paragraph of Section C (Item 2) is
amended in its entirety to read: Assigned parking for up to 25 cars in the 10th
street parking lot; plus two spots in the parking garage.
3. In consideration of the mutual covenants contained herein, the parties
agree as follows:
a) Lessor and Lessee hereby adopt, ratify, and confirm the Lease as it is
hereby amended.
b) These provisions shall extend to and be binding on the heirs, legal
representatives, successors, and assigns of both parties hereto.
<PAGE> 18
c) This amendment shall be incorporated into the Lease and all other terms
of the Lease shall remain in full force and effect, unaltered and unchanged by
this subsequent agreement.
In witness whereof, the parties have executed this agreement at Louisville,
Kentucky the day and year first above written.
ATTEST: HENRY VOGT MACHINE CO.
/s/ Cheryl Gaus /s/ Henry V. Heuser, Jr.
- -------------------------------- -----------------------------------
By:
Chairman
-----------------------------------
Its:
ATTEST: HIGH SPEED ACCESS CORP.
/s/ Cheryl Gaus /s/ Kent Oyler
- -------------------------------- -----------------------------------
By:
CEO
-----------------------------------
Its:
<PAGE> 19
SECOND AMENDMENT TO LEASE
Amendment made as of June 1, 1998, between Henry Vogt Machine Co., of 1000 W.
Ormsby Avenue, Louisville, Jefferson County, Kentucky, (herein referred to as
Lessor), and High Speed Access Corp, 1000 W. Ormsby Avenue, Louisville, Kentucky
40210, (herein referred to as Lessee.)
RECITALS
1. Lessor and Lessee entered into a lease on April 1, 1998 (the "Lease").
2. It is the desire of the parties to amend the Lease to add space located on
the second floor adjacent to its existing Premises, as follows:
Section B: The first sentence of Section B is amended in its entirety to
read: Tenant in consideration of the Lease, agrees to pay to Landlord in check
or certified funds the sum of $3,601 per month as rent beginning on the
Commencement Date, $5,261 beginning on May 1, 1998 and $6,079 beginning on June
1, 1998 and continuing every month thereafter during the term of the Lease.
Section C: The first sentence of Section C is hereby amended in its
entirety to read: The Premises shall consist of the space marked on Exhibits A
and A-1 which are incorporated here by reference. The second sentence of Section
C is hereby amended in its entirety to read: The Premises contain approximately
9,486 square feet of office area. The third paragraph of Section C (Item 2) is
amended in its entirety to read: Assigned parking for up to 28 cars in the 10th
street parking lost; plus two spots in the parking garage.
3. In consideration of the mutual covenants contained herein, the parties
agree as follows:
a) Lessor and Lessee hereby adopt, ratify, and confirm the Lease as it is
hereby amended.
b) These provisions shall extend to and be binding on the heirs, legal
representatives, successors, and assigns of both parties hereto.
<PAGE> 20
c) This amendment shall be incorporated into the Lease and all other terms
of the Lease shall remain in full force and effect, unaltered and unchanged by
this subsequent agreement.
In witness whereof, the parties have executed this agreement at Louisville,
Kentucky the day and year first above written.
ATTEST: HENRY VOGT MACHINE CO.
/s/ Cheryl Gaus /s/ Henry V. Heuser, Jr.
- -------------------------------- -----------------------------------
By:
Chairman
-----------------------------------
Its:
ATTEST: HIGH SPEED ACCESS CORP.
/s/ Cheryl Gaus /s/ Kent Oyler
- -------------------------------- -----------------------------------
By:
CEO
-----------------------------------
Its:
<PAGE> 21
THIRD AMENDMENT TO LEASE
Amendment made as of July 20, 1998, between Henry Vogt Machine Co., of 1000 W.
Ormsby Avenue, Louisville, Jefferson County, Kentucky, (herein referred to as
Lessor), and High Speed Access Corp, 1000 W. Ormsby Avenue, Louisville, Kentucky
40210, (herein referred to as Lessee.)
RECITALS
1. Lessor and Lessee entered into a lease on April 1, 1998 (the "Lease").
2. It is the desire of the parties to amend the Lease to add space located on
the second floor adjacent to its existing Premises, as follows:
Section B: The first sentence of Section B is amended in its entirety
to read: Tenant in consideration of the Lease, agrees to pay to Landlord in
check or certified funds the sum of $3,601 per month as rent beginning on the
Commencement Date, $5,261 beginning on May 1, 1998, $6,079 beginning on June 1,
1998 and $7078 beginning on July 20, 1998 and continuing every month thereafter
during the term of the Lease.
Section C: The first sentence of Section C is hereby amended in its
entirety to read: The Premises shall consist of the space marked on Exhibits A,
A-1 and A-2 which are incorporated here by reference. The second sentence of
Section C is hereby amended in its entirety to read: The Premises contain
approximately 10909 square feet of office area. The third paragraph of Section C
(Item 2) is amended in its entirety to read: Assigned parking for up to 33 cars
in the 10th street parking lot; plus two spots in the parking garage.
3. In consideration of the mutual covenants contained herein, the parties
agree as follows:
a) Lessor and Lessee hereby adopt, ratify, and confirm the Lease as it is
hereby amended.
b) These provisions shall extend to and be binding on the heirs, legal
representatives, successors, and assigns of both parties hereto.
c) This amendment shall be incorporated into the Lease and all other terms
of the Lease shall remain in full force and effect, unaltered and unchanged by
this subsequent agreement.
In witness whereof, the parties have executed this agreement at Louisville,
Kentucky the day and year first above written.
ATTEST: HENRY VOGT MACHINE CO.
/s/ Cheryl Gaus /s/ Henry V. Heuser, Jr.
- -------------------------- ----------------------------------
By:
Chairman
----------------------------------
Its:
ATTEST: HIGH SPEED ACCESS CORP.
/s/ Cheryl Gaus /s/ Kent Oyler
- -------------------------- ----------------------------------
By:
CEO
----------------------------------
Its:
<PAGE> 22
FOURTH AMENDMENT TO LEASE
Amendment made as of September 1, 1998, between Henry Vogt Machine Co., of 1000
W. Ormsby Avenue, Louisville, Jefferson County, Kentucky, (herein referred to as
Lessor), and High Speed Access Corp, 1000 W. Ormsby Avenue, Louisville, Kentucky
40210, (herein referred to as Lessee.)
RECITALS
1. Lessor and Lessee entered into a lease on April 1, 1998 (the "Lease").
2. It is the desire of the parties to amend the Lease to add space located on
the first floor, as follows: In addition to the Premises and rentals
provided for in the Lease, as previously amended, Tenant may add to its
Premises, on a month to month basis, the space marked on Exhibit A-3,
attached and incorporated here by reference, for an additional payment of
$505 in rent per month during the term of this occupancy. Tenant or
Landlord may end this month to month tenancy upon 30 days prior written
notice.
3. In consideration of the mutual covenants contained herein, the parties
agree as follows:
a) Lessor and Lessee hereby adopt, ratify, and confirm the Lease as it is
hereby amended.
b) These provisions shall extend to and be binding on the heirs, legal
representatives, successors, and assigns of both parties hereto.
c) This amendment shall be incorporated into the Lease and all other terms
of the Lease shall remain in full force and effect, unaltered and unchanged by
this subsequent agreement.
In witness whereof, the parties have executed this agreement at Louisville,
Kentucky the day and year first above written.
ATTEST: HENRY VOGT MACHINE CO.
/s/ Cheryl L. Gaus /s/ Stephanie Smith
- -------------------------------- -----------------------------------
By:
Director of Operations
-----------------------------------
Its:
ATTEST: HIGH SPEED ACCESS CORP.
/s/ John G. Hundley /s/ Kent Oyler
- -------------------------------- -----------------------------------
VP/Gen. Counsel By:
CEO
-----------------------------------
Its:
<PAGE> 23
FIFTH AMENDMENT TO LEASE
Amendment made as of November 1, 1998, between Henry Vogt Machine Co., of 1000
W. Ormsby Avenue, Louisville, Jefferson County, Kentucky, (herein referred to as
Lessor), and High Speed Access Corp, 1000 W. Ormsby Avenue, Louisville, Kentucky
40210, (herein referred to as Lessee.)
RECITALS
1. Lessor and Lessee entered into a lease on April 1, 1998 (the "Lease").
2. It is the desire of the parties to amend the Lease to add space located on
the first floor, as follows: In addition to the Premises and rentals
provided for in the Lease, as previously amended, Tenant may add to its
Premises, on a month to month basis, the space marked on Exhibit A-4,
attached and incorporated here by reference, for an additional payment of
$1036.25 in rent per month during the term of this occupancy. Tenant or
Landlord may end this month to month tenancy upon 30 days prior written
notice.
3. In consideration of the mutual covenants contained herein, the parties
agree as follows:
a) Lessor and Lessee hereby adopt, ratify, and confirm the Lease as it is
hereby amended.
b) These provisions shall extend to and be binding on the heirs, legal
representatives, successors, and assigns of both parties hereto.
c) This amendment shall be incorporated into the Lease and all other terms
of the Lease shall remain in full force and effect, unaltered and unchanged by
this subsequent agreement.
In witness whereof, the parties have executed this agreement at Louisville,
Kentucky the day and year first above written.
ATTEST: HENRY VOGT MACHINE CO.
/s/ Henry V. Heuser, Jr. /s/ Stephanie Smith
- -------------------------------- -----------------------------------
By:
Director of Operations
-----------------------------------
Its:
ATTEST: HIGH SPEED ACCESS CORP.
/s/ John G. Hundley /s/ George Willett
- --------------------------------- -----------------------------------
Assistant Secretary By:
General Counsel
CFO
-----------------------------------
Its:
<PAGE> 24
SIXTH AMENDMENT TO LEASE
Amendment made as of January 1, 1999, between Henry Vogt Machine Co., of 1000 W.
Ormsby Avenue, Louisville, Jefferson County, Kentucky, (herein referred to as
Lessor), and High Speed Access Corp, 1000 W. Ormsby Avenue, Louisville, Kentucky
40210, (herein referred to as Lessee.)
RECITALS
1. Lessor and Lessee entered into a lease on April 1, 1998 (the "Lease").
2. It is the desire of the parties to amend the Lease to add space located on
the second floor, as follows: In addition to the Premises and rentals
provided for in the Lease, as previously amended, Tenant may add to its
Premises the space marked on Exhibit A-5, attached and incorporated here by
reference, for an additional payment of $1123.75 in rent per month during
the term of this occupancy. In addition, since Tenant now effectively
occupies the entire second floor, the common area of 2,833 square feet is
included in the Lease Premises for an additional $361.00 per month. The
total rent for all HSA Premises as of January 1, 1998 is $10,104.00 per
month.
3. In consideration of the mutual covenants contained herein, the parties
agree as follows:
a) Lessor and Lessee hereby adopt, ratify, and confirm the Lease as it is
hereby amended.
b) These provisions shall extend to and be binding on the heirs, legal
representatives, successors, and assigns of both parties hereto.
c) This amendment shall be incorporated into the Lease and all other terms
of the Lease shall remain in full force and effect, unaltered and unchanged by
this subsequent agreement.
In witness whereof, the parties have executed this agreement at Louisville,
Kentucky the day and year first above written.
ATTEST: HENRY VOGT MACHINE CO.
/s/ Cheryl L. Gaus /s/ Henry V. Heuser, Jr.
- -------------------------------- -----------------------------------
By:
Chairman
-----------------------------------
Its:
ATTEST: HIGH SPEED ACCESS CORP.
/s/ John Hundley /s/ Kent Oyler
- -------------------------------- -----------------------------------
By:
1/11/99
-----------------------------------
Its:
<PAGE> 25
SEVENTH AMENDMENT TO LEASE
Amendment made as of March 15, 1999, between Henry Vogt Machine Co., of 1000 W.
Ormsby Avenue, Louisville, Jefferson County, Kentucky, (herein referred to as
Lessor), and High Speed Access Corp, 1000 W. Ormsby Avenue, Louisville, Kentucky
40210, (herein referred to as Lessee.)
RECITALS
1. Lessor and Lessee entered into a lease on April 1, 1998 (the "Lease").
2. It is the desire of the parties to amend the Lease to add space located on
the first floor, as follows: In addition to the Premises and rentals
provided for in the Lease, as previously amended, Tenant may add to its
Premises the space marked on Exhibit A-7, attached and incorporated here by
reference, for an additional payment of $159.38 in rent per month during
the term of this occupancy.
3. In consideration of the mutual covenants contained herein, the parties
agree as follows:
a) Lessor and Lessee hereby adopt, ratify, and confirm the Lease as it is
hereby amended.
b) These provisions shall extend to and be binding on the heirs, legal
representatives, successors, and assigns of both parties hereto.
c) This amendment shall be incorporated into the Lease and all other terms
of the Lease shall remain in full force and effect, unaltered and unchanged by
this subsequent agreement.
In witness whereof, the parties have executed this agreement at Louisville,
Kentucky the day and year first above written.
ATTEST: HENRY VOGT MACHINE CO.
/s/ Cheryl L. Gaus /s/ Stephanie Smith
- -------------------------------- -----------------------------------
By:
Director of Operations
-----------------------------------
Its:
ATTEST: HIGH SPEED ACCESS CORP.
/s/ John G. Hundley /s/ Geporge Willett
- -------------------------------- -----------------------------------
Assistant Secretary By:
CFO
-----------------------------------
Its:
<PAGE> 1
EXHIBIT 10.29
HSANET CABLE AFFILIATE AGREEMENT
THIS CABLE AFFILIATE AGREEMENT ("Agreement") made the 15th day of
October, 1997, between
HIGH SPEED ACCESS NETWORK, INC. ("HSAnet"), a Delaware corporation
with its principal place of business at Littleton, Colorado,
A N D
GANS MULTIMEDIA PARTNERSHIP
- --------------------------------------------------------------------------------
PRINT NAME
a Pennsylvania general partnership (hereafter referred to as ("Operator"),
----------------------------------
TYPE OF ENTITY
with its principal place of business at Hazleton, Pennsylvania.
B A C K G R O U N D
A. The Operator is the sole and exclusive owner of the cable television
system(s) in the geographic areas identified on Schedule A attached hereto and
incorporated herein by reference (the "System"). The Operator desires to augment
its business by utilizing the technical capacity of the System to permit
customers of HSAnet to utilize the System for purposes of internet access and
high speed data transmission.
B. HSAnet is in the business of providing its customers with internet
access and high speed data transmission through various sources, including
without limitation, through dial-up ISP systems and cable television plants and
systems ("HSAnet Service" or "Service"). HSAnet desires to use the Operator's
System to deliver the HSAnet Service to its customers.
C. The Operator and HSAnet believe that it is in their mutual interests
to utilize Operator's System to provide HSAnet customers with access to the
HSAnet Service.
NOW, THEREFORE, in exchange for good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, and intending to be
legally bound hereby, the parties agree as follows:
1. HSANET SERVICE. Subject to the terms and provisions of this
Agreement,
<PAGE> 2
Operator hereby grants to HSAnet, and HSAnet hereby accepts from the Operator,
the exclusive right to use the System to deliver to HSAnet customers the HSAnet
Service during the term of this Agreement (all recipients of HSAnet Services
within the geographic region of Operator's System shall constitute "HSAnet
Customers").
2. TERM. The initial term of this Agreement shall commence on the date
of this Agreement and continue for a period of five (5) years from the date the
HSAnet Service is first utilized by HSAnet customers ("Commencement Date"). The
term of the Agreement shall thereafter be automatically renewed for successive
five (5) year renewal terms unless written notice of termination is given by
either party to the other at least six (6) months prior to the expiration of the
initial or applicable renewal term, in which case this Agreement shall terminate
at the end of such initial or applicable renewal term.
3. SYSTEM REQUIREMENTS FOR SERVICE. Operator acknowledges and
understands that in order to deliver the HSAnet Service to HSAnet customers, (a)
the System must satisfy the technical requirements set forth in Exhibit B
attached hereto and incorporated herein by reference ("System Data
Requirements") and (b) HSAnet shall have no responsibility, duty or obligation
regarding the System satisfying the System Data Requirements. The Operator does
covenant and agree that it shall promptly undertake any measures to cause the
System to attain and maintain the System Data Requirements during the period of
time of this Agreement. Exhibit B sets forth the time frame agreed upon by the
Operator and HSAnet for the Operator to bring the System into conformity with
the System Data Requirements.
4. HSANET RESPONSIBILITIES FOR HSANET SERVICE. Upon completion of
System Data Requirements by the Operator, HSAnet will promptly undertake any
measures specified in Exhibit B as HSAnet Responsibilities in order to permit
Operator's System to provide the HSAnet Services to HSAnet customers. Except as
is expressly made applicable to HSAnet in Exhibit B and labeled as HSAnet
Responsibilities, HSAnet shall have no responsibility, duty or obligation
regarding the System's capacity to provide the HSAnet Services to HSAnet
customers.
5. COMPENSATION AND PAYMENTS. Subject to the terms and provisions of
this Agreement, effective on and after the Commencement Date, HSAnet shall pay
to the Operator an amount equal to twenty-five (25%) percent of the gross
revenue of HSAnet Customers (the "Fee").
Within forty-five (45) days following the end of each and every
calendar month during the Term thereof, HSAnet shall deliver to the Operator, to
the attention of Joseph W. Aman, Vice President and Chief Operating Officer, a
statement showing the computation of the Fee in accordance with Exhibit C,
containing true and accurate information for the preceding calendar month as to
(i) the total number of HSAnet Customers in Operator's System franchise area,
(ii) HSAnet gross revenue for use of the HSAnet Service in Operator's System
franchise area, and (iii) a calculation of the Operator's Fee.
HSAnet shall keep true and accurate books and records relating to this
Agreement and Operator's Fee in accordance with generally accepted accounting
principles, consistently applied.
<PAGE> 3
During the Term hereof and for one year thereafter, at Operator's expense,
Operator or its designated representatives may, at HSAnet's offices and at
reasonable times within regular business hours and from time to time, subject to
suitable protections relating to confidentiality and non-disclosure, inspect and
make extracts and copies of any such books and records in order to determine the
accuracy of any or all of HSAnet's statements rendered under this Agreement. In
the event that any audit undertaken by HSAnet in accordance with its rights
hereunder discloses a discrepancy of five (5%) percent or more with respect to
the amount of the Fees set forth on any of HSAnet's statements, HSAnet shall
reimburse Operator for all costs incurred by Operator in connection with such
audit.
6. DELIVERY OF HSANET SERVICE. HSAnet shall use its best efforts to
provide a high quality HSAnet Service to its customers. Any and all costs of
whatever kind or nature incurred with respect to the maintenance of Operator's
plant shall be borne by and shall be the sole responsibility of Operator.
7. DISTRIBUTION OF HSANET SERVICE. Operator covenants and agrees that
it shall distribute the HSAnet Service in its entirety, without delay,
interruption, alteration, addition, deletion or editing of any portion thereof
and in a manner which will permit the reception by HSAnet Service customers in
the same manner it provides services to its cable television customers. Operator
shall maintain suitable facilities to HSAnet for the retransmission of HSAnet
Service throughout the System and shall comply with all applicable local, state
and federal laws, rules, regulations and franchises as required in connection
with the operation of its System.
Operator shall cooperate with HSAnet to ensure that HSAnet Service is
received only by parties who are HSAnet Service customers.
Operator shall not, and shall not authorize others to, receive,
retransmit or use by any means, whether now known or hereafter devised, any part
of the HSAnet Service without the prior written authorization of HSAnet.
Operator shall take all reasonable precautions to prevent unlawful reception,
retransmission or use of the HSAnet Service. If Operator becomes aware that any
unauthorized third party is receiving or transmitting any part of the HSAnet
Service, Operator shall notify HSAnet in writing of the name and address of such
third party.
8. OWNERSHIP AND USE OF HSANET EQUIPMENT AND SOFTWARE. Subject to
Operator's rights relating to the HSAnet Equipment, if its loan to HSAnet is not
repaid as required by Operator, the HSAnet Equipment and software which has been
supplied and installed by HSAnet in Operator's System under this Agreement shall
at all times be the property of HSAnet. Subject to the foregoing relating to
Operator's loan to HSAnet, Operator agrees to immediately return to HSAnet in
good condition at the termination of this Agreement all HSAnet Equipment subject
to reasonable wear and tear. Operator will use reasonable care to avoid damaging
HSAnet Equipment, and will not move, relocate, alter, sell, lease, license,
assign, encumber or otherwise tamper with the HSAnet Equipment.
Operator acknowledges that the names and Marks "HSAnet", "High Speed
Access Network" and other HSAnet trademarks and logos and variations
incorporating the same, and
<PAGE> 4
titles of programs contained in the HSAnet Service are the exclusive property of
HSAnet and that Operator has not and will not acquire any proprietary rights
thereto by reason of the Agreement. Operator shall have no rights to use such
names, marks, logos, variations or titles except at the times and in a manner
expressly approved by HSAnet. Operator shall not publish or disseminate any
material which violates any restriction imposed by HSAnet.
9. MARKETING AND PROMOTION. Operator covenants and agrees that it shall
promote the HSAnet Service to cable subscribers of the System with the aim of
maximizing the number of HSAnet Service customers. HSAnet shall provide Operator
with promotional and marketing advice and shall make available to Operator, at
Operator's expense, such sales and promotional materials as HSAnet and Operator
mutually consider appropriate. Operator's payments pursuant to this paragraph
shall be made within thirty (30) days of receipt of HSAnet's invoice for same.
Operator shall not delete or alter, or authorize the deletion or alteration of,
any copyright or trademark notice, logo, credit or any other notice included in
any materials delivered pursuant to this paragraph.
10. FORCE MAJEURE. HSAnet shall not be liable to Operator for failure
to supply the HSAnet Service or any part thereof, nor shall Operator be liable
to HSAnet for failure to provide the HSAnet Service or any part thereof, by
reason of any act of God, labor dispute, non-delivery by third parties,
breakdown of facilities, legal enactment, governmental order or regulation or
any other cause beyond their respective control.
11. DEFAULT AND TERMINATION. Due and timely performance of both parties
is of the essence hereof. If HSAnet defaults in the making of any payments
hereunder or if either party defaults in the performance of any of its material
obligation hereunder and such default shall not be cured within five (5) days
after written notice thereof to HSAnet, 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 Operator, 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, in addition to any and all other rights which that party may
have, terminate this Agreement by giving written notice to the other party at
any time after the occurrence of any Event of Default. HSAnet shall,
nevertheless, remain liable for all monies due or to become due to Operator
pursuant hereto.
12. MISCELLANEOUS All rights not specifically granted to Operator
hereunder in and to the HSAnet Service are reserved to HSAnet for HSAnet's sole
and exclusive use, disposition and exploitation and are exercisable by HSAnet
any time, from time to time, in any location and by any means whatsoever.
All notices, statements and other communications given hereunder shall
be made in writing by telegraph, telex, personal delivery or by mailing the same
by certified mail, return receipt requested, or by next day express delivery in
a postpaid wrapper, addressed to the other as aforesaid, and the date of such
personal delivery, telegraphing, telexing, the next day if by express delivery,
or the date five (5) days after such mailing shall be deemed the date on which
such notice is effective.
<PAGE> 5
Neither this Agreement nor any rights or obligations hereunder may be
assigned by HSAnet without prior written consent of Operator, and such
assignment shall not relieve the assignor of its obligations hereunder. Any
purported assignment without such consent shall be null and void and not
enforceable against Operator. This Agreement and the rights and obligations of
the parties hereunder shall be binding upon and shall inure to the benefit to
HSAnet and Operator and their respective legal representatives, and permitted
successors in interest and assigns.
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.
With respect to the subject matter of this Agreement, this Agreement
and the Exhibits hereto (i) set forth the entire agreement between the parties
hereto and any parties who have in the past or who are now representing either
of the parties hereto,
(ii) supersede all prior understanding and communications between the parties,
oral or written, and (iii) constitute the entire agreement between the parties.
Operator and its employees and agents have maintained and will
maintain, in confidence, the terms and conditions of this Agreement, as well as
all data, summaries, reports or information of all kinds, whether oral or
written, acquired, devised or developed in any manner by or from HSAnet
personnel or HSAnet files, and have not and will not reveal the same to any
persons not employed by HSAnet, except (i) at the written direction of HSAnet,
(ii) to the extent necessary to comply with law or a valid order of a court of
competent jurisdiction, in which event Operator shall so notify HSAnet as
promptly as practicable (and, if possible, prior to making any disclosure) and
in all cases shall seek confidential treatment of such information; (iii) as
part of its normal reporting or review procedure to its parent company, auditors
and its attorneys, provided such parent company, auditors and attorneys agree to
be bound by the provisions of this paragraph and (iv) in order to enforce its
rights pursuant to this Agreement.
HSAnet and its employees and agents have maintained and will maintain,
in confidence, the terms and conditions of this Agreement, as well as all data,
summaries, reports or information of all kinds, whether oral or written,
acquired, devised or developed in any manner by or from Operator personnel or
Operator files, and have not and will not reveal the same to any person not
employed by Operator, except (i) at the written direction of Operator, (ii) to
the extent necessary to comply with law or valid order of a court of competent
jurisdiction, in which event, HSAnet shall so notify Operator as promptly as
practical (and if possible, prior to making any disclosure) and in all cases
shall seek confidential treatment of such information, (iii) as part of its
normal reporting or review procedure to its parent company, auditors and its
attorneys, provided such parenting company, auditors and attorneys agree to be
bound by the provisions of this paragraph and (iv) in order to enforce its
rights pursuant to this Agreement.
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 of the contrary. Each
party is acting as principal hereunder.
<PAGE> 6
This Agreement and the rights and obligation of the parties hereunder
shall be governed by and construed in accordance with the laws of Maryland
applicable to contracts entered into and fully performed therein.
GANS MULTIMEDIA PARTNERSHIP, HIGH SPEED ACCESS NETWORK, INC.
BY CABLE TV, INC.
its managing general partner
BY: /s/ JOSEPH W. AMAN BY: /s/ RON PITCOCK
----------------------------------- ---------------------------------
JOSEPH W. AMAN, VP & COO RONALD PITCOCK, PRESIDENT
DATE: October 15, 1997 DATE: October 15, 1997
<PAGE> 7
SCHEDULE A
CABLE TELEVISION SYSTEMS
St. Mary's County - Maryland
King George County - Virginia
Western Cablevision, Inc. (Arizona)
<PAGE> 1
EXHIBIT 10.31
HIGH SPEED ACCESS CORP.
1999 STOCK OPTION PLAN
1. PURPOSE. The purpose of this Plan is to strengthen the Company by
providing an additional means of retaining and attracting competent management
personnel and by providing to participating officers and other key employees of
the Company added incentive for high levels of performance and for unusual
efforts to increase the earnings of the Company through the opportunity for
stock ownership offered by the Plan.
2. DEFINITIONS. For purposes of this Plan, capitalized words and
phrases shall have the following meanings:
A. BOARD. The word "Board" means the Company's Board of Directors.
B. CODE. The word "Code" means the Internal Revenue Code of 1986,
as amended.
C. COMMON STOCK. The term "Common Stock" means the Company's
common stock, $.01 par value per share.
D. COMPANY. The word "Company" means High Speed Access Corp., a
Delaware corporation, with its principal place of business at 4100 East
Mississippi Avenue, Denver, Colorado 80246.
E. COMPENSATION COMMITTEE. The term "Compensation Committee" means
the committee appointed by the Board to administer the Plan, pursuant to Section
4 hereof, consisting of not less than two directors of the Company appointed by
the Board. If the Company is subject to the Exchange Act, no person may be a
member of the Committee if he or she would fail to be (i) an "outside director",
as defined in the regulations promulgated under Code Section 162(m), or (ii) a
"Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange Act.
F. DATE OF GRANT. The term "Date of Grant" means the effective
date on which an Option is awarded to an Optionee, as set forth in the Option
Agreement executed pursuant to Section 7 by the Optionee and by a member of the
Compensation Committee on behalf of the Company; provided, however, that in the
case of an ISO, the grant date shall be the later of the date on which the
Compensation Committee makes the determination granting such ISO or the date of
commencement of the Optionee's employment with the Company.
G. DISABILITY. The word "Disability" means, as defined by and to
be
<PAGE> 2
construed in accordance with Code Section 22(e)(3), any medically determinable
physical or mental impairment which can be expected to result in death or which
has lasted or can be expected to last for a continuous period of not less than
twelve (12) months, and which renders Optionee unable to engage in any
substantial gainful activity. An Optionee shall not be considered to have a
Disability unless Optionee furnishes proof of the existence thereof in such form
and manner, and at such time, as the Compensation Committee may require.
H. EXCHANGE ACT. The term "Exchange Act" means the Securities
Exchange Act of 1934, as amended from time to time.
I. ISO. The acronym "ISO" means an option to purchase Common Stock
which at the time the option is granted qualifies as an incentive stock option
within the meaning of Code Section 422.
J. NSO. The acronym "NSO" means a nonstatutory stock option to
purchase Common Stock which at the time the option is granted does not qualify
as an ISO.
K. OPTION. The word "Option" means an ISO or NSO.
L. OPTION AGREEMENT. The term "Option Agreement" means an
agreement between the Company and an Optionee with respect to one or more
Options.
M. OPTION PRICE. The term "Option Price" means the price to be
paid for Common Stock upon the exercise of an Option granted under the Plan, in
accordance with Section 7.A hereof.
N. OPTIONEE. The word "Optionee" means an employee to whom Options
have been granted under the Plan.
O. OPTIONEE REPRESENTATIVE. The term "Optionee Representative"
means the personal representative of the Optionee's estate, and after final
settlement of the Optionee's estate, the successor or successors entitled
thereto by law.
P. PLAN. The word "Plan" means the High Speed Access Corp. 1999
Stock Option Plan, as set forth herein, and as amended from time to time.
Q. SECURITIES ACT. The term "Securities Act" means the Securities
Act of 1933, as amended from time to time.
R. SUBSIDIARY. The word "Subsidiary" means, as defined in Code
Section 424(f), any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company if, at the time of the granting of an
Option under the Plan, each of the corporations other than the last corporation
in the unbroken
2
<PAGE> 3
chain owns stock possessing fifty percent (50%) or more of the total combined
voting power of all classes of stock of one of the other corporations in such
chain.
S. TEN PERCENT SHAREHOLDER. The term "Ten Percent Shareholder"
means an employee who, at the time an Option is granted, owns, or is deemed
within the meaning of Section 422(b)(6) of the Code to own, stock possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company (or of its Subsidiary or parent (within the meaning of
Section 424(e) of the Code)).
3. STOCK SUBJECT TO PLAN. Subject to adjustment as provided in Section
8 hereof, the aggregate number of shares of Common Stock which may be issued
under the Plan shall not exceed two million (2,000,000) shares. Authorized and
unissued shares shall be delivered under the Plan. If any Option expires or
terminates for any reason, the shares of Common Stock subject thereto shall
again become available under the Plan to the extent permitted by law. For
purposes of meeting the requirements of Code Section 162(m), the maximum number
of shares on which Options may be granted in any calendar year to any one
individual who is a "covered employee" under Code Section 162(m) is three
hundred thousand (300,000) shares of Common Stock, subject to adjustment as
provided in Section 8 hereof.
4. ADMINISTRATION. The Compensation Committee shall have full power and
authority to construe, interpret and administer the Plan and may from time to
time adopt such rules and regulations for carrying out the Plan as it may deem
proper and in the Company's best interests. The decision of a majority of the
members of the Compensation Committee shall constitute the decision of the
Compensation Committee and the Compensation Committee may act either at a
meeting at which a majority of the members of the Compensation Committee are
present, or by a writing signed by all of the members of the Compensation
Committee. The interpretation of any provisions of the Plan by the Compensation
Committee shall be final, conclusive, and binding upon all persons and the
officers of the Company shall place into effect and shall cause the Company to
perform its obligations under the Plan in accordance with the determinations of
the Compensation Committee in administering the Plan.
5. GRANT OF OPTIONS.
A. COMPENSATION COMMITTEE'S AUTHORITY. Subject to the terms,
provisions and conditions of the Plan, the Compensation Committee shall have
exclusive jurisdiction: [i] to select the employees to whom Options shall be
granted; [ii] to authorize the granting of ISOs, NSOs or a combination of ISOs
and NSOs to employees; [iii] to determine the number of shares of Common Stock
subject to each Option; [iv] to determine the time or times when Options will be
granted, the manner in which each Option shall be exercisable, and the duration
of the exercise period; [v] to fix such other provisions of the Option Agreement
as it may deem necessary or desirable consistent with the terms of the Plan; and
[vi] to determine all other questions relating to the administration of the
Plan.
3
<PAGE> 4
B. $100,000 ISO EXERCISABILITY LIMITATION. Notwithstanding Section
5.A hereof, the maximum aggregate fair market value of Common Stock (determined
as of the date the Option is granted) with respect to which ISOs will first
become exercisable by an Optionee in any calendar year under all ISO plans of
the Company and its Subsidiaries shall not exceed $100,000. Any portion of an
Option granted under the Plan in excess of the foregoing limit shall constitute
a NSO.
6. ELIGIBILITY. Key employees of the Company and its Subsidiaries,
including officers and directors of the Company or a Subsidiary, are eligible to
receive ISOs and NSOs under the Plan. Key employees to whom Options may be
granted under the Plan will be those selected by the Compensation Committee from
time to time who, in the sole discretion of the Compensation Committee, have
contributed in the past or who may be expected to contribute materially in the
future to the successful performance of the Company and its Subsidiaries.
7. TERMS OF OPTIONS. Each Option granted under the Plan shall be
evidenced by an Option Agreement signed by the Optionee and by a member of the
Compensation Committee on behalf of the Company. An Option Agreement shall
constitute a binding contract between the Company and the Optionee, and every
Optionee, upon acceptance of such Option Agreement, shall be bound by the terms
and restrictions of the Plan and of the Option Agreement. Such agreement shall
be subject to the following express terms and conditions and to such other terms
and conditions that are not inconsistent with the Plan as the Compensation
Committee may deem appropriate.
A. OPTION PRICE. The Option Price per share of Common Stock shall
be determined by the Compensation Committee at the time an Option is granted.
The Option Price for ISOs shall be not less than: [i] the fair market value per
share of Common Stock on the Date of Grant, or [ii] in the case of an ISO
granted to a Ten Percent Shareholder, one hundred ten percent (110%) of the fair
market value per share of Common Stock on the Date of Grant. The fair market
value per share of Common Stock shall be determined by:
[i] if the Common Stock is listed on any established stock
exchange or a national market system including without limitation the
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") system, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported), as quoted on such system or exchange, or the exchange with the
greatest volume of trading in Common Stock, for the trading day
immediately preceding such given date;
[ii] if the Common Stock is quoted on the Nasdaq System (but not
on the National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value
4
<PAGE> 5
shall be the mean between the high bid and low asked prices for the
Common Stock for the trading day immediately preceding such given date;
and
[iii] if the Common Stock is neither traded on the
over-the-counter market nor listed on a national securities exchange,
such value as the Compensation Committee, in good faith, shall determine.
B. OPTION PERIOD. Subject to Section 7.C hereof, each Option
Agreement shall specify the period for which the Option thereunder is granted
and shall provide that the Option shall expire at the end of such period. The
Compensation Committee may extend such period provided that, in the case of an
ISO, such extension shall not in any way disqualify the Option as an ISO without
the Optionee's consent. In no case shall such period, including any such
extensions, exceed ten (10) years from the Date of Grant, provided, however,
that in the case of an ISO granted to a Ten Percent Stockholder, such period,
including extensions, shall not exceed five (5) years from the Date of Grant.
C. LAPSE OF ISO. An Option shall expire and no longer be
exercisable at the earliest of the following times (but in no event later than
the expiration date of the term of such Option as set forth in the Option
Agreement):
[1] ten (10) years from the Date of Grant;
[2] five (5) years after the Date of Grant, if an
Optionee is a Ten Percent Shareholder on the Date of Grant;
[3] three (3) months after termination of employment
with the Company or a Subsidiary for reasons other than death, Disability
or discharge for cause (as determined by the Compensation Committee in
its sole discretion);
[4] one (1) year after termination of employment
with the Company or a Subsidiary because of Disability;
[5] one (1) year after the date of death if an
Optionee dies [i] while employed by the Company or a Subsidiary, or [ii]
within three (3) months after ceasing to be an employee of the Company or
a Subsidiary; or
[6] immediately upon termination of employment
through discharge for cause, as determined by the Compensation Committee
in its sole discretion.
D. EXERCISE PERIOD. Each Option granted under Section 5 hereof
shall be exercisable in the following cumulative installments:
5
<PAGE> 6
First installment. Up to twenty percent (20%) of the total Optioned
shares may be exercised at any time after one (1) year following the
Date of Grant;
Second installment. Up to an additional twenty percent (20%) of the
total Optioned shares may be exercised at any time after two (2) years
following the Date of Grant;
Third installment. Up to an additional twenty percent (20%) of the
total Optioned shares may be exercised at any time after three (3)
years following the Date of Grant;
Fourth installment. Up to an additional twenty percent (20%) of the
total Optioned shares may be exercised at any time after four (4) years
following the Date of Grant; and
Fifth installment. Up to an additional twenty percent (20%) of the
total Optioned shares may be exercised at any time after five (5) years
following the Date of Grant; provided, however, that if Optionee is a
Ten Percent Shareholder the fifth installment may be exercised at any
time after fifty-nine (59) months following the Date of Grant.
If an installment covers a fractional share, such installment shall be
rounded off to the next highest share, except for the final installment, which
will be for the balance of the total Optioned shares.
E. LEAVES OF ABSENCE. The Compensation Committee may, in its
discretion, treat all or any portion of any period during which an Optionee is
on military or on an approved leave of absence from the Company or a Subsidiary
as a period of employment of the Optionee by the Company or Subsidiary for
purposes of accrual of the Optionee's rights under the Plan. Notwithstanding the
foregoing, if a leave of absence exceeds ninety (90) days and reemployment is
not guaranteed by contract or statute, the Optionee's employment by the Company
or a Subsidiary for the purposes of the Plan shall be deemed to have terminated
on the 91st day of the leave.
F. MANNER OF EXERCISE. To exercise an Option, the Optionee shall
deliver to the Company: [i] seven (7) days' prior written notice specifying the
number of shares as to which the Option is being exercised and, if determined by
counsel for the Company to be necessary, representing that such shares are being
acquired for investment purposes only and not for purpose of resale or
distribution; and [ii] payment by the Optionee, or a broker-dealer (as provided
in Section 7.G hereof), for such shares of the Option Price for the number of
shares with respect to which the Option is exercised. On or before the
expiration of the seven (7) day notice period, and provided that all conditions
precedent contained in the Plan are satisfied, the Company shall, without
transfer or issuance tax or other incidental expenses to Optionee, deliver to
Optionee, at
6
<PAGE> 7
the offices of the Company, or at such other place as may be mutually
acceptable, or, at the election of the Company, by certified mail addressed to
Optionee at Optionee's address as shown in the records of the Company, a
certificate or certificates for the Common Stock. Options are exercisable only
in whole shares, and fractional share interests shall be treated in the manner
described in Section 7.D. If Optionee fails to accept delivery of the Common
Stock, the Optionee's rights to exercise the applicable portion of the Option
shall terminate.
G. PAYMENT FOR SHARES. Except as otherwise provided in this
Section 7, the Option Price for the Common Stock shall be paid in full when the
Option is exercised. Subject to such rules as the Committee may impose and the
terms of the Option Agreement, the Option Price may be paid in whole or in part
[i] in cash, [ii] by certified or cashier's check, [iii] in whole shares of
Common Stock owned by the Optionee evidenced by negotiable certificates, [iv] by
such other consideration as shall constitute lawful consideration for the
issuance of Common Stock and be approved by the Committee (including without
limitation, assurance satisfactory to the Committee from a broker registered
under the Exchange Act of the delivery of the proceeds of an imminent sale of
the Common Stock to be issued pursuant to the exercise of such Option, such sale
to be made at the direction of the Optionee), or [v] by a combination of such
methods of payment. If payment of the Option Price is made in Common Stock, the
value of the Common Stock used for payment of the Option Price shall be the fair
market value of the Common Stock, determined in accordance with Section 7.A
hereof, on the business day preceding the day written notice of exercise is
delivered to the Company.
H. ISOS. Each Option Agreement which provides for the grant of an
ISO shall contain such terms and provisions as the Compensation Committee deems
necessary or desirable to qualify such Option as an ISO within the meaning of
Code Section 422.
I. TRANSFERABILITY OF OPTIONS. During Optionee's lifetime, the
Option shall be exercisable only by Optionee, and neither the Option nor any
right hereunder shall be transferable except by will or by the laws of descent
and distribution. The Option may not be subject to execution or other similar
process. If Optionee attempts to alienate, assign, pledge, hypothecate or
otherwise dispose of the Option or any of Optionee's rights hereunder, except as
provided herein, or in the event of any levy, attachment, execution or similar
process upon the rights or interests hereby conferred, the Company may, in its
sole and absolute discretion, terminate the Option by notice to Optionee and it
shall thereupon become null and void.
8. ADJUSTMENT OF SHARES. In the event of capital adjustment after the
effective date of the Plan in the Common Stock of the Company by reason of any
reorganization, recapitalization, stock split, stock dividend, combination or
exchange of shares, merger or consolidation, or any other change (after the
effective date of the Plan) in the nature or number of shares of Common Stock of
the Company, a proportionate adjustment shall be made in the maximum number and
kind of shares which may be
7
<PAGE> 8
delivered under the Plan, and in the Option Price under and the number and kind
of shares of Common Stock covered by outstanding Options granted under the Plan.
By virtue of such a capital adjustment, the price of any share under Option
shall be adjusted so that there will be no change in the aggregate purchase
price payable upon exercise of any such Option. No fractional shares shall
become available for Options as a result of such adjustments. Such determination
by the Compensation Committee shall be conclusive.
9. CHANGE IN CONTROL.
A. ASSUMPTION OR REPLACEMENT OF OPTIONS BY SUCCESSOR. In the event
of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a re-incorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Options granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on
Optionees), (c) a merger in which the Company is the surviving corporation but
after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interests in the Company, (d) the sale of substantially
all of the assets of the Company; or (e) the acquisition, sale, or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction (any of the foregoing shall be referred to herein as a
"Corporate Transaction"), any or all outstanding Options may be assumed,
converted or replaced by the successor corporation (if any), which assumption,
conversion or replacement will be binding on all Optionees. In the alternative,
the successor corporation may substitute equivalent Options or provide
substantially similar consideration to Optionees as was provided to stockholders
(after taking into account the existing provisions of the Options). In the event
such successor corporation (if any) refuses to assume or substitute such
Options, as provided above, pursuant to a Corporate Transaction described in
this Subsection 9.A, at the discretion of the Compensation Committee, the
vesting of such Options through and as of the Optionee's next vesting date may
accelerate and become exercisable prior to the consummation of such Corporate
Transaction at such times and on such conditions as the Committee determines,
and if such Options are not exercised prior to the consummation of the Corporate
Transaction, they shall terminate in accordance with the provisions of this
Plan. A Corporate Transaction shall not include the acquisition, directly or
indirectly, of beneficial ownership (as such term is defined under the Exchange
Act, and the rules and regulations promulgated thereunder) of more than fifty
percent (50%) of the outstanding shares of the Company, by Vulcan Ventures,
Incorporated or any affiliate of Vulcan Ventures, Incorporated.
B. OTHER TREATMENT OF OPTIONS. Subject to any greater rights
granted to Optionees under the foregoing provisions of this Section 9, in the
event of the occurrence of any transaction described in Subsection 9.A, any
outstanding Options will be treated as provided in the applicable agreement or
plan of merger, consolidation,
8
<PAGE> 9
dissolution, liquidation, or sale of assets.
C. ASSUMPTION OF OPTIONS BY THE COMPANY. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting Options under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Option
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Option under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of Code). In the event the Company elects to grant a new Option
rather than assuming an existing option, such new Option may be granted with a
similarly adjusted Exercise Price.
10. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. Upon the exercise of an
Option at a time when there is not in effect a registration statement under the
Securities Act and any applicable state securities laws (the "Securities Laws")
relating to the shares of Common Stock issuable upon exercise thereof and
available for delivery a prospectus meeting the requirements of the Securities
Laws, the shares of Common Stock may be issued only if the Optionee or Optionee
Representative represents and warrants in writing to the Company that the shares
being purchased are being acquired for investment and not with a view to the
distribution thereof. The shares of the Common Stock shall contain such legends
or other restrictive endorsements as counsel for the Company shall deem
necessary or proper. No shares of Common Stock shall be purchased upon the
exercise of any Option unless and until there shall have been satisfied any
applicable requirements of the Securities and Exchange Commission or other
regulatory agencies having jurisdiction and of any exchanges upon which stock of
the Company may be listed.
11. NO RIGHTS AS SHAREHOLDER. No Optionee or Optionee's Representative
shall have any rights as a shareholder with respect to Common Stock subject to
Optionee's Option before the date of transfer to the Optionee of a certificate
or certificates for such shares.
12. NO RIGHTS TO CONTINUED EMPLOYMENT. The Plan and any Option granted
under the Plan shall not confer upon any Optionee any right with respect to
continuance of employment by the Company or any Subsidiary, nor shall it
interfere in any way with the right of the Company or any Subsidiary by which an
Optionee is employed to terminate Optionee's employment at any time.
13. TERMINATION. The Plan shall terminate on March 10, 2009, ten (10)
9
<PAGE> 10
years from the earlier of the date it was adopted by the Board or approved by
the shareholders of the Company, and may be terminated at any earlier time by
the Compensation Committee. No Option shall be granted after termination of the
Plan. Termination of the Plan, however, shall not affect the validity of any
Option theretofore granted under the Plan.
14. AMENDMENT. The Board shall have the right, at any time, to amend,
suspend or terminate the Plan in any respect that it may deem to be in the best
interests of the Company, except that, without approval by shareholders of the
Company holding not less than a majority of the votes represented and entitled
to be voted at a duly held meeting of the Company's shareholders, no amendment
shall be made if shareholder approval is required by applicable law, rule or
regulation, including, without limitation, Securities and Exchange Commission
Rule 16b-3 and Code Sections 162(m) or 422. No amendment of the Plan, however,
may, without the consent of the Optionee or Optionee Representative, make any
changes in any outstanding Option theretofore granted under the Plan which would
adversely affect the rights of such Optionee or Optionee Representative.
15. TAX WITHHOLDING. Upon the exercise of any Option granted under the
Plan, or upon the disposition of any Common Stock acquired by the exercise of an
ISO granted under the Plan within two (2) years from the Date of Grant or one
(1) year after such Common Stock is transferred to the Optionee, the Company
shall have the right to require Optionee to remit to the Company an amount
sufficient to satisfy all federal, state and local withholding tax requirements,
or, alternatively, the Company shall have the right to retain Common Stock
otherwise payable to the Optionee pursuant to exercise of an Option in an amount
sufficient to satisfy such withholding requirements, before the delivery to the
Optionee of any certificate(s) for shares of Common Stock.
16. GOVERNING LAW. This Plan and the Option Agreements entered into
under the Plan shall be governed by, and construed in accordance with, the laws
of the State of Delaware.
17. EFFECTIVE DATE. The effective date of the Plan shall be March 10,
1999.
HIGH SPEED ACCESS CORP.
By: /s/ Ron Pitcock
-------------------------------------
Title: President
----------------------------------
ATTEST:
/s/ John G. Hundley
- ------------------------------
10
<PAGE> 1
EXHIBIT 10.34
[HIGH SPEED ACCESS LOGO]
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.
APRIL 30, 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-00
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 earn on or prior to April 30, 2002, (the
"Calculation Date") the right to subscribe for and purchase from High Speed
Access Corp., a Delaware corporation (the "Company" or "HSA"), at any time
during the Exercise Period, a number of fully paid, nonassessable shares of the
Company's offered in the Qualified Public Offering Common Stock, $0.01 par
value, equal to the "Earned Shares," (as defined below) at the price equal to
the Exercise Price (as 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 controlled, directly or indirectly, by Microsoft. As used in the
foregoing sentence, "controlled" means (i) with
<PAGE> 2
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(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.
(c) "Calculation Date" shall mean April 30, 2002.
(d) "Comcast" shall mean Comcast Corp., who directly or through
its affiliates and subsidiaries, own and operate various Cable Systems, and may
in the future own or control other MSOs/Cable Systems. Microsoft shall assist
HSA in marketing HSA's services to the cable systems owned or operated by
Comcast.
(e) "Committed System(s)" shall mean Cable Systems (a)
encompassing not less than 1200 Homes Passed; (b) that Comcast designates and
HSA accepts as Committed Systems, that Comcast reasonably believes will conform
to the specifications to be agreed upon by Comcast and HSA in the Network
Agreement and that are either listed in the Network Agreement or are designated
as Committed Systems and added to the Network Agreement pursuant to the terms
thereof; (c) consistent with HSA's normal network services agreements are
non-cancelable by Comcast except for material default for a period of at least
five (5) years after commencement of service; and (d) are subject to a full
turnkey implementation of HSA Services on a sole and exclusive basis.
(f) "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 as of the date of the Qualified Public Offering and
which is sold to the public in the Qualified Public Offering, and all securities
into which such Common Stock is exchanged or converted.
(g) "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.
(h) "Earned Shares" shall mean the number of shares of Common
Stock determined according to the following formula: (a) Two Hundred Fifty
Thousand (250,000) shares plus (b) the number equal to the product of (i) one
tenth (0.1) and (ii) the amount by which (A) the number of Homes Passed in
Committed Systems on or before the Calculation Date exceeds (B) Two Million Five
Hundred Thousand (2,500,000).
(i) "Exercise Period" means, with respect to any Earned Share, the
period beginning on the date of this Warrant and ending on May 1, 2004.
(j) "Exercise Price" means at the exercise price per share of
Common Stock (adjusted if appropriate pursuant to Section 6) equal to one
hundred twenty-five percent (125%) of the underwriters' "price to public" upon
closing of a Qualified Public Offering.
(k) "Holder" means MICROSOFT CORPORATION, A WASHINGTON
CORPORATION, or any other Person to whom this Warrant is transferred in
accordance with Section 5 hereof.
2
<PAGE> 3
(l) "Homes Passed" shall mean residences that are connected (i.e.,
a residence with an installed cable "drop" from Comcast's Cable System or which
is eligible for such cable "drop" by virtue of an Comcast's Cable System passing
such residence) to Comcasts' cable RF Plant for such Cable System, regardless of
whether the persons residing in such residences subscribe to cable TV services.
(m) "Network Agreement" means an executed Network Services
Agreement between HSA and Comcast to be negotiated and executed in the future
substantially in the form of HSA's standard network services agreement.
(n) "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.
(o) "Person" means any person, firm, Company, or other entity.
(p) "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.
(q) "Qualified Public Offering" means the initial underwritten
public offering of the Company's Common Shares (as proportionately and
appropriately adjusted to reflect any subdivision, reverse stock split or
adjusted recapitalization of the Company's Common Shares after the date hereof)
and aggregate gross proceeds of not less than $50 million to the Company which
has been made pursuant to a registration statement filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
(r) "Secretary" means W. Kent Oyler III or his duly elected and
qualified successor as the Company's Secretary, or any duly elected and
qualified Assistant Secretary of the Company.
(s) "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.
(t) "Stock Certificate" means an appropriate certificate issued in
the Holder's name representing the Subscribed Shares.
(u) "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.
(v) "Subscription Form" means the subscription form attached as
Exhibit A to this Warrant.
(w) "Warrant" means this Securities Purchase Warrant.
3. Exercise of Warrant.
(a) This Warrant entitles the Holder to subscribe, from
time-to-time and upon the terms and conditions set forth in this Warrant, and
purchase during the Exercise Period, Subscribed Shares in any amount up to the
number of Earned Shares.
3
<PAGE> 4
(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 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.
In the event the Company has completed a Qualified Public Offering 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 on the
trading day 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.
4
<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
promptly deliver to the Holder 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 additional 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 additional 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 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 Exercise
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) with the
written consent of the Company in its discretion, 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 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 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) 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.
5
<PAGE> 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 of securities into a smaller number 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 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.
6
<PAGE> 7
(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 determined by the Board of Directors of
the Company in good faith, and with due care for the purpose of any transaction
hereunder. In the event that the Holder disputes such value, the Holder shall be
entitled to select an investment banking firm of recognized standing and paid
for by the Holder to calculate the fair market value, and the Company and the
Holder shall use their good faith best efforts to agree on the appraised value
based on the report of the investment banking firm and Board's determination. In
the event that the Company and the Holder are still unable to reach agreement as
to the fair market value, the Company and the Holder agree to submit such
determination to binding arbitration.
7. 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. If the Holder is
not an affiliate and has met the requirements of Rule 144(k), the Company upon
request will remove the legend from Earned Shares.
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.
7
<PAGE> 8
10. Investment Covenant. The Holder by its acceptance of this Warrant
covenants that this Warrant is, and the Earned Shares issued hereunder will be,
acquired for investment purposes, and that the Holder will not distribute this
Warrant or the Earned 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 Warrant 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 the initial 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 Earned
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 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 30th day
of April, 1999.
HIGH SPEED ACCESS CORP. MICROSOFT CORPORATION
By /s/ HIGH SPEED ACCESS CORP. By /s/ MICROSOFT CORPORATION
-------------------------------- ---------------------------
Name: Name:
----------------------------- ------------------------
Title: Title:
---------------------------- -----------------------
Date: Date:
----------------------------- ------------------------
9
<PAGE> 1
EXHIBIT 10.35
April 30, 1999
High Speed Access Corp.
4100 East Mississippi Avenue
Denver, CO 80246
Attention: Bob Saunders
Dear Bob:
The purpose of this letter is to provide a broad outline of discussions to date
regarding a proposed strategic relationship between Microsoft Corporation
("Microsoft") and High Speed Access Corp (HSA). This letter is a statement of
the intentions of the parties with respect to a strategic relationship and
related arrangements as outlined herein, and is subject to the final negotiation
and execution of definitive documents.
Microsoft and HSA (the "Parties") will work together to negotiate and execute
definitive agreements that will encompass the following broad themes:
o Providing for non-exclusive marketing, promotion and deployment of
Microsoft Cable Services and HSA Services to U.S.-based MSOs, including,
but not limited to, Comcast, Charter, AT&T and Time Warner.
o Development of co-branded portal(s) or enhance HSA's existing portal(s)
by utilizing MSN's operational infrastructure including Mail, Instant
Messaging, Calendaring, Authentication, Preferences and Search.
o Development of distribution agreements for selected MSN Vertical Content
such as MSN Expedia, MSN Carpoint, MSN HomeAdvisor, etc.
o Conversion of HSA's facilities to Windows NT/2000 and Commercial Back
Office.
o Distribution of Microsoft Internet Explorer, Windows Media Services,
Outlook Express, NetMeeting, and other software/service technologies.
o Distribution and hosting of Windows Media Events.
o Development of distribution agreements for provisioning new and existing
devices for the Microsoft WebTV Service.
<PAGE> 2
o Joint development and provisioning of enhanced interactive TV
services utilizing the Microsoft TVPAK Software Platform and Services.
o Joint development and provisioning of E-Commerce Services/Offerings
to HSA Customers.
o Joint exploration of new business opportunities such as "The On-line
Software Store," Peripheral Licensing, etc.
The above matters are currently some of the proposals being discussed by the
parties, but this letter should in no way be construed to limit the potential
strategic relationship that potentially may be agreed to by the parties.
Furthermore, the parties acknowledge that their discussions are preliminary at
this point, and that this letter does not constitute a legally binding
obligation of either party, but is only a statement of intentions of the
parties with respect to the proposed strategic relationship and related
arrangements as outlined herein, and is subject tot he further negotiation and
execution of definitive documents.
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 April 30, 1999
HIGH SPEED ACCESS CORP
/s/ ROBERT SAUNDERS
- ----------------------------
Bob Saunders, Vice Chairman
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Registrant
High Speed Access Network, Inc., a Delaware corporation
CATV.net, Inc., a Kentucky corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated March 12, 1999, except as to the third paragraph of Note 8 and
Note 14, for which the date is May 3, 1999, relating to the financial statements
of High Speed Access Corp. and Subsidiaries, which appear in such Prospectus.
We also consent to the references to us under the headings "Experts" and
"Selected Financial Data" in such Registration Statement.
PricewaterhouseCoopers LLP
Louisville, Kentucky
May 4, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated March 12, 1999 relating to the financial statements of
CATV.net, Inc., which appear in such Registration Statement. We also consent to
the references to us under the headings "Experts" and "Selected Financial Data"
in such Registration Statement.
PricewaterhouseCoopers LLP
Louisville, Kentucky
May 4, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated March 12, 1999 relating to the financial statements of High
Speed Access Network, Inc., which appear in such Registration Statement. We also
consent to the references to us under the headings "Experts" and "Selected
Financial Data" in such Registration Statement.
PricewaterhouseCoopers LLP
Louisville, Kentucky
May 4, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1998 AND MARCH 31, 1999 AND THE
RELATED STATEMENTS OF OPERATIONS, CHANGES IN STOCKHOLDERS' DEFICIT AND CASH
FLOWS FOR THE PERIOD FROM APRIL 3, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998
AND THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 MAR-31-1999
<PERIOD-START> APR-03-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 17,888 7,350
<SECURITIES> 0 0
<RECEIVABLES> 96 268
<ALLOWANCES> (13) (18)
<INVENTORY> 0 0
<CURRENT-ASSETS> 18,094 7,884
<PP&E> 6,503 12,178
<DEPRECIATION> (696) (1,354)
<TOTAL-ASSETS> 27,504 23,297
<CURRENT-LIABILITIES> 3,932 6,425
<BONDS> 749 806
149,250 255,000
0 0
<COMMON> 62 62
<OTHER-SE> (126,489) (238,996)
<TOTAL-LIABILITY-AND-EQUITY> 27,504 23,297
<SALES> 337 299
<TOTAL-REVENUES> 337 299
<CGS> 0 0
<TOTAL-COSTS> 2,067 2,123
<OTHER-EXPENSES> 8,285 6,332
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (9,975) (8,037)<F1>
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (130,642) (113,787)<F2>
<EPS-PRIMARY> (.71) (.27)
<EPS-DILUTED> (.71) (.27)
<FN>
<F1>REPRESENTS NET LOSS
<F2>REPRESENTS NET LOSS AVAILABLE TO COMMON STOCKHOLDERS
</FN>
</TABLE>
