<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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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)
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Copy to:
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<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)
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Copies to:
<TABLE>
<S> <C>
RICHARD R. PLUMRIDGE, ESQ.
JOHN E. HAYES III, ESQ. JEREMY W. DICKENS, ESQ.
BROBECK, PHLEGER & HARRISON LLP WEIL, GOTSHAL & MANGES LLP
1125 17TH STREET, SUITE 2525 767 FIFTH AVENUE
DENVER, COLORADO 80202 NEW YORK, NEW YORK 10153
(303) 293-0760 (212) 310-8000
</TABLE>
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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. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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Common Stock, par value $.01 per share...................... $120,000,000 $33,360
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</TABLE>
(1) Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended, solely for the purpose of computing the amount of the registration
fee.
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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.
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<PAGE> 2
EXPLANATORY NOTE
This Registration Statement covers the registration of (i) $115 million of
Common Stock offered by the Registrant pursuant to an underwritten public
offering, which includes $15 million of Common Stock issuable upon exercise of
the Underwriters' over-allotment option (the "Public Offering"), and (ii) $5
million of Common Stock offered to Cisco Systems, Inc. at the offering price,
net of the underwriting discount, by the Registrant in a concurrent offering
that is not underwritten (the "Cisco Offering"). Therefore, this Registration
Statement contains two forms of prospectus: one to be used in connection with
the Public Offering (the "Public Offering Prospectus") and the other to be used
in connection with the concurrent Cisco Offering (the "Cisco Prospectus"). The
Public Offering Prospectus and the Cisco 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 Cisco Prospectus are included herein after the final
page of the Public Offering Prospectus and are labeled "Alternate Page for Cisco
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 MARCH 19, 1999
PROSPECTUS
SHARES
[HIGH SPEED ACCESS LOGO]
COMMON STOCK
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This is our initial public offering of shares of common stock. We are offering
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 $ to $ per share.
Investing in the shares involves risks. Risk Factors begin on page 7.
<TABLE>
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PER SHARE TOTAL
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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
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 $5,000,000 of our common stock at the offering price, net of
the underwriting discount, in a concurrent offering.
Up to 5% of the common stock offered by this prospectus may be reserved for
employees, directors and friends of HSA. See "Underwriting."
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, on behalf of the underwriters, expects to deliver the shares on
or about , 1999.
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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.]
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 1
Risk Factors.......................... 7
Sale of Shares to Cisco Systems....... 20
Use of Proceeds....................... 21
Dividend Policy....................... 21
Capitalization........................ 22
Dilution.............................. 24
Selected Financial Data............... 25
Management's Discussion and Analysis
of Financial Condition and Results
of
Operations.......................... 27
Business.............................. 32
Management............................ 44
</TABLE>
<TABLE>
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PAGE
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Certain Transactions.................. 53
Principal Stockholders................ 56
Description of Securities............. 59
United States Federal Income Tax
Consequences to Non-U.S. Holders.... 63
Shares Eligible for Future Sale....... 66
Underwriting.......................... 67
Legal Matters......................... 69
Experts............................... 69
Available Information................. 69
Reports to Stockholders............... 70
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.
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;
- Assumes the filing of our amended and restated certificate of
incorporation, which, among other things, will authorize 10 million
shares of undesignated preferred 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
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[THIS PAGE INTENTIONALLY LEFT BLANK]
ii
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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. This 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 11 cable operators,
covering 43 systems and approximately 868,000 homes passed. We also have
exclusive letters of intent to provide these services to another 23 operators
representing an additional 30 systems and approximately 230,000 homes passed. We
have commenced full operations in 14 systems covering approximately 210,000
homes marketed, initiated operations in 16 systems covering an additional
276,000 homes, and have approximately 2,800 cable modem 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., the seventh 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 Vulcan has an equity incentive to
cause Charter to provide us up to an additional 5 million homes passed.
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 (Mbps), compared with 56 kilobits per second (Kbps) 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.
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.
1
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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 30 systems we have installed to date, of which 14 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 AND SPONSORSHIP
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. Vulcan has advised us that it intends to
exercise its right to purchase 5 million shares of our Series C convertible
preferred stock for $5.00 per share, which will be converted into 5 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. Vulcan also has
warrants to purchase up to an additional 5 million shares of our common stock,
for $5.00 per share, which become exercisable at the rate of one share 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 USA Networks,
ZDTV, Beyond.com, N2K, Inc., Wink Communications, Value America, Inc. and
Priceline.com. Certain of the principals of Broadband Solutions, which
beneficially owns 36.8% of our common stock before the offering, co-founded and
invested in Premier Parks Inc., Regal Cinemas, Inc. and Regent Communications,
Inc. The investor group that founded High Speed Access Network, Inc. includes
cable television pioneer Joseph Gans, III. Concurrently with this offering,
Cisco Systems, Inc., one of our major equipment suppliers, has agreed to
purchase $5 million of our common stock at the initial public offering price,
net of the underwriting discount. 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.
2
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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
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THE OFFERING
Common Stock Offered............. shares
Common Stock Offered to Cisco.... shares
Common Stock Outstanding After
this Offering.................... shares
Use of Proceeds.................. We intend to use the net proceeds of this
offering to fund capital expenditures to be
incurred in the deployment of our services,
to fund operating losses, and for working
capital and other general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National
Market Symbol.................. "HSAC"
In addition to the shares of common stock to be outstanding after
the offering, we may issue a total of 2,841,500 shares of common stock pursuant
to our stock option plans, as follows:
- Under our 1998 stock option plan, we have granted options to purchase
541,500 shares at a weighted average exercise price of $2.59 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 2 million shares for
issuance. We have granted options to purchase 30,000 of these shares at
an exercise price of $5.00 per share, and 31,000 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.
- Under our 1999 non-employee director stock option plan, we have reserved
300,000 shares for issuance. We have granted options to purchase 122,500
shares at an exercise price of $5.00 per share, all of which are
currently exercisable.
Additionally, we have granted Vulcan Ventures warrants to purchase up to 5
million shares of our common stock at an exercise price of $5.00 per share.
These warrants became exercisable at the rate of one share per home passed
committed to us by Charter in excess of 750,000. Approximately 15,000 of these
warrants are currently exercisable. See "Certain Transactions."
In addition, upon closing of the offering, we will issue approximately
shares of common stock in payment of accrued dividends on our
convertible preferred stock, all of which will convert by their terms into
shares of common stock.
4
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SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
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COMBINED
PRO FORMA
APRIL 3, 1998 YEAR ENDED
(INCEPTION) TO DECEMBER 31,
DECEMBER 31, 1998 1998(1)
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STATEMENT OF OPERATIONS DATA:
Net revenue................................................. $ 337 $ 450
Costs and expenses:
Operating costs........................................... 2,067 2,401
Engineering............................................... 2,266 2,372
Sales and marketing....................................... 3,696 4,078
General and administrative................................ 2,323 3,563
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Total costs and expenses.......................... 10,352 12,414
--------- ------------
Loss from operations........................................ (10,015) (11,964)
Interest income, net........................................ 40 41
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Net loss.................................................... (9,975) (11,923)
Accretion of redemption value of mandatorily redeemable
convertible preferred stock and mandatorily redeemable
convertible preferred stock dividends..................... (119,667) (119,667)
--------- ------------
Net loss available to common stockholders................... $(129,642) $ (131,590)
========= ============
Basic and diluted net loss per share........................ $ (32.41) $ (32.90)
Pro forma basic and diluted net loss per share(2)(3)
(unaudited)............................................... $ (1.10) $ (1.18)
Weighted average shares outstanding used in basic and
diluted per share calculation............................. 4,000,000 4,000,000
Weighted average shares outstanding used in pro forma basic
and diluted per share calculation(2)(3) (unaudited)....... 9,091,571 10,116,712
</TABLE>
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DECEMBER 31, 1998
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ACTUAL PRO FORMA(4)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 17,888 $
Working capital............................................. 14,162
Total assets................................................ 27,504
Notes payable -- related parties and capital lease 749
obligations, less current portion.........................
Mandatorily redeemable convertible preferred stock.......... 149,250
Total stockholders' (deficit) equity........................ (126,427)
</TABLE>
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MARCH 5, 1999
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OTHER DATA:
Systems under contract...................................... 43
Homes passed under contract................................. 868,000
Homes marketed(5)........................................... 210,000
Cable modem end users....................................... 2,800
Penetration of homes marketed(6)............................ 1.3%
</TABLE>
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(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 period
April 3, 1998 through December 31, 1998 gives effect to the assumed
conversion of our Series A and Series B convertible
5
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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 automatic conversion at the closing of the offering of all
outstanding shares of Series A and Series B convertible preferred stock
into 15 million shares of common stock;
- The sale for $5.00 per share of $25 million of our Series C preferred
stock to Vulcan Ventures prior to or concurrently with the offering and
the automatic conversion of those shares into 5 million shares of common
stock upon completion of the offering;
- The sale of an estimated shares of common stock to Cisco at an
assumed price of $
per share; and
- The sale of shares in this offering at an assumed price of
$ per share, after deducting underwriting discounts and offering
expenses.
(5) Homes marketed represents the number of homes passed in systems where we are
actively offering our cable modem Internet access services.
(6) Represents the number of our cable modem end users divided by homes
marketed.
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RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to invest in our common stock. The risks and
uncertainties described below are not the only ones facing our company.
Additional risks and uncertainties (including risks and uncertainties not
presently known to or considered material by us) may also impair our business.
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.
WE HAVE A LIMITED OPERATING HISTORY.
We have a limited operating history upon which you can evaluate our
business. We began offering our services to cable operators in October 1997. As
an early stage company in the new and rapidly evolving market for high speed
Internet access services, we face numerous risks and uncertainties. Some of
these risks relate to our ability to:
- Deploy our services cost effectively in the systems we have under
contract;
- Enter into additional agreements with cable operators to expand our
services to new markets;
- Attract and retain sufficient end users to achieve profitable operations;
- Attract, retain and motivate qualified personnel;
- Respond to actions taken by our competitors; and
- Upgrade and enhance our technologies and expand our product and service
offerings.
Our financial success will depend on the commercial acceptance and
profitability of our services. If we are unsuccessful in addressing these risks
or in executing our business strategy, our business and financial results will
suffer. If we encounter significant problems with our billing and collections
process, our business and financial results could be materially and adversely
affected.
WE HAVE A HISTORY OF LOSSES 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
operating losses of approximately $10 million from April 3, 1998 (Inception)
through December 31, 1998. 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 and software 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.
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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 14 cable systems and we have approximately
2,800 cable modem end users. Additionally, although our primary service offering
is high bandwidth Internet access, we currently derive a substantial portion of
our revenues from standard dial-up Internet access, which we offer as a feeder
for our high speed offerings. We cannot predict whether demand for our high
speed Internet access services will develop, particularly at the volume or
prices we need to become profitable.
OUR ABILITY TO ATTRACT AND RETAIN END USERS DEPENDS ON MANY FACTORS WE CANNOT
CONTROL.
Our ability to increase the number of our end users, and our ability to
retain end users, will depend on a number of factors, many of which are beyond
our control. These factors include:
- 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
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 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;
- The pace of the rollout of our service to our cable partners;
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- 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;
- 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 NEED TO AGGRESSIVELY PURSUE AND COMPLETE 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 in the cable system 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 has committed
to provide us exclusive access to at least 750,000 homes passed. Vulcan
Ventures, Charter's owner, has equity incentives to cause Charter to provide us
additional homes passed, although neither Vulcan nor Charter is 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 our performance benchmarks
or that Charter will not decide to terminate our agreement for any other reason.
If Charter were to terminate this agreement,
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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
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 and can require us to remove our
competing content. Moreover, 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.
BECAUSE OF OUR RELATIONSHIP WITH VULCAN VENTURES, NEW INVESTORS WILL HAVE LITTLE
INFLUENCE OVER MANAGEMENT DECISIONS.
Vulcan has advised us that, on or before the date we complete this
offering, it intends to purchase 5 million shares of our Series C convertible
preferred stock at a price of $5.00 per share under an agreement entered into in
November 1998. Upon completion of the offering, the Series C convertible
preferred stock automatically will convert into 5 million shares of common
stock. As a result of its purchase of our Series C preferred stock, Vulcan will
beneficially own approximately % of our outstanding common stock following
the completion of the offering ( % if the underwriters exercise the entire
over-allotment option). Vulcan also has warrants to purchase up to an additional
5 million shares of our common stock, which become exercisable at the rate of
one share per home passed committed to us by its subsidiary, Charter
Communications, 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 (a) conflicts between Vulcan and its other
affiliates, as a stockholder with effective control and our other stockholders,
whose interests may differ with respect to, among other things, our strategic
direction or significant corporate transactions, (b) conflicts arising in
respect of corporate opportunities that could be pursued by us, on the one hand,
or by Vulcan, on the other hand, or (c) conflicts arising in respect of any new
contractual relationship between us, on the one hand, and Vulcan, on the other
hand. In particular, Vulcan is the owner of Charter, our largest cable partner.
Additionally, Vulcan has the exclusive right to provide 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."
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INVESTORS MAY SUFFER SUBSTANTIAL DILUTION FROM OTHER TRANSACTIONS.
As an inducement to Vulcan to cause Charter Communications to commit
additional systems to us, we have granted Vulcan warrants to purchase up to 5
million shares of our common stock at an exercise price of $5.00 per share.
These warrants become exercisable at the rate of one share for each home passed
committed to us by Charter in excess of 750,000. To the extent that Vulcan
becomes eligible to exercise all or a significant portion of these warrants, our
stockholders will experience substantial dilution. 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.
Before completion of the offering, we plan to transfer all of the assets
used in our digital subscriber line technology division to Darwin Networks,
Inc., a newly-formed subsidiary. We plan to distribute all of the Darwin common
stock to our current stockholders before completion of the offering. 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 and is not presently targeting
exurban markets, if Darwin were to deploy this technology successfully in the
future in partnership with wireline telephone providers in markets where we
provide our high speed Internet access, Darwin could become one of our
competitors. Furthermore, 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. Neither Darwin nor our principal stockholders,
Vulcan Ventures and Broadband Solutions, will be restricted from providing
competing high speed digital subscriber line Internet access. If Darwin is
successful, our current stockholders and not those purchasing in the offering
will benefit. 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 through the cable
headend via a standard telephone line. Because we must support the telephone
return component of the system, we incur higher operating costs in one-way
systems. Consequently, if our cable partners do not upgrade to two-way
capability at the rate we anticipate, our financial results will be negatively
affected. Additionally, one-way high speed cable services may not provide the
quality of experience and variety of applications necessary to attract and
retain end users.
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 termination fee may not
be adequate to ensure that the successor operator assumes our contract, or to
compensate us fully for the loss of future business in that system.
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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.
EFFECTIVELY MANAGING OUR GROWTH MAY BE DIFFICULT.
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. 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 in two primary areas: (i) competition for partnerships
with cable operators from other cable modem-based providers of Internet access
services and (ii) 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, RoadRunner, the ISP Channel, Online System Services, Inc. and
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
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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 RoadRunner, 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 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 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.
OUR MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE.
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.
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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 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 and have a material adverse effect on our
business and financial results.
WE DEPEND ON A DATA TRANSMISSION INFRASTRUCTURE LARGELY MAINTAINED BY THIRD
PARTIES OR SUBJECT TO DISRUPTION BY EVENTS OUTSIDE OUR CONTROL.
Our success will depend upon the capacity, reliability and security of the
infrastructure used to carry data between our end users and the Internet. A
significant portion of that infrastructure is owned by third parties.
Accordingly, we have no control over its quality and maintenance. For example,
we rely on our cable partners to maintain their cable infrastructures. We also
rely on other third parties to provide a connection from the cable
infrastructure to the Internet. Currently, we have transit agreements with UUNet
(a division of MCI WorldCom) and others to support the exchange of traffic
between our data servers, the cable infrastructure and the Internet. Our
operations also depend on our ability to avoid damages from fires, earthquakes,
floods, power losses, telecommunications failures, network software flaws,
transmission cable cuts, Year 2000 problems and similar events. The occurrence
of any of these events could interrupt our services. The failure of the Internet
backbone, our servers, or any other link in the delivery chain, whether from
operational disruption, natural disaster or otherwise, resulting in an
interruption in our operations could have a material adverse effect on our
business and financial results.
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.
WE MAY BE HELD LIABLE FOR DEFAMATORY OR INDECENT CONTENT.
The law relating to the liability of Internet and online service providers
for information carried on or disseminated through their networks is unsettled.
A number of lawsuits have sought to impose liability for defamatory speech and
indecent materials. A recent federal statute, the Children's Online Protection
Act
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of 1998 ("COPA"), seeks to impose liability, in some circumstances, for the
transmission of materials that are harmful to minors, and numerous states have
adopted or are considering similar types of legislation. COPA has been
challenged by civil rights organizations in part on the grounds that it violates
the First Amendment, and a United States district court has entered a
preliminary injunction prohibiting enforcement of COPA pending final resolution
of the case. A similar federal statute was held unconstitutional by the United
States Supreme Court in 1997. At least one court has held that an online service
provider could be found liable for defamatory matter provided through its
service, on the ground that the service provider exercised active editorial
control over postings to its service.
Federal laws have been enacted, however, which, under certain
circumstances, may provide Internet service providers with immunity from
liability for information that is disseminated through their networks when they
are acting as mere conduits of information. A federal court of appeals has held
that the Telecommunications Act of 1996 creates immunity from liability on the
part of Internet service providers for libel claims arising out of information
disseminated over their networks by third party content providers. To the extent
we expand into international markets, however, we could be subject to even
greater potential liability, including possible criminal liability. The
imposition upon Internet or online service providers of potential liability for
materials carried on or disseminated through their systems could require us to
implement measures to reduce our exposure to liability. Such measures may
require the expenditure of substantial resources or the discontinuation of
certain products or service offerings. In addition, the imposition of liability
on us for information disseminated through our network could have a material
adverse effect on our business and financial results.
WE MAY BE HELD LIABLE FOR INFORMATION RETRIEVED AND REPLICATED.
Because materials may be downloaded and redistributed by end users and
cached or replicated by us in connection with the offering of our services,
there is a possibility that claims may be asserted against us or our cable
partners under both U.S. and foreign law for defamation, negligence, copyright
or trademark infringement, or other theories based on the nature and content of
these materials. These types of claims have previously been brought successfully
against online service providers. In addition, copyright and trademark laws are
evolving both domestically and internationally, and it is not clear in some
cases how these laws will be applied to online environments. It is impossible
for us to determine who possesses the rights to materials distributed through
our services by third parties. The recently enacted federal Digital Millennium
Copyright Act, which creates a safe harbor from copyright infringement liability
for Internet service providers that meet certain statutory requirements, may
provide us with protection from certain copyright infringement liability claims.
However, a number of third parties have claimed that they hold patents covering
various forms of online transactions or online technologies. Patent infringement
claims relating to our services or technologies could be asserted against us. 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. Any imposition of liability
that is not covered by insurance or is in excess of insurance coverage could
have a material adverse effect on our business and financial results.
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION.
Although our services are not currently subject to regulation by the
Federal Communications Commission (the "FCC") or any other federal or state
regulatory agency, changes in the regulatory environment affecting businesses
that provide Internet connection and content on the Internet, including
regulatory changes that, directly or indirectly, affect regulatory
classification or costs, limit usage of customer-related information or increase
the likelihood or scope of competition from the regional Bell operating
companies or other telecommunications companies, could affect the nature, scope,
prices and ability to market our services successfully. For example, the FCC has
repeatedly been asked to re-examine its classification of Internet service
providers as users, rather than providers, of telecommunications services. The
current classification of Internet service providers and their services as
enhanced or information services, which are exempt from the obligations under
which telecommunications services
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must be provided (such as contributing to the universal service support fund and
paying carrier access charges for local connections), are being challenged by
various parties, including the regional Bell operating companies, in several FCC
and court proceedings. Legislation that could reverse or modify the FCC's
policies could be introduced in the future.
The FCC's recent ruling that dial-up Internet traffic constitutes
interstate communications, and therefore is subject to the FCC's jurisdiction,
may undermine the basis for the current Internet service provider exemption from
access charges. The FCC's classification of Internet access services as
unregulated information services has also sheltered Internet telephony services
from common carrier regulation in general, and from universal service fund
obligations in particular. Some members of Congress have challenged the FCC's
conclusions exempting Internet service providers from universal service fund
contributions. In its April 8, 1998 Report to Congress in the Universal Service
proceeding, the FCC indicated that, in the future, it may begin to classify some
forms of Internet telephony as a regulated common carrier service. Future legal
or regulatory changes in the treatment of these Internet-based services may have
an adverse impact on our planned provision of Internet telephony.
Currently, cable operators generally elect to classify cable-delivered
Internet services as a cable service. Consequently, cable operators are usually
required to pay cable franchise fees in connection with providing high speed
Internet access. Any change in the classification of the Internet service as a
cable service could have a material adverse effect on our business and financial
results.
It is also possible that governmental authorities may attempt to classify
us in some other manner (e.g., as a common carrier-type service) and impose
additional and potentially burdensome regulatory requirements on us or our cable
partners. If cable system operators were classified as "common carriers" of
Internet services, or were to become subject to common carrier-like
interconnection or non-discrimination requirements, we could lose our status as
the exclusive residential high-speed Internet access provider over the systems
of our cable partners.
Several local franchising authorities considered the imposition of open
access for Internet service providers or similar non-discrimination requirements
upon the franchise transfers sought in connection with the merger of AT&T and
Tele-Communications, Inc. ("TCI"). At least one locality imposed such a
condition on its approval of the franchise transfer, and this has resulted in
federal court litigation over the legality of this condition. Several other
local franchising authorities which approved the franchise transfers from TCI to
AT&T continue to examine the open access issue on a more general basis. The open
access issue may become prominent in future franchise renewal proceedings. If we
or our cable partners were either classified as common carriers, or otherwise
subject to common carrier-like access and non-discrimination requirements, we or
they could be subject to government-regulated terms, conditions and tariff-based
prices for Internet connection services.
Local franchising authorities may attempt to subject cable systems to
higher or other franchise fees or taxes, or otherwise seek to require cable
operators to obtain additional franchises, in connection with their distribution
of our service. Because cable operators are subject to varying requirements of
each local franchise, it will be difficult or impossible for us or our cable
partners to operate under a unified set of franchise requirements. Legislation
has been enacted that imposes a moratorium on limiting the ability of state and
local governments to impose taxes on Internet services, pending the President's
submission to Congress of recommendations concerning appropriate parameters for
taxation. This legislation, however, does not affect cable franchise fees such
as those now applicable to our service.
To the extent that cable-delivered Internet services are treated as cable
television services, they would be subject to the cable subscriber privacy rules
of the Cable Act. These rules contain restrictions regarding the use of cable
subscriber information. Enactment of proposed privacy legislation currently
pending in Congress, which would restrict the use of customer information by
interactive computer services for marketing and other purposes, could adversely
affect the marketing of our services as well as our advertising revenue.
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On August 8, 1998, the FCC initiated two proceedings regarding the
provision of advanced telecommunications capabilities and services. The first
was a Notice of Proposed Rulemaking, which remains pending and relates to the
terms and conditions under which incumbent local exchange carriers, such as the
regional Bell operating companies, must offer copper loops equipped for
high-speed data transmission to competing local exchange carriers. The notice
requested comment on the imposition of one or more "unbundling" obligations on
the incumbent local exchange carriers. Such obligations might well facilitate
the provision of high-speed data transmission services by competing local
exchange carriers to end users, in competition with cable-delivered services.
The notice also requested comment on a proposal to allow incumbent local
exchange carriers to form lightly-regulated entities called "Data CLEC
Subsidiaries," which would be able to obtain access to incumbent local exchange
carrier facilities on the same terms as unaffiliated competing local exchange
carriers, without the Data CLEC Subsidiaries having to meet obligations such as
unbundling and resale currently applicable to the incumbent local exchange
carrier's own operations. The FCC was prepared to act on the notice in late
January 1999, but deferred action in order to consider the impact of the Supreme
Court's January 25, 1999 decision in AT&T v. Iowa Utilities Board. That case
(among other things) requires the FCC to re-evaluate the legal standard that it
must use in determining the scope of the incumbent local exchange carriers'
unbundling obligations, and therefore affected the FCC's analysis of the
proposals in the notice.
The second proceeding initiated last August was a Notice of Inquiry into
the status of deployment of advanced telecommunications capabilities pursuant to
section 706 of the Telecommunications Act of 1996. In the Inquiry, the FCC
requested comments regarding the kinds of regulatory structures that would best
foster the deployment of advanced telecommunications capabilities and that would
best fit the consumer market for such services. AOL and several other Internet
service providers advocated that they be given rights of access to broadband
systems operated by cable television companies. On February 2, 1999, the FCC
denied these requests. The FCC concluded that there was no present need to take
action because multiple methods of providing access to broadband services,
including Internet access, are or soon would be made available to a broad range
of consumers. The FCC pledged to monitor broadband deployment closely.
The same access issues were raised by AOL and other Internet service
providers and telecommunications carriers opposing the merger of AT&T and TCI.
These parties requested that the FCC impose conditions on its approval of the
AT&T/TCI merger, which would have required the merger entity's cable systems to
provide access and carriage over the high-speed cable plant to unaffiliated
Internet service providers and on-line service providers. The FCC again denied
these requests while pledging to monitor broadband deployment closely. We cannot
predict the ultimate outcome of these rulemaking proceedings, the FCC's future
broadband deployment monitoring efforts, or the impact if any, that future legal
or regulatory classification changes might have on our business.
WE DEPEND ON OUR KEY PERSONNEL AND WE MAY HAVE DIFFICULTY ATTRACTING AND
RETAINING SKILLED EMPLOYEES.
Our future success depends on the continued service of our key personnel.
We do not carry key person life insurance on most of our personnel. 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.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE.
We may need to raise additional funds 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 to respond to competitive pressures and perceived opportunities, such as
investment, acquisition and international expansion activities. There can be no
assurance that additional
17
<PAGE> 24
financing will be available on terms favorable to us, or at all. 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.
WE MAY DECIDE TO MAKE ACQUISITIONS OR INVESTMENTS.
From time to time we have had discussions with companies regarding our
acquiring, or investing in, their businesses. If we buy a company, we could have
difficulty in assimilating its operations, or assimilating and retaining its key
personnel. These difficulties could disrupt our ongoing business, distract our
management and employees, increase our expenses and adversely affect our results
of operations due to accounting requirements such as the amortization of
goodwill or the write off of acquired in-process research and development costs.
Furthermore, we may incur debt or issue dilutive equity securities to pay for
any future acquisitions.
WE MAY BECOME SUBJECT TO RISKS OF INTERNATIONAL OPERATIONS.
We may expand our business internationally. In doing so, 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.
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, in connection with our proposed
international operations. 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.
THE FUTURE SALE OF SHARES MAY HURT OUR MARKET PRICE.
If our stockholders sell substantial amounts of our common stock (including
shares issued upon the exercise of outstanding options) in the public market
following the offering, the market price of our common stock could fall. These
sales also might make it more difficult for us to sell equity securities in the
future at times and prices that we deem appropriate. After the offering, we will
have outstanding shares of common stock (excluding shares that may
be issued if the underwriters exercise their over-allotment option). Of these
shares, the shares to be sold in this offering generally will be
freely tradable. Additionally, the shares to be purchased by Cisco will be
freely tradable upon
18
<PAGE> 25
the expiration of Cisco's 180-day lock-up agreement as described below. This
leaves 24,664,000 additional shares eligible for sale in the public market as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ---------------- ----
<S> <C>
664,000...................................... 90 days after the date of this prospectus
with respect to the exercise of options
granted under our stock option plans
(subject, in some cases, to 180-day lock-up
agreements)
11,000,000................................... Beginning 180 days from the date of this
prospectus (subject to volume limitations)
13,000,000................................... At various times after 180 days from the date
of this prospectus (subject to volume
limitations)
</TABLE>
We and our directors, officers, substantially all current stockholders and
Cisco have agreed not to offer to sell, sell, or otherwise dispose of, directly
or indirectly, any shares of common stock without the consent of Lehman Brothers
for a period of 180 days from the date of this prospectus.
Certain stockholders, representing approximately 22,000,000 shares of
common stock, have the right, subject to specified conditions, to include their
shares in certain registration statements relating to our common stock. By
exercising their registration rights and causing a large number of shares to be
registered and sold in the public market, these holders may cause the price of
the common stock to fall.
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. 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 could make it difficult for a third party to acquire us, even if
doing so might be beneficial to our 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, there
will be further dilution to investors.
WE DO NOT PLAN TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE.
We intend to retain any future earnings to finance the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.
19
<PAGE> 26
]WE FACE RISKS FROM POTENTIAL YEAR 2000 PROBLEMS.
We may realize exposure and risk if the systems on which we depend to
conduct our operations are not Year 2000 compliant. Our potential areas of
exposure include the possible non-compliant status of the cable plants over
which our service operates, as well as information technology such as software
licensed products purchased from third parties and non-information technology
including telephone systems and other equipment used internally.
We have engaged a third-party consultant to perform a Year 2000 assessment
study. This study will include an assessment of both our information and
non-information technology. Based on the results of this assessment, we intend
to replace or remediate non-compliant technologies and to test any replacement
or corrected technologies. We expect to receive the results of the consultant's
initial assessment by the end of May 1999.
As part of our Year 2000 compliance assessment, we also will seek
verification from our cable partners, vendors and suppliers that they are Year
2000 compliant or, if they are not presently compliant, we will request a
description of their plans to become Year 2000 compliant. To the extent that
vendors fail to certify by August 30, 1999 that they are Year 2000 compliant, we
expect to terminate and replace those relationships. To the extent that our
cable partners fail to certify by August 30, 1999 that they are Year 2000
compliant, we will assess the possible impact of that failure on our business
based on the nature of our electronic interdependencies at that time, and we
will take appropriate remediation action to the extent possible or we may
suspend operations in the non-compliant system pending remediation by the cable
partner.
We expect to resolve any 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 of our Year 2000 compliance assessment will not
exceed $250,000, which will be funded from cash on hand. However, pending
receipt of the results of that assessment, the Company is unable to predict what
costs it may incur to remediate any Year 2000 problems identified.
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 would be
unavailable to deliver services to our cable partners and end users. This in
turn could expose us to material claims and liabilities. Moreover, we do not
currently have a contingency plan to deal with the worst-case scenario that
might occur if the technologies we depend upon are not Year 2000 compliant and
fail to operate effectively. We intend to develop a plan for this scenario by
the end of the second quarter of 1999. 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.
SALE OF SHARES TO CISCO SYSTEMS
Cisco has agreed to purchase $5 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, Cisco would
purchase shares of our common stock.
20
<PAGE> 27
USE OF PROCEEDS
We estimate the net proceeds to us from the offering, after deducting the
underwriting discounts and estimated offering expenses payable by us, and the
sale of $5 million of our common stock to Cisco, will be approximately
$ ($ if the underwriters' exercise their over-allotment option
in full), assuming an initial public offering price of $ 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 -- We may decide to
make acquisitions or investments" and "-- 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.
21
<PAGE> 28
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998.
Our capitalization is presented:
- On an actual basis; and
- On a pro forma basis to reflect:
- the sale of the shares offered hereby at an assumed
initial public offering price of $ per share, after deducting
underwriting discounts and estimated offering expenses payable by
us;
- the sale of an estimated shares of common stock to Cisco
at the assumed initial public offering price, net of the
underwriting discount;
- the automatic conversion of all outstanding shares of Series A and
Series B convertible preferred stock into 15 million shares of
common stock concurrently with the completion of the offering; and
- the sale to Vulcan Ventures at $5.00 per share of 5 million shares
of Series C convertible preferred stock and the automatic conversion
of those shares into 5 million shares of common stock concurrently
with the completion of the offering.
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>
DECEMBER 31, 1998
---------------------
ACTUAL PRO FORMA
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 17,888 $
========= ========
Notes payable -- related parties and capital lease
obligations, less current portions........................ $ 749 $
--------- --------
Mandatorily redeemable convertible preferred stock:
Series A, $.01 par value, 5,000,000 shares designated,
issued and outstanding on an actual basis; no shares
authorized, issued or outstanding on a pro forma
basis................................................. 47,050 --
Series B, $.01 par value, 10,000,000 shares designated,
issued and outstanding on an actual basis; no shares
authorized, issued or outstanding on a pro forma
basis................................................. 102,200 --
Series C, $.01 par value, 5,000,000 shares designated
and no shares issued or outstanding on an actual or
pro forma basis....................................... -- --
Stockholders' (deficit) equity:
Common stock, $.01 par value, 50,000,000 shares
authorized; 4,000,000 shares issued and outstanding on
an actual basis; shares issued and
outstanding on a pro forma basis...................... 40
Preferred stock, $.01 par value, 50,000,000 shares
authorized; 20,000,000 shares designated actual;
10,000,000 authorized, none designated, issued and
outstanding pro forma................................. -- --
Additional paid-in capital............................. 3,175
Accumulated deficit.................................... (129,642)
--------- --------
Total stockholders' (deficit) equity.............. (126,427)
--------- --------
Total capitalization......................... $ 23,572 $
========= ========
</TABLE>
22
<PAGE> 29
The foregoing table does not reflect:
- Outstanding options to purchase 541,500 shares of common stock issued
under our 1998 stock option plan at an average exercise price of $2.59,
all of which will become exercisable upon completion of the offering;
- 2 million shares reserved for issuance under our 1999 stock option
plan, under which we have granted options to purchase 30,000 shares at
an exercise price of $5.00 per share and options to purchase 31,000
shares at the initial public offering price, none of which is currently
exercisable;
- 300,000 shares reserved for issuance under our 1999 non-employee
director stock option plan, under which we have granted options to
purchase 122,500 shares at an exercise price of $5.00 per share, all of
which are exercisable; and
- 5 million shares of common stock reserved for issuance to Vulcan under
contingent warrants at an exercise price of $5.00 per share,
approximately 15,000 of which are exercisable.
23
<PAGE> 30
DILUTION
As of December 31, 1998, our net tangible book value on a pro forma basis
giving effect to the sale of $25 million of preferred stock before completion of
the offering and the conversion of all our convertible preferred stock into
common stock upon consummation of the offering was $ million or $ 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. As of December 31,
1998, our net tangible book value, on a pro forma basis as further adjusted for
the sale of the shares offered in the offering (after deducting the
underwriting discounts and commissions and other estimated offering expenses)
and an estimated shares to be sold to Cisco, and application of the
net proceeds from such sales of $ million, would have been approximately
$ per share. This represents an immediate increase of $ per share to
existing shareholders and an immediate dilution of $ per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
December 31, 1998.................................... $
Increase attributable to Cisco.........................
Increase attributable to Vulcan........................
Increase attributable to new investors.................
-----
Net tangible book value per share after the offering........
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table summarizes on a pro forma basis as of December 31,
1998, 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............ % % $
Cisco............................
New investors....................
---------- ----- ----------- -----
Total....................... 100.0% 100.0%
========== ===== =========== =====
</TABLE>
The foregoing tables and calculations exclude:
- Options to purchase 541,500 shares under our 1998 stock option plan at
an average exercise price of $2.59, all of which will become
exercisable upon completion of the offering;
- 2 million shares reserved for issuance under our 1999 stock option
plan, under which we have granted options to purchase 30,000 shares at
an exercise price of $5.00 per share and options to purchase 31,000
shares at the initial public offering price, none of which is currently
exercisable;
- 300,000 shares reserved for issuance under our 1999 non-employee
director stock option plan, under which we have granted options to
purchase 122,500 shares at an exercise price of $5.00 per share, all of
which are exercisable; and
- 5 million shares of common stock reserved for issuance to Vulcan under
contingent warrants at an exercise price of $5.00 per share,
approximately 15,000 of which are exercisable.
24
<PAGE> 31
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The selected historical data has been derived from financial statements
audited by PricewaterhouseCoopers, LLP, independent accountants. The
consolidated balance sheet at December 31, 1998 and the related consolidated
statement of operations and of cash flows for the period from April 3, 1998
(Inception) through December 31, 1998 and notes thereto appear 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 or the future results that we will experience
after the acquisitions.
<TABLE>
<CAPTION>
COMBINED
APRIL 3, 1998 PRO FORMA
(INCEPTION) YEAR ENDED
TO DECEMBER 31, 1998 DECEMBER 31, 1998
-------------------- -----------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.............................................. $ 337 $ 450
Costs and expenses:
Operating costs...................................... 2,067 2,401
Engineering.......................................... 2,266 2,372
Sales and marketing.................................. 3,696 4,078
General and administrative........................... 2,323 3,563
---------- ----------
Total costs and expenses........................ 10,352 12,414
---------- ----------
Loss from operations...................................... (10,015) (11,964)
Interest income, net...................................... 40 41
---------- ----------
Net loss.................................................. (9,975) (11,923)
Accretion of redemption value of mandatorily redeemable
convertible preferred stock and mandatorily redeemable
convertible preferred stock dividends................... (119,667) (119,667)
---------- ----------
Net loss available to common stockholders................. $ (129,642) $ (131,590)
========== ==========
Basic and diluted net loss per share...................... $ (32.41) $ (32.90)
Pro forma basic and diluted net loss per share(1)(2)
(unaudited)............................................. (1.10) (1.18)
Weighted average shares outstanding used in basic and
diluted per share calculation........................... 4,000,000 4,000,000
Weighted average shares outstanding used in pro forma
basic and diluted per share calculation(1)(2)
(unaudited)............................................. 9,091,571 10,116,712
</TABLE>
25
<PAGE> 32
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------
ACTUAL PRO FORMA(3)
----------------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 17,888 $
Working capital............................................. 14,162
Total assets................................................ 27,504
Notes payable -- related parties and capital lease
obligations, less current portion......................... 749
Mandatorily redeemable convertible preferred stock.......... 149,250
Total stockholders' (deficit) equity........................ (126,427)
</TABLE>
<TABLE>
<CAPTION>
MARCH 5, 1999
-----------------
<S> <C> <C>
OTHER DATA:
Systems under contract...................................... 43
Homes passed under contract................................. 868,000
Homes marketed(4)........................................... 210,000
Cable modem end users....................................... 2,800
Penetration of homes marketed(5)............................ 1.3%
</TABLE>
- ---------------
(1) Pro forma basic and diluted net loss per share for the historical period
April 3, 1998 through December 31, 1998 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 automatic conversion at the closing of the offering of all
outstanding shares of Series A and Series B convertible preferred stock
into common stock;
- The sale for $5.00 per share of $25 million of our Series C convertible
preferred stock to Vulcan Ventures prior to or contemporaneously with the
offering and the automatic conversion of these shares into 5 million
shares of common stock upon completion of the offering;
- The sale of an estimated shares of common stock to Cisco at an
assumed price of $ per share; and
- The sale of shares in this offering at an assumed price of
$ per share, after deducting underwriting discounts and offering
expenses.
(4) Homes marketed represents the number of homes passed in systems where we are
actively offering our cable modem Internet access services.
(5) Represents the number of our cable modem end users divided by homes
marketed.
26
<PAGE> 33
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
eventually 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 end
user 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.
- General and administrative expenses, which consist primarily of salaries
for our executive, administrative, finance and human resource personnel;
amortization of goodwill; and fees for
27
<PAGE> 34
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.
Under our 1998 stock option plan we have granted options to purchase
142,900 shares of common stock for $5.00 per share, which is below the market
value of our common stock. Non-cash compensation expense related to these
in-the-money options is currently being amortized over the five-year vesting
period of the options, but the remainder of the non-cash expense will be
recognized immediately upon the completion of the offering, at which time the
options immediately vest. It is also likely that we will recognize non-cash
stock option compensation expense in future periods related to the currently
outstanding options to purchase 122,500 shares of common stock granted under our
1999 non-employee directors' stock option plan.
RESULTS OF OPERATIONS FOR THE PERIOD APRIL 3, 1998 (INCEPTION) TO DECEMBER 31,
1998
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 discussions
reflects our results of operations since April 3, 1998.
Revenues. Net revenue was $337,000 for the period. Net revenue consists
primarily of net monthly subscription fees for cable modem-based and traditional
dial-up Internet services, and cable modem rental income.
Costs and Expenses
Operating. Operating costs were $2.1 million for the period. During the
period, we hired personnel to staff our network operations center and help desk
on a full-time basis. Telecommunications expenses were significant for the
period as we rolled out our service to new markets.
Engineering. Engineering expenses were $2.3 million for the period. During
the 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
period. During the period 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 period. During the period we hired personnel to implement
procedures and controls to support our planned expansion. General and
administrative expenses for the period also included amortization of goodwill of
$626,000 resulting from our acquisitions of CATV.net and High Speed Access
Network.
Net Interest Income. Net interest income was $40,000 for the period. 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 for the period.
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QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data for our
most recent three 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.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
APRIL 3, 1998 ENDED ENDED
TO SEPTEMBER 30, DECEMBER 31,
JUNE 30, 1998 1998 1998
------------- ------------- ------------
<S> <C> <C> <C>
Net revenues..................................... $ 91 $ 101 $ 145
Costs and expenses:
Operating costs................................ 261 673 1,133
Engineering.................................... 398 705 1,163
Sales and marketing............................ 657 1,434 1,605
General and administrative..................... 564 784 975
------- ------- -------
Total costs and expenses............... 1,880 3,596 4,876
------- ------- -------
Loss from operations............................. (1,789) (3,495) (4,731)
Interest income (expense), net................... (4) (11) 55
------- ------- -------
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)
======= ======= =======
</TABLE>
Net revenues increased in each quarter of 1998 as a result of the expansion
of our services.
Quarterly expenses increased sequentially during 1998 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. 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. Cash used in operating activities for the period
was $5.8 million. 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 and accrued expenses
of $2.8 million.
Cash used in investing activities for the period was $4.8 million. Cash
used for investing activities was primarily the result of capital expenditures
for equipment and software, furniture and fixtures. Gross capital expenditures
for equipment and software, furniture and fixtures were $5.7 million and
$907,000 was funded with cash acquired in the acquisition of CATV.net and High
Speed Access Network.
Cash provided by financing activities during 1998 was $28.4 million
resulting primarily from $27.6 million in net proceeds from the issuance of
convertible preferred stock in the period.
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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: (1) the number of markets entered;
(2) the timing of entry and services offered; (3) the rate at which subscribers
purchase our services and the pricing of such services; (4) the level of
marketing required to acquire new subscribers and cable operator partners; (5)
the rate at which we invest in upgrading and maintaining our network and future
technologies; (6) changes in revenue splits with our cable partners; and (7)
price competition in the Internet and cable industries. We expect to incur
between $15 million and $20 million of capital expenditures in 1999. 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.
Since inception, we have financed our operations primarily through a
combination of private sales of equity securities and capital equipment leases.
At December 31, 1998, the primary source of liquidity for the Company was $17.9
million of cash and cash equivalents. We believe that the net proceeds from this
offering, together with existing cash, $5 million in proceeds from the sale of
common stock to Cisco, $25 million in proceeds from the planned sale of 5
million shares of Series C convertible preferred stock to Vulcan Ventures, which
will be converted into 5 million shares of common stock upon consummation of
this offering, and capital lease financing will be sufficient to meet our
working capital requirements, including operating losses, and capital
expenditure requirements for at least the next 18 months. 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 (collectively referred to as derivatives) 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 on which we depend to
conduct our operations are not Year 2000 compliant. Our potential areas of
exposure include the possible non-compliant status of the cable plants over
which our service operates, as well as information technology such as software
licensed and products purchased from third parties, and non-information
technology including telephone systems and other equipment used internally.
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We have engaged a third-party consultant to perform a Year 2000 assessment
study. This study will include an assessment of both our information and
non-information technology. Based on the results of this assessment, we intend
to replace or remediate non-compliant technologies and to test any replacement
or corrected technologies. We expect to receive the results of the consultant's
initial assessment by the end of May 1999.
As part of our Year 2000 compliance assessment, we also will seek
verification from our cable partners, vendors and suppliers that they are Year
2000 compliant or, if they are not presently compliant, we will request a
description of their plans to become Year 2000 compliant. To the extent that
vendors fail to certify by August 30, 1999 that they are Year 2000 compliant, we
expect to terminate and replace those relationships. To the extent that our
cable partners fail to certify by August 30, 1999 that they are Year 2000
compliant, we will assess the possible impact of that failure on our business
based on the nature of our electronic interdependencies at that time, and we
will take appropriate remediation action to the extent possible or we may
suspend operations in the non-compliant system pending remediation by the cable
partner.
We expect to resolve any 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 of our Year 2000 compliance assessment will not
exceed $250,000, which will be funded from cash on hand. However, pending
receipt of the results of that assessment, the Company is unable to predict what
costs it may incur to remediate any Year 2000 problems identified.
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 would be
unavailable to deliver services to our cable partners and end users. This in
turn could expose us to material claims and liabilities. Moreover, we do not
currently have a contingency plan to deal with the worst-case scenario that
might occur if the technologies we depend upon are not Year 2000 compliant and
fail to operate effectively. We intend to develop a plan for this scenario by
the end of the second quarter of 1999. 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.
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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 11 cable operators,
covering 43 systems and approximately 868,000 homes passed. We also have
exclusive letters of intent to provide these services to another 23 operators
representing an additional 30 systems and approximately 230,000 homes passed. We
have commenced full operations in 14 systems covering approximately 210,000
homes marketed, initiated operations in 16 systems covering an additional
276,000 homes, and have approximately 2,800 cable modem 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., the seventh 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 Vulcan has an equity incentive to
cause Charter 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 868,000 homes passed and we have letters of intent
relating to approximately 230,000 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 Roadrunner. Although several of the
operators who have contracted with @Home and Roadrunner 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 if our competitors are not adequately addressing the needs of their cable
partners. Therefore, we believe there may be an opportunity for us to provide
our service in some of these exurban markets by partnering with the cable
operator directly or with other high speed Internet access providers.
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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 high speed Internet
access without the assistance of a 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 sign
a letter of intent for network services. Based on our extensive experience in
the 30 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
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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. 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 currently provides
significantly greater speeds at costs to the end user equal to, or less than,
alternative high speed technologies such as ISDN, DSL, and potentially wireless
and satellite. Moreover, ISDN and DSL services are not currently available in
many exurban markets as the technology is better suited to densely populated
areas. In two-way cable systems, the cost of our services to the end user is
approximately the cost of dial-up Internet access plus the cost of an additional
telephone line.
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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 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
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<PAGE> 42
- 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.
Rapidly Expand Our Base of Cable Partners. We have installed 30 systems,
covering 486,000 homes passed, and we have contracts or letters of intent to
deploy our services in an additional 43 systems, covering 611,000 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.
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. The elements of our service include:
- A comprehensive full turnkey service, including the purchase of capital
equipment, local installation, local on-site and corporate-level
marketing, a network operations center to monitor performance and
optimization of the system, and direct customer billing;
- Extensive experience in the cable industry, allowing us to anticipate and
meet the needs of cable operators;
- The flexibility to support cable systems that have not been partially or
fully upgraded to provide two-way service;
- The ability to use alternative technologies, such as DSL and wireless, to
connect commercial customers to the cable headend, to increase the base
of revenue sharing end users for the cable operator; and
- The potential to deliver additional high bandwidth services to end users,
such as virtual private networks, Internet telephony, gateway telephony,
and network computer and Web TV(R)-like broadband access.
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 both 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
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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 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, the seventh largest cable
system operator in the United States and has substantial investments in media,
Internet and new media companies, including USA Networks, ZDTV, Beyond.com, N2K,
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
will selectively evaluate 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. For example, we are in
discussions to acquire approximately 1,800 dial-up customers in one of our
existing markets.
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 $9.95 per month. 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, 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
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<PAGE> 44
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.
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, video
conferencing, 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."
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<PAGE> 45
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 210,000 homes passed, are implementing services to approximately
276,000 additional homes passed and have contracts and letters of intent
covering an additional 611,000 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. Our network
services agreements generally provide for a five-year exclusive term from the
date we commence full operation within the cable system.
The following table summarizes our cable partners, the number of homes
passed and the areas served by each cable partner's systems as of March 5, 1999:
<TABLE>
<CAPTION>
HOMES
CABLE PARTNER PASSED AREAS SERVED BY CABLE PARTNERS' SYSTEMS
- ------------- --------- ---------------------------------------
<S> <C> <C>
Network Service Agreements:
Coast Communications....................... 3,500 Ocean Shores, WA
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
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
Shen Heights TV Association, Inc........... 6,700 Shenandoah, PA
---------
Subtotal....................... 103,550
Charter Service Agreements:
Charter.................................... 25,786 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
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.................................... 7,405 Carrollton, GA
</TABLE>
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<PAGE> 46
<TABLE>
<CAPTION>
HOMES
CABLE PARTNER PASSED AREAS SERVED BY CABLE PARTNERS' SYSTEMS
- ------------- --------- ---------------------------------------
<S> <C> <C>
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....................... 868,370
Homes passed under Letters of Intent....... 230,000
---------
Total homes passed under contract
and letters of intent.......... 1,098,370
=========
</TABLE>
We have approximately 2,800 high speed cable modem end users and
approximately 2,500 dial-up end users.
Cisco Systems, Inc. Cisco, one of our major equipment suppliers, has agreed
to purchase $5 million of our common stock at the initial public offering price,
net of the underwriting discount, concurrently with this offering.
Vulcan Ventures. Vulcan Ventures, which owns Charter, beneficially owns
54.2% of our common stock before the offering. Charter is the seventh largest
cable system operator in the United States. Charter has already committed to us
approximately 765,000 homes passed. We have granted Vulcan warrants to purchase
up to 5 million shares of our common stock for $5.00 per share. These warrants
become exercisable at the rate of one warrant per home passed committed to us by
Charter in excess of 750,000.
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.
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<PAGE> 47
Our efforts to date have generated a cable modem penetration rate for homes
marketed of 1.3%, notwithstanding a weighted average of 6.3 months marketing our
services. The following table shows as of March 5, 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............... 23,000 621 17 1,931 2,569 2.7% 8.4% 14
Maysville, KY................ 6,000 275 46 -- 321 4.6 0.0 12
Columbia, MO................. 5,000 50 -- -- 50 1.0 0.0 8
Eau Claire, WI............... 49,000.. 847 29 196 1,072 1.7 0.4 7
Rice Lake, WI................ 9,125 128 7 29 164 1.4 0.3 7
Winder, GA................... 28,000 152 2 54 208 0.5 0.2 7
Newnan, GA................... 25,786 259 -- 1 260 1.0 0.0 5
Monument, CO................. 7,500 120 1 26 147 1.6 0.3 4
LaGrange, GA................. 26,093 87 4 2 93 0.3 0.0 3
Myrtle Beach, SC............. 9,000 32 -- 63 95 0.4 0.7 3
El Campo, TX................. 5,700 19 -- 24 43 0.3 0.4 2
Burnsville, NC............... 6,000 14 -- 90 104 0.2 1.5 2
Ocean Shores, WA............. 3,500 71 -- 82 153 2.0 2.3 1
Shenandoah, PA............... 6,700 16 -- 37 53 0.2 0.6 1
------- ----- --- ----- ----- --- ---
Total.............. 210,404 2,691 106 2,535 5,332 1.3% 1.2%
======= ===== === ===== ===== === ===
</TABLE>
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 (a subsidiary of MCI
Worldcom) 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 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
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<PAGE> 48
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 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.
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 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 in two primary areas: (i) competition for partnerships
with cable operators from other cable modem-based providers of Internet access
services and (ii) competition for end users from providers of other types of
data and Internet services. For a discussion of these competitive factors see
"Risk Factors -- The market for Internet services is highly competitive."
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<PAGE> 49
GOVERNMENT REGULATION
Although our services are not currently subject to regulation by the
Federal Communications Commission or any other federal or state regulatory
agency, changes in the regulatory environment affecting businesses that provide
Internet connection and content on the Internet could affect the nature, scope,
prices and ability to market our services successfully. For a discussion of
these potential changes in the regulatory environment, see "Risk Factors -- We
may become subject to burdensome government regulation."
EMPLOYEES
As of March 5, 1999, we employed 156 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.
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<PAGE> 50
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, Sr. ..................... 51 President
W. Kent Oyler, III.................... 40 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
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
Jorge Salinger........................ 42 Vice President, Engineering
Tammy L. Smith........................ 39 Vice President, Marketing
Jeff Tokar............................ 36 Vice President, Products, Goods and
Services
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.................... 68 Director
Jerald L. Kent........................ 42 Director
William D. Savoy...................... 34 Director
Stephen E. Silva...................... 39 Director
</TABLE>
Executive Officers
RON PITCOCK, SR. 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 in
telecommunications from Denver University.
W. KENT OYLER, III 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
44
<PAGE> 51
manufacturer, where he held several positions, including Treasurer, Vice
President and Chief Financial Officer. While serving at Henry Vogt, Mr. Oyler
founded several 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 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. in electronics engineering and a
Professional degree from the University of Baroda in India, and an M.S. in
electrical engineering and computer sciences 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. in physics 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. in electronic
engineering from the University of Connecticut.
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<PAGE> 52
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.
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 Center and AT&T's Latin America business division. He
received a B.A. and M.S. in electrical engineering from Florida International
University.
TAMMY L. SMITH has served as our Vice President, Marketing, 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, Products, Goods and Services,
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. in engineering from the United States Military Academy at West Point and an
M.S. in telecommunications management 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
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<PAGE> 53
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
1989 to the present, Mr. Gellert has served as Managing 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. 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
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 Communications, Inc. 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 funds
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
Communications, where he currently serves as Vice President, Corporate
Development and Technology. Prior to joining Charter, Mr. Silva served in
various capacities at Cabledata, Inc. and its predecessors from 1985 to 1995.
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 MEMBER
----- ---------- ------
<S> <C> <C>
Class I 2000
Class II 2001
Class III 2002
</TABLE>
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<PAGE> 54
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.
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.
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
(the "Named Executive Officers") for services rendered in all capacities. 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, Sr., President................................. 1998 $112,792
W. Kent Oyler, III, 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 900,000 shares of common stock for issuance under the plan.
Options to purchase 541,500 shares of common stock have been granted under the
plan, at a weighted average exercise price of $2.59 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 elected not to
grant additional options under the plan.
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<PAGE> 55
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.
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) with the approval of the compensation committee, by delivering shares
of common stock owned by the grantee; 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 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.
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 $1.0 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.
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<PAGE> 56
1999 Stock Option Plan
We adopted the 1999 Stock Option Plan in January 1999. The plan provides
for grants of incentive stock options and nonqualified stock options to our
designated employees, officers and directors.
General. The plan authorizes options to purchase up to 2,000,000 shares of
common stock for issuance. No more than 300,000 shares in the aggregate may be
granted to any individual in any calendar year. 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 such
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.
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 March 5, 1999, we had granted options to purchase
30,000 shares at an exercise price of $5.00 per share and 31,000 shares at an
exercise price equal to the initial public offering price per share.
Options. Incentive stock options and non-qualified stock options may be
granted to our employees. 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 shall be equal to or
greater than the fair market value of a share of common stock on the date such
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) with the approval of the compensation committee, by delivering shares
of common stock owned by the grantee; or
(3) by such other method as 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 up to a
maximum of ten years from the date of grant, except that the term of an
incentive stock option granted to an employee who owns more than 10% of the
common stock may not exceed five years from the date of grant.
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<PAGE> 57
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 so that they become exercisable as of the participant's next
vesting date 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 Ventures or an affiliate).
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.
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 $1.0 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 granted under
the plan. 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 is intended to make 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
March 5, 1999, options to purchase 122,500 shares at an exercise price of $5.00
per share were outstanding under the plan. Under the plan, each non-employee
director is automatically granted an option to purchase 17,500 shares of 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 7,500
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 300,000 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.
The compensation committee of the board of directors administers and
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
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<PAGE> 58
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, W. Kent Oyler, III
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, Sr. 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.
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<PAGE> 59
CERTAIN TRANSACTIONS
Ron Pitcock, Sr. and W. Kent Oyler, III, 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 March 1997, CATV.net, Inc., a subsidiary of HSA following our
formation in 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. High Speed Access Network, Inc., a subsidiary of HSA
following our formation in 1998, 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. The shares of common stock of CATV.net
issued to Mr. Oyler and Mr. Gibbs and the shares of common stock of High Speed
Access Network issued to Mr. Pitcock and Mr. Gans were exchanged for shares of
our common stock in April 1998. Mr. Pitcock, Mr. Oyler, Mr. Gibbs and Mr. Gans
each contributed a nominal amount of capital for our initial capitalization. Mr.
Gibbs and Mr. Oyler are entitled to certain registration rights with respect to
their shares of common stock. See "Description of Capital Stock--Registration
Rights".
Since our formation and prior to the completion of this offering, we will
have issued 20 million shares of convertible preferred stock, which will
automatically convert into an aggregate of 20 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. If we
complete this offering on , 1999, we will issue shares of
common stock in payment of the accrued and unpaid dividends on the convertible
preferred stock. 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".
Broadband Solutions, LLC owns 3,905,000 shares of Series A convertible
preferred stock and River Cities Capital Fund Limited Partnership owns 1,095,000
shares of Series A convertible preferred stock. The purchase price of $1.00 per
share for the Series A convertible preferred stock was paid in cash. Broadband
Solutions II, LLC owns 1,562,000 shares of Series B convertible preferred stock
and River Cities Capital Fund Limited Partnership owns 438,000 shares of Series
B convertible preferred stock. The purchase price of the Series B convertible
preferred stock of $2.50 per share was paid in cash and/or in exchange for a
note owing to Broadband. David A. Jones, Jr., our Chairman of the Board, is the
managing director, 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 Messrs.
Jones, Saunders, Bailey and Gellert, respectively, are members of Broadband
Solutions, LLC and Broadband Solutions II, LLC. 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 of directors. Mr. Jones and Mr. Saunders are Chairman and Senior
Managing Director, respectively, of Chrysalis Ventures. In 1998, we accrued
$60,000 payable to Chrysalis Ventures under this 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. Vulcan has an equity incentive to cause Charter to provide us
additional homes passed, although neither Vulcan nor Charter is obligated to do
so. Charter can terminate our exclusivity rights for any other reason, on a
system-by-system basis, if we fail to meet performance benchmarks or otherwise
breach our agreement, including our agreement to support content provided by
Vulcan. Charter can terminate our agreement for any other reason as long as it
purchases the associated cable head end 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
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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 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. Vulcan has agreed to purchase prior to or concurrently with the offering
the entire 5 million shares of Series C convertible preferred stock, which will
automatically convert at a price of $5.00 per share into common stock upon
completion of this offering. Vulcan is entitled to registration rights with
respect to the shares of Series B and Series C convertible preferred stock
issued to 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 5 million shares of our common
stock at a purchase price of $5.00 per share. The warrants are earned by Vulcan
at the rate of one share of common stock for each home passed committed to us by
Charter in excess of 750,000. 2.5 million warrants may be earned by Vulcan on or
before July 31, 2001, and 2.5 million warrants may be earned by Vulcan on or
before July 31, 2003. Each warrant issued to Vulcan must be exercised on or
before one year from the completion of this offering. 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 W. Kent Oyler, III, 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 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 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 $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 plan to transfer to Darwin Networks, Inc., a newly
created Delaware corporation, all of the assets used in our digital subscriber
line technology division in exchange for 100% of the outstanding Darwin common
stock. Prior to completion of the offering, we will distribute all of the
outstanding Darwin common stock to our shareholders on a pro rata basis. In
connection with the transaction we plan to enter into a services agreement with
Darwin pursuant to which we will provide various financial, accounting and other
professional staff services to Darwin and will be compensated for our costs at
fair market value. We also will enter into a sublease pursuant to which Darwin
will lease space in our Louisville, Kentucky offices at fair market value. The
services agreement and sublease will be for an initial six month term. After we
complete the distribution, we will lend Darwin up to
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<PAGE> 61
$500,000 for working capital pursuant to a six month unsecured revolving credit
note bearing interest at the prime rate. At that time, in connection with the
note, Darwin will issue us a warrant to purchase 1 million shares of Darwin
common stock at an exercise price of $5.00 per share. David F. Gibbs, a current
stockholder and former officer of HSA, will be an executive officer of Darwin.
OPTIONS GRANTED TO EXECUTIVE OFFICERS
For information regarding the grant of stock options to executive officers
and directors, see "Management--Compensation of Directors," "--Stock Option
Plans" and "Principal Stockholders."
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<PAGE> 62
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of February 28, 1999, and as
adjusted to reflect the sale of the shares of common stock in this offering, by
(a) each person (or group of affiliated persons) known by us to beneficially own
5% or more of the common stock, (b) each director and Named Executive Officer,
and (c) all of our directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENT OF OWNERSHIP(1)
NUMBER OF SHARES ---------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED(1) BEFORE OFFERING AFTER OFFERING
---------------- --------------------- --------------- --------------
<S> <C> <C> <C>
Vulcan Ventures, Incorporated................. 13,014,820(2) 54.2%
110 110th Avenue, N.E.
Bellevue, WA 98004
Irving W. Bailey, II.......................... 7,017,500(3) 36.9%
205 Worth Avenue
Suite 201
Palm Beach, FL 33480
Michael E. Gellert............................ 7,017,500(4) 36.9%
122 E. 42nd Street
49th Floor
New York, NY 10168-0130
David A. Jones, Jr. .......................... 7,017,500(5) 36.9%
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202
Robert S. Saunders............................ 7,017,500(6) 36.9%
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202
Robert J. Gellert............................. 7,000,000(7) 36.8%
122 E. 42nd Street
34th Floor
New York, NY 10168-0120
J. David Grissom.............................. 7,000,000(8) 36.8%
Suite 2510
400 West Market Street
Louisville, KY 40202
Windcrest Partners............................ 7,000,000(9) 36.8%
122 E. 42nd Street
34th Floor
New York, NY 10168-0120
Broadband Solutions, LLC...................... 7,000,000(10) 36.8%
Broadband Solutions II, LLC
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202
River Cities Capital Fund Limited
Partnership................................. 1,533,000(11) 8.1%
Suite 2250
221 East 4th Street
Cincinnati, OH 45202
</TABLE>
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<PAGE> 63
<TABLE>
<CAPTION>
PERCENT OF OWNERSHIP(1)
NUMBER OF SHARES ---------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED(1) BEFORE OFFERING AFTER OFFERING
---------------- --------------------- --------------- --------------
<S> <C> <C> <C>
David F. Gibbs................................ 1,000,000(12) 5.3%
Suite 135
1000 West Ormsby Ave.
Louisville, KY 40210
W. Kent Oyler, III............................ 1,000,000(13) 5.3%
Ron Pitcock, Sr. ............................. 980,500(14) 5.2%
Joseph S. Gans III............................ 816,000 4.3%
Jerald L. Kent................................ 17,500(15) *
William D. Savoy.............................. 13,032,320(16) 54.2%
Stephen E. Silva.............................. 17,500(17) *
All executive officers and directors as a
group (14 persons).......................... 22,250,320(18) 91.8%
</TABLE>
- ---------------
* Represents beneficial ownership of less than one percent of the outstanding
shares of our common stock.
(1) Gives effect to the shares of common stock issuable within 60 days of
February 28, 1999 upon the exercise of all options and other rights
beneficially owned by the indicated stockholders on that date. Unless
otherwise indicated, we understand that the persons named in the table have
sole voting and investment power with respect to all shares shown as
beneficially owned.
(2) Includes common stock issued upon automatic conversion of all shares of
preferred stock owned by Vulcan Ventures, Incorporated, 5,000,000 shares of
common stock issuable upon automatic conversion of 5,000,000 shares of
Series C convertible preferred stock which Vulcan Ventures, Incorporated
has agreed to purchase prior to completion of the offering, and 14,820
shares of common stock issuable upon the exercise of warrants exercisable
within 60 days of February 28, 1999. In addition, Vulcan Ventures,
Incorporated, has been issued warrants to purchase up to an additional
4,985,180 shares of common stock. Paul Allen owns 100% of the outstanding
shares of Vulcan Ventures, Incorporated.
(3) Includes 5,438,000 shares of common stock issued upon automatic conversion
of all shares of preferred stock beneficially owned by Broadband Solutions,
LLC ("Broadband I"), 1,562,000 shares of common stock issued upon automatic
conversion of all shares of preferred stock owned by Broadband Solutions
II, LLC ("Broadband II") and 17,500 shares of common stock issuable upon
the exercise of stock options exercisable within 60 days of February 28,
1999. Mr. Bailey is a manager of Broadband I and Broadband II. IWB
Investments, LP, an entity Mr. Bailey controls, is a member of Broadband I
and Broadband II.
(4) Includes 5,438,000 shares of common stock issued upon automatic conversion
of all shares of preferred stock beneficially owned by Broadband I,
1,562,000 shares of common stock issued upon automatic conversion of all
shares of preferred stock owned by Broadband II and 17,500 shares of common
stock issuable upon the exercise of stock options exercisable within 60
days of February 28, 1999. Mr. Gellert is a manager of Broadband I and
Broadband II. Windcrest Partners, of which Mr. Gellert is a general
partner, is a member of Broadband I and Broadband II.
(5) Includes 5,438,000 shares of common stock issued upon automatic conversion
of all shares of preferred stock beneficially owned by Broadband I,
1,562,000 shares of common stock issued upon automatic conversion of all
shares of preferred stock owned by Broadband II and 17,500 shares of common
stock issuable upon the exercise of stock options exercisable within 60
days of February 28, 1999. Mr. Jones is the managing director of Broadband
I and Broadband II. JG Funding, LLC, an entity Mr. Jones controls, is a
member of Broadband I and Broadband II.
(6) Includes 5,438,000 shares of common stock issued upon automatic conversion
of all shares of preferred stock beneficially owned by Broadband I,
1,562,000 shares of common stock issued upon automatic conversion of all
shares of preferred stock owned by Broadband II and 17,500 shares of
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common stock issuable upon the exercise of stock options exercisable within 60
days of February 28, 1999. Mr. Saunders is a manager of Broadband I and
Broadband II. Saunders Capital Group, LLC and Saunders Capital Group Profit
Sharing Plan, entities Mr. Saunders controls, are members of Broadband I
and Broadband II.
(7) Consists of 5,438,000 shares of common stock issued upon automatic
conversion of all shares of preferred stock beneficially owned by Broadband
I, and 1,562,000 shares of common stock issued upon automatic conversion of
all shares of preferred stock owned by Broadband II. Mr. Gellert is a
general partner of Windcrest Partners which is a member of Broadband I and
Broadband II.
(8) Consists of 5,438,000 shares of common stock issued upon automatic
conversion of all shares of preferred stock owned by Broadband I, and,
1,562,000 shares of common stock issued upon automatic conversion of all
shares of preferred stock owned by Broadband II. Mr. Grissom is a manager
and a member of Broadband I and Broadband II.
(9) Consists of 5,438,000 shares of common stock issued upon automatic
conversion of all shares of preferred stock owned by Broadband I and
1,562,000 shares of common stock owned by Broadband II. Windcrest Partners
is a member of Broadband I and Broadband II. Michael E. Gellert, a manager
of Broadband I and Broadband II, is a general partner of Windcrest
Partners.
(10) Consists of 5,438,000 shares of common stock issued upon automatic
conversion of all shares of preferred stock owned by Broadband I, including
1,533,000 shares of common stock issued upon automatic conversion of all
shares of preferred stock owned by River Cities Capital Fund Limited
Partnership, over which Broadband I has sole voting power pursuant to an
irrevocable proxy granted by River Cities to Broadband I, and 1,562,000
shares of common stock issued upon automatic conversion of all shares of
preferred stock owned by Broadband II.
(11) Includes common stock issued upon automatic conversion of all shares of
preferred stock owned by River Cities Capital Fund Limited Partnership.
River Cities has granted Broadband I an irrevocable proxy with respect to
such shares.
(12) Consists of 1,000,000 shares held of record by Gibbs Family Limited
Partnership, which Mr. Gibbs controls.
(13) Consists of 333,333 shares held of record by OPM Services, Inc. and 666,667
shares held of record by Colorado Limited Partnership, both of which Mr.
Oyler controls.
(14) Consists of 980,000 shares held of record by Pitcock Family Limited
Partnership, which Mr. Pitcock controls, and 500 shares of common stock
issuable upon exercise of stock options held by
Mr. Pitcock's spouse which will become exercisable upon completion of this
offering.
(15) Includes 17,500 shares of common stock issuable upon the exercise of stock
options exercisable within 60 days of February 28, 1999.
(16) Includes 13,014,820 shares of common stock owned by Vulcan Ventures and
17,500 shares of common stock issuable upon the exercise of stock options
exercisable within 60 days of February 28, 1999. Mr. Savoy is the Vice
President of Vulcan Ventures, Incorporated. Mr. Savoy disclaims beneficial
ownership of shares held by Vulcan Ventures, Incorporated, and Vulcan
Ventures, Incorporated disclaims beneficial ownership of shares owned by
Mr. Savoy.
(17) Includes 17,500 shares of common stock issuable upon the exercise of stock
options exercisable within 60 days of February 28, 1999.
(18) Includes 122,500 shares of common stock issuable upon the exercise of stock
options exercisable within 60 days of February 28, 1999, 132,500 shares of
common stock issuable upon the exercise of stock options exercisable upon
completion of this offering and 14,820 shares of common stock issuable upon
the exercise of warrants exercisable within 60 days of February 28, 1999.
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DESCRIPTION OF SECURITIES
At the closing of the offering our authorized capital stock will consist of
shares of 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.
PREFERRED STOCK
Our board of directors, without further action by the stockholder, is
authorized to issue an aggregate of 10,000,000 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 2 million shares of common stock may be
granted under the 1999 stock option plan and options to purchase 300,000 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 183,500 shares
of common stock under these plans and 541,500 shares of common stock under the
1998 stock option plan. Of the total options outstanding, options to purchase
664,000 shares will be exercisable upon the closing of this offering. Any shares
issued upon exercise of these options will be immediately available for sale in
the public market upon our filing of a registration statement after the offering
relating to our stock option plans and the terms of lock-up agreements entered
into between 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 Vulcan to purchase 5 million shares of common stock at a
purchase price of $5.00 per share. The warrants are exercisable on the basis of
one share 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 2.5
million shares if they do not become exercisable on or before July 31, 2001, and
as to 2.5 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 is reduced. As of March 5, 1999, Vulcan had earned
warrants to purchase 14,820 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;
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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".
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 entered into registration rights agreements with certain of our
stockholders. After the completion of this offering, the holders of 20 million
shares of common stock issuable upon the conversion of all of the outstanding
preferred stock, and warrants to purchase an additional 5 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. In addition, these holders are entitled to require
us to include their registrable securities in future registration statements
that we may file. In addition, OPM Services, Inc. and Colorado Limited
Partnership, affiliates of W. Kent Oyler, III, and the Gibbs Family Limited
Partnership, an affiliate of David Gibbs, may demand that we register up to 20%
of their 2 million shares of common stock 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.
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 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.
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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.
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, 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.
We have entered into agreements to indemnify our 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.
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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.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is
, New York, New York.
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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) a citizen or resident of the
United States, (b) a corporation or partnership created or organized in the
United States or under the laws of the United States or of any state, or (c) an
estate whose income is includable in gross income for United States federal
income tax purposes regardless of its source, or (d) a trust if (i) a court
within the United States is able to exercise primary supervision over the
administration of the trust and (ii) 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, 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 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.
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
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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 (i) the gain is not
U.S. trade or business income, (ii) 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, (iii) 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 (iv) 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 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 (i) a "controlled foreign corporation" for U.S. federal
income tax purposes, (ii) 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, (iii) 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 (iv) certain U.S. branches of
foreign banks or insurance companies.
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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.
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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 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 shares sold in the offering
and the shares to be sold to Cisco 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
24,000,000 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 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 725,000
shares of common stock are outstanding under our stock option plans, 664,000 of
which will be exercisable upon completion of the offering and warrants to
purchase a total of 5 million shares of common stock are outstanding, all of
which become exercisable at the rate of one warrant per home passed committed to
us by Charter in excess of 750,000. See "Management--Compensation of Directors"
and "--Stock Option Plans."
We and our directors, officers, substantially all current stockholders
(holding an aggregate of 24 million shares of common stock and warrants to
purchase up to 5 million shares of common stock) and Cisco 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 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 22 million shares of our outstanding
common stock and holders of warrants to purchase up to 5 million shares of
common stock will have certain 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 certain 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."
66
<PAGE> 73
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 Oppenheimer Corp. .....................................
Total.............................................
</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 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
67
<PAGE> 74
proportionate to 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 22,000,000 shares of common stock and warrants to
purchase 14,820 shares of common stock), and Cisco 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 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. See "Risk Factors -- Investors may suffer substantial
dilution from other transactions." See "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 certain liabilities,
including liabilities under the Securities Act, and to contribute, under certain
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
certain transactions that stabilize the price of common stock. Such 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 certain 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 such 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 engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
68
<PAGE> 75
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
such 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 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. Such 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 such
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 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.
69
<PAGE> 76
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.
70
<PAGE> 77
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Audited Financial Statements:
High Speed Access Corp. and Subsidiaries
Report of Independent Accountants...................... F-2
Consolidated Balance Sheet at December 31, 1998........ F-3
Consolidated Statement of Operations for the period
from April 3, 1998 (inception) through December 31,
1998.................................................. F-4
Consolidated Statement of Changes in Stockholders'
Deficit for the period from April 3, 1998 (inception)
through December 31, 1998............................. F-5
Consolidated Statement of Cash Flows for the period
from April 3, 1998 (inception) through December 31,
1998.................................................. F-6
Notes to Consolidated Financial Statements............. F-7
CATV.net, Inc.
Report of Independent Accountants...................... F-21
Balance Sheets at December 31, 1997 and April 2,
1998.................................................. F-22
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-23
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-24
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-25
Notes to Financial Statements.......................... F-26
High Speed Access Networks, Inc.
Report of Independent Accountants...................... F-33
Balance Sheets as of December 31, 1997 and April 3,
1998.................................................. F-34
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-35
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-36
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-37
Notes to Financial Statements.......................... F-38
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-43
Notes to Unaudited Pro Forma Condensed Combined
Financial Statements.................................. F-44
</TABLE>
F-1
<PAGE> 78
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
High Speed Access Corp.
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
F-2
<PAGE> 79
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
DECEMBER 31, DECEMBER 31,
1998 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 17,888
Accounts receivable, net of allowance for doubtful
accounts of $13......................................... 83
Prepaid expenses and other assets......................... 123
---------
Total current assets............................... 18,094
Property, equipment and improvements, net................... 5,807
Intangible assets, net...................................... 3,603
---------
Total assets....................................... $ 27,504
=========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 2,741
Accrued compensation and related expenses................. 744
Other current liabilities................................. 395
Notes payable -- related parties, current portion......... 8
Capital lease obligations, current portion................ 44
---------
Total current liabilities.......................... 3,932
---------
Notes payable -- related parties............................ 530
Capital lease obligations................................... 219
---------
Total liabilities.................................. 4,681
---------
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 $ --
Series B, $.01 par value, 10,000,000 shares designated,
issued and outstanding, no shares outstanding pro forma
(unaudited)............................................. 102,200 --
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 --
--------- ---------
Stockholders' (deficit) equity:
Preferred stock, $.01 par value, 50,000,000 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, 50,000,000 shares
authorized; 4,000,000 and 19,055,559 (unaudited) shares
issued and outstanding, actual and pro forma............ 40 191
Additional paid-in capital................................ 3,175 152,259
Accumulated deficit....................................... (129,642) (129,642)
--------- ---------
Total stockholders' (deficit) equity............... (126,427) $ 22,808
--------- =========
Total liabilities, mandatorily redeemable
convertible preferred stock and stockholders'
deficit.......................................... $ 27,504
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 80
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 3, 1998
(INCEPTION)
THROUGH
DECEMBER 31, 1998
-----------------
<S> <C>
Net revenue................................................. $ 337
Costs and expenses:
Operating costs........................................... 2,067
Engineering............................................... 2,266
Sales and marketing....................................... 3,696
General and administrative................................ 2,323
----------
Total costs and expenses.......................... 10,352
----------
Loss from operations........................................ (10,015)
Interest income, net........................................ 40
----------
Net loss.......................................... (9,975)
Mandatorily redeemable convertible preferred stock
dividends................................................. (385)
Accretion of redemption value of mandatorily redeemable
convertible preferred
stock..................................................... (119,282)
----------
Net loss available to common stockholders......... $ (129,642)
==========
Basic and diluted net loss available to common stockholders
per share................................................. $ (32.41)
==========
Weighted average shares used in computation of basic and
diluted net loss available to common stockholders per
share..................................................... 4,000,000
Pro forma basic and diluted net loss per share
(unaudited)............................................... $ (1.10)
==========
Weighted average shares used in computation of pro forma
basic and diluted (unaudited)............................. 9,091,575
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 81
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE PERIOD APRIL 3, 1998 (INCEPTION) THROUGH DECEMBER 31, 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 acquisition of CATV and HSAN.... 4,000,000 $40 $3,175 $ -- $ 3,215
Mandatorily redeemable convertible
preferred stock dividends............ -- -- -- (385) (385)
Accretion of redemption value of
manditorily redeemable convertible
preferred stock...................... -- -- -- (119,282) (119,282)
Net loss............................... -- -- -- (9,975) (9,975)
--------- --- ------ --------- ---------
Balances at December 31, 1998.......... 4,000,000 $40 $3,175 $(129,642) $(126,427)
========= === ====== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 82
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 3, 1998
(INCEPTION) THROUGH
DECEMBER 31, 1998
-------------------
<S> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(9,975)
Adjustments to reconcile net loss to cash used in operating
activities:
Depreciation and amortization............................. 1,344
Changes in assets and liabilities, excluding effects of
acquisitions:
Accounts receivable.................................... (36)
Prepaid expenses and other current assets.............. (106)
Accounts payable....................................... 2,168
Accrued compensation and related expenses.............. 629
Other current liabilities.............................. 211
-------
Net cash used in operating activities............. (5,765)
-------
INVESTING ACTIVITIES
Purchase of property, equipment and improvements, net of
leases.................................................... (5,664)
Cash acquired in purchase of CATV and HSAN.................. 907
-------
Net cash used in investing activities............. (4,757)
-------
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)
Payments on long-term debt.................................. (156)
-------
Net cash provided by financing activities......... 28,410
-------
Net increase in cash and cash equivalents................... 17,888
Cash and cash equivalents, beginning of period.............. --
-------
Cash and cash equivalents, end of period.................... $17,888
=======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest.................... $ 14
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
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
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 83
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
On April 3, 1998, the Company issued 4,000,000 shares of common stock and
1,000,000 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"). The holders of the Series A preferred stock issued in the
transactions owned redeemable convertible preferred stock with a fair value of
$500 in each of HSAN and CATV at the time of the transaction. The Company valued
the common stock issued in the acquisition of the Predecessors at $.80 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 in nearly contemporaneous
transactions. In connection with the purchase of CATV, the Company issued 60,000
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.
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.
F-7
<PAGE> 84
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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................ $(131,590)
Basic and diluted net loss per share attributable to common
shareholders.............................................. $ (32.90)
</TABLE>
2. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements for the period ended December 31,
1998 include the operations of the Company for the period from April 3
(inception) through December 31, 1998. All significant intercompany transactions
and balances have been eliminated in consolidation.
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.
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
F-8
<PAGE> 85
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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).
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
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.
F-9
<PAGE> 86
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $385 as of December
31, 1998 and a conversion price of $6.50 per share. The per share conversion
price is based upon an independent appraisal. 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. 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
are as follows:
<TABLE>
<S> <C>
Equipment................................................... $6,286
Furniture and fixtures...................................... 181
Leasehold improvements...................................... 36
------
6,503
Less accumulated depreciation............................... 696
------
$5,807
======
</TABLE>
Equipment includes assets acquired under capital leases, principally
telephone equipment, of $282 at December 31, 1998. Accumulated depreciation of
these assets was $34 at December 31, 1998. Total depreciation expense for the
period ended December 31, 1998 was $696.
F-10
<PAGE> 87
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
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.
F-11
<PAGE> 88
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 24,593 195 77,412 102,200 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.
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.
F-12
<PAGE> 89
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 on
Series A and $195 on Series B as of December 31, 1998. In addition, the Company
charged $119,282 to its accumulated deficit during 1998 to increase the carrying
value of the Preferred Stock to its estimated redemption value at December 31,
1998, as based upon a valuation by an independent party of $9.41 per share for
Series A and $10.22 per share for Series B Preferred Stock.
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 (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 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 a qualified IPO, upon consent of each party or after ten
years.
F-13
<PAGE> 90
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 are met. If the Company does not perform in all
material respects with all of the specified financial performance milestones or
the Board of Directors can not reasonably demonstrate that the Company needs the
cash during the next 12 months, then Vulcan will not be obligated to purchase
the Series C shares. Vulcan also has the option to acquire 2,500,000 additional
shares of Series C Preferred Stock at $5 per share. The commitment to issue the
Series C Preferred shares to Vulcan expires on November 25, 2000.
In November 1998, the Company entered into a systems access and investment
agreement with Vulcan and 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 has an equity 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 we fail 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, 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 Vulcan that will, in the
aggregate, entitle Vulcan to purchase 5,000,000 shares of the Company's common
stock at a purchase price of $5.00 per share. The warrants become exercisable at
the rate of one share of common stock for each home passed in excess of 750,000.
A maximum of 2,500,000 warrants may be earned by Vulcan on or before July 31,
2001, and a maximum of 2,500,000 warrants may be earned by Vulcan on or before
July 31, 2003. Each warrant issued to Vulcan must be exercised on or before one
year from the effective date of an IPO. The warrants may be forfeited in certain
circumstances, generally if the number of homes passed in committed systems is
reduced. As of December 31, 1998, the Company had issued no warrants to purchase
shares of common stock to Vulcan.
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
F-14
<PAGE> 91
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Plan). A total of 900,000 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 a qualified 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 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................................... 457,700 $2.12
Options cancelled................................. (3,000) $2.30
------- -----
Outstanding at December 31, 1998.................... 454,700 $2.12
======= =====
</TABLE>
At December 31, 1998 there were no options exercisable under the Plan. The
following table summarizes information about options outstanding at December 31,
1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING
NUMBER OF CONTRACTUAL
EXERCISE PRICE SHARES LIFE (IN YEARS)
- -------------- --------- ---------------
<S> <C> <C>
$1.00................................................ 213,400 9.4
$2.50................................................ 185,200 9.8
$5.00................................................ 56,100 9.9
</TABLE>
Options to acquire 86,800 additional shares at an exercise price of $5.00
per share were issued in January 1999.
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 $1.00 and $2.50 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
$5 in December were later determined to be compensatory based on the results of
an independent appraisal and the Company will recognize expense of approximately
$84 over the five year vesting period of the options. Recognition of this
expense will be accelerated to the period in which a change in control or a
qualified IPO occurs. Expense recognized in 1998 was insignificant.
F-15
<PAGE> 92
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has adopted the disclosure only provisions of SFAS 123. The
weighted average fair value of stock options granted was $.55. 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 period ended
December 31, 1998:
<TABLE>
<S> <C>
Net loss available to common stockholders -- as reported.... $(129,642)
Basic and diluted net loss available to common stockholders
per share -- as reported.................................. (32.41)
Pro forma basic and diluted net loss available to common
stockholders.............................................. $(129,654)
Pro forma basic and diluted net loss available to common
stockholders per share.................................... (32.41)
</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:
<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>
The Company adopted the 1999 Stock Option Plan and the 1999 Non-Employee
Directors Plan in January 1999. Under the 1999 Stock Option Plan, 2,000,000
shares are reserved for issuances. Options to purchase 30,000 shares were
granted with an exercise price of $5.00 per share and options to purchase 31,000
shares were granted with an exercise price equal to the greater of $10.00 or the
IPO price per share. None of the options under this plan are currently
exercisable.
Under the 1999 Directors Plan, options to purchase 122,500 shares with an
exercise price of $5.00 per share, all of which were immediately exercisable,
were granted in January 1999. Under the 1999 Directors Plan, 300,000 shares are
reserved for issuances.
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.
F-16
<PAGE> 93
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the Company's Certificate of Incorporation, all outstanding Preferred
Stock will convert into Common Stock on a one-for-one basis as adjusted for any
stock splits, 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.
The following table presents the calculation of basic and diluted and pro
forma net loss per share:
<TABLE>
<CAPTION>
DENOMINATOR
NUMERATOR (WEIGHTED
(NET LOSS) AVERAGE SHARES) PER SHARE
---------- --------------- ---------
<S> <C> <C> <C>
Basic and diluted net loss available to common
stockholders.................................. $(129,642) 4,000,000 (32.41)
Mandatorily redeemable convertible preferred
stock dividends............................... 385 --
Accretion of redemption value of mandatorily
redeemable convertible preferred stock........ 119,282 --
Assumed conversion of shares of mandatorily
redeemable convertible preferred stock into
shares of common stock at April 3, 1998 or
issuance, (if later).......................... -- 5,091,571
--------- ---------
Pro forma basic and diluted net loss per common
share (unaudited)............................. $ (9,975) 9,091,571 $ 1.10
========= ========= =======
</TABLE>
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 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
F-17
<PAGE> 94
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
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
F-18
<PAGE> 95
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Board has authorized the sale of $5,000 of common stock
to Cisco Systems, Inc., in a concurrent offering.
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 in exchange for 100% of the outstanding Darwin common
stock. Prior to its IPO, the Company will distribute all of the outstanding
Darwin common stock to the Company's stockholders on a pro rata basis. 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 Company also entered into a
sublease pursuant to which Darwin will sublease office space in the Company's
Louisville, Kentucky offices at a monthly rent based on the fair
F-19
<PAGE> 96
HIGH SPEED ACCESS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
market value of such space. The services agreement and sublease are 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 will
issue to the Company a warrant to purchase 1,000,000 shares of Darwin common
stock at an exercise price of $5.00 per share. Expenses related to the Darwin
service line approximated $175 in 1998. No revenue was realized in 1998
associated with Darwin.
F-20
<PAGE> 97
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-21
<PAGE> 98
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-22
<PAGE> 99
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-23
<PAGE> 100
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-24
<PAGE> 101
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-25
<PAGE> 102
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-26
<PAGE> 103
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-27
<PAGE> 104
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-28
<PAGE> 105
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-29
<PAGE> 106
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-30
<PAGE> 107
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-31
<PAGE> 108
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-32
<PAGE> 109
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-33
<PAGE> 110
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-34
<PAGE> 111
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-35
<PAGE> 112
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-36
<PAGE> 113
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-37
<PAGE> 114
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-38
<PAGE> 115
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-39
<PAGE> 116
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-40
<PAGE> 117
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-41
<PAGE> 118
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-42
<PAGE> 119
HIGH SPEED ACCESS CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
The unaudited combined pro forma statement of operation for the year ended
December 31, 1998 reflect 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 follow 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........................ (119,282) (119,282)
--------- ----- ------- ----- ---------
Net loss attributable to common
stockholders per common share.......... $(129,642) $(223) $(1,516) $(209) $(131,590)
========= ===== ======= ===== =========
Pro forma net loss per share:
Basic and diluted...................... $ (32.41) $ (32.90)
Weighted average shares outstanding
(basic and diluted)................. 4,000,000 4,000,000
</TABLE>
See accompanying notes to Pro Forma Combined Financial Statements
F-43
<PAGE> 120
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-44
<PAGE> 121
[INSIDE BACK COVER]
[Schematic diagram depicting connection of the Internet
through the cable headend to the end user]
<PAGE> 122
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
LOGO
<PAGE> 123
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 CISCO PROSPECTUS]
SUBJECT TO COMPLETION, DATED MARCH 19, 1999
PROSPECTUS
SHARES
SM [HIGH SPEED ACCESS LOGO]
COMMON STOCK
- --------------------------------------------------------------------------------
This prospectus relates to the estimated shares of our common stock to
be sold in public
offering to Cisco Systems, Inc. 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 $ to $ 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.
We expect to deliver the shares on or about , 1999.
, 1999
<PAGE> 124
[ALTERNATE PAGE FOR CISCO PROSPECTUS]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 7
Sale of Shares to Cisco Systems....... 20
Use of Proceeds....................... 21
Dividend Policy....................... 21
Capitalization........................ 22
Dilution.............................. 24
Selected Financial Data............... 25
Management's Discussion and Analysis
of Financial Condition and Results
of
Operations.......................... 27
Business.............................. 32
Management............................ 44
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certain Transactions.................. 53
Principal Stockholders................ 56
Description of Securities............. 59
United States Federal Income Tax
Consequences to Non-U.S. Holders.... 63
Shares Eligible for Future Sale....... 66
Underwriting.......................... 67
Legal Matters......................... 69
Experts............................... 69
Available Information................. 69
Reports to Stockholders............... 70
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.
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;
- Assumes the filing of our amended and restated certificate of
incorporation which, among other things, will authorize 10 million shares
of undesignated preferred 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> 125
[ALTERNATE PAGE FOR CISCO 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> 126
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........................................ $ 33,360
NASD filing fee............................................. 12,500
Nasdaq National Market listing fee.......................... 95,000
Legal fees and expenses..................................... 500,000
Blue sky fees and expenses.................................. 5,000
Accounting fees and expenses................................ 250,000
Directors and officers liability insurance.................. *
Printing and engraving...................................... 250,000
Transfer agent fees......................................... 10,000
Miscellaneous............................................... *
--------
Total............................................. $ *
========
</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 (collectively, 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> 127
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 4,000,000 shares of
common stock to founders of the Registrant in exchange for common stock of
CATV.net, Inc. and 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. During the period from November 25, 1998 through February , 1999, the
Registrant issued to Vulcan Ventures, Incorporated warrants to purchase an
aggregate of shares of common stock of the Registrant at a purchase
price of $5.00 per share. The warrants expire on the earlier of (i) December 31,
2011 or (ii) the first anniversary of the date of the offering.
6. On , 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.
Sales of Series C Convertible Preferred Stock were made in reliance on an
exemption from registration provided by Section 4(2) of the Securities Act.
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.
3.1* -- Amended and Restated Certificate of Incorporation
3.2* -- Amended and Restated Bylaws.
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.
</TABLE>
II-2
<PAGE> 128
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.1 -- Contribution Agreement among High Speed Access Corp.,
Broadband Solutions, LLC, and certain shareholders of HSA
dated as of April 3, 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.
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.
10.6 -- Class B Securities Purchase Warrant between High Speed
Access Corp. issued to Vulcan Ventures, Incorporated,
dated as of November 25, 1998.
10.7+ -- Systems Access and Investment Agreement among High Speed
Access Corp., Vulcan Ventures, Incorporated, Charter
Communications, Inc. and Marcus Communications, 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 among High Speed Access Corp. and its
Investors dated as of November 25, 1998.
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* -- 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 and a Sixth Amendment to Lease dated
January 1, 1999.
10.16* -- HSAnet Cable Affiliate Agreement between High Speed
Access Network, Inc. and Gans Multimedia partnership
dated October 15, 1997.
10.17 -- 1998 High Speed Access Corp. Stock Option Plan
10.18* -- 1999 High Speed Access Corp. Stock Option Plan.
10.19* -- High Speed Access Corp. Non-Employee Director Stock
Option Plan.
10.20 -- Form of Indemnity Agreement.
21.1* -- Subsidiaries.
23.1 -- Consent of PricewaterhouseCoopers LLP.
23.2* -- 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>
II-3
<PAGE> 129
- ---------------
* To be supplied by amendment.
+ Confidential treatment requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act.
(b) Financial Statement Schedules.
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-4
<PAGE> 130
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 17th day of March, 1999.
HIGH SPEED ACCESS CORP.
By: /s/ RON PITCOCK, SR.
Name: Ron Pitcock, Sr.
Title: President
POWER OF ATTORNEY
We, the undersigned directors and/or officers of High Speed Access Corp.
(the "Company"), hereby severally constitute and appoint Ron Pitcock, Sr.,
President, and Robert S. Saunders, Vice Chairman, and each of them acting alone,
with full powers of substitution and resubstitution, our true and lawful
attorney-in-fact, with full powers to them and each of them to sign for us, in
our names and in the capacities indicated below, the Registration Statement on
Form S-1 filed with the Securities and Exchange Commission, and any and all
amendments to said Registration Statement (including post-effective amendments),
and any registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, in connection with the registration under
the Securities Act of 1933, as amended, of equity securities of the Company, and
to file or cause to be filed the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as each of them might
or could do in person, and hereby ratifying and confirming all that said
attorney-in-fact, or their substitute or substitutes, shall do or cause to be
done by virtue of this Power of Attorney.
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>
/s/ RON PITCOCK, SR. President March 17, 1999
- -----------------------------------------------------
Ron Pitcock, Sr.
/s/ GEORGE E. WILLETT Chief Financial Officer March 17, 1999
- ----------------------------------------------------- (Principal Financial and
George E. Willett Accounting Officer)
/s/ DAVID A. JONES, JR. Director, Chairman March 17, 1999
- -----------------------------------------------------
David A. Jones, Jr.
/s/ ROBERT S. SAUNDERS Director, Vice Chairman March 17, 1999
- -----------------------------------------------------
Robert S. Saunders
/s/ IRVING W. BAILEY, II Director March 17, 1999
- -----------------------------------------------------
Irving W. Bailey, II
</TABLE>
II-5
<PAGE> 131
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
/s/ MICHAEL E. GELLERT Director March 17, 1999
- -----------------------------------------------------
Michael E. Gellert
/s/ JERALD L. KENT Director March 17, 1999
- -----------------------------------------------------
Jerald L. Kent
/s/ WILLIAM D. SAVOY Director March 17, 1999
- -----------------------------------------------------
William D. Savoy
/s/ STEPHEN E. SILVA Director March 17, 1999
- -----------------------------------------------------
Stephen E. Silva
</TABLE>
II-6
<PAGE> 132
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.
3.1* -- Amended and Restated Certificate of Incorporation
3.2* -- Amended and Restated Bylaws.
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.
10.1 -- Contribution Agreement among High Speed Access Corp.,
Broadband Solutions, LLC, and certain shareholders of
HSA, dated as of April 3, 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.
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.
10.6 -- Class B Securities Purchase Warrant between High Speed
Access Corp. Vulcan Ventures, Incorporated, dated as of
November 25, 1998.
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
its Investors, dated as of November 25, 1998.
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* -- 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, and a Sixth Amendment to Lease, dated
January 1, 1999.
</TABLE>
II-7
<PAGE> 133
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.16* -- HSAnet Cable Affiliate Agreement between High Speed
Access Network, Inc. and Gans Multimedia partnership
dated October 15, 1997.
10.17 -- 1998 High Speed Access Corp. Stock Option Plan.
10.18* -- 1999 High Speed Access Corp. Stock Option Plan.
10.19* -- High Speed Access Corp. Non-Employee Director Stock
Option Plan.
10.20 -- Form of Indemnity Agreement.
21.1* -- Subsidiaries.
23.1 -- Consent of PricewaterhouseCoopers LLP.
23.2* -- 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.
+ Confidential treatment requested for certain portions of this Exhibit pursuant
to Rule 406 promulgated under the Securities Act.
II-8
<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;
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[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.
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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
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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,
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<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,
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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
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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.
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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,
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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
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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:
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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.
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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.
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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,
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<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.
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<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.
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<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: __________________________
__________________________
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<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> 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.
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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
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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
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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
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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
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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
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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.
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[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
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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
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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
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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;
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[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.
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<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:
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<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.
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<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)
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<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> 1
EXHIBIT 10.3
SERIES B CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
by and between
HIGH SPEED ACCESS CORP.
and
VULCAN VENTURES, INCORPORATED
November 25, 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 25th day of November,
1998, by and between HIGH SPEED ACCESS CORP., a Delaware corporation
("Company"), and VULCAN VENTURES, INCORPORATED., a Washington corporation
("Investor");
WITNESSETH:
WHEREAS, Company desires to sell and issue, and Investor
desires to purchase and acquire, 8,000,000 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 Company in the
form attached hereto as Exhibit A (the "Certificate of Amendment"). The Series B
Preferred Stock will have the rights, preferences, privileges and restrictions
set forth in the Certificate of Amendment.
1.2 Subject to the terms and conditions of this Agreement, at
the Closing, Investor agrees to purchase from Company, and Company agrees to
sell, issue and deliver to Investor, 8,000,000 shares of Series B Preferred
Stock at a price of Two Dollars Fifty Cents ($2.50) per share, for an aggregate
purchase price of Twenty Million Dollars ($20,000,000).
2. Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at 10:00 a.m. on November 25, 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").
3. Closing Items.
3.1 At the Closing, Company shall deliver, or cause to be
delivered, the following items:
[a] the Certificate of Incorporation of Company, as
amended, including the Certificate of Amendment (the "Amended
Certificate"), in the form attached hereto as Exhibit B, certified by
the Delaware Secretary of State;
<PAGE> 3
[b] the Bylaws of Company in the form attached hereto
as Exhibit C ("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 Registration Rights Agreement, the Shareholders Agreement, the
Voting Agreement and the Series C Purchase Agreement, the Warrants
(each as defined below), and the issuance of the shares of Series B
Preferred Stock, certified as to their due adoption and continued
validity by the Secretary of Company;
[d] resolutions of the shareholders of Company
authorizing the Amended Certificate certified as to their due adoption
and continued validity by the Secretary of Company;
[e] the Amended and Restated Registration Rights
Agreement in the form attached hereto as Exhibit D duly executed by
Company and all other parties thereto, other than Investor (the
"Registration Rights Agreement");
[f] the Amended and Restated Shareholders Agreement
in the form attached hereto as Exhibit E duly executed by Company and
all other parties thereto, other than Investor (the "Shareholders
Agreement");
[g] the Voting Agreement in the form attached hereto
as Exhibit F duly executed by Company and all other parties thereto,
other than Investor (the "Voting Agreement");
[h] an opinion of Wyatt, Tarrant & Combs, counsel to
Company, substantially in the form attached hereto as Exhibit G;
[i] the Series C Convertible Preferred Stock Purchase
Agreement duly executed by Company and Investor in the form attached
hereto as Exhibit H (the "Series C Purchase Agreement");
[j] stock certificates representing the 8,000,000
shares of Series B Preferred Stock purchased by Investor pursuant to
Section 1.2 above; and
[k] the Warrants in the form attached hereto as
Exhibit I (the "Warrants") duly executed by Company.
3.2 At the Closing, Investor shall execute and deliver, or
cause to be delivered, to Company, (i) this Agreement, the Registration Rights
Agreement, the Shareholders Agreement, the Voting Agreement, the Series C
Purchase Agreement and the Warrants and (ii) immediately
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<PAGE> 4
available funds in the amount of Twenty Million Dollars ($20,000,000)
representing the purchase price for the shares of Series B Preferred Stock
purchased by Investor pursuant to Section 1.2 above.
4. Further Assurances. Each party shall execute such additional
documents and take such other actions as the other party 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. Company represents and
warrants to Investor 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: (i) own, lease and
operate its properties and to carry on its business as now being conducted and
as presently proposed to be conducted; and (ii) execute, deliver and perform
this Agreement, the Series C Purchase Agreement, the Registration Rights
Agreement, the Shareholders Agreement, the Voting Agreement, the Warrants and
any other agreement to which Company is a party, the execution and delivery of
which is contemplated hereby or thereby (the "Ancillary Agreements"). Each
entity (each a "Company Subsidiary"; collectively referred to as the "Company
Subsidiaries") listed in Section 5.1 and Section 5.7 of the letter dated the
date hereof and delivered by Company to Investor and attached hereto as Exhibit
J (the "Disclosure Letter"), is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation.
Each Company Subsidiary 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. Company and each Company Subsidiary is
duly qualified and is authorized to transact business and is in good standing as
a 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.
5.2 Authorization; Binding Agreement. The execution and
delivery of this Agreement and the Ancillary Agreements 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,
each Ancillary Agreement and the Systems Agreements (as defined in Section 5.23
hereof) 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) 50,000,000 Common Shares, $.01 par
value per share ("Common Shares"), of which at the date hereof 4,000,000 shares
are validly issued and outstanding, fully paid and
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<PAGE> 5
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, as set forth
in Section 5.3 of the Disclosure Letter, (iii) 10,000,000 shares of Series B
Convertible Preferred Shares, $.01 par value per share ("Series B Preferred
Stock"), of which at the date hereof 2,000,000 shares are validly issued and
outstanding and fully paid and nonassessable and owned, beneficially and of
record, as set forth in Section 5.3 of the Disclosure Letter, and an additional
8,000,000 shares of which are being sold pursuant to this Agreement, and (iv)
5,000,000 shares of Series C Convertible Preferred Shares, $.01 par value per
share ("Series C Preferred Stock" and, together with the Series A Preferred
Stock and the Series B Preferred Stock, the "Preferred Stock"), none of which is
outstanding at the date hereof and up to 5,000,000 shares of which may be sold
pursuant to the Series C Purchase Agreement. 5,000,000 Common Shares have been
duly and validly reserved for issuance upon conversion of the Series A Preferred
Stock, 10,000,000 Common Shares have been duly and validly reserved for issuance
upon conversion of the Series B Preferred Stock, 5,000,000 Common Shares have
been duly and validly reserved for issuance upon conversion of the Series C
Preferred Stock, 900,000 Common Shares have been duly and validly reserved for
issuance under Company's 1998 Stock Option Plan, as referenced in Section 5.3 of
the Disclosure Letter, and 5,000,000 Common Shares have been duly and validly
reserved for issuance pursuant to the Warrants. The authorized, issued and
outstanding shares of capital stock of each Company Subsidiary are as set forth
in Section 5.3 of the Disclosure Letter. All of such issued and outstanding
shares of capital stock of each Company Subsidiary are validly issued and
outstanding, fully paid and nonassessable and owned, beneficially and of record,
by Company, free and clear of all liens, claims, and encumbrances. Except as set
forth in Section 5.3 of the Disclosure Letter, the Ancillary Agreements and the
Amended Certificate, 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 or any Company Subsidiary's capital
stock or any instruments that can be converted into or exchanged for shares of
Company's or any Company Subsidiary's capital stock. None of the shares of
Company's or any Company Subsidiary's capital stock have been issued in
violation of any preemptive right. All issuances, sales, redemptions, transfers
or purchases of the capital stock of Company and each Company Subsidiary and any
involvement in any transfer of any such stock by Company or any Company
Subsidiary 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. Except as set forth in Section 5.3 of the
Disclosure Letter and for obligations of Company to redeem Series B Preferred
Stock, 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 or any Company Subsidiary. 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. Except for the
Voting Agreement, neither Company nor any Company Subsidiary is 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
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<PAGE> 6
or relates to the voting or giving of written consents with respect to any
security or the voting by any director of Company or any Company Subsidiary.
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 and under applicable
federal and state securities laws (other than those created by Investor). The
issuance of the Series B 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. Without limiting
the immediately preceding sentence, 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 offering and sale of the
Series B Preferred Stock to be issued hereunder will not be integrated with any
previous securities offerings made by Company. The Common Shares issuable upon
conversion of the Series B Preferred Stock being purchased under this Agreement,
and upon issuance and exercise of the Warrants, will be, upon issuance and
delivery in accordance with the terms of the Amended Certificate, duly and
validly issued, fully paid and nonas sessable and free of restrictions on
transfer other than restrictions on transfer under this Agreement, the Warrants,
the Shareholders Agreement and under applicable federal and state securities
laws (other than those created by Investor). The issuance of the Common Shares
upon conversion of the Series B Preferred Stock, and upon issuance and exercise
of the Warrants, 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
Amended Certificate or the Bylaws, or of the certificate of incorporation or
bylaws of any Company Subsidiary 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, any Company Subsidiary or Company's or any Company
Subsidiary's properties or assets.
5.6 Contracts and Other Commitments; Compliance.
Section 5.6 of the Disclosure Letter sets forth each network service agreement
and each other material contract, agreement, lease, loan, commitment and
proposed transaction to which Company or any Company Subsidiary is a party or is
bound or which Company or any Company subsidiary is seeking to be bound that is
material to Company or any Company Subsidiary (the "Contracts"). Neither Company
5
<PAGE> 7
nor any Company Subsidiary is bound by 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 Contract, 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 the Amended Certificate or the Bylaws, no Company Subsidiary is in
violation or default of any provision of its certificate of incorporation or
bylaws and neither Company nor any Company Subsidiary is in violation or default
in any respect of any provision of any Contract.
5.7 Subsidiaries. Except as set forth in Section 5.7 of the
Disclosure Letter, none of Company or any Company Subsidiary owns or controls,
directly or indirectly, any interest in any other corporation, partnership,
limited liability company, association or other business entity. Neither Company
nor any Company Subsidiary is 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 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 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's unaudited consolidated
balance sheet as of October 31, 1998, and the related unaudited statement of
income for the period April 3, 1998 through October 31, 1998 (the "Financial
Statements"), are set forth in Section 5.9 of the Disclosure Letter. The
Financial Statements were prepared in accordance with Generally Accepted
Accounting Principles ("GAAP") (except for the omission of footnotes and other
required schedules and information and year end accruals which are, in the
aggregate, immaterial in amount); the balance sheet included in such Financial
Statements fairly presents the financial condition of Company and its
Subsidiaries as of October 31, 1998 and the statements of income included in
such Financial Statements fairly present the results of operations of Company
and the Company Subsidiaries for the period then ended. None of Company or any
of the Company Subsidiaries has any liabilities or obligations of any nature,
whether absolute, accrued, contingent or otherwise, which are not fully
reflected or reserved against in the Financial Statements, except for
liabilities that may have arisen in the ordinary course of business and that are
not required by GAAP to be included in the Financial Statements.
5.10 Indebtedness for Borrowed Money; No Undisclosed
Liabilities. Except as set forth in the Financial Statements, neither Company
nor any Company Subsidiary has any direct or
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<PAGE> 8
indirect indebtedness for borrowed money, indebtedness by way of lease-purchase
arrangements, guarantees, 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, neither Company nor any Company Subsidiary
will have any liability or obligation whatsoever, whether accrued, absolute,
contingent or otherwise of a nature required by generally accepted accounting
principles to be included in the Financial Statements.
5.11 Absence of Changes. Except as set forth in Section 5.11
of the Disclosure Letter, since October 31, 1998, there has not been:
[a] any change in the assets, liabilities, financial
condition or operating results of Company or the Company Subsidiaries
from that reflected in the Financial Statements, except changes in the
ordinary course of business or otherwise that have not, in the
aggregate, materially and adversely affected the business, properties,
prospects or financial condition of Company or any Company Subsidiary
(as such business is presently conducted and as it is proposed to be
conducted);
[b] any material damage, destruction or loss, whether
or not covered by insurance, affecting the business, properties,
prospects, or financial condition of Company or any Company Subsidiary
(as such business is presently conducted and as it is presently
proposed to be conducted);
[c] any waiver or compromise by Company or any
Company Subsidiary 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 or any Company
Subsidiary, except in the ordinary course of business and that is not
material to the business, properties, or financial condition of Company
or any Company Subsidiary (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 Company Subsidiary or any of their
respective 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 or any Company Subsidiary (and Company does
not know of any impending resignation or termination of employment of
any such officer);
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<PAGE> 9
[i] any mortgage, pledge, transfer of a security
interest in, or lien, created by Company or any Company Subsidiary,
with respect to any of its material properties or assets, except
capital leases and 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 or any Company Subsid iary's capital stock (excluding,
however, the accrual of dividends on the Preferred Stock), or any
direct or indirect redemption, purchase, or other acquisition of any of
such stock by Company or any Company Subsidiary;
[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 or any Company Subsidiary (as such business is presently
conducted and as it is presently proposed to be conducted); or
[l] any agreement or commitment by Company or any
Company Subsidiary to do any of the things described in this Section
5.11.
5.12 Title to Property and Assets; Leases.
[a] Neither Company nor any Company Subsidiary owns
any 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 or any Company Subsidiary leases having lease
payments, in the case of any single lease, in the aggregate of $15,000
or more per year. Neither Company nor any Company Subsidiary is bound
or committed to make any capital improvement or expenditure exceeding
$5,000 with respect to any individual parcel of leased real property.
[b] Except as set forth in Section 5.12 of the
Disclosure Letter, Company and each Company Subsidiary 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 and landlords' liens
that are immaterial, individually or in the aggregate, in scope and
amount. With respect to the property and assets that it leases, Company
and each Company Subsidiary 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 and each Company Subsidiary are in the possession or control
of Company and such Company Subsidiary, respectively, 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
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pending or, to Company's best knowledge, threatened against or affecting Company
or any Company Subsidiary against any asset, interest or right of Company or any
Company Subsidiary or which threatens the validity of the transactions
contemplated by this Agreement.
5.14 Environmental Matters. Neither Company nor any Company
Subsidiary is in violation in any material respect of any applicable statute,
law or regulation relating to the environment or occupational health and safety
(the "Environmental Laws") that would individually, or, together with all other
such violations in the aggregate, result in a material and adverse effect on the
business and properties or financial condition of Company or any Company
Subsidiary and Company has no knowledge of any material expenditures necessary
to comply with the Environmen tal Laws.
5.15 Licenses and Permits; Compliance with Laws. Company and
each Company Subsidiary holds all franchises, permits, licenses, variances,
exemptions, orders and approvals of all governmental entities which are material
to the operation of Company's and such Company Subsidiary's business and is in
compliance in all material respects with the terms thereof. Company and each
Company Subsidiary has complied in all material respects 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, except for such defaults that, in the aggregate, would be
immaterial to the business and properties or financial condition of Company or
such Company Subsidiary, and no action, suit, proceeding, hearing, charge,
claim, demand, or notice has been filed or commenced against Company or any
Company Subsidiary alleging any failures to comply, except for such defaults
which individually, or, together with all other such defaults, would not have a
material adverse effect on the business and properties or financial condition of
Company or any Company Subsidiary.
5.16 Employee Benefit Plans. Company has delivered or made
available to Investor true, complete and correct copies of each employee benefit
plan, 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 or any Company Subsidiary (collectively "Benefit Plans"), and any
employment, consulting, severance, termination or indemnification agreement,
arrangement or understanding between Company or any Company Subsidiary and any
officer, director or employee of Company or such Company Subsidiary, 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.
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5.17 Labor Relations.
[a] Company and each Company Subsidiary 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 or any
Company Subsidiary 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 or any Company Subsidiary;
[d] Neither Company nor any Company Subsidiary is 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 or any Company
Subsidiary. There are no pending governmental audits of the equal
employment opportunity practices of Company or any Company Subsidiary
and, to Company's best knowledge, no basis for any such claim exists.
5.18 Insurance. Company and each Company Subsidiary maintains
insurance policies, including property, casualty, liability and other insurance
with respect to its assets and business in amounts customary for similarly
situated companies and sufficient in amount to allow it to replace any of its
properties that might be damaged or destroyed. Neither Company nor any Company
Subsidiary is 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 neither
Company nor any Company Subsidiary is 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
and each Company Subsidiary's insurance coverage is adequate for Company's and
each Company Subsidiary's business and is consistent with good business
practice.
5.19 Tax Matters. Company and each Company Subsidiary has
timely filed or caused to be filed all federal, state, foreign and local income,
franchise, gross receipts, payroll, sales,
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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 and each Company Subsidiary 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 or any Company
Subsidiary that arise in connection with any failure (or alleged failure) to pay
any tax. Company and each Company Subsidiary 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.
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 or any Company Subsidiary, nor is Company or any Company Subsidiary
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, or advances with respect to expenses to
be, incurred on behalf of Company or any Company Subsidiary, 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 or any Company Subsidiary has a business relationship, or any
firm or corporation that competes with Company or any Company Subsidiary, 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 or a Company Subsidiary.
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 as set forth in Section 5.22
of the Disclosure Letter, neither Company nor any Company Subsidiary is
presently 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 Intellectual Property. Section 5.23 of the Disclosure
Letter 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 Company
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and each Company Subsidiary other than commercially available software programs.
Company and the Company Subsidiaries either own or have properly licensed all
rights necessary or required to provide and perform the services it now provides
and performs, including, without limitation, all rights relating to any
equipment, software or content that Company or any Company Subsidiary will use
or provide in connection with the services to be performed by Company or any
Company Subsidiary under the Network Services Agreements, dated as of the date
hereof among Company, Charter Communications, Inc. ("Charter") and Marcus Cable,
Inc. ("Marcus"), the Systems Access and Investment Agreement dated as of the
date hereof by and among Company, Investor, Charter and Marcus and Programming
Content Agreement dated as of the date hereof by and between Investor and
Company (the "Systems Agreements"). Company's and each Company Subsidiary's
provision or operation of such services will not violate or infringe any
intellectual property laws or violate or infringe any rights of third parties.
There is no complaint, action or proceeding before any court pending or, to
Company's best knowledge, threatened against Company or any Company Subsidiary
asserting that Company's or any Company Subsidiary's use of any intellectual
property infringes the rights of any third party or otherwise contesting
Company's and each Company Subsidiary's rights with respect to any intellectual
property, and there is no basis for such assertion or contest. To Company's best
knowledge, no third party is infringing on Company's or any Company Subsidiary's
rights with respect to its intellectual property.
5.24 Material Facts. Company has provided Investor with all
the information prepared by or for Company or otherwise in Company's possession
that is responsive to inquiries made by Investor in 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 follows:
6.1 Authorization; Binding Agreement. This Agreement, the
Ancillary Agreements and the Systems Agreements to which Investor is a party,
have been duly authorized, executed and delivered by Investor and constitute the
legal, valid and binding obligations of Investor enforceable against Investor in
accordance with their respective 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).
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. No other person
has a direct or indirect
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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; Ownership; Residence. Investor is
domiciled in the State of Washington and is an "accredited investor" as such
term is defined under Regulation D of the Securities Act. Paul G. Allen owns
beneficially and of record more than fifty percent (50%) of the outstanding
voting securities of Investor.
6.4 Receipt of Information; Restricted Securities. Subject to
the Registration Rights Agreement, 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 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 it 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 either party to this Agreement and any
certificate or other instrument delivered by or on behalf of either 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; Limitation of Liability.
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, reasonable attorneys' and
accountants' fees)
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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 hereof or in any exhibit,
schedule or annex to this Agreement;
[b] any breach of or noncompliance by Company with
any covenant or agreement of Company contained in this Agreement or any
Ancillary Agreement; and
[c] any and all actions, suits, proceedings, claims,
demands, assessments and judgments incident to any of the foregoing.
8.2 Limitation on Investor's Liability. The liability of
Investor to Company with respect to any claims arising from the performance or
breach of this Agreement by Investor shall be limited to $20,000,000.
9. Covenants of Company. Company hereby covenants and agrees as
follows:
9.1 Redemption Rights. Subject to the terms and provisions of
the Amended Certificate, including, without limitation, the rights of the
Preferred Stock upon liquidation and dissolution, at any time and from time to
time from and after November 25, 2003 but prior to a Qualified Public Offering
(as defined in Section 10 of this Agreement), Investor shall have the right and
option to sell to Company, and Company shall buy, Investor's shares of Series B
Preferred Stock and any Common Shares into which such Series B Preferred Stock
shall have been converted (the "Put") at a price per share (the "Put Purchase
Price") equal to the greater of (a) $2.50 per share, plus accrued but unpaid
dividends, whether or not declared, through the date of the Put Closing (as
defined below), or (b) the fair market value per share as of the date Investor's
written notice of exercise of the Put is given to Company (without application
of any discount for lack of marketabili ty or minority position) as determined
by a qualified, independent appraiser experienced in the 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 of
such fair market value of Investor's shares of Company stock 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 120th 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 120th 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. Notwithstanding the provisions of the
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first sentence of this Section 9.1, in the event that any person or entity
exercises a put right with respect to any equity securities of Company on a date
earlier than November 25, 2003, the right of Investor to exercise the Put shall
automatically be accelerated to such earlier date.
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. Immediately prior to
the occurrence of any event that would cause the number of Common Shares or type
of securities into which the Series B Preferred Stock would be convertible to be
adjusted, 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 Financial Reporting. For periods commencing on or after
the Closing Date, Company shall deliver or cause to be delivered to Investor, on
a monthly basis, monthly and year-to-date balance sheets and income and cash
flow statements (each as compared to budget and the comparable prior year
period), and a monthly written summary of operations. Such monthly reports shall
be provided on or before thirty (30) 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 PriceWaterhouseCoopers LLP, or another independent
accounting firm approved by the audit committee of Company's Board of Directors,
and copies thereof shall be delivered to Investor on or before the 120th day
following the end of Company's fiscal year.
9.4 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
Company, subject to the requirements of Section 9.5 hereof.
9.5 Prohibited Matters.
[a] 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):
[i] Effect a liquidation or dissolution or
winding up of business or a substantial change in the nature
of Company's business;
[ii] 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) employee or
director 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;
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[iii] Redeem or pay any dividend or
distribution on the Common Shares or any capital stock of
Company ranking junior to the Series B Preferred Stock and, if
ranking pari passu, without redeeming and or paying an equal
dividend on the Series B Preferred Stock;
[iv] 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 (w) pursuant to employee or
director stock option plans approved by the Board of Directors
of Company, any such issuances in this subsection (w) not to
exceed in the aggregate 3,000,000 shares, (x) upon conver sion
of the Preferred Stock, (y) in a Qualified Public Offering, or
(z) pursuant to the exercise of Warrants;
[v] Repay or make any shareholder loans
except as set forth in Section 9.5 of the Disclosure Letter;
[vi] 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 9.5[vi] 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;
[vii] 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; or
[viii] 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
[ix] Take any other action that,
individually or together with any other action, would
materially and adversely affect the holders of the Preferred
Stock,
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it being acknowledged by Company and Investor that a Qualified
Public Offering shall not materially and adversely affect the
holders of the Preferred Stock.
[b] Notwithstanding the provisions of Section 9.5[a]
above:
[i] 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 total number of shares of Preferred Stock owned by
Broadband immediately succeeding the Closing, together with
any Series C Preferred Stock purchased subsequent to the
Closing, to one or more non-Affiliates of Broadband I or
Broadband II, then Company shall not thereafter require the
consent of the holders of the majority of shares of any class
or series of Preferred Stock controlled by Broadband to effect
any of the "prohibited matters" referred to in Section 9.5[a].
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 to a non-Affiliate, unless such
subsequent transferee is an Affiliate of Broadband.
[ii] In the event that there has been one or
more transfers by Investor of more than, in the aggregate, 30%
of the total number of shares of Preferred Stock owned by
Investor immediately succeeding the Closing, together with any
Series C Preferred Stock purchased subsequent to the Closing,
to one or more non-Affiliates of Investor, then Company shall
not thereafter 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 9.5[a].
[c] For the purposes of this Section 9, unless
otherwise provided in this Section 9.5, 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 descen dants, ancestors or spouses of any of
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 Investor, 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.
10. Qualified Public Offering. For purposes of this Agreement, a
Qualified Public Offering shall mean an underwritten public offering of Common
Shares, initiated by a resolution of
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Company's Board of Directors, at a per share price of at least $7.50 (as
proportionately and appropriately adjusted to reflect any subdivision, reverse
split or recapitalization of Common Shares after the date hereof) and aggregate
gross proceeds of not less than $50 million to Company, which has been made
pursuant to a registration statement filed with the Securities and Exchange
Commission under the Securities Act.
11. Public Statements. Except as required by law, neither Company nor
Investor shall, without the prior written approval of the other party 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 or as may be required by law, rule,
regulation, decree or court order.
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 and sent by facsimile:
If to Investor, to: Vulcan Ventures, Incorporated
Attention: William D. Savoy
110 110th Avenue N.E.
Bellevue, Washington 98004
Telecopy No.: (425) 453-1985
If to Company, to: High Speed Access Corp.
Attention: W. Kent Oyler, III
Suite 210
1000 West Ormsby Avenue
Louisville, KY 40210
Telecopy No.: (502) 515-3101
With a copy to: John G. Hundley, Esq.
High Speed Access Corp.
Suite 210
1000 West Ormsby Avenue
Louisville, KY 40210
Telecopy No.: (502) 515-3101
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.
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13. Parties in Interest; Assignment. Except as otherwise provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of either party 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 (whether by merger, operation
of law, or otherwise) and any purported assignment shall be null and void;
provided, however, that Investor may assign its rights, but not its obligations,
hereunder to an Affiliate of Investor, as defined in Section 9.5[c](ii).
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 State of Delaware
without regard to the principles of conflicts of laws thereof.
15. 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.
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 of Irell & Manella LLP and Paul, Hastings, Janofsky & Walker LLP in
connection with this Agreement, the Ancillary Agreements and the transactions
contemplated hereunder and thereunder.
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 or any Ancillary Agreement, the
substantially prevailing party shall be
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<PAGE> 21
entitled to reasonable attorneys' fees, costs, and disbursements in addition to
any other relief to which such party may be entitled.
21. Best Knowledge. For purposes of this Agreement, the phrase "to
Company's best knowledge" or words of similar import shall mean the actual
knowledge of the executive officers of Company after making reasonable inquiry
with respect to the relevant subject.
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/ Robert S. Saunders
________________________________
Title: Vice Chairman
_____________________________
"INVESTOR"
VULCAN VENTURES, INCORPORATED
By: /s/ William D. Savoy
________________________________
Title: Vice President
____________________________
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<PAGE> 1
EXHIBIT 10.4
SERIES C CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
by and between
HIGH SPEED ACCESS CORP.
and
VULCAN VENTURES, INCORPORATED
November 25, 1998
<PAGE> 2
SERIES C CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
THIS SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREE MENT
("Agreement") is made and entered into as of the 25th day of November, 1998, by
and between HIGH SPEED ACCESS CORP., a Delaware corporation ("Company"), and
VULCAN VENTURES, INCORPORATED, a Washington corporation ("Investor");
WITNESSETH:
WHEREAS, Company desires to sell and issue, and Investor
desires to purchase and acquire, 2,500,000 shares of Company's authorized but
unissued Series C Convertible Preferred Stock ("Series C Preferred Stock") and
Company desires to offer to Investor and Investor desires to have the
opportunity to purchase an additional 2,500,000 shares of Series C Preferred
Stock, all 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 C 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 Company in the
form attached hereto as Exhibit A (the "Certificate of Amendment"). The Series C
Preferred Stock will have the rights, preferences, privileges and restrictions
set forth in the Certificate of Amendment.
1.2 Subject to the terms and conditions of this Agreement, at
any time after the Closing, but on or before the second anniversary of the date
hereof, at Company's option, 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) (the "Post Closing Capital Call"), Investor
agrees to purchase from Company, and Company agrees to sell, issue and deliver
to Investor, 2,500,000 shares of Series C Preferred Stock at a price of Five
Dollars ($5.00) per share, for an aggregate purchase price of Twelve Million
Five Hundred Thousand Dollars ($12,500,000). Investor shall be, under no
circumstances, obligated to purchase any shares of Series C Preferred Stock
under this Agreement, and Company shall refrain from making the Post Closing
Capital Call, if (A) Company has not performed in all material respects with all
of the financial performance milestones of Company as set forth in Company's
Business Plan as of October, 1998 attached to this Agreement as Exhibit B (the
"Business Plan") or (B) the Company's Board of Directors has failed to
reasonably demonstrate to Investor that Company is in need of cash proceeds from
the sale of the Series C Preferred Stock subject to the Post Closing Capital
Call, and such need is anticipated in the Business Plan and, in addition, the
proceeds received pursuant to the Post Closing Capital Call shall
<PAGE> 3
not exceed the amount of cash capital required by Company during the immediately
succeeding twelve (12) month period after the Post Closing Capital Call.
Investor may, at its option, [i] prepay the purchase price for all of the shares
of Series C Preferred Stock at any time prior to Company making the Post Closing
Capital Call with respect thereto by delivering the purchase price for the
shares so purchased by wire transfer of immediately available funds to Company's
account, and [ii] upon any liquidation, dissolution, or winding up of Company,
purchase all of the shares of Series C Preferred Stock not theretofore purchased
by Investor pursuant to this Agreement by delivering the purchase price for the
shares so purchased by wire transfer of immediately available funds to Company's
account. Company shall provide Investor with 45 days prior written notice of any
such liquidation, dissolution or winding up. For purposes of [ii] above, any
merger or consolidation of Company with or into any other corporation or entity
or sale of all or substantially all of the assets of Company shall be deemed a
liquidation, dissolution or winding up of Company, except for a merger or
consolidation or sale of all or substantially all the assets or outstanding
capital stock of Company in which the shareholders of Company immediately prior
thereto shall, immediately thereafter, hold as a group the right to cast all of
the votes of all holders of voting securities of the resulting or surviving
corporation or entity on any matter on which any such holders of voting
securities shall be entitled to vote.
1.3 [a] At any time after the Post Closing Capital Call shall
have been made, but on or before the second anniversary of the date hereof,
Company shall offer Investor, not more than six (6) months and not less than
five (5) months prior to 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 Company shall determine to be the fair
value of such Additional Series C Shares, which price will also be the price
Company will otherwise sell such securities to other purchasers (the "Stated
Value"). Investor shall have sixty (60) days after having received notice of
such right from Company to exercise its right to purchase all of the Additional
Series C Shares by delivering written notice of its intention to purchase such
Shares to Company. If Investor declines to purchase all of the Additional Series
C Shares and Company thereafter offers to sell the Additional Series C shares
within the next succeeding six (6) month period at a purchase price less than
the Stated Value, Investor shall have ten (10) days from the date of receiving
delivery of written notice from Company of the offer at such lower price to
purchase all such Additional Series C Shares at such lower price. Investor shall
exercise its purchase of such Additional Series C Shares by delivering a written
notice to Company. If all of the Additional Series C Shares are not fully
subscribed by Investor within such sixty (60) day or ten (10) day period, as the
case may be, the Additional Series C Shares may be offered for sale by Company
in accordance with the subscription rights set forth in Section 5.A of the
Shareholders Agreement (as defined in Section 3.1 below).
[b] At any time after the date hereof, Investor shall
have the right, at its election, to purchase any number of Series C Shares which
have not, as of such date, been issued at a purchase price of $5.00 per share.
Investor may elect to exercise its right to purchase such Series C Shares
pursuant to this Section 1.3[b] 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.
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<PAGE> 4
1.4 The parties to this Agreement acknowledge that in
connection with the Post Closing Capital Call or any purchase of Additional
Series C Shares pursuant to Section 1.3 hereof, the parties may be required to
file Notification and Report Forms under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), with the Federal Trade
Commission and the Antitrust Division of the United States Department of
Justice, or otherwise comply with the provisions of the HSR Act. Each party
agrees that in connection with the Post Closing Capital Call it will act in good
faith to analyze and evaluate its obligations under the HSR Act. In the event
either party reasonably determines that it is required to make any filing under
the HSR Act in connection with the Post Closing Capital Call, it will so notify
the other party and the other party will reasonably cooperate with the filing
party, each party will expeditiously comply with its filing requirements and
shall use its best efforts to obtain an early termination of the applicable
waiting period. Notwithstanding any other provision of this Agreement, the time
period during which the Post Closing Capital Call or any purchase of Additional
Series C Shares pursuant to Section 1.3 hereof, must be made shall be tolled for
the duration of any applicable HSR Act waiting period (and any related
investigative period imposed by the Federal Trade Commission with respect to any
such filing).
2. Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at 10:00 a.m. on November 25, 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"). The Post Closing Capital
Call and the purchase of Additional Series C Shares, if any, shall be
consummated as contemplated by Section 1.2 and Section 1.3 above, respectively,
by delivery of certificates representing the shares of Series C 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 Incorporation of Company, as
amended, including the Certificate of Amendment (the "Amended
Certificate"), in the form attached hereto as Exhibit C certified by
the Delaware Secretary of State;
[b] the Bylaws of Company, in the form attached
hereto as Exhibit D ("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 Registration Rights Agreement, the Shareholders Agreement, the
Voting Agreement and the Series B Purchase Agreement, the Warrants
(each as defined below), and the issuance of the shares of Series
3
<PAGE> 5
C Preferred Stock, certified as to their due adoption and continued
validity by the Secretary of Company;
[d] resolutions of the shareholders of Company
authorizing the Amended Certificate, certified as to their due adoption
and continued validity by the Secretary of Company;
[e] the Amended and Restated Registration Rights
Agreement in the form attached hereto as Exhibit E ("Registration
Rights Agreement") duly executed by Company and all other parties
thereto, other than Investor;
[f] the Amended and Restated Shareholders Agreement
in the form attached hereto as Exhibit F ("Shareholders Agreement")
duly executed by Company and all other parties thereto, other than
Investor;
[g] the Voting Agreement in the form attached hereto
as Exhibit G (the "Voting Agreement") duly executed by Company and all
other parties thereto, other than Investor;
[h] an opinion of Wyatt, Tarrant & Combs, counsel to
Company, substantially in the form attached hereto as Exhibit H;
[i] the Series B Convertible Preferred Stock Purchase
Agreement duly executed by Company and Investor in the form attached
hereto as Exhibit I (the "Series B Purchase Agreement"); and
[j] the Warrants, in the form attached hereto as
Exhibit J, duly executed by Company.
3.2 At the Closing, Investor shall execute and shall deliver,
or cause to be delivered, the following items:
[a] the Registration Rights Agreement executed by
Investor;
[b] the Shareholders Agreement executed by Investor;
[c] the Voting Agreement executed by Investor;
[d] the Series B Purchase Agreement, and
[e] the Warrants.
3.3 At the time of the Post Closing Capital Call, and any
purchase pursuant to Section 1.3, Company shall deliver a certificate of an
officer of Company updating the representa tions and warranties of Company set
forth in Section 5. of this Agreement and an updated Disclosure Letter;
provided, however, that such updated representations and warranties, together
with the updated Disclosure Letter, when considered as a whole, are not
materially adverse from the
4
<PAGE> 6
representations and warranties given at the Closing and there is not a material
adverse change in the financial performance of Company relative to the financial
performance of Company as set forth in the Business Plan. Investor's obligation
to purchase 2,500,000 shares of Series C Preferred Stock pursuant to the Post
Closing Capital Call made in accordance with Section 1.2 shall otherwise be
unconditional. All payments by Investor shall be made by wire transfer of
immediately available funds to the account specified by Company. In the event
that payment has not been made within fifteen (15) days of the date of the Post
Closing Capital Call as set forth in a written notice sent by Company to
Investor by facsimile transmission and overnight delivery, interest on the
amount due shall accrue and be payable to Company at the rate of 10% per annum.
In addition, in the event such payment has not been made within forty-five (45)
days of the date of the Post Closing Capital Call, Company shall have the option
for ninety (90) days after expiration of such forty-five (45) day period (the
"Call") to purchase any or all of the shares of stock of Company owned by
Investor at $5.00 per share, without interest (the "Call Purchase Price"). The
closing (the "Call Closing") shall take place at a time and place mutually
agreed upon by Investor and Company on or before the 120th day after written
notice of exercise of the Call is given by Company to Investor, or if Investor
and Company shall not agree on the time and place, the Call Closing shall take
place at the principal office of Company in Louisville, Kentucky at 10:00 a.m.
on the 120th 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. Notwithstanding the foregoing, Company may unilaterally withdraw its
exercise of the Call hereunder without obligation to Investor at any time within
sixty (60) days after exercise of such Call by giving Investor written notice of
such withdrawal.
4. Further Assurances. Each party shall execute such additional
documents and take such other actions as the other party 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. Company represents and
warrants to Investor 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: (i) own, lease and
operate its properties and to carry on its business as now being conducted and
as presently proposed to be conducted; and (ii) to execute, deliver and perform
this Agreement, the Series B Purchase Agreement, the Shareholders Agreement, the
Registration Rights Agreement, the Voting Agreement, the Warrants and any other
agreement to which Company is a party, the execution and delivery of which is
contemplated hereby or thereby (the "Ancillary Agreements"). Each entity listed
(each a "Company Subsidiary"; collectively referred to as the "Company
Subsidiaries") in Section 5.1 and Section 5.7 of the disclosure letter dated the
date hereof delivered by Company to Investor and attached hereto as Exhibit K
(the "Disclosure Letter"), is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction
5
<PAGE> 7
of its incorporation. Each Company Subsidiary 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. Company and
each Company Subsidiary is duly qualified and is authorized to transact business
and is in good standing as 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.
5.2 Authorization; Binding Agreement. The execution and
delivery of this Agreement and the Ancillary Agreements 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,
each Ancillary Agreement and the Systems Agreements (as defined in Section 5.23
hereof) 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) 50,000,000 Common Shares, $.01 par
value per share ("Common Shares"), of which at the date hereof 4,000,000 shares
are validly issued and outstanding, fully paid and nonas sessable 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, as set forth in Section 5.3
of the Disclosure Letter, (iii) 10,000,000 Shares of Series B Convertible
Preferred Shares, $.01 par value per share ("Series B Preferred Stock), of which
at the date hereof 2,000,000 shares are validly issued and outstanding and fully
paid and nonassessable and owned, beneficially and of record, as set forth in
Section 5.3 of the Disclosure Letter, and an additional 8,000,000 shares of
which are being sold pursuant to the Series B Purchase Agreement, and (iv)
5,000,000 shares of Series C Convertible Preferred Shares, $.01 par value per
share ("Series C Preferred Stock" and, together with the Series A Preferred
Stock and the Series B Preferred Stock, the "Preferred Stock"), none of which is
outstanding at the date hereof and up to 5,000,000 shares of which may 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,
10,000,000 Common Shares have been duly and validly reserved for issuance upon
conversion of the Series B Preferred Stock, 5,000,000 Common Shares have been
duly and validly reserved for issuance upon conversion of the Series C Preferred
Stock, 900,000 Common Shares have been duly and validly reserved for issuance
under Company's 1998 Stock Option Plan, as referenced in Section 5.3 of the
Disclosure Letter, and 5,000,000 Common Shares have been duly and validly
reserved for issuance pursuant to the Warrants. The authorized, issued and
outstanding shares of capital stock of each Company Subsidiary are as set forth
in Section 5.3 of the Disclosure Letter. All of such issued and outstanding
shares of capital stock of each Company Subsidiary are validly issued and
outstanding, fully paid and nonassessable and owned, beneficially and of record,
by Company free and clear of all liens, claims, and encumbrances. Except
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<PAGE> 8
as set forth in Section 5.3 of the Disclosure Letter, the Ancillary Agreements,
and the Amended Certificate, 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 or any Company
Subsidiary's capital stock or any instruments that can be converted into or
exchanged for shares of Company's or any Company Subsidiary's capital stock.
None of the shares of Company's or any Company Subsidiary's capital stock have
been issued in violation of any preemptive right. All issuances, sales,
redemptions, transfers or purchases of the capital stock of Company and each
Company Subsidiary and any involvement in any transfer of any such stock by
Company or any Company Subsidiary 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. Except as set forth in Section
5.3 of the Disclosure Letter and for obligations of Company to redeem Series C
Preferred Stock, 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 or any Company Subsidiary. No bonds,
debentures, notes or other indebtedness having the right to vote (or convert
ible into or exercisable for securities having the right to vote) on any matters
on which shareholders of Company may vote are issued or outstanding. Except for
the Voting Agreement, neither Company nor any Company Subsidiary is 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 or any Company Subsidiary.
5.4 Validly Issued Shares; Securities Exemption. The shares of
Series C 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 (other than those created by
Investor). The issuance of the Series C 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.
Without limiting the immediately preceding sentence, Company has not made a
general solicitation of the public in connection with the offering and sale of
the shares of Series C Preferred Stock to be issued hereunder. Moreover, the
offering and sale of the Series C Preferred Stock to be issued hereunder will
not be integrated with any previous securities offerings made by Company. The
Common Shares issuable upon conversion of the Series C Preferred Stock being
purchased under this Agreement, and upon issuance and exercise of the Warrants,
will be, upon issuance and delivery in accordance with the terms of the Amended
Certificate, duly and validly issued, fully paid and nonas sessable and free of
restrictions on transfer other than restrictions on transfer under this
Agreement, the Warrants, the Shareholders Agreement and under applicable federal
and state securities laws (other than those created by Investor). The issuance
of the Common Shares upon conversion of the Series C Preferred Stock, and upon
issuance and exercise of the Warrants, 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.
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<PAGE> 9
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
Amended Certificate or the Bylaws, or the certificate of incorporation or bylaws
of any Company Subsidiary, 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 any Company Subsidiary or Company's or any Company Subsidiary's
properties or assets.
5.6 Contracts and Other Commitments; Compliance. Section 5.6
of the Disclosure Letter sets forth each network service agreement and each
other material contract, agreement, lease, loan, commitment and proposed
transaction to which Company or any Company Subsidiary is a party or is bound or
which Company or any Company Subsidiary is seeking to be bound that is material
to Company or any Company Subsidiary (the "Contracts"). Neither Company nor any
Company Subsidiary is bound by 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 Contract, 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
the Amended Certificate or the Bylaws, no Company Subsidiary is in violation or
default of any provision of its certificate of incorporation or bylaws, and
neither Company nor any Company Subsidiary is in violation or default 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. Neither Company nor any Company Subsidiary
is 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 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 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's unaudited consolidated
balance sheet as of October 31, 1998, and the related unaudited statement of
income for the period April 3, 1998
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<PAGE> 10
through October 31, 1998 (the "Financial Statements"), are set forth in Section
5.9 of the Disclosure Letter. The Financial Statements were prepared in
accordance with Generally Accepted Accounting Principles ("GAAP") (except for
the omission of footnotes and other required schedules and information and year
end accruals which are immaterial, in the aggregate, in amount); the balance
sheet included in such Financial Statements fairly presents the financial
condition of Company and its Subsidiaries as of October 31, 1998 and the
statements of income included in such Financial Statements fairly present the
results of operations of Company and the Company Subsidiaries for the period
then ended. None of Company or any of the Company Subsidiaries has any
liabilities or obligations of any nature, whether absolute, accrued, contingent
or otherwise, which are not fully reflected or reserved against in the Financial
Statements, except for liabilities that may have arisen in the ordinary course
of business and that are not required by GAAP to be included in the Financial
Statements.
5.10 Indebtedness for Borrowed Money; No Undisclosed
Liabilities. Except as set forth in the Financial Statements, neither Company
nor any Company Subsidiary has any direct or indirect indebtedness for borrowed
money, indebtedness by way of lease-purchase arrangements, guarantees, 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,
neither Company nor any Company Subsidiary will have any liability or obligation
whatsoever, whether accrued, absolute, contingent or otherwise of a nature
required by generally accepted accounting principles to be included in the
Financial Statements.
5.11 Absence of Changes. Except as set forth in Section 5.11
of the Disclosure Letter, since October 31, 1998, there has not been:
[a] any change in the assets, liabilities, financial
condition or operating results of Company or any Company Subsidiary
from that reflected in the Financial Statements, except changes in the
ordinary course of business or otherwise that have not, in the
aggregate, materially and adversely affected the business, properties,
prospects or financial condition of Company or any Company Subsidiary
(as such business is presently conducted and as it is proposed to be
conducted);
[b] any material damage, destruction or loss, whether
or not covered by insurance, affecting the business, properties,
prospects, or financial condition of Company or any Company Subsidiary
(as such business is presently conducted and as it is presently
proposed to be conducted);
[c] any waiver or compromise by Company or any
Company Subsidiary 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 or any Company
Subsidiary, except in the ordinary course of business and that is not
material to the business, properties, or financial condition
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<PAGE> 11
of Company or any Company Subsidiary (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 Company Subsidiary or any of their
respective 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 or any Company Subsidiary (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 or any Company Subsidiary,
with respect to any of its material properties or assets, except
capital leases and 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 or any Company Subsid iary's capital stock (excluding,
however, the accrual of dividends on the Preferred Stock), or any
direct or indirect redemption, purchase, or other acquisition of any of
such stock by Company or any Company Subsidiary;
[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 or any Company Subsidiary (as such business is presently
conducted and as it is presently proposed to be conducted); or
[l] any agreement or commitment by Company or any
Company Subsidiary to do any of the things described in this Section
5.11.
5.12 Title to Property and Assets; Leases.
[a] Neither Company nor any Company Subsidiary owns
any 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 or any Company Subsidiary leases having lease
payments, in the case of any single lease, in the aggregate of $15,000
or more per year. Neither Company nor any Company Subsidiary is bound
or committed to make any capital improvement or expenditure exceeding
$5,000 with respect to any individual parcel of leased real property.
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[b] Except as set forth in Section 5.12 of the
Disclosure Letter, Company and each Company Subsidiary 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 and landlords' liens
that are immaterial, individually or in the aggregate, in scope and
amount. With respect to the property and assets that it leases, Company
and each Company Subsidiary 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 and each Company Subsidiary are in the possession or control
of Company and such Company Subsidiary, respectively, 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 investiga tions pending or, to Company's best
knowledge, threatened against or affecting Company or any Company Subsidiary
against any asset, interest or right of Company or any Company Subsidiary or
which questions the validity of the transactions contemplated by this Agreement.
5.14 Environmental Matters. Neither Company nor any Company
Subsidiary is in violation in any material respect of any applicable statute,
law or regulation relating to the environment or occupational health and safety
(the "Environmental Laws") that would, individually, or, together with all other
such violations in the aggregate, result in a material and adverse effect on the
business and properties or financial condition of Company or any Company
Subsidiary and Company has no knowledge of any material expenditures necessary
to comply with the Environmen tal Laws.
5.15 Licenses and Permits; Compliance with Laws. Company and
each Company Subsidiary holds all franchises, permits, licenses, variances,
exemptions, orders and approvals of all governmental entities which are material
to the operation of Company's and such Company Subsidiary's business and is in
compliance in all material respects with the terms thereof. Company and each
Company Subsidiary has complied in all material respects 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, except for such defaults that, in the aggregate, would be
immaterial to the business and properties or financial condition of Company or
such Company Subsidiary, and no action, suit, proceeding, hearing, charge,
claim, demand, or notice has been filed or commenced against Company or any
Company Subsidiary alleging any failures to comply, except for such defaults
which individually, or, together with all other such defaults, would not have a
material adverse effect on the business and properties or financial condition of
Company or any Company Subsidiary.
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5.16 Employee Benefit Plans. Company has delivered or made
available to Investor true, complete and correct copies of each employee benefit
plan, 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 or any Company Subsidiary (collectively "Benefit Plans"), or and any
employment, consulting, severance, termination or indemnification agreement,
arrangement or understanding between Company or any Company Subsidiary and any
officer, director or employee of Company or such Company Subsidiary, 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.
[a] Company and each Company Subsidiary 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 or any
Company Subsidiary 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 or any Company Subsidiary;
[d] Neither Company nor any Company Subsidiary is 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 or any Company
Subsidiary. There are no pending governmental audits of the equal
employment opportunity practices of Company or any Company Subsidiary
and, to Company's best knowledge, no basis for any such claim exists.
5.18 Insurance. Company and each Company Subsidiary maintains
insurance policies, including property, casualty, liability and other insurance
with respect to its assets and business in amounts customary for similarly
situated companies and sufficient in amount to allow it to replace any of its
properties that might be damaged or destroyed. Neither Company nor any
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Company Subsidiary is 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 neither
Company nor any Company Subsidiary is 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
and each Company Subsidiary's insurance coverage is adequate for Company's and
each Company Subsidiary's business and is consistent with good business
practice.
5.19 Tax Matters. Company and each Company Subsidiary 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 material respects. Company and each
Company Subsidiary 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 or any Company Subsidiary that arise in connection with
any failure (or alleged failure) to pay any tax. Company and each Company
Subsidiary 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.
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 or any Company Subsidiary, nor is Company or any Company Subsidiary
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, or advances with respect to expenses to
be, incurred on behalf of Company or any Company Subsidiary, 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 or any Company Subsidiary has a business relationship, or any
firm or corporation that competes with Company or any Company Subsidiary, 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 or a Company Subsidiary.
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.
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5.22 Registration Rights. Except as set forth in Section 5.22
of the Disclosure Letter, neither Company nor any Company Subsidiary is
presently 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 Intellectual Property. Section 5.23 of the Disclosure
Letter 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 Company and each
Company Subsidiary other than commercially available software programs. Company
and the Company Subsidiaries either own or have properly licensed all rights
necessary or required to provide and perform the services they now provide and
perform, including, without limitation, all rights under or relating to any
equipment, software or content that Company or any Company Subsidiary will use
or provide in connection with the services to be performed by Company or any
Company Subsidiary under the Network Services Agreements dated as of the date
hereof among Company, Charter Communications, Inc. ("Charter") and Marcus Cable,
Inc. ("Marcus"), the Systems Access and Investment Agreement dated as of the
date hereof by and among Company, Investor, Charter and Marcus and the
Programming Content Agreement dated as of the date hereof by and between
Investor and Company (the "Systems Agreements"). Company's and each Company
Subsidiary's provision or operation of such services will not violate or
infringe any intellectual property laws or violate or infringe any rights of
third parties. There is no complaint, action or proceeding before any court
pending or, to Company's best knowledge, threatened against Company or any
Company Subsidiary asserting that Company's or any Company Subsidiary's use of
any intellectual property infringes the rights of any third party or otherwise
contesting Company's and each Company Subsidiary's rights with respect to any
intellectual property, and there is no basis for such assertion or contest. To
Company's best knowledge, no third party is infringing on Company's or any
Company Subsidiary's rights with respect to its intellectual property.
5.24 Material Facts. Company has provided Investor with all
the information prepared by or for Company or otherwise in Company's possession
that is responsive to inquiries made by Investor in deciding whether to purchase
the Series C 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 follows:
6.1 Authorization; Binding Agreement. This Agreement, the
Ancillary Agreements and the Systems Agreements to which Investor is a party
have been duly authorized, executed and delivered by Investor and each
constitute the legal, valid and binding obligation of Investor enforceable
against Investor in accordance with their respective terms except as such
enforceability may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or other
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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).
6.2 Investment Representations. Investor is acquiring the
Series C 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. 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 domiciled in
the State of Washington and is an "accredited investor" as such term is defined
under Regulation D of the Securities Act. Paul G. Allen owns beneficially and of
record more than fifty percent (50%) of the outstanding voting securities of
Investor.
6.4 Receipt of Information; Restricted Securities. Subject to
the Registration Rights Agreement, 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 Series C 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.
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 it 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 C Preferred
Stock.
7. Survival of Representations and Warranties. All representations and
warranties contained in this Agreement by either party to this Agreement and any
certificate or other instrument delivered by or on behalf of either 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.
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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, reasonable 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 hereof or in any exhibit,
schedule or annex to this Agreement;
[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 Limitation on Investor's Liability. The liability of
Investor to Company with respect to any claims arising from the performance or
breach of this Agreement by Investor shall be limited to the amount of the
aggregate purchase price for the Series C Preferred Stock purchased or to be
purchased by Investor under this Agreement.
9. Covenants of Company. Company hereby covenants and agrees as
follows:
9.1 Redemption Rights. Subject to the terms and provisions of
the Amended Certificate, including without limitation, the rights of the
Preferred Stock upon liquidation and dissolution, at any time and from time to
time from and after November 25, 2003, but prior to a Qualified Public Offering
(as defined in Section 9.5 of this Agreement), Investor shall have the right and
option to sell to Company, and Company shall buy, Investor's shares of Series C
Preferred Stock and any Common Shares into which such Series C Preferred Stock
shall have been converted (the "Put") at a price per share (the "Put Purchase
Price") equal to the greater of (a) $5.00 per share, plus accrued but unpaid
dividends, whether or not declared, through the date of the Put Closing (as
defined below), or (b) the fair market value per share as of the date Investor's
written notice of exercise of the Put is given to Company (without application
of any discount for lack of marketabili ty or minority position) as determined
by a qualified, independent appraiser experienced in the 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 of
such fair market value of Investor's shares of Company stock 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 120th day after written
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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 120th 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.
Notwithstanding the provisions of the first sentence of this Section 9.1, in the
event that any person or entity exercises a put right with respect to any equity
securities of Company on a date earlier than November 25, 2003, the right of
Investor to exercise the Put shall automatically be accelerated to such earlier
date.
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 C Preferred Stock. Immediately prior to
the occurrence of any event that would cause the number of Common Shares or type
of securities into which the Series C Preferred Stock would be convertible to be
adjusted, the Company shall take any and all actions necessary to permit such
conversion. Upon conversion of any shares of Series C Preferred Stock, Company
will promptly issue and deliver the Common Shares required to be delivered.
9.3 Financial Reporting. For periods commencing on or after
the Closing Date, Company shall deliver or cause to be delivered to Investor, on
a monthly basis, monthly and year-to-date balance sheets and income and cash
flow statements (each as compared to budget and the comparable prior year
period), and a monthly written summary of operations. Such monthly reports shall
be provided on or before thirty (30) 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 PriceWaterhouseCoopers LLP, or another independent
accounting firm approved by the audit committee of Company's Board of Directors,
and copies thereof shall be delivered to Investor on or before the 120th day
following the end of Company's fiscal year.
9.4 Use of Proceeds. The proceeds from the sale of the Series
C 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
Company, subject to the requirements of Section 9.5 hereof.
9.5 Prohibited Matters.
[a] From and after the date hereof, Company shall
not, without the consent 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):
[i] Effect a liquidation or dissolution or
winding up of business or a substantial change in the nature
of Company's business;
[ii] Amend the Amended Certificate or the
Bylaws, except for an amendment to the Amended Certificate to
increase the number of authorized
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Common Shares in connection with (x) a Qualified Public
Offering, or (y) employee or director 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;
[iii] Redeem or pay any dividend or
distribution on the Common Shares or any capital stock of
Company ranking junior to the Series C Preferred Stock and, if
ranking pari passu, without redeeming and or paying an equal
dividend on the Series C Preferred Stock;
[iv] 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 (w) pursuant to employee or
director stock option plans approved by the Board of Directors
of Company, any such issuances in this subsection (w) not to
exceed in the aggregate 3,000,000 shares, (x) upon conver sion
of the Preferred Stock, (y) in a Qualified Public Offering, or
(z) pursuant to the exercise of Warrants;
[v] Repay or make any shareholder loans
except as set forth in Section 9.5 of the Disclosure Letter;
[vi] 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 9.5[vi] 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;
[vii] 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;
[viii] 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
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million, or engage in more than one of any of such
transactions for an aggregate purchase price in excess of
$7.5 million; or
[ix] 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 by Company and Investor that a
Qualified Public Offering shall not be deemed to materially
and adversely affect the Preferred Stock.
For purposes of this Agreement, a "Qualified Public Offering" shall
mean an underwritten public offering of Common Shares, initiated by
resolution of its Board of Directors, at a per share price of at least
$7.50 (as proportionately and appropriately adjusted to reflect any
subdivision, reverse split or recapitalization of the Common Shares
after the date hereof) and aggregate gross proceeds of not less than
$50 million to Company, which has been made pursuant to a registration
statement filed with the Securities and Exchange Commission under the
Securities Act.
[b] Notwithstanding the provisions of Section 9.5[a]
above:
[i] 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 total number of shares of Preferred Stock owned by
Broadband immediately succeeding the Closing, together with
any Series C Preferred Stock purchased subsequent to the
Closing, to one or more non-Affiliates of Broadband I or
Broadband II, then Company shall not thereafter require the
consent of the holders of the majority of shares of any class
or series of Preferred Stock controlled by Broadband to effect
any of the "prohibited matters" referred to in Section 9.5[a].
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 to a non-Affiliate, unless such
subsequent transferee is an Affiliate of Broadband.
[ii] In the event that there has been one or
more transfers by Investor of more than, in the aggregate, 30%
of the total number of shares of Preferred Stock owned by
Investor immediately succeeding the Closing, together with any
Series C Preferred Stock purchased subsequent to the Closing,
to one or more non-Affiliates of Investor, then Company shall
not thereafter 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 9.5[a].
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[c] For the purposes of this Section 9, unless
otherwise provided in this Section 9.5, 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 descen dants, ancestors or spouses of any of
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 Investor, 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.
10. Public Statements. Except as required by law, neither Company nor
Investor shall, without the prior written approval of the other party 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 or as may be required by law, rule,
regulation, decree or court order.
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 and sent by facsimile:
If to Investor: Vulcan Ventures, Incorporated
Attention: William D. Savoy
110 110th Avenue N.E.
Bellevue, Washington 98004
Telecopy No: (425) 453-1985
If to Company, to: High Speed Access Corp.
Suite 210
1000 West Ormsby Avenue
Louisville, KY 40210
Telecopy No.: (502) 515-3101
With a copy to: John G. Hundley, Esq.
High Speed Access Corp.
Suite 210
1000 West Ormsby Avenue
Louisville, KY 40210
Telecopy No.: (502) 515-3101
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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 either party 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 (whether by merger, operation
of law or otherwise) and any purported assignment shall be null and void;
provided, however, that Investor may assign its rights, but not its obligations,
hereunder to an Affiliate of Investor, as defined in Section 9.5[c][ii].
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 State of
Delaware, without regard to the principles of conflicts of laws thereof.
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.
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17. Expenses. Company agrees, upon consummation of the transactions
contemplated by this Agreement, to pay all reasonable legal and out-of-pocket
expenses of Irell & Manella LLP and Paul, Hastings, Janofsky & Walker LLP in
connection with this Agreement, the Ancillary Agreements and the transactions
contemplated hereunder and thereunder.
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 or any Ancillary Agreement, the
substantially 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.
20. Best Knowledge. For purposes of this Agreement, the phrase "to
Company's best knowledge" or words of similar import shall mean the actual
knowledge of the executive officers of Company after making reasonable inquiry
with respect to the relevant subject.
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/ Robert S. Saunders
________________________________
Title: Vice Chairman
_______________________________
"INVESTOR"
VULCAN VENTURES, INCORPORATED
By: /s/ William D. Savoy
________________________________
Title: Vice President
______________________________
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<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
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<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
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<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.
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<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
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<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
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<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
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<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
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<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.
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<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.
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[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.
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(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
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[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
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<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.
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<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.
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<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> 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
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<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
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<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.
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<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
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<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.
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<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.
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<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:
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<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
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<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
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<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
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<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;
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<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.
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<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.
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<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> 1
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL
PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED
AND HAVE BEEN SEPARATELY FILED WITH
THE COMMISSION.]
EXHIBIT 10.7
SYSTEMS ACCESS AND INVESTMENT AGREEMENT
This Systems Access and Investment Agreement (the "Agreement") is dated
and effective as of November 25, 1998 (the "Effective Date"), among:
HIGH SPEED ACCESS CORP.
1000 West Ormsby Ave., Suite 210
Louisville, KY 40210 ("HSAC")
VULCAN VENTURES, INCORPORATED
110 110th Avenue NE
Bellevue, WA 98004 ("Vulcan")
CHARTER COMMUNICATIONS, INC.
12444 Powerscourt Dr., Suite 400
St. Louis, MO 63131 ("Charter")
and
MARCUS CABLE, INC.
2911 Turtle Creek Blvd., Suite 1300
Dallas, TX 75219 ("Marcus")
Recitals
A. Vulcan and/or other entities owned or controlled by Paul G.
Allen have agreed to purchase Charter and Marcus and may in
the future own or control other MSOs and Cable Systems. Both
Charter and Marcus, directly or through their respective
affiliates and subsidiaries, own and operate various Cable
Systems.
B. Charter and Marcus wish to offer their Cable Subscribers in
Committed Systems (listed on EXHIBIT A of the Network
Agreement) the opportunity to utilize the applicable Committed
Systems for Internet access and related services.
C. HSAC provides Internet access and related services through
various cable, telephone and wireless systems.
D. Charter and Marcus wish to retain HSAC to offer and provide
Internet access and related services to Cable Subscribers in
Committed Systems, and HSAC wishes to access the Cable
Subscribers in Committed Systems to provide Internet access
and related services to such Cable Subscribers.
E. Vulcan wishes (i) to have the right to retain HSAC to offer
and provide Internet access and related services to certain
Cable Subscribers of other MSOs and Cable Systems that Vulcan
may own or control in the future, and (ii) to purchase an
equity ownership interest in HSAC.
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NOW, THEREFORE, in consideration of the foregoing, and the exchange of
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound hereby, the parties agree
as follows:
1. DEFINITIONS. Unless otherwise defined herein, where reference is
made thereto the following capitalized terms used in this Agreement shall have
the following meanings:
1.1 "Cable Subscriber" means a cable TV subscriber or potential
subscriber residing in a Home Passed in a Committed System regardless of whether
such cable TV subscriber or potential subscriber subscribes to the HSAC
Services.
1.2 "Cable System(s)" means any radio frequency ("RF") cable
television franchise or hybrid fiber-coaxial RF Plant distribution system ("RF
Plant") serving a geographically proximal group of residences, businesses, or
other locations. Cable Systems include both One-Way Systems and Two-Way Systems.
1.3 "Certificate of Incorporation" means the Certificate of
Amendment to Certificate of Incorporation of HSAC of even date herewith in the
form attached hereto as ANNEX G.
1.4 "Class A Warrants" means warrants in the form attached hereto as
ANNEX C granted to Vulcan under Section 5.1 hereof to purchase up to Two Million
Five Hundred Thousand (2,500,000) shares of HSAC's common stock (each a "Warrant
Share") at a per share exercise price of Five Dollars ($5.00) per share (for an
aggregate purchase price of up to Twelve Million Five Hundred Thousand Dollars
($12,500,000)), pursuant to the terms and conditions of the Class A Warrants.
1.5 "Class B Warrants" means warrants in the form attached hereto as
ANNEX D granted to Vulcan under Section 5.2 hereof to purchase up to an
additional Two Million Five Hundred Thousand (2,500,000) Warrant Shares at a per
share exercise price of Five Dollars ($5.00) per share (for an aggregate
additional purchase price of up to Twelve Million Five Hundred Thousand Dollars
($12,500,000)), pursuant to the terms and conditions of the Class B Warrants.
1.6 "Committed System(s)" means the Cable Systems that an Operator
has specifically designated in such Operator's sole and absolute discretion as
Committed Systems, that such Operator reasonably believes will conform to
Section 4 hereof and that are either listed in EXHIBIT A of the Network
Agreement as of the Effective Date or are designated as Committed Systems and
added to the Network Agreement pursuant to Section 2.2 below (and Section 2.2 of
the Network Agreement) during the Term. A Cable System shall be deemed to no
longer be a Committed System if (i) it has been withdrawn by an Operator
pursuant to Section 7 below and/or Section 18 of the Network Agreement, (ii) the
Network Agreement has expired or been terminated for any reason pursuant to
Section 18 of the Network Agreement with respect to such Committed System, or
(iii) such Committed System is no longer controlled by the Operator for any
reason.
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<PAGE> 3
1.7 "Confidential Information" means any and all information related
to either HSAC's business or Operator's business in any form, including, without
limitation, (i) customer information, (ii) the terms and conditions of this
Agreement, (iii) all dates, summaries, reports or information of all kinds,
whether oral or written, acquired, devised or developed in any manner by or from
the disclosing party's files, and (iv) financial, statistical, personnel, or
technical information, software or documentation, which the disclosing party
deems proprietary or confidential.
1.8 "Content" means "Content" as defined in the Content Agreement.
1.9 "Content Agreement" means the Programming Content Agreement of
even date herewith between Vulcan and HSAC in the form attached hereto as ANNEX
E.
1.10 "Customer Lists" means the Operator's list of Cable Subscribers
in each Committed System and related subscriber information.
1.11 "Data Subscriber" means a Cable Subscriber residing in a Home
Passed in a Committed System who subscribes to the HSAC Services regardless of
whether such subscriber subscribes to Operator's cable TV service. Each Multiple
Dwelling Unit ("MDU") constitutes not more than a single Data Subscriber for
purpose of this Agreement.
1.12 "Full HSAC Services Roll-Out" means the creation, staffing and
operation of every business, technical and service aspect necessary to fully
implement the HSAC Services.
1.13 "Gross Revenues" means all gross revenues collected from Data
Subscribers for the HSAC Services, including, without limitation, monthly
subscription fees regardless of which party handles the billing and collection,
and as used herein, does not include: (i) applicable sales or use taxes, (ii)
federal, state or local franchise fees, (iii) Installation Fees as defined in
the Network Agreement or any other set-up charges assessed by HSAC, Operators or
any authorized third-party reseller or installer (subject to the limitations set
forth in Section 6.2 of the Network Agreement), (iv) rentals paid by Data
Subscribers on Home Equipment Packages as defined in the Network Agreement
(subject to the limitations set forth in Section 6.2 of the Network Agreement),
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
1.14 "Home(s) Passed" means residences that are connected (i.e., a
residence with an installed cable "drop" from an Operator's Cable System or
which is eligible for such cable "drop" by virtue of an Operator's Cable System
passing such residence) to Operators' cable RF Plant for such Cable System,
regardless of whether the persons residing in such residences subscribe to cable
TV services. Each MDU constitutes a single Home Passed for purposes of this
Agreement.
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<PAGE> 4
1.15 "HSAC Network Equipment" means the equipment that HSAC employs
for operation of the HSAC Services by connecting such equipment to the head-end
of Operators' Cable Systems. HSAC Network Equipment includes, without
limitation, all monitoring devices, telecommunications equipment, storage
devices, computing and data processing equipment, and software.
1.16 "HSAC Services" means the design, engineering, construction
(excluding the RF Plant portion of the Cable System), installation, activation,
beta testing, ISP and data network operation and management, sales and
marketing, customer service and "call center" support, billing (as agreed to the
parties on a case-by-case basis), pre- and post-Launch Date deployment and
operation, and maintenance of Internet access and related services from the Data
Subscriber's computer and cable modem through any Committed System to HSAC's
Internet Portal including, without limitation, interfacing HSAC Network
Equipment with Committed Systems to allow Data Subscribers, for a monthly fee or
other charges, to browse the World Wide Web, read news groups, and receive and
send electronic mail ("E-mail") and perform related activities.
1.17 "Internet Portal" means a physical site sometimes referred to
as a "point of presence" where there is a collection of equipment including
routers, data storage devices, and modems that are used to connect to customers
and leased telecommunication lines that connect such site directly to a part of
the Internet backbone.
1.18 "Launch Date" means, with respect to a particular Committed
System, the date on which HSAC or Operator, as the case may be, is required to
commence revenue billing for Data Subscribers in such Committed System pursuant
to the Activation Schedule under the Network Agreement.
1.19 "MSO" means an entity that owns, controls, or operates multiple
Cable Systems that is generally referred to as a Multiple System Operator in the
cable television industry.
1.20 "Network Agreement" means the Network Services Agreement in the
form attached hereto as ANNEX F, as same may be amended from time to time to add
and/or delete Committed Systems and Potential Operators and as otherwise agreed
in writing by the parties thereto.
1.21 "One-Way" means a Cable System that can only deliver television
signals, data, or other digital or analog information downstream from the cable
head end to the Cable Subscriber, and must use another means, including without
limitation a telephone line and modem, to send any information from the Cable
Subscriber to an Internet Portal.
1.22 "Operators" means Charter, Marcus, Vulcan and any Potential
Operator.
1.23 "Optional Services" means the provisioning by HSAC of data
connection/transmission services that are not specifically included in the
definition of HSAC Services, including, but not limited to (i) telephony, video
on demand, and pay-per-view; and (ii) provisioning of consumer-oriented software
or data applications such as on-line banking and electronic utility meter
reading.
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<PAGE> 5
1.24 "Other Agreements" means (i) the Content Agreement, (ii) the
Network Agreement, (iii) the Series B Convertible Stock Purchase Agreement, (iv)
the Series C Convertible Stock Purchase Agreement, (v) the Class A Warrants and
the Class B Warrants, (vi) the Voting Agreement, (vii) the Registration Rights
Agreement, (viii) the Shareholders Agreement, and (ix) the Certificate of
Incorporation.
1.25 "Potential Operators" means, as the case may be or the context
requires, any Cable Systems or packet-switched data systems now or hereafter
owned or controlled by, directly or indirectly, or affiliated with Paul Allen,
any Operator, or any of their respective affiliates or subsidiaries.
1.26 "Registration Rights Agreement" means the Amended and Restated
Registration Rights Agreement of even day herewith among HSAC and the
"Investors" parties thereto in the form attached hereto as ANNEX H.
1.27 "Series B Convertible Stock Purchase Agreement" means the
Series B Convertible Preferred Stock Purchase Agreement of even day herewith
between HSAC and Vulcan in the form attached hereto as ANNEX A.
1.28 "Series C Convertible Stock Purchase Agreement" means the
Series C Convertible Preferred Stock Purchase Agreement of even day herewith
between HSAC and Vulcan in the form attached hereto as ANNEX B.
1.29 "Shareholders Agreement" means the Amended and Restated
Shareholders Agreement of even day herewith among HSAC and the "Common
Shareholders" and "Investors" parties thereto in the form attached hereto as
ANNEX I.
1.30 "Startup Page" means the first or default television or
computer screen displayed to Data Subscribers every time that they access the
HSAC Services as a means to obtain access to the Internet or any other
interactive material available via the HSAC Services. A Startup Page may or may
not be in the form of a Web Page, and may be different for different Cable
Systems.
1.31 "Termination Event" has the meaning set forth in Section 18.3
of the Network Agreement.
1.32 "Two-Way" means a Cable System that can both send and deliver
television signals, data, or other digital or analog information upstream and
downstream to and from the cable head-end to and from the Cable Subscriber,
without using another means to send or receive any information from the Cable
Subscriber to an Internet Portal. 1.33 "Voting Agreement" means the Voting
Agreement of even day herewith among HSAC, Broadband Solutions, LLC, Broadband
Solutions II, LLC, and Vulcan in the form attached hereto as ANNEX J.
1.34 "Web Page" means a document specially formatted in hypertext
markup language ("HTML") which supports links to other documents, as well as
graphics, audio, video files, and other Content. A group of Web Pages linked
together and share the same World Wide Web domain name constitutes a "Web Site."
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<PAGE> 6
1.35 "World Wide Web" means the system of Internet servers that
supports HTML-formatted documents. Not all Internet servers are part of the
World Wide Web.
1.36 Other Definitions. The following additional defined terms shall
have the meanings ascribed to them in the Sections indicated below:
"Class A Warrant Date" 6.1.1
"Class B Warrant Date" 6.1.2
"Intellectual Property Laws" 12.1.5
"MDU" 1.11
"Notices" 15.3
"RF" 1.2
"RF Plant 1.2
"Series B Convertible Preferred Stock" 5.1
"Series C Convertible Preferred Stock" 5.2
"Temporary Startup Page" 8.2
"Temporary Web Site" 8.2
"Term" 11
"Warrant Shares" 1.5
2. EXCLUSIVE RIGHT TO PROVIDE HSAC SERVICES. Operators and HSAC agree
that:
2.1 During the Term, HSAC shall have the sole and exclusive right to
access the Committed Systems for purposes of performing the HSAC Services,
subject to and in accordance with the terms and conditions of this Agreement and
the Network Agreement.
2.2 During the Term, Operators shall have the right, but not the
obligation, to designate additional Cable Systems as Committed Systems under
Section 2.2 of the Network Agreement, and such right shall extend to any and all
Cable Systems now owned or hereafter acquired by an Operator. An Operator shall
exercise its right to designate additional Cable Systems as Committed Systems
hereunder by delivering written notice of such designation to HSAC in accordance
with the procedures set forth in the Network Agreement. Upon HSAC's receipt of
such notice, the additional Cable Systems designated in such notice shall
automatically become Committed Systems hereunder, and HSAC and the applicable
Operator shall execute an addendum to the Network Agreement reflecting the
addition of such additional Cable Systems and/or the inclusion of additional
Operators to the Network Agreement, subject to the inspection and commissioning
procedures and agreements set forth in Section 2.3 and 2.4 of the Network
Agreement.
3. NETWORK AGREEMENT. Concurrently with the execution and delivery
of this Agreement, Charter and Marcus shall enter into the Network Agreement,
and HSAC shall thereafter perform a Full HSAC Services Roll-Out for any and all
Committed Systems in accordance with such Network Agreement, as amended from
time to time.
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<PAGE> 7
4. HOMES PASSED. The Committed Systems shall (i) include (or "pass") in
the aggregate not less than 750,000 Homes Passed, (ii) include (or "pass") at
least 4,000 Homes Passed per head-end, and (iii) conform to the System Data
Requirements set forth (and as defined) in the Network Agreement. Such System
Data Requirements shall include, but are not limited to, the requirement that
each Committed System (A) possess at least 400 MHz of bandwidth, (B) reserve at
least one (1) 6 MHz channel for the HSAC Services in One-Way Cable Systems and
at least two (2) 6 MHz channels for the HSAC Services in Two-Way Cable Systems,
and (C) shall be owned, controlled, or operated by an Operator. Operators
obligation to replace Committed Systems and Homes Passed upon the withdrawal of
Committed Systems from this Agreement and the Network Agreement shall be
governed by Section 18.5 of the Network Agreement.
5. HSAC CONVERTIBLE PREFERRED STOCK. Concurrently with the execution
and delivery of this Agreement:
5.1 Vulcan shall purchase Eight Million (8,000,000) shares of HSAC's
Series B Convertible Preferred Stock, $.01 par value (the "Series B Convertible
Preferred Stock"), at a purchase price of Two Dollars and Fifty Cents ($2.50)
per share (for an aggregate investment of $20,000,000), subject to the terms and
conditions set forth in the Series B Convertible Stock Purchase Agreement, and
certain other investors shall have purchased Two Million (2,000,000) shares of
Series B Convertible Preferred Stock by separate agreement at a purchase price
of Two Dollars and Fifty Cents ($2.50) per share (for an aggregate investment of
$5,000,000). The purchase of such other shares of Series B Convertible Preferred
Stock by such other investors shall be a condition precedent to Vulcan's
obligation to purchase shares of Series B Convertible Preferred Stock under this
Section 5.1.
5.2 HSAC shall authorize the issuance of Five Million (5,000,000)
shares of HSAC's Series C Convertible Preferred Stock, $.01 par value (the
"Series C Convertible Preferred Stock"), and HSAC and Vulcan shall enter into
the Series C Convertible Stock Purchase Agreement pursuant to which Vulcan shall
commit to purchase Two Million Five Hundred Thousand (2,500,000) shares of the
Series C Convertible Preferred Stock at a purchase price of Five Dollars ($5.00)
per share (for an aggregate investment of Twelve Million Five Hundred Thousand
Dollars ($12,500,000)), subject to the satisfaction of certain conditions set
forth in the Series C Convertible Stock Purchase Agreement, and shall have the
right to purchase an additional Two Million Five Hundred Thousand (2,500,000)
shares of the Series C Convertible Preferred Stock at the purchase price set
forth in the Series C Convertible Stock Purchase Agreement, subject to the
satisfaction of certain conditions set forth in the Series C Convertible
Preferred Stock Purchase Agreement.
6. WARRANTS FOR HSAC COMMON SHARES.
6.1 Concurrently with the execution and delivery of this Agreement,
HSAC and Vulcan will enter into:
6.1.1 The Class A Warrant pursuant to which HSAC will issue to
Vulcan one Class A Warrant (up to a maximum of 2,500,000 Class A Warrants in the
aggregate) for up to 2,500,000 Homes Passed in excess of 750,000 in Cable
Systems that are
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<PAGE> 8
Committed Systems as of the Effective Date or are designated as additional
Committed Systems pursuant to Section 2.2 of the Network Agreement at any time
after the Effective Date, exercisable one (1) Warrant Share per each Home Passed
that is in any such Committed System or additional Committed Systems on or
before July 31, 2001 ("Class A Warrant Date"), which Class A Warrant Date will
be subject to adjustment as set forth in Section 6.4 below.
6.1.2 The Class B Warrant pursuant to which HSAC will issue to
Vulcan one Class B Warrant (up to a maximum of 2,500,000 Class B Warrants in the
aggregate) for up to 2,500,000 Homes Passed (beyond the Homes Passed counted for
purposes of earning Class A Warrants pursuant to Section 6.1.1 above) in Cable
Systems that are Committed Systems as of the Effective Date or are designated as
additional Committed Systems pursuant to Section 2.2 of the Network Agreement at
any time after the Effective Date, exercisable one (1) Warrant Share per each
such Home Passed that is in any such Committed System by July 31, 2003 ("Class B
Warrant Date"), which Class B Warrant Date will be subject to adjustment as set
forth in Section 6.4 below.
6.1.3 All Class A Warrants and Class B Warrants shall be deemed
vested (i.e., eligible for exercise) immediately when the applicable Home Passed
is or becomes part of a Committed System or additional Committed System under
the Network Agreement, subject to (i) the provisions of Section 6.3 below, and
(ii) the inspection and commissioning procedures set forth in Section 2.3 of the
Network Agreement.
6.2 Class A Warrants shall expire if unexercised on or before
December 31, 2011, and Class B Warrants shall expire if unexercised on or before
December 31, 2013, in each case subject to acceleration in accordance with the
terms of the Class A Warrant and Class B Warrant, as applicable.
6.3 Class A Warrants and Class B Warrants, to the extent of the
number of Homes Passed in additional Committed System designated under Section
2.2 of this Agreement and Section 2.2 of the Network Agreement (on a one (1)
Warrant Share per Home Passed basis), will be cancelled and deemed forfeited by
Vulcan (or its permitted transferee) in the event Operators withdraw 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 the Network Agreement, except to the
extent Vulcan or Operators replace the Homes Passed in such withdrawn Committed
System with Homes Passed in another Committed System(s) or additional Committed
Systems. Class A Warrants and Class B Warrants will not be cancelled or deemed
forfeited if Operator terminates any of HSAC's exclusive rights as provided for
or permitted under this Agreement or the Network Agreement. Effective as of the
Class B Warrant Date, 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 Warrant Shares theretofore issued upon exercise of
the Class A Warrants and Class B Warrants. 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 Homes Passed in Committed Systems
and additional Committed Systems withdrawn from the Network Agreement pursuant
to Sections 18.1, 18.2, 18.3, and 18.6 of the Network Services Agreement) is
different than the total number of all outstanding Class A Warrants
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<PAGE> 9
and Class B Warrants and Warrant Shares, then the total 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 the 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.
6.4 In the event that the parties cannot agree on the Launch Date
for a Committed System for which Class A Warrants or Class B Warrants are
exercisable under Section 6.1.1 or 6.1.2 within the period specified in Section
2.4 of the Network Agreement, then the Class A Warrant Date and or Class B
Warrant Date (as applicable) for the Homes Passed in such Committed System shall
be extended by the time period beginning on the date on which the Launch Date
for such Committed System should have been designated pursuant to Section 2.2 of
the Network Agreement and the date on which HSAC actually commences revenue
billing for Data Subscribers in such Committed System.
6.5 HSAC shall have the right to review and audit Operators' books
and records relating to the Committed Systems and Homes Passed as of July 31,
2001 and July 31, 2003 for purposes of confirming the number of Homes Passed for
which Class A Warrants and Class B Warrants are exercisable (and Warrant Shares
that have been issued upon exercise thereof) hereunder.
7. OPTION TO WITHDRAW CABLE SYSTEMS. Operators shall have the right to
terminate the Network Agreement and/or withdraw Committed Systems from this
Agreement and the Network Agreement in accordance with the provisions of
Sections 18 and 19 of the Network Agreement.
8. CONTENT PROVISIONING.
8.1 All of the rights, terms and conditions of this Agreement are
expressly conditioned upon the parties entering into the Content Agreement. The
obligations of the parties with respect to the Vulcan Content (as defined in the
Content Agreement) shall apply to all Data Subscribers in the Committed Systems
and to every other HSAC data and/or Internet customer located in any geographic
region or market, regardless of whether such customer is a customer of an
Operator or of an MSO or Cable System operated by an unrelated party, subject to
and in accordance with the terms of the Content Agreement.
8.2 Until such time as Operators develop Content for a Startup Page
and a Web Site, HSAC shall create a temporary Operator-branded Startup Page
("Temporary Startup Page") and Web Site ("Temporary Web Site") for each
Committed System and orchestrate local community Content. Such Temporary Startup
Page and Temporary Web Site shall comply with the branding and all other
requirements set forth in Section 7.6.5 in the Network Agreement). All "net"
revenues (i.e., gross advertising and other sales revenues less any ad agency
charges, or commissions) resulting from advertising revenues, E-commerce and any
other revenues generated by or from such Temporary Startup Page and Temporary
Web Site (including any fees for links) shall be divided evenly between HSAC and
the applicable Committed System's Operator.
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<PAGE> 10
8.3 The Content on such Temporary Startup Page and Web Site shall
be replaced upon reasonable notice to HSAC from that Committed System's Operator
with Content designated by Vulcan and/or the applicable Committed System's
Operator for a Startup Page and Web Site. HSAC shall provide every Committed
System's Operator with an easy and inexpensive means to constantly update and
modify the Content for such Operator's Startup Page and Web Site. All revenues
resulting from advertising revenues, E-commerce and any other ancillary revenues
generated by or from any Vulcan- or Operator-controlled or designated Content,
Startup Page, or Web Site (including any fees for links) shall be paid to or
retained by Vulcan or the applicable Committed System's Operator, and no portion
of such revenues shall be paid to, retained by or shared with HSAC. Conversely,
all revenues generated from HSAC's Web Site (as defined in the Content
Agreement) resulting from advertising revenues, E-commerce, other HSAC Content
(as defined in the Content Agreement), and any other revenues (including any
fees for links) generated from such HSAC's Web Site, shall be paid to or
retained by HSAC and no portion of such revenues shall be paid to, retained by
or shared with any Vulcan or any Operator.
9. [Intentionally Omitted]
10. COMPETITIVE SERVICES.
10.1 HSAC shall have the right to market and deploy data
connectivity services using analog modems that are commercially available as of
the Effective Date and do not operate at speeds greater than 128 KBPS to
"dial-up" residential and commercial customers in Committed System market areas
that do not qualify as Homes Passed and do not utilize the Operator's RF
Plant/head-end equipment and/or the HSAC Network Equipment. CONFIDENTIAL
MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION. HSAC shall retain
such "dial up" customers in the event of any withdrawal of Committed Systems
from the Network Agreement or the termination of the Network Agreement by
Operator; provided, that if any Operator expands/upgrades its system such that
HSAC's "dial-up" customers eventually qualify as Homes Passed or Cable
Subscribers, HSAC shall make commercially reasonable efforts to enroll such
Cable Subscribers as Data Subscribers.
10.2 Unless an Operator gives its prior written approval, HSAC
agrees that it shall not compete with Operators, deploy new dial-tone or xDSL
services, perform HSAC Services, or perform any Optional Services in any market
in which any of Operators or any affiliate owns, controls or operates a Cable
System (regardless of whether such Cable System is a Committed System) or
competes as CLEC. However, HSAC shall have the right without Operator's prior
written approval to develop and offer Internet Access and related services for
MSO's not affiliated with any of Operators in those market areas where no
Operator or any affiliate owns, controls and/or operates a Cable System or
competes as a CLEC. If such area eventually falls within or overlaps a market in
which an Operator or any affiliate owns, controls and/or operates a Cable
System, HSAC shall not be required to abandon or curtail its efforts with
respect to any its then existing deployments of connectivity services.
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<PAGE> 11
10.3 Unless an Operator gives its prior written approval in regard
to a particular Committed System, HSAC shall not deploy new dial-tone or xDSL
services in the market areas of such Committed System; provided, that HSAC shall
not be required to abandon or curtail its efforts with respect to any existing
deployments of competing connectivity services which pre-date the Effective
Date, so long as HSAC has provided Operators with a detailed list of such
dial-tone or xDSL services before the Effective Date.
10.4 HSAC shall not deploy Worldgate(R), WebTV(R), Optional
Services, or VBI (video blanking interval), digital TV products in the market
areas of any Committed Systems or other areas in which any Operator operates a
Cable System.
10.5 HSAC's deployment of any Optional Service in the Committed
Systems or any products or services not specifically contemplated in this
Agreement in the Committed Systems is subject to agreement among or between the
parties on a case-by-case, system-by-system basis. The parties shall separately
negotiate the terms and conditions applicable to any such Optional Services on a
case-by-case basis.
10.6 HSAC acknowledges and agrees that, with respect to any Cable
Systems that are not Committed Systems hereunder, there are and shall be no
restrictions or limitations on the ability of any Operator to compete with HSAC,
to engage any competitor(s) of HSAC to provide the HSAC Services (regardless of
the Method of Access) or to enter into any other business arrangements with
competitor(s) of HSAC.
11. TERM. The term ("Term") of this Agreement shall commence effective
as of the Effective Date and shall continue until midnight of the day HSAC
ceases to provide HSAC Services to Data Subscribers in any geographic area or
region.
12. REPRESENTATIONS AND WARRANTIES.
12.1 HSAC hereby represents and warrants to Operators as follows:
12.1.1 HSAC is a corporation duly organized, validly existing
and in good standing under the laws the State of Delaware and is duly qualified
to do business as a foreign corporation in all jurisdictions in which it
conducts its business.
12.1.2 HSAC's execution, delivery and performance of this
Agreement and each of the Other Agreements have been duly authorized by all
requisite corporate action, and this Agreement and each of the Other Agreements
constitutes a legally valid and binding obligation of HSAC enforceable in
accordance with its respective terms, except as may be affected by laws relating
to bankruptcy or insolvency or the application by a court of equitable
principles.
12.1.3 HSAC's execution, delivery and performance of this
Agreement and each of the Other Agreements shall not violate, conflict with
and/or result in a breach or default under HSAC's Certificate of Incorporation,
bylaws or other charter documents, or any judgment, award, decree, agreement or
other instrument to which HSAC is a party.
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<PAGE> 12
12.1.4 No approval, authorization, consent, or order or filing
with any court, or governmental or administrative agency or any third party is
required in order for HSAC to enter into, deliver and perform this Agreement,
each of the Other Agreements and the transactions contemplated herein and
therein.
12.1.5 HSAC either owns or has properly licensed all rights
under patent, copyright, trademark, trade secret and other domestic and foreign
intellectual property laws (collectively, "Intellectual Property Laws") that are
necessary or required to perform the Full HSAC Services Roll-Out, the HSAC
Services and the other services to be performed by HSAC hereunder and under the
Network Agreements, including, without limitation, all rights under Intellectual
Property Laws relating to any equipment (including, without limitation, the HSAC
Network Equipment), software or Content that HSAC shall use or shall provide in
connection with the Full HSAC Services Roll-Out, the HSAC Services and the other
services to be performed by HSAC hereunder and under the Network Agreements.
HSAC's provision and/or operation of the Full HSAC Services Roll-Out, the HSAC
Services and the other services to be performed by HSAC hereunder and under the
Network Agreements shall not violate or infringe any Intellectual Property Laws
or violate or infringe any rights of third parties.
12.1.6 To the best of its knowledge, HSAC has taken all
actions necessary and appropriate to assure that there shall be no material
adverse change to its business or electronic systems or material interruptions
in the operation and delivery of HSAC Service as provided in this Agreement
(aside from normal data packet delays, distortions, and losses (i) on the
Internet backbone, (ii) during transport to the Internet Backbone on
telecommunication lines leased from a third party, (iii) or during transport
from the customer to HSAC over a coaxial cable or fiber optic line) by reason of
the advent of the year 2000, including, without limitation, that all its
computer-based systems, embedded microchips and other data processing
capabilities have been designed or modified and fully tested in such a manner
that such computer-based systems, embedded microchips and other data processing
capabilities will not generate any invalid and/or incorrect date-related results
or cause any of the problems commonly referred to as "Year 2000 problems" and
will, without interruption or manual intervention, continue to operate
consistently, predictably and accurately and in accordance with all of the
requirements of this Agreement, including without limitation, meeting all
specifications and/or functionality and performance requirements, when used
during any year prior to, during or after the calendar year 2000. HSAC does not
warrant that interruptions in HSAC Service will not occur due to the network or
systems failures of other parties, including utilities and phone services,
caused by "Year 2000 problems."
12.2 Each of Vulcan, Charter, and Marcus hereby represents and
warrants, severally, but not jointly, and only as to itself, to HSAC as follows:
12.2.1 Each of them is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and is duly qualified to do business as a foreign corporation in
all jurisdictions in which it conducts its business.
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<PAGE> 13
12.2.2 Each of their execution, delivery and performance of
this Agreement and each of the Other Agreements have been duly authorized by all
requisite corporate action, and this Agreement and each of the Other Agreements
constitutes a legally valid and binding obligation of each of them enforceable
in accordance with its respective terms, except as may be affected by laws
relating to bankruptcy or insolvency or the application by a court of equitable
principles.
12.2.3 Each of their execution, delivery and performance of
this Agreement and each of the Other Agreements shall not violate, conflict with
and/or result in a breach or default under their respective certificates of
incorporation, bylaws or other charter documents, or any judgment, award,
decree, agreement or other instrument to which any of them is a party.
12.2.4 No approval, authorization, consent, or order or filing
with any court, or governmental or administrative agency or any third party is
required in order for any of them to enter into, deliver and perform this
Agreement, each of the Other Agreements and the transactions contemplated herein
and therein.
12.2.5 The franchise agreements with the various franchising
authorities with jurisdiction over the Committed Systems do not prohibit any of
them from offering the HSAC Services directly or through HSAC under this
Agreement. Each of them shall bear all costs associated with obtaining any such
"data over cable" franchise rights and authorizations (if so needed), pay any
franchise taxes related or applicable thereto, and indemnify HSAC with respect
to any such costs or taxes, whether or not retroactively assessed.
12.2.6 Each of them either owns or has properly licensed all
rights under Intellectual Property Laws that are necessary or required for HSAC
to utilize such party's trademarks, service marks, or brands and the marketing
and promotional materials as permitted hereunder, and HSAC's use of the
foregoing shall not violate or infringe any Intellectual Property Laws or
intellectual property rights of third parties.
12.2.7 To the best of their respective knowledge, they have
taken all actions necessary and appropriate to assure that there shall be no
material adverse change to their respective business or electronic systems or
material interruptions in the operation and delivery of HSAC Services as
provided in this Agreement (aside from normal data packet delays, distortions,
and losses (i) on the Internet backbone, (ii) during transport to the Internet
Backbone on telecommunication lines leased from a third party, (iii) or during
transport from the customer to HSAC over a coaxial cable or fiber optic line) by
reason of the advent of the year 2000, including, without limitation, that all
their respective computer-based systems, embedded microchips and other data
processing capabilities have been designed or modified and fully tested in such
a manner that such computer-based systems, embedded microchips and other data
processing capabilities will not generate any invalid and/or incorrect
date-related results or cause any of the problems commonly referred to as "Year
2000 problems" and will, without interruption or manual intervention, continue
to operate consistently, predictably and accurately and in accordance with all
of the requirements of this Agreement, including without limitation, meeting all
specifications and/or functionality and performance requirements, when used
during any year prior to,
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<PAGE> 14
during or after the calendar year 2000. Operator does not warrant that
interruptions in HSAC Services will not occur due to the network or systems
failures of other parties, including utilities and phone services, caused by
"Year 2000 problems.".
13. INDEMNITY.
13.1 HSAC will indemnify, defend, and hold harmless Operators and
their respective affiliates, agents, successors, assigns, representatives,
officers, and directors from and against any liabilities, lawsuits, penalties,
claims, demands, awards, judgments, settlements, costs, and expenses (including,
without limitation, actual reasonable attorneys' fees and expenses on account
thereof) that arise or result from: (i) the breach by HSAC of any of its
representations, warranties, or covenants hereunder or under any of the Other
Agreements, or (ii) HSAC's operation, management and provision of the HSAC
Services, or failure of same, including, without limitation, in any such case
any liabilities, lawsuits, penalties, or claims related to defamation,
infringement, criminal activities, and fraud, except to the extent that any such
liabilities, lawsuits, penalties, claims, demands, awards, judgments,
settlements, costs or expenses arise from Operators' operation, management, and
maintenance of any Operator's RF Plant.
13.2 Each of Charter and Marcus (severally and not jointly, and
only as to itself) will indemnify, defend, and hold harmless HSAC and its
affiliates, agents, successors, assigns, representatives, officers, and
directors from and against any liabilities, lawsuits, penalties, claims,
demands, awards, judgments, settlements, costs, and expenses (including, without
limitation, reasonable attorneys' fees and expenses on account thereof) that
arise or result from: (i) the breach by the indemnifying party of any of its
representations, warranties or covenants hereunder, or (ii) the indemnifying
party's operation, management, and maintenance of the indemnifying party's RF
Plant, including, without limitation, in any such case, any liabilities,
lawsuits, penalties, or claims related to defamation, infringement, criminal
activities, and fraud, except to the extent that any such liabilities, lawsuits,
penalties, claims, demands, awards, judgments, settlements, costs or expenses
arise from HSAC's operation, management and provision of the HSAC Services.
13.3 HSAC agrees to indemnify, defend, and hold harmless Operators
and their respective affiliates, agents, successors, assigns, representatives,
officers, and directors, and each of Charter and Marcus (severally and not
jointly, and only as to itself) agrees to indemnify, defend, and hold harmless
HSAC and its affiliates, agents, successors, assigns, representatives, officers,
and directors, from and against any liabilities, lawsuits, penalties, claims,
demands, awards, judgments, settlements, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses on account thereof) that may
be made by any third party for injuries, including death to persons, resulting
from the indemnifying party's negligent or willful acts or omissions or those of
persons employed by the indemnifying party, its agents, or subcontractors. Each
party respectively agrees to notify the other parties promptly of any written
claims or demands against the indemnified party for which the indemnifying party
is deemed responsible hereunder.
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<PAGE> 15
14. LIMITATION OF LIABILITY; INSURANCE.
14.1 EXCEPT FOR THE INDEMNIFICATION OBLIGATIONS DETAILED IN SECTION
13 ABOVE, IN NO EVENT WILL EITHER PARTY HERETO BE LIABLE TO THE OTHER PARTY FOR
ANY INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES (EVEN IF THAT PARTY HAD BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM OR RELATED TO A BREACH
OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION LOSS OF REVENUE OR ANTICIPATED
PROFITS OR LOST BUSINESS.
14.2 At all times during the Term, HSAC shall maintain (i)
appropriate policies of general liability, casualty, and business interruption
insurance, each with aggregate coverage of at least two million dollars
($2,000,000); (ii) appropriate workers compensation insurance to cover HSAC's
employees against injury to themselves or others and casualty accidents while
working on Operators' premises; and (iii) appropriate insurance policies with at
least two million dollars ($2,000,000) of coverage per incident covering against
claims for intellectual property infringement. All such HSAC insurance policies
shall name Operators as additional insured parties.
14.3 Each of HSAC and Operators acknowledges that the rights
granted, and services to be provided to each other hereunder are of a special,
unique, unusual, extraordinary, and intellectual character, giving them peculiar
value, the loss of which cannot be reasonably or adequately compensated in
damages, and that an actual or threatened material breach by either party
hereunder would cause the other party irreparable injury and damage. Subject to
Section 9.2.2 off the Content Agreement, each party agrees that, if it commits
or is about to commit a material breach of this Agreement, the other party will
be entitled to injunctive or other equitable relief as a remedy for any such
actual or threatened material breach, without the requirement to post any bond
or other security therefor.
15. MISCELLANEOUS PROVISIONS.
15.1 OBLIGATIONS TO SURVIVE TERMINATION. The parties recognize and
agree that the obligations of the parties hereto under Sections 1, 5, 6, 12, 13,
14, and this Section 15 of this Agreement shall survive the cancellation,
termination, or expiration of this Agreement.
15.2 CLOSING. The closing of this Agreement and the transactions
contemplated herein shall take place at such time and place as the parties may
agree.
15.3 NOTICES. All notices, requests, demands, and other
communications ("Notices") required or permitted hereunder will be in writing,
in English, will refer to this Agreement, and may be delivered personally or by
overnight air courier guaranteeing next-day delivery, or sent by certified or
registered mail, return receipt requested, or by facsimile to such party at its
address set forth below (or such other address as may be designated by notice
given in accordance with this Section). The date of personal delivery or
facsimile, the next day if by express delivery, or the date five (5) days after
certified or registered mailing
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<PAGE> 16
will be deemed the date on which such Notice is effective. Notices will be sent
to each party at the following addresses:
If to HSAC: High Speed Access Corp.
1000 West Ormsby Ave., Suite 210
Louisville, KY 40210
Attn: John G. Hundley, Esq.
General Counsel (fax: 502-515-3101)
With a copy to: Patrick Mattingly, Esq.
Wyatt Tarrant & Combs
2800 Citizens Plaza
Louisville, KY 40202 (fax: 502-589-0309)
If to Vulcan: Vulcan Ventures, Incorporated
110 110th Avenue NE
Bellevue, WA 98004
Attn: William D. Savoy (fax: 425-453-1985)
With a copy to: Irell & Manella, LLP
1800 Avenue of the Stars
Los Angeles, California 90067
Attn: Alvin Segel, Esq. (fax: 310-203-7199)
If to Charter: Charter Communications, Inc.
12444 Powerscourt Ave., Suite 400
St. Louis, MO 63131
Attn: Steven Silva (fax: 314-965-8793)
With a copy to: Curtis S. Shaw, Esq. (fax: 314-965-8793)
12444 Powerscourt Ave., Suite 400
St. Louis, MO 63131
If to Marcus: Marcus Cable, Inc.
2911 Turtle Creek Blvd., Suite 1300
Dallas, TX 75219
Attn: Steven Silva (314-965-8793)
With a copy to: Curtis S. Shaw, Esq. (fax: 314-965-8793)
12444 Powerscourt Ave., Suite 400
St. Louis, MO 63131
15.4 ASSIGNMENT. Except as set forth below, HSAC shall not have the
right to assign this Agreement to any person or entity without the prior written
consent of Operators, except it may without Operator's consent assign its
rights, but not its obligations, to a subsidiary of HSAC, provided that no such
assignment will relieve HSAC of liability for its obligations hereunder. Any
Operator may assign this Agreement to any person or entity, and this Agreement
shall be binding and inure to the benefit of such Operator's successors and
assigns. Vulcan may assign its rights in the Class A Warrants and Class B
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<PAGE> 17
Warrants only to the extent permitted in the Class A Warrant or Class B Warrant
(as applicable). Each party shall be permitted to assign this Agreement and
grant a security interest in its contract rights and tangible/intangible
property interests (including the HSAC Network Equipment and Home Equipment
Packages owned by such party) arising under this Agreement, the Network
Agreements and Other Agreements for purposes of securing financing from its
commercial lender(s). However, as a condition to doing so, HSAC shall be
obligated to obtain non-disturbance agreements in form and substance
satisfactory to Operators from each such lender under which such lender agrees
that, notwithstanding such lender's exercise of its rights as a secured
creditor, such lender and its assigns shall not disturb, affect, or interfere
with HSAC's provision of the HSAC Services hereunder. All assignments in
contravention of this Section 15.4 shall be null and void and of no force or
effect. Either party shall provide the other party with thirty (30) days prior
written notice of any permitted assignment hereunder.
15.5 AMENDMENT AND WAIVER. 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 all of the parties unless
otherwise expressly permitted in this Agreement, and any written waiver by any
party of any breach of any term or condition shall not be deemed to be a waiver
of any subsequent or other breach, term or condition of this Agreement.
15.6 CONFIDENTIAL INFORMATION.
15.6.1 Each party agrees that it shall not, during or for a
period of five (5) years after the Term of this Agreement, permit the
duplication, use, or disclosure of any Confidential Information to any person
(other than an employee, agent, or representative of the other party who must
have such information for the performance of its obligation hereunder), unless
such duplication, use or disclosure is specifically authorized by the other
party in writing. Each party shall (i) not disclose any Confidential Information
to any third person without the express written consent of the other party; (ii)
not use, directly, indirectly, or in concert with any other person, any
Confidential Information for any purpose other than the performance of their
obligations under this Agreement; (iii) use reasonable diligence, and in no
event less than that degree of care which such party uses in respect to its own
Confidential Information of like nature, to prevent the unauthorized disclosure
or reproduction of such information. Without limiting the generality of the
foregoing, to the extent that this Agreement permits the copying of Confidential
Information, all such copies shall bear the same confidentiality notices,
legends, and intellectual property rights designations that appear in the
original versions.
15.6.2 The confidentiality obligations set forth in Section
15.6.1 shall not be applicable to Confidential Information which is in the
public domain; information known to the recipient party as of the date of this
Agreement as indicated by the recipient's written records, unless the recipient
party agreed to keep such information in confidence at the time of its receipt;
information properly obtained hereafter from a source who is not under an
obligation of confidentiality with respect to such information; information that
is independently developed by the receiving party through persons who have not
had, either directly or indirectly, access or knowledge of such Confidential
Information which can be verified by independent evidence; or information that
that the
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<PAGE> 18
receiving party is obligated to be produced by law, provided that any party that
is so ordered to produce Confidential Information shall give notice thereof to
the other party and cooperate reasonably with any attempt by the notified party
to enjoin its disclosure.
15.6.3 Apart from HSAC's obligations to Operators under this
Section 15 concerning confidentiality, HSAC shall have no obligation to delete
or destroy Operator's information, including Operator's Customer Lists or other
Data Subscriber listings, from its computer systems or backup and archival
libraries until such time as HSAC's regular procedures for elimination of such
data would normally delete or destroy such information. Following a Data
Subscriber disconnect, an Operator may require the elimination of its data
maintained within HSAC's backup and archival libraries prior to the time the
data would normally be deleted or destroyed by HSAC, and such Operator shall pay
for reasonable expenses associated with the early deletion or destruction of all
such data.
15.7 NO JOINT VENTURE OR PARTNERSHIP. Nothing contained herein
shall be deemed to create a relationship of joint venture, associates, principal
and agent or partnership between or among the parties hereto and no party shall
hold itself out to the contrary. Each party is acting as principal hereunder and
is responsible for their own income tax consequences.
15.8 SECTION HEADINGS. 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.
15.9 GOVERNING LAW. This Agreement and the rights and obligation
of the parties hereunder shall be governed by and interpreted in accordance with
the laws of the State of Delaware (without reference to any conflicts of law
rules) applicable to contracts entered into and fully performed therein.
15.10 EQUAL CONSTRUCTION. This Agreement is negotiated and drafted
by parties equally represented by counsel and no clause or provision herein
should be construed as having been drafted other than equally by both parties.
15.11 [Intentionally Omitted]
15.12 ATTORNEY'S FEES. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement or any other
agreements contemplated herein, each party shall pay its own fees, costs, and
disbursements in connection therewith.
15.13 SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the remaining provisions.
15.14 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, any of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement. This Agreement may be
executed and delivered by facsimile.
15.15 RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies
provided by this Agreement and Annexes hereto are cumulative and the use of any
one right
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<PAGE> 19
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.
15.16 FURTHER ASSURANCES. Each party hereto agrees to execute such
additional documents and schedules and take such other actions as the other
party or parties may reasonable 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.
15.17 PRESS RELEASES. Except as required by law, none of the
parties shall issue any public statements or press releases pertaining to the
transactions contemplated hereby without the consent of the other parties
hereto.
15.18 INCORPORATION BY REFERENCE OF ANNEXES; ENTIRE AGREEMENT. This
Agreement and the Annexes hereto 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. This Agreement supersedes all prior oral or
written understandings and communications between the parties and no other oral
or written representations shall apply.
[The rest of this page is left intentionally blank.]
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<PAGE> 20
IN WITNESS WHEREOF, Vulcan, Marcus, Charter, and HSAC have each caused
this Agreement to be executed by a duly authorized officer effective as of the
day and year set forth in the preamble hereto.
VULCAN VENTURES, INCORPORATED
By: /s/ William D. Savoy
------------------------------
Name: William D. Savoy
------------------------------
Title: Vice President
------------------------------
Date:
------------------------------
CHARTER COMMUNICATIONS, INC.
By: /s/ Curtis S. Shaw
------------------------------
Name: Curtis S. Shaw
------------------------------
Title: Senior Vice President
------------------------------
Date:
------------------------------
MARCUS CABLE, INC.
By: /s/ Curtis S. Shaw
------------------------------
Name: Curtis S. Shaw
------------------------------
Title: Senior Vice President
------------------------------
Date:
------------------------------
HIGH SPEED ACCESS CORP.
By: /s/ Robert S. Saunders
------------------------------
Name: Robert S. Saunders
------------------------------
Title: Vice Chairman
------------------------------
Date:
------------------------------
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<PAGE> 1
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL
PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED
AND HAVE BEEN SEPARATELY FILED WITH
THE COMMISSION.]
Exhibit 10.8
PROGRAMMING CONTENT AGREEMENT
This Programming Content Agreement ("AGREEMENT") is made and entered
into by and between Vulcan Ventures, Incorporated, a Washington corporation
("VULCAN"), and High Speed Access Corp., a Delaware corporation ("HSAC"), as of
this 25th day of November, 1998 (the "EFFECTIVE DATE"), with reference to the
following facts:
A. Reference is hereby made to the Systems Access and Investment
Agreement of even date herewith ("ACCESS AGREEMENT") by and
among HSAC, Vulcan, Charter Communications, Inc. ("CHARTER"),
and Marcus Cable, Inc. ("MARCUS"), and to the Network Services
Agreement of even date herewith ("NETWORK SERVICES AGREEMENT")
by and among HSAC, Marcus, and Charter. Pursuant to those
agreements, HSAC has been retained to provide certain Internet
access and related services, to individuals residing within
certain areas served by Charter and Marcus.
B. Vulcan has agreed to make an equity investment in HSAC in
accordance with the terms and conditions set forth in the
Access Agreement and the Other Agreements referred to (and as
defined) therein.
C. Pursuant to the Access Agreement and the Network Services
Agreement, HSAC may also provide Internet access and related
services to subscribers and potential subscribers of Cable
Systems owned, controlled, or operated by MSOs not affiliated
with Vulcan or its affiliates.
D. HSAC, subject to certain limitations set forth in this
Agreement, desires to grant to Vulcan the exclusive right to
provide programming content to all Cable Systems and
Subscribers serviced by HSAC.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Definitions. In addition to the other capitalized terms defined elsewhere in
this Agreement, the following terms will have the meanings set forth below:
1.1 "CABLE SYSTEM" means any radio frequency ("RF") cable television
franchise or hybrid fiber-coaxial RF plant distribution system serving a
geographically proximal group of residences, businesses, or other locations.
Cable Systems include both One-Way Systems and Two-Way Systems, and further
include both Vulcan Systems and Independent Systems.
1.2 "CONTENT" means information services, Web Pages, Web Sites,
Telephony, EPGs, other multimedia information now known or hereafter developed,
in digital or analog form, or such other forms as may now exist or hereafter
become available. Content includes, without limitation, text, graphics, audio,
video, audiovisual images, still images, animation, hypertext documents, data,
interactive services, other services accessible using the World Wide Web, and
the like or similar materials or services.
<PAGE> 2
1.3 "ELECTRONIC PROGRAM GUIDE" or "EPG" means a television screen or
Web Page that contains information, including without limitation schedule and
channel information, relating to television programs, Vulcan Content, or other
Content delivered to Subscribers.
1.4 "HSAC CONTENT" means the Web Pages, Startup Pages, EPGs, and other
Content designed, created or acquired by HSAC and included within the HSAC
Services in accordance with the terms of this Agreement. HSAC Content includes,
without limitation, the look, feel, and configuration of any Internet or World
Wide Web services designed, created or acquired by HSAC, the underlying user
interfaces and screen templates, the programming structure of such Internet or
World Wide Web services, all other such Content designed, created or acquired as
HSAC may include within the HSAC Services in accordance with the terms of this
Agreement, and all IP Rights relating thereto.
1.5 "HSAC MARKS" means all trademarks, service marks, trade names,
logos, designs, and other identifying marks of any kind other than the Vulcan
Marks associated with or used in connection with the HSAC Services.
1.6 "HSAC NETWORK EQUIPMENT" means the equipment that HSAC employs for
operation of the HSAC Services by connecting such equipment to the head-end of
Cable Systems. HSAC Network Equipment includes, without limitation, all
monitoring devices, telecommunications equipment, storage devices, computing and
data processing equipment, and software.
1.7 "HSAC SERVICES" means the design, construction (excluding the
RF/plant portion of the Cable System), installation, activation, operation,
sales and marketing, customer service, billing, provision and maintenance of
Internet access and related services from the Method of Access closest to the
Subscriber (including, without limitation, a Subscriber's computer and any of
its internal or external communication devices) through any Cable System or
other Method of Access to an Internet Portal including, without limitation
interfacing HSAC Network Equipment with Cable Systems to allow Subscribers, for
a monthly fee or other charges, to browse the World Wide Web, read news groups,
and receive and send electronic mail ("E-mail") and perform related activities.
1.8 "INDEPENDENT SYSTEM" means any Cable System owned, operated, or
otherwise controlled by an MSO unaffiliated with Vulcan, Charter, Marcus or any
of their affiliates.
1.9 "INTERNET" means the decentralized, worldwide network of computers
commonly referred to as the Internet, as it now exists or is hereafter
developed, modified, changed, evolved or replaced, and includes but is not
limited to the World Wide Web.
1.10 "INTERNET PORTAL" means a physical site sometimes referred to as a
"point of presence" where there is a collection of equipment including routers,
data storage devices, modems that are used to connect to customers and leased
telecommunication lines that connect such site directly to a part of the
Internet backbone.
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<PAGE> 3
1.11 "INTERNET SERVICE PROVIDER" or "ISP" means any entity that
provides its clients access to the Internet, or the means by which clients can
establish a presence on the Internet.
1.12 "IP RIGHTS" means any and all rights: (i) under worldwide laws of
copyright, patent, trademark, trade dress, trade secrets, and unfair
competition; (ii) under "droit moral" or moral rights or other similar laws
existing in anywhere in the Universe; (iii) relating to the development and use
of databases, mask works, or know-how; (iv) subsisting in any and all
applications, registrations, renewals, extensions, restorations, continuations,
divisionals, or foreign counterparts of any of the foregoing; and, (v) to
register or reserve business names, trade names, or Internet domain names.
1.13 "LOCAL CONTENT" means Content designed, created, or acquired by
HSAC uniquely for the needs of Subscribers in a particular geographic region
where HSAC provides HSAC Services.
1.14 "METHOD OF ACCESS" means the manner in which a Subscriber accesses
HSAC Services, whether existing now or hereafter developed, including without
limitation through a computer, set-top box, television, or other device, and
further including, without limitation, delivery over cable lines, satellite
broadcast, cellular transmission, telephone lines, RF transmission or any other
methods of access now known or hereafter developed. A Method of Access will be
without regard to the nature of the experience presented to users, whether such
experience is visual, audio, or otherwise.
1.15 "MSO" means an entity that owns, controls, or operates Cable
Systems that is generally referred to as a Multiple System Operator in the cable
television industry.
1.16 "ONE-WAY SYSTEM" means a Cable System that can only deliver
television signals, data, or other digital or analog information downstream from
the cable head end to the Cable Subscriber, and must use another means,
including, without limitation, a telephone line and modem, to send any
information from the Subscriber to an Internet Portal.
1.17 "STARTUP PAGE" means the first or default television or computer
screen displayed to Subscribers every time that they access the HSAC Services as
a means to obtain access to the Internet, the Vulcan Content, or any other
interactive material available via the HSAC Services. A Startup Page may or may
not be in the form of a Web Page, and may be different for different Cable
Systems.
1.18 "SUBSCRIBER" means an individual, family, or other entity that
receives cable television services from Vulcan or its affiliates and resides
within a Cable System, or receives HSAC Services from HSAC (whether or not such
Subscriber receives cable television services from Vulcan or its affiliates or
resides within a Cable System), regardless of such Subscriber's Method of
Access, or both.
1.19 "TELEPHONY" means the use of HSAC Services or Vulcan Content to
provide Subscribers with the ability to send and receive audio data, including
without limitation the ability to place and receive telephone calls, using HSAC
Network Equipment or Vulcan Equipment, rather than traditional telephone
equipment.
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<PAGE> 4
1.20 "TWO-WAY SYSTEM" means a Cable System that can both send and
deliver television signals, data, or other digital or analog information
upstream and downstream to and from the cable head-end to and from the
Subscriber, without using another means to send or receive any information from
the Subscriber to an Internet Portal.
1.21 "VULCAN CONTENT" means the Web Pages, Startup Pages, EPGs, and
other Content designated by Vulcan to HSAC as "Vulcan Content" under the terms
of this Agreement. Vulcan Content includes, without limitation, the look, feel,
and configuration of any Web Pages, Startup Pages, EPG, other Content, and any
other Internet or World Wide Web services provided by Vulcan, the underlying
user interfaces and screen templates, the programming structure of any of the
foregoing, and all other such Content as Vulcan will determine to provide in its
sole discretion, and all IP Rights relating thereto.
1.22 "VULCAN EQUIPMENT" means any equipment that is owned or controlled
by Vulcan and includes, without limitation, all monitoring devices,
telecommunications equipment, storage devices, computing and data processing
equipment, and software.
1.23 "VULCAN MARKS" means all trademarks, service marks, trade names,
logos, designs, and other identifying marks of any kind owned or controlled by
Vulcan, Charter, Marcus, or any of their affiliates, that are associated with or
used in connection with the Vulcan Content, including without limitation the
marks "Charter," "Charter Mail," "Charter Pipeline," and "Marcus OnLine."
1.24 "VULCAN SYSTEM" means any Cable System now or hereafter owned,
operated, or otherwise controlled by Vulcan or its affiliates, including without
limitation Charter and Marcus.
1.25 "WEB PAGE" means a document specially formatted in hypertext
markup language ("HTML"), which supports links to other documents, as well as
graphics, audio, and video files. A group of Web Pages linked together and share
the same World Wide Web domain name constitutes a "WEB SITE."
1.26 "WORLD WIDE WEB" means the system of Internet servers that
supports HTML-formatted documents. Not all Internet servers are part of the
World Wide Web.
1.27 Other Definitions. The following additional defined terms shall
have the meanings ascribed to them in the Sections indicated below:
<TABLE>
<S> <C>
"COMPETING CONTENT" ...... 2.1.2
"CONFIDENTIAL INFORMATION" 8.1
"DISCLOSING PARTY" ....... 8.1
"GRANDFATHERED SYSTEM" ... 2.3
"NEW ACCESS METHOD" ...... 2.2.4
"NOTICES" ................ 13.18
"RECIPIENT" .............. 8.1
"RF" ..................... 1.1
</TABLE>
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<PAGE> 5
2. HSAC Services and Vulcan Content.
2.1 Exclusive Provision of Vulcan Content. Vulcan Content will be
exclusive within the HSAC Services as follows:
2.1.1 Must Carry. HSAC must carry, on an exclusive basis, as
part of the HSAC Services for any and all Cable Systems and Subscribers for
which HSAC provides the HSAC Services and/or any other Internet access or
related services, regardless of whether any such Cable System is or any such
Subscribers reside within a Vulcan System or an Independent System, and
regardless of Subscriber's Method of Access, all Vulcan Content, and any and all
other Content that Vulcan designates as part of the Vulcan Content. From time to
time during the term of this Agreement, Vulcan may designate Content for
inclusion in the Vulcan Content, or may modify the Vulcan Content, by notifying
HSAC in writing of the Content to be included. HSAC will add such Content to the
HSAC Services and/or any other Internet access or related services within ten
(10) days of its designation by Vulcan as part of the Vulcan Content. HSAC will
not be in breach of the foregoing obligation if HSAC does not receive any
specialized equipment required to carry the Vulcan Content, which equipment is
otherwise not required in order to perform the HSAC Services, on a timely basis
following the submission of a complete order by HSAC to the vendor of such
equipment before the lead times required by such vendor in order to deliver such
equipment in sufficient time for HSAC to meet such ten (10)-day period.
2.1.2 No Competition. HSAC will not, with respect to any Cable
System, any other Method of Access, or for any Subscribers develop, provide,
license, or otherwise include any information, services, Web Pages or Web Sites,
audio, video, sound, Telephony, or other Content that competes, directly or
indirectly, with Vulcan Content ("COMPETING CONTENT"). The decision whether
Content competes with Vulcan Content will be in Vulcan's sole discretion. Vulcan
will request in writing the immediate removal of any Competing Content, which
request HSAC will honor within three (3) days. Failure to honor such a request
will constitute a material breach of this agreement.
2.1.3 HSAC Services. Vulcan acknowledges that HSAC has the
right under this Agreement to create and include HSAC Content and publish such
HSAC Content on a Web Site owned or controlled by HSAC ("HSAC's Web Site") in
accordance with the following provisions: (a) such Web Site shall be directly
accessible through no more than one browser user interface button ("BUI") to be
located on Vulcan's Startup Page (the size, placement, and other aspects of such
BUI shall be determined by Vulcan at its sole discretion), (b) such Web Site
will include on the start page thereof at least one BUI to a nationally
recognized Internet Search engine (e.g., Yahooo or Excite), (c) such Web Site
will include on the start page thereof at least one BUI to Vulcan's Startup
Page, (d) any HSAC Content on such Web Site will be limited to Local Content and
BUIs to other Web Pages, (e) any HSAC Content included on such Web Site will not
constitute Competing Content, (f) such Web Site will have a domain name that is
different from the Vulcan Startup Page and related Web Sites, and (g)
notwithstanding clause (d) above, HSAC shall have the right to sell advertising
and otherwise to derive and retain revenues from such HSAC Content.
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<PAGE> 6
2.2 Form of Content. The Vulcan Content may include, in Vulcan's sole
discretion, any combination of the following:
2.2.1 Startup Page. Vulcan may, in its sole discretion,
design, or have designed a Startup Page, or multiple Startup Pages, for Cable
Systems and other Subscribers. Until such time as Vulcan's Startup Page is
available, HSAC may develop a Startup Page for any Cable System or Subscribers
subject to the branding provisions of Section 2.2.5; provided, that, such
Startup Page will be replaced by Vulcan's Startup Page when it is available. To
the extent technically feasible, HSAC will ensure that any Startup Page provided
by Vulcan is the first or default screen encountered by Subscribers when they
access HSAC Services, regardless of the Method of Access, and that such Startup
Page and Vulcan Content cannot be replaced or bypassed by Subscribers without
Vulcan's express written permission.
2.2.2 EPG. If HSAC's Website or HSAC Services includes an EPG,
then prior to inclusion of such EPG as part of such HSAC's Website or HSAC
Services, HSAC will present the proposed design, form, content, and aesthetics
of such EPG to Vulcan for Vulcan's approval, which approval may be withheld in
Vulcan's sole discretion. If Vulcan disapproves of the proposed EPG, HSAC will
redesign the EPG based on input from Vulcan, or Vulcan may, in its sole
discretion, provide to HSAC an EPG of its own design for inclusion as part of
the HSAC's Website or HSAC Services. In addition, Vulcan will have the right to
dictate to HSAC the priority to be afforded various listings, such as the Vulcan
Content, any television channels, and other services, within any EPG included on
HSAC's Web Site or in HSAC Service.
2.2.3 [Intentionally Deleted]
2.2.4 Other Points of Subscriber Access. To the extent that
Subscribers are able or become able to access HSAC Services without relying on
any of the methods described in Section 2.2.1 above ("NEW ACCESS METHOD"), HSAC
will immediately notify Vulcan of the New Access Method, and HSAC and Vulcan
will cooperate in good faith to ensure that the New Access Method provides
exclusively for the delivery of Vulcan Content.
2.2.5 Branding. The Vulcan Startup Page (and any temporary
Startup Page developed by HSAC under Section 2.2.1 above) will be marketed,
deployed, and supported only under brands, service marks, and trademarks
designated by Vulcan or its affiliates. Vulcan will be responsible for
registering such brands, service marks, and trademarks and obtaining a matching
or closely related Internet domain name. Such trademarks and domain names will
be owned by Vulcan or an affiliate. If such domain names are temporarily owned
or controlled by HSAC, HSAC will take all steps necessary promptly to transfer
and assign such domain names to Vulcan or its designated affiliate. Vulcan will
include the brand, service mark or trademark of any Independent System utilizing
the HSAC Services on the Vulcan Startup Page for such Independent System (the
size, placement, and other aspects of such brand, service mark or trademark
shall be determined by Vulcan, in its sole discretion, provided, that such
brand, service mark or trademark shall be reasonably visible to Subscribers ).
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<PAGE> 7
2.2.6 Property Rights Notices. HSAC will include in the Vulcan
Content such proprietary rights notices, credits, World Wide Web hyperlinks, and
other such information as Vulcan directs, and will take no steps to alter,
remove, obscure, or otherwise interfere with any proprietary rights notices in
the Vulcan Content.
2.2.7 Delivery of Vulcan Content to HSAC. Vulcan shall be
responsible for the delivery of all Vulcan Content to HSAC for inclusion in HSAC
Services. Vulcan Content shall be delivered to HSAC in electronic form suitable
for inclusion in the HSAC Services, either to a central HSAC server or to
equipment located in the headend of each Cable System, as designated by HSAC.
HSAC and Vulcan shall reasonably cooperate to determine the most suitable format
for the electronic delivery of the Vulcan Content.
2.3 Pre-Existing Systems. Notwithstanding anything in Section 2.1 to
the contrary, HSAC may itself provide or have provided by a third party Content
other than Vulcan Content to those Cable Systems listed in Schedule 2.3 (each a
"GRANDFATHERED SYSTEM"). HSAC will use its best efforts to convert each
Grandfathered System to exclusive use of Vulcan Content upon the expiration or
termination of the agreements between HSAC and Grandfathered Systems, or at such
earlier dates as those agreements otherwise permit.
2.4 HSAC as ISP. HSAC may, from time to time, enter into agreements
with Independent Systems whereby HSAC will serve as an ISP within each such
Independent System. HSAC will notify Vulcan in writing within ten (10) days of
entering into any agreement with an Independent System, and HSAC will
exclusively provide Vulcan Content, in accordance with Section 2.1 above, to
each such Independent System, as though that Independent System were a Cable
System subject to the terms of this Agreement.
2.4.1 Exception: Private Label ISP. Subject to HSAC's
obtaining Vulcan's prior written consent on a case-by-case basis, and Section
2.1 notwithstanding, HSAC may enter into a relationship or arrangements with an
Independent System pursuant to which HSAC provides ISP services that: (i) are
not required be delivered exclusively under the Vulcan Marks, and (ii) do not
include the requirement that the Independent System exclusively receive Vulcan
Content. The terms and conditions of any such relationship or arrangements shall
be subject to Vulcan's prior written approval.
2.4.2 Tailored Content. Within ten (10) days of entering into
an ISP or similar agreement with an Independent System, HSAC will notify Vulcan
in writing of such agreement and provide sufficient information concerning the
Independent System for Vulcan to be able to tailor the Vulcan Content to the
market served by the Independent System. If HSAC has not received Vulcan Content
tailored to the Independent System within thirty (30) days of delivery of notice
of the agreement, then HSAC will use Vulcan Content already in use for Cable
Systems, until such time as Vulcan provides tailored Content to HSAC for the
Independent System.
2.5 [Intentionally Deleted]
2.6 Other HSAC Activities. Nothing in this Agreement shall be construed
to restrict HSAC's right to provide Web Site design, management, and hosting
services, as
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<PAGE> 8
long as such services and activities are not reasonably deemed by Vulcan to be
competitive with Vulcan Content.
2.7 Pricing. The Vulcan Content will be provided to Cable Systems
accessing the Vulcan Content through the HSAC Services free of charge until ten
years from the Effective Date. At such time, Vulcan may charge HSAC, the Vulcan
Systems, and the Independent Systems for the provision of the Vulcan Content,
provided that any fee that Vulcan may charge HSAC for the provision of the
Vulcan Content shall not be more than the lowest fee charged by Vulcan to
another similar ISP for substantially the same Vulcan Content. Nothing in this
Section 2.7 shall prevent Vulcan from deriving revenues from the Vulcan Content
from third parties, including, without limitation, by charging Subscribers for
access to particular Vulcan Content, from the sale of advertising on any Vulcan
Content, the provision of BUIs to Web Pages, and other transactions.
3. Development of Content.
3.1 Development of Vulcan Content. Subject to the terms and conditions
of this Agreement and HSAC's technical requirements, Vulcan will, in its sole
discretion, develop, acquire, or license all Content that will make up the
Vulcan Content, will have final input on all business and technical decisions
concerning how best to deliver Vulcan Content to Cable Systems and to
Subscribers, and will be able to update the Vulcan Content from time to time in
its sole discretion.
3.2 Cooperation. HSAC will, at its own cost and expense, provide
commercially reasonable assistance Vulcan in the development of Vulcan Content
by providing Vulcan any and all support required for Vulcan to develop Vulcan
Content that can be delivered using HSAC Network Equipment to Cable Systems and
from Cable Systems to Subscribers. Such assistance will include, without
limitation, the provision by HSAC of: (i) all technical information, materials,
and requirements of the HSAC Network Equipment; (ii) access to HSAC engineers
and technical personnel to the extent necessary to ensure accurate and reliable
delivery of Vulcan Content to Cable Systems and to Subscribers; and (iii) access
to test equipment, test suites, software, facilities, and simulations in order
for Vulcan to test the operation of the Vulcan Content on the HSAC Network
Equipment.
4. Marketing and Promotional Activities.
4.1 HSAC Marketing. HSAC's responsibilities with respect to marketing
and promotion of the HSAC Services and the Vulcan Content will be as set forth
in the Network Services Agreement and the Access Agreement, with the further
obligation that HSAC conduct such marketing and promotion to Independent
Systems. Vulcan shall make available, on the same basis as Vulcan makes
available to other distributors of the Vulcan Content, existing training and
marketing materials for HSAC's marketing and MSO sales personnel to assist such
personnel in marketing the HSAC Service, including the Vulcan Content, to MSOs
and to end users.
4.2 Vulcan Marketing. Vulcan will have the right but not the obligation
to market and promote the Vulcan Content and the HSAC Services to Subscribers
and to Cable Systems by any means that Vulcan deems effective.
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5. Provision of HSAC Services and Deployment of Vulcan Content.
5.1 By HSAC. HSAC will have the responsibility for providing HSAC
Services and HSAC Network Equipment to Cable Systems and Subscribers. HSAC will,
at its own cost and expense, install all HSAC Network Equipment necessary for
the delivery of Vulcan Content to Cable Systems and Subscribers. To the extent
that the accurate and reliable delivery of Vulcan Content to Subscribers
requires the purchase of equipment at any head-end that exceeds an aggregate
cost of three thousand dollars ($3,000) for such head-end during the term of
this Agreement, or the purchase of additional bandwidth to permit the delivery
and/or update of such Content, Vulcan shall reimburse HSAC for the cost of such
equipment and bandwidth. Except to the extent set forth in Section 11.4 of this
Agreement, Vulcan will have no responsibility for, or liability arising out of,
the use, maintenance, or operation of the HSAC Network Equipment.
5.2 By Vulcan. Vulcan will have the responsibility for delivering
Vulcan Content to HSAC for inclusion in delivery of HSAC Services to Cable
Systems, in accordance with Section 2.2.7 of this Agreement. Vulcan may, in its
sole discretion, localize or tailor Vulcan Content to suit the markets of
particular Cable Systems and/or Subscribers. Vulcan and HSAC will determine
mutually agreeable times, methods, and media for delivery of the Vulcan Content,
as well as for future delivery of Content to be added to the Vulcan Content.
5.3 Deployment of Vulcan Content. Subject to Section 2.2.7 of this
Agreement, HSAC shall operate and manage the HSAC Network Equipment in such a
manner to insure the reliable delivery of Vulcan Content to Subscribers at
sufficiently high rates of transmission. Vulcan may, in its sole discretion,
determine that the HSAC Network Equipment or certain installations of the HSAC
Network Equipment is or are not providing Subscribers with access to the Vulcan
Content with sufficient reliability or at sufficiently high rates of
transmission. In such event, HSAC will, at HSAC's expense (subject to Section
5.1 above), place Vulcan Equipment with the HSAC Network Equipment, and will
install, operate, and maintain such Vulcan Equipment.
6. Licenses.
6.1 By HSAC.
6.1.1 HSAC IP Rights. HSAC grants to Vulcan a worldwide,
non-exclusive, royalty-free license to use any and all of HSAC IP Rights as well
as any software, hardware, materials, or other information provided by HSAC to
Vulcan, in connection with the delivery of the Vulcan Content and Vulcan's
performance of its obligations under this Agreement.
6.1.2 HSAC Confidential Information. HSAC grants to Vulcan a
worldwide, non-exclusive, royalty-free license to use any and all Confidential
Information provided by HSAC, as well as any software, hardware, materials, or
other information provided by HSAC to Vulcan, to the extent necessary to provide
Vulcan Content pursuant hereto.
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6.1.3 HSAC Quality Control. All marketing and promotional
materials, and any materials that have an HSAC Mark on them, will comply with
the Quality Controls specified on Schedule B hereto. Before any such materials
prepared by Vulcan are used, Vulcan will transmit a copy to HSAC, and HSAC will
have fifteen (15) days in which to reject such materials or to request changes
be made to such materials. If HSAC does not respond to Vulcan within such
fifteen (15) day period, such materials will be deemed approved for
distribution.
6.2 By Vulcan.
6.2.1 Vulcan Content. Vulcan grants to HSAC a worldwide,
non-exclusive, royalty-free, license to use, receive, store, and distribute
Vulcan Content to Cable Systems and Subscribers authorized to receive such
Vulcan Content in accordance with any restrictions applicable to such Vulcan
Content.
6.2.2 Vulcan Confidential Information. Vulcan grants to HSAC a
worldwide, non-exclusive, royalty-free license to use any and all Confidential
Information provided by Vulcan, as well as any software, hardware, materials, or
other information provided by Vulcan to HSAC, solely to ensure and maintain the
compatibility of HSAC Services with Vulcan Content.
6.2.3 Vulcan Marks. Vulcan grants to HSAC a worldwide,
non-exclusive, royalty-free license to use, reproduce, and distribute any and
all Vulcan Marks, solely for use in connection with the performance of its
obligations hereunder; provided, that: (i) any use will be with the prior
written approval of Vulcan, which approval will not be unreasonably withheld,
(ii) any goodwill associated with the use of the Vulcan Marks will inure to the
benefit of Vulcan, and (iii) any use will comply with Schedule B.
6.2.4 Vulcan Quality Control. All marketing and promotional
materials, and any materials that have a Vulcan Mark on them, will comply with
the Quality Controls specified on Schedule B hereto. Before any such materials
prepared by HSAC are used, HSAC will transmit a copy to Vulcan, and Vulcan will
have fifteen (15) days in which to reject such materials or to request changes
be made to such materials. If Vulcan does not respond to HSAC within such
fifteen (15) day period such materials will be deemed approved for distribution.
6.3 Restrictions. HSAC will not reproduce, copy, alter, modify, edit,
or distribute the Vulcan Content except as permitted by this Agreement. In
addition, HSAC will not modify, alter, disassemble, decompile, or reverse
engineer any part of the Vulcan Content. A violation by HSAC of this Section 6.3
will constitute a material breach of this Agreement.
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7. Ownership and Intellectual Property Rights.
7.1 Vulcan. Vulcan owns and retains all right, title, and interest in
and to the Vulcan IP Rights, including without limitation: (i) the Vulcan
Content, (ii) the Vulcan Marks, and (iii) any Confidential Information and any
hardware, software, materials, or other information provided by Vulcan to HSAC
under this Agreement.
7.2 HSAC. HSAC owns and retains all right, title and interest in and to
the HSAC IP Rights, including without limitation: (i) the HSAC Services, (ii)
the HSAC Marks, and (iii) any Confidential Information and any hardware,
software, materials, or other information provided by HSAC to Vulcan under this
Agreement.
8. Confidential Information.
8.1 Disclosure. HSAC and Vulcan acknowledge that either party
("DISCLOSING PARTY") may disclose to the other party ("RECIPIENT") certain
information related to the Disclosing Party's business in any form, including,
without limitation: (i) customer information, (ii) the terms and conditions of
this Agreement, (iii) all dates, summaries, reports or information of all kinds,
whether oral or written, acquired, devised or developed in any manner by or from
the Disclosing Party's files, and (iv) financial, statistical, personnel, or
technical information, software or documentation, which the Disclosing Party
deems proprietary or confidential ("CONFIDENTIAL INFORMATION"). In the event
that Recipient receives such Confidential Information, Recipient agrees to keep
such information confidential by using the same care and discretion that it uses
with its own information that it designates as confidential.
8.2 Limitation on Use. The Recipient will not permit the duplication,
use, or disclosure of any Confidential Information to any person (other than an
employee, agent, or representative of the Recipient who must have such
information for performance of its obligation hereunder), unless such
duplication, use, or disclosure is specifically authorized by the Disclosing
Party in writing or required by law. The Recipient will: (i) not disclose any
Confidential Information to any third person without the prior written consent
of the Disclosing Party, (ii) not use, directly, indirectly, or in concert with
any other person, any Confidential Information for purposes other than
performance of obligations under this Agreement, and (iii) use reasonable
diligence, and in no event less than that degree of care that the Recipient uses
with respect to its own Confidential Information of like nature, to prevent the
unauthorized disclosure or reproduction of such information. Without limiting
the generality of the foregoing, to the extent that this Agreement permits the
copying of Confidential Information, all copies must bear the same
confidentiality notices, legends, and intellectual property rights designations
that appear on the original versions.
8.3 The above obligations of confidentiality will terminate five (5)
years after expiration of this Agreement, and will not impose an obligation on
Recipient with respect to any portion of the information received that:
8.3.1 is now generally known or available, or hereafter,
through no act or failure on the part of Recipient, becomes generally known or
available;
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8.3.2 is known to Recipient prior to receiving such
information from an independent source not subject to confidentiality
restrictions;
8.3.3 is authorized for dissemination to others by Disclosing
Party without restriction on disclosure;
8.3.4 can be shown to be independently developed by Recipient;
or
8.3.5 Recipient is required by law, rule, regulation, court
order, or the like to disclose, provided, that, Recipient immediately notifies
the Disclosing Party of the required disclosure, cooperates if the Disclosing
Party elects to object to the required disclosure, and only produces that
information specifically required to be disclosed.
8.4 The parties acknowledge that any threatened or actual unauthorized
use or disclosure of any Confidential Information will cause the Disclosing
Party great and irreparable harm, and that money damages will be insufficient to
compensate for such unauthorized use or disclosure. Without limiting any of its
other rights or remedies, the Disclosing Party will be entitled to receive
immediate injunctive or equitable relief to prevent or terminate any
unauthorized disclosure, without the requirement to post any bond or other
security therefor.
9. Term.
9.1 Term. The term of this Agreement will commence as of the Effective
Date and will continue in full force and effect until terminated by as provided
in Section 9.2 below.
9.2 Breach and Termination
9.2.1 If not earlier terminated pursuant to Section 9.2.3
below, this Agreement will automatically terminate upon the termination or
expiration of the Access Agreement.
9.2.2 In the event of any breach of this Agreement, the
non-breaching party shall, in addition to any other remedy provided hereunder,
or available at law or in equity, be entitled to bring an action at law for
money damages, or in equity for specific performance or to seek injunctive
relief; provided, however, that, in no event shall HSAC be entitled to terminate
or rescind this Agreement or enjoin, or otherwise interfere with the provision
of the Vulcan Content to Vulcan Systems, Independent Systems, and Subscribers as
contemplated hereunder.
9.2.3 Without limiting its other remedies at law or in equity
for any breach of this Agreement by HSAC, Vulcan may, in its sole discretion,
terminate this Agreement at any time and for any reason or no reason whatsoever
upon six (6) months written notice to HSAC.
9.2.4 HSAC and Vulcan each acknowledges that the rights
granted, and services to be provided to each other hereunder are of a special,
unique, unusual, extraordinary, and intellectual character, giving them peculiar
value, the loss of which
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<PAGE> 13
cannot be reasonably or adequately compensated in damages; and that an actual or
threatened material breach by either party hereunder would cause the other party
irreparable injury and damage. Subject to Section 9.2.2 above, each party agrees
that, if it commits or is about to commit a material breach of this Agreement,
the other party will be entitled to injunctive or other equitable relief as a
remedy for any such actual or threatened material breach, without the
requirement to post any bond or other security therefor.
9.2.5 Neither party will be responsible for any delay or
failure in performance of any part of this Agreement, including without
limitation any delay or failure to provide Vulcan Content (in the case of
Vulcan) or any delay or failure to provide HSAC Services (in the case of HSAC),
to the extent that such delay or failure is caused by fire, flood, explosion,
war, lightning, embargo, government requirement, riots or civil commotion, acts
of civil or military authority, embargoes, strikes, acts of God, power surges,
acts or omissions of carriers or utilities, or other similar causes or
contingencies beyond its reasonable control.
9.3 Effect of Termination. Upon termination, all licenses granted in
Section 5.3 above will terminate, each party will return or destroy all
Confidential Information of the other party in its possession, HSAC's rights to
use, store, reproduce, and distribute Vulcan Content will terminate, and HSAC
will return to Vulcan all Vulcan Content, whether in electronic or
non-electronic form, and whether or not then in use by HSAC. If Vulcan has
supplied any Vulcan Equipment for HSAC use in providing Vulcan Content, Vulcan
may, in its sole discretion: (i) take possession of such Vulcan Equipment and
reimburse HSAC for reasonable expenses incurred in disconnecting the Vulcan
Equipment from the HSAC Network Equipment, (ii) offer the Vulcan Equipment to
HSAC at the fair market value, or (iii) if no market exists for the Vulcan
Equipment, offer the Vulcan Equipment to HSAC at a price equivalent to ten
percent (10%) over the salvage value.
10. Representations and Warranties.
10.1 HSAC. HSAC hereby represents and warrants to Vulcan as follows:
10.1.1 HSAC is a corporation duly organized, validly existing,
and in good standing under the laws of its jurisdiction of incorporation and is
duly qualified to do business as a foreign corporation in all jurisdictions in
which it conducts its business.
10.1.2 HSAC's execution, delivery, and performance of this
Agreement has been duly authorized by all requisite corporate action, and this
Agreement constitutes a legally valid and binding obligation of HSAC enforceable
in accordance with its terms, subject to laws relating to bankruptcy and
insolvency, and subject to a court's application of equitable principles.
10.1.3 HSAC's execution, delivery, and performance of this
Agreement will not violate, conflict with, or result in a breach or default
under, HSAC's certificate of incorporation, bylaws, or other charter documents,
or any judgment, award, decree, agreement, or other instrument to which HSAC is
a party.
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<PAGE> 14
10.1.4 No approval, authorization, consent, or order or filing
with any court, or governmental or administrative agency or any third party is
required in order for HSAC to enter into, deliver, and perform this Agreement
and the transactions contemplated herein.
10.1.5 HSAC either owns or has properly licensed all rights
under the HSAC IP Rights necessary or required to provide the HSAC Services and
perform the other services to be performed by HSAC hereunder, including, without
limitation, all rights under relating to any equipment (including, without
limitation, the HSAC Network Equipment), software, or Content that HSAC will use
or will provide in connection with the HSAC Services and the other services to
be performed by HSAC hereunder. HSAC's provision or operation of the HSAC
Services and the other services to be performed by HSAC hereunder and under the
Network Services Agreement or the Access Agreement will not violate or infringe
any intellectual property laws or violate or infringe any IP Rights of third
parties. Notwithstanding anything to contrary, no representation or warranty is
made, nor shall there be any liability, with respect to Content included in HSAC
Content that is Licensed from third parties.
10.2 Vulcan. Vulcan hereby represents and warrants to HSAC as follows:
10.2.1 Vulcan is a corporation duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation and is duly qualified to do business as a foreign corporation in
all jurisdictions in which it conducts its business.
10.2.2 Vulcan's execution, delivery, and performance of this
Agreement and has been duly authorized by all requisite corporate action, and
this Agreement constitutes a legally valid and binding obligation enforceable in
accordance with its terms, subject to laws relating to bankruptcy and
insolvency, and subject to a court's application of equitable principles.
10.2.3 Vulcan's execution, delivery, and performance of this
Agreement will not violate, conflict with, or result in a breach or default
under Vulcan's certificate of incorporation, bylaws, or other charter documents,
or any judgment, award, decree, agreement, or other instrument to which Vulcan
is a party.
10.2.4 No approval, authorization, consent, or order or filing
with any court, or governmental or administrative agency or any third party is
required in order for Vulcan to enter into, deliver, and perform this Agreement
and the transactions contemplated herein.
10.2.5 Vulcan either owns or has properly licensed all rights
under the Vulcan IP Rights necessary or required to provide the Vulcan Content
and perform the other services to be performed by Vulcan hereunder, including,
without limitation, all rights under relating to any equipment software, or
Content that Vulcan will use or will provide in connection with the Vulcan
Content and the other services to be performed by Vulcan hereunder. Vulcan's
provision of the Vulcan Content and other services to be performed by Vulcan
hereunder and under the Network Services Agreement or the Access Agreement will
not violate or infringe any intellectual property laws or violate or infringe
any IP Rights of third parties. Notwithstanding anything to contrary, no
representation or warranty is made,
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<PAGE> 15
nor shall there be any liability, with respect to Content included in Vulcan
Content that is Licensed from third parties.
11. Indemnification.
11.1 HSAC will indemnify, defend, and hold harmless Vulcan and its
affiliates, agents, successors, assigns, representatives, officers, and
directors from and against any liabilities, lawsuits, penalties, claims,
demands, awards, judgments, settlements, costs, and expenses (including, without
limitation, reasonable attorneys' fees and expenses on account thereof) that
arise or result from: (i) the breach by HSAC of any of its representations,
warranties, or covenants hereunder, or (ii) HSAC's acts or omissions in
connection with the provision of the HSAC Services, including, without
limitation, in any such case, any liabilities, lawsuits, penalties, or claims
related to defamation, infringement, criminal activities, and fraud, except to
the extent that any such liabilities, lawsuits, penalties, claims, demands,
awards, judgments, settlements, costs or expenses that arise from the Vulcan
Content.
11.2 [Intentionally deleted].
11.3 Vulcan will indemnify, defend, and hold harmless HSAC and its
affiliates, agents, successors, assigns, representatives, officers, and
directors from and against any liabilities, lawsuits, penalties, claims,
demands, awards, judgments, settlements, costs, and expenses (including, without
limitation, reasonable attorneys' fees and expenses on account thereof) that
arise or result from: (i) the breach by Vulcan of any of its representations,
warranties, or covenants hereunder, or (ii) Vulcan's acts or omissions in
connection with the provision the Vulcan Content, including, without limitation,
in any such case, any liabilities, lawsuits, penalties, or claims related to
defamation, infringement, criminal activities, and fraud, except to the extent
that any such liabilities, lawsuits, penalties, claims, demands, awards,
judgments, settlements, costs or expenses arise from the HSAC Services.
11.4 HSAC agrees to indemnify, defend, and hold harmless Vulcan and its
affiliates, agents, successors, assigns, representatives, officers, and
directors, and Vulcan agrees to indemnify, defend, and hold harmless HSAC and
its affiliates, agents, successors, assigns, representatives, officers, and
directors, from and against any liabilities, lawsuits, penalties, claims,
demands, awards, judgments, settlements, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses on account thereof) that may
be made by any third party for injuries, including death to persons, resulting
from the indemnifying party's negligent or willful acts or omissions or those of
persons employed by the indemnifying party, its agents, or subcontractors.
Vulcan and HSAC respectively agree to notify the other party promptly of any
written claims or demands against the indemnified party for which the
indemnifying party is deemed responsible hereunder, provided, that, any failure
to provide such notification shall not affect the substantive rights of the
parties hereunder.
12. Limitation of Liability.
12.1 Limitation of Liability. EXCEPT FOR THE INDEMNIFICATION
OBLIGATIONS DETAILED IN SECTION 11 ABOVE, IN NO EVENT WILL EITHER
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PARTY HERETO BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES (EVEN IF THAT PARTY HAD BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES), ARISING FROM OR RELATED TO A BREACH OF THIS AGREEMENT, INCLUDING
WITHOUT LIMITATION LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS.
13. General.
13.1 Obligations to Survive Termination. The parties recognize and
agree that their obligations under Sections 7, 8, 9, 10, 11, 12, and this
Section 13 of this Agreement will survive the cancellation, termination, or
expiration of this Agreement.
13.2 Closing. The closing of this Agreement and the transactions
contemplated herein will take place at such time and place as the parties may
agree.
13.3 Assignment. HSAC will not have the right to assign this Agreement
to any person or entity without the prior written consent of Vulcan, except it
may without Vulcan's consent assign its rights, but not its obligations, to a
subsidiary of HSAC, provided, that, no such assignment will relieve HSAC of
liability for its obligations hereunder. Vulcan may assign this Agreement to any
person or entity, and this Agreement will be binding and inure to the benefit of
its successors and assigns. Each party will be permitted to assign this
Agreement and grant a security interest in its contract rights and tangible or
intangible property interests (including the HSAC Network Equipment) arising
under this Agreement for purposes of securing financing from commercial
lender(s). However, as a condition to doing so, HSAC will be obligated to obtain
non-disturbance agreements in form and substance satisfactory to Vulcan from
each such lender under which such lender agrees that, notwithstanding such
lender's exercise of its rights as a secured creditor, such lender and its
assigns will not disturb, affect, or interfere with HSAC's provision of the HSAC
Services hereunder. All assignments in contravention of this Section 13.3 will
be null and void and of no force or effect. Either party shall provide the other
party with thirty (30) days prior written notice of any permitted assignment
hereunder.
13.4 Amendment and Waiver. 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 both parties unless otherwise expressly permitted in
this Agreement, and any written waiver by either party of any breach of any term
or condition will not be deemed to be a waiver of any subsequent or other
breach, term, or condition of this Agreement.
13.5 No Joint Venture or Partnership. Nothing contained herein will be
deemed to create any relationship of partnership, associates, joint venture or
principal-agent between HSAC and Vulcan, and neither party will hold itself out
in its advertising or otherwise in any manner which would indicate such
relationship. Each party is acting as a principal hereunder and is responsible
for its own income tax consequences.
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13.6 Section Headings. The section headings contained in this Agreement
are inserted as a matter of convenience and will not affect in any way the
construction of the terms of this Agreement.
13.7 Governing Law. This Agreement and the rights and obligations of
the parties hereunder will be governed by and interpreted in accordance with the
laws of the State of Delaware, without reference to the conflicts of laws
principles thereof.
13.8 Equal Construction. This Agreement has been negotiated and drafted
by parties equally represented by counsel, and no clause or provision herein
should be construed as having been drafted other than equally by both parties.
13.9 [Intentionally omitted].
13.10 [Intentionally omitted].
13.11 Attorney's Fees. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, each party will pay its own
fees, costs, and disbursements in connection therewith.
13.12 Year 2000 Compliance. To the best of their respective knowledge,
each party represents, warrants, and covenants that it has taken all actions
necessary and appropriate to assure that there shall be no material adverse
change to their respective business or electronic systems or material
interruptions in the operation and delivery of HSAC Services or the provision by
Vulcan of Vulcan Content as provided in this Agreement (aside from normal data
packet delays, distortions, and losses (i) on the Internet backbone, (ii) during
transport to the Internet Backbone on telecommunication lines leased from a
third party, (iii) or during transport from the customer to HSAC over a coaxial
cable or fiber optic line) by reason of the advent of the year 2000, including,
without limitation, that all their respective computer-based systems, embedded
microchips and other data processing capabilities have been designed or modified
and fully tested in such a manner that such computer-based systems, embedded
microchips and other data processing capabilities will not generate any invalid
and/or incorrect date-related results or cause any of the problems commonly
referred to as "Year 2000 problems" and will, without interruption or manual
intervention, continue to operate consistently, predictably and accurately and
in accordance with all of the requirements of this Agreement, including without
limitation, meeting all specifications and/or functionality and performance
requirements, when used during any year prior to, during or after the calendar
year 2000. Neither HSAC nor Operator warrants that interruptions in HSAC
Services or in the provision by Vulcan of Vulcan Content will not occur due to
the network or systems failures of other parties, including utilities and phone
services, caused by "Year 2000 problems."
13.13 Severability. The invalidity or unenforceability of any provision
of this Agreement will not affect the validity or enforceability of the
remaining provisions.
13.14 Counterparts. This Agreement may be executed in two or more
counterparts, any of which may be deemed an original, but all of which taken
together will constitute one and the same instrument. This Agreement may be
executed and delivered by facsimile.
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13.15 Rights and Remedies Cumulative. The rights and remedies provided
by this Agreement and any exhibits or schedules hereto are cumulative, and the
use of any one right or remedy by any party will 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.
13.16 Further Assurances. Each party hereto agrees to execute such
additional documents and schedules and take such other actions as the other
party or may reasonable 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.
13.17 Press Releases. Except as required by law, neither of the parties
will issue any public statements or press releases pertaining to the
transactions contemplated herein without the consent of the other party hereto.
13.18 Notices. All notices, requests, demands, and other communications
("NOTICES") required or permitted hereunder will be in writing, in English, will
refer to this Agreement, and may be delivered personally or by overnight air
courier guaranteeing next-day delivery, or sent by certified or registered mail,
return receipt requested, or by facsimile to such party at its address set forth
below (or such other address as may be designated by notice given in accordance
with this Section). The date of personal delivery or facsimile, the next day if
by express delivery, or the date five (5) days after certified or registered
mailing will be deemed the date on which such Notice is effective. Notices will
be sent to each party at the following addresses:
If to HSAC:
High Speed Access Corp.
1000 West Ormsby Ave., Suite 210
Louisville, Kentucky 40210
Fax: 502-5150-3101
Attention: John Hundley, Esq.
General Counsel
with a copy to:
Wyatt Tarrant & Combs
2800 Citizens Plaza
Louisville, Kentucky 40202
Fax: 502-589-0309
Attention: Patrick Mattingly, Esq.
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If to Vulcan:
Vulcan Ventures, Incorporated
110 110th Avenue NE
Bellevue, Washington 98004
Fax: 425-453-1985
Attention: William D. Savoy
with a copy to:
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Fax: (310) 203-7199
Attention: Al Segel, Esq.
and to:
Charter Communications, Inc.
12444 Powerscourt Drive, Suite 400
St. Louis, Missouri 63131
Fax: 314-965-8793
Attention: Jerald Kent and Curt Shaw
13.19 Entire Agreement; Modifications. This Agreement and the schedules
and exhibits hereto 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. This Agreement supersedes all prior oral or written
understandings and communications between the parties, and no other oral or
written representations will apply.
This Agreement is hereby agreed to and accepted as of the Effective
Date.
VULCAN VENTURES, INCORPORATED.
By: /s/ William D. Savoy
_______________________________
Title: Vice President
_______________________________
HIGH SPEED ACCESS CORP.
By: /s/ Robert S. Saunders
_______________________________
Title: Vice Chairman
_______________________________
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SCHEDULE A
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 21
SCHEDULE B
QUALITY CONTROLS AND RESTRICTIONS ON USE OF MARKS
OWNERSHIP
HSAC agrees and expressly acknowledges that nothing herein will give it
any right, title, or interest in the Vulcan Marks (except the right to use as a
licensee in accordance with the terms of this Agreement), that the Vulcan Marks
are the sole property of the Vulcan and its Affiliates and that any and all use
of the Vulcan Marks by HSAC inures to the benefit of the Vulcan and its
Affiliates.
Vulcan agrees and expressly acknowledges that nothing herein will give
it any right, title, or interest in the HSAC Marks (except the right to use as a
licensee in accordance with the terms of this Agreement), that the HSAC Marks
are the sole property of HSAC, and that any and all use of the HSAC Marks by
Vulcan inures to the benefit of HSAC.
Each party agrees not to raise or cause to be raised any questions,
claims or objections concerning the validity of the other party's title to its
Marks on any grounds whatsoever. Each party agrees it will do nothing
inconsistent with the ownership of the Marks by the other party, and agrees to
notify the other party of any unauthorized or inappropriate uses of the Marks of
which it becomes aware. Each party will provide reasonable assistance (at the
other party's expense) in any defense against challenges to the other party's
Marks, if requested to do so by the other party.
If a party is required to register the Marks of the other party under
any statute for registration of fictitious business names or any other type of
registration, that party will notify the other party before registration, and
will only register in a form approved by the other party. Upon termination of
this Agreement, each party will immediately take all necessary steps to
eliminate any such registrations.
SUBLICENSES
Neither party will sublicense its right to use the Marks of the other
party under this Agreement without the prior written consent of that other
party, which may be withheld for any reason.
RESTRICTIONS ON USE
All uses of a party's Marks by the other party will be made together
with the appropriate ["(TM)"] ["(R)"] symbol in connection with the Marks.
All uses of the Marks by a party will include a legend indicating that
each Mark is owned by its respective owner.
Neither party will use any mark or device identical with or confusingly
similar to the licensed Marks of the other party in connection with any product
or service, except as permitted by this Agreement.
<PAGE> 22
QUALITY CONTROL
Each party agrees to use the Marks of the other party only in
connection with the lawful goods or services specified herein, and agrees that
such goods or services will be of a standard of quality at least as high as that
of similar goods or services produced by the other party. Each party alone will
judge, in its reasonable discretion, whether or not the other party has met or
is meeting the standards of quality so established.
If at any time a party's products, packaging therefor, or services
associated with the Marks of the other party do not meet the quality standard
set forth herein, as reasonably determined by the other party, then that other
party will have the right to require discontinuation of the use of its Marks in
connection with the sale of such products or services, unless modifications
satisfactory to that party are made within ninety (90) days from notice of
disapproval.
Each party will comply with all applicable laws and regulations and
obtain all appropriate governmental approvals pertaining to the sale,
distribution, and advertising of goods or services covered by this license.
COSTS OF USING VULCAN MARKS
HSAC will bear any and all costs associated with the use, printing, and
placing of the Vulcan Marks in materials prepared by HSAC in connection with
which HSAC has sought or is obliged to seek approval from Vulcan for the use of
the Vulcan Marks, and Vulcan will bear any and all costs associated with the
use, printing, and placing of the HSAC Marks in materials prepared by Vulcan in
connection with which Vulcan has sought or is obliged to seek approval from HSAC
for the use of the HSAC Marks.
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<PAGE> 1
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL
PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED
AND HAVE BEEN SEPARATELY FILED WITH
THE COMMISSION.]
Exhibit 10.9
NETWORK SERVICES AGREEMENT
This NETWORK SERVICES AGREEMENT ("Agreement") is dated as of this 25th
day of November, 1998, ("Effective Date") by and between:
HIGH SPEED ACCESS CORP.
1000 West Ormsby Ave., Suite 210
Louisville, Kentucky 40210 ("HSAC")
CHARTER COMMUNICATIONS, INC.
12444 Powerscourt Dr., Suite 400
St. Louis, MO 63131 ("Charter")
and
MARCUS CABLE, INC.
2911 Turtle Creek Blvd., Suite 1300
Dallas, TX 75219 ("Marcus")
RECITALS
A. Marcus and Charter (referred to individually and together
herein as the "Operator") own and operate Cable Systems and
wish to offer some of their Cable Subscribers in the Cable
Systems listed on EXHIBIT A to this Agreement the opportunity
to utilize the applicable Cable Systems for Internet access
and related services.
B. HSAC provides Internet access and related services through
various sources including Cable Systems.
C. HSAC, Charter, Marcus, and Vulcan Ventures, Incorporated
("Vulcan") are entering into that certain Systems Access and
Investment Agreement of even date herewith ("Systems Access
Agreement"), and HSAC and Vulcan are entering into that
certain Programming Content Agreement of even date herewith
("Content Agreement"). The Access Agreement and Content
Agreement are incorporated herein by this reference.
D. Operator wishes to retain HSAC to provide Internet access and
related services to certain of its Cable Subscribers, and HSAC
wishes to access the Cable Subscribers in the Cable Systems
listed on EXHIBIT A and use certain other Cable Systems of
Operator to provide Internet access and related services to
such Cable Subscribers.
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:
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<PAGE> 2
1. DEFINITIONS. In addition to the other capitalized terms defined elsewhere in
this Agreement, the following terms will have the meanings set forth below:
1.1. "Activation Schedule" means the schedule(s) for the Full HSAC
Services Roll-Out of Committed Systems to be agreed upon by Operator and HSAC
pursuant to Section 2.4 hereof.
1.2. "Cable Subscriber" means a cable TV subscriber or potential
subscriber residing in a Home Passed in a Committed System regardless of whether
such cable TV subscriber or potential subscriber subscribes to HSAC Services.
1.3. "Cable System(s)" means any radio frequency ("RF") cable
television franchise or hybrid fiber-coaxial RF Plant distribution system ("RF
Plant") serving a geographically proximate group of residences, businesses, or
other locations. Cable Systems include both One-Way Systems and Two-Way Systems.
1.4. "Committed System(s)" means the Cable Systems that Operator or any
Potential Operator has specifically designated in such Operator's or Potential
Operator's sole and absolute discretion as Committed Systems pursuant to Section
2.1 and 2.2, that such Operator or Potential Operator reasonably believes will
conform to Section 4 of the Systems Access Agreement, and that are either listed
in EXHIBIT A attached hereto as of the Effective Date or are added to EXHIBIT A
by amendment during the Term pursuant to Section 2.2. A Cable System shall be
deemed to no longer be a Committed System if (i) it has been withdrawn by an
Operator or Potential Operator pursuant to Section 2.3 or 18 hereof, (ii) this
Agreement has expired or been terminated for any reason pursuant to Section 18
hereof, or (iii) such Committed System is no longer controlled by the applicable
Operator or Potential Operator for any reason.
1.5. "Confidential Information" means any and all information related
to either HSAC's business or Operator's business in any form, including, without
limitation, (i) customer information, (ii) the terms and conditions of this
Agreement, (iii) all dates, summaries, reports or information of all kinds,
whether oral or written, acquired, devised or developed in any manner by or from
the disclosing party's files, and (iv) financial, statistical, personnel, or
technical information, software or documentation, which the disclosing party
deems proprietary or confidential.
1.6. "Conversion Requirements" means such requirements as are set out
in EXHIBIT H.
1.7. "Customer List(s)" means the Operator's list of Cable Subscribers
in each Committed System and related subscriber information.
1.8. "Data Subscriber" means a Cable Subscriber residing in a Home
Passed in a Committed System who subscribes to HSAC Services regardless of
whether such subscriber
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<PAGE> 3
subscribes to Operator's cable TV service. Each Multiple Dwelling Unit ("MDU")
constitutes not more than a single Data Subscriber for purpose of this
Agreement.
1.9. "Full HSAC Services Roll-Out" means the creation, staffing and
operation of every business, technical and service aspect necessary to fully
implement the HSAC Services.
1.10. "Gross Revenues" means all gross revenues collected from Data
Subscribers for the HSAC Services, including, without limitation, monthly
subscription fees regardless of which party handles the billing and collection,
and as used herein, does not include (i) applicable sales or use taxes, (ii)
federal, state or local franchise fees, (iii) Installation Fees or any other
set-up charges assessed by HSAC, Operators or any authorized third-party
reseller or installer (subject to the limitations set forth in Section 6.2
below), (iv) rentals paid by Data Subscribers on Home Equipment Packages
(subject to the limitations set forth in Section 6.2 below), CONFIDENTIAL
MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
1.11. "Home Equipment Package" means the cable modem and related power
converter/supply, network interface card (NIC), patch cable, and related
software for each Data Subscriber.
1.12. "Homes Passed" means residences that are connected (i.e., a
residence with an installed cable "drop" from a Committed System or which is
eligible for such cable "drop" by virtue of a Committed System passing such
residence) to the cable RF Plant/head-ends of a Committed System, regardless of
whether the persons residing in such residences subscribe to cable TV services.
Each MDU constitutes a single Home Passed for purposes of this Agreement.
1.13. "HSAC Network Equipment" means the equipment that HSAC employs
for operation of the HSAC Services by connecting such equipment to the head-end
of Operator's Cable Systems. HSAC Network Equipment includes, without
limitation, all monitoring devices, telecommunications equipment, storage
devices, computing and data processing equipment, and software.
1.14. "HSAC Services" means the design, engineering, construction
(excluding the RF Plant portion of the Cable System), installation, activation,
beta testing, ISP and data network operation and management, sales and
marketing, customer service and "call center" support, billing (as agreed to the
parties on a case-by-case basis), pre- and post-Launch Date deployment and
operation, and maintenance of Internet access and related services from the Data
Subscriber's computer and cable modem through any Committed System to HSAC's
Internet Portal including, without limitation, interfacing HSAC Network
Equipment with Committed Systems to allow Data Subscribers, for a monthly fee or
other charges, to browse
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<PAGE> 4
the World Wide Web, read news groups, and receive and send electronic mail
("E-mail") and perform related activities.
1.15. "Installation Fee" means the gross revenues collected directly or
indirectly from a Data Subscriber by HSAC, Operator, or any authorized
third-party reseller or installer for the installation and connection of a Home
Equipment Package for such Data Subscriber to receive HSAC Services but does not
include (i) applicable sales or use taxes, (ii) federal, state or local
franchise fees.
1.16. "Internet Portal" means a physical site sometimes referred to as
a "point of presence" where there is a collection of equipment including
routers, data storage devices, and modems that are used to connect to customers
and leased telecommunication lines that connect such site directly to a part of
the Internet backbone.
1.17. "ISP" or "Internet Service Provider" means an entity that
provides Internet access to its customers.
1.18. "Launch Date" means, with respect to a particular Committed
System, the date on which HSAC or Operator, as the case may be, is required to
commence revenue billing for Data Subscribers in such Committed System pursuant
to the Activation Schedule.
1.19. CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
COMMISSION
1.20. "MSO" means an entity that owns, controls, or operates multiple
Cable Systems that is generally referred to as a Multiple System Operator in the
cable television industry.
1.21. "One-Way" means a Cable System that can only deliver television
signals, data, or other digital or analog information downstream from the cable
head end to the Cable Subscriber, and must use another means, including without
limitation a telephone line and modem, to send any information from the Cable
Subscriber to an Internet Portal.
1.22. "Other Agreements" means the Systems Access Agreement and the
other agreements set forth in subsections (i), (iii), (iv), (v), (vi), (vii),
(viii) and (ix) of Section 1.24 of the Systems Access Agreement.
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<PAGE> 5
1.23. "Potential Operators" means, as the case may be or the context
requires, any MSO or operator of packet-switched data systems now or hereafter
owned or controlled by, directly or indirectly, or affiliated with Paul G.
Allen, Operators or their respective affiliates or subsidiaries.
1.24. "System Data Requirements" means the minimum technical
requirements set forth on EXHIBIT B hereto to which the RF Plants in Operators'
Committed Systems must conform.
1.25. "System Service Requirements" means the minimum technical and
service requirements set forth on EXHIBIT G hereto to which the HSAC Services
must conform.
1.26. "Termination Fee" means an amount equal to one-half of the net
present value of the Gross Revenues which would otherwise have been generated
for the HSAC Services from the base of Data Subscribers existing as of the date
of termination in a Committed System through the remainder of the Term. If the
parties cannot agree upon the amount of any Termination Fee, they shall jointly
engage and split the cost of a neutral appraiser or valuation specialist to
place a value on such Termination Fee.
1.27. "Two-Way" means a Cable System that can both send and deliver
television signals, data, or other digital or analog information upstream and
downstream to and from the cable head-end to and from the Cable Subscriber,
without using another means to send or receive any information from the Cable
Subscriber to an Internet Portal.
1.28. Other Definitions. The following additional defined terms shall
have the meanings ascribed to them in the Sections indicated below:
"24x7" 7.2.5
"Additional System Notice" 2.2
"Attainment Measures" 2.3
"Call Center" 7.2.5
"Force Majeure" 21
"HSAC's Share" Exhibit D
"Initial Term" 16
"Intellectual Property Laws" 13.1.5
"MDU" 1.8
"NOC" 7.2.5
"Notice" 7.3.4
"Operator's Share" Exhibit D
"Out-of-Compliance Event" Exhibit D
"RF" 1.3
"RF Plant" 1.3
"RBOC" 2.4.2
"Renewal Term" 16
"Service Failure" 7.3.4
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<PAGE> 6
"Statement" Exhibit D
"Systems Access Agreement"Recital C
"Term" 16
"Termination Events" 18.3
2. EXCLUSIVE RIGHT TO PROVIDE HSAC SERVICES TO COMMITTED SYSTEMS; ADDITIONAL
COMMITTED SYSTEMS; INSPECTION AND ACCEPTANCE CRITERIA.
2.1. Exclusive Access. During the Term, HSAC shall have the sole and
exclusive right to access the Committed Systems listed on EXHIBIT A to this
Agreement for purposes of performing the HSAC Services and to perform the HSAC
Services for the Committed Systems, subject to and in accordance with the terms
herein and the Systems Access Agreement. Subject to the procedures set forth in
this Section 2, HSAC shall perform a Full HSAC Services Roll-Out on every such
Committed System within the time frames specified for a particular Committed
System in the Activation Schedule.
2.2. Designation of Additional Systems. During the Term (and subject to
the procedures set forth in this Section 2), Operator and Potential Operators
shall have the unilateral right, but not the obligation, to designate an
unlimited number of additional Cable Systems as Committed Systems under this
Agreement, and such right shall extend to any and all Cable Systems now owned or
managed or hereafter acquired or managed by Operator or Potential Operator.
Operator and Potential Operators shall exercise their right to designate
additional Cable Systems as Committed Systems hereunder by delivering written
notice of such designation to HSAC (an "Additional System Notice"). Upon HSAC's
receipt of such Additional System Notice, HSAC and the applicable Operator shall
amend this Agreement to add such Cable System(s) to EXHIBIT A, and the Cable
System(s) designated in such Additional System Notice shall automatically become
Committed Systems hereunder. If a Potential Operator designates Committed
Systems hereunder, the parties and such Potential Operators shall amend this
Agreement to include such Potential Operator as an Operator for all purposes
hereunder.
2.3. Commissioning of RF Plant; System Data Requirements. Within sixty
(60) days of (i) the Effective Date (as to the Committed Systems referenced in
Section 2.1 above), and (ii) HSAC's receipt of an Additional System Notice (as
to the Committed Systems referenced in Section 2.2 above), HSAC shall perform an
engineering inspection of Operator's RF Plant in the applicable Committed
Systems and deliver to Operator, HSAC's recommendations for any upgrades or
repairs (if HSAC fails to deliver such recommendations for any Committed System
within such 60 day period, then such Committed Systems will be deemed to satisfy
the System Data Requirements) which may be necessary for the Committed System to
conform to System Data Requirements ("Attainment Measures"). Operator
acknowledges and agrees that (i) in order for HSAC to deliver HSAC Services to
Data Subscribers, each Committed System must satisfy the System Data
Requirements, (ii) HSAC is not responsible for whether the Committed Systems
satisfy the System Data Requirements, and (iii) Operator shall undertake (or
refuse to take, as the case may be) those Attainment
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<PAGE> 7
Measures necessary to cause the Committed System's RF Plant to attain, and
thereafter maintain in conformity with, the System Data Requirements during the
Term of this Agreement. If the Operator declines to effect appropriate
Attainment Measures for any particular Committed System, this Agreement shall
terminate as to such Committed System without liability of any kind to either
Operator or HSAC, and such Committed System shall be removed from EXHIBIT A of
this Agreement. If the Operator agrees to effect the Attainment Measures, the
Activation Schedule shall be amended to establish the milestones for Operator to
bring the Committed Systems into conformity with the System Data Requirements
including a reasonable amount of additional time for HSAC to complete its Full
HSAC Services Roll-Out for such Committed Systems.
2.4. Activation Schedule.
2.4.1. The Activation Schedule for the initial Committed
Systems as of the Effective Date hereunder shall be as set forth in EXHIBIT A.
Within forty-five (45) days of HSAC's receipt of an Additional System Notice,
Operator and HSAC shall negotiate and agree in good faith upon a feasible,
reasonable "critical path" timelines for each Committed System's Full HSAC
Services Roll-Out, and memorialize such timeline in an Activation Schedule (as
same may be amended from time to time as contemplated in Section 2.3 above to
account for the Operator's taking of Attainment Measures and as the parties may
otherwise agree in writing). The Activation Schedule shall set out
implementation milestones, including, without limitation: (i) that Operator
shall notify HSAC when a particular Committed System conforms (or when the
Operator expects such Committed System to conform if the taking of Attainment
Measures is required) with the System Data Requirements, (ii) the Launch Date,
and (iii) the date when the Full HSAC Services Roll-Out in each Committed System
shall be completed. In the event that the parties cannot agree upon a reasonable
Activation Schedule for any additional Committed Systems designated under
Section 2.2 within forty-five (45) days of HSAC's receipt the applicable
Additional Systems Notice, then the provisions of Section 6.4 of the Systems
Access Agreement shall apply, and HSAC will implement the HSAC Services for such
additional Committed Systems at a rate of eight (8) head-ends per month (such
head-ends to be designated by Operator), with Operators' head-ends receiving
priority for activation over head-ends owned and/or operated by other customers
of HSAC.
2.4.2. HSAC will not be deemed in default of a scheduled
Launch Date if (i) a Regional Bell Operating Company ("RBOC") or other telephone
network provider (a "telco") is late in installing a T-1 line or backbone
connection necessary for the HSAC Services following the submission of a
complete order by HSAC to such party before the lead times required by such
party in order to install such T-1 line or backbone connection in sufficient
time to meet the applicable Launch Date, (ii) an equipment vendor (e.g., COM21)
fails to meet its delivery deadlines with respect to the HSAC Network Equipment
or Home Equipment Packages following the submission of a complete order by HSAC
to such party before the lead times required by such party in order to deliver
such equipment in sufficient
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<PAGE> 8
time to meet the applicable Launch Date, or (iii) HSAC does not receive any
specialized equipment required to carry the Vulcan Content (as defined in the
Content Agreement), which equipment is otherwise not required in order to
perform the HSAC Services, on a timely basis following the submission of a
complete order by HSAC to the vendor of such equipment before the lead times
required by such vendor in order to deliver such equipment in sufficient time
for HSAC to meet the applicable Launch Date.
3. HSAC OBLIGATIONS AFTER COMMISSIONING. As soon as Operator notifies HSAC that
any head-end in a Committed System conforms to the System Data Requirements,
HSAC agrees that it shall in conformity with the Activation Schedule:
3.1. install and connect the HSAC Network Equipment (subject to Section
6.2);
3.2. arrange at its expense for data transport (via telco, wireless,
etc.) from the Internet backbone to the head-ends of Operator's RF Plant for a
Committed System;
3.3. arrange telco return path circuits in One-Way Committed Systems;
3.4. commission the HSAC Network Equipment interface;
3.5. activate the data through-put portion of the HSAC Services;
3.6. begin marketing HSAC Services in the relevant areas and begin
offering subscriptions to potential Data Subscribers; and
3.7. complete the Full HSAC Services Roll-Out for such Committed System
and provide the HSAC Services for such Committed Systems.
4. UPGRADES. After initial activation of HSAC Services in a Committed System,
the Operator may reasonably request upgrades to the HSAC Network Equipment, and
HSAC shall make such upgrades at its expense within a reasonable time period,
provided that such upgrades are commercially reasonable. HSAC shall also make
substantially the same upgrades to the HSAC Network Equipment that HSAC makes to
substantially similar equipment that HSAC uses to provide HSAC or third party
customers access to the Internet. HSAC will provide Operator with all updates
and upgrades that HSAC develops or uses on any Cable System at the same prices
as such updates and upgrades are provided by HSAC to other customers of HSAC.
Neither party shall unilaterally change HSAC Network Equipment or Operator's RF
Plant in any way that renders a Committed System or the HSAC Services inoperable
without consulting with the other party regarding the allocation of costs
relating to such changes or upgrades.
5. ALLOCATION OF MAINTENANCE OBLIGATIONS.
5.1. Allocation. Following the commissioning of each Committed System,
HSAC shall maintain all HSAC Network Equipment. Operator shall maintain the
integrity of its RF
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<PAGE> 9
Plant for each Committed System (including, without limitation, all coaxial
cable, head-end equipment, connectors, amplifiers and passive devices and
splitters). HSAC shall not be required to repair or maintain any portion of the
RF Plant of any Committed System. Operator shall also provide technical
personnel to eliminate signal leakage and maintain a proper connection interface
of the HSAC Network Equipment to the RF Plant for each Committed System.
5.2. Damage to Operator's Facilities. HSAC shall use its best efforts
to avoid damaging the Operator's RF Plant for each Committed System, and shall
not move, relocate, alter, sell, lease, license, assign, encumber or otherwise
tamper with the RF Plant of any Committed Systems. Without limiting Operator's
rights and remedies, HSAC shall pay to repair or replace any of Operator's
equipment that HSAC or its employees damage and shall pay Operator for any
damages resulting therefrom. Such repairs shall return such Operator equipment
to at least the same condition it was before the damage, and any replacement
equipment will be at least the same quality as the Operator equipment that is
replaced.
5.3. Damage to HSAC Network Equipment. The HSAC Network Equipment shall
be the property of HSAC. Operator shall use its best efforts to avoid damaging
the HSAC Network Equipment, and shall not move, relocate, alter, sell, lease,
license, assign, encumber or otherwise tamper with the HSAC Network Equipment.
Without limiting HSAC's rights and remedies, Operator shall pay to repair or
replace any of HSAC's equipment that Operator or its employees damage and shall
pay HSAC for any damages resulting therefrom. Such repairs shall return the HSAC
Network Equipment to at least the same condition it was before the damage, and
any replacement equipment will be at least the same quality as the HSAC Network
Equipment that is replaced.
6. HOME EQUIPMENT PACKAGE.
6.1. Equipment Choice. Operator and HSAC shall mutually choose the
vendor/brand* of HSAC Network Equipment and cable modems for each Committed
System, and HSAC shall procure the Home Equipment Packages for Data Subscribers
(except for Data Subscribers who purchase their own). Such Home Equipment
Packages shall be installed in accordance with Section 6.2 below. Upon
installation of such Home Equipment Packages, HSAC shall monitor and maintain
electronically the Home Equipment Package for each Data Subscriber. Unless
purchased directly by a Data Subscriber from Operator or a third party
reseller/retailer, HSAC shall retain ownership of the Home Equipment Packages.
Each Data Subscriber shall be required to sign a statement acknowledging HSAC's
ownership of the Home Equipment Package. (*For purposes of this Agreement,
Com2l, Terayon and any other brands the parties may from time to time agree upon
shall be deemed acceptable brands.)
6.2. Installation And Modem Revenue Sharing. Either party may install
Home Equipment Packages or engage qualified third party installers to install
Home Equipment Packages for Data Subscribers. The party that installs Home
Equipment Packages shall keep 100% of the Installation Fee (which Installation
Fee will not exceed one hundred fifty dollars
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<PAGE> 10
($150) per Data Subscriber). CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY
WITH THE COMMISSION. If HSAC rents any equipment that is part of the Home
Equipment Package to a Data Subscriber, then HSAC shall be entitled to retain
100% of such rentals up to a maximum of $14.95 per month per Data Subscriber,
and all rentals in excess of such amount will be divided equally between HSAC
and Operators. Nothing in this Section 6.2 shall limit Operator's ability to
charge and retain separate fees for connecting any Cable Subscriber's or Data
Subscriber's home to a Cable System or adding additional outlets in a Cable
Subscriber's or Data Subscriber's home.
7. ALLOCATION OF GENERAL OPERATIONAL RESPONSIBILITIES OF OPERATOR AND HSAC.
During the Term of this Agreement as to each Committed System, the following
provisions shall be applicable:
7.1. Operator Responsibilities. Operator agrees to maintain its RF
Plants and facilities in the Committed Systems in conformity with industry
standards and the System Data Requirements set forth in EXHIBIT B for the
carriage of HSAC Services throughout the Committed Systems.
7.2. HSAC Responsibilities. Following the commissioning of each
Committed System, in addition to the obligations set forth in Section 3.1 above,
HSAC agrees that it shall throughout the Term:
7.2.1. complete the Full HSAC Services Roll-Out and provide
the HSAC Services for Data Subscribers in the Committed Systems;
7.2.2. undertake and ensure that the HSAC Services, all HSAC
Network Equipment, and all software and services related to the HSAC Services
attain and maintain compliance with industry standards and the System Service
Requirements;
7.2.3. take all reasonable efforts to ensure that HSAC
Services are received only by Data Subscribers, and to take all reasonable
efforts to prevent unlawful reception, retransmission, or use of the HSAC
Services by any means, whether now known or hereafter devised, without the prior
written authorization of HSAC;
7.2.4. following activation of HSAC Services, control the flow
of data that it manages from the Committed Systems to the Internet Portal, and
HSAC shall be responsible for third-party software utilized to perform the HSAC
Services;
7.2.5. provide a toll-free telephone number and a Network
Operating Center ("NOC") and Customer Service Call Centers ("Call Center")
staffed 24 hour a day, 7 day a
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<PAGE> 11
week basis (including weekends and holidays) via pager, cell phone, or similar
means ("24x7") with telephone support representatives to take calls from Data
Subscribers in the Committed System regarding Service Failures, the
operation/performance of the Home Equipment Package, and the Internet browser
and electronic mail software provided by third parties. HSAC shall answer all
such Data Subscriber calls with a greeting mutually agreed upon by the parties.
(Operator shall similarly provide HSAC with 24 x 7 "customer service response"
for the Committed System/RF portion of the HSAC Services.) HSAC shall make its
engineers and technicians available as needed to provide technical support and
to serve as liaisons between or among the Data Subscribers, Operator, and HSAC.
7.3. Certain Joint Responsibilities. Operators and HSAC agree:
7.3.1. that if either party becomes aware that any
unauthorized party is receiving or transmitting any part of the HSAC Services,
then such party shall notify the other party in writing of the name and address
of such party if and when the first party actually knows the name and address of
such third party;
7.3.2. to exercise their commercially reasonable efforts to
maintain the secrecy of (and occasionally rotate) their software passwords, and
notify the other if they become aware that their system passwords may be or have
become compromised;
7.3.3. to comply with all applicable local, state and federal
laws, rules, regulation and franchises in all material respects;
7.3.4. to notify the other's NOC and Call Center promptly of
any material outages, interruptions, or degradation of service in either
Operator's RF Plant or the data portion of the HSAC Services (a "Service
Failure") of which they become aware from any source (i.e., a "Notice"). To the
extent a Service Failure is traceable to an RF Plant defect or malfunction
(whether or not due to Force Majeure), Operator shall provide technical
personnel within 4 hours (or on a commercially reasonable basis) of such Notice
to respond to such Service Failure and shall repair or replace any
malfunctioning equipment as soon as commercially practicable. To the extent the
Service Failure is traceable to HSAC Network Equipment or a data stream
malfunction, HSAC shall correct the Service Failure within 4 hours (or on a
reasonable commercial efforts basis) of such Notice or replace any
malfunctioning equipment as soon as commercially practicable; and
7.3.5. to cooperate and work together diligently to respond to
all Service Failures, and coordinate the scheduling of maintenance that might
interfere with the HSAC Services, provided that HSAC shall be responsible for
all NOC and customer service functions and requirements not related to the RF
Plant of Operator's Cable Systems. Both parties acknowledge that Service
Failure-related downtime, incorrect or inaccurate Data Subscriber invoicing, and
infrastructure problems shall be given highest priority attention at all times.
Operator and HSAC shall each have access to the other's NOC and Call Center on a
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24x7 basis for the purpose of troubleshooting Service Failures pursuant to
agreed-upon Escalation Procedures, which are attached hereto as EXHIBIT C.
7.4. Billing; End User Agreement. The procedure for processing
subscriptions for HSAC Services, the invoicing of Data Subscribers, and the
sharing of Gross Revenues shall be as set forth on EXHIBIT D attached hereto.
HSAC shall also distribute to and require Data Subscribers to sign an "End
User/Services Agreement" substantially in the form of EXHIBIT E attached hereto
which describes the limits placed on Data Subscribers' rights; provided, that
HSAC shall be under no obligation to enforce the terms of such End User/Services
Agreement.
7.5. Data Subscriber Cancellation/Disconnect. In the event a Data
Subscriber terminates cable TV services with Operator and also cancels its
subscription to HSAC Services at the same time, Operator shall notify HSAC of
same and use its commercially reasonable efforts to recover and store (but does
not guarantee that it shall be able to recover), any rented Home Equipment
Package (except for the Ethernet card inside the customer's PC) for and on
behalf of HSAC. HSAC and Operator agree that in the event a Data Subscriber
cancels only its subscription to HSAC Services, HSAC shall likewise notify
Operator and be solely responsible for recovering any rented Home Equipment
Package.
7.6. Promotional and Build-Out Activities.
7.6.1. The parties shall cooperate reasonably with one another
regarding the marketing and promotion of HSAC Services to Cable Subscribers with
the aim of maximizing the number of Data Subscribers to the extent economically
feasible. Such cooperation shall include (i) at Operator's discretion,
installation of a "drop/install" at Operator's reasonable expense (may be passed
on to the Cable Subscriber) to any Home Passed, (ii) at HSAC's discretion,
Operator's installation of a "drop/install" for any commercial sites in a
Committed System for which HSAC will pay Operator's reasonable expenses (that
may be passed on to the commercial customer), and (iii) reasonable provision of
free advertising for the HSAC Services in the form of "ad avails" (i.e.,
advertising space which is not sold or committed to third parties that Operator
designates at its sole discretion as being available for advertising for HSAC
Services, "Charter Pipeline," "Marcus OnLine", "Charter Communications", "Marcus
Cable", or other brands as Operator may designate at its sole discretion) on
Operator's cable TV system, space in bills, statement messaging, and space in
installation packs. HSAC shall be responsible for the incremental expenses (if
any) associated with Operator's handling bill stuffers, space in bills,
statement messaging, and installation packs that are implemented at HSAC's
request. In addition, HSAC shall reimburse Operator for forty thousand dollars
($40,000) dollars annually in the aggregate expended by Operator for television
advertising to promote the Operator's Internet access brands under which HSAC
Services are provided.
7.6.2. All marketing and promotional materials, and any
materials that have an Operator owned or controlled trade or service mark on
them, will comply with the Quality
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Controls specified on EXHIBIT F hereto. Before any such materials prepared by
HSAC are used, HSAC will transmit a copy to Operator, and Operator will have
fifteen (15) days in which to reasonably reject such materials or to request
changes be made to such materials. If Operator does not respond to HSAC within
such fifteen (15) day period, such materials will be deemed approved for
distribution. All marketing and promotional materials will comply with the
branding provisions set forth in Section 7.6.5 below and shall be of a standard
of quality comparable to marketing and promotional materials prepared and
distributed by Operator. Operator grants to HSAC a worldwide, non-exclusive
royalty-free licensee to use and reproduce Operator's trademarks, service marks,
and brands and to distribute any marketing and promotional materials supplied to
HSAC by Operator (in Operator's sole discretion) for purposes of advertising and
marketing the HSAC Services in accordance with the terms and conditions hereof.
7.6.3. HSAC's marketing team will meet quarterly with each of
Operator's regional marketing teams and jointly review marketing plans,
strategy, and materials for each Committed System to assure acceptable quality
standards in accordance with the procedures in EXHIBIT I and Charter's current
Charter Pipeline Branding Guidelines. By October 31 of each calendar year during
the Term, HSAC shall also provide Operator with a copy of HSAC's marketing plan
(which when implemented shall substantially conform to Operator's approved
annual marketing plans for the following year), which Operator may approve or
reject in its reasonable discretion. The parties agree to confer and work
together to effect any appropriate revisions to HSAC's annual marketing plans
and materials, provided that Operator shall not be entitled to unilaterally
dictate HSAC's levels of marketing expenditures or HSAC's creative decisions or
choice or relative emphasis across various marketing channels, so long as the
foregoing shall not result in any detriment to or denigration of Operator's
brand image.
7.6.4. Subject to Section 7.8 below, Operator shall provide
HSAC access (both print copy and electronically at HSAC's expense) to its
Customer Lists and other customer databases on a confidential basis solely for
the purpose of developing and implementing HSAC's marketing plans, as well as
providing "On-Line Help-Desk" modem configuration support, Data Subscriber
sign-up, and ongoing customer service.
7.6.5. Branding
(a) Without limiting HSAC's obligations under the
Content Agreement, the parties agree that all HSAC Services (and all
other Internet access and related services performed by HSAC within any
Committed Systems' areas) shall be marketed, deployed, and supported in
the Committed Systems only under the trademarks "Charter Pipeline,"
"Marcus OnLine", "Charter Communications", "Marcus Cable" or other
brands, service marks, and trademarks as Operator may designate.
Operator shall be responsible for registering such brands, service
marks, and trademarks and obtaining a matching or closely related
domain name. Any such domain names shall be owned by the relevant
Operator, or if they are temporarily
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owned by HSAC, HSAC shall take all steps necessary promptly to transfer
and assign such domain names to the relevant Operator.
(b) Subject to reasonable Operator oversight, HSAC
shall produce and distribute all marketing materials and execute all
marketing plans applicable to the HSAC Services. All marketing and
promotional materials and any materials that have an Operator owned or
controlled trademark on it shall comply with the Quality Controls
specified in EXHIBIT F and before any such materials are used, a copy
shall be sent to Operator, who shall have fifteen (15) days in which to
reject such materials or to request changes be made to such materials.
If Operator has not responded to HSAC within the fifteen (15) day
period, such materials shall be deemed approved for distribution.
(c) Operator shall contribute reasonable ad avails
(i.e., advertising space which is not sold or committed to third
parties that Operator designates at its sole discretion as being
available for advertising for HSAC Services, "Charter Pipeline,"
"Marcus OnLine", "Charter Communications", "Marcus Cable", or other
brands as Operator may designate at its sole discretion), space in
bills, bill stuffers, statement messaging, and space in cable
installation packs to promote the sales of subscriptions to HSAC
Services to Cable Subscribers.
(d) Subject to all of the terms and conditions of
this Agreement, if a Committed System is withdrawn from this Agreement,
then HSAC shall be permitted to continue to use those trademarks,
service marks, and brands owned by Operator that HSAC had been using
for dial up Internet access services provided in such Committed System
immediately before such Committed System was withdrawn from this
Agreement for a six (6) month transition period but only for the dial
up Internet access services provided within such Committed System's
area.
7.6.6. Operator shall not be obligated to expand or upgrade
its RF Plants in the Committed Systems after a Launch Date. However, the parties
agree to jointly review and evaluate periodically the economic feasibility of
expanding or upgrading such RF Plants in order to increase the number of Homes
Passed and/or commercial Data Subscribers and to determine how such costs shall
be shared.
7.7. Complimentary and Discounted Employee Accounts. HSAC shall at
Operator's direction provide to Homes Passed in each Committed System
complimentary HSAC Services accounts (except that, unless expressly set forth
below to the contrary, such recipients of complimentary service must pay for
their own Home Equipment Packages as would any other Data Subscriber) as
follows:
7.7.1. on a complimentary basis, up to five (5) transferable
accounts as designated by Operator;
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7.7.2. on a complimentary basis, the greater of five (5)
additional government/"community service" accounts per Committed System or one
per franchise in each Committed System;
7.7.3. on a complimentary basis, the number of additional
accounts (complete with the modem/Home Equipment Package in this case only)
necessary for use within Operator's office(s) to support the HSAC Services (via
multiple modems or single-modem with hub/proxy server distribution as the
parties may agree);
7.7.4. such additional complimentary accounts as HSAC in its
sole discretion shall determine; and
7.7.5. on a fifty percent (50%) discount basis, additional
accounts for Operator's employees at their residences within a Committed System.
7.8 Ownership of Customer Information. Notwithstanding anything to the
contrary set forth in this Agreement, the Data Subscribers and any Customer
Lists shall be deemed to be owned solely by, and shall be solely the property of
Operator, and all dial-up subscribers to the HSAC Services and related customer
lists shall be deemed to be owned solely by, and shall be solely the property
of, HSAC.
8. CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
9. ENCRYPTION. HSAC may at its option make available security and encryption
equipment and/or software to Data Subscribers at no additional charge to
Operator; provided, that HSAC is not obligated to do so, nor shall Operator be
liable or responsible in any way for the installation and performance of such
equipment or software. HSAC represents and warrants that any such security and
encryption equipment and software will not interfere with the operation of the
Committed Systems in any way.
10. CONFIDENTIAL INFORMATION.
10.1. Confidentiality. Each party agrees that it shall not, during or
for a period of five (5) years after the Term of this Agreement, permit the
duplication, use, or disclosure of any Confidential Information to any person
(other than an employee, agent, or representative of the other party who must
have such information for the performance of its obligation hereunder), unless
such duplication, use or disclosure is specifically authorized by the other
party in writing. Each party shall (i) not disclose any Confidential Information
to any third person without the express written consent of the other party; (ii)
not use, directly, indirectly, or in concert with any other person, any
Confidential Information for any purpose other than
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the performance of their obligations under this Agreement; (iii) use reasonable
diligence, and in no event less than that degree of care which such party uses
in respect to its own Confidential Information of like nature, to prevent the
unauthorized disclosure or reproduction of such information. Without limiting
the generality of the foregoing, to the extent that this Agreement permits the
copying of Confidential Information, all such copies shall bear the same
confidentiality notices, legends, and intellectual property rights designations
that appear in the original versions.
10.2. Exceptions. The confidentiality obligations set forth in Section
10.1 shall not be applicable to Confidential Information which is: (i) in the
public domain; (ii) known to the recipient party as of the date of this
Agreement as indicated by the recipient's written records, unless the recipient
party agreed to keep such information in confidence at the time of its receipt;
(iii) properly obtained hereafter from a source who is not under an obligation
of confidentiality with respect to such information; (iv) can be shown to have
been independently developed by the receiving party through persons who have not
had, either directly or indirectly, access or knowledge of such Confidential
Information; or (v) obligated to be produced by law, provided that any party
that is so ordered to produce Confidential Information shall give notice thereof
to the other party and cooperate reasonably with any attempt by the notified
party to enjoin its disclosure.
10.3. Destruction of Data. Apart from HSAC's obligations to Operator
under this Section 10 concerning confidentiality, HSAC shall have no obligation
to delete or destroy Operator's information, including Operator's Customer Lists
or other Data Subscriber listings, from its computer systems or backup and
archival libraries until such time as HSAC's regular procedures for elimination
of such data would normally delete or destroy such information. Following a Data
Subscriber disconnect, Operator may require the elimination of its data
maintained within HSAC's backup and archival libraries prior to the time the
data would normally be deleted or destroyed by HSAC, and Operator shall pay for
reasonable expenses associated with the early deletion or destruction of all
such data.
11. OWNERSHIP OF MARKS.
11.1. HSAC Marks. Operator acknowledges that the names and marks "HSA,"
"HSAC," "HSA Network," "High Speed Access Network," "HSA Data Network," "Darwin
Networks," "CATV.net" and other HSAC logos, program names, trademarks, service
marks, programs, manuals, documentation, and other support materials covered by
this Agreement or otherwise used in connection with the HSAC Service, are the
exclusive property of HSAC. Operator has not and shall not acquire any
proprietary rights thereto by reason of this Agreement, and 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 HSAC. Operator shall not publish or
disseminate any material that violates any restriction imposed by HSAC.
11.2. Operator's Marks. Conversely, HSAC acknowledges that the names
and marks "Charter," "Charter Communications," "Charter Pipeline," "Charter
Mail," "Marcus
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<PAGE> 17
OnLine," and other Operator logos, program names, trademarks, service marks,
programs, manuals, documentation, host names, domain names, and other support
materials under which the HSAC Services shall be rolled-out under this Agreement
or otherwise used in connection with the HSAC Services, are the exclusive
property of Operator. HSAC has not and shall not acquire any proprietary rights
thereto by reason of this Agreement other than its contract rights hereunder,
and HSAC shall have no rights to use such names, marks, logos, variations or
titles except at the times and in a manner expressly approved by Operator. HSAC
shall not publish or disseminate any material that violates any restriction
imposed by Operator.
12. REPRODUCTION OF MANUALS AND DOCUMENTATION. Subject to the provisions of
Sections 10 and 11.1, Operator shall have the right, at no additional charge, to
reproduce solely for its internal use, all manuals and documentation furnished
by HSAC relating to the HSAC Services, regardless of whether such manual or
documentation is copyrighted by HSAC. All copies of manuals or documentation
made by Operator shall include any proprietary notice or stamp that has been
affixed by HSAC.
13. REPRESENTATIONS AND WARRANTIES.
13.1. HSAC hereby represents and warrants to Operator as follows:
13.1.1. HSAC is a corporation duly organized, validly existing
and in good standing under the laws of the state of Delaware, and is duly
qualified to do business as a foreign corporation in all jurisdictions in which
it conducts its business.
13.1.2. HSAC's execution, delivery, and performance of this
Agreement and each of the Other Agreements have been duly authorized by all
requisite corporate action, and this Agreement and each of the Other Agreements
constitutes a legally valid and binding obligation of HSAC enforceable in
accordance with their terms, except as may be affected by laws relating to
bankruptcy or insolvency or the application by a court of equitable principles.
13.1.3. HSAC's execution, delivery, and performance of this
Agreement and each of the Other Agreements shall not violate, conflict with
and/or result in a breach or default under HSAC's certificate of incorporation,
bylaws or other charter documents, or any judgment, award, decree, agreement or
other instrument to which HSAC is a party.
13.1.4. No approval, authorization, consent, or order or
filing with any court, or governmental or administrative agency or any third
party is required in order for HSAC to enter into, deliver, and perform this
Agreement, each of the Other Agreements, and the transactions contemplated
herein and therein.
13.1.5. HSAC either owns or has properly licensed all rights
under patent, copyright, trademark, trade secret, and other domestic and foreign
intellectual property laws (collectively, "Intellectual Property Laws") that are
necessary or required to perform the Full HSAC Services Roll-Out, the HSAC
Services, and the other services to be performed by
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<PAGE> 18
HSAC hereunder and under the Network Agreements, including, without limitation,
all rights under Intellectual Property Laws relating to any equipment
(including, without limitation, the HSAC Network Equipment), software or Content
that HSAC shall use or shall provide in connection with the Full HSAC Services
Roll-Out, the HSAC Services, and the other services to be performed by HSAC
hereunder and under the Network Agreements. HSAC's provision and/or operation of
the Full HSAC Services Roll-Out, the HSAC Services, and the other services to be
performed by HSAC hereunder and under the Network Agreements shall not violate
or infringe any Intellectual Property Laws or violate or infringe any rights of
third parties.
13.1.6. To the best of its knowledge, HSAC has taken all
actions necessary and appropriate to assure that there shall be no material
adverse change to its business or electronic systems or material interruptions
in the operation and delivery of HSAC Service as provided in this Agreement
(aside from normal data packet delays, distortions, and losses (i) on the
Internet backbone, (ii) during transport to the Internet Backbone on
telecommunication lines leased from a third party, (iii) or during transport
from the customer to HSAC over a coaxial cable or fiber optic line) by reason of
the advent of the year 2000, including, without limitation, that all its
computer-based systems, embedded microchips and other data processing
capabilities have been designed or modified and fully tested in such a manner
that such computer-based systems, embedded microchips and other data processing
capabilities will not generate any invalid and/or incorrect date-related results
or cause any of the problems commonly referred to as "Year 2000 problems" and
will, without interruption or manual intervention, continue to operate
consistently, predictably and accurately and in accordance with all of the
requirements of this Agreement, including without limitation, meeting all
specifications and/or functionality and performance requirements, when used
during any year prior to, during or after the calendar year 2000. HSAC does not
warrant that interruptions in HSAC Service will not occur due to the network or
systems failures of other parties, including utilities and phone services,
caused by "Year 2000 problems."
13.2. Each Operator hereby represents and warrants, severally, but not
jointly, and only as to itself, to HSAC as follows:
13.2.1. It is a corporation duly organized, validly existing,
and in good standing under the laws of its jurisdiction of incorporation and is
duly qualified to do business as a foreign corporation in all jurisdictions in
which it conducts its business.
13.2.2. Their execution, delivery, and performance of this
Agreement and each of the Other Agreements have been duly authorized by all
requisite corporate action, and this Agreement and each of the Other Agreements
constitutes a legally valid and binding obligation of each of them enforceable
in accordance with their terms, except as may be affected by laws relating to
bankruptcy or insolvency or the application by a court of equitable principles.
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<PAGE> 19
13.2.3. Their execution, delivery, and performance of this
Agreement and each of the Other Agreements shall not violate, conflict with
and/or result in a breach or default under their respective certificates of
incorporation, bylaws or other charter documents, or any judgment, award,
decree, agreement or other instrument to which either of them is a party.
13.2.4. No approval, authorization, consent, or order or
filing with any court, or governmental or administrative agency or any third
party is required in order for it to enter into, deliver, and perform this
Agreement, each of the Other Agreements and the transactions contemplated herein
and therein.
13.2.5. The franchise agreements with the various franchising
authorities with jurisdiction over the Committed Systems do not and will not
prohibit Operator from offering the HSAC Services directly or through HSAC under
this Agreement. Operator shall bear all costs associated with obtaining any such
"data over cable" franchise rights and authorizations (if so needed), pay any
franchise taxes related or applicable thereto, and indemnify HSAC with respect
to any such costs or taxes, whether or not retroactively assessed.
13.2.6. Operator either owns or has properly licensed all
rights under Intellectual Property Laws that are necessary or required to
utilize Operator's trademarks, service marks, or brands and the marketing and
promotional materials licensed to HSAC hereunder, and HSAC use of the foregoing
shall not violate or infringe any Intellectual Property Laws or intellectual
property rights of third parties.
13.2.7. To the best of its knowledge, it has taken all actions
necessary and appropriate to assure that there shall be no material adverse
change to its business or electronic systems or material interruptions in the
operation and delivery of HSAC Service as provided in this Agreement (aside from
normal data packet delays, distortions, and losses (i) on the Internet backbone,
(ii) during transport to the Internet Backbone on telecommunication lines leased
from a third party, (iii) or during transport from the customer to HSAC over a
coaxial cable or fiber optic line) by reason of the advent of the year 2000,
including, without limitation, that all its computer-based systems, embedded
microchips and other data processing capabilities have been designed or modified
and fully tested in such a manner that such computer-based systems, embedded
microchips and other data processing capabilities will not generate any invalid
and/or incorrect date-related results or cause any of the problems commonly
referred to as "Year 2000 problems" and will, without interruption or manual
intervention, continue to operate consistently, predictably and accurately and
in accordance with all of the requirements of this Agreement, including without
limitation, meeting all specifications and/or functionality and performance
requirements, when used during any year prior to, during or after the calendar
year 2000. Operator does not warrant that interruptions in HSAC Service will not
occur due to the network or systems failures of other parties, including
utilities and phone services, caused by "Year 2000 problems."
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<PAGE> 20
14. INDEMNITY.
14.1. HSAC will indemnify, defend, and hold harmless each Operator and
its respective affiliates, agents, successors, assigns, representatives,
officers, and directors from and against any liabilities, lawsuits, penalties,
claims, demands, awards, judgments, settlements, costs, and expenses (including,
without limitation, actual reasonable attorneys' fees and expenses on account
thereof) that arise or result from: (i) the breach by HSAC of any of its
representations, warranties, or covenants hereunder, (ii) HSAC's management,
operation, control or provision of the HSAC Services, or (iii) any violations of
any United States export control restrictions relating to the encryption
equipment and/or software made available by HSAC to Data Subscribers under
Section 9 above, including, without limitation, in any such case any
liabilities, lawsuits, penalties, or claims related to defamation, infringement,
criminal activities, and fraud, except to the extent that any such liabilities,
lawsuits, penalties, claims, demands, awards, judgments, settlements, costs or
expenses arise from such Operator's operation, management, and maintenance of
its RF Plant.
14.2. Each Operator will severally, but not jointly, and only with
respect to its own acts or omissions, indemnify, defend, and hold harmless HSAC
and its affiliates, agents, successors, assigns, representatives, officers, and
directors from and against any liabilities, lawsuits, penalties, claims,
demands, awards, judgments, settlements, costs, and expenses (including, without
limitation, reasonable attorneys' fees and expenses on account thereof) that
arise or result from: (i) the breach by such Operator of any of its
representations, warranties or covenants hereunder, or (ii) such Operator's
operation, management, and maintenance of such Operator's RF Plant, including,
without limitation, in any such case, any liabilities, lawsuits, penalties, or
claims related to defamation, infringement, criminal activities, and fraud,
except to the extent that any such liabilities, lawsuits, penalties, claims,
demands, awards, judgments, settlements, costs or expenses arise from HSAC's
management, operation, control or provision of the HSAC Services.
14.3. HSAC agrees to indemnify, defend, and hold harmless each Operator
and its respective affiliates, agents, successors, assigns, representatives,
officers, and directors, and each Operator agrees severally, but not jointly,
and only with respect to its acts or omissions, to indemnify, defend, and hold
harmless HSAC and its affiliates, agents, successors, assigns, representatives,
officers, and directors, from and against any liabilities, lawsuits, penalties,
claims, demands, awards, judgments, settlements, costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses on account thereof)
that may be made for injuries, including death to persons, resulting from the
indemnifying party's negligent or willful acts or omissions or those of persons
employed by the indemnifying party, its agents, or subcontractors. Each Operator
and HSAC respectively agree to notify the other parties promptly of any written
claims or demands against the indemnified party for which the indemnifying party
is deemed responsible hereunder; provided, that, any failure to so notify shall
not affect the substantive rights hereunder.
15. LIMITATION OF LIABILITY, INSURANCE.
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<PAGE> 21
15.1. Limitation of Liability. EXCEPT FOR THE INDEMNIFICATION
OBLIGATIONS DETAILED IN SECTION 14 ABOVE, IN NO EVENT WILL EITHER PARTY HERETO
BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, OR CONSEQUENTIAL
DAMAGES (EVEN IF THAT PARTY HAD BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES), ARISING FROM OR RELATED TO A BREACH OF THIS AGREEMENT, INCLUDING
WITHOUT LIMITATION LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS.
15.2. Insurance. At all times during the Term, HSAC shall maintain: (i)
appropriate policies of general liability, casualty, and business interruption
or disruption insurance, each with aggregate coverage of at least two million
dollars ($2,000,000) with commercially reasonable deductibles; (ii) appropriate
workers compensation insurance to cover HSAC's employees against injury to
themselves or others and casualty accidents while performing HSAC Services; and
(iii) appropriate insurance policies with at least two million dollars
($2,000,000) of coverage per incident with commercially reasonable deductibles
covering against claims for intellectual property infringement. All such HSAC
insurance policies shall name Operator as an additional insured party.
15.3. Specific Performance. HSAC and Operator each acknowledges that
the rights granted, and services to be provided to each other hereunder are of a
special, unique, unusual, extraordinary, and intellectual character, giving them
peculiar value, the loss of which cannot be reasonably or adequately compensated
in damages, and that an actual or threatened material breach by either party
hereunder would cause the other party irreparable injury and damage. Subject to
Section 9.2.2 off the Content Agreement, each party agrees that, if it commits
or is about to commit a material breach of this Agreement, the other party will
be entitled to injunctive or other equitable relief as a remedy for any such
actual or threatened material breach, without the requirement to post any bond
or other security therefor.
16. TERM OF AGREEMENT. The term ("Term") of this Agreement shall commence on the
Effective Date, and as to a particular Committed System, continue for a term of
five (5) years thereafter from the Launch Date for each such Committed System
(the "Initial Term"). Following such Initial Term, this Agreement shall
automatically renew itself on a year-to-year basis (a "Renewal Term") unless
terminated by notice from either party at least three (3) months prior to the
expiration of the Initial Term or any such Renewal Term.
17. [Intentionally Deleted]
18. TERMINATION
18.1. Operator Remedies. In addition to all of Operator's other rights
and remedies at law or equity, Operator has the right to (i) terminate this
Agreement, (ii) renegotiate this Agreement, (iii) remove a particular Committed
System from this Agreement, or (iv) retract HSAC's exclusive rights as to a
particular Committed System, if there has been a Termination Event as set forth
in Section 18.3 hereof. Operator's selection of any one of these remedies
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shall not preclude Operator from selecting any other of such remedies for the
same or other Termination Event. Except as set forth in Sections 18.6 and 19
below, in the event that a Termination Event occurs which is limited to a
particular Committed System, Operator may exercise the forgoing rights only with
respect to the Committed System in question and not this entire Agreement.
18.2. Actions upon Termination. Except as set forth in Section 18.4 to
the contrary, upon any termination or cancellation of this Agreement as to a
particular Committed System for any reason whatsoever: (i) such Committed System
shall be removed from EXHIBIT A and from this Agreement, (ii) Operator shall
purchase from HSAC at book value (based on straight line depreciation) any
ownership rights that HSAC has in the HSAC Network Equipment, Home Equipment
Package, or any other equipment or software owned by HSAC that is committed to
such Committed System; (iii) HSAC shall comply with the Conversion Requirements
with respect to such Committed System; and (iv) HSAC shall transfer to Operator
all Confidential Information, Customer Lists, and any data related to or about
the Data Subscribers relating to the applicable Committed Systems.
18.3. Termination Events. The following shall be deemed "Termination
Events:"
18.3.1. HSAC fails to meet Launch Date applicable to a
particular Committed System;
18.3.2. HSAC fails at any time to comply with the System
Service Requirements in any material respect and has not cured such lack of
compliance to Operator's reasonable satisfaction within sixty (60) after
Operator has provided HSAC with written notice of such non-compliance. Operator
shall have the right to at least once every three (3) months to reasonably audit
or observe HSAC's operations in order to determine if HSAC is complying with the
System Service Requirements;
18.3.3. There is a failure of the HSAC Services and/or the
HSAC Network Equipment such that the HSAC Services are not available to a
majority of Data Subscribers in a Committed System in the same manner as such
HSAC Services are normally available to such Data Subscribers, which failure is
not cured or repaired within thirty (30) days after Operator gives HSAC written
notice thereof;
18.3.4. HSAC becomes insolvent, or a petition under any
bankruptcy act shall be filed by or against HSAC (which petition shall not have
been dismissed within thirty (30) days thereafter), or HSAC executes an
assignment for the benefit of creditors, or a receiver is appointed for HSAC or
its assets, or HSAC takes advantage of any insolvency or any like statute;
18.3.5. HSAC fails to upgrade or replace any equipment or
software used in relationship with the HSAC Services such that such equipment no
longer complies with the
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vendor's standards and/or industry standards for such equipment, and such
failure is not cured within thirty (30) days after Operator gives written notice
thereof to HSAC;
18.3.6. HSAC shall fail to pay to Operator any and all sums
payable to Operator as and when due hereunder within thirty (30) days after
Operator gives HSAC written notice of such failure;
18.3.7. HSAC shall fail to carry, distribute and support the
Vulcan Content (as defined in the Content Agreement) on an exclusive basis for
all Cable Systems and other HSAC customers utilizing the HSAC Services in
accordance with the terms of the Content Agreement, HSAC shall carry any
Competing Content (as defined in the Content Agreement) in violation of the
Content Agreement, or HSAC shall breach the provisions of Section 6.3 of the
Content Agreement; and
18.3.8. CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY
WITH THE COMMISSION.
18.4. Termination other than for a Termination Event. In addition to
Operators other rights and remedies hereunder, Operator shall have the right at
any time to withdraw any Committed System or terminate HSAC's exclusive rights
to provide HSAC Services with respect to any such Committed Systems for any
reason not covered in Sections 18.3, 18.6 and/or 19. If Operator does so, then
such Committed System shall be withdrawn from this Agreement, provided that (i)
Operator has provided ninety (90) days prior written notice, (ii) Operator pays
to HSAC the Termination Fee, (iii) Operator shall purchase from HSAC at book
value (based on straight-line depreciation) any ownership rights that HSAC has
in the HSAC Network Equipment and Home Equipment Package related to such
Committed System, and (iv) if such termination occurs within twelve (12) months
after the Launch Date with respect to a Committed System, Operator shall
reimburse HSAC for HSAC's actual, out-of-pocket marketing expenses paid by HSAC
with respect to such Committed System prior to date of termination.
Notwithstanding the foregoing, if Operator's withdrawal of a Committed System
from this Agreement under this Section 18.4 occurs as a result of Operator's
sale or other disposition of such Committed System, and the successor MSO or
other successor owner or operator of such Committed System assumes Operator's
obligations hereunder with respect to such Committed System, then Operator shall
not be obligated to comply with the provisions of subsections 18.4(ii), (iii)
and (iv) above in connection with such termination.
18.5. Replacement of Committed Systems. If upon the removal of a
Committed System from this Agreement for any reason other than termination or
expiration of this Agreement, the aggregate number of Homes Passed in all
Committed Systems hereunder falls below 750,000, then Operators will designate
additional Cable Systems as Committed Systems hereunder such that the total
number of Homes Passed in all Committed Systems under this Agreement is not less
than 750,000.
- 23 -
<PAGE> 24
18.6. Termination for Repeated Withdrawal of Committed Systems. In the
event that Operator withdraws from this Agreement pursuant to Section 18.1 above
(not including Committed Systems withdrawn pursuant to Section 18.4 above) a
number of Committed Systems equal to or greater than 50% of the total number of
Committed Systems initially included in Exhibit A to this Agreement as of the
Effective Date, then Operator shall have the right to terminate this Agreement
upon thirty (30) days prior written notice to HSAC, without any further
liability or obligation to HSAC.
19. EXCLUSIVITY TERMINATION. In addition to those reasons permitted elsewhere in
this Agreement, Operator may also terminate HSAC's exclusive rights under
Section 2.1 hereof if it is reasonably necessary to comply with any statutes,
regulations, or court orders.
20. INDEPENDENT CONTRACTORS. All work performed by HSAC in connection with the
HSAC Service described in this Agreement shall be performed by HSAC as an
independent contractor and not as the agent, employee, joint venture or partner
of Operator. All persons furnished by HSAC shall be for all purposes solely
HSAC's employees or agents and shall not be deemed to be employees of Operator
for any purpose whatsoever. HSAC shall furnish, employ, and have exclusive
control of all persons to be engaged in performing services under this Agreement
and shall prescribe and control the means and methods of performing such
maintenance services by providing adequate and proper supervision. Nothing
contained herein shall be deemed to create a relationship of joint venture,
associates, principal and agent or partnership between the parties hereto and
neither party shall hold itself out to the contrary. Each party is acting as
principal hereunder.
21. FORCE MAJEURE. Neither party shall be responsible for any Service Failure or
delay or failure in performance of any part of this Agreement to the extent that
such delay or failure is caused by fire, flood, explosion, war, lightning,
embargo, government requirement, riots or civil commotion, acts of civil or
military authority, embargoes, strikes, acts of God, power surges, acts or
omissions of carriers/utilities, or other causes or contingencies beyond its
reasonable control (a "Force Majeure"); provided, that (i) neither party shall
be relieved under this Section 21 from its obligations under Section 7 hereof
with respect to timely repairs of Service Failures caused by such Force Majeure,
and (ii) HSAC has complied with the manufacturers' or vendors' suggested
maintenance for any equipment used in providing the HSAC Services to the extent
such maintenance would have reduced the likelihood of or damage caused by any
Force Majeure. If any such event of Force Majeure occurs and such event
continues for ninety (90) days or more, the party delayed or unable to perform
shall give immediate notice to the other party, and the party affected by the
other's delay or inability to perform may elect to suspend performance of its
allocable portions or duties with respect to the HSAC Services for the duration
of the condition. The affected party may resume performance of its duties once
the condition ceases, and the period of this Agreement shall be deemed extended
for such affected Committed System up to the length of time the condition
endured.
- 24 -
<PAGE> 25
22. ASSIGNMENT. HSAC shall not have the right to assign this Agreement to any
person or entity without the prior written consent of Operators, except that
HSAC may without Operator's consent assign its rights, but not its obligations,
to a subsidiary of HSAC, provided, that, no such assignment will relieve HSAC of
liability for its obligations hereunder. Operators may assign this Agreement to
any person or entity, and this Agreement shall be binding and inure to the
benefit of their successors and assigns. Each party shall be permitted to assign
this Agreement and grant a security interest in its contract rights and
tangible/intangible property interests (including the HSAC Network Equipment and
Home Equipment Packages) arising under this Agreement for purposes of securing
financing from its commercial lender(s). However, as a condition to doing so,
HSAC shall be obligated to obtain non-disturbance agreements in form and
substance satisfactory to Operators from each such lender under which such
lender agrees that, notwithstanding such lender's exercise of its rights as a
secured creditor, such lender and its assigns shall not disturb, affect or
interfere with HSAC's provision of the HSAC Services hereunder. All assignments
in contravention of this Section 22 shall be null and void and of no force or
effect. Either party shall provide the other party with thirty (30) days prior
written notice of any permitted assignment hereunder.
23. AMENDMENTS, MODIFICATIONS, OR SUPPLEMENTS. Amendments, modifications, or
supplements to this Agreement shall be permitted, provided all such changes
shall be in writing signed by the authorized representatives of both parties
unless otherwise expressly permitted in this Agreement, and all such changes
shall reference this Agreement and identify the specific articles or Sections of
this Agreement that is amended, modified, or supplemented.
24. NOTICES. All notices, demands, or other communications herein provided to be
given or that may be given by any party to the other shall be deemed to have
been duly given when made in writing and delivered in person, or upon receipt,
if (a) deposited in the U.S. mail, postage prepaid, certified mail, return
receipt requested; (b) sent by nationally recognized overnight courier in a
postpaid wrapper, or (c) by facsimile, addressed as follows:
Notices to HSAC: HIGH SPEED ACCESS CORP.
1000 West Ormsby Ave., Suite 210
Louisville, KY 40210
Attn: W. Kent Oyler, CEO
Phone: 502-515-3232
Fax: 502-515-3101
With a copy to: John G. Hundley, General Counsel
Phone: 502-515-3342
Fax: 502-515-3101
Notices to Operator: CHARTER COMMUNICATIONS, INC.
12444 Powerscourt Drive, Suite 400
St. Louis, MO 63131
- 25 -
<PAGE> 26
Attn: Steve Silva, SVP
Phone: 314-965-0555
Fax: 314-965-8793
With a copy to: Curt Shaw, General Counsel
Phone: 314-965-0555
Fax: 314-965-8793
MARCUS CABLE, INC.
Attn: Steve Silva, SVP
Phone: 314-965-0555
Fax: 314-965-8793
With a copy to: Curt Shaw, General Counsel
Phone: 314-965-0555
Fax: 314-965-8793
or to such address as the parties may provide to each other in writing from time
to time.
25. OBLIGATIONS TO SURVIVE TERMINATION. The parties recognize and agree that the
provisions of Sections 1, 10, 11,13, 14,15, 20, and 22 through 32 of this
Agreement, shall survive the cancellation, termination, or expiration of this
Agreement with respect to each Committed System.
26. GOVERNING LAW. The validity, construction, interpretation, and performance
of this Agreement shall be governed by and construed in accordance with the laws
of the State of Delaware, without reference to the conflicts of laws principles
thereof.
27. HEADINGS. The headings contained in this Agreement are for convenience of
reference only and are not intended to have any substantive significance in
interpreting this Agreement.
28. WAIVERS. Any waiver by either party of any breach of any term or condition
hereof shall be effective only if in writing and such writing shall not be
deemed to be a waiver of any subsequent or other breach, term or condition of
this Agreement.
29. RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies provided by this
Agreement and Annexes hereto 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.
- 26 -
<PAGE> 27
30. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
any of which may be deemed an original, but all of which taken together will
constitute one and the same instrument. This Agreement may be executed and
delivered by facsimile.
31. EQUAL CONSTRUCTION. This Agreement is negotiated and drafted by parties
equally represented by counsel and no clause or provision herein should be
construed as having been drafted other than equally by both parties.
32. ENTIRE AGREEMENT. This Agreement and the Exhibits thereto and hereto
constitute the entire agreement between the parties and any parties who have in
the past or who are now representing either of the parties hereto, and replaces
and supersedes all prior agreements, written and oral, relating to the subject
matter hereof, between the parties to this Agreement.
[The rest of this page is left intentionally blank.]
- 27 -
<PAGE> 28
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the day and year first written above.
HIGH SPEED ACCESS CORP.
By: /s/ Robert S. Saunders
-----------------------------
Date:
---------------------------
CHARTER COMMUNICATIONS, INC.
By: /s/ Curtis S. Shaw
------------------------------
Date:
----------------------------
MARCUS CABLE, INC.
By: /s/ Curtis S. Shaw
------------------------------
Date:
----------------------------
- 28 -
<PAGE> 29
LIST OF EXHIBITS
EXHIBIT A CABLE TELEVISION/AFFILIATE COMMITTED SYSTEMS COVERED BY THIS
AGREEMENT
EXHIBIT B SYSTEM DATA REQUIREMENTS
EXHIBIT C ESCALATION PROCEDURES FOR TROUBLESHOOTING
EXHIBIT D REVENUE SPLITTING; BILLING
EXHIBIT E CUSTOMER END USER/INTERNET SERVICES AGREEMENTS
EXHIBIT F QUALITY CONTROL
EXHIBIT G SYSTEM SERVICE REQUIREMENTS
EXHIBIT H CONVERSION REQUIREMENTS
<PAGE> 30
EXHIBIT A
COMMITTED SYSTEMS COVERED BY THIS AGREEMENT
[ATTACHED]
<PAGE> 31
EXHIBIT B
CABLE SYSTEM DATA REQUIREMENTS
(TECHNICAL REQUIREMENTS FOR RF PLANTS)
1. HSAC shall inspect and characterize Operator's one-way and two-way
RF cable plant to determine its feasibility for digital data transmission for
One-Way or Two-Way cable modems. This characterization shall focus on the
integrity of the cable plant against interference, intermodal distortions,
ingress, system noise, and transient/impulse noise.
2. HSAC has established guidelines for Operator wishing to implement
digital data transmission on their cable plant. The guidelines shall recommend
CATV plant and equipment configurations to achieve a desired level of signal
reliability and quality in digital data transmission.
3. Operator's RF/cable network must possess at least 400 MHz of
bandwidth (with at least one (1) 6 MHz channel reserved and dedicated to HSAC
Service/data flow) and otherwise continuously meet the following minimum
performance standards, measured at designated end-of-line test points throughout
the cable plant. Although constituting on a sample of pertinent issues, the
following test points should be selected such that they are representative of
all areas of the cable distribution system. Each Committed System's head-end
must also pass at least 4,000 homes.
4. HSAC shall issue a written report detailing the RF/cable network
deficiencies and recommendations for improvements, i.e., the Attainment
Measures.
ANALOG PERFORMANCE PARAMETERS
a. In-Band Frequency Amplitude Response - Frequency response
of the cable network indicates the variation of system gain as a function of
frequency measured in dB. As a general guideline the amplitude characteristic
shall be within a range of +/- 2 dB from 0.75 MHz to 5.0 MHz above the lower
boundary frequency of a cable television channel, referenced to the average of
the highest and lowest amplitudes within these frequency boundaries.
b. VISUAL CARRIER-TO-NOISE RATIO (CNR) - The guideline that
HSAC establishes for CNR values is in accordance with FCC specification
76.6059(a)(7) that defines the ratio of RF visual signal level to system noise
to be not less than 43 dB.
c. DISTORTIONS - Distortions are defined as the ratio of
visual signal level to RMS amplitude of any coherent disturbances such as
intermod products, second and third-order distortions or discrete frequency
interfering signals not operating on proper offset assignments. The guideline
which HSAC has established is defined by FCC specification 76.605(a)(8) and
specifies the following: (i) the ratio of visual signal level to coherent
<PAGE> 32
disturbances shall not be less than 51 dB for non-coherent channel cable
television systems, when measured with modulated carriers; and (ii) the ratio of
visual signal level to coherent disturbances which are frequency-coincident with
the visual carrier shall not-be less than 47 dB for coherent channel cable
systems, when measured with modulated carriers and time-averaged.
d. HUM MODULATION - This is the variation in the amplitude of
a CW carrier at the power line frequency of 60 Hz or its harmonics induced as a
result of passing through the cable network. The HSAC guideline is defined by
FCC regulation 76.605(a)(10), which requires that the peak-to-peak variation in
visual signal level caused by undesired low frequency disturbances (hum or
repetitive transients) generated within the system, or by inadequate low
frequency response, shall not exceed 3 percent.
e. INGRESS AND IMPULSE NOISE LEVELS - Ingress is the level of
unwanted ambient signals leaking into the CATV plant as a result of such things
as imperfect shielding, loose connectors, cracked cabling and other plant
defects. Impulse noise has different spectral characteristics, which invades
spectral power densities as the frequency increases. Causes of impulse noise
include AC arcing of electric motors, power utility transformers, electrostatic
discharges, lightning and other transient sources that can produce a loss of
synchronization on digital transmission systems. In characterizing plant
performance, HSAC guidelines dictate that impairments should be maintained,
collectively, at a nominal averaged level not to exceed -50 dBc with respect to
video carriers, while recognizing that noise becomes visible in the video domain
at -55 dBc and shall thus cause deterioration to optimum synchronization of the
data carrier. Further, to maintain optimal RF downstream efficiency, HSAC
specifies impairments that cause end-of-line Carrier-to-Noise (CNR) performance
to drop below a minimum constant value of 43 dB is unacceptable and shall result
in interrupted high-speed data access service to the customer.
f. GROUP DELAY RESPONSE DISTORTION - No standards are
currently defined that specify minimum performance for this parameter. HSAC
guidelines however specify that as a general rule, delay response over the
return path should match that over the forward path. It is recommended that the
return frequencies be located 6 MHz from either the upper of lower limits of the
return bandwidth. This shall help minimize any group delay associated with the
roll-up or roll-off of the return spectrum.
g. RETURN PLANT VISUAL CARRIER-TO-NOISE RATIO (CNR) - HSAC
guidelines specify a minimum 36 dB visual CNR over the forward plant, defining
40 dB CNR as the more ideal threshold parameter. The expected higher level of
noise sources in the return path is mitigated by the reduction of video and data
carriers on the upstream.
h. RETURN IN-BAND FREQUENCY AMPLITUDE RESPONSE DISTORTION -
HSAC guidelines are consistent with FCC specification 76.605(a)(6), requiring
that the amplitude characteristic of a video carrier in the return direction to
be within a range of +/- 2 dB from 0.75 MHz to 5.0 MHz should also apply to
reverse video transmission.
<PAGE> 33
i. DISTORTION - HSAC expects that the level of CSO and CTB
distortions on the return path* shall be generally lower than the forward path,
due to the limited number of RF video carriers interacting with each other in
this sub-low frequency spectrum. To maintain the integrity of the return path
data transmission, HSAC would generally not expect to see more than two video
carriers in this spectrum. Therefore, HSAC guidelines for distortions in the
return path follow the same FCC specification 76.605(a)(8) which applies to the
forward path, which is not less than 51 dB for standard CATV systems (modulated
carriers and time averaged).
j. SIGNAL AVAILABILITY- HSAC in cooperation with the Operator
shall jointly maintain the same goal of providing reliable, uninterrupted signal
transport over both the forward and reverse plant*. Cable maintenance practices
that routinely interrupt service must be discouraged, and HSAC requests that
Operator provide it with advance notice of any interruptive testing or
maintenance practice that could result in the disruption of signal flow in
either the forward or return path. This advance notice is required in order that
proper customer service levels can be adequately maintained. In extreme cases,
high speed data customers can be notified of possible service disruptions.
k. TESTING - HSAC and Operator jointly agree to periodically
test the forward and return RF paths* of the CATV system. Such testing is
required to document performance parameter thresholds to the extent that
high-speed data services are not adversely affected. In the absence of such
routine testing, Operator agrees to notify HSAC of any adverse irregular signal
level condition on the plant, intermittent or continuous, which persists longer
than a 12-hour interval.
* Applies only to 2-way cable plant high speed data solution. Single path, 1-way
hybrid high speed data solutions need not adhere to these specifications.
<PAGE> 34
EXHIBIT C
ESCALATION PROCEDURES FOR TROUBLESHOOTING
TIER I SUPPORT
Tier I customer service/On-Line Help Desk is the "front line" of the HSA
Corp./MSO product offering. The responsibility of Tier I service is to provide
information to the customer, initiation and changes of service, billing
inquiries and some low-level trouble shooting, and frequently asked questions.
Tier I shall include the following:
- - Start, stop and changes of service
- - Determination of service eligibility
- - Product information
- - Provisioning and initial setup script - IP address generation, logins,
email setup, password capturing, etc.
- - Service installation and dispatch scheduling and setup
- - Trouble ticket status reporting
- - Initial problem resolution. Tier I shall include reasonably simple
scripted troubleshooting (based on script provided by HSCA) and cable
network related problem diagnosis
- - Billing and pricing questions
TIER II SUPPORT
In the event that Tier I is not able to resolve any Service Failures or any Tier
I problems within twenty four (24) hours such Service Failure and Tier I
problems shall escalate to Tier II. Tier II customer service is the diagnostic
and problem resolution layer of the HSAC/MSO customer service offering. In this
layer, the symptoms of the problems are understood and recorded, the problem(s)
are determined and action is taken to resolve problem(s). This group shall have
advanced technical troubleshooting skills and tools. Support from this group
shall include:
- - Desktop OS support.
- - HSAC network information.
- - HSAC delivered software support.
- - Problem diagnosis and resolution.
- - Build knowledge base and on-line information systems.
- - Handle Wed and E-mail support.
TIER III SUPPORT
In the event that Tier II is not able to resolve any Service Failures or any
Tier II problems within forty eight (48) hours such Service Failure and Tier II
problems shall escalate to Tier III. Tier III shall provide customer service and
network operations support. This group shall handle any call not able to be
resolved by Tier II. In addition to resolving the more difficult customer
problems, this group shall be doing ongoing network monitoring. This
<PAGE> 35
group shall work twenty four (24) hours a day, seven (7) days a week with all
available personnel to resolve all Tier III problems.
Notwithstanding the above, within 60 days of the Effective Date of this
Agreement, the parties will mutually agree to a written Escalation procedure
that will, include, without limitation, daily notification to Operators of all
customers experiencing an outage or trouble call as used in the Service
Requirements Exhibit beyond 24 hours.
<PAGE> 36
EXHIBIT D
REVENUE SPLITTING; BILLING
SPLITTING OF GROSS REVENUES.
D.1 Base Payments for HSAC Services. During the Term of this Agreement
as to a particular Committed System, if Operator designates HSAC to handle
billing of Data Subscribers, HSAC shall pay to the Operator an amount (i.e.,
"Operator's Share") equal to the percentages, by service category, as shown in
TABLE A, of Gross Revenues. If Operator decides to handle billing of Data
Subscribers, it shall pay to HSAC an amount (i.e., "HSAC's Share") equal to 100%
of Gross Revenues minus the percentage Operator's Share, by service category, of
Gross Revenues as shown in TABLE A.
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
D.2 Data Subscriber Refunds. HSAC's local management shall have the
discretion to offer reasonable credits/refunds of Gross Revenues to Data
Subscribers resulting from Out-of-Compliance Events, which amounts shall be
deducted from the Operator's Share or added to HSAC's Share, as the case may be.
The determination of when Out-of-Compliance Events occur may be monitored and
reported by HSAC to the Operator on a monthly basis. As used herein, an
"Out-of-Compliance Event" occurs when the HSAC Services are rendered inoperable
or unusable due to the Committed Systems failing to meet System Data
Requirements or to a Service Failure traceable to the Operator's RF
Plant/Committed Systems (and such is not corrected within the period specified
in Section 7.3.4 of the Agreement) other than failures caused by a Force
Majeure.
D.3 Settlement, Verification. Within thirty (30) days following the end
of each and every calendar month during the term thereof, the party handling
billing and collection shall deliver to the other party a statement (a
"Statement") showing the computation of the Operator's/HSAC's Share (derived
from the total number of Data Subscribers and Gross Revenues) in accordance with
this EXHIBIT E, which Statement shall specify amounts collected by region, and
remit same by negotiable instrument. Each party shall keep books and records
relating to the Operator's Share and HSAC's Share in accordance with generally
accepted accounting principles, consistently applied. During the Term hereof and
for three years thereafter, both HSAC and the Operator or their authorized
representatives may, at its own expense, visit each other's offices during
regular business hours, subject to suitable protections relating to
confidentiality and non-disclosure, to inspect and make extracts and copies of
any such books and records in order to determine the accuracy of the Statements.
<PAGE> 37
If any audit of Statements undertaken by either party in accordance with this
Section E.3 discloses a five percent (5%) or greater discrepancy from the
Statement(s) generated by the audited party, such party shall pay such amounts
to the auditing party and reimburse the auditing party for all costs incurred in
connection with such audit.
D.4 Billing. Operator shall determine on a Committed System-by-System
basis which of Operator or HSAC will invoice Data Subscribers and collect Gross
Revenues. Operator shall provide HSAC access (both print copy and electronically
at HSAC's expense) to its Customer Lists and other customer databases on a
confidential basis for the purpose of developing and implementing a billing
system. HSAC and Operator shall work together to develop and implement an
electronic interface between HSAC and Operator for tracking and invoicing Data
Subscribers and vendors. With respect to those Committed Systems where HSAC in
invoicing the Data Subscribers, HSAC shall at its expense arrange for a data
exchange/software interface to be written and implemented which enables HSAC to
access and interface with Operator's billing system for purposes of updating on
a real-time basis both HSAC's and Operator's systems regarding the status of
Data Subscriber accounts so that such accounts may be automatically managed in
the same manner that as Cable Subscriber accounts are managed.
D.5 Most Favored Nation. Notwithstanding anything set forth herein to
the contrary, HSAC agrees that during the term of this Agreement the Operator's
Share paid to Operator under paragraph E.1 above shall not be less than that
paid to other MSO or Cable System operators with whom HSAC contracts to provide
HSAC Services.
<PAGE> 38
EXHIBIT E
CUSTOMER END USER/INTERNET SERVICES AGREEMENTS
See attached
<PAGE> 39
EXHIBIT F
QUALITY CONTROL
CONDITIONS AND LIMITATIONS ON OPERATOR MARKS LICENSE
OWNERSHIP.
HSAC agrees and expressly acknowledges that nothing
herein shall give it any right, title, or interest in the Operator's trademarks,
service marks, and brands (except the right to use as a licensee in accordance
with the terms of this Agreement), that the Operator's Trademarks, service
marks, and brands are the sole property of the Operators and its affiliates and
that any and all use of the Operator's Trademarks, service marks, and brands by
HSAC inures to the benefit of the Operator and its affiliates.
HSAC agrees not to raise or cause to be raised any
questions, claims or objections concerning the validity of Operator's and/or its
affiliates' title to the Operator's Trademarks, service marks, and brands on any
grounds whatsoever. HSAC agrees it will do nothing inconsistent with the
ownership of the Operator's Trademarks, service marks, and brands by Operator
and/or its affiliates and agrees to notify Operator and its affiliates of any
unauthorized or inappropriate uses of the Operator's trademarks, service marks,
and brands of which it becomes aware. HSAC shall provide reasonable assistance
(at Operator and its affiliates' expense) in any defense against challenges to
the Operator's trademarks, service marks, and brands, if requested to do so by
Operator and its affiliates.
If HSAC is required to register the Operator's
trademarks, service marks, and brands under any statute for registration of
fictitious business names or any other type of registration, HSAC shall notify
Operator and its affiliates before registration and shall only register in a
form approved by Operator and its affiliates. Upon termination of this
Agreement, HSAC shall immediately take all necessary steps to eliminate any such
registrations.
SUBLICENSES.
HSAC shall not sublicense its right to use the
Operator's trademarks, service marks, and brands under this Agreement without
the prior written consent of Operator and its affiliates, which may be withheld
for any reason.
RESTRICTIONS ON USE.
All uses of the Operator's trademarks, service marks,
and brands by HSAC shall be made together with the appropriate ["(TM)"] ["(R)"]
symbol in connection with the Operator's trademarks, service marks, and brands.
All uses of the Operator's trademarks, service marks,
and brands by HSAC shall include a legend indicating that each of Operator's
Trademarks, service marks, and brands is owned by its respective owner.
<PAGE> 40
HSAC agrees not to use any mark or device identical
with or confusingly similar to the licensed Operator's trademarks, service
marks, and brands in connection with any HSAC Product or service, except as
permitted by this Agreement.
QUALITY CONTROL.
HSAC agrees to use the Operator's trademarks, service
marks, and brands only in connection with the lawful goods and/or services
specified herein, and agrees that such goods and/or services shall be of a
standard of quality at least as high as that of similar goods and/or services
produced by Operator and its affiliates. Operator and its affiliates alone shall
judge, in its reasonable discretion, whether or not HSAC has met or is meeting
the standards of quality so established.
At least once each year, HSAC shall provide Operator
and its affiliates with (i) at least one (1) representative sample of each
Licensed Product, (ii) at least one (1) representative set of materials used in
providing each Licensed Service, (iii) at least two (2) different representative
samples of advertising for Licensed Products and Services, and (iv) at least two
(2) different representative samples of advertising for Licensed Services. Upon
Operator and its affiliates' reasonable request, HSAC shall provide Operator and
its affiliates with additional, different samples of the items set forth in the
foregoing sentence and permit inspection of HSAC's operation.
If at any time HSAC's products, packaging therefor,
or services associated with the Operator's trademarks, service marks, and brands
do not meet the quality standard set forth herein as reasonably determined by
Operator and its affiliates, Operator and its affiliates shall have the right to
require HSAC to discontinue the use of the Operator's trademarks, service marks,
and brands in connection with the sale of such products and/or services unless
modifications satisfactory to Operator and its affiliates are made within ninety
(90) days from notice of disapproval.
HSAC shall comply with all applicable laws and
regulations and obtain all appropriate governmental approvals pertaining to the
sale, distribution, and advertising of goods or services covered by this
license.
COSTS OF USING OPERATOR'S TRADEMARKS, SERVICE MARKS, AND BRANDS.
HSAC shall bear any and all costs associated with the
use, printing, and placing of the Operator's trademarks, service marks, and
brands on all retail boxes, documents, or web pages.
<PAGE> 41
EXHIBIT G
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 42
EXHIBIT H
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
COMMISSION.
<PAGE> 43
EXHIBIT I
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 1
EXHIBIT 10.10
HIGH SPEED ACCESS CORP.
Amended and Restated
Registration Rights Agreement
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"Agreement") is made and entered into as of the 25th day of November, 1998 by
and among HIGH SPEED ACCESS CORP., a Delaware corporation (the "Company"), and
the entities listed on Schedule I to this Agreement (collectively the
"Investors" and each an "Investor").
Recitals
WHEREAS, the Company, Broadband Solutions, LLC and Broadband
Solutions II, LLC entered into an Amended and Restated Registration Rights
Agreement dated as of September 1, 1998 (the "Previous Agreement"); and
WHEREAS, the parties to the Previous Agreement desire to amend
and restate the Previous Agreement in its entirety to, among other things, add
all of the Investors parties hereto; and
WHEREAS, the Company has agreed to grant to Investors certain
registration rights with respect to the capital stock of Company owned by
Investors, upon the terms and subject to the conditions set out in 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 "Common Stock" shall mean the Company's common stock, $.01
par value per share, or any capital stock exchanged therefor.
1.2 "Commission" shall mean the federal Securities and
Exchange Commission or any other federal agency at the time administering the
Securities Act.
1.3 "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.
1.4 "Holder" shall mean any Investor and any holder of
Registrable Securities to whom the registration rights conferred by this
Agreement have been transferred in compliance with Section 8 hereof.
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1.5 "Initiating Holders" shall mean any Holder or Holders of
not less than 25% of the Registrable Securities.
1.6 "Preferred Stock" shall mean the Company's Series A
Convertible Preferred Shares, $.01 par value per share, the Company's Series B
Convertible Preferred Shares, $.01 par value per share, and the Company's Series
C Convertible Preferred Shares, $.01 par value per share.
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 any of the Investors 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 transferred in accordance with
Section 8.
1.8 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.
1.9 "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.
1.10 "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.
1.11 "Rule 145" shall mean Rule 145 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 "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.
1.13 "Selling Expenses" shall mean all underwriting discounts,
selling commissions, and stock transfer taxes applicable to the sale of
Registrable Securities by and fees and disbursements of counsel for any Holder
(other than the fees and disbursements of counsel included in Registration
Expenses).
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2. Company Registration.
2.1 If the Company shall determine to register any of its
Common 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 form of
registration statement 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 otherwise delivered
in accordance with this Agreement 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 underwriter or underwriters
selected by the Company, including customary indemnification and contribution
agreements.
Notwithstanding any other provision of this Section 2, if the
lead representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the lead 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
10.
If any Holder does not agree to the terms of any such
underwriting, such Holder shall be excluded therefrom by written notice from the
Company or the lead representative of the underwriters. If shares are so
withdrawn from the registration and if the number of shares of Registrable
Securities to be included in such registration was previously reduced as a
result of
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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 of Registrable Securities so withdrawn, with such shares of
Registrable Securities to be allocated among the Holders requesting additional
inclusion in accordance with Section 10. Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall be withdrawn from
such registration.
3. Demand Registration.
3.1 Demand for Registration.
(A) If the Company shall receive from Initiating Holders at
any time or times following the completion by the Company of a Qualified Public
Offering (as defined below), 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, and, in any event, within
ninety (90) days after Company's receipt of a written request pursuant
to this Section 3.1, 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) 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 written request
received by the Company within thirty (30) business days after such
written notice from the Company is mailed or otherwise delivered in
accordance with this Agreement.
For purposes of this Agreement, a "Qualified Public
Offering" shall mean the Company shall have completed an underwritten
public offering of Common Stock , initiated by resolution of its Board
of Directors, at a per share price of at least $7.50 (as proportion
ately and appropriately adjusted to reflect any subdivision, reverse
split or recapitalization of Common Shares after the date hereof) and
not less than $50 million in aggregate gross proceeds to the Company
which has been made pursuant to a registration statement filed with the
Commission under the Securities Act.
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 qualify to do business or
execute a general consent to service of process
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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 Registrable Securities
requested by Initiating Holders to be included herein 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 a registration statement for
the account of the Company (other than in connection with a
Qualified Public Offering), and ending on a date ninety (90)
days after the effective date thereof;
[iv] During the one hundred eighty (180) day
period following the effective date of a registration
statement of the Company filed under the Securities Act in
connection with a Qualified Public Offering.
(B) In addition, notwithstanding the foregoing provisions of
and without limiting the rights of any party hereto under Section 3.1(A), if the
Company shall not have completed a Qualified Public Offering on or before the
third anniversary of the date of this Agreement, then Vulcan Ventures,
Incorporated or its permitted assigns ("Vulcan") shall be entitled to request
that the Company effect a registration with respect to any portion of the
Registrable Securities then owned by it (so long as Vulcan or such assigns hold
not less than 25% of the Registrable Securities) and the Company shall use its
best efforts to effect such registration in accordance with the procedures set
forth in this Section 3. The Company shall not, however, be obligated to effect,
or to take any action to effect, any such registration pursuant to this Section
3.1(B) if the Board of Directors of the Company shall have resolved to file a
registration statement to effect a Qualified Public Offering and during the
sixty (60) days thereafter the Company shall have filed such registration
statement with the Securities and Exchange Commission.
3.2 Postponed Registration. Subject to clauses [i] through
[iv] of Section 3.1(A), the Company shall file a registration statement covering
the Registrable Securities requested pursuant to such section, or pursuant to
Section 3.1(B), 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
an executive officer 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 for a period of not
more than ninety (90) days after receipt of the request of the Initiating
Holders, and, provided further, that the
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Company shall not defer its obligation in this matter more than once in any
eighteen month period. Notwithstanding the foregoing, nothing contained in this
Section 3.2 shall in any way restrict, reduce or postpone any registration right
of Vulcan provided in Section 3.1(B) of this Agreement.
The registration statement filed pursuant to the request of
the Initiating Holders may, subject to the provisions of this Section 3.2 and
Section 10 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. In connection with any underwriting effected
hereunder, the Company shall enter into such reasonable agreements (including
underwriting agreements) and make such representations and warranties and take
all such other actions in connection therewith in order to expedite or
facilitate the disposition of the Registrable Securities pursuant to any
applicable registration statement contemplated herein as may be reasonably
requested by any Holder in connection with any sale or resale pursuant to any
applicable registration statement. If any such Holder shall request that the
registration be in the form of a firm commitment underwritten offering, the
right of any such 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 to the
extent provided herein. In connection with a firm commitment underwritten
offering demanded by any Initiating Holder or Vulcan (pursuant to its right
under Section 3.1(B)), the Company shall: [i] upon request of any Holder,
furnish to each selling Holder and each underwriter, upon the effectiveness of
the registration statement (a) a certificate, dated such date, signed on behalf
of the Company by the principal executive officer of the Company, confirming, as
of the date thereof, that any preliminary prospectus or prospectus that is a
part of the registration statement as of their respective dates do not and will
not at any time contain an untrue statement of a material fact or omit to state
a material fact necessary, in light of the circumstances under which they were
made, not misleading, (b) an opinion of counsel for the Company covering matters
customarily set forth in an underwriting agreement for firm commitment
underwritten offerings, (c) a comfort letter from the Company's independent
accountants, in the customary form and covering matters of the type customarily
covered by comfort letters to underwriters in connection with firm commitment
underwritten offerings and (d) deliver such other documents and certificates as
may be reasonably requested by the selling Holders or the lead representative of
the underwriters in connection with such firm commitment underwritten offering.
A Holder may elect to include in such underwritten offering all or a part of the
Registrable Securities such Holder 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 or Vulcan (pursuant to its right under Section
3.1(B)) shall, on behalf of all Holders, offer to include such securities in the
underwritten offering and may condition such offer on their acceptance of the
further applicable provisions of this Agreement. In connection with an
underwritten offering hereunder, the Company shall (together with all Holders
and other persons proposing to distribute their securities through such
underwritten offering) enter into an underwriting agreement in customary form
(including customary indemnification and contribution provisions) with the lead
representative of the
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underwriter or underwriters selected for such underwriting by the Company, which
underwriters are reasonably acceptable to a majority in interest of the
Initiating Holders or Vulcan (pursuant to its right under Section 3.1(B)).
Notwithstanding any other provision of this Section 3, if the lead
representative of the underwriters advises the Initiating Holders in writing
that marketing factors require a limitation on the number of shares to be
included in such underwritten offering, the number of shares to be included in
the underwritten offering shall be allocated as set forth in Section 10 hereof.
If a Holder who has requested inclusion in such registration as provided above
does not agree to the terms of any such underwritten offering, such Holder shall
be excluded therefrom by written notice from the Company, the lead
representative of the underwriters or the Initiating Holders. If shares are so
excluded from the registration and if the number of shares of Registrable
Securities 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 Registrable Securities
in the registration the right to include additional Registrable Securities in
the registration in an aggregate amount equal to the number of shares of
Registrable Securities so excluded, with such shares of Registrable Securities
to be allocated among such Holders requesting additional inclusion in accordance
with Section 10.
4. Registration Expenses. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 2 and 3 hereof shall be borne by the Company. All Selling Expenses
relating to securities so registered shall be borne by the Company, except that
in no event shall the Company be responsible for payment of the underwriters'
discount and/or selling commissions in connection with the registration of the
Registrable Securities of any of the Holders.
5. 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:
5.1 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; 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);
5.2 Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus made a part of
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;
5.3 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;
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5.4 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;
5.5 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;
5.6 Advise the selling Holders promptly and, if requested by
such Holders, confirm such advice in writing, (i) when the prospectus or any
prospectus supplement or post-effective amendment has been filed, and, with
respect to any applicable registration statement or any post-effective amendment
thereto, when the same has become effective, (ii) of any request by the
Commission for amendments to the registration statement or amendments or
supplements to the prospectus or for additional information relating thereto,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the registration statement under the Securities Act or of the
suspension by any state securities commission of the qualification of the
Registrable Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, or (iv) of the
existence of any fact or the happening of any event that makes any statement of
a material fact made in the registration statement, the prospectus, any
amendment or supplement thereto or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes in
the registration statement in order to make the statements therein not
misleading, or that requires the making of any additions to or changes in the
Prospectus in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
registration statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption from
qualification of the Registrable Securities under state securities or blue sky
laws, the Company shall use its best efforts to obtain the withdrawal or lifting
of such order at the earliest possible time;
5.7 Furnish to each selling Holder named in any registration
statement or prospectus in connection with such sale, if any, before filing with
the Commission, copies of any registration statement or any prospectus included
therein or any amendments or supplements to any such registration statement or
prospectus (including all documents incorporated by reference after the initial
filing of such registration statement), which documents will be subject to the
review and comment of such Holders in connection with such sale, if any, for a
period of at least three business days, and the Company will not file any such
registration statement or prospectus or any amendment or supplement to any such
registration statement or prospectus (including all such documents incorporated
by reference) to which the selling Holders of the Registrable Securities covered
by such registration statement in connection with such sale, if any, shall
reasonably object within three business days after the receipt thereof. A
selling Holder shall be deemed to have reasonably objected to such filing if
such registration statement, amendment, prospectus or supplement, as applicable,
as proposed to be filed, contains a material misstatement or omission or fails
to comply with the applicable requirements of the Securities Act;
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5.8 Promptly prior to the filing of any document that is to be
incorporated by reference into a registration statement or prospectus, provide
copies of such document to the selling Holders in connection with such sale, if
any, make the Company's representatives available for discussion of such
document and other customary due diligence matters, and include such information
in such document prior to the filing thereof as such selling Holders may
reasonably request;
5.9 Make available at reasonable times for inspection by the
selling Holders participating in any disposition pursuant to such registration
statement and any attorney or accountant retained by such selling Holders, all
financial and other records, pertinent corporate documents of the Company and
cause the Company's officers, directors and employees to supply all information
reasonably requested by any such selling Holder, attorney or accountant in
connection with such registration statement or any post-effective amendment
thereto subsequent to the filing thereof and prior to its effectiveness;
5.10 If requested by any selling Holders in connection with
such sale, if any, promptly include in any registration statement or prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such selling Holders may reasonably request to have included
therein, including, without limitation, information relating to the "Plan of
Distribution"; and make all required filings of such prospectus supplement or
post-effective amendment as soon as practicable after the Company is notified of
the matters to be included in such prospectus supplement or post-effective
amendment;
5.11 Furnish to each selling Holder upon their reasonable
request in connection with such sale, if any, without charge, at least one copy
of the registration statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference therein and
all exhibits (including exhibits incorporated therein by reference);
5.12 Prior to any public offering of Registrable Securities,
cooperate with the Holders and their counsel in connection with the registration
and qualification of the Registrable Securities under the securities or blue sky
laws of such jurisdictions as the selling Holders may request and do any and all
other acts or things reasonably necessary or advisable to enable the disposition
in such jurisdictions of the Registrable Securities covered by the applicable
registration statement; provided, however, that the Company shall not be
required to register or qualify as a foreign corporation where it is not now so
qualified or to take any action that would subject it to the service of process
in suits or to taxation, other than as to matters and transactions relating to
the registration statement, in any jurisdiction where it is not now so subject;
5.13 Use its reasonable best efforts to cause the disposition
of the Registrable Securities covered by the registration statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities;
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5.14 Comply with all applicable rules and regulations of the
Commission, and make generally available to all Holders with regard to any
applicable registration statement, as soon as practicable, a consolidated
earnings statement meeting the requirements of Rule 158 (which need not be
audited) covering a twelve-month period beginning after the effective date of
the registration statement (as such term is defined in paragraph (c) of Rule 158
under the Securities Act); and
5.15 Make appropriate officers of the Company available to the
selling Holders for meetings with prospective purchasers of the Registrable
Securities and prepare and present to potential investors customary "road show"
material in a manner consistent with other new issuances of other securities
similar to the Registrable Securities.
6. Indemnification.
6.1 The Company will indemnify each Holder, each of its
officers, directors and partners, legal counsel, and accountants and each person
controlling such Holder within the meaning of Section 15 of the Securities Act
and each underwriter, if any, and each person who controls within the meaning of
Section 15 of the Securities Act any underwriter, with respect to which
registration, qualification, or compliance has been effected pursuant to this
Agreement, 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, each of its officers, directors, partners, legal
counsel, and accountants and each person controlling such Holder, 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, as such
expenses are incurred, 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 underwriter and stated to
be specifically for use therein. It is agreed that the indemnity agreement
contained in this Section 6.1 shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the written consent of the Company (which consent has not been
unreasonably withheld). The foregoing indemnity agreement is in addition to any
liability which the Company may otherwise have to any Holder or any such
director, officer, partner, legal counsel, accountant, underwriter or control
person.
6.2 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
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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 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 written consent of
such Holder (which consent shall not be unreasonably withheld); and provided,
however, that in no event shall any indemnity under this Section 6.2 exceed the
gross proceeds from the offering received by such Holder with respect to its
sale of Registrable Securities pursuant to the prospectus less the amount of any
damages that such Holder has otherwise been required to pay by reason of such
untrue statement or alleged untrue statement or omission or alleged omission.
The foregoing indemnity agreement is in addition to any liability which the
Holder may otherwise have to the Company or any such director, officer, partner,
legal counsel, accountant, underwriter or control person.
6.3 Promptly after receipt by an indemnified party under
paragraphs 6.1 or 6.2 above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such paragraph, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 6). In case any such action is
brought against any indemnified party, and it notifies an indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel satisfactory to
such indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by one of the indemnifying parties in connection
with the defense of such action, (ii) the indemnifying parties shall not have
employed counsel to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party
11
<PAGE> 12
or parties), in any of which events such fees and expenses shall be borne by the
indemnifying parties. Anything in this subsection to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement or
any claim or action effected without its written consent; provided, however,
that such consent was not unreasonably withheld.
6.4 If the indemnification provided for in this Section 6 is
for any reason 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 the Holder under this
Section 6.4 exceed the gross proceeds from the offering received by the Holder.
6.5 Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
7. Information by Holder. Each Holder of Registrable Securities shall
furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder 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.
8. 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 10,000 shares of Registrable Securities (as
presently constituted and subject to subsequent adjustments for stock splits,
stock dividends, reverse stock splits, and the like); provided, however, 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.
9. "Market Stand-Off" Agreement. If requested by the Company and the
lead representative of the underwriters of Common Stock (or other securities of
the Company), no officer, director, holder of more than five percent (5%) of the
outstanding capital stock of the Company or Holder shall sell or otherwise
transfer or dispose of any Common Stock (or other securities) of the
12
<PAGE> 13
Company held by such Holder (other than those included in the registration)
during a period of up to ninety (90) days following the effective date of a
registration statement of the Company filed under the Securities Act, provided
that 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.
The obligations described in this Section 9 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.
10. Allocation of Registration Opportunities. In any circumstance in
which all of the Registrable Securities and other shares of Common Stock 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. 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
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.
11. 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 favorable rights to the
Holders hereunder. Except for certain registration rights granted to certain
holders of the Company's Common Shares pursuant to the Registration Rights
Agreement dated February 23, 1998 among CATV.net, Inc. and certain others, which
provisions are incorporated herein by this reference, are adopted and affirmed
by the Company as of the date hereof, and shall survive the integration
provisions of Section 14.3 below, the Company represents and warrants as of the
date hereof that there is no other agreement existing
13
<PAGE> 14
giving any other person or entity any registration rights with respect to any
securities of the Company.
12. Reporting.
12.1 The Company agrees when required by law to 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.
12.2 The Company will 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.
12.3 The Company will provide written evidence of compliance
with Section 12.1 and the filing of all reports contemplated by Section 12.2 to
a Holder promptly upon receipt of a written request for such evidence from such
Holder.
13. Termination of Registration Rights. The right of any Holder to
request registration or inclusion in any registration pursuant to Section 2
shall terminate on the closing of the first Company initiated registered public
offering of Common Stock if all shares of Registrable Securities held or
entitled to be held upon conversion by such Holder may immediately be sold under
Rule 144 during any 90-day period, or on such date after the closing of the
first Company initiated registered public offering of Common Stock if all shares
of Registrable Securities held or entitled to be held upon conversion by such
Holder may immediately be sold under Rule 144 during any 90-day period;
provided, however that the provisions of this Section 13 shall not apply to any
Holder who owns more than five percent (5%) of the Company's outstanding stock
until such time as such Holder owns less than five percent (5%) of the
outstanding stock of the Company.
14. Miscellaneous.
14.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of Delaware without giving effect to the
principles of conflicts of laws thereof.
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
amends and restates in its entirety the Amended and Restated Registration Rights
Agreement dated as of September 1, 1998 among the Company, Broadband Solutions,
LLC and Broadband Solutions II, LLC. 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 with the consent of the holders of a
majority of each class or series
14
<PAGE> 15
of the then outstanding Preferred Stock voting as a separate class or series
(with each share having one vote), 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 Investors, to: To the address of each Investor set
out on Schedule I to this Agreement.
If to Company to: High Speed Access Corp.
Attn: W. Kent Oyler, III
Suite 210
1000 West 10th Street
Louisville, KY 40210
Telecopy No: (502) 515-3101
With a copy to: John G. Hundley, Esq.
High Speed Access Corp.
Suite 210
1000 West Ormsby Street
Louisville, KY 40210
Telecopy No: (502) 515-3101
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 theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any Holder of any breach or default under this Agreement or any
waiver on the part of any Holder of any provisions or conditions of this
Agreement must be 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.
15
<PAGE> 16
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.
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 substantially 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.
[End of Text]
16
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement effective as of the day and year first written above.
"COMPANY"
HIGH SPEED ACCESS CORP.
By: /s/ Robert S. Saunders
--------------------------------
Title: Vice Chairman
------------------------------
"INVESTORS"
BROADBAND SOLUTIONS, LLC
By: /s/ David A. Jones, Jr.
--------------------------------
Title: Managing Director
------------------------------
BROADBAND SOLUTIONS II, LLC
By: /s/ David A. Jones, Jr.
--------------------------------
Title: Managing Director
------------------------------
VULCAN VENTURES, INCORPORATED
By: /s/ William D. Savoy
--------------------------------
Title: Vice President
------------------------------
17
<PAGE> 18
SCHEDULE I
Vulcan Ventures, Incorporated
110 110th Avenue NE
Bellevue, Washington 98004
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
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT, NON-COMPETITION AND NON-DISCLOSURE AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of the 3rd day of April, 1998, by and between HIGH SPEED ACCESS CORP., a
Delaware corporation (the "Company"), CATV.NET, INC., a Kentucky corporation
("CATV"), and W.
KENT OYLER, III ("Employee").
RECITAL:
Employee is employed by CATV, a wholly-owned subsidiary of the
Company, pursuant to an Employment, Non-Competition and Non-Disclosure Agreement
dated February 23, 1998 between CATV and Employee (the "CATV Employment
Agreement").
The Company, CATV and Employee desire to terminate the CATV
Employment Agreement and enter into this Agreement providing for the employment
of Employee by the Company, on the terms and conditions hereinafter provided.
NOW, THEREFORE, it is agreed by and between the parties hereto
as follows:
1. Employment. The Company hereby employs Employee and Employee accepts
employment by the Company and agrees to serve the Company, upon the terms and
conditions hereinafter set forth.
2. Duties. Employee shall be employed by the Company as its Chief
Executive Officer. So long as he is employed hereunder, Employee agrees to
devote substantially all of his business time and energy to the business and
affairs of the Company, to perform his duties hereunder to the best of his
ability and at a level of competency consistent with the position occupied, to
act on all matters in a manner he reasonably believes to be in and not opposed
to the best interests of the Company, to use his best efforts, skill and ability
to promote the profitable growth of the Company, and to perform such duties as
are customarily performed by one holding the position of Chief Executive Officer
of a company comparable to the Company, and to perform such other duties as may
be assigned to him by the Company's Chairman or by the Company's Board of
Directors ("Board") from time to time.
Employee may volunteer his service to charitable, business and
other public service agencies, clubs or organizations; provided, however, that
Employee's activities under this clause shall not involve substantial amounts of
Employee's time and shall in no way interfere or detract from the performance of
Employee's duties to be performed hereunder. In addition, Company acknowledges
and understands that Employee is involved in various other business ventures and
activities and that Employee may devote an average of one to two business days
per month on such ventures and activities in a non-operational capacity
<PAGE> 2
but with the executive titles of President/CEO of OPM Services, Inc.,
President/CEO of OPM Flats, Inc. and Vice President/CFO of Henry Vogt Machine
Co.
3. Compensation and Benefits. For all services rendered by Employee,
the Company shall pay compensation and provide benefits to Employee as follows:
A. Salary. The Company shall pay Employee a salary ("Salary")
of $6,250.00 monthly. At least once every twelve (12) months the Board shall
review Employee's Salary and make such increases, but not decreases, to the
Salary as it reasonably deems appropriate.
B. Incentive Cash Bonus. Within sixty (60) days from the date
of this Agreement, the Compensation Committee of the Board shall establish an
incentive bonus plan providing Employee the opportunity to earn a cash bonus not
to exceed Seventy-Five Thousand Dollars ($75,000) based upon Employee's
achievement of specific goals concerning the financial performance of the
Company during the Company's fiscal year as established by the Compensation
Committee. The bonus, if payable, shall be paid to Employee within 90 days
following the end of the fiscal year of the Company.
C. Business Expenses. The Company shall reimburse Employee for
his reasonable direct out-of-pocket ordinary and necessary expenses, incurred by
Employee in the performance of his services hereunder and for which Employee
properly accounts in accordance with the Company's regulations and procedures in
effect from time to time.
D. Vacation. Employee shall be entitled to three (3) weeks
(fifteen business days) paid vacation during each 12-month period of his
employment, not to exceed five (5) business days during the first six months of
this Agreement. For the calendar year ending December 31, 1998, Employee shall
be entitled to five (5) paid personal leave days in addition to his vacation.
Employee shall not be entitled to carry over any unused vacation.
E. Additional Benefits. Employee shall be entitled to
participate (at the expense of the Company, where allowed under applicable law)
in any and all employee retirement, medical, life and disability insurance and
other benefits plans and perquisites as may be established and in effect from
time to time and made available to employees of the Company.
F. Review. At least every six months, the Board of Directors
shall review Employee's performance and shall communicate the results of such
review with Employee.
4. Withholding. The Company shall be authorized to deduct and withhold
from Employee's compensation such sums as are required by law to be deducted and
withheld.
5. Employment at Will. Employee's employment with the Company shall be
"at will".
2
<PAGE> 3
6. Covenants Not To Solicit or Compete.
A. Non-Competition. Employee agrees that for the period he is
employed by the Company and for a two-year period immediately following the
termination of his employment with 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 Company or any business or activity in which Company or
any successor to Company or CATV shall then be engaged;
[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 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 Employee does not own, directly or indirectly,
more than 3% of the securities of such corporation.
B. Non-Solicitation. Employee agrees that for the period he is
employed by the Company and for a two-year period immediately following the
termination of his employment with 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 Employee's employment with the Company terminates, or
was such a customer within the one-year period immediately prior thereto, or to
the knowledge of Employee at the date of termination of employment, 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 employment.
C. Affiliates. For purposes of this Section 6,
"Company" as used herein shall mean and include the Company and any affiliate
of the Company, including without limitation CATV.
7. Non-Inducement and Non-Disclosure.
A. Non-Inducement. Employee agrees that for the
period he is employed by the Company and for a two-year period immediately
following the termination of his
3
<PAGE> 4
employment with 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 in order to accept employment with Employee or
another person, partnership, corporation or other entity.
B. Non-Disclosure. At no time shall Employee 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 7,
"Company" as used herein shall mean and include the Company and any affiliate
of the Company, including without limitation CATV.
8. Injunctive Relief for Breach: Enforceability. Employee agrees that
Company may not be adequately compensated by damages for a breach by Employee of
any of the covenants contained in Sections 6 and 7, 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 6 and 7
shall be deemed extended for a period equal to the respective period during
which Employee is in breach 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 6 and 7 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.
Employee 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 Employee's breach
of any covenants contained in this Agreement or his failure to perform a duty
hereunder.
9. No Other Non-Compete Agreements. Notwithstanding anything to the
contrary contained herein, Employee hereby represents, warrants and covenants to
Company that Employee (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 hereunder or the full performance of all
of his duties hereunder, and (ii) has not, and will not, wrongfully use any
confidential information or know-how taken from another employer. Employee
hereby agrees to indemnify and hold the Company harmless from any claim, loss,
damage and expense hereafter incurred by the Company as
4
<PAGE> 5
a result of any breach of the foregoing representations, warranties or covenants
made by Employee in this Section.
10. Representations of Employee. The Employee hereby represents,
warrants and agrees with the Company, that the execution, delivery and
performance of this Agreement by the Employee (i) will not constitute a default
under or conflict with any agreement or instrument to which the Employee 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 Employee, and (iii) do not require the consent of any person or entity.
This Agreement has been duly executed and delivered by the Employee and
constitutes the valid and binding agreement of the Employee enforceable against
him in accordance with its terms.
11. 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: High Speed Access Corp.
Suite 210, 1000 West Ormsby Avenue
Louisville, Kentucky 40210
B. If to Employee: W. Kent Oyler, III
401 Duff Lane
Louisville, KY 40207
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.
12. Termination of CATV Employment Agreement. The CATV Employment
Agreement is hereby terminated and of no further force or effect and superseded
in its entirety by this Agreement.
13. Miscellaneous.
A. Assignment. This is a contract for personal services
by Employee and may not be assigned by Employee. This Agreement shall inure to
the benefit of and be binding upon the Company and its successors and assigns.
5
<PAGE> 6
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 Employee's employment by the Company are hereby canceled 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.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day, month and year first above written.
HIGH SPEED ACCESS CORP.
By: /s/ David A. Jones, Jr.
-------------------------------
Title:
-----------------------------
CATV.NET, INC.
By: /s/ W. Kent Oyler III
--------------------------------
Title: President
-----------------------------
/s/ W. Kent Oyler, III
------------------------------------
W. KENT OYLER, III
("Employee")
6
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT, NON-COMPETITION AND NON-DISCLOSURE AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of the 3rd day of April, 1998, by and between HIGH SPEED ACCESS CORP., a
Delaware corporation (the "Company"), HIGH SPEED ACCESS NETWORK, INC., a
Delaware corporation ("HSA") and RONNIE W. PITCOCK ("Employee").
RECITAL:
Employee is employed by HSA, a wholly-owned subsidiary of the
Company, pursuant to an Employment, Non-Competition and Non-Disclosure Agreement
dated April 3, 1998 between HSA and Employee (the "HSA Employment Agreement").
The Company, HSA and Employee desire to terminate the HSA
Employment Agreement and enter into this Agreement providing for the employment
of Employee by the Company, on the terms and conditions hereinafter provided.
NOW, THEREFORE, it is agreed by and between the parties hereto
as follows:
1 Employment. The Company hereby employs Employee and Employee accepts
employment by the Company and agrees to serve the Company, upon the terms and
conditions hereinafter set forth.
2 Duties. Employee shall be employed by the Company as its President.
So long as he is employed hereunder, Employee agrees to devote all of his
business time and energy to the business and affairs of the Company, to perform
his duties hereunder to the best of his ability and at a level of competency
consistent with the position occupied, to act on all matters in a manner he
reasonably believes to be in and not opposed to the best interests of the
Company, to use his best efforts, skill and ability to promote the profitable
growth of the Company, and to perform such duties as are customarily performed
by one holding the position of President of a company comparable to the Company,
and to perform such other duties as may be assigned to him by the Company's
Chairman or by the Company's Board of Directors ("Board") from time to time.
Employee may volunteer his service to charitable, business and
other public service agencies, clubs or organizations; provided, however, that
Employee's activities under this clause shall not involve substantial amounts of
Employee's time and shall in no way interfere or detract from the performance of
Employee's duties to be performed hereunder.
3 Compensation and Benefits. For all services rendered by Employee, the
Company shall pay compensation and provide benefits to Employee as follows:
<PAGE> 2
3.1 Salary. The Company shall pay Employee a salary ("Salary")
of $9,166.67 monthly. At least once every twelve (12) months the Board shall
review Employee's Salary and make such increases, but not decreases, to the
Salary as it reasonably deems appropriate.
3.2 Incentive Cash Bonus. Within sixty (60) days from the date
of this Agreement, the Compensation Committee of the Board shall establish an
incentive bonus plan providing Employee the opportunity to earn a cash bonus not
to exceed Fifty Thousand Dollars ($50,000) based upon Employee's achievement of
specific goals concerning the financial performance of the Company during the
Company's fiscal year as established by the Compensation Committee. The bonus,
if payable, shall be paid to Employee within 90 days following the end of the
fiscal year of the Company.
3.3 Business Expenses. The Company shall reimburse Employee
for his reasonable direct out-of-pocket ordinary and necessary expenses,
incurred by Employee in the performance of his services hereunder and for which
Employee properly accounts in accordance with the Company's regulations and
procedures in effect from time to time.
3.4 Vacation. Employee shall be entitled to three (3) weeks
(fifteen business days) paid vacation during each 12-month period of his
employment, not to exceed five (5) business days during the first six months of
this Agreement. Employee shall not be entitled to carry over any unused
vacation.
3.5 Additional Benefits. Employee shall be entitled to
participate (at the expense of the Company, where allowed under applicable law)
in any and all employee retirement, medical, life and disability insurance and
other benefits plans and perquisites as may be established and in effect from
time to time and made available to employees of the Company.
3.6 Review. At least every six months, the Board of Directors
shall review Employee's performance and shall communicate the results of such
review with Employee.
4 Withholding. The Company shall be authorized to deduct and withhold
from Employee's compensation such sums as are required by law to be deducted and
withheld.
5 Employment at Will. Notwithstanding any other provision of this
Agreement, Employee's employment with the Company shall be "at will".
6 Covenants Not To Solicit or Compete.
6.1 Non-Competition. Employee agrees that for the period he is
employed by the Company and for a two year period immediately following the
termination of his employment with the Company for any reason whatsoever, he
shall not, within the United States of America (the "Territory"), engage in any
of the following activities:
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<PAGE> 3
[a] 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 Company or any business or activity in which Company or
any successor to Company shall then be engaged;
[b] Directly or indirectly engage in any such
competitive business or render any such service on his own account; or
[c] 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 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 Employee does not own, directly or indirectly,
more than 3% of the securities of such corporation.
6.2 Non-Solicitation. Employee agrees that for the period he
is employed by the Company and for a two year period immediately following the
termination of his employment with 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 Employee's employment with the Company terminates, or
was such a customer within the one-year period immediately prior thereto, or to
the knowledge of Employee at the date of termination of employment, 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 employment.
6.3 Affiliates. For purposes of this Section 6, "Company" as
used herein shall mean and include the Company and any affiliate of the Company.
7 Non-Inducement and Non-Disclosure.
7.1 Non-Inducement. Employee agrees that for the period he is
employed by the Company and for a two year period immediately following the
termination of his employment with 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 in order to
accept employment with Employee or another person, partnership, corporation or
other entity.
7.2 Non-Disclosure. At no time shall Employee 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.
3
<PAGE> 4
7.3 Affiliates. For purposes of this Section 7, "Company" as
used herein shall mean and include the Company and any affiliate of the Company.
8 Injunctive Relief for Breach: Enforceability. Employee agrees that
Company may not be adequately compensated by damages for a breach by Employee of
any of the covenants contained in Sections 6 and 7, 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 6 and 7
shall be deemed extended for a period equal to the respective period during
which Employee is in breach 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 6 and 7 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.
Employee 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 Employee's breach
of any covenants contained in this Agreement or his failure to perform a duty
hereunder.
9 No Other Non-Compete Agreements. Notwithstanding anything to the
contrary contained herein, Employee hereby represents, warrants and covenants to
Company that Employee (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 hereunder or the full performance of all
of his duties hereunder, and (ii) has not, and will not, wrongfully use any
confidential information or know-how taken from another employer. Employee
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 Employee in
this Section.
10 Representations of Employee. The Employee hereby represents,
warrants and agrees with the Company, that the execution, delivery and
performance of this Agreement by the Employee (i) will not constitute a default
under or conflict with any agreement or instrument to which the Employee 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 Employee, and (iii) do not require the consent of any person or entity.
This Agreement has been duly executed and delivered by the Employee and
constitutes the valid and binding agreement of the Employee enforceable against
him in accordance with its terms.
11 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:
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11.1 If to the Company: High Speed Access Corp.
Suite 210, 1000 West Ormsby
Louisville, Kentucky 42010
11.2 If to Employee: Ronnie W. Pitcock
38 Lark Bunting Lane
Littleton, Colorado 80127
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.
12 Termination of HSA Employment Agreement. The HSA Employment
Agreement is hereby terminated and of no further force or effect and superseded
in its entirety by this Agreement.
13 Miscellaneous.
13.1 Assignment. This is a contract for personal services by
Employee and may not be assigned by Employee. This Agreement shall inure to the
benefit of and be binding upon the Company and its successors and assigns.
13.2 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.
13.3 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 Employee's employment by the Company are hereby canceled and
superseded by this Agreement.
13.4 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the remainder of this Agreement.
13.5 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.
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<PAGE> 6
13.6 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.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day, month and year first above written.
HIGH SPEED ACCESS CORP.
By /s/ David A. Jones, Jr
--------------------------------
Title______________________________
HIGH SPEED ACCESS NETWORK, INC.
By:/s/ Ronnie W. Pitcock
--------------------------------
Title: President
-----------------------------
/s/ Ronnie W. Pitcock
-----------------------------------
RONNIE W. PITCOCK
6
<PAGE> 1
EXHIBIT 10.14
PROMISSORY NOTE
$650,000.00 Louisville, Kentucky
April 3, 1998
FOR VALUE RECEIVED, the undersigned, HIGH SPEED ACCESS NETWORK, INC., a
Delaware corporation ("Borrower"), having an address of 3800 Lark Bunting Lane,
Littleton, Colorado 80127, hereby promises and agrees to pay to GANS MULTIMEDIA
PARTNERSHIP, a Pennsylvania general partnership ("Lender") having an address of
217 East 9th Street, Hazelton, Pennsylvania 18201, the aggregate principal sum
of SIX HUNDRED FIFTY THOUSAND DOLLARS ($650,000.00), 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 April 2, 2001 (the
"Maturity Date").
Principal of this Note together with any and all accrued and unpaid
interest and all other sums due and owing under this Note shall be due and
payable as follows: One Hundred Fifty Thousand Dollars ($150,000) of the
principal of this Note shall be due and payable on December 31, 1998; the
remaining principal balance of this Note and all accrued interest thereon shall
be due and payable on the Maturity Date.
The unpaid principal balance of this Note will accrue interest at a
rate per annum equal to 7%. 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. All accrued and unpaid interest on the principal
of this Note shall be payable on the Maturity Date.
Principal of this Note may be repaid in whole or in part without
penalty or premium at any time prior to maturity; provided, however, that
Borrower shall not be entitled to reborrow any amounts so prepaid. All
prepayments shall be applied to the indebtedness owing hereunder in such order
and manner as Lender may from time to time determine in its sole discretion.
All payments of principal and interest and any other sums due under
this Note shall be made in immediately available funds 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.
Unless otherwise agreed to, in writing, or otherwise required by applicable law,
payments will be applied among principal, interest, late charges, collection
costs and other charges at the discretion of Borrower.
To secure the indebtedness and undertakings and other obligations of
the Borrower evidenced by or established pursuant to this Note, Borrower, under
the terms of an Assignment and Security Agreement dated of even date herewith
("Security Agreement"), hereby pledges, assigns, transfers, and grants to Lender
a continuing security interest in all property described in Exhibit A attached
to and made a part hereof together with all instruments, documents, securities,
cash, property, and the proceeds of any of the foregoing, owned by Borrower or
in which Borrower has an interest.
The occurrence of any one or more of the following shall constitute a
default under this Note: (a) if principal or interest under this Note is not
paid as and when due, or within ten (10) days thereafter; (b) the failure to pay
or perform any obligations, liabilities or indebtedness of Borrower to Lender;
(c) the Borrower shall (i) voluntarily commence any proceeding or file any
petition seeking relief under Title 11 of the United States Code or any other
federal, state or foreign
<PAGE> 2
bankruptcy, insolvency, receivership, liquidation or similar law, (ii) consent
to the institution of, or fail to contravene in a timely and appropriate manner,
in any such proceeding or the filing of any such petition, (iii) apply for or
consent to the appointment of a receiver, trustee, custodian, sequestrator or
similar official for a substantial part of its assets, (iv) file an answer
admitting the material allegations of a petition filed against it in any such
proceeding, (v) make a general assignment for the benefit of creditors, (vi)
become unable, admit in writing its inability or fail generally to pay its debts
as they become due or (vii) take any action for the purpose of effecting any of
the foregoing; or (d) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(i) relief in respect of the Borrower, or of a substantial part of the property
or assets of the Borrower, under Title 11 of the United States Code or any other
federal, state, or foreign bankruptcy, insolvency, receivership, liquidation or
similar law or (ii) the appointment of a receiver, trustee, custodian,
sequestrator or similar official of the Maker or of a substantial part of the
property or assets of the Borrower; and any such proceeding or petition shall
continue undismissed for sixty (60) consecutive days or an order or decree
approving or ordering any of the foregoing shall continue unstayed and in effect
for sixty (60) consecutive days. Whenever there is a default under this Note the
entire principal balance of and all accrued interest on this Note shall, at the
option of Lender, become forthwith due and payable, without presentment, notice,
protest or demand of any kind (all of which are expressly waived by Borrower).
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 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 State of Kentucky.
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, including matters of construction, validity and performance,
and the obligations arising hereunder, shall be construed in accordance with and
otherwise governed in all respects by the laws of the State of Kentucky
applicable to contracts made and performed in such state and any applicable law
of the United States of America.
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
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<PAGE> 3
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 and/or modify the terms of the
Security Agreement and any other document securing or pertaining to 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.
Until October __, 1999, upon any liquidation, dissolution or winding up
of Borrower, the obligations under this Note, but not Lender's rights under the
Security Agreement, shall be subordinate to the obligations of Borrower to the
holders of Preferred Shares of Borrower as authorized by Borrower's Amended and
Restated Articles of Incorporation on the date hereof. Any merger or
consolidation of Borrower with or into any other corporation or entity or sale
of all or substantially all the assets of Borrower shall be deemed to be a
liquidation, dissolution or winding up of Borrower, except for a merger or
consolidation or sale of all or substantially all the assets of Borrower in
which the shareholders of Borrower immediately prior thereto shall, immediately
thereafter, hold as a group the right to cast at least a majority of the votes
of all holders of voting securities of the resulting or surviving corporation or
entity on any matter on which any such holders of voting securities shall be
entitled to vote. On and after October __, 1999, the obligations under this Note
shall rank pari passu with the obligations of Borrower to the holders of
Preferred Shares of Borrower as authorized by Borrower's Amended and Restated
Articles of Incorporation on the date hereof.
This Note evidences all indebtedness and obligations of Borrower to
Lender. This Note constitutes the entire agreement between Borrower and Lender
with respect to the subject matter hereof and supersedes any and all other
instruments or other documents evidencing the indebtedness which is the subject
matter hereof, however evidenced.
WITNESS the signature of the Borrower as of the ____ day of
___________, 1998.
"Borrower"
HIGH SPEED ACCESS NETWORK, INC.
By: /s/ Ronnie W. Pitcock
________________________________
(signature)
Name: Ronnie W. Pitcock
______________________________
(type or print)
Title: President
_____________________________
3
<PAGE> 1
EXHIBIT 10.17
High Speed Access Corp.
1998 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. Change in Control. A "Change in Control" occurs [i] if the
Company or any significant subsidiary of the Company merges or consolidates with
any entity and Broadband Solutions, LLC, or any affiliate thereof, does not own
equity securities of the surviving entity following such merger or
consolidation, or [ii] if all of the Company's outstanding capital stock is
acquired by a person, corporation or other entity which is not a shareholder of
the Company or an affiliate of the Company or any shareholder of the Company, or
[iii] upon the closing of the sale of the Company's Common Stock in a firm
commitment underwritten public offering registered under the Securities Act of
1933, as amended. A significant subsidiary of the Company shall mean any
subsidiary of the Company which, as of the last day of the fiscal year
immediately preceding such Change in Control, constituted fifty percent (50%) or
more of the assets of the Company or contributed more than fifty percent (50%)
to the net income of the Company during such fiscal year.
C. Code. The word "Code" means the Internal Revenue Code of
1986, as amended.
D. Common Stock. The term "Common Stock" means the Company's
common stock or the common stock or securities of a Successor that have been
substituted therefor pursuant to Section 8 hereof.
E. Company. The word "Company" means High Speed Access
Corp., a Delaware corporation, with its principal place of business at 1000 W.
Ormsby Ave., Suite 210, Louisville, Kentucky 40210.
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.
<PAGE> 2
G. Disability. The word "Disability" means, as defined by and
to be construed in accordance with Code Section 22(e)(3), any medically
determinable physical or mental impair ment 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. 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 HSAnet, Inc. 1998 Stock
Option Plan, as set forth herein, and as amended from time to time.
Q. Compensation Committee. The term "Compensation Committee"
means the committee appointed by the Board to administer the Plan, pursuant to
Section 4 hereof.
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
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<PAGE> 3
other than the last corporation in the unbroken 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. Successor. The word "Successor" means the entity surviving
a merger or consolidation with the Company, or the entity that acquires all or
substantially all of the Company's assets or 50% or more of the Company's
outstanding voting stock (whether by merger, purchase or otherwise).
T. 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 nine hundred thousand (900,000) 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.
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
3
<PAGE> 4
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.
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 who are also employees of the Company or a
Subsidiary, are eligible to receive ISOs and NSOs under the Plan. Key employees
of affiliates of the Company who provide services to the Company on a regular
basis ("Affiliate Employees") are eligible to receive NSOs under the Plan;
provided, however, that the aggregate number of shares of Common Stock which may
be issued under the Plan to Affiliate Employees shall not exceed forty five
thousand (45,000) shares. Key employees and Affiliate 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 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 of Common Stock on the Date of Grant. The fair market value of
Common Stock shall be determined by:
[i] if the Common Stock is traded on the over-the-counter
market, the closing high bid quotation for the Common Stock in the
over-the-counter market as reported
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by the National Association of Securities Dealers Automated Quotation
System, on the business day immediately preceding the Date of Grant;
[ii] if the Common Stock is listed on a national securities
exchange, the aver age of the closing prices of the Common Stock on the
Composite Tape for the ten (10) consecutive trading days 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 ISO shall expire and no longer be
exercisable at the earliest of the following times:
[1] ten (10) years from the Date of Grant;
[2] five (5) years after the Date of Grant, if
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 Disability,
discharge for cause, or death occurring less than three (3) months
after termination of employment;
[4] one (1) year after termination of employment with
the Company or a Subsidiary because of Optionee's 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.
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D. Exercise Period. Except to the extent provided otherwise by
Section 7.H hereof, and except as provided in Stock Option Agreements entered
into as of February 20, 1998 by the Company and each of Ron Daggett, Tim Emig
and David Wigglesworth, each stock Option granted under Section 5 hereof shall
be exercisable in the following cumulative installments:
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. Notwith standing
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, repre senting 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
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issuance tax or other incidental expenses to Optionee, deliver to Optionee, at
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 applica ble 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
in [i] cash, [ii] certified or cashier's check, [iii] whole shares of Common
Stock owned by the Optionee evidenced by negotiable certificates, [iv] 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. Acceleration. Notwithstanding the provisions of Sections
7.B or D hereof to the contrary, if there is a Change in Control, the exercise
dates of all outstanding Options shall accelerate so that each Option
outstanding may be exercised on or after the date of the Change in Control.
I. 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.
J. 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.
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<PAGE> 8
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, recapital ization, 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 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.
Such determination by the Compensation Committee shall be conclusive.
Without limiting the generality of the foregoing, if [a] there
is a Change in Control of the Company, and [b] as a result of the transactions
contemplated by the Change in Control, a Successor will acquire all or
substantially all of the assets or 50% of more of the Company's outstanding
voting stock, then the kind of shares of common stock which shall be subject to
the Plan and to each outstanding Option shall automatically be converted into
and replaced by shares of common stock, or such other class of equity securities
having rights and preferences no less favorable than common stock of the
Successor, and the number of shares subject to the Options and the purchase
price per share upon exercise of the Options shall be correspondingly adjusted,
so that, by virtue of such Change in Control of the Company, each Optionee shall
have the right to purchase [i] that number of shares of the Successor which, as
of the date of the Change in Control, have a fair market value equal to the fair
market value of the shares of the Company theretofore subject to an Option, [ii]
for a purchase price per share which, when multiplied by the number of shares of
the Successor subject to the Option, shall equal the aggregate exercise price at
which the Optionee could have acquired shares of the Company under such Option.
The granting of an Option pursuant to this Plan shall not
affect in any way the right and power of the Company to make adjustments,
reorganizations, reclassifications, or changes of its capital or business
structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or
any part of its business or assets; provided, however, that the Company shall
not, and shall not permit its Subsidiaries to, recommend or agree or consent to
a transaction or series of transactions which would result in a Change of
Control of the Company unless and until the person or persons acquiring or
succeeding to assets or capital stock of the Company or its Subsidiaries as a
result of such transaction or transactions agrees to be bound by the terms of
the Plan so far as it pertains to Options therefore granted and agrees to assume
and perform the obligations of the Company and its Successor under the Plan.
9. 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 of 1933, as amended, 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
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<PAGE> 9
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 re strictive 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.
10. STOCK RESTRICTION AGREEMENT. Upon the exercise of any Option and
the issuance of Common Stock to an Optionee, Optionee shall execute a Stock
Restriction and Buy Sell Agreement providing for a right of first refusal to the
Company prior to the sale of any Common Stock by an Optionee and an option to
the Company to repurchase at fair market value any shares of Common Stock issued
under the Plan upon the death, disability or termination of employment of an
Optionee.
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 31, 2008, ten (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 necessary to qualify the Plan under the
Securities and Exchange Commission Rule 16b-3. No amendment of the Plan,
however, may, without the consent of the Optionee or Optionee Representative,
make any changes in any
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<PAGE> 10
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 trans ferred 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 Kentucky.
17. EFFECTIVE DATE. The effective date of the Plan shall be
April 3, 1998. The Plan was adopted by the Board on April 3, 1998, and approved
by stockholders of the Company holding not less than a majority of the shares
represented and entitled to vote on April 3, 1998.
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Dated as of the 3rd day of April, 1998.
HIGH SPEED ACCESS CORP.
By: /s/ W. Kent Oyler III
-------------------------------
Title: CEO
-----------------------------
ATTEST:
- ------------------------------
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<PAGE> 1
Exhibit 10.20
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT dated as of March__, 1999 (the
"Agreement"), is entered into by and between High Speed Access Corp., a Delaware
corporation (the "Company"), and _____________________ ("Indemnitee").
R E C I T A L S
A. The Company is aware that competent and experienced persons
are increasingly reluctant to serve as directors of corporations unless they are
protected by comprehensive liability insurance or indemnification, due to
increased exposure to litigation costs and risks resulting from their service to
such corporations, and due to the fact that the exposure frequently bears no
reasonable relationship to the compensation of such directors.
B. The statutes and judicial decisions regarding the duties of
directors are often difficult to apply, ambiguous, or conflicting, and therefore
fail to provide such directors with adequate, reliable knowledge of legal risks
to which they are exposed or information regarding the proper course of action
to take.
C. Plaintiffs often seek damages in such large amounts and the
costs of litigation may be so enormous (whether or not the case is meritorious),
that the defense and/or settlement of such litigation is often beyond the
personal resources of directors.
D. The Company believes that it is unfair for its directors to
assume the risk of huge judgments and other expenses which may occur in cases in
which the director received no personal profit and in cases where the director
was not culpable.
E. The Company recognizes that the issues in controversy in
litigation against a director of a corporation such as the Company are often
related to the knowledge, motives and intent of such director, that he is
usually the only witness with knowledge of the essential facts and exculpating
circumstances regarding such matters, and that the long period of time which
usually elapses before the trial or other disposition of such litigation often
extends beyond the time that the director can reasonably recall such matters;
and may extend beyond the normal time for retirement for such director with the
result that he, after retirement or in the event of his death, his spouse,
heirs, executors or administrators, may be faced with limited ability and undue
hardship in maintaining an adequate defense, which may discourage such a
director from serving in that position.
<PAGE> 2
F. Based upon their experience as business managers, the Board
of Directors of the Company (the "Board") has concluded that, to retain and
attract talented and experienced individuals to serve as directors of the
Company and to encourage such individuals to take the business risks necessary
for the success of the Company, it is necessary for the Company to contractually
indemnify its directors, and to assume for itself maximum liability for expenses
and damages in connection with claims against such directors in connection with
their service to the Company, and has further concluded that the failure to
provide such contractual indemnification could result in great harm to the
Company and the Company's stockholders.
G. Section 145 of the General Corporation Law of Delaware,
under which the Company is organized ("Section 145"), empowers the Company to
indemnify its directors, officers, employees and agents by agreement and to
indemnify persons who serve, at the request of the Company, as the directors,
officers, employees or agents of other corporations or enterprises, and
expressly provides that the indemnification provided by Section 145 is not
exclusive.
H. The Company desires and has requested the Indemnitee to
serve or continue to serve as a director of the Company free from undue concern
for claims for damages arising out of or related to such services to the
Company.
I. Indemnitee is willing to serve, or to continue to serve,
the Company, provided that he is furnished the indemnity provided for herein.
A G R E E M E N T
NOW, THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Definitions.
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A. Expenses. For purposes of this Agreement, "expenses"
include all out-of-pocket costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements), actually and
reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or enforcing a
right to indemnification under this Agreement or Section 145 or otherwise;
provided, however, that "expenses" shall not include any judgments, fines, ERISA
excise taxes or penalties, or amounts paid in settlement of a proceeding.
B. Proceeding. For the purposes of this Agreement,
"proceeding" means any threatened, pending, or completed action, suit or other
proceeding, whether civil, criminal, administrative, or investigative.
2. Agreement to Serve. The Indemnitee agrees to serve and/or continue
to serve as director of the Company, at its will (or under separate agreement,
if such agreement exists), so long as he is duly appointed or elected and
qualified in accordance with the applicable provisions of the Bylaws of the
Company or until such time as he tenders his resignation in writing.
3. Liability Insurance.
A. Maintenance of D&O Insurance. At such time as the Board
deems it appropriate to obtain such insurance but not before such time, the
Company hereby covenants and agrees that, so long as the Indemnitee shall
continue to serve as director of the Company and thereafter so long as the
Indemnitee shall be subject to any possible proceeding by reason of the fact
that the Indemnitee was director of the Company, the Company, subject to Section
3.C, shall promptly obtain and maintain in full force and effect directors' and
officers' liability insurance ("D&O Insurance") in reasonable amounts from
established and reputable insurers.
B. Rights and Benefits. In all policies of D&O Insurance, the
Indemnitee shall be named as an insured in such a manner as to provide the
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors.
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<PAGE> 4
C. Limitation on Required Maintenance of D&O Insurance.
Notwithstanding the foregoing, the Company shall have no obligation to obtain or
maintain D&O Insurance if the Company determines in good faith that such
insurance is not reasonably available, the premium costs for such insurance are
disproportionate to the amount of coverage provided, the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.
4. Mandatory Indemnification. Subject to Section 8 below, the Company
shall indemnify the Indemnitee as follows:
A. Successful Defense. To the extent the Indemnitee has been
successful on the merits or otherwise in defense of any proceeding (including,
without limitation, an action by or in the right of the Company) to which the
Indemnitee was a party by reason of the fact that he is or was a director of the
Company at any time, against all expenses of any type whatsoever actually and
reasonably incurred by him in connection with the investigation, defense or
appeal of such proceeding.
B. Third Party Actions. If the Indemnitee is a person who was
or is a party or is threatened to be made a party to any proceeding (other than
an action by or in the right of the Company) by reason of the fact that he is or
was a director of the Company, or by reason of anything done or not done by him
in any such capacity, the Company shall indemnify the Indemnitee against any and
all expenses and liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding, provided the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and its stockholders, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
C. Derivative Actions. If the Indemnitee is a person who was
or is a party or is threatened to be made a party to any proceeding by or in the
right of the Company by reason of the fact that he is or was a director of the
Company, or by reason of anything done or not done by him in any such capacity,
the Company shall indemnify the Indemnitee against all expenses actually and
reasonably incurred by him in connection with the investigation, defense,
settlement, or appeal of such proceeding, provided the Indemnitee acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and its stockholders; except that no indemnification
under this subsection 4.C shall be made in respect to any claim, issue or matter
as to which such person shall have been finally adjudged to be liable to the
Company by a court of competent jurisdiction unless and only to the extent that
the court in which such proceeding was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
amounts which the court shall deem proper.
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<PAGE> 5
D. Actions where Indemnitee is Deceased. If the Indemnitee is
a person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was a director of the Company, or
by reason of anything done or not done by him in any such capacity, and if prior
to, during the pendency or after completion of such proceeding Indemnitee
becomes deceased, the Company shall indemnify the Indemnitee's heirs, executors
and administrators against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) actually and reasonably incurred
to the extent Indemnitee would have been entitled to indemnification pursuant to
Sections 4.A, 4.B, or 4.C above were Indemnitee still alive.
E. Notwithstanding the foregoing, the Company shall not be
obligated to indemnify the Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) for which payment is actually
made to or on behalf of Indemnitee under a valid and collectible insurance
policy of D&O Insurance, or under a valid and enforceable indemnity clause,
by-law or agreement.
5. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding, but not entitled, however, to indemnification for all of
the total amount hereof, the Company shall nevertheless indemnify the Indemnitee
for such total amount except as to the portion hereof to which the Indemnitee is
not entitled.
6. Mandatory Advancement of Expenses. Subject to Section 8.A below, the
Company shall advance all expenses incurred by the Indemnitee in connection with
the investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the fact
that the Indemnitee is or was a director of the Company. Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall be determined ultimately that the Indemnitee is not entitled to be
indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to the Indemnitee within twenty (20) days
following delivery of a written request therefor by the Indemnitee to the
Company.
7. Notice and Other Indemnification Procedures.
A. Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
B. If, at the time of the receipt of a notice of the
commencement of a proceeding pursuant to Section 7.A hereof, the Company has D&O
Insurance in effect, the Company shall give prompt notice of the commencement of
such proceeding to the insurers in accordance with the procedures set forth in
the respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such policies.
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<PAGE> 6
C. In the event the Company shall be obligated to pay the
expenses of any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee, upon the delivery to the Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of such
counsel by the Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to the Indemnitee under this Agreement for any fees
of counsel subsequently incurred by the Indemnitee with respect to the same
proceeding, provided that (i) the Indemnitee shall have the right to employ his
counsel in any such proceeding at the Indemnitee's expense; and (ii) if (a) the
employment of counsel by the Indemnitee has been previously authorized by the
Company, (b) the Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and the Indemnitee in the conduct of
any such defense, or (c) the Company shall not, in fact, have employed counsel
to assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shal1 not be obligated pursuant to the terms of
this Agreement:
A. Claims Initiated by Indemnitee. To indemnify or advance
expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board, (iii) such indemnification is provided by the Company,
in its sole discretion, pursuant to the powers vested in the Company under the
General Corporation Law of Delaware or (iv) the proceeding is brought to
establish or enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under Section 145.
B. Lack of Good Faith. To indemnify the Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
the Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
C. Unauthorized Settlements. To indemnify the Indemnitee under
this Agreement for any amounts paid in settlement of a proceeding unless the
Company consents to such settlement, which consent shall not be unreasonably
withheld.
9. Non-exclusivity. The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's Certificate of Incorporation or Bylaws, the vote of the Company's
stockholders or disinterested directors, other agreements, or otherwise, both as
to action in his official capacity and to action in another capacity while
occupying his position as a director of the Company, and the Indemnitee's rights
hereunder shall continue after the Indemnitee has ceased acting as a director of
the Company and shall inure to the benefit of the heirs, executors and
administrators of the Indemnitee.
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<PAGE> 7
10. Enforcement. Any right to indemnification or advances granted by
this Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee
in any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within ninety (90) days of request therefor. Indemnitee, in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
action for which a claim for indemnification is made under this Agreement (other
than an action brought to enforce a claim for expenses pursuant to Section 6
hereof, provided that the required undertaking has been tendered to the Company)
that Indemnitee is not entitled to indemnification because of the limitations
set forth in Sections 4 and 8 hereof. Neither the failure of the Company
(including its Board or its stockholders) to have made a determination prior to
the commencement of such enforcement action that indemnification of Indemnitee
is proper in the circumstances, nor an actual determination by the Company
(including its Board or its stockholders) that such indemnification is improper,
shall be a defense to the action or create a presumption that Indemnitee is not
entitled to indemnification under this Agreement or otherwise.
11. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
12. Survival of Rights.
A. All agreements and obligations of the Company contained
herein shall continue during the period Indemnitee is a director of the Company
and shall continue thereafter so long as Indemnitee shall be subject to any
possible claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal, arbitrational, administrative or investigative, by
reason of the fact that Indemnitee was serving in the capacity referred to
herein.
B. The Company shall require any successor(s) to the Company
(whether direct or indirect, by purchase, merger, consolidation or otherwise) or
to all or substantially all of the business or assets of the Company, expressly
to assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place.
13. Interpretation of Agreement. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent permitted by law
including those circumstances in which indemnification would otherwise be
discretionary.
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<PAGE> 8
14. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 13 hereof.
15. Modification and Waiver. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
16. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of
delivery, or (ii) if mailed by certified or registered mail with postage
prepaid, on the third business day after the mailing date. Addresses for notice
to either party are as shown on the signature page of this Agreement, or as
subsequently modified by written notice.
17. Governing Law. This Agreement shall be governed exclusively by and
construed according to the laws of the State of Delaware, without giving effect
to conflicts of law principles.
IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity
Agreement effective as of the date first above written.
THE COMPANY:
HIGH SPEED ACCESS CORP.
By:___________________________________
Name: ________________________________
Title: _________________________________
INDEMNITEE:
--------------------------------------
Name: __________________
8
<PAGE> 1
Exhibit 23.1
[PricewaterhouseCoopers Letterhead]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 12, 1999, relating
to the financial statements of High Speed Access Corp. and Subsidiaries, which
appears in such Prospectus. We also consent to the references to us under the
headings "Experts" and "Selected Financial Data" in such Prospectus. However,
it should be noted that PricewaterhouseCoopers, LLP has not prepared or
certified such "Selected Financial Data."
/s/ PricewaterhouseCoopers LLP
- ----------------------------------
PRICEWATERHOUSECOOPERS, LLP
Louisville, Kentucky
March 17, 1999
